20
03/27/96
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1
03/27/96
PROXY
PROXY
YOUR PROMPT RESPONSE WILL SAVE THE TRUST THE EXPENSE
OF ADDITIONAL MAILINGS
HAWTHORNE INVESTMENT TRUST: HAWTHORNE BOND FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies,
hereby appoint(s) Charles G. Dyer attorneys, with
full power of substitution, to vote all Shares of
Hawthorne Bond Fund which the undersigned is
entitled to vote at the Special Meeting of
Shareholders of Hawthorne Sea Fund and Hawthorne
Bond Fund (the "Meeting") to be held at One Lewis
Wharf, Boston, Massachusetts on Monday, April 8,
1996 at 10:00am, and at any adjournment thereof.
This proxy shall be voted on the proposals described
in the Proxy Statement as specified in the spaces on
the reverse side. Receipt of the Notice of the
Meeting and the accompanying Proxy Statement is
hereby acknowledged.
NOTE: Please sign
exactly as your name
appears on this Proxy.
When signing in a fiduciary
capacity, such as executor,
administrator, trustee,
attorney, guardian, etc.,
please so indicate.
Corporate and partnership
proxies should be signed by
an authorized person
indicating the person's
titles.
Date:
_________________________,
1996
Signature(s) Title(s), if
applicable
PLEASE SIGN, DATE AND
RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
YOUR PROMPT RESPONSE WILL SAVE THE TRUST
THE EXPENSE OF ADDITIONAL MAILINGS
Please refer to the Proxy Statement discussion of
each of these matters.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE
VOTED FOR THE PROPOSALS.
As to any other matter, said attorneys shall vote in
accordance with their best judgment. THE TRUSTEES
RECOMMEND VOTING FOR EACH OF THE FOLLOWING:
To approve new investment management agreement
with Morris Asset Management, Inc.:
FOR
AGAINST
ABSTAIN
To Elect the following four nominee specified
below as Trustees: (except as marked below):
Harry Schroeder, Ellyn Brown, Gerald
Morris, Leigh A. Wilson.
FOR ALL NOMINEES (except as marked below)
WITHOLD authority to vote for all nominees
INSTRUCTIONS: To withhold authority to vote
for any individual nominee(s) write the name(s)
of the nominee(s) below.
To ratify the selection of Anchin, Block &
Anchin LLP as independent public accountants for the
Fund for the fiscal year ending October 31, 1996.
FOR
AGAINST
ABSTAIN
To approve a new 12b-1 distribution plan.
FOR
AGAINST
ABSTAIN
Hawthorne Sea Fund
Hawthorne Bond Fund
series of
Hawthorne Investment Trust
One Lewis Wharf
Boston, Massachusetts 02110
(617) 227-4800
Notice of Special Meetings of Shareholders
to be Held on April 8, 1996
To the Shareholders:
Special meetings of the shareholders
of the Hawthorne Sea Fund and the
Hawthorne Bond Fund (each, a "Fund" and,
collectively, the "Funds") will be held on
April 8, 1996 at 10:00am at One Lewis
Wharf, Boston, MA 02110. The meetings
will be held for the following purposes:
1. To approve a new investment
management agreement with Morris
Asset Management, Inc. No fee
increase is proposed.
2. To elect Board members to
hold office until their
successors are duly elected and
qualified.
3. To ratify the selection of
Anchin, Block & Anchin LLP as
independent public accountants
of each Fund for the fiscal year
ending October 31, 1996.
4. To approve a new Rule 12b-1
distribution plan.
5. Finally, to transact such
other business as may properly
come before the meeting, or any
adjournment or adjournments
thereof.
Shareholders of record as of the
close of business on March 1, 1996 are
entitled to receive notice of, and to vote
at, the special meeting of their Fund and
any and all adjournments thereof. Your
attention is called to the accompanying
combined proxy statement. We sincerely
hope that you can attend the meeting of
your Fund.
By Order of
the Board of Trustees
Charles G.
Dyer
Boston, Massachusetts
Chairman
March 26, 1996
IMPORTANT
You are invited to attend your Special
Meeting. Whether or not you plan to
attend the Meeting in person, you are
requested to complete, date and sign the
enclosed proxy card and return it promptly
in the envelope provided, which is
addressed for your convenience and
requires no postage if mailed in the
United States. Your prompt return of the
enclosed proxy card may save your Fund the
necessity and expense of further
solicitations to assure a quorum at the
Meeting. A Proxy will not be required for
admission to the Meeting.
Hawthorne Sea Fund
Hawthorne Bond Fund
COMBINED PROXY STATEMENT
Special Meetings of Shareholders to be
Held on April 8, 1996.
This combined proxy statement is
furnished in connection with a
solicitation of proxies by the Board of
Trustees (the "Board") of Hawthorne
Investment Trust (the "Company") and
relates to the Hawthorne Sea Fund (the
"Sea Fund") and the Hawthorne Bond Fund
(the "Bond Fund" and, collectively with
the Sea Fund, the "Funds") to be used at
the Special Meeting of Shareholders of
each Fund (the "Meeting") to be held for
the purposes set forth in the accompanying
Notice of Special Meetings of
Shareholders. Shareholders of record at
the close of business on March 1, 1996
(the "Record Date") are entitled to be
present and to vote at the Meeting, and at
any and all adjournments thereof.
The Funds will request broker-dealer
firms, custodians, nominees and
fiduciaries to forward proxy materials to
the beneficial owners of the shares held
as of the Record Date. In addition to the
solicitation of proxies by mail, officers
of the Funds and employees of Hawthorne
Associates, Inc. ("HAI"), without
additional compensation, may solicit
proxies in person or by telephone, and/or
the Funds may engage a proxy service firm
to assist in the solicitation of proxies.
The costs associated with such
solicitation and the Meeting will be borne
by the parties to the Agreement (as
defined in Proposal 1 of this combined
proxy statement).
Each Fund share is entitled to one
vote. If the accompanying proxy card is
properly executed, returned in time to be
voted at the Special Meeting and
unrevoked, the shares covered thereby will
be voted in accordance with the
instructions marked thereon by the
shareholder(s). Executed proxies that are
unmarked will be voted in favor of all
proposals. The proxy holder will vote in
his or her discretion upon any other
business as may properly come before the
Meeting, or any adjournment or
adjournments thereof. If the enclosed
proxy card is executed and returned, it
nevertheless may be revoked by another
proxy or by letter or telegram directed to
the Company, which must indicate the
shareholder's name and account number. To
be effective, such revocation must be
received prior to the Meeting. In
addition, any shareholder who attends a
Meeting in person may vote by ballot,
thereby canceling any proxy previously
given. The Funds have outstanding the
number of shares indicated below as of
March 1, 1996:
Bond Fund: 57,540.847
Sea Fund: 71,630.966
Proxy materials are being mailed to
shareholders of record on or about March
27, 1996.
Copies of the most recent annual and
semi-annual reports of the Funds,
including financial statements, are
included with your proxy materials as
Exhibit A. Due to the small size of the
Funds, and the financial restraints caused
by this limitation, most recent financials
(year end 1995) are unavailable at the
time of this solicitation, and assuming
shareholder approval of Proposal 1 such
audited reports will become available and
be mailed to each shareholders.
A majority of the outstanding shares
of a Fund on the Record Date, represented
in person or by proxy, must be present to
constitute a quorum for the transaction of
such Fund's business at the Meeting.
The affirmative vote of a "majority
of the outstanding voting securities" of a
Fund is required for the approval of
Proposals 1 and 4. For purposes of this
requirement, a "majority of the
outstanding voting securities" of a Fund
has the meaning assigned to that term in
the Investment Company Act of 1940, as
amended (the "1940 Act"), i.e. (i) 67% or
more of the shares of such Fund present at
the Meeting if more than 50% of the
outstanding shares of such Fund are
represented at the Meeting in person or by
proxy, or (ii) more than 50% of the
outstanding shares of such Fund, whichever
is less. A plurality of the votes cast at
the Meeting is required for the election
of Board members (Proposal 2) and a
majority of the votes cast is required for
the ratification of independent
accountants (Proposal 3).
If a quorum is not present at a
Meeting, or if a quorum is present but
sufficient votes to approve any of the
Proposals are not received, the persons
named as proxies may propose one or more
adjournments of the Meeting to permit
further solicitation of proxies. In
determining whether to adjourn the
Meeting, the following factors may be
considered: the nature of the Proposals
that are the subject of the Meeting, the
percentage of votes actually cast, the
percentage of negative votes actually
cast, the nature of any further
solicitation and the information to be
provided to shareholders with respect to
the reasons for the solicitation. Any
adjournment will require the affirmative
vote of a majority of those shares
represented at the Meeting in person or by
proxy. A shareholder vote may be taken
for one of the Funds on one or more of the
Proposals in this combined proxy statement
prior to any adjournment if sufficient
votes have been received for approval. If
a shareholder abstains from voting as to
any matter, then the shares held by such
shareholder shall be deemed present at the
Meeting of the Fund for purposes of
determining a quorum and for purposes of
calculating the vote with respect to such
matter, but shall not be deemed to have
been voted in favor of such matter. If a
broker returns a ``non-vote'' proxy,
indicating a lack of authority to vote on
a matter, then the shares covered by such
non-vote shall be deemed present at the
Meeting for purposes of determining a
quorum but shall not be deemed represented
at the Meeting for purposes of calculating
the vote with respect to such matter.
To the best of the Company's
knowledge, as of March 1, 1996, the
following persons beneficially owned 5% or
more of the outstanding shares of the fund
mentioned:
Bond Fund: Mr. Frank Bonna, 162 East
Woodcrest Drive, Melrose, MA 02176
31,978.817 Shares (55.6%)
Mr. Cono Borrelli, 215 South
Shore Drive, Newnan, GA 30263
15,006.319 Shares (26.07%)
Mr. Al Speckman, 150 Garland Rd,
Rye, NH 03870
3,751.578 Shares (6.52%)
Sea Fund: Mr. Cono Borrelli, 215 South
Shore Drive, Newnan, GA 30263
45,286.380 Shares (63.2%)
Mr. L. Conover, 9 Liberty
Circle, Shamong, NJ 08088
14,322.907 Shares (19.9%)
Mr. John T. Names, 7933 Ranch
River Drive, Elverta, CA 95626
4,935.978 Shares (6.9%)
PROPOSAL 1
APPROVAL OF NEW INVESTMENT
MANAGEMENT AGREEMENTS BETWEEN THE
FUNDS AND MORRIS ASSET MANAGEMENT, INC.
Background
Information Concerning the Acquisition
The Board has approved the principal
terms of an acquisition of the right to
manage the Funds by Morris Asset
Management, Inc. ("MAM") (the
"Acquisition") whereby MAM will become the
investment adviser to each of the Funds.
The Funds had combined assets of
approximately $1.2 million as of March 1,
1996.
From May 1995 through November 1995,
HAI and Charles Dyer, and MAM and Gerald
Morris, conducted negotiations for MAM to
become the new investment adviser for the
Funds. As of mid-November, 1995,
negotiations were completed subject to
approval of the Funds, board and
shareholders and Charles Dyer and Gerald
Morris entered into an conditional
Agreement on behalf of HAI and MAM
providing an arrangement under which MAM
would become the new investment adviser to
the Funds. It is anticipated that the
sale of shares of the Funds will be
recommenced once the new investment
advisory and distribution arrangements
have been finalized and a registration
statement has become effective with the
Securities and Exchange Commission to
reflect the new arrangements, assuming
shareholder approval and satisfaction of
other conditions.
The performance of the Agreement
requires that shareholders of each Fund
approve a new investment advisory
agreement with MAM. Shareholders are also
being asked to approve a new distribution
agreement with Forum Financial and the
approval of a Rule 12b-1 Distribution Plan
("Rule 12b-1 Plan").
In light of MAM's evaluation of the
performance of the Funds since their
inception, MAM determined that it would be
in the best interests of the Funds to
continue to utilize Charles Dyer as their
portfolio manager. Within the framework
of the new investment advisory agreement,
MAM would exercise supervisory authority
over the day-to-day investment advice and
portfolio management. If in the future
Mr. Dyer's services are terminated for any
reason, MAM would then commence providing
all investment management functions
through other employees.
All expenses of the Funds in
connection with the Special Meeting of
Shareholders pursuant to which these
approvals are be solicited are to be paid
by the parties to the agreement.
The Agreement calls for MAM to issue
to Charles G. Dyer a one-third stock
ownership interest in MAM. It further
provides that MAM will raise $350,000
through the issuance of additional common
stock diluting the aggregate interest of
the existing shareholders (including
Charles G. Dyer) by no more than 15%. Of
the $350,000 to be raised by MAM, $50,000
is to remain as MAM's working capital and
$300,000 is to be held for the purpose of
paying and satisfying expenses and
liabilities of the .
Assuming shareholder approval of the
Proposals set forth in this Proxy
Statement, MAM will pay approximately
$20,000 (to be used to cover expenses
incurred in completing financial
statements and obtaining a fidelity bond)
and upon the renewal of the Fund's
registration (and ability to sell shares
to new investors) MAM will pay an
additional amount which, together with the
auditing and Fidelity bond expenses, will
total up to $75,000 towards Fund expenses
and liabilities. Additional amounts of up
to $225,000 will be paid towards the
satisfaction of any remaining Fund
expenses and liabilities; such additional
amounts may be paid on an ongoing basis
from one-half of the revenues earned by
MAM in managing the Funds.
The Agreement further provides that
Gerald Morris and Charles Dyer will
participate on a committee to determine
the payees and amounts to be paid with
respect to all payments to be made of the
Funds paid by MAM. For accounting
purposes, all obligations will be treated
and booked as liabilities and
determinations regarding payments to be
made in satisfaction of the various claims
against, or liabilities of, the Funds are
to be made in accordance with the
following priorities:
(i) expenses of the Funds accrued for
services provided by, or other
liabilities of the Funds to,
unaffiliated third parties (persons
or entities who are not "Hawthorne
Affiliates," as defined below).
These expenses or liabilities will be
prioritized in accordance with how
recently they were accrued, i.e.,
expenses for services recently
performed by the Funds' auditors
shall have priority over any
liability for the costs of audits
performed in previous fiscal years;
then,
(ii) expenses or liabilities of the
Funds for services performed by
unaffiliated third parties which were
previously satisfied by way of fee
waivers or reimbursements to the
Funds by HAI, Hawthorne Distributors
Corp. ("HDC"), Charles G. Dyer, or
any of their affiliates
(collectively, "Hawthorne
Affiliates"), in which case payments
will be made directly to the
appropriate Hawthorne Affiliate; then
(iii) expenses or liabilities of the
Funds accrued for services provided
directly by Hawthorne Affiliates, in
which case payments will be made
directly to the appropriate Hawthorne
Affiliate.
As indicated below, no material
change is contemplated in the management
of the Funds, and the management fee
payable by each of the Funds will not
change under each new management
agreement. If the Acquisition is
consummated, MAM plans to retain Charles
G. Dyer in his present role as the
portfolio manager of the Funds.
In addition to the proposed new
advisory agreement, new distribution and
administration agreements would be entered
into with Forum Financial. The Board also
approved a new Rule 12b-1 plan, and
determined to recommend to shareholders
that they approve the new management
agreement and new Rule 12b-1 plan.
The assets that are to be transferred
by HAI to MAM in the Acquisition (the
"Acquired Assets") would consist of
interest in, and claims and rights under,
its investment advisory, selling,
administration, lease and other agreements
and contracts relating to the Funds or the
management or operation thereof; rights
and interests of HAI in the permits,
approvals, licenses and registrations
issued in connection with the businesses
of HAI, to the extent transferable, and
certain other intangible property; the
books and records of HAI related to the
management or operation of the Funds; and
research and information (including data
and software) related to the management or
operation of the Funds.
The consummation of the Acquisition
by MAM is subject to the fulfillment of
certain conditions, including the
approval by the shareholders of the Funds
of the new management agreements, the
election of Gerald Morris (and other
nominees acceptable to MAM and named in
this proxy statement) to the Board, and
the adoption by the Board of resolutions
which require at least 75% of the Board to
be comprised of persons who are not
interested persons of HAI or MAM for at
least 3 years following the Acquisition,
consistent with the requirements of
Section 15(f) of the 1940 Act.
HAI and MAM have informed the Company
that they propose to comply with Section
15(f) of the 1940 Act. Section 15(f)
provides a non-exclusive safe harbor for
an investment adviser or any of its
affiliated persons to receive any amount
or benefit in connection with a change in
control of the investment adviser as long
as two conditions are met. First, for a
period of three years after the
transaction, at least 75% of the board
members for the investment company must
not be "interested persons" of the
successor or predecessor investment
adviser. Second, an "unfair burden" must
not be imposed on the investment company
as a result of such transaction or any
express or implied terms, conditions or
understandings applicable thereto. The
term "unfair burden" is defined in Section
15(f) to include any arrangement during
the two-year period after the transaction
whereby the investment adviser (or
predecessor or successor investment
adviser), or any interested person of any
such adviser, receives or is entitled to
receive any compensation, directly or
indirectly, from the investment company or
its security holders (other than fees for
bona fide investment advisory or other
services) or from any person in connection
with the purchase or sale of securities or
other property to, from or on behalf of
the investment company (other than bona
fide ordinary compensation as principal
underwriter for such investment company).
HAI and MAM are not aware of any express
or implied term, condition, arrangement or
understanding which would impose an
"unfair burden" on the Funds as a result
of the Acquisition. HAI and MAM and their
respective affiliates will take no action
that would have the effect of imposing an
"unfair burden" on a Fund as a result of
the Acquisition.
Information Pertaining to HAI
HAI was incorporated in 1985 and has
served as investment manager to the Funds
since their commencement of operations in
1990 & 1991. HAI also acts as the
investment manager to private advisory
accounts, including pension accounts. HAI
is owned by Charles G. Dyer, who also owns
HDC. The address of HAI and HDC is One
Lewis Wharf, Boston, Massachusetts 02110.
The names and principal occupations
of the principal executive officer and the
directors of HAI are set forth below. The
address of all the individuals listed is
that of HAI.
Name Principal Occupations
For the Last 5Years
Charles G. Dyer
Chief Investment Officer & CEO.
Gib Dyer Vice
President, Operations.
Hawthorne Associates, Inc. has agreed
to pay excess sums on account of several
accounts payable to professionals incurred
in the ordinary course of business of the
Funds which due to the Funds small size
could not be borne by the Funds. A letter
dated July 17, 1995 was addressed to the
Hawthorne Investment Trust from the
Securities and Exchange Commission, which
detailed those items which were currently
deficient in regard to the two Funds.
This letter has been responded to
appropriately and most of the deficiencies
have been addressed and corrected to the
Funds present capabilities.
Hawthorne Associates, Inc. has been
subject to litigation in the ordinary
course of its business and is confident
that the same will be settled to the
mutual satisfaction of the parties
involved.
Existing and New Investment Management
Agreements
Certain investment management
services are currently provided to each
Fund by HAI pursuant to an investment
management agreement (the "Management
Agreements"). Pursuant to each Management
Agreement, HAI furnishes the Fund with
investment advice and investment
recommendations as to the purchase and
sale of portfolio securities, and in
general manages each Fund's investments
subject to the ultimate supervision and
direction of the Board.
Pursuant to the Management Agreement,
for furnishing each Fund with investment
advice and investment management and
administrative services with respect to a
Fund's assets, including making specific
recommendations as to the purchase and
sale of portfolio securities, furnishing
requisite office space and personnel, and
in general superintending and managing
each Fund's investments subject to the
ultimate supervision and direction of the
Board, HAI is paid monthly a fee as set
forth below:
Bond Sea
Fund Fund
Present 0.50% 0.725
Management Fee %
(as a % of
Total Assets)
Proposed 0.50% 0.725
Management Fee %
(as a % of
Total Assets)
Other Expenses
(with expense
limitations):
Custodian 0.35% 0.35%
and
Transfer
Agency Fees
and Expenses
Amortization 0.05% 0.20%
of Deferred
Expense
Other Fees and 0.05% 0.15%
Expenses
Present 12b-1 0.00% 0.00%
Expenses
Proposed 12b-1 0.25% 0.25%
Expenses (per
annum of
average daily
net assets)
Total 1.675% 1.20%
Operating
Expenses
Example:
You would pay the following expenses
on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the
end of each time period:
One Year Three Years
Five Years Ten Years
Sea Fund $15 $46
$78 $172
Bond Fund $10 $31
$54 $120
HAI has agreed to reduce its aggregate
fees for any fiscal year, or reimburse a
Fund, to the extent required so that a
Fund's expenses do not exceed the expense
limitations applicable to such Fund under
its Management Agreement and/or the
securities laws or regulations of those
states or jurisdictions in which such
Fund's shares are registered or qualified
for sale.
The new management agreements ("New
Management Agreements") between the Funds
and MAM are similar in all material
respects to the existing Management
Agreement, except for the identity of the
Funds' manager and the dates of their
execution, effectiveness and termination.
A form of the New Management Agreement is
included in this proxy statement as
Exhibit B.
For each Fund, the New Management
Agreement will remain in effect for an
initial period of two years and may
continue thereafter from year to year if
specifically approved at least annually
by: (i) the vote of a majority of the
Board Members of each Fund who are not
parties to the New Management Agreement or
"interested persons" of any such party,
cast in person at a meeting called for
that purpose; or (ii) a majority of the
outstanding voting securities of the
Funds, within the meaning of the 1940's
Act. Each New Management Agreement may be
terminated by either party at any time
without penalty upon 60 days' notice, and
will automatically terminate in the event
of its assignment. Termination will not
affect the right of MAM to receive
payments on any unpaid balance of the
compensation earned prior to termination.
MAM may from time to time voluntarily
waive a portion of its management fee.
Deliberations by the Board
(i) New Management Agreements
On November 30, 1995, the Board
approved the New Management Agreements,
subject to shareholder approval.
In determining to recommend approval
of the New Management Agreements to the
shareholders, the Board members inquired
into a number of matters and considered
the following factors, among others:
(1) HAI's desire to reduce the
extent and scope of its investment
company business and to limit
additional cost overruns.
(2) Gerald Morris' commitment to the
development and expansion of an
investment company business under
MAM, and the potential capabilities
and resources of MAM.
(3) The intention of MAM to employ
Charles Dyer and Gib Dyer, the
present portfolio management
personnel of HAI, and its expectation
that those persons will continue to
render substantially the same
portfolio management services with
regard to the Funds as they are
currently rendering.
(4) The fact that the management
fees and management services to be
performed under the New Management
Agreements would likely be the same
or an improvement over those under
the existing Management Agreements,
and that terms of the agreements are
similar in all material respects,
except for the identity of the
investment adviser, the dates of
their execution, and effectiveness
and termination.
(5) The possibility that having
Forum Financial act as the
distributor of the Funds would
increase the assets and economies of
scale of the Funds.
As a result of their considerations,
the Board determined that the New
Management Agreements would be in the best
interests of the Funds and their
shareholders. The Board also determined
that the New Management Agreements would
not "result in any unfair burden" to the
Funds within the meaning of the 1940 Act.
Accordingly, the Board unanimously
approved the New Management Agreements and
voted to recommend them to shareholders
for approval.
(ii) New Administration Agreement
In anticipation of the Acquisition,
the Board approved a new administration
agreement with Forum Financial, to take
effect if Proposal 1 is approved by
shareholders and upon consummation of the
Acquisition. The new administration
agreement would provide for Forum
Financial to act as administrator for the
Funds. See Fund Exhibit B. No
shareholder approval of the new
administration agreement is being sought
in this proxy statement.
Morris Asset Management, Inc. and its
Principal Executive Officer
MAM was organized as a Delaware
corporation on July 18, 1995. MAM has no
operating history as an investment
manager, although its chief executive
officer has substantial experience serving
on the boards of trustees/directors of
mutual funds. However, MAM has stated
that it intends to employ the investment
management personnel related to the Funds
currently employed by HAI. Such persons
have extensive experience in managing
mutual funds and providing investment
advisory services to pension plans and
other clients.
The names and principal occupations
of the principal executive officer and
initial director of MAM are set forth
below.
Principal Occupations
Name, Age & Address Position with MAM
for the last 5 Years
Gerald E. Morris, 63 Chairman
of
the
Boa
rd
and
Chi
ef
Int
ali
te
Int
ern
ati
ona
l
437 Madison Avenue Executive Officer.
N.V.; from 1987 to 1995, 39th
Floor
Independent Trustee of the
New York, NY 10022
Blanchard Group of Funds;
Dir
ect
or
of
Bea
con
Tru
st
Com
pan
y.
Required Vote
In order to approve Proposal 1, the
affirmative vote of a "majority of the
outstanding voting securities", as defined
by the 1940 Act, of a Fund is required.
The Board's recommendation is made because
the present size of the Funds hinders the
ability for growth in net assets and net
asset value, and the acceptance of Morris
Asset Management, Inc. and the investment
of the corresponding described above will
advance the interest of the shareholders
in terms of information distribution,
regulatory compliance, attraction of
additional investment and shareholders,
and an increase in net asset value. The
Board unanimously recommends that
shareholders vote FOR the approval of the
New Investment Management Agreements
between the Funds and MAM.
PROPOSAL 2
ELECTION OF BOARD MEMBERS TO SERVE
IF SHAREHOLDERS APPROVE
THE PROPOSED INVESTMENT MANAGEMENT
AGREEMENT
AND UPON CONSUMMATION OF THE ACQUISITION
Nominees for Election to the Board
The Board will consist of four
members. It is proposed that shareholders
elect as Board members the individuals
(the "Nominees") listed below, each to
serve until his or her successor is duly
elected and qualified. The term of office
of the persons elected to serve as Board
members of the Funds will commence on the
date of the resignations of current Board
members, which are expected to occur on
the date of the closing of the
Acquisition. Biographical information
about the Nominees and other relevant
information is set forth below. Each
Nominee has consented to being named in
this proxy statement and has agreed to
serve as a Board Member if elected. The
Board reserves the right to substitute
another person or persons of their choice
as nominee or nominees if a Nominee is
unable to serve as a Board Member at the
time of the Meeting for any reason; any
such additional nominee(s) will be persons
designated by Gerald Morris. Nothing,
however, currently indicates that such a
situation will arise.
Nominee Age Principal
Occupations Year First
Became
of Last Five Years a Board
Member
Harold Schroeder, 60 From 1960 to
present, Joseph Board Member Joseph J. Blake &
Assoc., Inc. J. Blake and Assoc. Banking since
1995 2121 San Jacinto, Suite 1570 Condemnation,
Nationwide Appraisal
Dallas, TX 75205 Southwest regional
manager, Principal of the company.
Ellyn Brown Dec. 1994 to present,
Partner, Dukes Nominee 3801
Canterbury Road Evans Rozner Brown & Stierhoff,
Suite 1009 Annapolis, MD. Adjunct
Faculty
Baltimore, MD 21218 Member, University
of Maryland
School of Law. Sept.
1992 - Jan. 1993
Interim Executive
Director, North
American Securities
Administrators
Association. July 1987
- - Sept. 1992.
Securities
Commissioner for the
State of Maryland.
Gerald Morris, 63 From 1968 to
present, Nominee
437 Madison Avenue Chairman & Chief
Executive
39th Floor Officer, Intalite
International,
New York, NY 10022 N.V.: from 1987 to
1985,
Independent Trustee
of the
Blanchard Group of
Funds;
Director of Beacon
Trust
Company.
Leigh A. Wilson, 51 From 1989 to
present, Nominee
Glenleigh International Chairman and
Chief
Ltd. Executive Officer,
Glenleigh
53 Sylvan Road North International
Limited; from
Westport, CT 06880 1984 to 1989,
Chief
Executive Officer,
Paribas
North America and
Paribas
Corporation; Trustee
of The
Victory Portfolios,
The Victory
Funds and the Spears,
Benzak
Salomon and Farrell
Funds.
It is anticipated that upon consummation
of the Acquisition, Louis Transou and
Charles Dyer will resign as trustees and
will be replaced by Gerald Morris, Leigh
Wilson, and Ellyn Brown, whose
qualifications are described above.
Committees of the Board
Presently there are no committees set
for the Board.
Remuneration of Board Members and Officers
Commencing upon the Acquisition of
the Funds, each Fund will pay each
"disinterested" Board member the Fund's
pro rata share of: (i) an annual retainer
of $1,000; (ii) $500.00 per quarterly and
special Board meeting; (iii) $500.00 per
committee meeting; and (iv) $250.00 per
special telephonic meeting. The pro rata
share paid by the Acquired Fund will be
based upon the Fund's average net assets
for the previous quarter as a percentage
of the average net assets of both Funds.
For each Fund's most recent fiscal year
there were no board meetings held, and no
remuneration was paid to the Board
members.
Executive Officers of the Funds
The following person currently is the
principal executive officer of the Funds:
Principal
Occupations
Name Age For the Last Five
Years
Charles G. Dyer 58
Chief Investment Officer
and CEO, Hawthorne Associates, Inc.
Required Vote
A majority of the votes cast at each
Fund's Meeting, assuming a quorum is
present, is required for the election of
the Board members. The Board's
recommendation of the above slate of
directors is made in view of the 1940
Act's requirements as to disinterested
Trustees, and the proposed Trustees
represent a selection of individuals with
exemplary experience and background in the
area of mutual fund investment and
management available to the shareholders.
The Board unanimously recommends that
shareholders vote FOR the above slate of
Nominees. If the Acquisition described in
Proposal 1 of this proxy statement is not
consummated with respect to both Funds,
Proposal 2 will not be implemented, even
if the shareholder vote necessary to adopt
it is received.
PROPOSAL 3
RATIFICATION OF THE SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board, including a majority of the
Board members who are not "interested
persons" of the Funds as defined by the
1940 Act, have selected the firm of
Anchin, Block & Anchin LLP to serve as
independent public accountants of the
Funds for the fiscal year ending October
31, 1996, subject to the right of each
Fund to terminate such employment
immediately without penalty by vote of a
majority of the outstanding voting
securities of a Fund at any meeting called
for such purpose. The Board's selection
is submitted to the shareholders for
ratification.
Services were performed by Bruce E.
Lavigne, CPA during the most recent years
including an audit of the financial
statements of the Funds and services
related to filings with the Securities and
Exchange Commission. Prior to that such
services were provided by Coopers &
Lybrand. There were no disputes with
previous auditors, vis. Coopers & Lybrand,
and the change was necessary due to the
reduced size of the Funds. Anchin, Block
& Anchin LLP has informed the Funds that
neither Anchin, Block & Anchin LLP nor any
of its partners has any direct or indirect
financial interest in the Funds except as
auditors and independent public
accountants. Representatives of Anchin,
Block & Anchin LLP are not expected to be
present at the Meeting but have been given
the opportunity to make a statement if
they so desire, and will be available
should any matter arise that requires
their participation.
Required Vote
In order to approve Proposal 3 and
thereby ratify the selection of
independent public accountants, a vote of
a majority of the shares represented in
person or by proxy at the meeting,
assuming a quorum is present, is required.
The Board's recommendation is made because
the proposed accountants maintain offices
and support staffing with the necessary
capacity to address and fulfill the Boards
anticipated increase in fund accounting
work, and because the recommended have
demonstrated an exemplary track record in
the field of mutual fund accounting. The
Board unanimously recommends that
shareholders vote FOR the ratification of
the selection of Anchin, Block & Anchin
LLP as independent public accountants for
the fiscal year ending October 31, 1996.
PROPOSAL 4
APPROVAL OF RULE 12b-1 PLAN
Introduction
Rule 12b-1 (the "Rule"), adopted by
the SEC under the 1940 Act, provides,
among other things, that an investment
company may bear expenses of distributing
its shares only pursuant to a plan (a
"Rule 12b-1 Plan") adopted in accordance
with the Rule.
It is proposed that, effective upon
the consummation of the Acquisition, a new
Rule 12b-1 Plans for the Funds be approved
as described below. A form of the new
Rule 12b-1 Plan applicable to each Fund is
attached as Exhibit C.
Shareholders should review Exhibit C
and the section below that describes the
Rule 12b-1 Plan.
Proposed Rule 12b-1 Plans
It is proposed that each Fund adopt a
Rule 12b-1 Plan under which the Fund will
pay up to a maximum of 0.25% per annum of
its average daily net assets for expenses
incurred in the distribution of the Fund's
shares (the "Plan").
Pursuant to the Plan, Forum Financial
would be entitled to reimbursement (up to
the maximum of 0.25% per annum of average
net assets of each Fund) for its actual
expenses incurred in the distribution and
promotion of a Fund's shares, including
the printing of prospectuses and reports
used for sales purposes, expenses for
preparation and printing of sales
literature and other related expenses,
including any distribution or service fees
paid to securities dealers or institutions
who have executed a distribution or
service agreement with Forum Financial.
Forum Financial may include as an expense
a portion of its overhead, including out-
of-pocket costs.
The Plan is classified as a
"compensation" plan in which the annual
level of payments is fixed as a percentage
of each Fund's average daily net assets.
Because there would be no requirement
under the plan that Forum Financial be
reimbursed for all its expenses or any
requirement that the Plan be continued
from year to year, this excess amount
would not constitute a liability of the
Fund. Any cumulative expenses incurred by
Forum Financial but not recovered through
distribution fees, may or may not be
recovered through future distribution
fees. If Forum Financial's actual
distribution expenditures in a given year
are less than the Rule 12b-1 payments it
receives from the Fund for that year, and
no effect is given to previously
accumulated distribution expenditures in
excess of the Rule 12b-1 payments borne by
Forum Financial out of its own resources
in other years, the difference could be
viewed as "profit" to the Distributor for
that year. The Chief Financial Officer of
the Fund will report to the Board on a
quarterly basis, and the Board will
review, each quarter, the amounts expended
under the Plan and the purposes for which
expenditures were made.
In the event the Plan is terminated in
accordance with its terms, the obligations
of a Fund to make payments to Forum
Financial pursuant to the Plan cease and a
Fund will not be required to make any
payments for expenses in excess of amounts
currently reimbursable for a Fund.
Action by the Board
The Board, including a majority of the
trustees who are not "interested persons"
(as defined in the 1940 Act) and who have
no direct or indirect financial interest
in the operation of the proposed Plan
("Qualified Trustees"), has adopted the
Plan subject to shareholder approval. At
the meeting, shareholders of the
respective Funds will be asked to ratify
the Board's prior approval of the Plan.
The Plan may be terminated as to
either Fund by the vote of a majority of
the trustees who are not "interested
persons" or by the vote of "a majority of
the outstanding voting securities" (as
defined under the 1940 Act) of that Fund.
The Plan will continue in effect so long
as within each one-year period such
continuance is specifically approved by
the vote of a majority of the trustees
(which also must include a majority of the
Qualified Trustees). If the Plan is
terminated or not reviewed with respect to
a Fund, it may continue in effect with
respect to the other Fund as to which it
has not been terminated or has been
renewed.
Any change in a Plan that would
materially increase the distribution costs
to a Fund requires shareholder approval;
otherwise, the Plan may be amended by the
Trustees.
If the Plan is successful in
increasing the size of the Funds through
advertising and other promotional
expenditures, MAM will benefit by way of
increased investment advisory fees due to
the increase in the net assets of the
Fund. Because all amounts of distribution
fees paid pursuant to the Plan will be
paid to Forum Financial and, through it,
to its officers, directors and employees,
such persons may be deemed to have a
direct or indirect financial interest in
the operation of the Plan.
At the time that the Plan was approved
by the Board, the Trustee, in the exercise
of their reasonable business judgment and
in light of their fiduciary duties under
Massachusetts law and the 1940 Act,
determined based upon material requested
and evaluated by them, that the Plan was
reasonably likely to contribute to an
increase in sales of the shares of the
Funds. The Board determined that there is
a reasonable likelihood that the Plan will
benefit the Funds and shareholders by
facilitating distribution of the Funds'
shares to customers of broker-dealers and
other persons, thereby achieving economies
of scale resulting from a larger
portfolio.
In making its determination to adopt
the Plan, the Board considered general
trends in pricing structures for mutual
funds distributed through dealer networks
and determined that the ability to
compensate third party broker-dealers for
promoting and selling Fund shares would
likely increase sales, enhance the Fund's
ability to maintain accounts and therefore
improve asset retention. The Board also
concluded that third party marketing
efforts under the Plan, if successful,
could increase the Fund's ability to
maintain a stable level of net assets,
which could in turn contribute to the
stability of the Funds' portfolio
positions and afford greater flexibility
in pursuing the Funds' investment
objectives. The Board, and in particular,
the Qualified Trustees, recognized that
they are able to influence the nature,
manner and amount of expenditures under
the plan by being able to review reports
of the Forum Financial's distribution
expenditures, and by being able to
terminate the Plan and thereby end all
obligations of the Fund to make payments
thereunder, at any time.
The Board also considered, among other
things, the following factors: (i) the
need to consult independent counsel or
experts to assist them in reaching a
determination whether to adopt the Plan;
(ii) the nature of the problems or
circumstances that make implementation of
the Plan necessary or appropriate; (iii)
the causes of such problems or
circumstances; (iv) the way in which the
Plan would address these problems or
circumstances and how it would be expected
to resolve or alleviate them, including
the nature and approximate amount of the
expenditures, the relationship of such
expenditures to the overall cost structure
of the Fund, the nature of the anticipated
benefits, and the time it would take for
those benefits to be achieved; (v) the
merits of possible alternative plans; (vi)
the interrelationship between the Plan and
the activities of any other person who
finances distribution of the Fund's
shares, including whether any payments to
the Fund to any such other person are made
in such a manner as to constitute the
indirect financing distribution by the
Fund; (vii) the possible benefits of the
Plan to any other person relative to those
expected to inure to the Fund; and (viii)
the effect of the Plan on the Fund's
shareholders.
Distribution Contract
A Distribution Contract (the
"Distribution Contract") between the Funds
and Forum Financial has been adopted by
the Board of Trustees. A copy of the
Distribution Contract is attached as
Exhibit D. Pursuant to the Distribution
Contract, Forum Financial will act as the
principal distributor of the Funds'
shares.
Under the Distribution Contract, Forum
Financial will bear the cost of printing
all sales literature and prospectuses
required for its purposes. It would be
entitled to apply payments it receives
under the Plan towards these expenses.
The costs of printing the Funds' quarterly
and annual reports to shareholders and
maintaining a current prospectus, and
related accounting and legal fees, would
be paid by the Fund. The Fund bears the
expenses of registering its shares with
the Commission and the cost of qualifying
and maintaining the qualification of its
shares for sale under the securities laws
of various states.
The Distribution Contract may be
terminated at any time on 60 days' written
notice, without the payment of any
penalty, by the Distributor or by a "vote
of the majority of the outstanding voting
securities" (as defined under the 1940
Act) of the Fund or by the Fund acting
pursuant to a resolution of the Board.
Payments reallocated by Forum
Financial for distribution assistance and
shareholder services are subject to the
terms and conditions of written agreements
between the Distributor and each broker-
dealer or other person providing such
services. Such agreements must be in a
form satisfactory to the Board. The
Distributor will receive and retain all
Rule 12b-1 distribution fees that are not
reallocated to others.
Other Information
Approval of the Plan will require the
"vote of the majority of the outstanding
voting securities" of each Fund, as
defined under the 1940 Act to mean the
affirmative vote of the holders of (i) 67%
or more of the outstanding shares of the
shares present or represented at the
Meeting, if the holders of more than 50%
of the outstanding shares of the shares
are present or represented by proxy, or
(ii) more than 50% of the outstanding
shares of the shares, whichever is less.
Required Vote
In order to approve Proposal 4, the
affirmative vote of a "majority of the
outstanding voting securities", as defined
by the 1940 Act of a Fund is required. The
Board's recommendation is made because the
board anticipates that the 12b-1 plan will
be successful in increasing the size of
the Funds through advertising and other
promotional expenditures. The Board
unanimously recommends that shareholders
vote FOR the approval of the new Rule 12b-
1 Plans. If the acquisition described in
Proposal 1 of this proxy statement is not
consummated with respect to a Fund,
Proposal 4 will not be implemented with
respect to that Fund, even if the
shareholder vote necessary to adopt it is
received.
ADDITIONAL INFORMATION
Shareholder Proposals
The Funds need not hold annual
shareholder meetings, except as required
by the 1940 Act or under applicable state
law. Therefore, it is probable that no
annual meeting of shareholders will be
held in 1996 or in subsequent years until
so required. For those years in which
annual meetings are held, the Funds intend
to present for inclusion in the proxy
materials with respect to the annual
meeting of shareholders must be received
at the Company's principal executive
offices within a reasonable period of time
before the proxy solicitation for that
meeting is made, and must comply with all
other legal requirements in order to be
included in the Fund's proxy statement and
form of proxy for that meeting.
By Order of the Board
Charles G. Dyer
Chairman
Boston, Massachusetts
March 26, 1996
