KL2:117673.2
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 February 28 , 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 February 28, 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 Seymour Schneidman & Co. 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 January 2, 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
February 5, 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 February 28, 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
January 2, 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. The Funds may reimburse such
broker-dealer firms, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection with such proxy solicitation.
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 January 2, 1996:
Bond Fund: 49,243.206
Sea Fund: 76,659.290
Proxy materials have been mailed to shareholders of record on or about
February 18, 1996.
Copies of the most recent annual and semi-annual reports of the Funds,
including financial statements, are included with your proxy materials.
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 p
an 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 nat
licitation 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
lder 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 cal
h respect to such matter.
To the best of the Company's knowledge, as of January 2, 1996, the
following persons beneficially owned 5% or more of the outstanding shares
of the fund mentioned:
Bond Fund: Mr. Frank Bonna, Mr. Cono Borrelli, Mr. Al Speckman.
Sea Fund: Mr. Cono Borrelli, Mr. L. Conover, Mr. John T. Names
PROPOSAL 1
APPROVAL OF A 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 January 2, 1996.
From May 1995 through November 1995, HAI and Charles Dyer, and MAM and
Gerry 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
Gerry 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 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 Agreement requires that shareholders of each Fund approve a new
investment advisory agreement with MAM. The Agreement also requires that
shareholders approve a new distribution agreement with Forum Financial.
Furthermore, the Agreement requires shareholder 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 on a primary basis through other employees.
All expenses of the Funds in connection with the Special Meeting of
Shareholders pursuant to which these approvals are being solicited are to be
paid by the Funds. [Nevertheless, it is not expected that the Funds will
incur any substantial expense in light of MAM's agreement to reimburse the
Funds.]
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 Funds.
Assuming shareholder approval of the Proposals set forth in this Proxy
Statement, MAM will pay the amount of $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.
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.
The consummation of the transactions contemplated by the Agreement is
subject to the fulfillment of a number of conditions, including the receipt
of the approvals referred to above, as well as the election as trustees of
the Trust of the 3 nominees of MAM.
As indicated below, no material change is contemplated in the management
or operations 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 of 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 all aforementioned
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 Fund Sea Fund
Management Fee: 0.50% 0.725%
(As a percentage of average net assets)
HAI will 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 an Exhibit.
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 vote of the
shareholders. 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. 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. 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 each 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 Board and Chief
437 Madison Avenue Executive Officer, Intalite
39th Floor International
N.V.; from 1987 to 1995,
Independent Trustee of the
Blanchard Group of Funds;
Director of Beacon Trust Company.
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 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 consnted 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 a nominee or nominees if a Nominee is
unable to serve as 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 arrise.
Nominee Age Principal Occupations
of Last Five Years
Harold Schroeder See Attached Resume Board Member since 1995
Ellyn Brown See Attached Resume Nominee
3801 Canterbury Road
Suite 1009
Baltimore, MD 21218
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.
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.
Executive Officers of the Funds
The following persons currently are principal executive officers of the Funds:
Principal Occupations
Name Age For the Last Five Years
Charles G. Dyer 58 Chief Investment Officer
and CEO, Hawthorne Associates, Inc.
It is anticipated that upon consummation of the Acquisition, Louis
Transou and Charles Dyer will resign as directors and will be replaced
by Gerald Morris, Leigh Wilson, and Ellyn Brown, whose qualifications are
described under "Nominees for Election to the Boards."
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 Boards
unanimously recommend 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 a Fund, Proposal 2 will not be
implemented with respect to that Fund, 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 Seymour Schneidman 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. Seymour Schneidman has
informed the Funds that neither Seymour Schneidman nor any of its partners
has any direct or indirect financial interest in the Funds except as
auditors and independent public accountants. Representatives of Seymour
Schneidman 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 unanimously recommends that shareholders
vote FOR the ratification of the selection of Seymour Schneidman 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, new
Rule 12b-1 Plans for the Funds be approved as described below. A form of
new Rule 12b-1 Plan applicable to each Fund is attached.
Shareholders should review the Fund Exhibit 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 ,ay 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 steady level of net assets, which could in tern contribute to the
stability of the Fund's portfolio positions and afford greater flexibility
in pursuing the Funds' investment objectives. The Board, and in particular,
the Qualified Trustees, recognize that they are able to influence the nature,
manner and amount of 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 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 activites of any other person who
finances distribution of the Fund's shares, including whether any paymenyts
to the Fund to any such other person are made in such a manner as to
constitute the indirect financing distribution by the Fund; (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 an Exhibit. 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
qualifing 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 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
February 5, 1996
