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OMB APPROVAL
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As filed with the Securities and Exchange Commission on April 28, 2000
File Nos. 2-96141 and 811-4244
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 22
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
SOUND SHORE FUND, INC.
Two Portland Square
Portland, Maine 04101
(207) 879-1900
D. Blaine Riggle
Forum Fund Services, LLC
Two Portland Square
Portland, Maine 04101
Copies to:
Margaret Bancroft, Esq.
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, NY 10112
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485, paragraph (b)
[x] on May 1, 2000 pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on ___________ pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on ___________ pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Sound Shore Fund
<PAGE>
LOGO
SOUND SHORE FUND
PROSPECTUS
MAY 1, 2000
SOUND SHORE FUND SEEKS GROWTH OF CAPITAL USING A
VALUE-ORIENTED APPROACH. SHARES OF THE FUND ARE
OFFERED TO INVESTORS WITHOUT ANY SALES CHARGE OR
RULE 12B-1 (DISTRIBUTION) FEES.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE FUND'S SHARES
OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY...................................................2
PERFORMANCE...........................................................4
FEE TABLES............................................................5
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS........................................6
MANAGEMENT............................................................8
YOUR ACCOUNT.........................................................10
How to Contact the Fund 10
General Information 10
Buying Shares 11
Selling Shares 14
Exchange Privileges 17
Retirement Accounts 18
OTHER INFORMATION....................................................19
FINANCIAL HIGHLIGHTS.................................................21
<PAGE>
RISK/RETURN SUMMARY
THE INVESTMENT GOAL OF SOUND SHORE FUND, INC. (THE "FUND")
Growth of capital
PRINCIPAL INVESTMENT STRATEGY In seeking to meet the Fund's investment objective
of growth of capital, the investment adviser to the Fund, Sound Shore
Management, Inc. (the "Adviser"), applies a "Value" investment style to its
purchase of predominantly "Large Cap" and "Mid Cap" common stocks. The Adviser
analyzes corporate earnings performance and expectations, historic price and
earnings relationships, balance sheet characteristics and perceived management
skills when deciding which stocks to buy and sell for the Fund.
[Margin callout: CONCEPTS TO UNDERSTAND
VALUE INVESTING means to invest in stocks whose market valuations are
low relative to their historic valuations and/or comparable companies
MID CAP STOCKS are securities of companies the market value of which is
between $1 billion and $10 billion at the time of investment
LARGE CAP STOCKS are securities of companies the market value of
which is in excess of $10 billion
COMMON STOCK represents an equity or ownership interest in a company]
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund, or the Fund could
underperform other investments, if any of the following occurs:
o The stock market goes down
o Value stocks fall out of favor with the stock market
o The stock market continues to undervalue the stocks in the Fund's
portfolio
o The Adviser's judgment as to the value of a stock proves to be wrong
2
<PAGE>
WHO MAY WANT TO INVEST IN THE FUND
You may want to purchase shares of the Fund if:
o You are willing to tolerate significant changes in the value of your
investment
o You are pursuing a long-term goal
o You are willing to accept higher short-term risk for potential long-term
returns
The Fund may NOT be appropriate for you if:
o You want an investment that pursues market trends or focuses only on
particular sectors or industries
o You need regular income or stability of principal
o You are pursuing a short-term goal or investing emergency reserves
3
<PAGE>
PERFORMANCE
The following chart illustrates the variability of the Fund's returns. The
following chart and table provide some indication of the risks of investing in
the Fund by showing changes in the Fund's performance from year-to-year and how
the Fund's returns compare to a broad measure of market performance. PERFORMANCE
INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT NECESSARILY INDICATE
FUTURE RESULTS.
The following chart shows the annual total return of the Fund for the last ten
years.
[EDGAR Representation of Bar Chart]
1990 -10.64%
1991 32.24%
1992 21.17%
1993 11.96%
1994 0.30%
1995 29.87%
1996 33.27%
1997 36.40%
1998 4.41%
1999 0.05%
During the periods shown in the chart, the highest quarterly return was 16.57%
(for the quarter ended March 31, 1991) and the lowest quarterly return was
- -15.21% (for the quarter ended September 30, 1990).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the S&P 500 Index.
<TABLE>
<S> <C> <C> <C> <C>
SINCE INCEPTION
YEAR(S) 1 YEAR 5 YEARS 10 YEARS (5/17/85)
SOUND SHORE FUND 0.05% 19.79% 14.77% 15.16%
S&P 500(R)INDEX(1) 21.04% 28.54% 18.19% 18.32%
</TABLE>
(1) The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely
recognized, unmanaged index of common stock. The index figures assume
reinvestment of all dividends paid by stocks included in the index.
4
<PAGE>
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 Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from Fund
assets)
Advisory Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses 0.23%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.98%
(1) Based on amounts incurred during the Fund's fiscal year as stated as a
percentage of net assets.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in the Fund, a 5% annual return, the Fund's
operating expenses remain the same as stated in the table above, reinvestment of
all distributions and redemption at the end of each period. Although your actual
costs may be higher or lower, under these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$100 $312 $542 $1,201
5
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is growth of capital. Investments will be
made based upon their potential for capital growth. There is no assurance that
the Fund will achieve its investment objective. The Fund's investment objective
is fundamental and may not be changed without shareholder approval.
PRINCIPAL INVESTMENT STRATEGIES
The Fund expects that for most periods a substantial portion, if not all, of its
assets will be invested according to the Adviser's "Value" style in a
diversified portfolio of common stocks judged by the Adviser to have favorable
value to price characteristics relative to their historic valuations and/or
comparable companies.
The Adviser chooses investments in equity securities based on its judgment of
fundamental value. Factors deemed particularly relevant in determining
fundamental value include corporate earnings performance and expectations,
historic price and earnings relationships, balance sheet characteristics and
perceived management skills. Changes in economic and political outlooks, as well
as individual corporate developments, influence specific security prices. When
the Fund's investments lose their perceived value relative to other similar
investments and investment alternatives, they are sold.
It is not the Fund's intent, nor has it been its practice, to engage in active
and frequent trading of its securities. This type of trading could increase the
amount of capital gains realized by the Fund and total securities transactions
costs. The Fund may hold cash or cash equivalents, such as high quality money
market instruments, pending investment and to retain flexibility in meeting
redemptions and paying expenses. In addition, in order to respond to adverse
market, economic or other conditions, the Fund may assume a temporary defensive
position and invest without limit in these instruments. As a result, the Fund
may be unable to achieve its investment objective.
6
<PAGE>
[Margin callout: Concepts to Understand
CORPORATE DEBT SECURITY is a security that obligates the issuer to pay
the holder a specified sum of money at set intervals as well as repay
the principal amount of the loan at its maturity
PREFERRED STOCK is stock that has preference over common stock to the
company's dividends (and thus greater potential for income) and
whose value generally fluctuates less than common stock
CONVERTIBLE SECURITY is a security such as preferred stock or bonds,
which may be converted into a specified number of shares of common
stock]
Current income, while considered important, will be secondary to the objective
of capital growth. While most of the Fund's assets will be invested in common
stock, the Fund may invest in other types of securities such as corporate debt
securities, preferred stock and convertible securities. With respect to
corporate debt securities, preferred stock and convertible securities, an
increase in interest rates typically causes a fall in the value of such
instruments. These investments are also subject to the risk that the financial
condition of the issuer may cause it to default or become unable to pay interest
or principal due on the security. To limit this risk, the Fund's investments in
these securities are limited to "investment grade."
PRINCIPAL INVESTMENT RISKS
An investment in the Fund is not by itself a complete or balanced investment
program. Because the Adviser seeks securities that are undervalued by the
market, there is a risk that the market will not recognize a security's
intrinsic value for a long time. There is also a risk that the securities the
Adviser believes are undervalued are actually appropriately priced due to
problems that are not yet apparent. The value of the Fund's shares will
fluctuate with changes in the market value of the Fund's portfolio securities
and is therefore subject to the usual market risks of investment. In addition,
the Fund's value investment approach can undergo cycles of greater or lesser
investor interest and therefore may lead to a decrease in the prices of the
stocks in the Fund's portfolio.
With respect to corporate debt securities, preferred stock and convertible
securities, an increase in interest rates typically causes a fall in the value
of such instruments. These investments are also subject to the risk that the
financial condition of the issuer may cause it to default or become unable to
pay interest or principal due on the security.
7
<PAGE>
MANAGEMENT
The business of the Fund is managed under the direction of the Board of
Directors (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 executive officers, may
be found in the Statement of Additional Information ("SAI").
ADVISER
Sound Shore Management, Inc., 8 Sound Shore Drive, Greenwich, Connecticut 06836,
serves as investment adviser to the Fund. Subject to the general control of the
Board, the Adviser makes investment decisions for the Fund. For its services,
the Adviser receives an advisory fee at an annual rate of 0.75% of the average
daily net assets of the Fund.
As of March 31, 2000, the Adviser had over $3.3 billion of assets under
management.
PORTFOLIO MANAGERS
The portfolio managers of the Fund are Harry Burn, III and T. Gibbs Kane, Jr.
Messrs. Burn and Kane are responsible for the day-to-day investment policy,
portfolio management and investment research for the Fund. Their business
experience and educational background are as follows:
HARRY BURN, III Chairman and Director of the Adviser. He has been with the
Adviser since 1978 and received his B.A. and M.B.A. from the University of
Virginia.
T. GIBBS KANE, JR. President and Director of the Adviser. He has been with the
Adviser since 1978 and received his B.S.E. from the University of Pennsylvania
Wharton School.
8
<PAGE>
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide various services to the
Fund. As of March 31, 2000, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $67 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 agent of the Fund
in connection with the offering of shares of the Fund. 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 shares of the Fund.
Forum Shareholder Services, LLC (the "Transfer Agent") is the Fund's transfer
agent.
FUND EXPENSES
The Fund pays for all of its expenses. The Adviser or other service providers
may voluntarily waive all or any portion of their fees. Any waiver would have
the effect of increasing the Fund's performance for the period during which the
waiver was in effect.
9
<PAGE>
YOUR ACCOUNT
[Margin Callout: HOW TO CONTACT THE FUND
WRITE TO US AT:
Sound Shore Fund
P.O. Box 446
Portland, Maine 04112
OVERNIGHT ADDRESS:
Sound Shore Fund
2 Portland Square
Portland, Maine 04101
TELEPHONE US TOLL-FREE AT:
(800) 551-1980
WIRE INVESTMENTS (OR ACH PAYMENTS) TO US AT:
Bankers Trust Company
New York, New York
ABA #021001033
FOR CREDIT TO:
Forum Shareholder Services, LLC
Account # 01-465-547
Sound Shore Fund, Inc.
(Your Name)
(Your Account Number)]
GENERAL INFORMATION
You pay no sales charge to purchase or sell (redeem) shares of the Fund. You may
purchase or sell shares at the net asset value of a share, or 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
prior to 4:00 p.m., your transaction will be priced at that day's NAV. If the
Transfer Agent receives your purchase request after 4:00 p.m., your transaction
will be priced at the next day's NAV. The Fund will not accept orders that
request a particular day or price for the transaction or any other special
conditions.
The Fund does not issue share certificates.
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 confirmation.
The Fund 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 or if the New York Stock Exchange
closes early. 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 securities are valued at fair value, as determined by the Board.
10
<PAGE>
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. Banks, brokers, retirement plans and financial
advisers may charge transaction fees and may set different minimum investments
or limitations on buying or selling shares. Consult a representative of your
financial institution or retirement plan for further 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 "Sound Shore Fund, Inc." or
to one or more owners of the account and endorsed to "Sound Shore Fund,
Inc." For all other accounts, the check must be made payable on its
face to "Sound Shore Fund, Inc." No other method of check payment is
acceptable (for instance, you may not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you
to purchase additional shares through an electronic transfer of money
from a checking or savings account. When you make an additional
purchase by telephone, the Transfer Agent will automatically debit your
pre-designated bank account for the desired amount. You may call (800)
551-1980 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.
11
<PAGE>
MINIMUM INVESTMENTS The Fund accepts payments in the following minimum amounts:
<TABLE>
<S> <C> <C>
MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT
Standard Minimums $10,000(1) None
Traditional and Roth IRA Accounts $2,000 None
Electronic Fund Transfers $10,000 $50
Systematic Investment Plans $10,000 $50
Exchange Privileges $2,500 None
</TABLE>
(1) $5,000 minimum initial investment if made through certain broker-dealers.
The Adviser may, at its discretion, waive the above investment minimums.
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons exactly
Individual accounts are owned by one person, as are sole as their names appear on the account
proprietorship accounts. Joint accounts have two or more
owners (tenants)
............................................................ .........................................................
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money 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
12
<PAGE>
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
and/or a Corporate/Organization Resolution form confirmation statement or write us a letter
o Complete the application o Write your account number on your check
o Mail us your application and a check o Mail us the slip (or your letter) and a check
............................................................ .........................................................
BY WIRE BY WIRE
o Call or write us for an account application o Call to notify us of your incoming wire
and/or a Corporate/Organization Resolution form o Instruct your bank to wire your money to us
o Complete the application
o Call us to fax the completed application and we
will assign you an account number
o Mail us your original application
o Instruct your bank to wire your money to us
............................................................ .........................................................
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application o Complete the systematic investment section of
and/or a Corporate/Organization Resolution form the application
o Complete the application o Attach a voided check to your application
o Call us to fax the completed application and we o Mail us the completed application and the
will assign you an account number voided check
o Mail us your original application
o Make an ACH payment
</TABLE>
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 $50.
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 (usually
defined as more than four exchanges out of the Fund within a calendar year).
13
<PAGE>
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If your payment for shares is not received 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 as reimbursement. The Fund and its agents have the right to reject or
cancel any purchase, exchange or redemption due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly and you will generally receive
redemption proceeds 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, however, it may
delay sending redemption proceeds for up to 15 calendar days.
14
<PAGE>
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send your proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if you provided bank account
information on your account application and your request is for $10,000
or more
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 Your proceeds will be:
o Mailed to you OR
o Wired to you (unless you did not provide bank account information 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
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.
WIRE REDEMPTIONS You may have your redemption proceeds wired to you if you
provided bank account information on your account application. The minimum
amount you may request by wire is $10,000. If you wish to make your wire request
by telephone, you must also have telephone redemption privileges.
15
<PAGE>
SYSTEMATIC WITHDRAWAL If you own shares of the Fund with an aggregated value of
at least $10,000, you may request a specified amount of money from your account
once a month or once a quarter on a specified date. These payments can be sent
to your address of record by check or to a designated bank account by ACH
payment. Systematic requests must be for at least $100.
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 Redemption from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different registration
(name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution, telephone
redemption or exchange options or any other election in connection with
your account
SMALL ACCOUNTS If the value of your account falls below $10,000 (not including
IRAs), the Fund may ask you to increase your balance. If the account value is
still below $10,000 after 30 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.
REDEMPTION IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than cash. These redemptions "in kind" usually occur
16
<PAGE>
if the amount to be redeemed is large enough to affect Fund 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 shares of the
Fund. 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 sell your Fund shares and buy shares of another fund, also known as an
exchange, by telephone or in writing. You may exchange Fund shares for Investors
Bond Fund, TaxSaver Bond Fund or Daily Assets Government Fund (series of the
Forum Funds). The minimum amount that is required to open an account in the Fund
through an exchange with another fund is $2,500. Because exchanges are treated
as a sale and purchase, they may have tax consequences.
REQUIREMENTS You may exchange only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone authorization
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.
17
<PAGE>
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 the funds you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o If opening a new account, 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 authorization
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. Fund shares
may also be an appropriate investment for other retirement plans. Before
investing in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
18
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund declares distributions from net investment income and pays those
distributions semi-annually. Any net capital gain realized by the Fund will be
distributed 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 operates in a manner such that it will not be liable for Federal income
or excise tax.
The Fund's distributions of net investment income (including short-term capital
gain) are taxable to you as ordinary income. A portion of the dividends paid by
the Fund may be eligible for the dividends-received deduction for corporate
shareholders. The Fund's distributions of long-term capital gain (if any), are
taxable to you as long-term capital gain, regardless of how long you have held
your shares. Distributions may also be subject to state and local taxes.
Distributions of capital gain and the Fund's distribution of net investment
income reduce the net asset value of the Fund's shares by the amount of the
distribution. If you purchase shares prior to these distributions, you are taxed
on the distribution even though the distribution represents a return of your
investment. The sale or exchange of Fund shares is a taxable transaction for
Federal income tax purposes.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the Fund with
19
<PAGE>
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against your U.S. Federal income tax liability.
The Fund will mail you reports containing information about the income tax
status of distributions paid during the year 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.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance for the past five years. 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, which is available upon
request, without charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1999 1998 1997 1996 1995
------------- ----------- ------------- -------------- -----------
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $29.62 $28.57 $21.71 $18.16 $15.46
Income From Investment Operations
Net investment income 0.17 0.21 0.12 0.13 0.25
Net gain (loss) on securities (realized
and unrealized) (0.15) 1.05 7.75 5.90 4.33
Total From Investment Operations 0.02 1.26 7.87 6.03 4.58
Less Distributions
From net investment income (0.17) (0.20) (0.12) (0.13) (0.21)
In excess of net investment income (a) - (a) - -
From capital gain - - (0.87) (2.35) (1.67)
In excess of net capital gain - - (0.02) - -
Return of capital - (0.01) - - -
Total Distributions (0.17) (0.21) (1.01) (2.48) (1.88)
Ending Net Asset Value $29.47 $29.62 $28.57 $21.71 $18.16
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses 0.98% 0.99% 1.08% 1.15% 1.15%
Expenses (gross) (b) 0.98% 1.00% 1.10% 1.16% -
Net investment income 0.50% 0.77% 0.62% 0.70% 1.41%
Total Return 0.05% 4.40% 36.40% 33.27% 29.87%
Portfolio Turnover Rate 41% 44% 53% 69% 53%
Net Assets at End of Period (in thousands) $1,174,735 $1,961,487 $1,313,686 $132,862 $67,602
</TABLE>
(a) The Fund distributed an amount in excess of net investment income of less
than $0.01 per share.
(b) Reflects expense ratio in the absence of expense reimbursement by the
Fund's administrator.
21
<PAGE>
SOUND SHORE FUND
INVESTMENT ADVISER
Sound Shore Management, Inc.
Greenwich, Connecticut
ADMINISTRATOR
Forum Administrative Services, LLC
Portland, Maine
DISTRIBUTOR
Forum Fund Services, LLC
Portland, Maine
TRANSFER AND
DISTRIBUTION PAYING AGENT
Forum Shareholder Services, LLC
Portland, Maine
CUSTODIAN
Forum Trust, LLC
Portland, Maine
COUNSEL
Dechert Price & Rhoads
New York, New York
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Boston, Massachusetts
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
The Fund will provide annual and semi-annual reports to shareholders that will
provide additional information about the Fund's investments. 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 free copies of both reports and the SAI, request other
information and discuss your questions about the Fund by contacting your
broker or the Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 551-1980
(800) 754-8758
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") in Washington, D.C.
The scheduled hours of operation of the Public Reference Room may be
obtained by calling the SEC at (202) 942-8090. You can get copies of this
information, for a fee, by e-mail or by writing to:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102 Sound Shore Fund
E-mail address: [email protected] Two Portland Square
Portland, ME 04101
(800) 551-1980
(800) 754-8758
Free copies of the reports and SAI are available from the SEC's
Internet Web Site at http://www.sec.gov.
Web Site:
http://www.soundshorefund.com
Investment Company Act File No. 811-4244.
</TABLE>
22
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
SOUND SHORE FUND, INC.
FUND INFORMATION:
Sound Shore Fund
P.O. Box 446
Portland, Maine 04112
(800) 754-8758
http://www.soundshorefund.com
INVESTMENT ADVISER:
Sound Shore Management, Inc.
8 Sound Shore Drive
Greenwich, Connecticut 06836
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 551-1980
(800) 754-8758
This Statement of Additional Information, or SAI, supplements the
Prospectus of Sound Shore Fund, Inc. (the "Fund") dated May 1, 2000, as may be
amended from time to time. This SAI is not a prospectus and should only be read
in conjunction with the Prospectus. The Prospectus may be obtained without
charge by contacting shareholder services at the address or telephone number
listed above.
Financial Statements for the Fund for the year ended December 31, 1999
included in the Annual Report to shareholders, are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting shareholder services at the address or telephone number
listed above.
<PAGE>
TABLE OF CONTENTS
Glossary
1. Investment Policies and Risks..................................... 1
2. Investment Limitations............................................ X
3. Performance Data and Advertising.................................. X
4. Management........................................................ X
5. Portfolio Transactions............................................ XX
6. Additional Purchase and Redemption Information.................... XX
7. Taxation ......................................................... XX
8. Other Matters..................................................... XX
Appendix A - Description of Securities Ratings.............................A-1
Appendix B - Miscellaneous Tables..........................................B-1
Appendix C - Performance Data..............................................C-1
<PAGE>
GLOSSARY
"Adviser" means Sound Shore Management, Inc.
"Board" means the Board of Directors of the Fund.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of the Fund's assets.
"FAdS" means Forum Administrative Services, LLC, administrator of the
Fund.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, fund accountant of the
Fund.
"FFS" means Forum Fund Services, LLC, distributor of the Fund's shares.
"Fund" means Sound Shore Fund, Inc.
"Moody's" means Moody's Investors Service.
"NAV" means net asset value.
"NRSRO" means a nationally recognized statistical rating organization.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer
agent and distribution disbursing agent of the Fund.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by
the U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The following discussion supplements the disclosure in the Prospectus
about the Fund's investment techniques, strategies and risks. The Fund is
designed for investment of that portion of an investor's funds that can
appropriately bear the special risks associated with certain types of
investments (E.G., investments in equity securities). The Fund expects that for
most periods, a substantial portion, if not all, of its assets will be invested
in a diversified portfolio of common stocks judged by the Adviser to have
favorable value to price characteristics. The Fund may also invest in U.S.
government or government agency obligations, investment grade corporate bonds,
preferred stocks, convertible securities, and/or short-term money market
instruments when deemed appropriate by the Adviser.
A. DEBT SECURITIES
The Fund may invest a portion of its assets in fixed income (debt) securities.
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 invests its assets in debt securities that are
considered investment grade. Investment grade means rated in the top four
long-term rating categories or top two short-term rating categories by an NRSRO,
or unrated and determined by the Adviser to be of comparable quality.
The lowest long-term ratings that are investment grade for corporate bonds,
including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the
case of S&P and Fitch; for preferred stock are "Baa" in the case of Moody's and
"BBB" in the case of S&P and Fitch; and for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, "A-2" in the case of
S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. The Fund
may retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by the Fund (neither event requiring sale of such security by the
Fund), the Adviser will determine whether the Fund should continue to hold the
obligation. To the extent that the ratings given by a NRSRO may change as a
result of changes in such organizations or their rating systems, the Investment
Adviser will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
B. TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality money
market instruments are those instruments that are rated in one of the two
short-term highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, commercial paper, time deposits, bankers
acceptances and certificates of deposit issued by domestic banks, corporate
notes and short-term bonds and money market mutual funds. The Fund may only
1
<PAGE>
invest in money market mutual funds to the extent permitted by the 1940 Act.
The money market instruments in which the Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
C. CONVERTIBLE SECURITIES
The Fund may only invest in convertible securities that are investment grade.
1. IN GENERAL
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are debt securities or preferred stock which generally may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. A convertible security entitles the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the convertible security matures or is redeemed, converted, or exchanged.
Before conversion, convertible securities have characteristics similar to
nonconvertible debt securities or preferred equity in that they ordinarily
provide a stream of income with generally higher yields than do those of common
stocks of the same or similar issuers. These securities are usually senior to
common stock in a company's capital structure, but usually are subordinated to
non-convertible debt securities.
Convertible securities have unique investment characteristics in that they
generally have higher yields than common stocks, but lower yields than
comparable non-convertible securities. Convertible securities are less subject
to fluctuation in value than the underlying stock since they have fixed income
characteristics; and they 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 held by the Fund 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.
2. RISKS
Investment in convertible securities generally entails less risk than investment
in the issuer's common stock. The extent to which such risk is reduced, however,
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
3. VALUE OF CONVERTIBLE SECURITIES
The value of a convertible security is a function of its "investment value" and
its "conversion value". The investment value of a convertible security is
determined by comparing its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege. The
conversion value is the security's worth, at market value, if converted into the
underlying common stock. The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may affect the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
2
<PAGE>
security is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
D. ILLIQUID AND RESTRICTED SECURITIES
The Fund may not acquire or invest in "illiquid securities" if, as a result,
more than 15% of the Fund's net assets (taken at current value) would be
invested in such securities.
1. IN 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 the Fund has valued the securities. Illiquid securities include
repurchase agreements not entitling the holder to payment of principal within
seven days, purchased over-the-counter options, securities which are not readily
marketable and restricted securities. Restricted securities, except as otherwise
determined by the Adviser, are securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act.
2. RISKS
Certain risks are associated with holding illiquid and restricted securities.
For instance, limitations on resale may have an adverse effect on the
marketability of a security and the Fund might also have to register a
restricted security in order to dispose of it, resulting in expense and delay.
The Fund might not be able to dispose of restricted or illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time. Any security, including
securities determined by the Adviser to be liquid, can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
E. WARRANTS
The Fund may invest in warrants, which entitle the holder to buy equity
securities at a specific price for a specific period of time.
3
<PAGE>
1. RISKS
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the securities that may be purchased nor do they represent any
rights in the assets of the issuing company. Investments in warrants involve
certain additional risks, including the possible lack of a liquid market for the
resale of the warrants, potential price fluctuations as a result of speculation
or other factors and failure of the price of the underlying security to reach a
level at which the warrant can be prudently exercised (in which case the warrant
may expire without being exercised, resulting in the loss of the Fund's entire
investment therein).
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund cannot be changed without the affirmative vote
of the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented. The Board may change a nonfundamental policy of the Fund without
shareholder approval.
FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
1. Purchase the securities of any one issuer, other than the U.S.
Government or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of its total assets would
be invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of
the value of the Fund's total assets may be invested without regard to
such 5% and 10% limitations;
2. Invest more than 25% of the value of its total assets in any particular
industry;
3. Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchases
and sales of securities;
4. Make loans of its assets to any person, except for the purchase of debt
securities.
5. Borrow money except for (1) the short-term credits from banks referred
to in paragraph 3 above and (2) borrowings from banks for temporary or
emergency purposes, including the meeting of redemption requests which
might require the untimely disposition of securities. Borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than
meeting redemptions may not exceed 5% of the value of the Fund's total
assets (including the amount borrowed) less liabilities (not including
the amount borrowed) at the time the borrowing is made. Outstanding
borrowings in excess of 5% of the value of the Fund's total assets will
be repaid before any subsequent investments are made;
6. Mortgage, pledge or hypothecate any of its assets, except as may
be necessary in connection with permissible borrowings mentioned in
paragraph 5 above;
4
<PAGE>
7. Purchase the securities of any other investment company, except that
the Fund may invest up to 10% of its total assets in such securities
through purchases in the open market where to the best information of
the Fund no commission or profit to a sponsor or dealer (other than the
customary broker's commission) results from such purchase, or except
when such purchase is part of a merger, consolidation or acquisition of
assets;
8. Act as an underwriter of securities of other issuers, except that the
Fund may acquire restricted or not readily marketable securities under
circumstances where, if such securities were sold, the Fund might be
deemed to be an underwriter for purposes of the 1933 Act. The Fund will
not, however, invest more than 10% of the value of its total assets in
the aggregate in restricted or not readily marketable securities or in
repurchase agreements maturing or terminable in more than seven days;
9. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
10. Sell securities short or invest in puts, calls, straddles, spreads or
combinations thereof;
11. Purchase or acquire commodities or commodity contracts;
12. Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security in connection with any permitted
borrowing;
13. Participate on a joint, or a joint and several, basis in any securities
trading account; or
14. Invest in companies for the purpose of exercising control.
If a percentage restriction or a rating on investment is adhered to at the time
an investment is made, a later change in percentage resulting from changes in
the value of the Fund's portfolio securities or a later change in the rating of
a portfolio security will not be considered a violation of the Fund's policies
or restrictions.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
The Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc., Lipper,
Inc., iMoneyNet, Inc. (IBC Financial Data, Inc.), CDA/Wiesenberger or other
companies which track the investment performance of investment companies
("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including but
not limited to the Standard & Poor's 500(R) Index, the Russell 2000(R)
Index, the Russell MidcapTM Index, the Russell 1000(R) Value Index, the
Russell 2500(R) Index, the 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.
5
<PAGE>
Indices are not used in the management of the Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
The Fund may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
A listing of certain performance data as of December 31, 1999 is contained in
Appendix C -- Performance Data.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return.
1. YIELD
Standardized SEC yields for the Fund used in advertising are computed by
dividing the Fund's interest income (in accordance with specific standardized
rules) for a given 30 day or one month period, net of expenses, by the average
number of shares entitled to receive income distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income in accordance
with specific standardized rules) in order to arrive at an annual percentage
rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in the Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the Fund with investment alternatives, which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
Also, it may not be appropriate to compare the Fund's yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
Yield quotations are based on amounts invested in the Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges. The Fund
charges no sales charges.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
6
<PAGE>
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns, the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T) n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns, which
reflect the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
7
<PAGE>
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
The Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect to the financial markets, or
descriptions of the nature of the Adviser's and its staff's management
techniques; (7) the results of a hypothetical investment in the Fund over a
given number of years, including the amount that the investment would be at the
end of the period; (8) the effects of earning Federally and, if applicable,
state tax-exempt income from the Fund or investing in a tax-deferred account,
such as an individual retirement account or Section 401(k) pension plan; (9) the
net asset value, net assets or number of shareholders of the Fund as of one or
more dates; and (10) a comparison of the Fund's operations to the operations of
other funds or similar investment products, such as a comparison of the nature
and scope of regulation of the products and the products' weighted average
maturity, liquidity, investment policies, and the manner of calculating and
reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
The Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at period 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:
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
8
<PAGE>
In connection with its advertisements, the Fund may provide "shareholder's
letters" which serve to provide shareholders or investors an introduction into
the Fund's or any of the Fund's service provider's policies or business
practices. For instance, advertisements may provide for a message from the
Adviser that it has for more than twenty years been committed to quality
products and outstanding service to assist its customers in meeting their
financial goals and setting forth the reasons that the Adviser believes that it
has been successful as a portfolio manager.
4. MANAGEMENT
A. DIRECTORS AND OFFICERS
DIRECTORS AND OFFICERS OF THE FUND. The business and affairs of the Fund are
managed under the direction of the Board in compliance with the laws of the
state of Maryland. Among its duties, the Board generally meets and reviews on a
quarterly basis the actions of all of the Fund's service providers. This
management also includes a periodic review of the service providers' agreements
and fees charged to the Fund. The names of the Directors and officers of the
Fund, their position with the Fund, address, date of birth and principal
occupations during the past five years are set forth below. Each Director who is
an "interested person" (as defined by the 1940 Act) of the Fund is indicated by
an asterisk.
<TABLE>
<S> <C> <C>
NAME, ADDRESS AND AGE POSITION(S) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE
WITH FUND YEARS
Dr. D. Kenneth Baker Director Trustee, Harvey Mudd College
President (retired), Harvey Mudd College
3088 Fairway Woods, Carolina Trace
Sanford, North Carolina 27330
Born: October 1923
Harry Burn, III, M.B.A.* Chairman and Chairman and Director, Sound Shore Management,
Director Inc. since 1978. He is a Chartered Financial
8 Sound Shore Drive Analyst.
Greenwich, Connecticut 06836
Born: January 1944
Charles J. Hedlund Director Member, Board of Trustees, American University
in Cairo
Country Club of Florida Member, Board of Trustees, Conservation
58 Country Road South International of Washington, D.C.
Village of Golf, Florida 33436
Born: November 1917
9
<PAGE>
T. Gibbs Kane, Jr.* President President and Director, Sound Shore
and Director Management, Inc. since 1977. He is a
8 Sound Shore Drive Chartered Financial Analyst.
Greenwich, Connecticut 06836
Born: May 1947
John L. Lesher Director President, Resource Evaluation, Inc. since
March 1994
500 Mamaroneck Avenue Member of the Board, Resource Evaluation, Ltd.
Harrison, New York 10528 Member of the Board, First Industrial Real
Born: February 1934 Estate Trust
John J. McCloy II Director Director, Noise Cancellation Technologies, Inc.
Director, Passenger Express
313 Stanwich Road Director, EPT Technologies
Greenwich, Connecticut 06830 Director, Geo History
Born: November 1937 Trustee, American University in Cairo
Walter R. Nelson Director President (retired), Nelson Publications, an
information provider to the financial services
60 Kirby Lane and investment industry
Rye, New York 10580
Born: November 1932
John Y. Keffer Vice President and Director, Forum Fund Services,
Two Portland Square President LLC for more than five years
Portland, Maine 04101 Director and sole shareholder (directly and
Born: July 1942 indirectly) Forum Financial Group LLC, which
owns (directly or indirectly) Forum
Administrative Services, LLC,
Forum Shareholder Services, LLC and Forum
Investment Advisers, LLC Officer, Director
or Trustee, various funds managed and
distributed by Forum Fund Services, LLC and
Forum Administrative Services, LLC
Ronald H. Hirsch Treasurer
Managing Director of Operations and Finance,
Two Portland Square Forum Financial Group since September 1999
Portland, Maine 04101 Member of the Board, Citibank Germany from
Born: October 1943 1991 to 1998
Shanna S. Sullivan Secretary Vice President, Treasurer, Secretary and
Director, Sound Shore Management, Inc. since
8 Sound Shore Drive 1979
Greenwich, Connecticut 06836
Born: August 1945
10
<PAGE>
Ellen S. Smoller Assistant Equity Trader, Sound Shore Management, Inc.
Secretary since 1984
8 Sound Shore Drive
Greenwich, Connecticut 06836
Born: April 1959
Stephen J. Barrett Assistant Manager of Client Services, Forum Financial
Secretary Group, LLC since 1996
Two Portland Square Senior Product Manager, Fidelity Investments,
Portland, Maine 04101 1994 - 1996
Born: November 1968 Officer, various funds managed and distributed
by Forum Administrative Services, LLC and
Forum Fund Services, LLC
D. Blaine Riggle Assistant Counsel, Forum Financial Group, LLC since 1998
Secretary Associate Counsel, Wright Express Corporation
Two Portland Square (a fleet credit card company) from 3/97 - 1/98
Portland, Maine 04101 Associate at the law firm of Friedman, Babcock
Born: November 1966 & Gaythwaite from 1994 - 3/97
Officer, various funds managed and distributed
by Forum Fund Services, LLC and Forum Administrative
Services, LLC
Dawn L. Taylor Assistant Tax Manager, Forum Financial Group, LLC since
Treasurer 1997
Two Portland Square Senior Tax Accountant, Purdy, Bingham &
Portland, Maine 04101 Burrell, LLC from 1/97 - 10/97
Born: May 1964 Senior Fund Accountant, Forum Financial Group,
LLC from 9/94 - 10/97
Tax Consultant, New England Financial
Services from 6/86 - 9/94
Officer, various funds managed and distributed
by Forum Fund Services, LLC and Forum Administrative
Services, LLC
</TABLE>
B. COMPENSATION OF DIRECTORS AND OFFICERS
Each Director receives quarterly fees of $750 plus $1,000 per meeting attended.
Directors are also reimbursed for travel and related expenses incurred in
attending meetings of the Board. Directors that are affiliated with the Adviser
receive no compensation for their services or reimbursement for their associated
expenses. No officer of the Fund is compensated by the Fund.
11
<PAGE>
The following table sets forth the fees paid to each Director by the Fund for
the fiscal year ended December 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total
Compensation from as Part of Fund Benefits upon Compensation from
Name, Position Fund Expenses Retirement Fund
- ------------------------------------- ------------------- ------------------- -------------------- -------------------
Dr. D. Kenneth Baker $7,000 $0 $0 $7,000
Charles J. Hedlund $6,000 $0 $0 $6,000
John L. Lesher $7,000 $0 $0 $7,000
John J. McCloy II $5,000 $0 $0 $5,000
Walter R. Nelson $4,000 $0 $0 $4,000
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the Fund pursuant to an investment
advisory agreement with the Fund. Under that agreement, the Adviser furnishes at
its own expense all services, facilities and personnel necessary in connection
with managing the Fund's investments and effecting portfolio transactions for
the Fund.
2. OWNERSHIP OF ADVISER/AFFILIATIONS
The Adviser is 100% owned by Harry Burn, III, T. Gibbs Kane, Jr., and Shanna S.
Sullivan and therefore controlled by Harry Burn, III, T. Gibbs Kane, Jr., and
Shanna S. Sullivan. The Adviser is registered as an investment adviser with the
SEC under the Investment Advisers Act of 1940, as amended.
The Directors or officers of the Fund that are employed by the Adviser (or
affiliates of the Adviser) are Harry Burn, III, T. Gibbs Kane, Jr., Shanna S.
Sullivan and Ellen S. Smoller.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Fund and is paid monthly, equal to
0.75% per annum based on average daily 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 which are invested in the Fund. If an investor in the Fund also has 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 a client.
Table 1 in Appendix B shows the dollar amount of the fees paid by the Fund to
the Adviser, the amount of the fee waived by the Adviser and the actual fee
received by the Adviser for the last three fiscal years.
12
<PAGE>
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement must be approved at least annually by the Board or by
vote of the shareholders, and in either case by a majority of the Directors who
are not parties to the agreement or interested persons of any such party.
The Adviser's agreement is terminable without penalty by the Fund with respect
to the Fund on 60 days' written notice when authorized either by vote of the
holders of a majority of the Fund's securities or by a vote of a majority of the
Board on 60 days notice to the Adviser, or by the Adviser on 60 days' written
notice to the Fund.
Under its agreement, the Adviser is not liable for any mistake of judgment,
except for lack of good faith in the performance of its duties to the Fund. The
agreement does not protect the Adviser against any liability by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of the
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under its agreement with the Fund, FFS acts as the agent of the Fund in
connection with the offering of shares of the Fund. FFS continually distributes
shares of the Fund on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
FFS receives no compensation for its distribution services. Shares are sold with
no sales commission; accordingly, FFS receives no sales commissions. FFS may
enter into arrangements with various financial institutions through which
investors 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. Prior to May 1, 1999,
Forum Financial Services, Inc. served as the distributor of the Fund's shares.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be approved at least annually by the Board or
by vote of the shareholders, and in either case by a majority of the Directors
who are not parties to the agreement or interested persons of any such party.
FFS's agreement is terminable without penalty by the Fund with respect to the
Fund on 60 days' written notice when authorized either by vote of a majority of
the Fund's outstanding shareholders or by a vote of a majority of the Board, or
by FFS on 60 days' written notice to the Fund.
Under its agreement, FFS is not liable for any error of judgment or mistake of
law or for any act or omission in the performance of its duties to the Fund. The
agreement does not protect FFS against any liability by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
agreement.
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Fund against any and all claims
and expenses in any way related to FFS's actions (or failures to act) that are
consistent with FFS's contractual standard of care. This means that as long as
FFS satisfies its contractual duties, the Fund is responsible for the costs of:
13
<PAGE>
(1) defending FFS against claims that FFS breached a duty it owed to the Fund;
and (2) paying judgments against FFS. The Fund is not required to indemnify FFS
if the Fund does not receive written notice of and reasonable opportunity to
defend against a claim against FFS in the Fund's own name or in the name of FFS.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Fund, FAdS is responsible
for the supervision of the overall management of the Fund, providing the Fund
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Fund.
For its services, FAdS receives a fee from the Fund equal to 0.10% of the
average daily net assets of the Fund. The fees are accrued daily by the Fund and
are paid monthly for services performed under the agreement during the prior
calendar month.
Table 2 in Appendix B shows the dollar amount of the fees paid by the Fund to
FAdS, the amount of the fee waived by FAdS and the actual fee received by FAdS.
FAdS's agreement is terminable without penalty by the Board or by FAdS on 60
days' written notice. Under the agreement, FAdS is not liable for any act or
omission in the performance of its duties to the Fund. The agreement does not
protect FAdS from any liability by reason of willful misconduct, bad faith or
gross negligence in the performance of its obligations and duties under the
agreement.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Fund, 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
$60,000. The fees are paid monthly for services performed during the prior
calendar month. On January 29, 1998, the fee structure was changed from a
percentage of the Fund's average annual daily net assets to a fixed annual fee.
Table 3 in Appendix B shows the dollar amount of the fees paid by the Fund to
FAcS.
FAcS's agreement is terminable without penalty by the Board or by FAcS on 60
days' written notice. Under the agreement, FAcS is not liable for any act or
omission in the performance of its duties to the Fund. The agreement does not
protect FAcS from any liability by reason of willful misconduct, bad faith or
gross negligence in the performance of its obligations and duties under the
agreement.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Fund, the Transfer Agent 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. The Transfer Agent is
located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, the Transfer Agent receives a fee from the Fund equal to 0.10%
of the annual average daily net assets of the Fund. Such fees shall be paid
monthly for services performed during the prior calendar month. Table 4 in
Appendix B shows the dollar amount of the fees paid by the Fund to the Transfer
Agent.
14
<PAGE>
The Transfer Agent's agreement is terminable without penalty by the Board or by
the Transfer Agent on 60 days' written notice. Under the agreement, the Transfer
Agent is liable only for loss or damage due to errors caused by bad faith,
negligence or willful misconduct in the performance of its obligations and
duties under the agreement.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Fund, 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.
The Custodian is located at Two Portland Square, Portland, Maine 04101. The
Custodian has hired Deutsche Bank, 130 Liberty Street, New York, New York,
10006, to serve as subcustodian for the Fund.
For its services, the Custodian receives a fee from the Fund at an annual rate
as follows: (1) 0.01% for the first $1 billion in Fund assets; (2) 0.0075% for
Fund assets between $1-$2 billion; (3) 0.005% for Fund assets between $2-$6
billion; and (4) .0025% for Fund assets greater than $6 billion. The Custodian
receives account maintenance fees of $2,400 per account per year. The Custodian
is also paid certain transaction fees. These fees are accrued daily by the Fund
and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Legal matters in connection with the issuance of shares of the Fund are passed
upon by Dechert Price & Rhoads, 30 Rockefeller Plaza, New York, New York 10112.
Dechert Price & Rhoads may rely upon the opinion of Maryland counsel for matters
relating to Maryland law.
6. 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
as well as prepare the Fund's tax returns.
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected; (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
15
<PAGE>
B. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
the Fund. The data presented are for the past three fiscal years. The table also
indicates the reason for any material change in the last two years in the amount
of brokerage commissions paid by the Fund.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser of the Fund places orders for the purchase and sale of securities
with brokers and dealers selected by and in the discretion of the Adviser. No
Fund has any obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Allocations of transactions to brokers and
dealers and the frequency of transactions are determined by the Adviser in its
best judgment and in a manner deemed to be in the best interest of the Fund
rather than by any formula.
The Adviser of the Fund seeks "best execution" for all portfolio transactions.
This means that the Adviser seeks the most favorable price and execution
available. The Adviser's primary consideration in executing transactions for the
Fund is prompt execution of orders in an effective manner and at the most
favorable price available.
1. CHOOSING BROKER
In selecting a broker to execute securities transactions, the Adviser considers
a variety of factors including the broker's execution capability, the commission
rate charged by the broker, the value of research provided by the broker, the
broker's financial responsibility, and the broker's responsiveness to the
Adviser.
2. OBTAINING RESEARCH FROM BROKERS
The Adviser relies on outside research services provided by brokers to augment
its knowledge of economic and corporate events to each client's end benefit. The
Adviser believes that such services save time and duplication of effort and aid
in the performance of client accounts. Therefore, the Adviser may pay a broker
from whom it receives research services a brokerage commission in excess of that
which another broker might have charged from effecting the same transactions.
Brokerage commissions generated by the trading activities of one client account
may be used to provide research to assist the Adviser in carrying out its
responsibilities both for that client account, as well as other accounts without
tracing benefits to commissions generated by a particular client account.
Generally, research services provided by brokers include information on the
economy, industries, groups of securities, individual companies, statistical
information, accounting and tax law interpretations, political developments,
legal developments affecting portfolio securities, technical market action,
credit analysis, risk measurement analysis, performance analysis and analysis of
corporate responsibility issues. Such research services are received primarily
in the form of access to various computer-generated data, written reports,
telephone contacts and personal meetings with security analysts, and meetings
arranged with corporate and industry spokespersons, economists, academicians,
and government representatives. While brokers with whom the Adviser effects
trades may provide the Adviser with their own internally produced research, in
some cases, research services are generated by third parties and supplied to the
Adviser by or through brokers provided that, in this case, the broker must
directly incur the obligation to pay the third party.
Research services may also consist of equipment, such as omputer hardware or
software or quotation equipment, which is used to support research functions. In
the case of equipment with a mixed use; i.e. partly for research and partly for
administrative matters, the Adviser must pay cash for that portion of total
usage which is not research-related.
3. AGGREGATION OF ORDERS
The Adviser has adotped procedures that provide generally for the Adviser to
seek to aggregate orders for the purchase or sale of the same security for
client accounts including the Fund, where the adviser deems this to be
16
<PAGE>
appropriate and in the best interests of the client accounts. When an aggregated
order is filled in its entirety, each participating client account will
participate at the average share price for the aggregated order on the same
business day, and transaction costs shall be shared pro rata based on each
client's participation in the aggregated order. When an aggregated order is only
partially filled, the securities purchased will generally be allocated on a pro
rata basis to each account participating in the aggregated order based on the
initial amount requested for the account, subject to certain exceptions, and
each participating account will participate at the average share price for the
aggregated order on the same business day. If it is not practicable to allocate
the executed portion of the block on a pro rata basis, allocation may be made on
a random account basis alphabetically, numerically or otherwise, but any
procedure utilized will not consistently advantage or disadvantage a client
account.
4. COUNTERPARTY RISK
The Adviser of the Fund 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.
5. TRANSACTIONS THROUGH AFFILIATES
The Adviser of the Fund may not effect brokerage transactions through affiliates
of the Adviser (or affiliates of those persons). The Board has not adopted
respective procedures.
6. 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 of the Fund or its affiliates. Investment decisions are the
product of many factors, including basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security. In that
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 respective 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.
7. PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. Portfolio turnover
rate is reported in the Prospectus. 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. The Fund expects normal turnover
in the range of 50-75%, although there can be periods of greater or lesser
action based upon market and corporate earnings activity. An annual portfolio
turnover rate of 100% would occur if all of the securities in the Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the Fund may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers means the 10 brokers or dealers that:
17
<PAGE>
(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.
During the past fiscal year, the Fund did not acquire and hold any securities
issued by its regular brokers and dealers.
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
Shareholders may effect purchases or redemptions or request any shareholder
privilege in person at the Transfer Agent's offices located at Two Portland
Square, Portland, Maine 04101.
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share. That information is
contained in the Fund's financial statements (specifically in the statements of
assets and liabilities).
The Fund reserves the right to refuse any purchase request in excess of 1% of
the Fund's total assets.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value which is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in the Fund directly. When you purchase the Fund's
shares through a financial institution, you may or may not be the shareholder of
record and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Fund may
18
<PAGE>
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Fund through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
The Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to
the Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by the Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of the Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of the
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Fund 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. In the opinion of the
Fund's management, however, the amount of a redemption request would have to be
significantly greater than $250,000 or 1% of total net assets before a
redemption wholly or partly in portfolio securities would be made.
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
19
<PAGE>
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of the Fund.
The tax year-end of the Fund is December 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses), net short-term
capital gains, and capital gain net income (i.e., the excess of long-term
capital gains over long-term capital losses) that it distributes to
shareholders. In order to qualify as a regulated investment company the Fund
must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income (i.e., net investment income and net short-term capital
gains) for the tax year. (Certain distributions made by the Fund after
the close of its tax year are considered distributions attributable to
the previous tax year for purposes of satisfying this requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
A portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
20
<PAGE>
Failure to qualify as a regulated investment company would thus have a negative
impact on the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its net investment income
for each tax year. These distributions are taxable to shareholders as ordinary
income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders if certain holding
period requirements are satisfied.
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 December, but the Fund may make additional distributions of net capital gain
at any time during the year. These distributions are taxable to shareholders as
long-term capital gain, regardless of how long a shareholder has held shares.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce the shareholder's tax basis in the shares and are treated
as gain from the sale of the shares to the extent the shareholder's 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). Shareholders receiving a
distribution in the form of additional shares 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.
A shareholder 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 the shareholder in the manner described above, although
the distribution economically constitutes a return of capital to the
shareholder.
Shareholders purchasing shares of the Fund just prior to the ex-dividend date of
a distribution will be taxed on the entire amount of the distribution received,
even though the net asset value per share on the date of the purchase reflected
the amount of the distribution.
If a shareholder holds shares for six months or less and redeems shares at a
loss after receiving a capital gain distribution, the loss will be treated as a
long-term capital loss to the extent of the distribution.
Ordinarily, shareholders 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 the
shareholders (and made by the Fund) on December 31 of that calendar year if the
distribution is actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) to them during the year.
B. 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. If
the Fund changes its tax year-end to November 30 or December 31, it may elect to
21
<PAGE>
use that date instead of the October 31 date in making this calculation. The
balance of the Fund's income must be distributed during the next calendar year.
The Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year ending in a calendar year.
For purposes of calculating the excise tax, the Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or November 30 or December 31 if
it has made the election described above) in determining the amount of ordinary
taxable income for the current calendar year. The Fund will include foreign
currency gains and losses incurred after October 31 in determining ordinary
taxable income for the succeeding calendar year.
The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
C. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption (a so called "wash sale"). In general, any gain or loss
arising from the sale or redemption of shares of the Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Any capital loss arising from the sale or
redemption of shares held for six months or less, however, is treated as a
long-term capital loss to the extent of the amount of capital gain distributions
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c) (3) and (4) generally will apply in determining the holding
period of shares. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
D. WITHHOLDING TAX
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide correct tax payer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
E. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
on gain realized on the sale of shares of the Fund, long-term capital gain
distributions from the Fund and amounts retained by the Fund that are designated
as undistributed long-term capital gain.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions, and any gain realized upon the sale
22
<PAGE>
of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the rules for U.S. federal income taxation described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in the Fund, distributions from the Fund, the
applicability of foreign taxes and related matters.
F. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from the Fund can differ from the rules for U.S.
federal income taxation described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in the
Fund, distributions from the Fund, the applicability of state and local taxes
and related matters.
8. OTHER MATTERS
A. GENERAL INFORMATION
Sound Shore Fund, Inc. was organized as a corporation under the laws of the
State of Maryland on February 15, 1985. The Fund has operated under that name
and as an investment company since that date.
Sound Shore Fund, Inc. is registered with the SEC as an open-end, management
investment company (a "mutual fund") under the 1940 Act. The Fund is diversified
as that term is defined by the 1940 Act. The Fund offers shares of beneficial
interest in its sole series.
It is not intended that meetings of shareholders be held except when required by
Federal or Maryland law and all shareholders of the Fund are entitled to vote at
shareholders' meetings. The Fund 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 Fund.
The Fund will continue indefinitely until terminated.
B. CODE OF ETHICS
The Fund, the Adviser, and FFS have adopted codes of ethics under Rule 17j-1 of
the 1940 Act which are designed to eliminate conflicts of interest between the
Fund and personnel of the Fund, the Adviser and FFS. The codes permit such
personnel to invest in securities, including securities that may be purchased or
held by the Fund.
C. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of the Fund has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately. Maryland law
does not require the Fund 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 Fund.
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All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in the Fund is entitled to the shareholder's pro rata share of all
distributions arising from the Fund's assets and, upon redeeming shares, will
receive the portion of the Fund's net assets represented by the redeemed shares.
Shareholders representing 25% or more of the Fund's outstanding shares may, as
set forth in the Articles of Incorporation, call meetings of the Fund for any
purpose related to the Fund, including, in the case of a meeting of the Fund,
the purpose of voting on removal of one or more Directors.
D.FUND OWNERSHIP
As of March 31, 2000, the percentage of shares owned by all Officers and
Directors of the Fund as a group was less than 1% of the shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Fund. These shareholders and any shareholder known by the Fund
to own beneficially 5% or more of a class of shares 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. As of March 31, 2000, the following persons owned of record 25% or
more of the shares of the Fund
PERCENTAGE OF
SHAREHOLDER SHARES OWNED
Charles Schwab and Co., Inc. - Mutual Funds 36.81%
Special Custody Account for the exclusive benefit
of customers
101 Montgomery Street
San Francisco, CA 94104
E. LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The By-laws of the Fund provide that the Directors and officers will be
indemnified to the fullest extent consistent with applicable laws. However, any
Director or officer will not be protected against liability to the Fund or its
shareholders 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.
F. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Fund's registration statement filed with the SEC under the 1933 Act with respect
to the securities offered hereby. The complete 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, and reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
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<PAGE>
G. FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended December 31, 1999
included in the Annual Report to shareholders of the Fund are incorporated
herein by reference. These financial statements include the schedule of
investments, statement of assets and liabilities, statement of operations,
statement of changes in net assets, financial highlights, notes and independent
auditors' report.
25
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds that 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 that 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 that make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds that 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 that 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 that 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 that 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 that 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 that 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>
2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may
be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that
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 that are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities;
and obligations with unusually risky interest terms, such as inverse
floaters.
A-2
<PAGE>
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA but may vary slightly from time to time because of economic
conditions.
AA-
A+,A, Protection factors are average but adequate. However, risk factors
A- are more variable in periods of greater economic stress.
BBB+ Below-average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade but deemed likely to meet obligations when
BB due. Present or prospective financial protection factors fluctuate
BB- according to industry conditions. Overall quality may move up or
down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not
B be met when due. Financial protection factors will fluctuate
B- widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the
rating within this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC, High default risk. Default is a real possibility. Capacity for
CC, C meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal
imminent default.
DDD Default. Securities are not meeting current obligations and are
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
1. MOODY'S INVESTORS SERVICE
AAA An issue that 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 that 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 that 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 that 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 that 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 that 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.
A-5
<PAGE>
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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-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 that
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,
A-6
<PAGE>
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 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is soley reliant upon a sustained,
favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees paid to the Adviser.
ADVISORY FEE PAID
Year Ended December 31, 1999 $11,638,514
Year Ended December 31, 1998 $13,562,484
Year Ended December 31, 1997 $5,000,341
TABLE 2 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees paid 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.
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAID WAIVED RECEIVED
Year Ended December 31, 1999 $1,551,802 $0 $1,551,802
Year Ended December 31, 1998 $1,808,331 $25,047 $1,783,284
Year Ended December 31, 1997 $666,712 $114,906 $551,806
</TABLE>
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS.
ACCOUNTING FEE PAID
Year Ended December 31, 1999 $60,000
Year Ended December 31, 1998 $133,122
Year Ended December 31, 1997 $500,034
The decrease in Accounting Fees from fiscal year 1997 was due to the change in
fee structure from 0.075% of the Fund's average annual daily net assets in 1997
to a fixed annual fee of $60,000 on January 29, 1998.
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees paid to
the Transfer Agent.
TRANSFER AGENCY FEE
PAID
Year Ended December 31, 1999 $1,551,802
Year Ended December 31, 1998 $1,783,355
Year Ended December 31, 1997 $512,034
B-1
<PAGE>
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
the Fund.
AGGREGATE COMMISSION
PAID
Year Ended December 31, 1999 $3,415,000
Year Ended December 31, 1998 $3,734,000
Year Ended December 31, 1997 $1,638,000
TABLE 6 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of the Fund as of March 31, 2000.
<TABLE>
<S> <C> <C>
NAME AND ADDRESS SHARES % OF FUND
Charles Schwab and Co. Inc - Mutual Funds 11,950,694.471 36.81
Special Custody Account for the exclusive benefit of customers
101 Montgomery Street
San Francisco, CA 94104
National Financial Services Corp. 6,444,428.716 19.85
For the exclusive benefit of customers
P.O. Box 3908
New York, NY 10008-3908
CTC Illinois Trust Company 3,391,196.228 10.45
Trustee for the benefit of Sun Microsystem Inc.
Tax Deferred Retirement Savings Plan
209 West Jackson Blvd, Suite 700
Chicago, IL 60606
</TABLE>
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of the Fund for the period ended December 31,
1999, was as follows
TOTAL RETURNS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE MONTHS YEAR TO DATE ONE THREE YEARS FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
2.57% 7.30% 0.05% 0.05% 12.53% 19.79% 14.77% 15.16%
</TABLE>
C-1
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation of Registrant dated February 15, 1985 (see
Note 1).
(b) By-Laws of Registrant (see Note 2).
(c) See the following Articles and Sections of the Articles of
Incorporation filed as Exhibit 1: Article FIFTH, Sections (3), (4) and
(5); Article SEVENTH, Sections (b), (c) and (d); Article NINTH,
Sections (a), (b), (c) and (f) and Article TENTH.
(d) Investment Advisory Agreement between Registrant and Sound Shore
Management, Inc. dated May 3, 1985 and restated March 14, 1995 (see
Note 1).
(e) Distribution Agreement between Registrant and Forum Fund Services, LLC
dated May 1, 1999 (see Note 3).
(f) Not Applicable.
(g) Custodial Services Agreement between Registrant and Forum Trust, LLC
dated as of April 20, 1999 (see Note 3).
(h) (1) Transfer Agency Agreement between Registrant and Forum Shareholder
Services, LLC dated January 29, 1998 (see Note 4).
(2) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC dated January 1, 1996 (see Note 1).
(3) Administration Agreement between Registrant and Forum Administrative
Services, LLC dated as of January 24, 1997 (see Note 5).
(i) (1) Opinion of Seward & Kissel dated April 29, 1985 (see Note 4).
(2) Consent of Seward & Kissel (see Note 3)
(j) (1) Opinion of Messrs. Venable, Baetjer and Howard dated April 29, 1985
(see Note 4).
(2) Independent Auditors' Consent (filed herewith).
(k) None.
(l) Investment representation letter of Employees' Profit Sharing Plan of
McConnell & Miller, Inc. as initial purchaser of shares of stock of
Registrant dated April 22, 1985 (see Note 4).
(m) Distribution Plan Pursuant to Rule 12b-1 Under the Investment Company
Act of 1940 adopted by Registrant (see Note 4).
(n) None.
(p) (1) Code of Ethics adopted by Registrant (filed herewith).
(2) Code of Ethics adopted by Sound Shore Management, Inc.(filed herewith).
(3) Joint Code of Ethics adopted by Forum Investment Advisors, LLC and
Forum Fund Services, LLC (filed herewith).
Other Exhibits:
Powers of Attorney of T. Gibbs Kane, Jr., Harry Burn, III, John L.
Lesher, Charles J. Hedlund, D. Kenneth Baker, John J. McCloy, II and
Walter R. Nelson (see Note 2).
- -----------
Note:
<PAGE>
1 Exhibit incorporated by reference as filed on Post-Effective Amendment
No. 1 via EDGAR on May 1, 1996, accession number 0000912057- 96-007773.
2 Exhibit incorporated by reference as filed on Post-Effective Amendment
No. 20 via EDGAR on March 1, 1999, accession number 0001004402-99-
000153.
3 Exhibit incorporated by reference as filed on Post-Effective Amendment
No. 21 via EDGAR on April 29, 1999, accession number 000100-99-000243.
4 Exhibit incorporated by reference as filed on Post-Effective Amendment
No. 19 via EDGAR on April 30, 1998, accession number 0001004402-98-
000268.
5 Exhibit incorporated by reference as filed on Post-Effective Amendment
No. 18 via EDGAR on April 30, 1997, accession number 000091257-97-
014939.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
The Registrant's Articles of Incorporation and Maryland law provide for
indemnification by the Registrant of officers and directors under certain
circumstances. In accordance with Section 2-418 of the General Corporation Law
of the State of Maryland, Article EIGHTH of the Registrant's Articles of
Incorporation provides as follows:
"EIGHTH: To the maximum extent permitted by the General Corporation Law
of the State of Maryland as from time to time amended, the Corporation
shall indemnify its currently acting and its former directors and
officers and those persons who, at the request of the Corporation,
serve or have served another corporation, partnership, joint venture,
trust or other enterprise in one or more of such capacities."
Further, the Registrant has agreed to indemnify (1) Sound Shore
Management, Inc. ("Sound Shore Management") in the Investment Advisory
Agreement, (2) Forum Financial Services, Inc. ("Forum") in the
Distribution Agreement, (3) Forum in the Distribution Agreement, (4)
Forum Shareholder Services, LLC ("FSS") in the Transfer Agency
Agreement, and (5) Forum Accounting Services LLC ("FAS") in the Fund
Accounting Agreement for certain liabilities and expenses arising out
of their acts or omissions under the respective agreements.
Paragraph 4 of the Investment Advisory Agreement between the Registrant
and Sound Shore Management provides generally that Sound Shore
Management will not be liable for any mistake of judgment or for any
other cause but shall not be protected against any liability due to
willful misfeasance, bad faith or gross negligence in the performance
of or reckless disregard of the adviser's duties.
Section 2(f) of the Distribution Agreement the Registrant and Forum
provides generally that the Registrant will indemnify, defend and hold
harmless from and against any and all claims, demands, liabilities and
expenses which Forum may incur arising out of or based upon any alleged
untrue statement of a material fact contained in the Registrant's
Registration Statement or Prospectus or arising out of or based upon
any alleged omission to state a material fact, provided that Forum will
not be protected against any liability to the Registrant or its
security holders to which Forum would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance
of or reckless disregard of the Forum's duties.
Section 3(a) of the Administration Agreement between the Registrant and
Forum provides generally that Forum shall not be liable to the
Registrant for any action or inaction of Forum in the absence of bad
faith, willful misconduct or gross negligence or based upon
information, instructions or requests made to Forum by an officer of
the Registrant duly authorized or caused by circumstances beyond
Forum's reasonable control. Section 3(b) provides that the Registrant
will indemnify and hold harmless Forum from and against any and all
<PAGE>
claims, demands, liabilities and expenses arising out of any action or
inaction for which Forum is not liable under the agreement.
Section 25 of the Transfer Agency Agreement between the Registrant and
FSS provides generally that FSS shall not be liable for any
non-negligent action taken in good faith and reasonably believed by FSS
to be within the powers conferred upon it by the agreement, and that
the Registrant shall indemnify FSS and hold it harmless from and
against any and all claims, damages, liabilities and expenses arising
out performance of the agreement; provided such loss, claim, damage,
liability or expense is not the result of FSS 's gross negligence or
willful misconduct.
Section 4(a) of the Fund Accounting Agreement between the Registrant
and FAS provides generally that FAS shall not be liable to the
Registrant for any action or inaction of FAS in the absence of bad
faith, willful misconduct or gross negligence or based upon
information, instructions or requests made to FAS by an officer of the
Registrant duly authorized or caused by circumstances beyond FAS's
reasonable control. Section 4(b) provides that the Registrant will
indemnify and hold harmless FAS from and against any and all claims,
demands, liabilities and expenses arising out of any action or inaction
for which Forum is not liable under the agreement.
The foregoing references are qualified in their entirety by the
Registrant's Articles of Incorporation and the respective agreements.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of Sound Shore Management, Inc. (the "Adviser"), 8 Sound Shore
Drive, Greenwich, Connecticut 06836 under the captions "Investment Adviser" in
the Prospectus and "Management " in the Statement of Additional Information
constituting Parts A and B respectively, of this Registration Statement are
incorporated herein by reference. The following are the directors and principal
executive officers of the Adviser, including their titles and other business
connections that are of a substantial nature.
<TABLE>
<S> <C> <C>
Name Title Business Connections
....................................... ..................................... .....................................
Harry Burn, III Chairman and Director Sound Shore Management, Inc.
..................................... .....................................
Chairman and Director Sound Shore Fund, Inc.
....................................... ..................................... .....................................
T. Gibbs Kane, Jr. President and Director Sound Shore Management, Inc.
..................................... .....................................
President and Director Sound Shore Fund, Inc.
....................................... ..................................... .....................................
Shanna S. Sullivan Vice President, Treasurer, Sound Shore Management, Inc.
Secretary and Director
..................................... .....................................
Secretary Sound Shore Fund, Inc.
</TABLE>
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Fund Services, LLC, Registrant's underwriter, serves as
underwriter for the following investment companies registered under the
Investment Company Act of 1940. As amended:
The Cutler Trust Monarch Funds
Forum Funds TrueCrossing Funds
Memorial Funds
(b) The following officers of Forum Fund Services, LLC, Registrant's
underwriter, hold the following position with registrant. Their
business address is Two Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
Name Position with Underwriter Position with Registrant
.................................... .................................. ..................................
.................................... .................................. ..................................
John Y. Keffer Director Vice President
.................................... .................................. ..................................
.................................... .................................. ..................................
Ronald H. Hirsch Treasurer Treasurer
</TABLE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder are maintained at the
offices of Forum Administrative Services, LLC, Two Portland Square, Portland,
Maine 04101 and Forum Shareholder Services, LLC, Two Portland Square, Portland,
Maine 04101 except that certain items are maintained at the following locations:
(a) Bankers Trust Company, 130 Liberty Street, New York, New York 10006
(journals of receipts and disbursements of cash).
(b) Sound Shore Management, Inc., 8 Sound Shore Drive, Greenwich,
Connecticut 06836 (brokerage orders, portfolio purchases or sales, and
quarterly records showing the basis for the allocation of orders).
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this registration statement
under Rule 485(b) under the Securities Act and has duly caused this amendment to
Registrant's registration statement to be signed on its behalf by the
undersigned, duly authorized in the City of Portland, State of Maine on April
28, 2000.
SOUND SHORE FUND, INC.
T. Gibbs Kane, Jr., President
By: /s/ T. Gibbs Kane, Jr.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on April
28, 2000.
(a) Principal Executive Officer
/s/ T. Gibbs Kane, Jr.,
T. Gibbs Kane, Jr., President
(b) Principal Financial Officer
/s/ Ronald H. Hirsch
Ronald H. Hirsch, Treasurer
(c) All of the Directors
/s/ T. Gibbs Kane, Jr.
T. Gibbs Kane, Jr., Director
/s/ Harry Burn III
Harry Burn III, Director
Dr. D. Kenneth Baker, Director
Charles J. Hedlund, Director
John L. Lesher, Director
John J. McCloy, II, Director
Walter R. Nelson, Director
By: /s/ David I. Goldstein
David I. Goldstein, Attorney-in-fact*
* Pursuant to powers of attorney filed as Other Exhibits to this Registration
Statement.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
(j)(2) Independent Auditors' Consent.
(p)(1) Code of Ethics adopted by Registrant.
(p)(2) Code of Ethics adopted by Sound Shore Management, Inc.
(p)(3) Joint Code of Ethics adopted by Forum Investment Advisors, LLC and
Forum Fund Services, LLC.
<PAGE>
Exhibit (j)(2)
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 22 to Registration Statement (No. 2-96141) of Sound Shore Fund of our
report dated February 4, 2000 in the Statement of Additional Information, which
is a part of such Registration Statement, and to the reference to us under the
heading "Financial Highlights" appearing in the Prospectus, which is also a part
of such Registration Statement
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 28, 2000
<PAGE>
Exhibit (p)(1)
SOUND SHORE FUND, INC.
CODE OF ETHICS
1. Purposes
This Code of Ethics has been adopted by the board of directors of Sound
Shore Fund, Inc. (the "Fund") in accordance with Rule 17j-1(c)(1) under the
Investment Company Act of 1940 (the "Act"). Rule 17j-1 under the Act generally
proscribes fraudulent or manipulative practices with respect to purchases or
sales of securities held or to be acquired by investment companies, if effected
by certain associated persons of such companies. The purpose of this Code of
Ethics is to provide regulations for the Fund consistent with the Act and Rule
17j-1. This Code of Ethics is designed to give effect to the general
prohibitions set forth in Rule 17j-1(b) under the Act as follows:
(a) It shall be unlawful for any affiliated person of ... a
fund, or any affiliated person of an investment adviser of ... a fund,
in connection with the purchase or sale, directly or indirectly, by the
person of a Security Held or to be Acquired by the Fund:1
(1) To employ any device, scheme or artifice to
defraud the fund;
(2) To make any untrue statement of a material fact
to the fund or omit to state a material fact
necessary in order to make the statements made to the
fund, in light of the circumstances under which they
are made, not misleading;
(3) To engage in any act, practice, or course of
business that operates or would operate as a fraud or
deceit on the fund; or
(4) To engage in any manipulative practice with
respect to the fund.
2. Definitions
(a) "Access Person" means any director, officer, other than
those officers employed by Forum Fund Services, LLC, or Advisory Person
of the Fund. Officers of the Fund who are employed by Forum Fund
Services, LLC are subject to the provisions of, and shall report under,
the code of ethics of Forum Fund Services, LLC.
(b) "Advisory Person" of the Fund means (i) any employee of
the Fund (or of any company in a control relationship to the Fund) who,
in connection with his or her regular functions or duties, makes,
- ----------- -----------
1 As defined in Rule 17j-1, "Security Held or to be Acquired" by a Fund
means (1) any Covered Security which, within the most recent 15 days, is or has
been held by the Fund, or is being or has been considered by the Fund or the
Investment Adviser for purchase by the Fund, and (2) any option to purchase or
sell, and any security convertible into or exchangeable for, a Covered Security
described in clause (1) above.
<PAGE>
participates in, or obtains information regarding the purchase or sale
of a Covered Security by the Fund, or whose functions relate to the
making of any recommendations with respect to the purchases or sales;
and (ii) any natural person in a control relationship to the Fund who
obtains information concerning recommendations made to the Fund with
regard to the purchase or sale of Covered Securities.
(c) "Beneficial ownership" shall be interpreted in the same
manner as it would be in determining whether a person is the beneficial
owner of a security for purposes of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (see
Appendix A).
(d) "Compliance Officer" shall mean the designated officer of
the Fund, or, in the case of the Compliance Officer's unavailability or
involvement in the proposed transaction, any other officer of the Fund
not involved in the proposed transaction.
(e) "Control" has the same meaning as in Section 2(a)(9) of
the Act.
(f) "Covered Security" shall mean a security as defined in
Section 2(a)(36) of the Act,2 except that it shall not include
securities issued by the Government of the United States, bankers'
acceptances, bank certificates of deposit, commercial paper and high
quality short-term debt instruments including repurchase agreements,
and shares issued by registered open-end investment companies. "Covered
Securities" include, among other things, any option to purchase or
sell, and any security convertible into, a Covered Security.
(g) "Disinterested Director" means a director of the Fund who
is not an "interested person" of the Fund within the meaning of Section
2(a)(19) of the Act. Disinterested Directors are exempted from most of
the Code's provisions. See, for example, Section 4(b) and Section 6(b).
(h) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of
1934.
- ---------- ----------
2 As defined in Section 2(a)(36) of the Act, "security" means any note,
stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or other mineral rights,
any put, call, straddle, option, or privilege on any security (including a
certificate of deposit) or on any group or index of securities (including any
interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
foreign currency, or, in general, any interest or instrument commonly known as a
"security," or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
<PAGE>
(i) "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under
the Securities Act of 1933.
3. Insider Trading
(a) No director, officer or employee of the Fund shall,
directly or indirectly, purchase or sell any security in which such
person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership which would involve the use of "inside"
information. "Inside" information means information known to such
person but not generally available to public investors that a
reasonable investor would consider to be important in deciding whether
to buy, sell or retain a security. All directors, officers and
employees are urged in any case where they have the slightest doubt as
to the propriety of a transaction to refer it to the Fund's Compliance
Officer or legal counsel.
4. Prohibited Purchases and Sales
(a) No Access Person shall, directly or indirectly, purchase
or sell any Covered Security in which such person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership
and which to his or her actual knowledge at the time of such purchase
or sale (i) is being considered for purchase or sale by or for the Fund
or (ii) is being purchased or sold by or for the Fund, until the
execution of transactions in such Covered Security by or for the Fund
have been completed and until such Access Person has obtained the prior
approval of the Compliance Officer.
(b) Without obtaining the prior written approval of the
Compliance Officer, no Access Person, other than Disinterested
Directors, shall directly or indirectly acquire beneficial ownership in
any securities in an Initial Public Offering or in a Limited Offering.
5. Exempted Transactions
The prohibitions of Section 4 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which
the Access Person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are
not eligible for purchase or sale by the Fund.
(c) Purchases or sales which are non-volitional on the
part of either the Access Person or the Fund.
(d) Purchases effected through a systematic investment
plan involving the automatic investment of a predetermined amount on
predetermined dates, provided the Compliance Officer has been
<PAGE>
previously advised of such plan, and purchases which are part of an
automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired.
(f) Any purchase or sale (or series of related purchases and
sales) involving less than $5,000 of the Covered Securities of a
company which is either listed on a national exchange or traded over
the counter and having a market capitalization in excess of $1 billion
or, with the prior approval of the Compliance Officer, any other
purchase or sale believed by the Compliance Officer to be only remotely
potentially harmful to the Fund because, for example, it would be very
unlikely to affect a highly liquid market, or because it clearly is not
related economically to the securities to be purchased, sold or held by
the Fund.
6. Reporting3
(a) Access Persons Other Than Disinterested Directors of
the Fund
(1) Initial Holdings Report. Beginning on March 1,
2000, no later than 10 days after a person becomes an Access
Person (other than Disinterested Directors of the Fund), such
person must file a report with the Compliance Officer which
contains the following information: (i) the title, number of
shares and principal amount of each Covered Security in which
such person has any direct or indirect beneficial ownership;
(ii) the name of the broker, dealer or bank with whom such
person maintains an account in which any securities are held
for the direct or indirect benefit of such person; and (iii)
the date the report is submitted to the Compliance Officer.
(2) Quarterly Transaction Reports. Beginning with the
calendar quarter ending March 31, 2000, no later than 10 days
after the end of a calendar quarter, every Access Person
(other than Disinterested Directors of the Fund) must file a
report with the Compliance Officer with respect to any
transaction during the calendar quarter in a Covered Security
in which the Access Person had any direct or indirect
beneficial ownership (the "Quarterly Report"). The Quarterly
Report, which may be in the form of the cover page in Appendix
B and attached account statements, must contain: (i) the date
of each transaction, the title, the interest rate and maturity
date (if applicable), the number of shares and the principal
amount of each Covered Security involved; (ii) the nature of
the transaction (i.e., purchase or sale or other type of
acquisition or disposition); (iii) the price of the Covered
Security at which the transaction was effected; (iv) the name
- ---------- ----------
3 Any report required by this Section 6 may contain a statement that the
report will not be construed as an admission that the person making the report
has any direct or indirect beneficial ownership in the Covered Security to which
the report relates.
<PAGE>
of the broker, dealer or bank with or through which the
transaction was effected; and (v) the date that the report is
submitted to the Compliance Officer. With respect to any
quarter in which an account was established by an Access
Person in which any securities were held for the direct or
indirect benefit of the Access Person, such Quarterly Report
must also contain the name of the broker, dealer or bank with
whom the Access person established the account and the date
the account was established.
(3) Annual Holdings Reports. No later than January
30, 2001, and every January 30 thereafter, every Access Person
(other than Disinterested Directors of the Fund) must file a
report with the Compliance Officer which contains the
following information (which information must be current as of
a date no more than 30 days before the report is submitted):
(i) the title, number of shares and principal amount of each
Covered Security in which such person has any direct or
indirect beneficial ownership as of December 31 of the prior
calendar year; (ii) the name of the broker, dealer or bank
with whom such person maintains an account in which any
securities are held for the direct or indirect benefit of such
person; and (iii) the date the report is submitted to the
Compliance Officer. The report may be in the form of the cover
page in Appendix C and attached account statements.
(b) Disinterested Directors of the Fund
(1) Quarterly Transaction Reports. A Disinterested
Director of the Fund must make a quarterly transaction report
containing the information required by Section 6(a)(2) no
later than 10 days after the end of a calendar quarter with
respect to transactions occurring in such quarter in a Covered
Security only if such director knew or, in the ordinary course
of fulfilling his or her official duties as a director of the
Fund, should have known that during the 15-day period
immediately before or after such director's transaction in a
Covered Security, the Fund purchased or sold the Covered
Security, or the Fund or its investment adviser considered
purchasing or selling the Covered Security.4
7. Determination of Access Persons
(a) Each current officer, director or employee of the Fund
will be evaluated by the Compliance Officer to determine whether they
are an Access Person before February 1, 2000. Those who are determined
to be Access Persons will be notified of their status as an Access
Person and their corresponding reporting obligations by March 1, 2000.
(b) Each potential new officer, director or employee of the
Fund will be evaluated to determine whether they are an Access Person
before they are offered a position and will be notified of their status
- ---------- ----------
4 Ordinarily, reports would need to be filed only if a Disinterested Director
actually knows of a Fund transaction since, generally, Disinterested Directors
would not be expected to be in a position in which they "should have known" of a
Fund transaction.
<PAGE>
as an Access Person, if applicable, before they take their position.
8. Review of Reports Required by this Code of Ethics
(a) Each report required to be submitted under Section 6 of
this Code of Ethics will be promptly reviewed by the Compliance Officer
when submitted.
(b) Any violation or potential violation of this Code of
Ethics shall be brought to the attention of the Chairman of the Fund
within five business days of its discovery.
(c) The Compliance Officer will investigate any such violation
or potential violation of this Code of Ethics and report to the
Chairman of the Fund with a recommendation of appropriate action to be
taken against any individual whom it is determined has violated this
Code of Ethics as is necessary to cure the violation and prevent future
violations.
(d) The Compliance Officer will keep a written record of all
investigations in connection with any Code of Ethics violations
including any action taken as a result of the violation.
9. Recordkeeping Requirements
(a) The following records must be maintained at the principal
place of business of the Fund in the manner and to the extent set out
below. These records must be made available to the Securities and
Exchange Commission or any representative of the Commission at any time
and from time to time for reasonable periodic, special or other
examination:
(1) A copy of the Code of Ethics that is in effect,
or at any time within the past five years was in effect, must
be maintained in an easily accessible place;
(2) A record of any violation of this Code of Ethics,
and of any action taken as a result of the violation, must be
maintained in an easily accessible place for at least five
years after the end of the fiscal year in which the violation
occurs;
(3) A copy of each report required to be submitted by
Access Persons under Section 6 of this Code of Ethics,
including any information provided on broker transaction
confirmations and account statements, must be maintained for
at least five years after the end of the fiscal year in which
the report is made or the information is provided, the first
two years in an easily accessible place;
<PAGE>
(4) A record of all Access Persons, currently or
within the past five years, who are or were required to make
reports under this Code of Ethics will be established prior to
March 1, 2000 and maintained in an easily accessible place;
(5) A record of all persons, currently or within the
past five years, who are or were responsible for reviewing
reports of Access Persons will be established prior to March
1, 2000 and maintained in an easily accessible place;
(6) A record of all approvals of requests to acquire
securities in an Initial Public Offering or Limited Offering,
indicating the reasons for such approval, must be maintained
for at least five years after the end of the fiscal year in
which the approval is granted; and
(7) A copy of each report required to be submitted
pursuant to Section 10 of this Code of Ethics must be
maintained for at least five years after the end of the fiscal
year in which it is made, the first two years in an easily
accessible place.
10. Reports to the Boards of Directors of the Fund
(a) No later than September 1, 2000 and no less frequently
than annually thereafter, the Compliance Officer will prepare a written
report to be furnished to the board of directors of the Fund that:
(1) Describes any issues arising under this Code of
Ethics since the last report to the board of directors,
including, but not limited to, information about material
violations of this Code of Ethics and sanctions imposed in
response to the material violations; and
(2) Certifies that the Fund has adopted the
procedures in Sections 7 through 9 of this Code of Ethics and
this Section 10 which are reasonably necessary to prevent
Access Persons from violating this Code of Ethics.
(b) No later than September 1, 2000 and no less frequently
than annually thereafter, the investment adviser and the distributor of
the Fund must prepare a written report to be furnished to the board of
directors of the Fund that:
(1) Describes any issues arising under its code of
ethics since the last report to the board of directors,
including, but not limited to, information about material
violations of its code of ethics and sanctions imposed in
response to the material violations; and
(2) Certifies that it has adopted procedures
reasonably necessary to prevent Access Persons from violating
its code of ethics.
11. Sanctions
Upon discovering a violation of this Code, the board of directors of
the Fund may impose such sanctions as it deems appropriate, including, among
other things, monetary sanctions, a letter of censure, or suspension or
termination of the employment of the violator.
<PAGE>
12. Distribution of the Code
The Compliance Officer shall provide to each Access Person a copy of
this Code of Ethics and obtain an acknowledgement from such person of receipt
thereof. Amendments to this Code of Ethics shall in similar fashion be provided
to each Access Person, who shall acknowledge receipt thereof.
<PAGE>
13. Acknowledgement
I acknowledge that I have received a copy and read this Code of Ethics. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
------------------------------------
Dated
------------------------------------
Printed Name
------------------------------------
Signature
<PAGE>
APPENDIX A
The term "beneficial owner" shall mean any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary interest in securities,
subject to the following:
(1) The term "pecuniary interest" in any class of securities shall mean
the opportunity, directly or indirectly, to profit or share in any profit
derived from a transaction in the subject securities.
(2) The term "indirect pecuniary interest" in any class of securities
shall include, but not be limited to:
(A) Securities held by members of a person's immediate family
sharing the same household; PROVIDED, HOWEVER that the presumption of such
beneficial ownership may be rebutted;
(B) A general partner's proportionate interest in the
portfolio securities held by a general or limited partnership. The general
partner's proportionate interest, as evidenced by the partnership agreement in
effect at the time of the transaction and the partnership's most recent
financial statements, shall be the greater of: (1) the general partner's share
of the partnership's profits, including profits attributed to any limited
partnership interests held by the general partner and any other interests in
profits that arise from the purchase and sale of the partnership's portfolio
securities; or (2) the general partner's share of the partnership capital
account, including the share attributable to any limited partnership interest
held by the general partner;
(C) A performance-related fee, other than an asset-based fee,
received by any broker, dealer, bank, insurance company, investment company,
investment adviser, investment manager, trustee or person or entity performing a
similar function; PROVIDED, HOWEVER, that no pecuniary interest shall be present
where: (1) the performance-related fee, regardless of when payable, is
calculated based upon net capital gains and/or net capital appreciation
generated from the portfolio or from the fiduciary's overall performance over a
period of one year or more; and (2) securities of the issuer do not account for
more than 10 percent of the market value of the portfolio. A right to a
nonperformance-related fee alone shall not represent a pecuniary interest in the
securities;
(D) A person's right to dividends that is separated or
separable from the underlying securities. Otherwise, a right to dividends alone
shall not represent a pecuniary interest in the securities;
(E) A person's interest in securities held by a trust, as
specified in Rule 16a-8(b); and
(F) A person's right to acquire securities through the
exercise or conversion of any derivative security, whether or not presently
exercisable.
<PAGE>
(3) A shareholder shall not be deemed to have a pecuniary interest in
the portfolio securities held by a corporation or similar entity in which the
person owns securities if the shareholder is not a controlling shareholder of
the entity and does not have or share investment control over the entity's
portfolio.
<PAGE>
APPENDIX B
QUARTERLY SECURITIES TRANSACTIONS REPORT
For the quarter ending _______________, _______
I hereby certify that the transactions on the attached account
statements are the only securities transactions entered into during the quarter
ending on the date written above in which I had any direct or indirect
beneficial ownership.
Please check the applicable box below:
[ ] During the quarter ending on the date written above, I have not
established any new account in which any securities were held during such
quarter for my direct or indirect benefit.
[ ] During the quarter ending on the date written above, I have
established the following new accounts in which any securities were held during
such quarter for my direct or indirect benefit:
Name of Broker, Dealer, or Bank Date Established
Signature
Name:
Please Print
Date:
<PAGE>
6
APPENDIX C
ANNUAL HOLDINGS REPORT
For the calendar year ending December 31, _______
I hereby certify that the securities on the attached account statements
are the only Covered Securities in which I have a direct or indirect beneficial
ownership as of the date written above.
Listed below are the names of every broker, dealer and bank with whom I
maintain an account in which securities are held for my direct or indirect
benefit:
Signature
Name:
Please Print
Date:
<PAGE>
Exhibit (p)(2)
SOUND SHORE MANAGEMENT, INC.
CODE OF ETHICS
1. Purposes
This Code of Ethics has been adopted by the board of directors of Sound Shore
Management, Inc. (the "Adviser") in accordance with Rule 17j-1(c)(1) under the
Investment Company Act of 1940 (the "Act") and Section 206 of the Investment
Advisers Act of 1940 (the "Advisers Act"). This Code applies to the Adviser with
respect to purchases and sales on behalf of any client of the Adviser, including
any investment company for which the Adviser may serve as an investment adviser
or sub-adviser (the "Client" or the "Clients"). Rule 17j-1 under the Act
generally proscribes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by investment companies,
if effected by certain associated persons of such companies, including their
investment advisers. Similarly, Section 206 of the Advisers Act also proscribes
fraudulent and manipulative practices by investment advisers with respect to
their clients. The purpose of this Code of Ethics is to provide regulations for
the Adviser consistent with Rule 17j-1 of the Act and Section 206 of the
Advisers Act and the general prohibitions set forth thereunder.
2. Definitions
a) "Access Person" means any director, officer or employee of the
Adviser.
b) "Beneficial ownership" shall be interpreted in the same manner as
it would be in determining whether a person is the beneficial owner of a
security for purposes of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder (see Appendix A).
c) "Compliance Officer" shall mean the designated officer of the
Adviser, or, in the case of the Compliance Officer's unavailability or
involvement in the proposed transaction, any other officer of the Adviser
not involved in the proposed transaction.
d) "Control" has the same meaning as in Section 2(a)(9) of the Act.
e) "Covered Security" shall mean a security as defined in Section
2(a)(36) of the Act,5 except that it shall not include securities issued by
the Government of the United States, bankers' acceptances, bank
- ---------- ----------
5 As defined in Section 2(a)(36) of the Act, "security" means any note,
stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or other mineral rights,
any put, call, straddle, option, or privilege on any security (including a
certificate of deposit) or on any group or index of securities (including any
interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
foreign currency, or, in general, any interest or instrument commonly known as a
<PAGE>
certificates of deposit, commercial paper and high quality short-term debt
instruments including repurchase agreements, and shares issued by
registered open-end investment companies. "Covered Securities" include,
among other things, any option to purchase or sell, and any security
convertible into, a Covered Security.
f) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of
1934.
g) "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the
Securities Act of 1933.
3. Insider Trading
a) No Access Person shall, directly or indirectly, purchase or sell
any security in which such person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership which would involve
the use of "inside" information. "Inside" information means information
known to such person but not generally available to public investors that a
reasonable investor would consider to be important in deciding whether to
buy, sell or retain a security. All directors, officers and employees are
urged in any case where they have the slightest doubt as to the propriety
of a transaction to refer it to the Adviser's Compliance Officer or legal
counsel.
4. Prohibited Purchases and Sales
a) No Access Person shall, directly or indirectly, purchase or sell
any Covered Security in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership and which
to his or her actual knowledge at the time of such purchase or sale (i) is
being considered for purchase or sale by or for any Client or (ii) is being
purchased or sold by or for any Client, until the execution of transactions
in such Covered Security by or for any Client have been completed and until
such Access Person has obtained the prior approval of the Compliance
Officer.
b) Without obtaining the prior approval of the Compliance Officer, no
Access Person shall, directly or indirectly, purchase or sell any Covered
Security in which such person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership in a manner contrary
to recommendations made to or action taken by the Adviser on behalf of any
Client where the effect of such purchase or sale may materially effect the
price of the securities involved.
- ---------- ---------- ---------- ----------- ---------- ------------ -----------
"security," or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
<PAGE>
c) Without obtaining the prior written approval of the Compliance
Officer, no Access Person shall directly or indirectly acquire beneficial
ownership in any securities in an Initial Public Offering or in a Limited
Offering.
5. Exempted Transactions
The prohibitions of Section 4 of this Code shall not apply to:
a) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
b) Purchases or sales of Covered Securities which are not eligible for
purchase or sale by any Client.
c) Purchases or sales which are non-volitional on the part of either
the Access Person or any Client.
d) Purchases effected through a systematic investment plan involving
the automatic investment of a predetermined amount on predetermined dates,
provided the Compliance Officer has been previously advised of such plan,
and purchases which are part of an automatic dividend reinvestment plan.
e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
f) Any purchase or sale (or series of related purchases and sales)
involving less than $5,000 of the Covered Securities of a company which is
either listed on a national exchange or traded over the counter and having
a market capitalization in excess of $1 billion or, with the prior approval
of the Compliance Officer, any other purchase or sale believed by the
Compliance Officer to be only remotely potentially harmful to any Client
because, for example, it would be very unlikely to affect a highly liquid
market, or because it clearly is not related economically to the securities
to be purchased, sold or held by any Client.
6. Reporting 6
a) Each Access Person must file the following reports:
(1) Initial Holdings Report. Beginning on March 1, 2000, no
later than 10 days after a person becomes an Access Person, such
person must file a report with the Compliance Officer which
contains the following information: (i) the title, number of
- ---------- ----------
6 Any report required by this Section 6 may contain a statement that the
report will not be construed as an admission that the person making the report
has any direct or indirect beneficial ownership in the Covered Security to which
the report relates.
<PAGE>
shares and principal amount of each Covered Security in which
such person has any direct or indirect beneficial ownership; (ii)
the name of the broker, dealer or bank with whom such person
maintains an account in which any securities are held for the
direct or indirect benefit of such person; and (iii) the date the
report is submitted to the Compliance Officer.
(2) Quarterly Transaction Reports. Beginning with the
calendar quarter ending March 31, 2000, no later than 10 days
after the end of a calendar quarter, every Access Person must
file a report with the Compliance Officer with respect to any
transaction during the calendar quarter in a Covered Security in
which the Access Person had any direct or indirect beneficial
ownership (the "Quarterly Report"). The Quarterly Report, which
may be in the form of the cover page in Appendix B and attached
account statements, must contain: (i) the date of each
transaction, the title, the interest rate and maturity date (if
applicable), the number of shares and the principal amount of
each Covered Security involved; (ii) the nature of the
transaction (i.e., purchase or sale or other type of acquisition
or disposition); (iii) the price of the Covered Security at which
the transaction was effected; (iv) the name of the broker, dealer
or bank with or through which the transaction was effected; and
(v) the date that the report is submitted to the Compliance
Officer. With respect to any quarter in which an account was
established by an Access Person in which any securities were held
for the direct or indirect benefit of the Access Person, such
Quarterly Report must also contain the name of the broker, dealer
or bank with whom the Access person established the account and
the date the account was established.
(3) Annual Holdings Reports. No later than January 30, 2001,
and every January 30 thereafter, every Access Person must file a
report with the Compliance Officer which contains the following
information (which information must be current as of a date no
more than 30 days before the report is submitted): (i) the title,
number of shares and principal amount of each Covered Security in
which such person has any direct or indirect beneficial ownership
as of December 31 of the prior calendar year; (ii) the name of
the broker, dealer or bank with whom such person maintains an
account in which any securities are held for the direct or
indirect benefit of such person; and (iii) the date the report is
submitted to the Compliance Officer. The report may be in the
form of the cover page in Appendix C and attached account
statements.
7. Notification to and Determination of Access Persons
a) Each current officer, director or employee of the Adviser will
be notified of their status as an Access Person and their
corresponding reporting obligations by March 1, 2000.
b) Each potential new officer, director or employee of the
Adviser will be evaluated to determine whether they are an Access
Person before they are offered a position and will be notified of
<PAGE>
their status as an Access Person, if applicable, before they take
their position.
8. Review of Reports Required by this Code of Ethics
a) Each report required to be submitted under Section 6 of this
Code of Ethics will be promptly reviewed by the Compliance Officer
when submitted.
b) Any violation or potential violation of this Code of Ethics
shall be brought to the attention of the Chairman of the Adviser
within five business days of its discovery.
c) The Compliance Officer will investigate any such violation or
potential violation of this Code of Ethics and report to the Chairman
of the Adviser with a recommendation of appropriate action to be taken
against any individual whom it is determined has violated this Code of
Ethics as is necessary to cure the violation and prevent future
violations.
d) The Compliance Officer will keep a written record of all
investigations in connection with any Code of Ethics violations
including any action taken as a result of the violation.
9. Recordkeeping Requirements
a) The following records must be maintained at the principal
place of business of the Adviser in the manner and to the extent set
out below. These records must be made available to the Securities and
Exchange Commission or any representative of the Commission at any
time and from time to time for reasonable periodic, special or other
examination:
(1) A copy of the Code of Ethics that is in effect, or at
any time within the past five years was in effect, must be
maintained in an easily accessible place;
(2) A record of any violation of this Code of Ethics, and of
any action taken as a result of the violation, must be maintained
in an easily accessible place for at least five years after the
end of the fiscal year in which the violation occurs;
(3) A copy of each report required to be submitted by Access
Persons under Section 6 of this Code of Ethics, including any
information provided on broker transaction confirmations and
account statements, must be maintained for at least five years
after the end of the fiscal year in which the report is made or
the information is provided, the first two years in an easily
accessible place;
<PAGE>
(4) A record of all Access Persons, currently or within the
past five years, who are or were required to make reports under
this Code of Ethics will be established prior to March 1, 2000
and maintained in an easily accessible place;
(5) A record of all persons, currently or within the past
five years, who are or were responsible for reviewing reports of
Access Persons will be established prior to March 1, 2000 and
maintained in an easily accessible place;
(6) A record of all approvals of requests to acquire
securities in an Initial Public Offering or Limited Offering,
indicating the reasons for such approval, must be maintained for
at least five years after the end of the fiscal year in which the
approval is granted; and
(7) A copy of each report required to be submitted pursuant
to Section 10 of this Code of Ethics must be maintained for at
least five years after the end of the fiscal year in which it is
made, the first two years in an easily accessible place.
10. Reports to the Boards of Directors of Registered Investment Companies
a) Upon the request of a Client which is a registered investment
company, the Compliance Officer will prepare a written report to be
furnished to the board of directors of such registered investment
company that:
(1) Describes any issues arising under this Code of Ethics
since the last report to such board of directors, including, but
not limited to, information about material violations of this
Code of Ethics and sanctions imposed in response to the material
violations; and
(2) Certifies that the Adviser has adopted the procedures in
Sections 7 through 9 of this Code of Ethics and this Section 10
which are reasonably necessary to prevent Access Persons from
violating this Code of Ethics.
11. Sanctions
Upon discovering a violation of this Code, the Adviser may impose such sanctions
as it deems appropriate, including, among other things, monetary sanctions, a
letter of censure, or suspension or termination of the employment of the
violator.
12. Distribution of the Code
The Compliance Officer shall provide to each Access Person a copy of this Code
of Ethics and obtain an acknowledgement from such person of receipt thereof.
Amendments to this Code of Ethics shall in similar fashion be provided to each
Access Person, who shall acknowledge receipt thereof.
13.
<PAGE>
Acknowledgement
I acknowledge that I have received a copy and read this Code of Ethics. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
------------------------------------
Dated
------------------------------------
Printed Name
------------------------------------
Signature
<PAGE>
APPENDIX A
The term "beneficial owner" shall mean any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest in securities, subject to the
following:
(1) The term "pecuniary interest" in any class of securities shall mean the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in the subject securities.
(2) The term "indirect pecuniary interest" in any class of securities shall
include, but not be limited to:
(A) Securities held by members of a person's immediate family
sharing the same household; PROVIDED, HOWEVER that the presumption of such
beneficial ownership may be rebutted;
(B) A general partner's proportionate interest in the
portfolio securities held by a general or limited partnership. The general
partner's proportionate interest, as evidenced by the partnership agreement in
effect at the time of the transaction and the partnership's most recent
financial statements, shall be the greater of: (1) the general partner's share
of the partnership's profits, including profits attributed to any limited
partnership interests held by the general partner and any other interests in
profits that arise from the purchase and sale of the partnership's portfolio
securities; or (2) the general partner's share of the partnership capital
account, including the share attributable to any limited partnership interest
held by the general partner;
(C) A performance-related fee, other than an asset-based fee,
received by any broker, dealer, bank, insurance company, investment company,
investment adviser, investment manager, trustee or person or entity performing a
similar function; PROVIDED, HOWEVER, that no pecuniary interest shall be present
where: (1) the performance-related fee, regardless of when payable, is
calculated based upon net capital gains and/or net capital appreciation
generated from the portfolio or from the fiduciary's overall performance over a
period of one year or more; and (2) securities of the issuer do not account for
more than 10 percent of the market value of the portfolio. A right to a
nonperformance-related fee alone shall not represent a pecuniary interest in the
securities
(D) A person's right to dividends that is separated or
separable from the underlying securities. Otherwise, a right to dividends alone
shall not represent a pecuniary interest in the securities;
(E) A person's interest in securities held by a trust, as
specified in Rule 16a-8(b); and
(F) A person's right to acquire securities through the
exercise or conversion of any derivative security, whether or not presently
exercisable.
(3) A shareholder shall not be deemed to have a pecuniary interest in
the portfolio securities held by a corporation or similar entity in which the
person owns securities if the shareholder is not a controlling shareholder of
the entity and does not have or share investment control over the entity's
portfolio.
<PAGE>
APPENDIX B
QUARTERLY SECURITIES TRANSACTIONS REPORT
For the quarter ending _______________, _______
I hereby certify that the transactions on the attached account
statements are the only securities transactions entered into during the quarter
ending on the date written above in which I had any direct or indirect
beneficial ownership.
Please check the applicable box below:
[ ] During the quarter ending on the date written above, I have not
established any new account in which any securities were held during such
quarter for my direct or indirect benefit.
[ ] During the quarter ending on the date written above, I have
established the following new accounts in which any securities were held during
such quarter for my direct or indirect benefit:
Name of Broker, Dealer, or Bank Date Established
Signature
Name:
Please Print
Date:
<PAGE>
APPENDIX C
ANNUAL HOLDINGS REPORT
For the calendar year ending December 31, _______
I hereby certify that the securities on the attached account statements
are the only Covered Securities in which I have a direct or indirect beneficial
ownership as of the date written above.
Listed below are the names of every broker, dealer and bank with whom I
maintain an account in which securities are held for my direct or indirect
benefit:
Signature
Name:
Please Print
Date:
<PAGE>
Exhibit (p)(3)
FORUM INVESTMENT ADVISORS, LLC
FORUM FUND SERVICES, LLC
CODE OF ETHICS
AS AMENDED JANUARY 17, 2000
INTRODUCTION
This Code of Ethics (the "Code") has been adopted by Forum Fund
Services, LLC ("FFS") and Forum Investment Advisors, LLC ("FIA" and collectively
with FFS, "Forum"). This Code pertains to Forum's investment advisory and
distribution services to registered management investment companies or series
thereof (each a "Fund"). In addition, this Code applies to employees of Forum's
commonly controlled companies who serve as officers of a Fund. This Code
establishes standards and procedures for the detection and prevention of
activities by which persons having knowledge of the investments and investment
intentions of a Fund may abuse their fiduciary duties to the Fund and addresses
other types of conflict of interest situations. Definitions of underlined terms
are included in Appendix A.
1. POLICY STATEMENT
Forum forbids any Access Person, Investment Personnel or Fund Officer
from engaging in any conduct which is contrary to this Code. In addition, due to
their positions, Forum also forbids any Access Person or Investment Personnel
from engaging in any conduct which is contrary to Forum's Insider Trading Policy
and Related Procedures. In addition, many persons subject to the Code are also
subject to the other restrictions or requirements which affect their ability to
open securities accounts, effect securities transactions, report securities
transactions, maintain information and documents in a confidential manner and
other matters relating to the proper discharge of your obligations to Forum.
These include contractual arrangements with Forum, policies adopted by Forum
concerning confidential information and documents and FFS' Compliance and
Supervisory Procedures Manual.
Forum has always held itself and its employees to the highest ethical
standards. While this Code is only one manifestation of those standards,
compliance with its provisions is essential. Failure to comply with this Code is
a very serious matter and may result in disciplinary action being taken. Such
action can include among other things, monetary fines, disgorgement of profits,
suspension or even termination of employment.
2. WHO IS COVERED BY THIS CODE
(a) All Access Persons and Investment Personnel, in each case only
with respect to those Funds as listed on Appendix B.
(b) Fund Officers, but only with respect to those Funds for which
they serve as Fund Officers as listed in Appendix B.
<PAGE>
3. PROHIBITED TRANSACTIONS
(A) PROHIBITION AGAINST FRAUDULENT CONDUCT. It is unlawful for Access
Persons, Investment Personnel and Fund Officers to use any information
concerning a security held or to be acquired by a Fund, or their ability to
influence any investment decisions, for personal gain or in a manner detrimental
to the interests of a Fund. In addition, they shall not, directly or indirectly:
(i) employ any device, scheme or artifice to defraud a Fund or
engage in any manipulative practice with respect to a Fund;
(ii) make to a Fund, any untrue statement of a material fact or
omit to state to a Fund a material fact necessary in order to
make the statements made, in light of the circumstances under
which they are made, not misleading; or
(iii) engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon a Fund.
(B) BLACKOUT PERIOD. Access Persons and Investment Personnel shall not
purchase or sell a Covered Security in an account over which they have direct or
indirect influence or control on a day during which they know or should have
known a Fund has a pending "buy" or "sell" order in that same security until
that order is executed or withdrawn.
(C) ADDITIONAL INVESTMENT PERSONNEL BLACKOUT PERIOD. No Investment
Personnel shall purchase or sell a Covered Security within five calendar days
before or two calendar days after a Fund for which the Investment Personnel
makes or participates in making a recommendation trades in that security. Any
profits realized on trades within this proscribed period shall be disgorged.
This blackout period does not apply to money market mutual funds which are
advised by FIA.
(D) FUND OFFICER PROHIBITION. No Fund Officer shall directly or
indirectly seek to obtain information (other than that necessary to accomplish
the functions of the office) from any Fund portfolio manager regarding (i) the
status of any pending securities transaction for a Fund or (ii) the merits of
any securities transaction contemplated by the Fund Officer.
(E) BLACKOUT PERIOD EXCLUSIONS AND DEFINITIONS. The following
transactions shall not be prohibited by this Code and are not subject to the
limitations of Sections 3(b) and (c):
(i) purchases or sales over which you have no direct or indirect
influence or control (for this purpose, you are deemed to have
direct or indirect influence or control over the accounts of a
spouse, minor children and relatives residing in your home);
(ii) purchases which are part of an automatic dividend reinvestment
plan;
(iii) purchases or sales which are non-volitional on your part; and
<PAGE>
(iv) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer.
Your trading shall be exempt from the limitations of Sections 3(b) and
(c) provided that (i) the market capitalization of a particular security exceeds
$1 billion and (ii) pending orders of FIA do not exceed two percent of the daily
average trading volume of the security for the prior 15 days.
For purposes of Sections 3(b) and (c), and subject to Section 3(g)
below, the (i) common stock and any fixed income security of an issuer shall not
be deemed to be the same security and (ii) non-convertible preferred stock of an
issuer shall be deemed to be the same security as the fixed income securities of
that issuer; and (iii) convertible preferred stock shall be deemed to be the
same security as both the common stock and fixed income securities of that
issuer.
(F) REQUIREMENT FOR PRECLEARANCE. Investment Personnel must obtain
prior written approval from the designated Review Officer before:
(i) directly or indirectly acquiring securities in an initial
public offering for which no public market in the same or
similar securities of the issue has previously existed; and
(ii) directly or indirectly acquiring securities in a private
placement. In determining whether to preclear the transaction,
the Review Officer designated under Section 5 shall consider,
among other factors, whether the investment opportunity should
be reserved for a Fund, and whether such opportunity is being
offered to the Investment Personnel by virtue of their
position with the Fund.
Any Investment Personnel of a Fund who has taken a personal position
through a private placement will be under an affirmative obligation to disclose
that position in writing to the Review Officer if they play a material role in
the Fund's subsequent investment decision regarding the same issuer; this
separate disclosure must be made even though the Investment Personnel has
previously disclosed the ownership of the privately placed security in
compliance with the preclearance requirements of this section. Once disclosure
is given, an independent review of the Fund's investment decision will be made.
(G) OTHER PROHIBITED TRANSACTIONS. Access Persons, Investment
Personnel and Fund Officers shall not:
(i) induce or cause a Fund to take action or to fail to take
action, for personal benefit rather than for the benefit of
the Fund;
(ii) accept anything other than of DE MINIMIS value or any other
preferential treatment from any broker-dealer or other entity
with which a Fund does business;
(iii) establish or maintain an account at a broker-dealer, bank or
other entity through which securities transactions may be
effected without written notice to the designated Review
Officer prior to establishing such an account;
<PAGE>
(iv) use knowledge of portfolio transactions of a Fund for your
personal benefit or the personal benefit of others;
(v) violate the anti-fraud provisions of the federal or state
securities laws;
(vi) serve on the boards of directors of publicly traded companies,
absent prior authorization based upon a determination by the
Review Officer that the board service would be consistent with
the interests of the Fund and its shareholders.
(H) UNDUE INFLUENCE. Access Persons, Investment Personnel and Fund
Officers shall not cause or attempt to cause any Fund to purchase, sell or hold
any security in a manner calculated to create any personal benefit to you. You
shall not recommend any securities transactions for a Fund without having
disclosed (through reports in accordance with Section 4, preclearance in
accordance with Section 3(f), or otherwise) your interest, if any, in such
securities or the issuer thereof, including, without limitation, (i) your
beneficial ownership of any securities of such issuer, (ii) any position with
such issuer or its affiliates and (iii) any present or proposed business
relationship between you (or any party in which you have a significant interest)
and such issuer or its affiliates.
(I) CORPORATE OPPORTUNITIES. Access Persons, Investment Personnel and
Fund Officers shall not take personal advantage of any opportunity properly
belonging to a Fund.
(J) CONFIDENTIALITY. Except as required in the normal course of
carrying out their business responsibilities, Access Persons, Investment
Personnel and Fund Officers shall not reveal information relating to the
investment intentions or activities of any Fund, or securities that are being
considered for purchase or sale on behalf of any Fund.
4. REPORTING REQUIREMENTS
(A) REPORTING. Access Persons, Investment Personnel and Fund Officers
must report the information described in this Section with respect to
transactions in any Covered Security in which they have, or by reason of such
transaction acquire, any direct or indirect beneficial ownership. They must
report to the designated Review Officer unless they are otherwise required by a
Fund, pursuant to a Code of Ethics adopted by the Fund, to report to the Fund or
another person.
(B) EXCLUSIONS FROM REPORTING. Purchases or sales in Covered Securities
in an account in which you have no direct or indirect influence or control are
not subject to the reporting requirements of this Section.
(C) INITIAL HOLDING REPORTS. No later than ten (10) days after you
become subject to this Code as set forth in Section 2, you must report the
following information:
(i) the title, number of shares and principal amount of each
Covered Security (whether or not publicly traded) in which you
have any direct or indirect beneficial ownership as of the
date you became subject to this Code;
<PAGE>
(ii) the name of any broker, dealer or bank with whom you
maintained an account in which any securities were held for
your direct or indirect benefit as of the date you became
subject to this Code; and
(iii) the date that the report is submitted.
(D) QUARTERLY TRANSACTION REPORTS. No later than ten (10) days after
the end of a calendar quarter, you must report the following information:
(i) with respect to any transaction during the quarter in a Covered
Security (whether or not publicly traded) in which you have, or
by reason of such transaction acquired, any direct or indirect
beneficial ownership:
(1) the date of the transaction, the title, the interest rate
and maturity date (if applicable), the number of shares and
the principal amount of each Covered Security involved;
(2) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(3) the price of the Covered Security at which the transaction
was effected;
(4) the name of the broker, dealer or bank with or through which
the transaction was effected; and
(5) the date that the report is submitted.
(ii) with respect to any account established by you in which any
Covered Securities (whether or not publicly traded) were held
during the quarter for your direct or indirect benefit:
(1) the name of the broker, dealer or bank with whom you
established the account;
(2) the date the account was established; and
(3) the date that the report is submitted.
(E) ANNUAL HOLDINGS REPORTS. Annually, you must report the following
information (which information must be current as of a date no more than thirty
(30) days before the report is submitted):
(i) the title, number of shares and principal amount of each
Covered Security (whether or not publicly traded) in which you
had any direct or indirect beneficial ownership;
(ii) the name of any broker, dealer or bank with whom you maintain
an account in which any securities are held for your direct or
indirect benefit; and
(iii) the date that the report is submitted.
(F) CERTIFICATION OF COMPLIANCE. You are required to certify annually
(in the form of Attachment A) that you have read and understood the Code and
recognize that you are subject to the Code. Further, you are required to certify
annually that you have complied with all the requirements of the Code and you
<PAGE>
have disclosed or reported all personal securities transactions pursuant to the
requirements of the Code.
(G) ALTERNATIVE REPORTING. The submission to the Review Officer of
duplicate broker trade confirmations and statements on all securities
transactions shall satisfy the reporting requirements of Section 4. The annual
holdings report may be satisfied by confirming annually, in writing, the
accuracy of the records maintained by the Review Officer and recording the date
of the confirmation.
(H) REPORT QUALIFICATION. Any report may contain a statement that the
report shall not be construed as an admission by the person making the report
that he or she has any direct or indirect beneficial ownership in the Covered
Securities to which the report relates.
(I) ACCOUNT OPENING PROCEDURES. You shall provide written notice to
the Review Officer prior to opening any account with any entity through which a
Covered Securities transaction may be effected. In addition, you will promptly:
(i) provide full access to a Fund, its agents and attorneys to any
and all records and documents which a Fund considers relevant
to any securities transactions or other matters subject to the
Code;
(ii) cooperate with a Fund, or its agents and attorneys, in
investigating any securities transactions or other matter
subject to the Code;
(iii) provide a Fund, its agents and attorneys with an explanation
(in writing if requested) of the facts and circumstances
surrounding any securities transaction or other matter subject
to the Code; and
(iv) promptly notify the Review Officer or such other individual as
a Fund may direct, in writing, from time to time, of any
incident of noncompliance with the Code by anyone subject to
this Code.
5. REVIEW OFFICER
(A) DUTIES OF REVIEW OFFICER. The Chief Compliance Officer of Forum has
been appointed by the Director of FIA and FFS as the Review Officer to:
(i) review all securities transaction and holdings reports and
shall maintain the names of persons responsible for reviewing
these reports;
(ii) identify all persons subject to this Code who are required to
make these reports and promptly inform each person of the
requirements of this Code;
(iii) compare, on a quarterly basis, all Covered Securities
transactions with each Fund's completed portfolio transactions
to determine whether a Code violation may have occurred;
(iv) maintain a signed acknowledgment by each person who is then
subject to this Code, in the form of Attachment A; and
(v) identify persons who are Investment Personnel of the Fund
and inform those persons of their requirements to obtain
prior written approval from the Review Officer prior to
directly or indirectly acquiring ownership of a security in
any private placement or initial public offering.
<PAGE>
(vi) exempt any Fund Officer from provisions of this Code if the
person is subject to similar requirements of a Fund's Code of
Ethics.
(B) POTENTIAL TRADE CONFLICT. When there appears to be a transaction
that conflicts with the Code, the Review Officer shall request a written
explanation of the person's transaction. If after post-trade review, it is
determined that there has been a violation of the Code, a report will be made by
the designated Review Officer with a recommendation of appropriate action to the
Director of FIA and FFS and a Fund's Board of Trustees (or Directors).
(C) REQUIRED RECORDS. The Review Officer shall maintain and cause to be
maintained:
(i) a copy of any code of ethics adopted by Forum which has been
in effect during the previous five (5) years in an easily
accessible place;
(ii) a record of any violation of any code of ethics, and of any
action taken as a result of such violation, in an easily
accessible place for at least five (5) years after the end of
the fiscal year in which the violation occurs;
(iii) a copy of each report made by anyone subject to this Code as
required by Section 4 for at least five (5) years after the
end of the fiscal year in which the report is made, the first
two (2) years in an easily accessible place;
(iv) a list of all persons who are, or within the past five years
have been, required to make reports or who were responsible
for reviewing these reports pursuant to any code of ethics
adopted by Forum, in an easily accessible place;
(v) a copy of each written report and certification required
pursuant to Section 5(e) of this Code for at least five (5)
years after the end of the fiscal year in which it is made,
the first two (2) years in an easily accessible place; and
(vi) a record of any decision, and the reasons supporting the
decision, approving the acquisition by Investment Personnel of
securities under Section 3(f) of this Code, for at least five
(5) years after the end of the fiscal year in which the
approval is granted.
(D) POST-TRADE REVIEW PROCESS. Following receipt of trade confirms and
statements, transactions will be screened for the following:
(i) SAME DAY TRADES: transactions by Access Persons and
Investment Personnel occurring on the same day as the
purchase or sale of the same security by a Fund for which
they are an Access Person or Investment Personnel.
(ii) PORTFOLIO MANAGER TRADES: transactions by Investment Personnel
within five calendar days before and two calendar days after a
Fund, for which the Investment Personnel makes or participates
in making a recommendation, trades in that security.
<PAGE>
(iii) FRAUDULENT CONDUCT: transaction by Access Persons, Investment
Personnel and Fund Officers which, within the most recent 15
days, is or has been held by a Fund or is being or has been
considered by a Fund or FIA for purchase by a Fund.
(iv) OTHER ACTIVITIES: transactions which may give the appearance
that an Access Person, Investment Personnel or Fund Officer
has executed transactions not in accordance with this Code.
(E) SUBMISSION TO FUND BOARD. The Review Officer shall annually
prepare a written report to the Board of Trustees (or Directors) of a Fund
listed in Appendix B that
(i) describes any issues under this Code or its procedures since the
last report to the Trustees, including, but not limited to,
information about material violations of the code or procedures
and sanctions imposed in response to the material violations; and
(ii) certifies that the Fund has adopted procedures reasonably
necessary to prevent Access Persons, Investment Personnel and
Fund Officers from violating this code.
<PAGE>
FORUM CODE OF ETHICS
APPENDIX A
DEFINITIONS
(a) Access Person:
(i)(1) of FIA means each director or officer of FIA, any employee or
agent of FIA, or any company in a control relationship to FIA
who, in connection with the person's regular functions or
duties, makes, participates in or obtains information
regarding the purchase or sale of Covered Securities by a Fund
advised by FIA, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
(i)(2) any natural person in a control relationship to FIA who
obtains information concerning recommendations made to a Fund
by FIA with regard to the purchase or sale of Covered
Securities by the Fund;
(ii) of FFS means each director or officer of FFS who in the
ordinary course of business makes, participates in or obtains
information regarding the purchase or sale of Covered
Securities for a Fund or whose functions or duties as part of
the ordinary course of business relate to the making of any
recommendation to a Fund regarding the purchase or sale of
Covered Securities.
(b) Act means the Investment Company Act of 1940, as amended.
(c) Beneficial Owner shall have the meaning as that set forth in Rule
16a-1(a)(2) under the Securities Exchange Act of 1934, as amended, except that
the determination of direct or indirect beneficial ownership shall apply to all
Covered Securities which an Access Person owns or acquires. A beneficial owner
of a security is any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest (the opportunity, directly or indirectly, to profit
or share in any profit derived from a transaction in the subject securities) in
a security.
Indirect pecuniary interest in a security includes securities held by a
person's immediate family sharing the same household. Immediate family means any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (including adoptive relationships).
(d) Control means the power to exercise a controlling influence over the
management or policies of a company, unless this power is solely the result of
an official position with the company. Ownership of 25% or more of a company's
outstanding voting securities is presumed to give the holder thereof control
over the company. This presumption may be rebutted by the Review Officer based
upon the facts and circumstances of a given situation.
<PAGE>
(e) Covered Security means any security except:
(i) direct obligations of the Government of the United States;
(ii) bankers' acceptances and bank certificates of deposits;
(iii) commercial paper and debt instruments with a maturity at
issuance of less than 366 days and that are rated in one of
the two highest rating categories by a nationally recognized
statistical rating organization;
(iv) repurchase agreements covering any of the foregoing; and
(v) shares of registered open-end investment companies.
(f) Fund Officer means any employee of Forum or of a company commonly
controlled with Forum who is an officer or director/trustee of a Fund.
(h) Investment Personnel means
(i) any employee of FIA who, in connection with his or her regular
functions or duties, makes or participates in making
recommendations regarding the purchase or sale of securities
by a Fund managed by FIA; and
(ii) any individual who controls FIA or a Fund for which FIA is an
investment adviser and who obtains information concerning
recommendations made to the Fund regarding the purchase or
sale of securities by the Fund.
(i) Purchase or sale includes, among other things, the writing of an option
to purchase or sell.
(j) Security held or to be acquired by the Fund means
(i) any Covered Security which, within the most recent 15 days (x)
is or has been held by the applicable Fund or (y) is being or
has been considered by the applicable Fund or its investment
adviser for purchase by the applicable Fund; and
(ii) and any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered Security.
<PAGE>
FORUM CODE OF ETHICS
APPENDIX B
LIST OF ACCESS PERSONS
(as amended March 20, 2000)
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
FIA AP IP AS OF DATE FUND END DATE
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Berthy, Les C. X X September 1, 1989 FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Burns, John X X July 1, 1999 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Fischer, Anthony R. X X January 1, 1998 CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Goldstein, David I. X June 1, 1997 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Kaplan, Mark D. X X March 20, 1996 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Keffer, John Y. X September 1, 1989 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Stillings, Dawn Marie X X January 1, 1998 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hirsch, Ron X November 1, 1999 FF/CTD
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
FFS AP IP AS OF DATE FUND END DATE
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Goldstein, David I. X September 1, 1991 All
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Keffer, John Y. X June 9, 1986 All
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hirsch, Ron X November 1, 1999 All
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
FUND OFFICERS AP IP AS OF DATE OFFICER OR TRUSTEE OF END DATE
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Barrett, Stephen J. September 28, 1998 CT, TC, ML, SS
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Goldstein, David I. October 16, 1992 CT, FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hirsch, Ron October 28, 1999 SS, TC, CT, ML
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Hong, Stacey E. May 19, 1998 CT, FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Kaplan, Mark D. June 14, 1996 FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Keffer, John Y. October 16, 1992 CT, FF, SS, TC
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Klenk, Leslie K. May 19, 1998 FF
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Riggle, D. Blaine March 9, 1998 CT, ML, SS, TC
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Sheehan, Thomas G. July 26, 1994 CT, ML
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
Taylor, Dawn January 28, 1999 SS
- ------------------------------ --------- -------- ----------------------------- ------------------------ --------------------
</TABLE>
AP = Access Person; IP = Investment Personnel
FF = Forum Funds; CTD = Core Trust (Delaware); CT = Cutler Trust; TC = True
Crossing; Memorial = ML; SS = Sound Shore
<PAGE>
FORUM
CODE OF ETHICS
ATTACHMENT A
ACKNOWLEDGMENT
I understand that I am subject to Forum's Code of Ethics. I have read and I
understand the Forum Code of Ethics, as adopted by Forum Investment Advisors,
LLC and Forum Fund Services, LLC as amended January 17, 2000 and will comply
with it in all respects. In addition, I certify that I have complied with the
requirements of the Code of Ethics and I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to the
requirements of the Code.
Signature Date
Printed Name
THIS FORM MUST BE COMPLETED AND RETURNED TO FORUM'S COMPLIANCE DEPARTMENT:
COMPLIANCE MANAGER
FORUM FINANCIAL GROUP
TWO PORTLAND SQUARE
PORTLAND, ME 04101
<PAGE>
