CRM
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F U N D S
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SMALL CAP VALUE FUND
MID CAP VALUE FUND
LARGE CAP VALUE FUND
VALUE FUND
INSTITUTIONAL SHARES
PROSPECTUS
AUGUST 21, 1998
EACH OF THESE FUNDS SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES, USING A VALUE-ORIENTED APPROACH.
INVESTMENT ADVISER:
CRAMER ROSENTHAL MCGLYNN, LLC
1-800-CRM-2883
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TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................................... 4
FEE TABLES.................................................................. 5
FINANCIAL HIGHLIGHTS........................................................ 7
PERFORMANCE................................................................. 7
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS................................. 8
Investment Objectives....................................................... 8
Investment Strategies....................................................... 9
Investment Risks............................................................ 9
INVESTMENT POLICIES........................................................ 10
ADDITIONAL INVESTMENT PRACTICES............................................ 12
MANAGEMENT................................................................. 13
Investment Adviser......................................................... 13
Administrator ............................................................. 15
Distributor ............................................................... 15
Transfer Agent............................................................. 16
Expenses of the Trust...................................................... 16
INVESTMENT IN A FUND....................................................... 17
Purchase and Redemption of Shares.......................................... 17
Purchase and Redemption Procedures......................................... 17
Exchange Privilege..........................................................20
Other Investment Information............................................... 21
DIVIDENDS AND TAX MATTERS.................................................. 21
Dividends.................................................................. 21
Taxes...................................................................... 21
OTHER INFORMATION.......................................................... 22
Determination of Net Asset Value........................................... 22
The Trust and Its Shares................................................... 22
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CRM
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FUNDS
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SMALL CAP VALUE FUND
MID CAP VALUE FUND
LARGE CAP VALUE FUND
VALUE FUND
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FUND INFORMATION: SHAREHOLDER ACCOUNT INFORMATION:
Forum Financial Services, Inc. Forum Shareholder Services, LLC
Two Portland Square P.O. Box 446
Portland, Maine 04101 Portland, Maine 04112
800-CRM-2883 800-844-8258
800-276-2883
http://www.crmfunds.com
INVESTMENT ADVISER:
Cramer Rosenthal McGlynn, LLC
707 Westchester Avenue
White Plains, New York 10604
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PROSPECTUS
AUGUST 21, 1998
This Prospectus offers Institutional shares ("Institutional Shares") of the
Small Cap Value Fund, Mid Cap Value Fund, Large Cap Value Fund and Value Fund
(each a "Fund" and collectively, the "Funds"), each a diversified portfolio of
The CRM Funds (the "Trust"), an open-end, management investment company.
The Funds seek long-term capital appreciation by investing primarily
in equity securities , using a value-oriented approach. Shares of
the Funds are offered to investors without any sales charge.
Please read this Prospectus before investing in the Funds,
and retain it for future reference. It contains
important information about the Funds, their
investments and the services available to shareholders.
To learn more about the Funds and the Trust, you may obtain a copy of the Funds'
Statement of Additional Information, dated August 21, 1998, as amended from time
to time (the "SAI"). The SAI has been filed with the Securities and Exchange
Commission ("SEC") and is available together with other related materials for
reference on the SEC's Internet Web Site (http://www.sec.gov). The SAI is
incorporated by reference into this Prospectus and may be obtained without
charge from the Trust by writing to Two Portland Square, Portland, Maine 04101
or by calling 1-800-CRM-2883.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROSPECTUS SUMMARY
SMALL CAP VALUE FUND
GOAL: Long -term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with small market
capitalizations, using a value-oriented approach. A small capitalization company
has a market capitalization -- in other words, the value the stock market
assigns all of the company's shares -- of $1 billion or less at the time of the
Fund's investment.
MID CAP VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with medium market
capitalizations, using a value-oriented approach. A medium capitalization
company has a market capitalization between $1 billion and $10 billion at the
time of the Fund's investment.
LARGE CAP VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with large market
capitalizations, using a value-oriented approach. A large capitalization company
has a market capitalization of greater than $10 billion at the time of the
Fund's investment.
VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with varying
market capitalizations, using a value-oriented approach.
MANAGEMENT
Cramer Rosenthal McGlynn, LLC (the "Adviser") is each Fund's investment adviser
and makes investment decisions for the Funds. Forum Administrative Services, LLC
serves as the Funds' administrator and Forum Financial Services, Inc. is the
distributor of the Funds. SEE "Management" for more detailed information.
The Adviser employs a "value" approach to the Funds' investments, seeking to
identify companies that have experienced fundamental change, are intrinsically
undervalued or are misunderstood by the investment community. The portfolio
managers view investment prospects on a long-term basis and do not attempt to
time the market. See "Investment Objectives, Strategies and Risks" for more
detailed information.
SHARES OF THE FUNDS
Each Fund currently offers two separate classes of shares: Investor Shares and
Institutional Shares. Institutional Shares are sold through this Prospectus.
Investor Shares are offered by a separate prospectus. Shares of each class of a
Fund have identical interests in the investment portfolio of the Fund and, with
certain exceptions, have the same rights. See "Other Information -- The Trust
and Its Shares."
PURCHASES AND REDEMPTIONS
Shares of the Funds may be purchased or redeemed without any sales charges
Monday through Friday except on days that the New York Stock Exchange is closed
("Fund Business Day"). The initial minimum investment for each Fund is
$1,000,000. There is no minimum for subsequent investments in Institutional
Shares of a Fund. SEE "Investment in a Fund" for more detailed information.
DIVIDENDS
For the Small Cap Value Fund, Mid Cap Value Fund and Value Fund, dividends
representing the net investment income are declared and paid at least annually
by each Fund. For the Large Cap Value Fund, dividends representing the net
investment income are declared and paid at least quarterly. Net capital gains
realized by a Fund, if any, also will be distributed annually. Dividends and
distributions are reinvested in additional shares of a Fund unless a shareholder
elects to have them paid in cash. SEE "Dividends and Tax Matters" for more
detailed information.
RISK CONSIDERATIONS
The Funds do not invest for income, and each Fund does not by itself provide a
complete or balanced investment program. The Funds may be an appropriate
investment for investors willing to
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tolerate significant fluctuations in a Fund's net asset value while seeking
long-term returns that are potentially higher than market averages. A company's
market capitalization is the total market value of its outstanding common stock.
The securities of small and medium capitalization companies typically are more
thinly traded than those of larger companies. Small and medium capitalization
securities may have greater growth potential in the long-run than other types of
securities. In the shorter term, however, the prices of small and medium
capitalization securities may fluctuate significantly in response to news about
the company, the markets or the economy. Other investments and investment
techniques of the Funds, such as investments in securities of foreign issuers,
may entail additional risks or have speculative characteristics. SEE "Investment
Objectives, Strategies and Risks" for more detailed information.
Of course, as with any mutual fund, there is no assurance that a Fund will
achieve its investment objective.
FEE TABLES
The following tables should help you understand the various costs and expenses
that you will bear if you invest in a Fund.
Shareholder transaction expenses are charges an investor would pay when buying,
selling or exchanging shares of a Fund. Operating expenses, which are paid out
of a Fund's assets, and other expenses for services, such as maintaining
shareholder accounts, are factored into a Fund's share price and not charged
directly to shareholder accounts.
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Shareholder Transaction Expenses
- ------------------------------------------ --------
Maximum sales load imposed on None
purchases
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Maximum sales load imposed on None
reinvested dividend
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Deferred sales load None
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Redemption Fees None
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Exchange Fees None
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Annual Fund Operating Expenses 1
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SMALL CAP VALUE FUND
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Advisory Fees 0.75%
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12b-1 Fees None
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Other Expenses
Shareholder Servicing Fees None
Other Expenses 0.40%
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Total Fund Operating Expenses 1.15%
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MID CAP VALUE FUND
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Advisory Fees 0.75%
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12b-1 Fees None
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Other Expenses
Shareholder Servicing Fees None
Other Expenses 0.40%
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Total Fund Operating Expenses 1.15%
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- ----------------------------------------- ---------
LARGE CAP VALUE FUND
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Advisory Fees 0.75%
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12b-1 Fees None
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Other Expenses
Shareholder Servicing Fees None
Other Expenses 0.40%
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Total Fund Operating Expenses 1.15%
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VALUE FUND
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Advisory Fees 0.75%
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12b-1 Fees None
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Other Expenses
Shareholder Servicing Fees None
Other Expenses 0.40%
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Total Fund Operating Expenses 1.15%
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1 Annual Fund Operating Expenses are calculated as a percentage of average net
assets. The Adviser has voluntarily undertaken to waive a portion of its fees
and assume certain expenses of each Fund to the extent that total expenses
exceed 1.15%.
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses that an investor in Institutional Shares of a Fund would pay assuming a
$1,000 investment in the Fund, a 5% annual return, the reinvestment of all
dividends and distributions and redemption at the
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end of each period. The example is based on projected expenses for the first
year of operation of each Fund's Institutional Share class.
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- --------------------- ---------------
Each Fund
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After 1 Year $12
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After 3 Years $37
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The example is based on the expenses listed in the table. The five percent
annual return is not predictive of and does not represent the Funds' projected
returns; rather, it is required by government regulation. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN.
ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
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FINANCIAL HIGHLIGHTS
Prior to January 2, 1998, Institutional Shares were not offered. The following
table represents selected data for a single outstanding Investor Share of the
Small Cap Value Fund as well as data for a single Institutional Share of the
Small Cap Value Fund and the Mid Cap Value Fund for the period of January 2,
1998 through March 31, 1998. The Investor Share class was the first class
offered by the Small Cap Value Fund and, accordingly, represents data since the
Fund's inception. The financial information for the fiscal years ended September
30, 1996 and September 30, 1997 has been audited in connection with an audit of
the Small Cap Value Fund's financial statements by Ernst & Young, LLP,
independent auditors. The Small Cap Value Fund's financial statements and
independent auditors' report thereon are incorporated by reference into the SAI.
The financial information for the Small Cap Value Fund and Mid Cap Value Fund
for the six months ended March 31, 1998, has not been audited. Further
information about the Small Cap Value Fund's performance is contained in the
Annual Report to shareholders, which may be obtained from the Trust without
charge by calling 1-800-CRM-2883.
- ------------------------------------------------- ------------- ------------
Small Cap Value Fund -- Year Ended Year Ended
Investor Shares 9/30/1996 9/30/1997
- ------------------------------------------------- ------------- ------------
BEGINNING NET ASSET VALUE PER SHARE $10.00 $13.71
- ------------------------------------------------- ------------- ------------
Investment Operations
- ------------------------------------------------- ------------- ------------
Net investment loss (0.02) (0.06)
- ------------------------------------------------- ------------- ------------
Net realized and unrealized gain on 3.73 4.89
securities
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Distributions from
- ------------------------------------------------- ------------- ------------
Net investment income --(a) --
- ------------------------------------------------- ------------- ------------
Net realized gain on investments -- (0.86)
- ------------------------------------------------- ------------- ------------
Total distributions -- (0.86)
- ------------------------------------------------- ------------- ------------
ENDING NET ASSET VALUE PER SHARE $13.71 $17.68
- ------------------------------------------------- ------------- ------------
- ------------------------------------------------- ------------- ------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------- ------------- ------------
Expenses, including reimbursement/waiver 1.49% 1.50%
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Expenses, excluding reimbursement/waiver 1.98% 1.50%
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Net investment loss, including (0.40)% (0.56)%
reimbursement/waiver
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TOTAL RETURN 37.15% 37.14%
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PORTFOLIO TURNOVER RATE 111.18% 98.91%
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AVERAGE BROKERAGE COMMISSION RATE (b) $0.0374 $0.0560
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NET ASSETS AT THE END OF PERIOD (000's omitted) $45,385 $144,001
- ------------------------------------------------- ------------- ------------
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- ------------------------------------------------- --------------------
Small Cap Value Fund -- Three Months Ended
Institutional Shares 3/31/1998(e)
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BEGINNING NET ASSET VALUE PER SHARE $15.99
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Investment Operations
- ------------------------------------------------- --------------------
Net investment loss (0.01)
- ------------------------------------------------- --------------------
Net realized and unrealized gain on 2.80
securities
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Distributions from
- ------------------------------------------------- --------------------
Net investment income --
- ------------------------------------------------- --------------------
Net realized gain on investments --
- ------------------------------------------------- --------------------
Total distributions --
- ------------------------------------------------- --------------------
ENDING NET ASSET VALUE PER SHARE $18.78
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- ------------------------------------------------- --------------------
RATIOS TO AVERAGE NET ASSETS:
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Expenses, including reimbursement/waiver 1.15% (d)
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Expenses, excluding reimbursement/waiver 1.40% (d)
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Net investment loss, including (0.31)% (d)
reimbursement/waiver
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TOTAL RETURN 16.07% (c)
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PORTFOLIO TURNOVER RATE 29.16%
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AVERAGE BROKERAGE COMMISSION RATE (b) $0.0531
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NET ASSETS AT THE END OF PERIOD (000's omitted) $25,079
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- ------------------------------------------------- ------------------
Mid Cap Value Fund -- Three Months Ended
Institutional Shares 3/31/1998(e)
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BEGINNING NET ASSET VALUE PER SHARE $10.00
- ------------------------------------------------- ------------------
Investment Operations
- ------------------------------------------------- ------------------
Net investment income 0.01
- ------------------------------------------------- ------------------
Net realized and unrealized gain on 1.46
securities
- ------------------------------------------------- ------------------
Distributions from
- ------------------------------------------------- ------------------
Net investment income --
- ------------------------------------------------- ------------------
Net realized gain on investments --
- ------------------------------------------------- ------------------
Total distributions --
- ------------------------------------------------- ------------------
ENDING NET ASSET VALUE PER SHARE $11.47
- ------------------------------------------------- ------------------
- ------------------------------------------------- ------------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------- ------------------
Expenses, including reimbursement/waiver 1.15% (d)
- ------------------------------------------------- ------------------
Expenses, excluding reimbursement/waiver 8.18% (d)
- ------------------------------------------------- ------------------
Net investment income, including 1.01% (d)
reimbursement/waiver
- ------------------------------------------------- ------------------
TOTAL RETURN 14.70% (c)
- ------------------------------------------------- ------------------
PORTFOLIO TURNOVER RATE 16.83%
- ------------------------------------------------- ------------------
AVERAGE BROKERAGE COMMISSION RATE (b) $0.0570
- ------------------------------------------------- ------------------
NET ASSETS AT THE END OF PERIOD (000's omitted) $5,279
- ------------------------------------------------- ------------------
(a) Less than $0.01 per share.
(b) Amount represents the average commission per share, paid to brokers, on the
purchase and sale of portfolio securities.
(c) Not annualized.
(d) Annualized.
(e) Unaudited.
Financial highlights information is not included for the Value Fund as
Institutional Shares for this Fund are not currently offered for sale.
Similarly, no financial highlights information is included for the Large Cap
Value Fund because this Fund commenced operations on the date of this
prospectus.
5
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PERFORMANCE
The Funds may, from time to time, include quotations of their respective average
annual total return, cumulative total return and other non-standard performance
measures in advertisements or reports to shareholders or prospective investors.
Average annual total return is based upon the overall dollar or percentage
change in value of a hypothetical investment each year over specified periods.
Average annual total returns reflect the deduction of a proportional share of a
Fund's expenses (on an annual basis) and assume investment and reinvestment of
all dividends and distributions at NAV. For a description of the methods used to
determine total return and other performance measures for the Funds, please see
the SAI.
The Funds' fiscal year runs from October 1 to September 30. The table below
shows the performance of the Investor Share class of Small Cap Value Fund's
performance over the past fiscal year compared to investing in a broad selection
of stocks as measured by the Russell 2000 Index.
AVERAGE ANNUAL TOTAL RETURNS
-------------------------- ---------------- -------------------
For the year ended Past 1 year Since Inception
6/30/98 (11/3/95)
-------------------------- ---------------- -------------------
Small Cap Value Fund 16.00% 28.15%
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Russell 2000 Index 16.51% 18.86%
-------------------------- ---------------- -------------------
The Funds may also be compared to various unmanaged securities indices, groups
of mutual funds tracked by mutual fund ratings services, or other general
economic indicators. Unmanaged indices may assume the reinvestment of dividends
but do not reflect deductions for administrative and management costs and
expenses and are not available for investment. They also do not include any
allowance for the brokerage commissions or other fees you would pay if you
actually invested in those stocks.
The Russell 2000(R) Index (the "Russell 2000") is a market weighted index
composed of 2000 companies with market capitalizations from $50 million to $1.8
billion. The index is unmanaged and reflects the reinvestment of dividends.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
Each Fund's investment objective is long-term capital appreciation. The
investment objective of a Fund may not be changed without the approval of
shareholders.
SMALL CAP VALUE FUND seeks to achieve its objective by investing at least 65% of
its total assets in the equity securities of small capitalization companies. A
small capitalization company has a market capitalization -- in other words, the
value the stock market assigns all of the company's shares -- of $1 billion or
less at the time of the Fund's investment. Companies whose capitalization
exceeds $1 billion after purchase will continue to be considered small for
purposes of this 65% policy. The Small Cap Value Fund may also invest to a
limited degree in companies that have larger market capitalizations. A company
may have a small market capitalization because it is new or has recently gone
public, or because it operates in a minor industry or regional market. These
companies may respond more quickly to change in an industry, and are expected to
increase their earnings more rapidly than larger companies. Historically, small
companies have offered greater opportunity for capital appreciation than larger,
more established companies. At the same time, investing in small companies can
be riskier than other investments.
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MID CAP VALUE FUND seeks to achieve its objective by investing at least 65% of
its total assets in the equity securities of medium capitalization companies. A
medium capitalization company has a market capitalization between $1 billion and
$10 billion at the time of the Fund's investment. Companies whose capitalization
falls below $1 billion or exceeds $10 billion after purchase will continue to be
considered medium for purposes of this 65% policy. The Mid Cap Value Fund may
also invest to a limited degree in companies that have smaller and larger market
capitalizations.
LARGE CAP VALUE FUND seeks to achieve its objective by investing at least 65% of
its total assets in the equity securities of large capitalization companies. A
large capitalization company has a market capitalization greater than $10
billion at the time of the Fund's investment. Companies whose capitalization
falls below $10 billion after purchase will continue to be considered large for
purposes of this 65% policy. The Large Cap Value Fund may also invest to a
limited degree in companies that have smaller market capitalizations.
VALUE FUND seeks to achieve its objective by investing at least 65% of its total
assets in the equity securities of companies with varying market
capitalizations.
INVESTMENT STRATEGIES
Value investing provides investors with a less aggressive way to take advantage
of growth opportunities of companies. Using a value approach, the Funds will
seek to invest in stocks priced low relative to comparable companies, determined
by price/earnings ratios, cash flows or other measures. Value investing
therefore may reduce downside risk while offering potential for capital
appreciation as a stock gains favor among other investors and its stock price
rises.
The Funds will be managed in accordance with the investment disciplines that the
Adviser and its predecessors, CRM Advisors, LLC and Cramer, Rosenthal, McGlynn,
Inc., have employed in managing their equity portfolios for over twenty-five
years. The Adviser relies on stock selection to achieve its results, rather than
trying to time market fluctuations. It seeks out those stocks that are
undervalued and, in some cases, neglected by financial analysts, evaluating the
degree of investor recognition by monitoring the number of analysts who follow
the company and recommend its purchase or sale to investors. The Adviser begins
the investment process by identifying early dynamic change in a company's
operations, finances, or management. This type of dynamic change tends to be
material, and may create misunderstanding in the marketplace, and result in a
company's stock becoming undervalued.
Once change is identified, the Adviser evaluates the company on several levels.
It analyzes financial models based principally upon projected cash flow, as
opposed to reported earnings. The price of the company's stock is evaluated in
the context of what the market is willing to pay for stock of comparable
companies and what a strategic buyer would pay for the whole company. Another
important consideration is the extent of management's ownership interest in the
company. Finally, the Adviser analyzes the company's market, in most instances,
corroborating its observations and assumptions by meeting with management,
customers, and suppliers.
By reviewing historical relationships and understanding the characteristics of a
business, the Adviser establishes valuation parameters using relative ratios or
target prices. In its overall assessment, the Adviser seeks stocks that it
believes have a greater upside potential than risk over an 18 to 24 month
holding period.
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INVESTMENT RISKS
GENERALLY. An investment in each of the Funds is not by itself a complete or
balanced investment program. Nevertheless, the small, medium, and large
capitalization segments of the equity markets may be an important part of an
investor's portfolio, particularly for long-term investors able to tolerate
short-term fluctuations in a Fund's net asset value.
Because the Adviser will seek securities that are undervalued by the market,
there is a risk that the market will not recognize a security's intrinsic value
for an unexpectedly long time, or that securities the Adviser believes are
undervalued are actually priced appropriately due to intractable or fundamental
problems that are not yet apparent.
SMALL CAP VALUE FUND AND MID CAP VALUE FUND. The Small Cap Value and Mid Cap
Value Funds' investments in small and medium size companies can entail more risk
than investing in larger, more established companies. These companies may have
more limited product lines, markets, and financial resources, making them more
susceptible to economic or market setbacks. Analysts and other investors
typically follow small and medium sized companies less actively, and information
about these companies is not always readily available. For these and other
reasons, the prices of small and mid capitalization securities may fluctuate
more significantly than the securities of larger companies, in response to news
about the company, the markets or the economy. As a result, the price of the
Small Cap Value and Mid Cap Value Funds' shares may exhibit a higher degree of
volatility than the market averages.
A significant portion of the securities in the Small Cap Value Fund's portfolio
are traded in the over-the-counter markets or on a regional securities exchange,
and may be more thinly traded and volatile than the securities of larger
companies. In addition, securities traded in the over-the-counter market or on a
regional securities exchange may not be traded every day or in the volume
typical of securities traded on a national exchange. To a smaller extent, these
characteristics apply to the investments of the Mid Cap Value Fund. There may be
occasions therefore when the Small Cap Value or Mid Cap Value Fund must sell a
portfolio security to meet redemptions at a discount from market prices, or
otherwise sell during periods when disposition is not desirable, or make many
small sales over a lengthy period of time.
----------------
INVESTMENT POLICIES
EQUITY SECURITIES
Under normal conditions, each Fund will invest at least 65% of its assets in
equity securities.
Equity Securities may include common and preferred stock, convertible securities
and warrants. COMMON STOCK represents an equity or ownership interest in a
company. Although this interest often gives the owner the right to vote on
measures affecting the company's organization and operations, the Funds do not
intend to exercise control over the management of companies in which each
invests. Common stocks have a history of long-term growth in value, but their
prices tend to fluctuate in the shorter term.
PREFERRED STOCK generally does not exhibit as great a potential for appreciation
or depreciation as common stock, although it ranks above common stock in its
claim on income from dividend payments. CONVERTIBLE SECURITIES are securities
that may be converted either at a stated price or formula within a specified
period of time into a specified number of shares of common stock. Traditionally,
convertible securities have paid dividends or interest greater than common
8
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stocks, but less than fixed income or non-convertible securities. By investing
in a convertible security, a Fund may participate in any capital appreciation or
depreciation of a company's stock, but to a lesser degree than its common stock.
The Funds may invest in preferred stock and convertible securities rated BBB or
higher by Standard & Poor's Corporation, Baa by Moody's Investors Service, Inc.,
or the equivalent in the case of unrated instruments. SEE "Description of
Securities Ratings" in Appendix A to the SAI.
WARRANTS are options to purchase an equity security at a specified price at any
time during the life of the warrant. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain 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 a Fund's entire
investment therein).
The market value of all securities, including equity securities, is based upon
the market's perception of value and not necessarily the book value of an issuer
or other objective measure of a company's worth.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")
The Funds may invest in ADRs, which are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. In a "sponsored" ADR, the foreign issuer typically bears certain
expenses of maintaining the ADR facility. "Unsponsored" ADRs may be created
without the participation of the foreign issuer. Holders of unsponsored ADRs
generally bear all the costs of the ADR facility. The bank or trust company
depository of an unsponsored ADR may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in shares of other investment companies to the extent
permitted by the Investment Company Act of 1940 ("Investment Company Act"). To
the extent a Fund invests in shares of an investment company, it will bear its
pro rata share of the other investment company's expenses, such as investment
advisory and distribution fees, and operating expenses.
ILLIQUID AND RESTRICTED SECURITIES
As a nonfundamental investment policy, a Fund may not purchase a security if, as
a result, more than 10% of its net assets would be invested in illiquid
securities. A security is considered ILLIQUID if it may not be sold or disposed
of in the ordinary course of business within seven days at approximately the
value at which a Fund has valued the security. Over-the-counter options,
repurchase agreements not entitling the holder to payment of principal in 7
days, and certain "restricted securities" may be illiquid.
A security is RESTRICTED if it is subject to contractual or legal restrictions
on resale to the general public. A liquid institutional market has developed,
however, for certain restricted securities such as repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes. Thus,
restrictions on resale do not necessarily indicate the liquidity of the
security. For example, if a restricted security may be sold to certain
institutional buyers in accordance with Rule 144A under the Securities Act of
1933 or another exemption from registration under the Securities Act, the
Adviser may determine that
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the security is liquid under guidelines adopted by the Funds' Board of Trustees.
These guidelines take into account trading activity in the securities and the
availability of reliable pricing information, among other factors. With other
restricted securities, however, there can be no assurance that a liquid market
will exist for the security at any particular time. A Fund might not be able to
dispose of such securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions. Under such circumstances, the Fund
would treat such holdings as illiquid.
----------------
ADDITIONAL INVESTMENT PRACTICES
CONCENTRATION
As a fundamental investment policy, a Fund may not purchase a security (other
than U.S. Government Securities) if as a result more than 25% of its net assets
would be invested in a particular industry.
DIVERSIFICATION
As a fundamental investment policy, a Fund may not purchase a security if, as a
result (1) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer, or (2) the Fund would own more than 10% of the
outstanding voting securities of a single issuer. This limitation applies only
with respect to 75% of a Fund's total assets and does not apply to U.S.
Government Securities.
BORROWING
As a fundamental investment policy, a Fund may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, in amounts up
to 33 1/3% of the Fund's total assets. As a nonfundamental investment policy, a
Fund may not purchase portfolio securities if its outstanding borrowings exceed
5% of its total assets or borrow for purposes other than meeting redemptions in
an amount exceeding 5% of the value of its total assets at the time the
borrowing is made.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might need to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales.
CASH AND TEMPORARY DEFENSIVE POSITIONS
A Fund will hold a certain portion of its assets in cash or cash equivalents to
retain flexibility in meeting redemptions, paying expenses, and timing of new
investments. Cash equivalents may include (1) short-term obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
("U.S. Government Securities"), (2) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have an A+ rating from Standard & Poor's
Corporation or an A-1+ rating from Moody's Investors Service, Inc., (3)
commercial paper rated P-1 by Moody's Investors Service, Inc. or A-1 by Standard
& Poor's Corporation, (4) repurchase agreements covering any of the securities
in which a Fund may invest directly, and (5) money market mutual funds.
In addition, when the Adviser believes that business or financial conditions
warrant, a Fund may assume a temporary defensive position. During such periods,
a Fund may invest without limit in cash or cash equivalents. When and to the
extent
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a Fund assumes a temporary defensive position, it will not pursue its investment
objective.
SHORT SALES
A Fund may not enter into short sales, except short sales "against the box." In
a short sale against the box, a Fund sells securities it owns, or has the right
to acquire at no added cost. A Fund does not immediately deliver the securities
sold, however, and does not receive proceeds from the sale until it does deliver
the securities.
CORE AND GATEWAY(R)
Notwithstanding the other investment policies of the Funds, each Fund may seek
to achieve its investment objective by converting to a Core and Gateway
structure. Upon future action by the Board of Trustees and notice to
shareholders, a Fund may convert to this structure. As a result, the Fund would
hold as its only investment, shares of another investment company having
substantially the same investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS
The frequency of portfolio transactions is generally expressed in terms of a
portfolio turnover rate. For example, an annual turnover rate of 100% would
occur if all of the securities in a Fund were replaced once a year. A Fund's
portfolio turnover rate will vary from year to year depending on market
conditions. Higher rates of turnover will result in higher brokerage costs for a
Fund. The Adviser weighs the anticipated benefits of short-term investments
against these consequences. The portfolio turnover rate for each of Mid Cap
Value Fund, Large Cap Value Fund and Value Fund is not expected to exceed 100%.
Small Cap Value Fund's portfolio turnover rate is reported under "Financial
Highlights."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective, and investment policies of a Fund that are identified
as fundamental, may not be changed without approval of the holders of a majority
of the Fund's outstanding voting securities, as defined in the Investment
Company Act. Except as otherwise indicated, however, a Fund's investment
policies are not fundamental and may be changed by the Board of Trustees without
shareholder approval. A Fund will apply the percentage restrictions on its
investments set forth in its investment policies when the investment is made. If
the percentage of a Fund's assets committed to a particular investment or
practice later increases because of a change in the market values of the Fund's
assets or redemptions of Fund shares, it will not constitute a violation of the
limitation.
----------------
MANAGEMENT
The business of the Trust and the Funds is managed under the direction of the
Board of Trustees. The Board formulates the general policies of the Funds and
meets periodically to review the Funds' performance, monitor investment
activities and practices, and discuss other matters affecting the Funds and the
Trust. Additional information regarding the Trustees, as well as the Company's
executive officers, may be found in the SAI under the heading "Management -
Trustees and Officers."
INVESTMENT ADVISER
Cramer Rosenthal McGlynn, LLC (the "Adviser"), 707 Westchester Avenue, White
Plains, New York 10604, serves as investment adviser to the Funds pursuant to an
investment advisory agreement with the Trust. Subject to the general control of
the Board, the Adviser makes investment decisions for the Funds. The Adviser is
a limited liability company organized under
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the laws of the State of Delaware and is a registered investment adviser under
the Investment Advisers Act of 1940. The Adviser succeeds CRM Advisors, LLC, the
investment adviser to the CRM Small Cap Value Fund, through December 31, 1997.
The Adviser is 76% owned by Cramer, Rosenthal, McGlynn, Inc. and its
shareholders.
The Adviser and its predecessors have managed investments in small and medium
capitalization companies for over twenty-five years. As of the date of this
prospectus, the Adviser has over $4.2 billion of assets under management. The
following data relates to historical performance of the portfolios of all
private accounts managed by the Adviser and its predecessors, CRM Advisors, LLC
and Cramer, Rosenthal, McGlynn, Inc. that have investment objectives, policies
and strategies substantially similar to Mid Cap Value Fund's. This data does not
reflect the performance of the Funds. This data compares the performance of
these portfolios against the Russell Midcap(TM) Index. It represents dollar
weighted total rates of return that include the impact of capital appreciation
as well as the reinvestment of interest and dividends. This data is unaudited
and investors should not consider this performance data as an indication of
future performance of the Fund or of the Adviser.
- ------------------------------ ------------ ----------------
Period The Russell
Adviser(1) Midcap(2)
- ------------------------------ ------------ ----------------
- ------------------------------ ------------ ----------------
20 Years: 6/30/78-6/30/98 17.9% N/A
- ------------------------------ ------------ ----------------
- ------------------------------ ------------ ----------------
15 Years: 6/30/83-6/30/98 15.8% 15.4%
- ------------------------------ ------------ ----------------
- ------------------------------ ------------ ----------------
10 Years: 6/30/88-6/30/98 17.0% 16.5%
- ------------------------------ ------------ ----------------
- ------------------------------ ------------ ----------------
5 Years: 6/30/93-6/30/98 18.1% 18.7%
- ------------------------------ ------------ ----------------
- ------------------------------ ------------ ----------------
3 Years: 6/30/95-6/30/98 21.9% 23.5%
- ------------------------------ ------------ ----------------
- ------------------------------ ------------ ----------------
1 Year: 6/30/97-6/30/98 18.1% 25.0%
- ------------------------------ ------------ ----------------
(1) These results are a dollar weighted composite of tax-exempt, fully
discretionary, separately managed accounts that are over $1 million in
size and under the Adviser's and its predecessor's management for at
least 3 months. These accounts have investment objectives, policies and
strategies substantially similar to the Mid Cap Value Fund. The
composite consists of 65 accounts with $1.56 billion in assets (83% of
tax-exempt equity assets and 44% of all equity assets). The modified
Bank Administration Institute (BAI) method is used to compute a
time-weighted rate of return in accordance with standards set by the
Association for Investment Management and Research (AIMR); returns will
differ from return results computed in accordance with the method set
by the SEC. The composite does not reflect all of the assets under the
Adviser's management and may not accurately reflect the performance of
all accounts it manages. The separately managed accounts in the
composite are not subject to the same types of expenses to which the
Fund is subject nor to the diversification requirements, specific tax
restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Internal Revenue Code of 1986, as amended.
Consequently, the performance results for the accounts could have been
adversely affected if the accounts included in the composite had been
regulated as an investment company under the federal securities laws.
(2) The Russell Midcap Index measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represent approximately 35%
of the total market capitalization of the Russell 1000 Index. As of the
latest reconstitution, the average market capitalization was
approximately $5.3 billion; the median market capitalization was
approximately $4.8 billion. The largest company in the index had an
approximate market capitalization of $11.3 billion.
All returns reflect the deduction of advisory fees, brokerage commissions and
execution costs paid by the investment adviser's private accounts, without
provision for federal or state income taxes. The net effect of the deduction of
the operating expenses of the Funds on the annualized performance, including the
effect of compounding over time, may be substantial. SEE "Fee Tables" above.
All information relies on data supplied by the Adviser or from statistical
services, reports or other sources believed by the Trust to be reliable. It has
not been verified or audited.
The principals of the Adviser stand on a solid base of more than 160 years of
collective investment experience. The principal portfolio managers of the
Adviser are:
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Gerald B. Cramer, Chairman of the Adviser since 1973, has been in investment
banking and portfolio management for the past forty years. Before co-founding
and forming CRM in 1973, Mr. Cramer was a senior partner at Oppenheimer & Co.
His responsibilities include investment policy and portfolio management. He
received a B.S. from Syracuse University and attended the University of
Pennsylvania Wharton Graduate School of Finance.
Ronald H. McGlynn, President and Chief Executive Officer of the Adviser since
1983, is the Adviser's Co-Chief Investment Officer. He has been with CRM for
twenty-five years and is responsible for investment policy, portfolio
management, and investment research. Prior to his association with CRM and the
Adviser, Mr. McGlynn was a Portfolio Manager at Oppenheimer & Co. He received a
B.A. from Williams College and an M.B.A. from Columbia University. Mr. McGlynn
is the Portfolio Manager for each Fund and is responsible for the day-to-day
management of each Fund's portfolio
Jay B. Abramson, Executive Vice President of the Adviser since 1989, is the
Adviser's Director of Research and Adviser's Co-Chief Investment Officer. He has
been with CRM for twelve years and is responsible for investment research and
portfolio management. Mr. Abramson received a B.S.E. and J.D. from the
University of Pennsylvania Wharton School and Law School, respectively. He is
also a Certified Public Accountant. Mr. Abramson is the Portfolio Manager for
each Fund and is responsible for the day-to-day management of each Fund's
portfolio.
Fred M. Filoon, Senior Vice President of the Adviser since 1991, is President of
the Trust. Mr. Filoon has over thirty-one years of investment experience and is
responsible for portfolio management at CRM. Mr. Filoon received a B.A. from
Bowdoin College and attended New York University Business School.
Michael A. Prober, is a Principal and a Vice President of the Adviser since 1995
and an Assistant Vice President since 1993, and is responsible for investment
research. Prior to joining CRM in 1993, he worked in corporate finance and
commercial banking at Chase Manhattan Bank and as a Research Analyst for Alpha
Capital Venture Partners. Mr. Prober received a B.B.A. from the University of
Michigan and an M.M. from Northwestern University, J.L. Kellogg Graduate School
of Management. Mr. Prober is co-Portfolio Manager for the Mid Cap Value Fund.
Scott L. Scher, CFA, is a Principal and a Vice President of the Adviser since
1995,and is responsible for investment research. Prior to joining CRM in 1995,
he worked as an analyst/portfolio manager at The Prudential from 1988 to 1995.
Mr. Scher received an A.B. from Harvard College, an M.B.A. from Columbia
Business School and is a Chartered Financial Analyst. Mr. Scher is co-Portfolio
Manager for the Small Cap Value Fund.
For its services under the Advisory Agreement, the Adviser receives an advisory
fee at an annual rate of 0.75% of the average daily net assets of each Fund. The
Adviser's fees are accrued daily and paid monthly. The Adviser, at its sole
discretion, may waive all or any portion of its advisory fees. Any waiver would
have the effect of increasing the Fund's total return for the period during
which the waiver was in effect and would not be recouped by the Adviser at a
later date.
YEAR 2000. Like other mutual funds, financial and other business organizations
and individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers to the Funds do
not properly process and calculate date-related information and data from and
after January 2000. The Adviser and the administrator are taking steps to
address the Year 2000 issue with respect to the computer systems that they use
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<PAGE>
and to obtain reasonable assurances that comparable steps are being taken by the
Funds' other service providers. There can be no assurance, however, that these
steps will be sufficient to avoid a temporary service disruption or any adverse
impact on the Funds.
ADMINISTRATOR
On behalf of each Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services, Inc. ("FAdS"). As provided in this
agreement, FAdS is responsible for the supervision of the overall management of
the Trust (including the Trust's receipt of services for which it must pay),
providing the Trust with general office facilities and providing persons
satisfactory to the Board of Trustees to serve as officers of the Trust. For
these services, FAdS receives a fee computed and paid monthly at an annual rate
of 0.15% of the average daily net assets of each Fund for the first $50 million
in assets, 0.10% for the next $50 million in assets and 0.05% thereafter,
subject to an annual minimum of $25,000. Like the Adviser, FAdS, in its sole
discretion, may waive all or any portion of its fees.
FAdS is located at Two Portland Square, Portland, Maine 04101. As of the date
hereof, FAdS manages and administers registered investment companies and
collective investment funds with assets of approximately $48 billion.
Forum Accounting Services, LLC ("FAcS"), an affiliate of FAdS, provides fund
accounting services to each Fund pursuant to a Fund Accounting Agreement with
the Trust. For its services, FAcS receives a fee at an annual rate of $36,000
for each Fund plus $12,000 for each additional class and certain surcharges
based upon the amount and type of a Fund's portfolio transactions and positions.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial Services,
Inc. ("FFSI") acts as distributor of the Funds' shares. FFSI acts as the agent
of the Trust in connection with the offering of shares of the Funds. FFSI
receives no compensation for its services under the Distribution Agreement. FFSI
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares. FFSI 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
Funds. Investors purchasing shares of the Funds through another financial
institution should read any materials and information provided by the financial
institution to acquaint themselves with its procedures and any fees that it may
charge.
FFSI, located at Two Portland Square, Portland, Maine 04101, is a registered
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Forum Shareholder
Services, LLC ("FSS") pursuant to which FSS acts as the Funds' transfer agent
and dividend disbursing agent. FSS maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents), performs
other transfer agency functions and acts as dividend disbursing agent for the
Trust. In addition, FSS performs portfolio accounting services for the Funds,
including determination of the Funds' net asset value. FAdS, FFSI, FSS and FAcS
are controlled by John Y. Keffer.
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<PAGE>
EXPENSES OF THE TRUST
A Fund's expenses comprise Trust expenses attributable to the Fund, which are
charged to the Fund. Subject to the obligation of the Adviser to reimburse a
Fund for excess expenses of the Fund, the Trust pays for all of its expenses.
The Adviser, FAdS and FSS, in their sole discretion, may waive all or any
portion of their respective fees, which are accrued daily, and paid monthly. Any
such waiver, which could be discontinued at any time, would have the effect of
increasing a Fund's performance for the period during which the waiver was in
effect and would not be recouped at a later date.
The Adviser has voluntarily undertaken to assume certain expenses of the Funds
(or waive its respective fees). This undertaking is designed to place a maximum
limit on expenses (including all fees to be paid to the Adviser but excluding
taxes, interest, brokerage commissions and other portfolio transaction expenses
and extraordinary expenses) of 1.15% of the average daily net assets of the
Funds.
INVESTMENT IN A FUND
PURCHASE AND REDEMPTION OF SHARES
GENERAL. You may purchase or redeem shares of a Fund without a sales charge at
their net asset value on any weekday except on days when the New York Stock
Exchange is closed ("Fund Business Day"). The Trust does not accept orders on
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving and
Christmas. Each Fund's net asset value is calculated as of the close of trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each Fund
Business Day. SEE "Other Information -- Determination of Net Asset Value."
PURCHASES. Fund shares are issued at a price equal to the net asset value per
share next determined after an order in proper form is received and accepted.
Each Fund reserves the right to reject any subscription for the purchase of its
shares and may, in the Adviser's discretion, accept portfolio securities in lieu
of cash as payment for Fund shares. Fund shares become entitled to receive
dividends on the day after the shares are issued to an investor.
REDEMPTIONS. There is no redemption charge, no minimum period of investment, and
no restriction on frequency of redemptions. Shares are redeemed at a price equal
to the net asset value per share next determined following acceptance by FSS of
the redemption order in proper form (and any supporting documentation which FSS
may require). Shares redeemed are not entitled to participate in dividends
declared after the day on which a redemption becomes effective.
The date of payment of redemption proceeds may not be postponed for more than
seven days after shares are tendered to FSS for redemption by a shareholder of
record. The right of redemption may not be suspended except in accordance with
the provisions of the Investment Company Act.
MINIMUM INVESTMENTS. There is a $1,000,000 minimum for initial investments in a
Fund. There is no minimum for subsequent investments. The Trust and the
Administrator each reserve the right to waive the minimum investment
requirement.
ACCOUNT STATEMENTS. Shareholders will receive from the Trust periodic statements
listing account activity during the statement period.
SHARE CERTIFICATES. FSS maintains a shareholder account for each shareholder.
The Trust does not issue share certificates.
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<PAGE>
PURCHASE AND REDEMPTION PROCEDURES
INITIAL PURCHASE OF SHARES. You may obtain the account application by calling
(800) CRM-2883 or by writing The CRM Funds at P.O. Box 446, Portland, Maine
04112.
MAIL. Investors may send a check made payable to "CRM Funds" with a completed
account application to:
The CRM Funds
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. All checks must be
drawn on a United States bank. If a check is returned unpaid, the purchase will
be canceled, and the investor will be liable for any resulting losses or fees
incurred by a Fund, the Adviser or FSS.
BANK WIRE. To make an initial investment in a Fund using the fedwire system
for transmittal of money between banks, you should first telephone FSS at (800)
CRM-2883 or (800) 844-8258 to obtain an account number. You should then instruct
a member commercial bank to wire your money immediately to:
BankBoston
Boston, Massachusetts
ABA # 011000390 For Credit to:
Forum Shareholder Services, LLC
Account # 541-54171
The CRM Funds
(Investor's Name)
(Investor's Account Number)
You should then promptly complete and mail the account application.
If you plan to wire funds, you should instruct your bank early in the day so the
wire transfer can be accomplished the same day. Your bank may assess charges for
transmitting the money by bank wire and for use of Federal Funds. The Trust does
not charge investors for the receipt of wire transfers. Payment in the form of a
bank wire received prior to 4:00 p.m., (Eastern time) on a Fund Business Day
will be treated as a Federal Funds payment received before that time.
THROUGH BROKERS. You may purchase and redeem shares of a Fund through brokers
and other financial institutions that have entered into sales agreements with
Forum. These institutions may charge a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Trust. The Trust is not responsible for the failure of any institution to
promptly forward these requests.
If you purchase shares through a broker-dealer or financial institution, your
purchase will be subject to its procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. You should acquaint yourself with the institution's procedures and
read this Prospectus in conjunction with any materials and information provided
by your institution. If you purchase a Fund's shares in this manner, you may or
may not be the shareholder of record and, subject to your institution's and the
Fund's procedures, may have the Fund's shares transferred into your name. There
is typically a one to five day settlement period for purchases and redemptions
through broker-dealers.
AUTOMATIC INVESTMENT PLAN. Current shareholders may purchase additional
shares by arranging systematic monthly, bi-monthly or quarterly investments into
a Fund with an automatic investment plan.
The initial minimum is $1,000,000 and there is no minimum subsequent automatic
investment. After shareholders give the Trust proper authorization, their bank
accounts, which must be with
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<PAGE>
banks that are members of the Automated Clearing House, will be debited
accordingly to purchase shares. Shareholders will receive a confirmation from
the Trust for every transaction, and a withdrawal will appear on their bank
statements.
To participate in an automatic investment plan, shareholders must complete the
appropriate sections of the enrollment form. This form may be obtained by
calling the Trust at (800) CRM-2883 or (800) 844-8258. The amount shareholders
specify will automatically be invested in shares of the specified Fund at the
net asset value per share next determined after payment is received by the
Trust.
SUBSEQUENT PURCHASES OF SHARES. You may purchase additional shares of a Fund by
mailing a check or sending a bank wire as indicated above. Shareholders using
the wire system for subsequent purchases should first telephone FSS at (800)
CRM-2883 or (800) 844-8258 to notify it of the wire transfer. All payments
should clearly indicate the shareholder's name and account number.
REDEMPTION OF SHARES. Redemption requests will not be effected unless any check
used for investment has been cleared by the shareholder's bank, which may take
up to 15 calendar days. This delay may be avoided by investing in a Fund through
wire transfers. Normally redemption proceeds are paid immediately following any
redemption, but in no event later than seven days after redemption, by check
mailed to the shareholder of record at his record address. Shareholders that
wish to redeem shares by Telephone or by Bank Wire must elect these options by
properly completing the appropriate sections of their account application. These
privileges may be modified or terminated by the Trust at any time.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account with an aggregate net asset value of less than $1,000,000. A
Fund will not redeem accounts that fall below these amounts solely as a result
of a reduction in net asset value of a Fund's shares.
REDEMPTION BY MAIL. You may redeem all or any number of your shares by
sending a written request to FSS at the address above. You must sign all written
requests for redemption and provide a signature guarantee. SEE "Other Investment
Information -- Signature Guarantees."
TELEPHONE REDEMPTIONS. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling FSS at (800)
CRM-2883 or (800) 844-8258. The minimum amount for a telephone redemption is
$1,000. In response to the telephone redemption instruction, a Fund will mail a
check to the shareholder's record address or, if the shareholder has elected
wire redemption privileges, wire the proceeds.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, the Trust and FSS will employ reasonable procedures to confirm that
such instructions are genuine. Shareholders must provide FSS with the
shareholder's account number, the exact name in which the shares are registered
and some additional form of identification such as a password. The Trust or FSS
may employ other procedures such as recording certain transactions. If such
procedures are followed, neither FSS nor the Trust will be liable for any losses
due to unauthorized or fraudulent redemption requests. Shareholders should
verify the accuracy of telephone instructions immediately upon receipt of
confirmation statements.
During times of drastic economic or market changes, it may be difficult to make
a redemption by telephone. If you cannot reach FSS by telephone, you may mail or
hand-deliver your request to FSS at Two Portland Square, Portland, Maine 04101.
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<PAGE>
BANK WIRE REDEMPTIONS. If you have elected wire redemption privileges, a Fund
will upon request transmit the proceeds of any redemption greater than $10,000
by Federal Funds wire to a bank account designated on your account application.
If you wish to request bank wire redemptions by telephone, you must also elect
telephone redemption privileges.
EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange their Institutional Service Shares for
Institutional shares of the Daily Assets Government Fund, a money market fund
managed by Forum and a separate series of Forum Funds. You may receive a copy of
that fund's prospectus by writing FSS or calling (800) 844-8258. No sales
charges are imposed on exchanges between a Fund and the Daily Assets Government
Fund.
EXCHANGE PROCEDURES. You may request an exchange by writing to FSS at Two
Portland Square, Portland, Maine 04101. The minimum amount for an exchange to
open an account in the Daily Assets Government Fund is $2,500. Exchanges may
only be made between identically registered accounts. You do not need to
complete a new account application, unless you are requesting different
shareholder privileges for the new account. A Fund reserves the right to reject
any exchange request and may modify or terminate the exchange privilege at any
time. There is no charge for the exchange privilege or limitation as to
frequency of exchanges.
An exchange of shares in a Fund pursuant to the exchange privilege is, in
effect, a redemption of the Fund's shares (at net asset value) followed by the
purchase of shares of the investment company into which the exchange is made (at
net asset value) and may result in a shareholder realizing a taxable gain or
loss for Federal income tax purposes. The exchange privilege is available to
shareholders residing in any state in which shares of the Daily Assets
Government Fund may legally be sold.
TELEPHONE EXCHANGES. If you have elected telephone exchange privileges, you may
request an exchange by calling FSS at (800) CRM-2883. The Trust and FSS are not
responsible for the authenticity of telephone instructions or losses, if any,
resulting from unauthorized telephone exchange requests. The Trust employs
reasonable procedures to insure that telephone orders are genuine and, if it
does not, may be liable for any losses due to unauthorized transactions.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
OTHER INVESTMENT INFORMATION
CHANGES TO ACCOUNT INFORMATION. To change the record name or address of your
account, the designated bank account, the dividend election, or the telephone
redemption option election on an account, you must provide a signature
guarantee.
SIGNATURE GUARANTEES.. When a signature guarantee is called for, you must have
"Signature Guaranteed" stamped under your signature and signed by a commercial
bank or trust company, a broker, dealer or securities exchange, a credit union
or a savings association that is authorized to guarantee signatures.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
For the Small Cap Value Fund, Mid Cap Value Fund and Value Fund, dividends
representing the net investment income, if any, are declared and paid annually
by each Fund. For the Large Cap Value Fund, dividends representing the net
investment income, if any, are declared and paid quarterly. Net capital gains
realized by a Fund, if any, also will be distributed annually. All dividends and
net capital gains distributions are reinvested in additional shares of a Fund,
unless you elect to receive distributions in cash. For Federal income tax
purposes, dividends are treated the
18
<PAGE>
same whether they are received in cash or reinvested in additional shares of a
Fund. SEE "Dividends and Tax Matters -- Taxes."
Income dividends will be reinvested at a Fund's net asset value as of the last
day of the period with respect to which the dividends are paid and capital gains
dividends will be reinvested at the net asset value of a Fund on the payment
date for the dividend. Cash payments may be made more than seven days following
the date on which dividends would otherwise be reinvested.
TAXES
Each Fund intends to qualify for each fiscal year and elect to be treated as a
"regulated investment company," or "RIC," under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"). As a RIC, a Fund is not liable for Federal
income and excise taxes on the net investment income and capital gains that it
distributes to shareholders in accordance with applicable provisions of the
Code. Each Fund intends to distribute all of its net income and net capital
gains each year. Accordingly, a Fund should not be subject to Federal income and
excise taxes.
Dividends paid by a Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. In general, a federal tax rate of 20% applies to net gain on capital
assets held for more than one year. Distributions of net capital gain will be
taxable to shareholders as such, regardless of how long a shareholder has held
shares in the Fund.
If a shareholder holds shares for six months or less and redeems shares at a
loss after receiving a distribution taxable to the shareholder as a long-term
capital gain, the loss would be treated as a long-term capital loss to the
extent of the distribution.
Any dividend or other distribution received by a shareholder on shares of a Fund
will reduce the net asset value of the shareholder's shares by the amount of the
dividend or distribution. Furthermore, a dividend or distribution made shortly
after the purchase of shares by a shareholder, although in effect a return of
capital, would still be taxable to the shareholder as a dividend as described
above.
Dividends and other distributions to shareholders are treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of a Fund.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) made
to a non-corporate shareholder unless the shareholder certifies in writing that
the social security or tax identification number provided by the shareholder is
correct and that the shareholder is not subject to backup withholding for prior
underreporting to the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by a Fund will be
mailed to shareholders shortly after the close of each year.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value per share of a Fund is detemined as of the close of trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time), on each Fund
Business Day by dividing the value of the Fund's net assets (I.E., the value of
its securities and other assets less its liabilities, including expenses payable
or accrued but excluding capital stock and surplus) by the number of shares
outstanding at the time the determination is made. Securities owned by a Fund
for which market quotations are readily available are valued using the last
reported sales price provided by independent pricing services. If no sale price
is reported, the mean of the last bid
19
<PAGE>
and ask price is used. If no mean price is available, the last bid price is
used. In the absence of readily available market quotations, securities are
valued at fair value as determined by the valuation committee of the Board of
Trustees. Purchases and redemptions will be effected at the time of
determination of net asset value next following the receipt of any purchase or
redemption order as described under "Investment in a Fund --Purchases and
Redemptions of Shares."
THE TRUST AND ITS SHARES
The Trust is registered with the SEC as an open-end management investment
company and was organized as a business trust under the laws of the State of
Delaware on April 24, 1995. The Board has the authority to issue an unlimited
number of shares of beneficial interest of separate series with $0.001 par value
per share and to create classes of shares within each series. Currently, the
authorized shares of the Trust are divided into four separate series.
The Funds may issue shares of other classes. The Funds currently issue two
classes of shares: Investor Shares and Institutional Shares, and may in the
future create additional class types. Institutional Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates. Each class of a Fund will have a different
expense ratio and may have different sales charges (including distribution
fees). Each class' performance is affected by its expenses and sales charges.
Currently, neither share class has a sales charge. Investors may contact FSS for
more information on either share class. Sales personnel of broker-dealers and
other financial institutions selling the Funds' shares may receive different
compensation for selling Investor Shares and Institutional Shares of the Funds.
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to matters that affect the
particular class of shares. Generally, shares will be voted in the aggregate
without reference to a particular series or class, except if the matter affects
only one series or class or voting by series or class is required by law, in
which case shares will be voted separately by series or class, as appropriate.
Delaware law does not require the Trust to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by federal or state law. Shareholders (and Trustees) have
available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a series is entitled to the shareholder's pro rata share
of all dividends and distributions arising from that series' assets and, upon
redeeming shares, will receive the portion of the series' net assets represented
by the redeemed shares. SEE "Other Information - The Trust and its Shareholders"
in the SAI.
20
<PAGE>
CRM
-------------
F U N D S
-------------
SMALL CAP VALUE FUND
MID CAP VALUE FUND
LARGE CAP VALUE FUND
VALUE FUND
INVESTOR SHARES
PROSPECTUS
AUGUST 21, 1998
EACH OF THESE FUNDS SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES, USING A VALUE-ORIENTED APPROACH.
INVESTMENT ADVISER:
CRAMER ROSENTHAL MCGLYNN, LLC
1-800-CRM-2883
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................... 4
FEE TABLES................................................................... 5
FINANCIAL HIGHLIGHTS......................................................... 7
PERFORMANCE.................................................................. 7
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................. 8
Investment Objectives........................................................ 8
Investment Strategies........................................................ 9
Investment Risks............................................................. 9
INVESTMENT POLICIES......................................................... 10
ADDITIONAL INVESTMENT PRACTICES............................................. 12
MANAGEMENT.................................................................. 13
Investment Adviser.......................................................... 13
Administrator .............................................................. 15
Distributor ................................................................ 15
Shareholder Services........................................................ 16
Transfer Agent.............................................................. 16
Expenses of the Trust....................................................... 16
INVESTMENT IN A FUND........................................................ 17
Purchase and Redemption of Shares........................................... 17
Purchase and Redemption Procedures.......................................... 17
Exchange Privilege.......................................................... 20
Other Investment Information................................................ 21
DIVIDENDS AND TAX MATTERS................................................... 21
Dividends................................................................... 21
Taxes....................................................................... 21
OTHER INFORMATION........................................................... 22
Determination of Net Asset Value............................................ 22
The Trust and Its Shares.................................................... 22
i
<PAGE>
CRM
- -------
FUNDS
- -------
SMALL CAP VALUE FUND
MID CAP VALUE FUND
LARGE CAP VALUE FUND
VALUE FUND
- --------------------------------------------------------------------------------
FUND INFORMATION: SHAREHOLDER ACCOUNT INFORMATION:
Forum Financial Services, Inc. Forum Shareholder Services, LLC
Two Portland Square P.O. Box 446
Portland, Maine 04101 Portland, Maine 04112
800-CRM-2883 800-844-8258
800-276-2883
http://www.crmfunds.com
INVESTMENT ADVISER:
Cramer Rosenthal McGlynn, LLC
707 Westchester Avenue
White Plains, New York 10604
- --------------------------------------------------------------------------------
PROSPECTUS
AUGUST 21, 1998
This Prospectus offers Investor shares ("Investor Shares") of the Small Cap
Value Fund, Mid Cap Value Fund, Large Cap Value Fund and Value Fund (each a
"Fund" and collectively, the "Funds"), each a diversified portfolio of The CRM
Funds (the "Trust"), an open-end, management investment company.
The Funds seek long-term capital appreciation by investing primarily in
equity securities, using a value-oriented approach. Investor Shares of
the Funds are offered to investors without any sales charge.
Please read this Prospectus before investing in the Funds, and
retain it for future reference. It contains important
information about the Funds, their investments
and the services available to shareholders.
To learn more about the Funds and the Trust, you may obtain a copy of the Funds'
Statement of Additional Information, dated August 21, 1998, as amended from time
to time (the "SAI"). The SAI has been filed with the Securities and Exchange
Commission ("SEC") and is available together with other related materials for
reference on the SEC's Internet Web Site (http://www.sec.gov). The SAI is
incorporated by reference into this Prospectus and may be obtained without
charge from the Trust by writing to Two Portland Square, Portland, Maine 04101
or by calling 1-800-CRM-2883.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
SMALL CAP VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with small market
capitalizations, using a value-oriented approach. A small capitalization company
has a market capitalization -- in other words, the value the stock market
assigns all of the company's shares -- of $1 billion or less at the time of the
Fund's investment.
MID CAP VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with medium market
capitalizations, using a value-oriented approach. A medium capitalization
company has a market capitalization between $1 billion and $10 billion at the
time of the Fund's investment.
LARGE CAP VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with large market
capitalizations, using a value-oriented approach. A large capitalization company
has a market capitalization of greater than $10 billion at the time of the
Fund's investment.
VALUE FUND
GOAL: Long-term capital appreciation.
STRATEGY: Invests primarily in equity securities of companies with varying
market capitalizations, using a value-oriented approach.
MANAGEMENT
Cramer Rosenthal McGlynn, LLC (the "Adviser") is each Fund's investment adviser
and makes investment decisions for the Funds. Forum Administrative Services, LLC
serves as the Funds' administrator and Forum Financial Services, Inc. is the
distributor of the Funds. SEE "Management" for more detailed information.
The Adviser employs a "value" approach to the Funds' investments, seeking to
identify companies that have experienced fundamental change, are intrinsically
undervalued or are misunderstood by the investment community. The portfolio
managers view investment prospects on a long-term basis and do not attempt to
time the market. See "Investment Objectives, Strategies and Risks" for more
detailed information.
SHARES OF THE FUNDS
Each Fund currently offers two separate classes of shares: Investor Shares and
Institutional Shares. Investor Shares are sold through this Prospectus.
Institutional Shares are offered by a separate prospectus to fiduciary, agency
and custodial clients of bank trust departments, trust companies and their
affiliates. Shares of each class of a Fund have identical interests in the
investment portfolio of the Fund and, with certain exceptions, have the same
rights. See "Other Information -- The Trust and Its Shares."
PURCHASES AND REDEMPTIONS
Shares of the Funds may be purchased or redeemed without any sales charges
Monday through Friday except on days that the New York Stock Exchange is closed
("Fund Business Day"). The initial minimum investment for each Fund is $10,000
or $2,000 for retirement accounts and automatic investment plans. The minimum
for subsequent investments in a Fund is $100. SEE "Investment in a Fund" for
more detailed information.
DIVIDENDS
For the Small Cap Value Fund, Mid Cap Value Fund and Value Fund, dividends
representing the net investment income are declared and paid at least annually.
For the Large Cap Value Fund, dividends representing the net investment income
are declared and paid at least quarterly. Net capital gains realized by a Fund,
if any, also will be distributed annually. Dividends and distributions are
reinvested in additional shares of a Fund unless a shareholder elects to have
them
2
<PAGE>
paid in cash. SEE "Dividends and Tax Matters" for more detailed information.
RISK CONSIDERATIONS
The Funds do not invest for income, and each Fund does not by itself provide a
complete or balanced investment program. The Funds may be an appropriate
investment for investors willing to tolerate significant fluctuations in a
Fund's net asset value while seeking long-term returns that are potentially
higher than market averages. A company's market capitalization is the total
market value of its outstanding common stock. The securities of small and medium
capitalization companies typically are more thinly traded than those of larger
companies. Small and medium capitalization securities may have greater growth
potential in the long-run than other types of securities. In the shorter term,
however, the prices of small and medium capitalization securities may fluctuate
significantly in response to news about the company, the markets or the economy.
Other investments and investment techniques of the Funds, such as investments in
securities of foreign issuers, may entail additional risks or have speculative
characteristics. SEE "Investment Objectives, Strategies and Risks" for more
detailed information.
Of course, as with any mutual fund, there is no assurance that a Fund will
achieve its investment objective.
FEE TABLES
The following tables should help you understand the various costs and expenses
that you will bear if you invest in a Fund.
Shareholder transaction expenses are charges an investor would pay when buying,
selling or exchanging shares of a Fund. Operating expenses, which are paid out
of a Fund's assets, and other expenses for services, such as maintaining
shareholder accounts, are factored into a Fund's share price and not charged
directly to shareholder accounts.
- ----------------------------------------- ---------
Shareholder Transaction Expenses
- ----------------------------------------- ---------
Maximum sales load imposed on None
purchases
- ----------------------------------------- ---------
Maximum sales load imposed on None
reinvested dividend
- ----------------------------------------- ---------
Deferred sales load None
- ----------------------------------------- ---------
Redemption Fees None
- ----------------------------------------- ---------
Exchange Fees None
- ----------------------------------------- ---------
- ----------------------------------------- ---------
Annual Fund Operating Expenses 1
- ----------------------------------------- ---------
SMALL CAP VALUE FUND
- ----------------------------------------- ---------
Advisory Fees 0.75%
- ----------------------------------------- ---------
12b-1 Fees None
- ----------------------------------------- ---------
Other Expenses
Shareholder Servicing Fees 0.25%
Other Expenses 0.46%
- ----------------------------------------- ---------
Total Fund Operating Expenses 1.46%
- ----------------------------------------- ---------
- ----------------------------------------- ---------
MID CAP VALUE FUND
- ----------------------------------------- ---------
Advisory Fees 0.75%
- ----------------------------------------- ---------
12b-1 Fees None
- ----------------------------------------- ---------
Other Expenses
Shareholder Servicing Fees 0.25%
Other Expenses 0.50%
- ----------------------------------------- ---------
Total Fund Operating Expenses 1.50%
- ----------------------------------------- ---------
- ----------------------------------------- ---------
- ----------------------------------------- ---------
LARGE CAP VALUE FUND
- ----------------------------------------- ---------
Advisory Fees 0.75%
- ----------------------------------------- ---------
12b-1 Fees None
- ----------------------------------------- ---------
Other Expenses
Shareholder Servicing Fees 0.25%
Other Expenses 0.50%
- ----------------------------------------- ---------
Total Fund Operating Expenses 1.50%
- ----------------------------------------- ---------
- ----------------------------------------- ---------
VALUE FUND
- ----------------------------------------- ---------
Advisory Fees 0.75%
- ----------------------------------------- ---------
12b-1 Fees None
- ----------------------------------------- ---------
Other Expenses
Shareholder Servicing Fees 0.25%
Other Expenses 0.50%
- ----------------------------------------- ---------
Total Fund Operating Expenses 1.50%
- ----------------------------------------- ---------
1 Annual Fund Operating Expenses are calculated as a percentage of average net
assets. The Adviser has voluntarily undertaken to waive a portion of its fees
and assume certain expenses of each Fund to the extent that total expenses
exceed 1.50%
3
<PAGE>
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses that an investor in Investor Shares of a Fund would pay assuming a
$1,000 investment in the Fund, a 5% annual return, the reinvestment of all
dividends and distributions and redemption at the end of each period. The
example is based on projected expenses of the Mid Cap Value Fund's, Large Cap
Value Fund's and Value Fund's first year of operation.
- ---------------------------- ---------------- -----------------
Small Cap Mid Cap Value Fund
Value Fund Large Cap Value Fund
and Value
- ---------------------------- ---------------- -----------------
After 1 Year $15 $15
- ---------------------------- ---------------- -----------------
After 3 Years $47 $47
- ---------------------------- ---------------- -----------------
After 5 Years $81 n/a
- ---------------------------- ---------------- -----------------
After 10 Years $178 n/a
- ---------------------------- ---------------- -----------------
The example is based on the expenses listed in the table. The five percent
annual return is not predictive of and does not represent the Funds' projected
returns; rather, it is required by government regulation. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN.
ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
FINANCIAL HIGHLIGHTS
The following table represents selected data for a single outstanding Investor
Share for both the Small Cap Value Fund and the Value Fund for the periods
shown. The financial information for the fiscal years ended September 30, 1996
and September 30, 1997 has been audited in connection with an audit of the Small
Cap Value Fund's financial statements by Ernst & Young, LLP, independent
auditors. The Small Cap Value Fund's financial statements and independent
auditors' report thereon are incorporated by reference into the SAI. The
financial information for the Small Cap Value Fund and Value Fund for the six
months ended March 31, 1998, has not been audited. Further information about the
Small Cap Value Fund's performance is contained in the Annual Report to
shareholders, which may be obtained from the Trust without charge by calling
1-800-CRM-2883.
- --------------------------------------------- ----------- ----------- ----------
Small Cap Value Fund Year Year Six Months
Ended Ended Ended
9/30/1996 9/30/1997 3/31/1998(e)
- --------------------------------------------- ----------- ----------- ----------
BEGINNING NET ASSET VALUE PER SHARE $10.00 $13.71 $17.68
- --------------------------------------------- ----------- ----------- ----------
Investment Operations
- --------------------------------------------- ----------- ----------- ----------
Net investment loss (0.02) (0.06) (0.05)
- --------------------------------------------- ----------- ----------- ----------
Net realized and unrealized gain on 3.73 4.89 1.88
securities
- --------------------------------------------- ----------- ----------- ----------
Distributions from
- --------------------------------------------- ----------- ----------- ----------
Net investment income --(a) -- ---
- --------------------------------------------- ----------- ----------- ----------
Net realized gain on investments -- (0.86) (0.86)
- --------------------------------------------- ----------- ----------- ----------
Total Distributions -- (0.86) (0.86)
- --------------------------------------------- ----------- ----------- ----------
ENDING NET ASSET VALUE PER SHARE $13.71 $17.68 $18.65
- --------------------------------------------- ----------- ----------- ----------
- --------------------------------------------- ----------- ----------- ----------
RATIOS TO AVERAGE NET ASSETS:
- --------------------------------------------- ----------- ----------- ----------
Expenses, including reimbursement/waiver 1.49% 1.50% 1.46% (d)
- --------------------------------------------- ----------- ----------- ----------
Expenses, excluding reimbursement/waiver 1.98% 1.50% 1.46% (d)
- --------------------------------------------- ----------- ----------- ----------
Net investment loss, including (0.40)% (0.56)% (0.64)%(d)
reimbursement/waiver
- --------------------------------------------- ----------- ----------- ----------
TOTAL RETURN 37.15% 37.14% 11.26% (c)
- --------------------------------------------- ----------- ----------- ----------
PORTFOLIO TURNOVER RATE 111.18% 98.91% 29.16%
- --------------------------------------------- ----------- ----------- ----------
AVERAGE BROKERAGE COMMISSION RATE (b) $0.0374 $0.0560 $0.0531
- --------------------------------------------- ----------- ----------- ----------
NET ASSETS AT THE END OF PERIOD (000's $45,385 $144,001 $190,408
omitted)
- --------------------------------------------- ----------- ----------- ----------
4
<PAGE>
- --------------------------------------------- --------------
Value Fund Three Months Ended
3/31/1998(e)
- --------------------------------------------- --------------
BEGINNING NET ASSET VALUE PER SHARE $10.00
- --------------------------------------------- --------------
Investment Operations
- --------------------------------------------- --------------
Net investment income 0.01
- --------------------------------------------- --------------
Net realized and unrealized gain on 1.47
securities
- --------------------------------------------- --------------
Distributions from
- --------------------------------------------- --------------
Net investment income --
- --------------------------------------------- --------------
Net realized gain on investments --
- --------------------------------------------- --------------
Total Distributions --
- --------------------------------------------- --------------
ENDING NET ASSET VALUE PER SHARE $11.48
- --------------------------------------------- --------------
- --------------------------------------------- --------------
RATIOS TO AVERAGE NET ASSETS:
- --------------------------------------------- --------------
Expenses, including reimbursement/waiver 1.50% (d)
- --------------------------------------------- --------------
Expenses, excluding reimbursement/waiver 5.12% (d)
- --------------------------------------------- --------------
Net investment income including 0.58% (d)
reimbursement/waiver
- --------------------------------------------- --------------
TOTAL RETURN 14.80% (c)
- --------------------------------------------- --------------
PORTFOLIO TURNOVER RATE 19.39%
- --------------------------------------------- --------------
AVERAGE BROKERAGE COMMISSION RATE (b) $0.0551
- --------------------------------------------- --------------
NET ASSETS AT THE END OF PERIOD (000's $6,548
omitted)
- --------------------------------------------- --------------
(a) Less than $0.01 per share.
(b) Amount represents the average commission per share, paid to brokers, on the
purchase and sale of portfolio securities.
(c) Not annualized
(d) Annualized
(e) Unaudited
Financial highlights information is not included for the Mid Cap Value Fund as
Investor Shares for this Fund are currently not offered for sale. Similarly, no
financial highlights information is included for the Large Cap Value Fund
because this Fund commenced operations on the date of this prospectus.
PERFORMANCE
The Funds may, from time to time, include quotations of their respective average
annual total return, cumulative total return and other non-standard performance
measures in advertisements or reports to shareholders or prospective investors.
Average annual total return is based upon the overall dollar or percentage
change in value of a hypothetical investment each year over specified periods.
Average annual total returns reflect the deduction of a proportional share of a
Fund's expenses (on an annual basis) and assume investment and reinvestment of
all dividends and distributions at NAV. For a description of the methods used to
determine total return and other performance measures for the Funds, please see
the SAI.
The Funds' fiscal year runs from October 1 to September 30. The table below
shows the performance of the Investor Share class of Small Cap Value Fund over
the past fiscal year compared to investing in a broad selection of stocks as
measured by the Russell 2000 Index.
AVERAGE ANNUAL TOTAL RETURNS
--------------------------- ---------------- -----------------
For the period ended Past 1 year Since Inception
6/30/98 (10/1/95)
--------------------------- ---------------- -----------------
Small Cap Value Fund 16.00% 28.15%
--------------------------- ---------------- -----------------
Russell 2000 Index 16.51% 18.86%
--------------------------- ---------------- -----------------
The Funds may also be compared to various unmanaged securities indices, groups
of mutual funds tracked by mutual fund ratings services, or other general
economic indicators. Unmanaged indices may assume the reinvestment of dividends
but do not reflect deductions for administrative and management costs and
expenses and are not available for investment. They also do not include any
allowance for the brokerage commissions or other fees you would pay if you
actually invested in those stocks.
5
<PAGE>
The Russell 2000(R) Index (the "Russell 2000") is a market weighted index
composed of 2000 companies with market capitalizations from $50 million to $1.8
billion. The index is unmanaged and reflects the reinvestment of dividends.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
INVESTMENT OBJECTIVES,
STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
Each Fund's investment objective is long-term capital appreciation. The
investment objective of a Fund may not be changed without the approval of
shareholders.
SMALL CAP VALUE FUND seeks to achieve its objective by investing at least 65% of
its total assets in the equity securities of small capitalization companies. A
small capitalization company has a market capitalization -- in other words, the
value the stock market assigns all of the company's shares -- of $1 billion or
less at the time of the Fund's investment. Companies whose capitalization
exceeds $1 billion after purchase will continue to be considered small for
purposes of this 65% policy. The Small Cap Value Fund may also invest to a
limited degree in companies that have larger market capitalizations. A company
may have a small market capitalization because it is new or has recently gone
public, or because it operates in a minor industry or regional market. These
companies may respond more quickly to change in an industry, and are expected to
increase their earnings more rapidly than larger companies. Historically, small
companies have offered greater opportunity for capital appreciation than larger,
more established companies. At the same time, investing in small companies can
be riskier than other investments.
MID CAP VALUE FUND seeks to achieve its objective by investing at least 65% of
its total assets in the equity securities of medium capitalization companies. A
medium capitalization company has a market capitalization between $1 billion and
$10 billion at the time of the Fund's investment. Companies whose capitalization
falls below $1 billion or exceeds $10 billion after purchase will continue to be
considered medium for purposes of this 65% policy. The Mid Cap Value Fund may
also invest to a limited degree in companies that have smaller and larger market
capitalizations.
LARGE CAP VALUE FUND seeks to achieve its objective by investing at least 65% of
its total assets in the equity securities of large capitalization companies. A
large capitalization company has a market capitalization greater than $10
billion at the time of the Fund's investment. Companies whose capitalization
falls below $10 billion after purchase will continue to be considered large for
purposes of this 65% policy. The Large Cap Value Fund may also invest to a
limited degree in companies that have smaller market capitalizations.
VALUE FUND seeks to achieve its objective by investing at least 65% of its total
assets in the equity securities of companies with varying market
capitalizations.
INVESTMENT STRATEGIES
Value investing provides investors with a less aggressive way to take advantage
of growth opportunities of companies. Using a value approach, the Funds will
seek to invest in stocks priced low relative to comparable companies, determined
by price/earnings ratios, cash flows or other measures. Value investing
therefore may reduce downside risk while offering potential for capital
appreciation as a stock gains favor among other investors and its stock price
rises.
6
<PAGE>
The Funds will be managed in accordance with the investment disciplines that the
Adviser and its predecessors, CRM Advisors, LLC and Cramer, Rosenthal, McGlynn,
Inc., have employed in managing their equity portfolios for over twenty-five
years. The Adviser relies on stock selection to achieve its results, rather than
trying to time market fluctuations. It seeks out those stocks that are
undervalued and, in some cases, neglected by financial analysts, evaluating the
degree of investor recognition by monitoring the number of analysts who follow
the company and recommend its purchase or sale to investors. The Adviser begins
the investment process by identifying early dynamic change in a company's
operations, finances, or management. This type of dynamic change tends to be
material, and may create misunderstanding in the marketplace, and result in a
company's stock becoming undervalued.
Once change is identified, the Adviser evaluates the company on several levels.
It analyzes financial models based principally upon projected cash flow, as
opposed to reported earnings. The price of the company's stock is evaluated in
the context of what the market is willing to pay for stock of comparable
companies and what a strategic buyer would pay for the whole company. Another
important consideration is the extent of management's ownership interest in the
company. Finally, the Adviser analyzes the company's market, in most instances,
corroborating its observations and assumptions by meeting with management,
customers, and suppliers.
By reviewing historical relationships and understanding the characteristics of a
business, the Adviser establishes valuation parameters using relative ratios or
target prices. In its overall assessment, the Adviser seeks stocks that it
believes have a greater upside potential than risk over an 18 to 24 month
holding period.
INVESTMENT RISKS
GENERALLY. An investment in each of the Funds is not by itself a complete or
balanced investment program. Nevertheless, the small, medium, and large
capitalization segments of the equity markets may be an important part of an
investor's portfolio, particularly for long-term investors able to tolerate
short-term fluctuations in a Fund's net asset value.
Because the Adviser will seek securities that are undervalued by the market,
there is a risk that the market will not recognize a security's intrinsic value
for an unexpectedly long time, or that securities the Adviser believes are
undervalued are actually priced appropriately due to intractable or fundamental
problems that are not yet apparent.
SMALL CAP VALUE FUND AND MID CAP VALUE FUND. The Small Cap Value and Mid Cap
Value Funds' investments in small and medium size companies can entail more risk
than investing in larger, more established companies. These companies may have
more limited product lines, markets, and financial resources, making them more
susceptible to economic or market setbacks. Analysts and other investors
typically follow small and medium sized companies less actively, and information
about these companies is not always readily available. For these and other
reasons, the prices of small and mid capitalization securities may fluctuate
more significantly than the securities of larger companies, in response to news
about the company, the markets or the economy. As a result, the price of the
Small Cap Value and Mid Cap Value Funds' shares may exhibit a higher degree of
volatility than the market averages.
A significant portion of the securities in the Small Cap Value Fund's portfolio
are traded in the over-the-counter markets or on a regional securities exchange,
and may be more thinly traded and volatile than the securities of larger
7
<PAGE>
companies. In addition, securities traded in the over-the-counter market or on a
regional securities exchange may not be traded every day or in the volume
typical of securities traded on a national exchange. To a smaller extent, these
characteristics apply to the investments of the Mid Cap Value Fund. There may be
occasions therefore when the Small Cap Value or Mid Cap Value Fund must sell a
portfolio security to meet redemptions at a discount from market prices, or
otherwise sell during periods when disposition is not desirable, or make many
small sales over a lengthy period of time.
----------------
INVESTMENT POLICIES
EQUITY SECURITIES
Under normal conditions, each Fund will invest at least 65% of its assets in
equity securities.
Equity Securities may include common and preferred stock, convertible securities
and warrants. COMMON STOCK represents an equity or ownership interest in a
company. Although this interest often gives the owner the right to vote on
measures affecting the company's organization and operations, the Funds do not
intend to exercise control over the management of companies in which each
invests. Common stocks have a history of long-term growth in value, but their
prices tend to fluctuate in the shorter term.
PREFERRED STOCK generally does not exhibit as great a potential for appreciation
or depreciation as common stock, although it ranks above common stock in its
claim on income from dividend payments. CONVERTIBLE SECURITIES are securities
that may be converted either at a stated price or formula within a specified
period of time into a specified number of shares of common stock. Traditionally,
convertible securities have paid dividends or interest greater than common
stocks, but less than fixed income or non-convertible securities. By investing
in a convertible security, a Fund may participate in any capital appreciation or
depreciation of a company's stock, but to a lesser degree than its common stock.
The Funds may invest in preferred stock and convertible securities rated BBB or
higher by Standard & Poor's Corporation, Baa by Moody's Investors Service, Inc.,
or the equivalent in the case of unrated instruments. SEE "Description of
Securities Ratings" in Appendix A to the SAI.
WARRANTS are options to purchase an equity security at a specified price at any
time during the life of the warrant. Unlike convertible securities and preferred
stocks, warrants do not pay a fixed dividend. Investments in warrants involve
certain 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 a Fund's entire
investment therein).
The market value of all securities, including equity securities, is based upon
the market's perception of value and not necessarily the book value of an issuer
or other objective measure of a company's worth.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")
The Funds may invest in ADRs, which are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. In a "sponsored" ADR, the foreign issuer typically bears certain
expenses of maintaining the ADR facility. "Unsponsored" ADRs may be created
without the participation
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of the foreign issuer. Holders of unsponsored ADRs generally bear all the costs
of the ADR facility. The bank or trust company depository of an unsponsored ADR
may be under no obligation to distribute shareholder communications received
from the foreign issuer or to pass through voting rights.
SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in shares of other investment companies to the extent
permitted by the Investment Company Act of 1940 ("Investment Company Act"). To
the extent a Fund invests in shares of an investment company, it will bear its
pro rata share of the other investment company's expenses, such as investment
advisory and distribution fees, and operating expenses.
ILLIQUID AND RESTRICTED SECURITIES
As a nonfundamental investment policy, a Fund may not purchase a security if, as
a result, more than 10% of its net assets would be invested in illiquid
securities. A security is considered ILLIQUID if it may not be sold or disposed
of in the ordinary course of business within seven days at approximately the
value at which a Fund has valued the security. Over-the-counter options,
repurchase agreements not entitling the holder to payment of principal in 7
days, and certain "restricted securities" may be illiquid.
A security is RESTRICTED if it is subject to contractual or legal restrictions
on resale to the general public. A liquid institutional market has developed,
however, for certain restricted securities such as repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes. Thus,
restrictions on resale do not necessarily indicate the liquidity of the
security. For example, if a restricted security may be sold to certain
institutional buyers in accordance with Rule 144A under the Securities Act of
1933 or another exemption from registration under the Securities Act, the
Adviser may determine that the security is liquid under guidelines adopted by
the Funds' Board of Trustees. These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. With other restricted securities, however, there can be no
assurance that a liquid market will exist for the security at any particular
time. A Fund might not be able to dispose of such securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. Under such circumstances, the Fund would treat such holdings as
illiquid.
----------------
ADDITIONAL INVESTMENT PRACTICES
CONCENTRATION
As a fundamental investment policy, a Fund may not purchase a security (other
than U.S. Government Securities) if as a result more than 25% of its net assets
would be invested in a particular industry.
DIVERSIFICATION
As a fundamental investment policy, a Fund may not purchase a security if, as a
result (1) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer, or (2) the Fund would own more than 10% of the
outstanding voting securities of a single issuer. This limitation applies only
with respect to 75% of a Fund's total assets and does not apply to U.S.
Government Securities.
BORROWING
As a fundamental investment policy, a Fund may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, in amounts up
to 33 1/3% of the Fund's total assets. As a nonfundamental investment
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policy, a Fund may not purchase portfolio securities if its outstanding
borrowings exceed 5% of its total assets or borrow for purposes other than
meeting redemptions in an amount exceeding 5% of the value of its total assets
at the time the borrowing is made.
Borrowing involves special risk considerations. Interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds (or on the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might need to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales.
CASH AND TEMPORARY DEFENSIVE POSITIONS
A Fund will hold a certain portion of its assets in cash or cash equivalents to
retain flexibility in meeting redemptions, paying expenses, and timing of new
investments. Cash equivalents may include (1) short-term obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
("U.S. Government Securities"), (2) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have an A+ rating from Standard & Poor's
Corporation or an A-1+ rating from Moody's Investors Service, Inc., (3)
commercial paper rated P-1 by Moody's Investors Service, Inc. or A-1 by Standard
& Poor's Corporation, (4) repurchase agreements covering any of the securities
in which a Fund may invest directly, and (5) money market mutual funds.
In addition, when the Adviser believes that business or financial conditions
warrant, a Fund may assume a temporary defensive position. During such periods,
a Fund may invest without limit in cash or cash equivalents. When and to the
extent a Fund assumes a temporary defensive position, it will not pursue its
investment objective.
SHORT SALES
A Fund may not enter into short sales, except short sales "against the box." In
a short sale against the box, a Fund sells securities it owns, or has the right
to acquire at no added cost. A Fund does not immediately deliver the securities
sold, however, and does not receive proceeds from the sale until it does deliver
the securities.
CORE AND GATEWAY(R)
Notwithstanding the other investment policies of the Funds, each Fund may seek
to achieve its investment objective by converting to a Core and Gateway
structure. Upon future action by the Board of Trustees and notice to
shareholders, a Fund may convert to this structure. As a result, the Fund would
hold as its only investment, shares of another investment company having
substantially the same investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS
The frequency of portfolio transactions is generally expressed in terms of a
portfolio turnover rate. For example, an annual turnover rate of 100% would
occur if all of the securities in a Fund were replaced once a year. A Fund's
portfolio turnover rate will vary from year to year depending on market
conditions. Higher rates of turnover will result in higher brokerage costs for a
Fund. The Adviser weighs the anticipated benefits of short-term investments
against these consequences. The portfolio turnover rate for each of Mid Cap
Value Fund, Large Cap Value Fund and Value Fund is not expected to exceed 100%.
Small Cap Value Fund's portfolio turnover rate is reported under "Financial
Highlights."
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective, and investment policies of a Fund that are identified
as fundamental, may not be changed without approval of the holders of a majority
of the Fund's outstanding voting securities, as defined in the Investment
Company Act. Except as otherwise indicated, however, a Fund's investment
policies are not fundamental and may be changed by the Board of Trustees without
shareholder approval. A Fund will apply the percentage restrictions on its
investments set forth in its investment policies when the investment is made. If
the percentage of a Fund's assets committed to a particular investment or
practice later increases because of a change in the market values of the Fund's
assets or redemptions of Fund shares, it will not constitute a violation of the
limitation.
----------------
MANAGEMENT
The business of the Trust and the Funds is managed under the direction of the
Board of Trustees. The Board formulates the general policies of the Funds and
meets periodically to review the Funds' performance, monitor investment
activities and practices, and discuss other matters affecting the Funds and the
Trust. Additional information regarding the Trustees, as well as the Company's
executive officers, may be found in the SAI under the heading "Management -
Trustees and Officers."
INVESTMENT ADVISER
Cramer Rosenthal McGlynn, LLC (the "Adviser"), 707 Westchester Avenue, White
Plains, New York 10604, serves as investment adviser to the Funds pursuant to an
investment advisory agreement with the Trust. Subject to the general control of
the Board, the Adviser makes investment decisions for the Funds. The Adviser is
a limited liability company organized under the laws of the State of Delaware
and is a registered investment adviser under the Investment Advisers Act of
1940. The Adviser succeeds CRM Advisors, LLC, the investment adviser to the CRM
Small Cap Value Fund, through December 31, 1997. The Adviser is 76% owned by
Cramer, Rosenthal, McGlynn, Inc. and its shareholders.
The Adviser and its predecessors have managed investments in small and medium
capitalization companies for over twenty-five years. As of the date of this
prospectus, the Adviser has over $4.2 billion of assets under management. The
following data relates to historical performance of the portfolios of all
private accounts managed by the Adviser, and its predecessors, CRM Advisors, LLC
and Cramer, Rosenthal, McGlynn, Inc., that have investment objectives, policies
and strategies substantially similar to Mid Cap Value Fund's. This data does not
reflect the performance of the Funds. This data compares the performance of
these portfolios against the Russell Midcap(TM) Index. It represents dollar
weighted total rates of return that include the impact of capital appreciation
as well as the reinvestment of interest and dividends. This data is unaudited
and investors should not consider this performance data as an indication of
future performance of any Fund or of the Adviser.
- ------------------------------ ------------ ----------------
Period The Russell
Adviser(1) Midcap(2)
- ------------------------------ ------------ ----------------
20 Years: 6/30/78-6/30/98 17.9% N/A
- ------------------------------ ------------ ----------------
15 Years: 6/30/83-6/30/98 15.8% 15.4%
- ------------------------------ ------------ ----------------
10 Years: 6/30/88-6/30/98 17.0% 16.5%
- ------------------------------ ------------ ----------------
5 Years: 6/30/93-6/30/98 18.1% 18.7%
- ------------------------------ ------------ ----------------
3 Years: 6/30/95-6/30/98 21.9% 23.5%
- ------------------------------ ------------ ----------------
1 Year: 6/30/97-6/30/98 18.1% 25.0%
- ------------------------------ ------------ ----------------
(1) These results are a dollar weighted composite of tax-exempt, fully
discretionary, separately managed accounts that are over $1 million in
size and under the Adviser's and its predecessor's management for at
least 3 months. These accounts have investment objectives, policies and
strategies substantially similar to the Mid Cap Value Fund. The
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composite consists of 65 accounts with $1.56 billion in assets (83% of
tax-exempt equity assets and 44% of all equity assets). The modified
Bank Administration Institute (BAI) method is used to compute a
time-weighted rate of return in accordance with standards set by the
Association for Investment Management and Research (AIMR); returns will
differ from return results computed in accordance with the method set
by the SEC. The composite does not reflect all of the assets under the
Adviser's management and may not accurately reflect the performance of
all accounts it manages. The separately managed accounts in the
composite are not subject to the same types of expenses to which the
Fund is subject nor to the diversification requirements, specific tax
restrictions and investment limitations imposed by the 1940 Act or
Subchapter M of the Internal Revenue Code of 1986, as amended.
Consequently, the performance results for the accounts could have been
adversely affected if the accounts included in the composite had been
regulated as an investment company under the federal securities laws.
(2) The Russell Midcap(TM) Index measures the performance of the 800
smallest companies in the Russell 1000 Index, which represent
approximately 35% of the total market capitalization of the Russell
1000 Index. As of the latest reconstitution, the average market
capitalization was approximately $5.3 billion; the median market
capitalization was approximately $4.8 billion. The largest company in
the index had an approximate market capitalization of $11.3 billion.
All returns reflect the deduction of advisory fees, brokerage commissions and
execution costs paid by the investment adviser's private accounts, without
provision for federal or state income taxes. The net effect of the deduction of
the operating expenses of the Funds on the annualized performance, including the
effect of compounding over time, may be substantial. SEE "Fee Tables" above.
All information relies on data supplied by the Adviser or from statistical
services, reports or other sources believed by the Trust to be reliable. It has
not been verified or audited.
The principals of the Adviser stand on a solid base of more than 160 years of
collective investment experience. The principal portfolio managers of the
Adviser are:
Gerald B. Cramer, Chairman of the Adviser since 1973, has been in investment
banking and portfolio management for the past forty years. Before co-founding
and forming CRM in 1973, Mr. Cramer was a senior partner at Oppenheimer & Co.
His responsibilities include investment policy and portfolio management. He
received a B.S. from Syracuse University and attended the University of
Pennsylvania Wharton Graduate School of Finance.
Ronald H. McGlynn, President and Chief Executive Officer of the Adviser since
1983, is the Adviser's Co- Chief Investment Officer . He has been with CRM for
twenty-five years and is responsible for investment policy, portfolio
management, and investment research. Prior to his association with CRM and the
Adviser, Mr. McGlynn was a Portfolio Manager at Oppenheimer & Co. He received a
B.A. from Williams College and an M.B.A. from Columbia University. Mr. McGlynn
is the Portfolio Manager for each Fund and is responsible for the day-to-day
management of each Fund's portfolio
Jay B. Abramson, Executive Vice President of the Adviser since 1989, is the
Adviser's Director of Research and Co-Chief Investment Officer. He has been with
CRM for twelve years and is responsible for investment research and portfolio
management. Mr. Abramson received a B.S.E. and J.D. from the University of
Pennsylvania Wharton School and Law School, respectively. He is also a Certified
Public Accountant. Mr. Abramson is the Portfolio Manager for each Fund and is
responsible for the day-to-day management of each Fund's portfolio.
Fred M. Filoon, Senior Vice President of the Adviser since 1991, is President of
the Trust. Mr. Filoon has over thirty-one years of investment experience and is
responsible for portfolio management at CRM. Mr. Filoon received a B.A. from
Bowdoin College and attended New York University Business School.
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Michael A. Prober, is a Principal and a Vice President of the Adviser since
1995, and is responsible for investment research. Prior to joining CRM in 1993,
he worked in corporate finance and commercial banking at Chase Manhattan Bank
and as a Research Analyst for Alpha Capital Venture Partners. Mr. Prober
received a B.B.A. from the University of Michigan and an M.M. from Northwestern
University, J.L. Kellogg Graduate School of Management. Mr. Prober is
co-Portfolio Manager for the Mid Cap Value Fund.
Scott L. Scher, CFA, is a Principal and a Vice President of the Adviser since
1995, and is responsible for investment research. Prior to joining CRM in 1995,
he worked as an analyst/portfolio manager at The Prudential from 1988 to 1995.
Mr. Scher received an A.B. from Harvard College, an M.B.A. from Columbia
Business School and is a Chartered Financial Analyst. Mr. Scher is co-Portfolio
Manager for the Small Cap Value Fund.
For its services under the Advisory Agreement, the Adviser receives an advisory
fee at an annual rate of 0.75% of the average daily net assets of each Fund. The
Adviser's fees are accrued daily and paid monthly. The Adviser, at its sole
discretion, may waive all or any portion of its advisory fees. Any waiver would
have the effect of increasing the Fund's total return for the period during
which the waiver was in effect and would not be recouped by the Adviser at a
later date.
YEAR 2000. Like other mutual funds, financial and other business organizations
and individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers to the Funds do
not properly process and calculate date-related information and data from and
after January 2000. The Adviser and the administrator are taking steps to
address the Year 2000 issue with respect to the computer systems that they use
and to obtain reasonable assurances that comparable steps are being taken by the
Funds' other service providers. There can be no assurance, however, that these
steps will be sufficient to avoid a temporary service disruption or any adverse
impact on the Funds.
ADMINISTRATOR
On behalf of each Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services, LLC ("FAdS"). As provided in this agreement,
FAdS is responsible for the supervision of the overall management of the Trust
(including the Trust's receipt of services for which it must pay), providing the
Trust with general office facilities and providing persons satisfactory to the
Board of Trustees to serve as officers of the Trust. For these services, FAdS
receives a fee computed and paid monthly at an annual rate of 0.15% of the
average daily net assets of each Fund for the first $50 million in assets, 0.10%
for the next $50 million in assets and 0.05% thereafter, subject to an annual
minimum of $25,000. Like the Adviser, FAdS, in its sole discretion, may waive
all or any portion of its fees.
FAdS is located at Two Portland Square, Portland, Maine 04101. As of the date
hereof, FAdS manages and administers registered investment companies and
collective investment funds with assets of approximately $48 billion.
Forum Accounting Services, LLC ("FAcS"), an affiliate of FAdS, provides fund
accounting services to each Fund pursuant to a Fund Accounting Agreement with
the Trust. For its services, FAcS receives a fee at an annual rate of $36,000
for each Fund plus $12,000 for each additional class and certain surcharges
based upon the amount and type of a Fund's portfolio transactions and positions.
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DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial Services,
Inc. ("FFSI") acts as distributor of the Funds' shares. FFSI acts as the agent
of the Trust in connection with the offering of shares of the Funds. FFSI
receives no compensation for its services under the Distribution Agreement. FFSI
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares. FFSI 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
Funds. Investors purchasing shares of the Funds through another financial
institution should read any materials and information provided by the financial
institution to acquaint themselves with its procedures and any fees that it may
charge.
FFSI, located at Two Portland Square, Portland, Maine 04101, is a registered
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
SHAREHOLDER SERVICES
The Trust has adopted a shareholder services plan providing that the Trust may
obtain the services of the Adviser and other qualified financial institutions to
act as shareholder servicing agents for their customers. Under this plan, the
Trust has authorized FAdS to enter into agreements pursuant to which the
shareholder servicing agent performs certain shareholder services not otherwise
provided by the Funds' transfer agent. For these services, the Trust pays the
shareholder servicing agent a fee of up to 0.25% of the average daily net assets
of the Investor Shares owned by investors for which the shareholder servicing
agent maintains a servicing relationship.
Among the services provided by shareholder servicing agents are: answering
customer inquiries regarding account matters; assisting shareholders in
designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Investor
Shares held beneficially; and providing such other services as the Trust or a
shareholder may request.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Forum Shareholder
Services, LLC ("FSS") pursuant to which FSS acts as the Funds' transfer agent
and dividend disbursing agent. FSS maintains an account for each shareholder of
the Trust (unless such accounts are maintained by sub-transfer agents), performs
other transfer agency functions and acts as dividend disbursing agent for the
Trust FAdS, FFSI, FSS and FAcS are controlled by John Y. Keffer.
EXPENSES OF THE TRUST
A Fund's expenses comprise Trust expenses attributable to the Fund, which are
charged to the Fund. Subject to the obligation of the Adviser to reimburse a
Fund for excess expenses of the Fund, the Trust pays for all of its expenses.
The Adviser, FAdS and FSS, in their sole discretion, may waive all or any
portion of their respective fees, which are accrued daily, and paid monthly. Any
such waiver, which could be discontinued at any time, would have the effect of
increasing a Fund's performance for the period during which the waiver was in
effect and would not be recouped at a later date.
The Adviser has voluntarily undertaken to assume certain expenses of the Funds
(or waive
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<PAGE>
its respective fees). This undertaking is designed to place a maximum limit on
expenses (including all fees to be paid to the Adviser but excluding taxes,
interest, brokerage commissions and other portfolio transaction expenses and
extraordinary expenses) of 1.50% of the average daily net assets of the Funds.
INVESTMENT IN A FUND
PURCHASE AND REDEMPTION OF SHARES
GENERAL. You may purchase or redeem shares of a Fund without a sales charge at
their net asset value on any weekday except on days when the New York Stock
Exchange is closed ("Fund Business Day"). The Trust does not accept orders on
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving and
Christmas. Each Fund's net asset value is calculated as of the close of trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each Fund
Business Day. SEE "Other Information -- Determination of Net Asset Value."
PURCHASES. Fund shares are issued at a price equal to the net asset value per
share next determined after an order in proper form is received and accepted.
Each Fund reserves the right to reject any subscription for the purchase of its
shares and may, in the Adviser's discretion, accept portfolio securities in lieu
of cash as payment for Fund shares. Fund shares become entitled to receive
dividends on the day after the shares are issued to an investor.
REDEMPTIONS. There is no redemption charge, no minimum period of investment, and
no restriction on frequency of redemptions. Shares are redeemed at a price equal
to the net asset value per share next determined following acceptance by FSS of
the redemption order in proper form (and any supporting documentation which FSS
may require). Shares redeemed are not entitled to participate in dividends
declared after the day on which a redemption becomes effective.
The date of payment of redemption proceeds may not be postponed for more than
seven days after shares are tendered to FSS for redemption by a shareholder of
record. The right of redemption may not be suspended except in accordance with
the provisions of the Investment Company Act.
MINIMUM INVESTMENTS. There is a $10,000 minimum for initial investments in a
Fund. For individual retirement accounts and automatic investment plans, the
investment minimum is $2,000. The minimum for subsequent investments is $100.
The Trust and the Administrator each reserve the right to waive the minimum
investment requirement.
ACCOUNT STATEMENTS. Shareholders will receive from the Trust periodic statements
listing account activity during the statement period.
SHARE CERTIFICATES. FSS maintains a shareholder account for each shareholder.
The Trust does not issue share certificates.
PURCHASE AND REDEMPTION PROCEDURES
INITIAL PURCHASE OF SHARES. You may obtain the account application by calling
(800) CRM-2883 or by writing The CRM Funds at P.O. Box 446, Portland, Maine
04112.
MAIL. Investors may send a check made payable to "CRM Funds" with a completed
account application to:
The CRM Funds
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. All checks must be
drawn on a United States bank. If a check is returned unpaid, the
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<PAGE>
purchase will be canceled, and the investor will be liable for any resulting
losses or fees incurred by a Fund, the Adviser or FSS.
BANK WIRE. To make an initial investment in a Fund using the fedwire system
for transmittal of money between banks, you should first telephone FSS at (800)
CRM-2883 or (800) 844-8258 to obtain an account number. You should then instruct
a member commercial bank to wire your money immediately to:
BankBoston
Boston, Massachusetts
ABA # 011000390 For Credit to:
Forum Shareholder Services, LLC
Account # 541-54171
The CRM Funds
(Investor's Name)
(Investor's Account Number)
You should then promptly complete and mail the account application.
If you plan to wire funds, you should instruct your bank early in the day so the
wire transfer can be accomplished the same day. Your bank may assess charges for
transmitting the money by bank wire and for use of Federal Funds. The Trust does
not charge investors for the receipt of wire transfers. Payment in the form of a
bank wire received prior to 4:00 p.m., (Eastern time) on a Fund Business Day
will be treated as a Federal Funds payment received before that time.
THROUGH BROKERS. You may purchase and redeem shares of a Fund through brokers
and other financial institutions that have entered into sales agreements with
Forum. These institutions may charge a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Trust. The Trust is not responsible for the failure of any institution to
promptly forward these requests.
If you purchase shares through a broker-dealer or financial institution, your
purchase will be subject to its procedures, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in a Fund
directly. You should acquaint yourself with the institution's procedures and
read this Prospectus in conjunction with any materials and information provided
by your institution. If you purchase a Fund's shares in this manner, you may or
may not be the shareholder of record and, subject to your institution's and the
Fund's procedures, may have the Fund's shares transferred into your name. There
is typically a one to five day settlement period for purchases and redemptions
through broker-dealers.
AUTOMATIC INVESTMENT PLAN. Current shareholders may purchase additional
shares by arranging systematic monthly, bi-monthly or quarterly investments into
a Fund with an automatic investment plan. The initial minimum is $2,000 and the
minimum subsequent automatic investment is $100. After shareholders give the
Trust proper authorization, their bank accounts, which must be with banks that
are members of the Automated Clearing House, will be debited accordingly to
purchase shares. Shareholders will receive a confirmation from the Trust for
every transaction, and a withdrawal will appear on their bank statements.
To participate in an automatic investment plan, shareholders must complete the
appropriate sections of the enrollment form. This form may be obtained by
calling the Trust at (800) CRM-2883 or (800) 844-8258. The amount shareholders
specify will automatically be invested in shares of the specified Fund at the
net asset value per share next determined after payment is received by the
Trust.
SUBSEQUENT PURCHASES OF SHARES. You may purchase additional shares of a Fund by
mailing a
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check or sending a bank wire as indicated above. Shareholders using the wire
system for subsequent purchases should first telephone FSS at (800) CRM-2883 or
(800) 844-8258 to notify it of the wire transfer. All payments should clearly
indicate the shareholder's name and account number.
REDEMPTION OF SHARES. Redemption requests will not be effected unless any check
used for investment has been cleared by the shareholder's bank, which may take
up to 15 calendar days. This delay may be avoided by investing in a Fund through
wire transfers. Normally redemption proceeds are paid immediately following any
redemption, but in no event later than seven days after redemption, by check
mailed to the shareholder of record at his record address. Shareholders that
wish to redeem shares by Telephone or by Bank Wire must elect these options by
properly completing the appropriate sections of their account application. These
privileges may be modified or terminated by the Trust at any time.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account with an aggregate net asset value of less than $1,000,000
($2,000 for IRAs or automatic investment plans). A Fund will not redeem accounts
that fall below these amounts solely as a result of a reduction in net asset
value of the Fund's shares.
REDEMPTION BY MAIL. You may redeem all or any number of your shares by
sending a written request to FSS at the address above. You must sign all written
requests for redemption and provide a signature guarantee. SEE "Other Investment
Information -- Signature Guarantees."
TELEPHONE REDEMPTIONS. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling FSS at (800)
CRM-2883 or (800) 844-8258. The minimum amount for a telephone redemption is
$1,000. In response to the telephone redemption instruction, a Fund will mail a
check to the shareholder's record address or, if the shareholder has elected
wire redemption privileges, wire the proceeds.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, the Trust and FSS will employ reasonable procedures to confirm that
such instructions are genuine. Shareholders must provide FSS with the
shareholder's account number, the exact name in which the shares are registered
and some additional form of identification such as a password. The Trust or FSS
may employ other procedures such as recording certain transactions. If such
procedures are followed, neither FSS nor the Trust will be liable for any losses
due to unauthorized or fraudulent redemption requests. Shareholders should
verify the accuracy of telephone instructions immediately upon receipt of
confirmation statements.
During times of drastic economic or market changes, it may be difficult to make
a redemption by telephone. If you cannot reach FSS by telephone, you may mail or
hand-deliver your request to FSS at Two Portland Square, Portland, Maine 04101.
BANK WIRE REDEMPTIONS. If you have elected wire redemption privileges, a Fund
will upon request transmit the proceeds of any redemption greater than $10,000
by Federal Funds wire to a bank account designated on your account application.
If you wish to request bank wire redemptions by telephone, you must also elect
telephone redemption privileges.
EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange their Investor Shares for Investor shares of
the Daily Assets Government Fund, a money market fund managed by Forum and a
separate series of
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Forum Funds. You may receive a copy of that fund's prospectus by writing FSS or
calling (800) 844-8258. No sales charges are imposed on exchanges between a Fund
and the Daily Assets Government Fund.
EXCHANGE PROCEDURES. You may request an exchange by writing to FSS at Two
Portland Square, Portland, Maine 04101. The minimum amount for an exchange to
open an account in the Daily Assets Government Fund is $2,500. Exchanges may
only be made between identically registered accounts. You do not need to
complete a new account application, unless you are requesting different
shareholder privileges for the new account. A Fund reserves the right to reject
any exchange request and may modify or terminate the exchange privilege at any
time. There is no charge for the exchange privilege or limitation as to
frequency of exchanges.
An exchange of shares in a Fund pursuant to the exchange privilege is, in
effect, a redemption of the Fund's shares (at net asset value) followed by the
purchase of shares of the investment company into which the exchange is made (at
net asset value) and may result in a shareholder realizing a taxable gain or
loss for Federal income tax purposes. The exchange privilege is available to
shareholders residing in any state in which shares of the Daily Assets
Government Fund may legally be sold.
TELEPHONE EXCHANGES. If you have elected telephone exchange privileges, you may
request an exchange by calling FSS at (800) CRM-2883. The Trust and FSS are not
responsible for the authenticity of telephone instructions or losses, if any,
resulting from unauthorized telephone exchange requests. The Trust employs
reasonable procedures to insure that telephone orders are genuine and, if it
does not, may be liable for any losses due to unauthorized transactions.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
OTHER INVESTMENT INFORMATION
CHANGES TO ACCOUNT INFORMATION. To change the record name or address of your
account, the designated bank account, the dividend election, or the telephone
redemption option election on an account, you must provide a signature
guarantee.
SIGNATURE GUARANTEES.. When a signature guarantee is called for, you must have
"Signature Guaranteed" stamped under your signature and signed by a commercial
bank or trust company, a broker, dealer or securities exchange, a credit union
or a savings association that is authorized to guarantee signatures.
RETIREMENT ACCOUNTS. A Fund may be a suitable investment for part or all of the
assets held in retirement such as IRAs, SEP-IRAs, Keoghs, or other types of
retirement accounts. The minimum initial investment for investors opening a
retirement account or investing through your own IRA is $2,000. There is no
minimum for subsequent investments.
For information on investing in a Fund for retirement, and retirement account
plans, call FSS at (800) 844-8258, or write to Two Portland Square, Portland,
Maine 04101.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
For the Small Cap Value Fund, Mid Cap Value Fund, and Value Fund dividends
representing the net investment income, if any, are declared and paid annually
by each Fund. For the Large Cap Value Fund, dividends representing the net
investment income, if any, are declared and paid quarterly. Net capital gains
realized by a Fund, if any, also will be distributed annually. All dividends and
net capital gains distributions are reinvested in additional shares of a Fund,
unless you elect to receive distributions in cash. For Federal
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income tax purposes, dividends are treated the same whether they are received in
cash or reinvested in additional shares of a Fund. SEE "Dividends and Tax
Matters -- Taxes."
Income dividends will be reinvested at a Fund's net asset value as of the last
day of the period with respect to which the dividends are paid and capital gains
dividends will be reinvested at the net asset value of a Fund on the payment
date for the dividend. Cash payments may be made more than seven days following
the date on which dividends would otherwise be reinvested.
TAXES
Each Fund intends to qualify for each fiscal year and elect to be treated as a
"regulated investment company," or "RIC," under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"). As a RIC, a Fund is not liable for Federal
income and excise taxes on the net investment income and capital gains that it
distributes to shareholders in accordance with applicable provisions of the
Code. Each Fund intends to distribute all of its net income and net capital
gains each year. Accordingly, a Fund should not be subject to Federal income and
excise taxes.
Dividends paid by a Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. In general, a federal tax rate of 20% applies to net gain on capital
assets held for more than one year. Distributions of net capital gain will be
taxable to shareholders as such, regardless of how long a shareholder has held
shares in the Fund.
If a shareholder holds shares for six months or less and redeems shares at a
loss after receiving a distribution taxable to the shareholder as a long-term
capital gain, the loss would be treated as a long-term capital loss to the
extent of the distribution.
Any dividend or other distribution received by a shareholder on shares of a Fund
will reduce the net asset value of the shareholder's shares by the amount of the
dividend or distribution. Furthermore, a dividend or distribution made shortly
after the purchase of shares by a shareholder, although in effect a return of
capital, would still be taxable to the shareholder as a dividend as described
above.
Dividends and other distributions to shareholders are treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of a Fund.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) made
to a non-corporate shareholder unless the shareholder certifies in writing that
the social security or tax identification number provided by the shareholder is
correct and that the shareholder is not subject to backup withholding for prior
underreporting to the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by a Fund will be
mailed to shareholders shortly after the close of each year.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value per share of a Fund is determined as of the close of trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time), on each Fund
Business Day by dividing the value of the Fund's net assets (I.E., the value of
its securities and other assets less its liabilities, including expenses payable
or accrued but excluding capital stock and surplus) by the number of shares
outstanding at the time the determination is made. Securities owned by a Fund
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for which market quotations are readily available are valued using the last
reported sales price provided by independent pricing services. If no sale price
is reported, the mean of the last bid and ask price is used. If no mean price is
available, the last bid price is used. In the absence of readily available
market quotations, securities are valued at fair value as determined by the
valuation committee of the Board of Trustees. Purchases and redemptions will be
effected at the time of determination of net asset value next following the
receipt of any purchase or redemption order as described under "Investment in a
Fund --Purchases and Redemptions of Shares."
THE TRUST AND ITS SHARES
The Trust is registered with the SEC as an open-end management investment
company and was organized as a business trust under the laws of the State of
Delaware on April 24, 1995. The Board has the authority to issue an unlimited
number of shares of beneficial interest of separate series with $0.001 par value
per share and to create classes of shares within each series. Currently, the
authorized shares of the Trust are divided into four separate series.
The Funds may issue shares of other classes. The Funds currently issue two
classes of shares: Investor Shares and Institutional Shares, and may in the
future create additional class types. Institutional Shares are offered to
fiduciary, agency and custodial clients of bank trust departments, trust
companies and their affiliates. Each class of a Fund will have a different
expense ratio and may have different sales charges (including distribution
fees). Each class' performance is affected by its expenses and sales charges.
Currently, neither share class has a sales charge. Investors may contact FSS for
more information on either share class. Sales personnel of broker-dealers and
other financial institutions selling the Funds' shares may receive different
compensation for selling Investor Shares and Institutional Shares of the Funds.
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to matters that affect the
particular class of shares. Generally, shares will be voted in the aggregate
without reference to a particular series or class, except if the matter affects
only one series or class or voting by series or class is required by law, in
which case shares will be voted separately by series or class, as appropriate.
Delaware law does not require the Trust to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by federal or state law. Shareholders (and Trustees) have
available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a series is entitled to the shareholder's pro rata share
of all dividends and distributions arising from that series' assets and, upon
redeeming shares, will receive the portion of the series' net assets represented
by the redeemed shares. SEE "Other Information - The Trust and its Shareholders"
in the SAI.
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--------------------
THE CRM FUNDS
--------------------
--------------------------
SMALL CAP VALUE FUND
--------------------------
MID CAP VALUE FUND
--------------------------
LARGE CAP VALUE FUND
--------------------------
VALUE FUND
--------------------------
- --------------------------------------------------------------------------------
Fund Information: Account Information and
Two Portland Square Shareholder Services:
Portland, Maine 04101
(800) CRM-2883 Forum Shareholder Services, LLC
http://www.CRMFunds.com P.O. Box 446
Portland, Maine 04112
Investment Adviser: (207) 879-8910
Cramer Rosenthal McGlynn, LLC (800) 844-8258
707 Westchester Avenue
White Plains, New York 10604
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August 21, 1998
The CRM Funds (the "Trust") is a registered open-end investment
company. This Statement of Additional Information ("SAI") supplements the
Prospectuses dated August 21, 1998, as may be amended from time to time,
offering Investor Shares and Institutional Shares of the Small Cap Value Fund,
Mid Cap Value Fund, Large Cap Value Fund and Value Fund (the "Funds"). The SAI
should be read only in conjunction with a corresponding Prospectus, a copy of
which may be obtained by an investor without charge by contacting shareholder
servicing at the address listed above.
TABLE OF CONTENTS
Page
1. Investment Policies........................................ 2
2. Investment Limitations..................................... 4
3. Performance Data and Advertising........................... 5
4. Management................................................. 7
5. Determination of Net Asset Value........................... 12
6. Portfolio Transactions..................................... 12
7. Additional Purchase and
Redemption Information.................................... 13
8. Taxation................................................... 14
9. Other Matters.............................................. 17
Appendix A -- Description of Securities Ratings............ A-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in
the Prospectus concerning each Fund's investments, investment techniques and the
risks associated therewith.
DEFINITIONS
These terms in the SAI shall have the following meanings:
"Board" shall mean the Board of Trustees of the Trust.
"U.S. Treasury obligations" shall mean securities issued by
the United States Treasury, such as Treasury bills, notes and bonds,
that are fully guaranteed as to payment of principal and interest by
the United States.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
ILLIQUID SECURITIES
A Fund may invest up to 10% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which a Fund has valued the securities and includes,
among other things, purchased over-the-counter (OTC) options and repurchase
agreements maturing in more than seven days.
The Board has the ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Board has delegated the function
of making day-to-day determinations of liquidity to Cramer Rosenthal McGlynn,
LLC (the "Adviser"), pursuant to guidelines approved by 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. The Adviser
monitors the liquidity of the securities in a Fund's portfolio and reports
periodically on such decisions to the Board.
OPTIONS
A Fund may seek to hedge against a decline in the value of securities
it owns or an increase in the price of securities which it plans to purchase by
purchasing and writing (i.e., selling) covered options on an exchange or over
the counter. An option is covered if, as long as a Fund is obligated under the
option, it owns an offsetting position in the underlying security or maintains
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with a value at all times sufficient to cover a Fund's
obligation under the option.
The use of options subjects a Fund to certain investment risks and
transaction costs to which it might not otherwise be subject. These risks
include: (1) dependence on the Adviser's ability to predict movements in the
prices of individual securities and fluctuations in the general securities
markets; (2) imperfect correlation between movements in the prices of options
and movements in the price of the securities hedged or used for cover; (3) the
fact that skills and techniques needed to trade these instruments are different
from those needed to select the other securities in which a Fund invests; and
(4) lack of assurance that a liquid secondary market will exist for any
particular option at any particular time. Other risks include the inability of a
Fund, as the writer of covered call options, to benefit from the appreciation of
the underlying securities above the exercise price and the possible loss of the
entire premium paid for options purchased by a Fund.
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<PAGE>
A Fund will not hedge more than 30% of its total assets by buying put
options and writing call options.
CORPORATE DEBT SECURITIES AND COMMERCIAL PAPER
A Fund may invest in corporate debt securities including corporate
bonds and notes and short-term investments such as commercial paper and variable
rate demand notes. Commercial paper (short-term promissory notes) is issued by
companies to finance their or their affiliates' current obligations. Variable
and floating rate demand notes are unsecured obligations redeemable upon not
more than 30 days' notice. 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.
CONVERTIBLE SECURITIES
A Fund may also invest in convertible securities. A convertible
security is a bond, debenture, note, preferred stock or other security that may
be converted into or exchanged for a prescribed amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. 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 in that they ordinarily provide a stable stream
of income with generally higher yields than those of common stocks of the same
or similar issuers. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to comparable
nonconvertible securities. Although no securities investment is without some
risk, investment in convertible securities generally entails less risk than in
the issuer's common stock. However, the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. Convertible securities have unique
investment characteristics in that they generally (1) have higher yields than
common stocks, but lower yields than comparable non-convertible securities, (2)
are less subject to fluctuation in value than the underlying stocks since they
have fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (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 have an
effect on 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 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.
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<PAGE>
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 a 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.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") 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 corporate bonds, including convertible
securities by Moody's and S&P is included in Appendix A to this Statement of
Additional Information. A Fund may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Subsequent to its purchase by a Fund, an issue of securities may
cease to be rated or its rating may be reduced. The Adviser will consider such
an event in determining whether a Fund should continue to hold the obligation.
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 in response to
subsequent events, so that an issuer's current financial condition may be better
or worse than the rating indicates.
2. INVESTMENT LIMITATIONS
FUNDAMENTAL INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations
that cannot be changed without the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of a Fund or (2) 67% of the shares of a Fund
present or represented at a shareholders meeting at which the holders of more
than 50% of the outstanding shares of a Fund are present or represented. Each
Fund may not:
(1) Purchase the securities of issuers (other than U.S. Government
Securities) conducting their business activity in the same industry if,
immediately after such purchase, the value of a Fund's investments in
such industry would comprise 25% or more of the value of its total
assets.
(2) Purchase a security if, as a result (a) more than 5% of a Fund's
total assets would be invested in the securities of a single issuer, or
(b) a Fund would own more than 10% of the outstanding voting securities
of a single issuer. This limitation applies only with respect to 75% of
a Fund's total assets and does not apply to U.S. Government Securities.
(3) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, a Fund may be deemed to be an underwriter for purpose of
the Securities Act of 1933.
(4) Purchase or sell real estate or any interest therein, except that a
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
(5) Purchase or sell physical commodities or contracts, options or
options on contracts to purchase or sell physical commodities.
(6) Make loans to other persons except for the purchase of debt
securities that are otherwise permitted investments or loans of
portfolio securities through the use of repurchase agreements.
4
<PAGE>
(7) Issue senior securities except pursuant to Section 18 of the
Investment Company Act and except that a Fund may borrow money subject
to its investment limitation on borrowing.
OTHER INVESTMENT LIMITATIONS
Each Fund has adopted the following nonfundamental investment
limitations that may be changed by the Board without shareholder approval. Each
Fund may not:
(a) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted to be incurred by a Fund. The deposit in escrow
of securities in connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements with
respect to margin for futures contracts are not deemed to be pledges or
hypothecations for this purpose.
(b) Make short sales of securities except short sales against the box.
(c) Purchase securities on margin except for the use of short-term
credit necessary for the clearance of purchases and sales of portfolio
securities, but a Fund may make margin deposits in connection with
permitted transactions in options.
(d) Purchase a security if, as a result, more than 10% of its net
assets would be invested in illiquid securities. If the 10% limit on
illiquid securities is exceeded by virtue of other than a change in
market values, the condition will be reported by the Adviser to the
Board.
(e) Purchase portfolio securities if its outstanding borrowings exceed
5% of the value of its total assets or borrow for purposes other than
meeting redemptions in an amount exceeding 5% of the value of its total
assets at the time the borrowing is made.
(f) Invest more than 5% of its net assets in securities (other than
fully-collateralized debt obligations) issued by companies that have
conducted continuous operations for less than three years, including
the operations of predecessors, unless guaranteed as to principal and
interest by an issuer in whose securities a Fund could invest.
(g) Invest in or hold securities of any issuer if officers and Trustees
of the Trust or the Adviser, individually owning beneficially more than
1/2 of 1% of the securities of the issuer, in the aggregate own more
than 5% of the issuer's securities.
(h) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
If a percentage restriction contained in an investment policy set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from a change in the market values of a Fund's assets or
redemptions of Fund shares will not be considered a violation of the limitation.
3. PERFORMANCE DATA AND ADVERTISING
PERFORMANCE DATA
A Fund may quote performance in various ways. All performance
information supplied by a Fund in advertising is historical and is not intended
to indicate future returns. A Fund's net asset value and total return will
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
In performance advertising a Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc.,
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<PAGE>
IBC/Donoghue, Inc., CDA/Wiesenberger or other companies which track the
investment performance of investment companies ("Fund Tracking Companies"). A
Fund may also compare any of its performance information with 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 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. A Fund
may refer to general market performances over past time periods such as those
published by Ibbotson Associates. In addition, a Fund may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of a
Fund and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
A Fund may advertise total return. Total returns quoted in advertising
reflect all aspects of a Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in a Fund's net asset
value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a Fund over a stated period, and then calculating 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 return
of 7.18%, which is the steady annual rate that would equal 100% growth on a
compounded basis in ten years. The average annual total return is computed
separately for each class of shares of a Fund. While average annual returns are
a convenient means of comparing investment alternatives, investors should
realize that the 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 a Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
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; and
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).
In addition to average annual total returns, a Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Total returns may be broken down into 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. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
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Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
For the one year period ended June 30, 1998, the average annual total
return of the Small Cap Value Fund was 16.00%. The Small Cap Value Fund
commenced operations on October 3, 1995. The Fund's average annual total return
for the period since inception is 28.15%.
OTHER INFORMATION
A Fund may include other information in its advertisements 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; (3) descriptions of a Fund's portfolio managers and the portfolio
management staff of the Adviser or summaries of the views of the portfolio
managers with respect to the financial markets; (4) information regarding the
background, experience or areas of expertise of a Fund's trustees; (5) the
results of a hypothetical investment in a Fund over a given number of years,
including the amount that the investment would be at the end of the period; and,
(6) the net asset value, net assets or number of shareholders of a Fund as of
one or more dates. A Fund may also compare its operations to the operations of
other funds or similar investment products. Such comparisons may refer to such
aspects of operations as 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.
In connection with its advertisements a Fund may provide "shareholders'
letters" to provide shareholders or investors an introduction to a Fund's, the
Trust's or any of the Trust's service provider's policies or business practices.
A Fund may also include in sales materials information regarding the Adviser
including the nature of its management techniques.
4. MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and their principal occupations
during the past five years are set forth below. Trustees deemed to be
"interested persons" of the Trust as defined in the 1940 Act are marked with an
asterisk (*).
*Fred M. Filoon, Chairman and President.
Senior Vice President, Cramer Rosenthal McGlynn, Inc., New York, New
York since June 1991. He is 56 year old. His address is 707 Westchester
Avenue, White Plains, New York 10604.
John E. Appelt, Trustee.
Certified Financial Planner, The Equitable from 1993 to the Present. He
is 52 years old. His address is 1221 Avenue of the Americas, 32nd
Floor, New York, New York 10020-1088.
Louis Klein Jr., Trustee.
From 1991 to the Present, Mr. Klein has been self-employed as a
financial and professional services consultant. He has also held the
following positions during that period: Trustee, Manville Personal
7
<PAGE>
Injury Settlement Trust; Director, Riverwood International Corporation;
Director, Manville Corporation. He is 63 years old. His address is 80
Butternut Lane, Stamford, CT 06093.
Clement C. Moore, II, Trustee.
Managing Partner, Mariemont Holdings, LLC,, a commercial real estate
holding and development company, from 1980 to present. He is 55 years
old. His address is 10 Rockefeller Plaza, #1120, New York, New York.
Eugene A. Trainor, III, Vice President, Secretary and Treasurer.
Senior Vice-President and CFO, Cramer Rosenthal McGlynn, Inc., New
York, New York since August 1994. From July 1990 to August 1994, he was
CFO of Grotech Capital Group, Timonium, Maryland. He is 34 years old.
His address is 707 Westchester Avenue, White Plains, NY 10604.
Sara Morris, Assistant Treasurer
Managing Director, Forum Administrative Services, LLC (and its
predecessors in interest) with which she has been associated since
1994. Prior thereto, from 1991 to 1994 Ms. Clark was Controller of
Wright Express Corporation (a national credit card company). Ms. Clark
is also an officer of various registered investment companies for which
Forum Financial Services, Inc. serves as manager, administrator and/or
distributor. She is 34 years old. Her address is Two Portland Square,
Portland, Maine 04101.
Pamela J. Wheaton, Assistant Treasurer.
Senior Manager, Tax and Compliance, Forum Administrative Services, LLC
(and its predecessors in interest). Prior to serving as a Senior
Manager with Forum Administrative Services, LLC, Ms. Wheaton was a
Fund Accounting Manager at Forum Financial Corp. with which she has
been associated since 1989. She is 39 years old. Her address is Two
Portland Square, Portland, Maine 04101.
Max Berueffy, Assistant Secretary.
Counsel, Forum Administrative Services, LLC (and its predecessors in
interest) with which he has been associated since May 1994. Prior to
that, Mr. Berueffy was a member of the staff of the U.S. Securities
and Exchange Commission. Mr. Berueffy is also an officer of various
registered investment companies for which Forum Financial Services,
Inc. serves as manager, administrator and/or distributor. He is 46
years old. His address is Two Portland Square, Portland, Maine 04101.
Rebecca Hackmann, Assistant Secretary.
Fund Administrator, Forum Administrative Services, LLC, with which she
has been associated since October 1997. Prior to that Ms. Hackmann was
the Central Services Coordinator for Edward D. Jones & Company in
Mississauga, Ontario. From September 1992 through August 1996 Ms.
Hackmann was employed by Edward D. Jones & Company in St. Louis,
Missouri as a Team Leader. Ms. Hackmann is an officer of various
registered investment companies for which Forum Administrative
Services, LLC serves as manager or administrator. She is 29 years old.
Her address is Two Portland Square, Portland, Maine 04101.
8
<PAGE>
The following table sets forth the fees paid to each Trustee of the Trust for
the period from October 1, 1996 to September 30, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Name of Person Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits upon Compensation
from Trust Benefits Accrued Retirement from Trust andx
as Fund Complex
Part of Fund to Trustees
Expenses
- ------------------------------- -------------------- --------------------- -------------------- ---------------------
Fred M. Filoon $0.00 $0.00 $0.00 $0.00
John E. Appelt $5000.00 $0.00 $0.00 $5000.00
Louis Klein, Jr. $5000.00 $0.00 $0.00 $5000.00
Clement C. Moore II $5000.00 $0.00 $0.00 $5000.00
</TABLE>
THE INVESTMENT ADVISER
The Funds' investment adviser, Cramer Rosenthal McGlynn, LLC (the
"Adviser"), furnishes at its own expense all services, facilities and personnel
necessary in connection with managing a Fund's investments and effecting
portfolio transactions for a Fund. The Advisory Agreement will remain in effect
for a period of twelve months from the date of its effectiveness and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board of Trustees or by vote of the shareholders, and
in either case by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Trust with
respect to a Fund on 60 days' written notice when authorized either by vote of
its shareholders or by a vote of a majority of the Board of Trustees, or by the
Adviser on 60 days' written notice to the Trust, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to a Fund, the Adviser shall not be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
duties to a Fund, except for willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to
others. In addition to receiving its advisory fee from each Fund, the Adviser
may also act and be compensated as investment manager for its clients with
respect to assets which are invested in a Fund. If an investor in a Fund also
has a separately managed account with CRM with assets invested in a Fund, CRM
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.
The dollar amount of the fees payable under the Investment Advisory
Agreement between the Trust and the Adviser, the amount of the fee waived by the
Adviser and the actual fee received by the Adviser, respectively, for the fiscal
years ended September 30, 1996 and 1997, were as follows:
9
<PAGE>
<TABLE>
<S> <C> <C> <C>
FEE PAYABLE FEE WAIVED BY ADVISER FEE RECEIVED BY ADVISER
1996 $173,105 $39,802 $132,303
1997 $635,864 $0 $635,864
</TABLE>
ADMINISTRATOR
Forum Administrative Services, LLC ("FAdS") acts as administrator to
the Trust pursuant to an Administration Agreement with the Trust. As
administrator, FAdS provides management and administrative services necessary to
the operation of the Trust (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of the Trust), and provides the Trust with general office
facilities. The Administration Agreement will remain in effect for a period of
twelve months with respect to a Fund and thereafter is automatically renewed
each year for an additional term of one year.
The Administration Agreement terminates automatically if it is assigned
and may be terminated without penalty with respect to a Fund by vote of a Fund's
shareholders or by either party on not more than 60 days' written notice. The
Administration Agreement also provides that FAdS shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of FAdS's duties or by reason of
reckless disregard of its obligations and duties under the Administration
Agreement.
At the request of the Board, FAdS provides persons satisfactory to the
Board to serve as officers of the Trust. Those officers, as well as certain
other employees and Trustees of the Trust, may be directors, officers or
employees of FAdS, the Adviser, or their affiliates.
Prior to December 17, 1997, Forum Financial Services, Inc. ("FFSI"), an
affiliate of FAdS provided administrative services to the Trust pursuant to an
administration agreement, the material terms of which were the same as the
current Administration Agreement. The dollar amount of the fees payable under
the Administration Agreement between the Trust and FFSI, the amount of the fee
waived by FFSI and the actual fee received by FFSI, respectively, for the fiscal
years ended September 30, 1996 and 1997, were as follows:
<TABLE>
<S> <C> <C> <C>
FEE PAYABLE FEE WAIVED BY FFSI FEE RECEIVED BY FFSI
1996 $40,000 $15,579 $24,421
1997 $127,173 $0 $127,173
</TABLE>
DISTRIBUTOR
Forum Financial Services, Inc. is the Trust's distributor and acts as
the agent of the Trust in connection with the offering of shares of each Fund
pursuant to a Distribution Agreement. The Distribution Agreement will continue
in effect for twelve months and will continue in effect thereafter only if its
continuance is specifically approved at least annually by the Board or by vote
of the shareholders entitled to vote thereon, and in either case, by a majority
of the Trustees who (1) are not parties to the Distribution Agreement, (2) are
not interested persons of any such party or of the Trust and (3) with respect to
any class for which the Trust has adopted a distribution plan, have no direct or
indirect financial interest in the operation of that distribution plan or in the
Distribution Agreement, at a meeting called for the purpose of voting on the
Distribution Agreement. All subscriptions for shares obtained by FFSI are
directed to the Trust for acceptance and are not binding on the Trust until
accepted by it. FFSI receives no compensation or reimbursement of expenses for
the distribution services provided pursuant to the Distribution Agreement and is
under no obligation to sell any specific amount of Fund shares.
10
<PAGE>
The Distribution Agreement provides that FFSI shall not be liable for
any error of judgment or mistake of law or in any event whatsoever, except for
willful misfeasance, bad faith or gross negligence in the performance of FFSI's
duties or by reason of reckless disregard of its obligations and duties under
the Distribution Agreement.
The Distribution Agreement is terminable with respect to a Fund without
penalty by the Trust on 60 days' written notice when authorized either by vote
of a Fund's shareholders or by a vote of a majority of the Board, or by FFSI on
60 days' written notice. The Distribution Agreement will automatically terminate
in the event of its assignment.
FFSI may enter into agreements with selected broker-dealers, banks, or
other financial institutions for distribution of shares of a Fund. These
financial institutions may charge a fee for their services and may receive
shareholders service fees even though shares of a Fund are sold without sales
charges or distribution fees. These financial institutions may otherwise act as
processing agents, and will be responsible for promptly transmitting purchase,
redemption and other requests to a Fund.
Investors who purchase shares in this manner will be subject to the
procedures of the institution through whom they purchase shares, which may
include charges, investment minimums, cutoff times and other restrictions in
addition to, or different from, those listed herein. Information concerning any
charges or services will be provided to customers by the financial institution.
Investors purchasing shares of a Fund in this manner should acquaint themselves
with their institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
TRANSFER AGENT
Forum Shareholder Services, LLC (the "Transfer Agent") acts as transfer
agent and dividend disbursing agent of the Trust pursuant to a Transfer Agency
Agreement. For its services, the Transfer Agent receives with respect to each
Fund an annual fee of $24,000 plus $12,000 per additional class and (1) with
respect to Institutional Shares, $120 per account or (2) with respect to
Investor Shares 0.10% of the average net assets attributable to Investor Shares
and $30.00 per account.
The dollar amount of the fees payable under the Transfer Agency
Agreement between the Trust and the Transfer Agent, the amount of the fees
waived by the Transfer Agent and the actual fees received by the Transfer Agent
for the fiscal years ended September 30, 1996 and 1997, were as follows:
<TABLE>
<S> <C> <C> <C>
FEES PAYABLE FEES WAIVED FEES RECEIVED
OR REIMBURSED
1996 $20,413 $0 $20,413
1997 $39,437 $0 $39,437
</TABLE>
FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement between the Trust and Forum
Accounting Services, LLC ("FAcS"), FAcS provides each Fund with portfolio
accounting, including the calculation of a Fund's net asset value. FAcS receives
a fee at an annual rate of $36,000 per Fund plus $12,000 for each additional
class and certain surcharges based upon the amount and type of a Fund's
portfolio transactions and positions. Prior to January 2, 1998, the Transfer
Agent provided each Fund with portfolio accounting services. For these services,
the Transfer Agent received with respect to each Fund an annual fee ranging from
$36,000 to $60,000 depending upon the amount and type of a Fund's portfolio
transactions and positions.
11
<PAGE>
The dollar amount of the fees payable under the Fund Accounting
Agreement, the amount of the fees waived and the actual fees received for the
fiscal years ended September 30, 1996 and 1997, were as follows:
<TABLE>
<S> <C> <C> <C>
FEES PAYABLE FEES WAIVED FEES RECEIVED
OR REIMBURSED
1996 $39,000 $0 $39,000
1997 $41,500 $0 $41,500
</TABLE>
Both the Transfer Agency Agreement and Fund Accounting Agreement were
approved by the Board of Trustees, including a majority of the Trustees who are
not parties to the respective agreements or interested persons of any such
party, at a meeting called for the purpose of voting on the respective
agreements. Each of these agreements will remain in effect for a period of one
year and will continue in effect thereafter only if its continuance is
specifically approved at least annually by the Board of Trustees or by a vote of
the shareholders and in either case by a majority of the Trustees who are not
parties to the respective agreement or interested persons of any such party, at
a meeting called for the purpose of voting on the respective agreements.
EXPENSES
Under the Advisory Agreement, the Trust has confirmed its obligation to
pay all its expenses subject to the obligation of the Adviser to reimburse the
Trust for its excess expenses as described in the Prospectus. The Trust's
expenses include: interest charges, taxes, brokerage fees and commissions;
certain insurance premiums; fees, interest charges and expenses of the Trust's
custodian and transfer agent; fees of pricing, interest, dividend, credit and
other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; compensation of the Trust's Trustees;
compensation of the Trust's officers and employees who are not employees of the
Adviser, FAdS or their respective affiliates and costs of other personnel
performing services for the Trust; costs of corporate meetings; Securities and
Exchange Commission registration fees and related expenses; state securities
laws registration fees and related expenses; the fees payable under the Advisory
Agreement, and the Administration and Distribution Agreement.
5. DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is determined as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
Standard Time), on Fund Business Days (as defined in the Prospectus), by
dividing the value of a Fund's net assets (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued) by the
number of shares outstanding at the time the determination is made. The Trust
does not determine net asset value on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
6. PORTFOLIO TRANSACTIONS
A Fund generally will effect purchases and sales through brokers who
charge commissions. 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 shareholders of a Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to a Fund.
12
<PAGE>
A Fund may not always pay the lowest commission or spread available.
Rather, in determining the amount of commission, including certain dealer
spreads, paid in connection with Fund transactions, the Adviser takes into
account such factors as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the services described below)
and any risk assumed by the executing broker. The Adviser may also take into
account payments made by brokers effecting transactions for a Fund (1) to a Fund
or (2) to other persons on behalf of a Fund for services provided to it for
which it would be obligated to pay. The Adviser may also take into account sales
of Fund shares when allocating brokerage.
In addition, the Adviser may give consideration to research services
furnished by brokers to the Adviser for its use and may cause a Fund to pay
these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis may be used by the Adviser in connection
with services to clients other than a Fund, and the Adviser's fee is not reduced
by reason of the Adviser's receipt of the research services.
Investment decisions for a Fund will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Adviser or its affiliates. If, however, a Fund and other
investment companies or accounts managed by the Adviser are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by a Fund or the
size of the position obtainable for a Fund. In addition, when purchases or sales
of the same security for a Fund and for other investment companies and accounts
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
The Funds contemplate that, consistent with the policy of obtaining
best net results, brokerage transactions may be conducted through the Adviser's
affiliates, affiliates of those persons or FFSI. The Advisory Agreement
authorizes the Adviser to so execute trades. The Board of Trustees has adopted
procedures in conformity with applicable rules under the Investment Company Act
to ensure that all brokerage commissions paid to these persons are reasonable
and fair.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor
at net asset value without any sales charge. Shareholders may effect purchases
or redemptions or request any shareholder privilege in person at FSS's offices
located at Two Portland Square, Portland, Maine 04101.
The Trust accepts orders for the purchase or redemption of shares
Monday through Friday on all Fund Business Days (as defined in the prospectus)
between the hours of 9:00 a.m. and 6:00 p.m. (Eastern Standard Time). The Trust
does not determine net asset value, and does not accept orders, on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas. The Trust also reserves the right to cease accepting
purchase and redemption orders for same day credit when the Public Securities
Association (PSA) recommends that the securities market close early. On days
that the Trust closes early, purchase and redemption orders received after the
PSA recommended closing time will be credited for the next Business Day. In
addition, the Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same Business Day credit as permitted by
the SEC.
ADDITIONAL REDEMPTION MATTERS
The Trust may redeem shares involuntarily to reimburse a 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 a
Fund's shares as provided in the Prospectus from time to time.
13
<PAGE>
Proceeds of redemptions normally are paid in cash. However, payments
may be made wholly or partly in portfolio securities if the Board of Trustees
determines economic conditions exist which would make payment in cash
detrimental to the best interests of a Fund. If payment for shares redeemed is
made wholly or partly in portfolio securities, brokerage costs may be incurred
by the shareholder in converting the securities to cash. The Trust has filed an
election with the Securities and Exchange Commission pursuant to which a Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of a Fund's total net assets,
whichever is less, during any 90-day period.
Shareholders' rights of redemption may not be suspended, except (1) for
any period during which 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) for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by a Fund of its securities is
not reasonably practicable or as a result of which it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or (3)
for such other period as the Securities and Exchange Commission may by order
permit for the protection of the shareholders of a Fund.
Fund shares are normally issued for cash only. In the Adviser's
discretion, however, a Fund may accept portfolio securities that meet the
investment objective and policies of a Fund as payment for Fund shares. A Fund
will only accept securities that (1) are not restricted as to transfer either by
law or liquidity of market and (2) have a value which is readily ascertainable
(and not established only by valuation procedures).
8. TAXATION
Each Fund intends for each taxable year to qualify for tax treatment as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification does not involve
governmental supervision of management or investment practices or policies of a
Fund. The information set forth in the Prospectus and the following discussion
relates solely to Federal income taxes on dividends and distributions by a Fund
and assumes that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel as to the consequences to them of
Federal, state and local tax laws.
As a regulated investment company, a 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) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of investment company taxable income (i.e., net investment income and capital
loss) for the taxable year (the "Distribution Requirement"), and satisfies
certain other requirements of the Code that are described below. Distributions
by a Fund made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gain from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies.
14
<PAGE>
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income (i.e., the taxable income of a regulated investment
company adjusted pursuant to Section 852(b)(2) of the Code) for each taxable
year. Such distributions will be taxable for shareholders as ordinary income and
treated as dividends for federal income tax purposes, and may qualify for the
70% dividends-received deduction for corporate shareholders.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund currently intends to distribute any such
amounts, except to the extent that they may be offset by capital loss
carryovers. Net capital gain that is distributed and designated as a capital
gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by a Fund prior to the date on which the shareholder
acquired his shares.
Distributions by a Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of a 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. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of a Fund, distributions of such amounts
will be taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the shareholder.
Shareholders purchasing shares of a Fund just prior to the ex-dividend
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase reflected the amount
of such dividend.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month will be deemed to have been received by the
shareholders (and made by a Fund) on December 31 of such calendar year if such
dividends are 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.
A Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemptions of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to a Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
For Federal income tax purposes, when put and call options purchased by
a Fund expire unexercised, the premiums paid by a Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by a Fund expire unexercised, the premiums received by a Fund give rise
to short-term capital gains at the time of expiration. When a Fund exercises a
call, the purchase price of the underlying security is increased by the amount
of the premium paid by a Fund. When a Fund exercises a put, the proceeds from
the sale of the underlying security are decreased by the premium paid. When a
put or call
15
<PAGE>
written by a Fund is exercised, the purchase price (selling price in the case of
a call) of the underlying security is decreased (increased in the case of a
call) for tax purposes by the premium received.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of a 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 a Fund has
not invested more than 5% of the value of a Fund's total assets in securities of
such issuer and as to which a Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its 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.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of a Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
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 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30, or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce 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) exclude
foreign currency gains and losses incurred after October 31 of any year (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
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. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or
redemption of shares of a Fund in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's
16
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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 a Fund within 30 days
before or after the sale or redemption. In general, any gain or loss arising
from (or treated as arising from) the sale or redemption of shares of a Fund
will be considered capital gain or loss and will be long-term capital gain or
loss if the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends 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. Long-term capital gains (gains from
assets held for more than 12 months) of noncorporate taxpayers are generally
taxed at a maximum federal rate 19.6% lower than the maximum rate applicable to
ordinary income. 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.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
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
dividend. Such a foreign shareholder would generally be exempt from U.S. Federal
income tax on gains realized on the sale of shares of a Fund, capital gain
dividends and amounts retained by a Fund that are designated as undistributed
capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of a Fund
will be subject to U.S. Federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of a noncorporate foreign shareholder, a Fund may be
required to withhold U.S. Federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding (or taxable at a reduced treaty
rate), unless the shareholder furnishes a Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. Federal income tax
consequences is based on the Code and Treasury Regulations issued thereunder as
in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ from the
rules for U.S. Federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of Federal, state and local
tax rules with respect to an investment in a Fund.
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9. OTHER MATTERS
CUSTODIAN
Pursuant to an agreement (the "Custodian Agreement"), BankBoston (the
"Custodian"), P.O. Box 1959, Boston, Massachusetts 02105, acts as the custodian
of each Fund's assets. The Custodian's responsibilities include safeguarding and
controlling a Fund's cash and securities, determining income and collecting
interest on Fund investments. The Custodian may employ foreign subcustodians to
provide custody of a Fund's foreign assets in accordance with applicable
regulations. The Custodian is paid a fee at an annual rate of 0.02% of the first
$100 million of the average daily net assets of a Fund, 0.015% of the next $100
million of the average daily net assets of a Fund and 0.001% of the average
daily net assets of a Fund over $200 million, and certain transaction fees.
COUNSEL
Legal matters in connection with the issuance of shares of stock of the
Trust are passed upon by Kramer, Levin, Naftalis & Frankel, 919 Third Avenue,
New York, New York 10022. Kramer, Levin, Naftalis & Frankel has relied upon the
opinion of Morris, Nichols, Arsht & Tunnell, 1201 N. Market Street, Wilmington,
Delaware, for matters relating to Delaware law.
AUDITORS
Ernst & Young, LLP, One North Broadway, White Plains, New York 10601,
independent auditors, have been selected as auditors for the Trust.
THE TRUST AND ITS SHAREHOLDERS
The Trust was organized as a Delaware business trust on April 24, 1995.
Delaware law provides that shareholders shall be entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. The securities regulators of some states, however, have
indicated that they and the courts in their state may decline to apply Delaware
law on this point. The Trust Instrument contains an express disclaimer of
shareholder liability for the debts, liabilities, obligations, and expenses of
the Trust and requires that a disclaimer be given in each contract entered into
or executed by the Trust or the Trustees. The Trust Instrument provides for
indemnification out of each series' property of any shareholder or former
shareholder held personally liable for the obligations of the series. The Trust
Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply, no contractual limitation of
liability was in effect and the portfolio is unable to meet its obligations.
FAdS believes that, in view of the above, there is no risk of personal liability
to shareholders.
The Trust Instrument further provides that the Trustees shall not be
liable to any person other than the Trust or its shareholders; moreover, the
Trustees shall not be liable for any conduct whatsoever, provided that a Trustee
is not protected against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Fund capital consists of shares of beneficial interest. Shares are
fully paid and nonassessable, except as set forth above with respect to Trustee
and shareholder liability. Shareholders representing 10% or more of the Trust or
a series may, as set forth in the Trust Instrument, call meetings of the Trust
or series for any purpose related to the Trust or series, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of voting
on removal of one or more Trustees. The Trust or any series may be
18
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terminated upon the sale of its assets to, or merger with, another open-end
management investment company or series thereof, or upon liquidation and
distribution of its assets. Generally such terminations must be approved by the
vote of the holders of a majority of the outstanding shares of the Trust or the
series; however, the Trustees may, without prior shareholder approval, change
the form of organization of the Trust by merger, consolidation or incorporation.
If not so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end management
investment company that will succeed to or assume the Trust's registration
statement.
OWNERSHIP OF SHARES OF THE FUNDS
As of June 30, 1998, the amount of shares owned by all officers and trustees of
the Trust, as a group, was less than 1.00% of the Funds' outstanding shares.
Also as of that date, the shareholders listed below owned or owned of record
more than 5% of each of the Funds. From time to time, certain shareholders may
own a large percentage of the shares of a Fund. Accordingly, those shareholders
may be able to greatly affect (if not determine) the outcome of a shareholder
vote.
PERCENTAGE OF FUND
SHARES OWNED
SHAREHOLDER -------------
- -----------
SMALL CAP VALUE FUND
Church Farm School, Inc. 15.89%
P.O. Box 2000
Paoli, PA 19301
La Salle University 8.58%
1900 West Olney Avenue
Philadelphia, PA 19141
The Cemala Foundation, Inc. 8.04%
122 North Elm Street
Ste. 816
Greensboro, NC 27401-2842
Rosewood Ventures Ltd. 6.94%
c/o Chase Manhattan Bank
1211 Avenue of the Americas
H.A.M Division 35th Floor
New York, NY 10036
The Jacob & Hilda Blaustein Foundation, Inc. 6.03%
Blaustein Building
P.O. Box 238
Baltimore, MD 21203
Northern Trust Co. 5.73%
P.O. Box 92956
Chicago, IL 60675
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Long Island University 5.05%
700 Northern Blvd.
Brookville, NY 11548
Texas A & M University 5.46%
P.O. Drawer L-1
College Station, TX 77844
American Express Trust Company 5.13%
P.O. Box 534
Minneapolis, MN 55440-0534
Donaldson, Lufkin & Jenrette Sec. Corp. 6.36%
Mutual Funds Department, 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
MID CAP VALUE FUND
Pell Rudman Trust Co. 64.89%
100 Federal Street, 37th Floor
Boston, MA 02110
Gerald B. Cramer 9.32%
1330 Jouneys End Road
Croton-on-Hudson, NY 10520
Ronald McGlynn 9.32%
120 Whitehall Blvd.
Garden City, NY 11530
VALUE FUND
Robert & Lois Pergament Foundation 6.68%
10 Old Country Road
Carle Place, NY 11514
Gerald B. Cramer 5.61%
1330 Journeys End Road
Croton-on-Hudson, NY 10520
Ronald McGlynn 5.61%
120 Whitehall Blvd.
Garden City, NY 11530
Syracuse University 5.01%
Skytop Office Building
Syracuse, NY 13244-5300
20
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FINANCIAL STATEMENTS
The financial statements of the Small Cap Value Fund for the year ended
September 30, 1997 (which includes the statement of assets and liabilities,
including the schedule of investments of the Small Cap Value Fund and the
related statement of operations, the statement of changes in net assets, the
financial highlights, and the independent auditors' report thereon) included in
the Annual Report to shareholders of the Trust are incorporated herein by
reference.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(A) MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues,
as follows:
Bonds which are rated Aaa are judged by Moody's to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." 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.
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment 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.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
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: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1, and B1.
A-1
<PAGE>
(B) STANDARD & POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as
follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas, they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated `BB' have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated `B' have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal payments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
Bonds rated `CCC' have currently identifiable vulnerability to default,
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
The `C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued. The rating
`Cl' is reserved for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor
has filed for bankruptcy. Bonds rated `D' are in payment default. The `D' rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will made during such grace period. The `D' rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show the relative standing within the rating
category.
PREFERRED STOCK
(A) MOODY'S
A-2
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Moody's rates preferred stock issues as follows:
An issue which is rated aaa is a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue which is rated "aa" is a high-grade preferred stock. This
rating indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "a" is an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "baa" is 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.
An issue which is rated "ba" has 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.
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor
prospects of ever attaining any real investment standing. This is the lowest
rated class of preferred or preference stock.
(B) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. While it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
A-3
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Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "B" may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
A-4
