As filed with the Securities and Exchange Commission on October 20, 2016
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-03023
FORUM FUNDS
Three Canal Plaza, Suite 600
Portland, Maine 04101
Jessica Chase, Principal Executive Officer
Three Canal Plaza, Suite 600
Portland, Maine 04101
207-347-2000
Date of fiscal year end: August 31
Date of reporting period: September 1, 2015 – August 31, 2016
ITEM 1. REPORT TO STOCKHOLDERS.
IMPORTANT INFORMATION
The views expressed in this report are those of the MAI Managed Volatility Fund (the "Fund") managers as of August 31, 2016, and may not reflect their views on the date this report is first published or anytime thereafter. These views are intended to assist shareholders of the Fund in understanding their investments in the Fund and do not constitute investment advice.
An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The Fund may invest in securities issued by smaller and medium-sized companies, which typically involves greater risk than investing in larger, more established companies. Selling call options risk occurs if the Fund is required to sell an underlying security and forego gains if the market price exceeds the exercise price before the expiration date. Selling put options risk occurs if the Fund is required to buy an underlying security and forego gains if the market price is below the exercise price before the expiration date. Option risks include, but are not limited to, the possibility of an imperfect correlation between the movement in the options' prices and that of the securities/indices hedged (or used for cover), which may render a given hedge unable to achieve its objective; possible loss of the premium paid for options; and potential inability to benefit from the appreciation of an underlying security above the exercise price. ADRs (American Depositary Receipt) may be subject to international trade, currency, political, regulatory and diplomatic risks. The Fund is also subject to other risks, such as fixed-income securities risk, which are detailed in the Fund's prospectus.
A put is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. A cash-secured put is a put for which the writer deposits an amount of cash equal to the option's exercise price. A call is an option contract giving the owner the right (but not the obligation) to buy a specified amount of an underlying security at a specified price within a specified time. A covered call is an options strategy whereby an investor holds a (long) position in an asset and writes (sells) call options on that same asset in an effort to, potentially, generate increased income from the asset. A call option is out-of-the-money if the stock price is below its strike price and a put option is out-of-the-money if the stock price is above its strike price. The spread to strike price is the difference between the current price of the security and the strike price. Strike price is the price at which a specific options contract can be exercised. Beta is a measure of a fund's sensitivity to market movements. A portfolio with a beta greater than 1 is more volatile than the market, and a portfolio with a beta less than 1 is less volatile than the market. Premium realized through the sale of options is not distributable as quarterly income. Sharpe ratio measures risk-adjusted performance. The greater a portfolio's sharpe ratio, the better its risk-adjusted performance has been.
MAI MANAGED VOLATILITY FUND A MESSAGE TO OUR SHAREHOLDERS (Unaudited) AUGUST 31, 2016 |
Dear Shareholder,
Over the fiscal year ending August 31, 2016, the MAI Managed Volatility Fund's (the "Fund") Institutional Class returned 5.65%. Over the same period, the S&P 500® Index (the "S&P 500") gained 12.55%. Volatility of the Fund's monthly returns, as measured by standard deviation, was 5.95% compared to 12.97% for the S&P 500. The Fund and market exhibited similar risk-adjusted returns with Sharpe ratios of 0.92 and 0.95 respectively.
The low interest rates that we have seen over the past several years continue to dominate the market and investors' behavior. In these twelve months, we have seen yields fall further and some international markets are exhibiting negative interest rates.
The equity markets have also been impacted as the sectors that offer the highest dividend yields have traded at record high price-to-earnings multiples as investors continue to search for yield. This has had a minimum impact on the strategy as we emphasize dividend growth. Thus, on average, we are underweight in the Utility, Telecom, and Real Estate sectors which have attracted investor interest, but generally don't offer significant dividend growth.
The continuing low interest rate environment has had a significant impact on our cash returns. As a central part of our strategy is focused on selling cash secured puts, we hold about 50% of our portfolio in cash. With money-market rates offering negligible yields, we have not seen much return from our cash positions. At this time, we have over 40% of our cash allocation in a ladder of Treasury Bills paying an average rate over 0.40%. This is a small step forward for our investors.
The Fund's strategy seeks to invest in a proprietary portfolio of dividend-producing companies and write covered call options and cash secured put options around those positions. This approach strives to benefit from multiple potential sources of return that we describe in our prospectus and may partially decouple the Fund's performance from the equity market, providing an alternative investment opportunity.
Our portfolio continues to adapt to the changing investor landscape. Over the last few years, the market has offered weekly options, which we now include in the strategy. This has provided additional expirations and strike prices that have allowed us to further reduce term and volatility risk. While we continue to be focused on writing options on the equity securities of individual companies, at certain times it is not compelling to sell puts on a specific individual equity that we believe is worth holding because it is attractively valued, offers good dividend growth potential and should be an attractive candidate for option writing at other times. Therefore, to round out our option exposure, we may write puts on an index or on an index ETF instead. This would likely represent a modest position and not have a material impact on our overall exposure; rather, we view it as a prudent tactical move consistent with our risk managed approach to achieving the Fund's objective.
In late September 2016 the Fund will mark six years since inception. As the Fund begins its seventh year, we want to thank our investors for their support and confidence in our strategy.
Sincerely,
MAI MANAGED VOLATILITY FUND PERFORMANCE CHART AND ANALYSIS (Unaudited) AUGUST 31, 2016 |
The following chart reflects the change in the value of a hypothetical $50,000 investment in the Institutional Class, including reinvested dividends and distributions, in the MAI Managed Volatility Fund (the "Fund") compared with the performance of the benchmark, the S&P 500 Index ("S&P 500"), since inception. The S&P 500 is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. The total return of the S&P 500 includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the S&P 500 does not include expenses. The Fund is professionally managed, while the S&P 500 is unmanaged and is not available for investment.
| Average Annual Total Returns | | | | | | Since |
| Periods Ended August 31, 2016 | | One Year | | Five Years | | Inception* |
| MAI Managed Volatility Fund — Institutional Class | | 5.65 | % | | 6.04 | % | | 5.66 | % |
| MAI Managed Volatility Fund — Investor Class | | 5.46 | % | | 5.82 | % | | 5.28 | % |
| S&P 500 Index (since September 23, 2010) | | 12.55 | % | | 14.69 | % | | 14.12 | % |
| | | | | | | | | | |
| | | *Institutional Class and Investor Class commenced operations on September 23, 2010, and December 2, 2010, respectively. |
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. For the most recent month-end performance, please call (877) 414-7884. As stated in the Fund's prospectus, the annual operating expense ratios (gross) for Institutional Class and Investor Class are 1.19% and 3.62%, respectively. However, the Fund's Adviser has agreed to contractually waive its fees and/or reimburse expenses such that total operating expenses (excluding other expenses, taxes, leverage interest, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions, and extraordinary expenses such as litigation) do not exceed 0.99% and 1.24% for Institutional Class and Investor Class, respectively through January 1, 2017 ("Expense Cap"). The Adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the Adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement and does not cause the Total Annual Fund Operating Expenses after fee waiver and/or expense reimbursements of a class to exceed the Expense Cap in place at the time the fees were waived. During the period, certain fees were waived and/or expenses reimbursed, otherwise returns would have been lower. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized.
MAI MANAGED VOLATILITY FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2016 |
| Shares | | Security Description | | Value | |
| | 19,500 | | QUALCOMM, Inc. (a)(b) | $ | 1,229,865 | |
| | | 7,562,769 | |
| Materials - 0.8% |
| | 16,100 | | The Dow Chemical Co. (a)(b) | | 863,604 | |
| Utilities - 1.1% |
| | 9,300 | | NextEra Energy, Inc. (a)(b) | | 1,124,742 | |
Total Common Stock (Cost $48,945,328) | | 49,917,176 | |
Money Market Fund (d) - 27.7% |
| | 28,788,698 | | Fidelity Investments Money Market Government Portfolio – Class I, 0.26% (e) (Cost $28,788,698) | | 28,788,698 | |
MAI MANAGED VOLATILITY FUND SCHEDULE OF CALL AND PUT OPTIONS WRITTEN AUGUST 31, 2016 |
| Contracts | | Security Description | | | Strike Price | | Exp. Date | | Value |
| (56) | | Ford Motor Co. | | $ | 12.00 | | 10/16 | $ | (4,480) |
| (64) | | General Electric Co. | | | 31.00 | | 09/16 | | (2,688) |
| (51) | | General Electric Co. | | | 31.50 | | 10/16 | | (1,530) |
| (154) | | General Electric Co. | | | 32.00 | | 10/16 | | (4,158) |
| (51) | | General Electric Co. | | | 31.00 | | 10/16 | | (3,646) |
| (26) | | Honeywell International, Inc. | | | 120.00 | | 09/16 | | (468) |
| (25) | | Honeywell International, Inc. | | | 115.00 | | 09/16 | | (6,250) |
| (28) | | Honeywell International, Inc. | | | 120.00 | | 10/16 | | (3,668) |
| (255) | | Intel Corp. | | | 34.00 | | 09/16 | | (49,852) |
| (18) | | Intel Corp. | | | 37.00 | | 10/16 | | (1,116) |
| (76) | | Intel Corp. | | | 36.00 | | 10/16 | | (8,208) |
| (18) | | Johnson & Johnson | | | 118.00 | | 09/16 | | (4,410) |
| (36) | | Johnson & Johnson | | | 120.00 | | 10/16 | | (7,092) |
| (26) | | JPMorgan Chase & Co. | | | 65.50 | | 09/16 | | (5,239) |
| (38) | | JPMorgan Chase & Co. | | | 66.00 | | 09/16 | | (6,498) |
| (21) | | JPMorgan Chase & Co. | | | 65.00 | | 09/16 | | (5,775) |
| (38) | | JPMorgan Chase & Co. | | | 67.00 | | 09/16 | | (6,194) |
| (104) | | JPMorgan Chase & Co. | | | 67.50 | | 10/16 | | (17,264) |
| (127) | | Kinder Morgan, Inc. | | | 19.00 | | 09/16 | | (36,449) |
| (15) | | Kinder Morgan, Inc. | | | 17.00 | | 09/16 | | (7,275) |
| (31) | | Kinder Morgan, Inc. | | | 20.00 | | 10/16 | | (6,897) |
| (44) | | Macy's, Inc. | | | 36.00 | | 09/16 | | (4,202) |
| (58) | | Macy's, Inc. | | | 37.00 | | 09/16 | | (3,799) |
| (125) | | Macy's, Inc. | | | 37.00 | | 09/16 | | (9,625) |
| (21) | | McDonald's Corp. | | | 125.00 | | 09/16 | | (42) |
| (21) | | McDonald's Corp. | | | 120.00 | | 10/16 | | (1,995) |
| (18) | | Medtronic PLC | | | 87.50 | | 09/16 | | (1,386) |
| (38) | | Medtronic PLC | | | 85.00 | | 09/16 | | (9,253) |
| (44) | | Medtronic PLC | | | 87.50 | | 09/16 | | (4,312) |
| (38) | | Medtronic PLC | | | 87.50 | | 09/16 | | (4,066) |
| (28) | | Medtronic PLC | | | 90.00 | | 10/16 | | (1,540) |
| (26) | | MetLife, Inc. | | | 43.00 | | 09/16 | | (2,210) |
| (52) | | MetLife, Inc. | | | 45.00 | | 09/16 | | (1,300) |
| (47) | | MetLife, Inc. | | | 42.50 | | 09/16 | | (6,580) |
| (38) | | MetLife, Inc. | | | 42.50 | | 09/16 | | (6,802) |
| (26) | | MetLife, Inc. | | | 44.00 | | 10/16 | | (2,665) |
| (38) | | MetLife, Inc. | | | 42.50 | | 10/16 | | (8,113) |
| (48) | | Microsoft Corp. | | | 57.50 | | 09/16 | | (3,216) |
| (143) | | Microsoft Corp. | | | 57.00 | | 09/16 | | (18,304) |
| (72) | | Microsoft Corp. | | | 55.00 | | 10/16 | | (24,768) |
| (26) | | Mondelez International Inc., Class A | | | 48.00 | | 09/16 | | (312) |
| (26) | | Mondelez International Inc., Class A | | | 44.50 | | 09/16 | | (2,860) |
| (15) | | Mondelez International Inc., Class A | | | 43.00 | | 09/16 | | (3,615) |
| (51) | | Mondelez International Inc., Class A | | | 47.00 | | 10/16 | | (3,009) |
See Notes to Financial Statements. | 4 | |
MAI MANAGED VOLATILITY FUND SCHEDULE OF CALL AND PUT OPTIONS WRITTEN AUGUST 31, 2016 |
| Contracts | | Security Description | | | Strike Price | | Exp. Date | | Value |
| (77) | | Mondelez International Inc., Class A | | $ | 46.00 | | 10/16 | $ | (6,930) |
| (93) | | NextEra Energy, Inc. | | | 125.00 | | 09/16 | | (2,790) |
| (38) | | Occidental Petroleum Corp. | | | 80.00 | | 09/16 | | (304) |
| (44) | | Occidental Petroleum Corp. | | | 78.50 | | 09/16 | | (2,596) |
| (26) | | Occidental Petroleum Corp. | | | 78.50 | | 10/16 | | (1,859) |
| (26) | | Occidental Petroleum Corp. | | | 77.50 | | 10/16 | | (3,588) |
| (26) | | Oracle Corp. | | | 43.00 | | 09/16 | | (364) |
| (42) | | Oracle Corp. | | | 42.00 | | 09/16 | | (1,554) |
| (42) | | Oracle Corp. | | | 42.00 | | 09/16 | | (2,898) |
| (24) | | Oracle Corp. | | | 43.00 | | 10/16 | | (1,032) |
| (26) | | PepsiCo, Inc. | | | 108.00 | | 09/16 | | (650) |
| (18) | | PepsiCo, Inc. | | | 110.00 | | 09/16 | | (180) |
| (18) | | PepsiCo, Inc. | | | 107.00 | | 09/16 | | (2,898) |
| (24) | | PepsiCo, Inc. | | | 110.00 | | 10/16 | | (1,920) |
| (19) | | PepsiCo, Inc. | | | 105.00 | | 10/16 | | (6,270) |
| (38) | | Pfizer, Inc. | | | 36.00 | | 09/16 | | (57) |
| (26) | | Pfizer, Inc. | | | 37.00 | | 09/16 | | (26) |
| (256) | | Pfizer, Inc. | | | 36.00 | | 09/16 | | (1,280) |
| (51) | | QUALCOMM, Inc. | | | 62.50 | | 09/16 | | (8,262) |
| (26) | | QUALCOMM, Inc. | | | 65.00 | | 10/16 | | (2,314) |
| (47) | | QUALCOMM, Inc. | | | 62.50 | | 10/16 | | (9,870) |
| (51) | | QUALCOMM, Inc. | | | 60.00 | | 10/16 | | (19,380) |
| (76) | | Raytheon Co. | | | 140.00 | | 09/16 | | (13,528) |
| (26) | | Schlumberger, Ltd. | | | 82.50 | | 09/16 | | (572) |
| (37) | | Schlumberger, Ltd. | | | 85.00 | | 09/16 | | (703) |
| (21) | | Schlumberger, Ltd. | | | 85.00 | | 10/16 | | (1,239) |
| (15) | | Target Corp. | | | 75.00 | | 09/16 | | (75) |
| (26) | | Target Corp. | | | 72.50 | | 09/16 | | (702) |
| (39) | | Target Corp. | | | 74.00 | | 09/16 | | (683) |
| (39) | | Target Corp. | | | 75.00 | | 10/16 | | (1,443) |
| (23) | | The Boeing Co. | | | 140.00 | | 09/16 | | (69) |
| (18) | | The Boeing Co. | | | 138.00 | | 09/16 | | (468) |
| (26) | | The Boeing Co. | | | 140.00 | | 10/16 | | (988) |
| (18) | | The Boeing Co. | | | 135.00 | | 10/16 | | (2,340) |
| (26) | | The Dow Chemical Co. | | | 56.00 | | 09/16 | | (52) |
| (26) | | The Dow Chemical Co. | | | 55.00 | | 09/16 | | (728) |
| (26) | | The Dow Chemical Co. | | | 50.00 | | 09/16 | | (9,958) |
| (21) | | The Dow Chemical Co. | | | 55.00 | | 09/16 | | (956) |
| (16) | | The Dow Chemical Co. | | | 53.00 | | 09/16 | | (2,288) |
| (21) | | The Dow Chemical Co. | | | 51.50 | | 09/16 | | (5,449) |
| (25) | | The Dow Chemical Co. | | | 55.00 | | 10/16 | | (1,850) |
| (57) | | The Home Depot, Inc. | | | 140.00 | | 09/16 | | (342) |
| (18) | | The Home Depot, Inc. | | | 137.00 | | 09/16 | | (1,125) |
| (34) | | The Home Depot, Inc. | | | 135.00 | | 10/16 | | (8,194) |
| (21) | | The Proctor & Gamble Co. | | | 85.00 | | 09/16 | | (5,502) |
| (26) | | The Proctor & Gamble Co. | | | 87.50 | | 09/16 | | (2,782) |
| (21) | | The Proctor & Gamble Co. | | | 87.50 | | 10/16 | | (3,255) |
| (21) | | The Walt Disney Co. | | | 105.00 | | 09/16 | | (21) |
| (21) | | The Walt Disney Co. | | | 99.00 | | 09/16 | | (168) |
| (21) | | The Walt Disney Co. | | | 98.50 | | 09/16 | | (378) |
| (21) | | The Walt Disney Co. | | $ | 100.00 | | 10/16 | $ | (546) |
| (35) | | United Technologies Corp. | | | 107.00 | | 09/16 | | (5,180) |
| (22) | | UnitedHealth Group, Inc. | | | 141.00 | | 09/16 | | (22) |
| (19) | | UnitedHealth Group, Inc. | | | 140.00 | | 09/16 | | (580) |
| (60) | | Verizon Communications, Inc. | | | 55.00 | | 09/16 | | (120) |
| (63) | | Wells Fargo & Co. | | | 50.00 | | 09/16 | | (7,371) |
| (38) | | Wells Fargo & Co. | | | 49.00 | | 09/16 | | (7,562) |
| (77) | | Wells Fargo & Co. | | | 50.00 | | 10/16 | | (14,399) |
| (51) | | Weyerhaeuser Co. | | | 31.00 | | 09/16 | | (4,335) |
| (52) | | Weyerhaeuser Co. | | | 31.00 | | 10/16 | | (6,344) |
Total Call Options Written
(Premiums Received $(1,018,760)) | | (710,325) |
MAI MANAGED VOLATILITY FUND SCHEDULE OF CALL AND PUT OPTIONS WRITTEN AUGUST 31, 2016 |
| Contracts | | Security Description | | | Strike Price | | Exp. Date | | Value |
| (38) | | JPMorgan Chase & Co. | | $ | 63.00 | | 09/16 | $ | (1,102) |
| (102) | | JPMorgan Chase & Co. | | | 60.00 | | 10/16 | | (3,672) |
| (38) | | Kinder Morgan, Inc. | | | 19.00 | | 09/16 | | (38) |
| (51) | | Kinder Morgan, Inc. | | | 19.00 | | 09/16 | | (102) |
| (102) | | Kinder Morgan, Inc. | | | 18.00 | | 09/16 | | (102) |
| (51) | | Kinder Morgan, Inc. | | | 16.00 | | 09/16 | | (51) |
| (38) | | Kinder Morgan, Inc. | | | 18.50 | | 09/16 | | (38) |
| (38) | | Kinder Morgan, Inc. | | | 20.00 | | 09/16 | | (703) |
| (102) | | Kinder Morgan, Inc. | | | 19.00 | | 10/16 | | (2,142) |
| (21) | | McDonald's Corp. | | | 115.00 | | 09/16 | | (1,995) |
| (21) | | McDonald's Corp. | | | 110.00 | | 10/16 | | (1,995) |
| (42) | | Medtronic PLC | | | 85.00 | | 09/16 | | (1,680) |
| (26) | | Medtronic PLC | | | 82.50 | | 09/16 | | (390) |
| (26) | | Medtronic PLC | | | 84.00 | | 09/16 | | (1,027) |
| (26) | | Medtronic PLC | | | 82.50 | | 10/16 | | (1,898) |
| (21) | | MetLife, Inc. | | | 39.50 | | 09/16 | | (21) |
| (52) | | MetLife, Inc. | | | 40.00 | | 09/16 | | (572) |
| (26) | | MetLife, Inc. | | | 35.00 | | 09/16 | | (26) |
| (18) | | MetLife, Inc. | | | 36.50 | | 09/16 | | (108) |
| (38) | | MetLife, Inc. | | | 37.00 | | 09/16 | | (456) |
| (26) | | MetLife, Inc. | | | 38.00 | | 10/16 | | (572) |
| (38) | | MetLife, Inc. | | | 37.50 | | 10/16 | | (1,178) |
| (26) | | Microsoft Corp. | | | 55.00 | | 09/16 | | (286) |
| (26) | | Microsoft Corp. | | | 49.00 | | 09/16 | | (26) |
| (26) | | Microsoft Corp. | | | 55.00 | | 09/16 | | (546) |
| (26) | | Microsoft Corp. | | | 56.00 | | 09/16 | | (1,274) |
| (26) | | Microsoft Corp. | | | 55.50 | | 09/16 | | (1,014) |
| (26) | | Microsoft Corp. | | | 55.00 | | 10/16 | | (2,418) |
| (73) | | Microsoft Corp. | | | 52.50 | | 10/16 | | (3,285) |
| (77) | | Mondelez International Inc., Class A | | | 40.00 | | 09/16 | | (539) |
| (26) | | Mondelez International Inc., Class A | | | 39.00 | | 09/16 | | (26) |
| (77) | | Mondelez International Inc., Class A | | | 39.00 | | 10/16 | | (1,694) |
| (42) | | NextEra Energy, Inc. | | | 120.00 | | 09/16 | | (5,880) |
| (21) | | NextEra Energy, Inc. | | | 120.00 | | 10/16 | | (5,670) |
| (18) | | NextEra Energy, Inc. | | | 115.00 | | 10/16 | | (2,340) |
| (51) | | Occidental Petroleum Corp. | | | 70.00 | | 09/16 | | (765) |
| (26) | | Occidental Petroleum Corp. | | | 72.50 | | 09/16 | | (1,339) |
| (26) | | Occidental Petroleum Corp. | | | 73.00 | | 10/16 | | (1,911) |
| (26) | | Occidental Petroleum Corp. | | | 70.00 | | 10/16 | | (1,352) |
| (94) | | Oracle Corp. | | | 39.00 | | 09/16 | | (1,222) |
| (21) | | Oracle Corp. | | | 38.00 | | 09/16 | | (147) |
| (41) | | Oracle Corp. | | | 39.00 | | 09/16 | | (1,476) |
| (42) | | Oracle Corp. | | | 38.00 | | 10/16 | | (1,428) |
| (26) | | PepsiCo, Inc. | | | 105.00 | | 09/16 | | (715) |
| (18) | | PepsiCo, Inc. | | | 105.00 | | 09/16 | | (918) |
| (18) | | PepsiCo, Inc. | | | 105.00 | | 09/16 | | (1,962) |
| (18) | | PepsiCo, Inc. | | | 105.00 | | 10/16 | | (2,745) |
| (26) | | Pfizer, Inc. | | | 35.50 | | 09/16 | | (1,976) |
| (52) | | Pfizer, Inc. | | | 35.00 | | 09/16 | | (2,600) |
| (38) | | Pfizer, Inc. | | | 34.00 | | 09/16 | | (570) |
See Notes to Financial Statements. | 6 | |
MAI MANAGED VOLATILITY FUND SCHEDULE OF CALL AND PUT OPTIONS WRITTEN AUGUST 31, 2016 |
| Contracts | | Security Description | | | Strike Price | | Exp. Date | | Value |
| (38) | | Wells Fargo & Co. | | $ | 44.00 | | 09/16 | $ | (76) |
| (77) | | Wells Fargo & Co. | | | 45.00 | | 10/16 | | (1,617) |
| (64) | | Weyerhaeuser Co. | | | 29.00 | | 09/16 | | (960) |
| (38) | | Weyerhaeuser Co. | | | 30.00 | | 09/16 | | (760) |
| (26) | | Weyerhaeuser Co. | | | 29.00 | | 10/16 | | (780) |
| (38) | | Weyerhaeuser Co. | | | 28.00 | | 10/16 | | (760) |
Total Put Options Written
(Premiums Received $(405,219)) | | | (301,605) |
Total Written Options - (1.0)%
(Premiums Received $(1,423,979)) | | $ | (1,011,930) |
See Notes to Financial Statements. | 7 | |
MAI MANAGED VOLATILITY FUND NOTES TO SCHEDULES OF INVESTMENTS AND CALL AND PUT OPTIONS WRITTEN AUGUST 31, 2016 |
| ADR | American Depositary Receipt |
| PLC | Public Limited Company |
| REIT | Real Estate Investment Trust |
| (a) | Subject to call option written by the Fund. |
| (b) | Subject to put option written by the Fund. |
| (c) | Rate presented is yield to maturity. |
| (d) | All or a portion of this security is held as collateral for written options. |
| (e) | Variable rate security. Rate presented is as of August 31, 2016. |
* Cost for federal income tax purposes is $99,418,693 and net unrealized depreciation consists of:
The following is a summary of the inputs used to value the Fund's investments and other financial instruments and liabilities as of August 31, 2016.
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
MAI MANAGED VOLATILITY FUND STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2016 |
| ASSETS | | | | |
| | Total investments, at value (Cost $98,466,178) | | $ | 99,439,808 | |
| | Deposits with broker | | | 4,861,139 | |
| | Receivables: | | | | |
| | | Fund shares sold | | | 791,378 | |
| | | Dividends | | | 200,514 | |
| | Prepaid expenses | | | 20,155 | |
| Total Assets | | | 105,312,994 | |
| | | | | | | |
| LIABILITIES | | | | |
| | Call options written, at value (Premiums received $1,018,760) | | | 710,325 | |
| | Put options written, at value (Premiums received $405,219) | | | 301,605 | |
| | Payables: | | | | |
| | | Investment securities purchased | | | 149,440 | |
| | | Fund shares redeemed | | | 20,740 | |
| | Accrued Liabilities: | | | | |
| | | Investment adviser fees | | | 42,986 | |
| | | Trustees' fees and expenses | | | 15 | |
| | | Fund services fees | | | 17,232 | |
| | | Other expenses | | | 38,075 | |
| Total Liabilities | | | 1,280,418 | |
| | | | | | | |
| NET ASSETS | | $ | 104,032,576 | |
| | | | | | | |
| COMPONENTS OF NET ASSETS | | | | |
| | Paid-in capital | | $ | 105,523,541 | |
| | Undistributed net investment income | | | 147,044 | |
| | Accumulated net realized loss | | | (3,023,688 | ) |
| | Net unrealized appreciation | | | 1,385,679 | |
| NET ASSETS | | $ | 104,032,576 | |
| | | | | | | |
| SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED) | | | | |
| | Institutional Class | | | 9,783,757 | |
| | Investor Class | | | 55,684 | |
| | | | | | | |
| NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE | | | | |
| | Institutional Class (based on net assets of $103,436,264) | | $ | 10.57 | |
| | Investor Class (based on net assets of $596,312) | | $ | 10.71 | |
See Notes to Financial Statements. | 9 | |
MAI MANAGED VOLATILITY FUND |
| INVESTMENT INCOME | | | | | | |
| | Dividend income | | | $ | 1,561,427 | | |
| | Interest income | | | 32,965 | | |
| Total Investment Income | | | | 1,594,392 | | |
| | | | | | | |
| EXPENSES | | | | | | |
| | Investment adviser fees | | | 776,720 | | |
| | Fund services fees | | | 194,200 | | |
| | Transfer agent fees: | | | | | |
| | Institutional Class | | | 9,872 | | |
| | Investor Class | | | 2,594 | | |
| | Non 12b-1 shareholder servicing fees: | | | | | |
| | Institutional Class | | | 78,016 | | |
| | Investor Class | | | 674 | | |
| | Distribution fees: | | | | | |
| | Investor Class | | | 1,726 | | |
| | Custodian fees | | | 11,158 | | |
| | Registration fees: | | | | | |
| | Institutional Class | | | 17,285 | | |
| | Investor Class | | | 16,594 | | |
| | Professional fees | | | 46,367 | | |
| | Trustees' fees and expenses | | | 9,940 | | |
| | Miscellaneous expenses | | | 62,243 | | |
| Total Expenses | | | | 1,227,389 | | |
| | Fees waived | | | (200,391 | ) | |
| Net Expenses | | | | 1,026,998 | | |
| | | | | | | | |
| NET INVESTMENT INCOME | | | | 567,394 | | |
| | | | | | | | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | |
| | Net realized gain (loss) on: | | | | | |
| | Investments | | | (5,442,113 | ) | |
| | Securities sold short | | | 4,529 | | |
| | Written options | | | 3,580,910 | | |
| | Net realized loss | | | (1,856,674 | ) | |
| | Net change in unrealized appreciation (depreciation) on: | | | | | |
| | Investments | | | 6,294,464 | | |
| | Written options | | | 685,524 | | |
| | Net change in unrealized appreciation (depreciation) | | | 6,979,988 | | |
| NET REALIZED AND UNREALIZED GAIN | | | | 5,123,314 | | |
| INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | | | $ | 5,690,708 | | |
See Notes to Financial Statements. | 10 | |
MAI MANAGED VOLATILITY FUND STATEMENTS OF CHANGES IN NET ASSETS |
| | | | | For the Year Ended August 31, 2016 | | | For the Year Ended August 31, 2015 |
| OPERATIONS | | | | | | | | | |
| | Net investment income | | $ | 567,394 | | | | $ | 545,864 | |
| | Net realized gain (loss) | | | (1,856,674 | ) | | | | 3,544,400 | |
| | Net change in unrealized appreciation (depreciation) | | | 6,979,988 | | | | | (6,086,482 | ) |
| Increase (Decrease) in Net Assets Resulting from Operations | | | 5,690,708 | | | | | (1,996,218 | ) |
| | | | | | | | | | | | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | | |
| | Net investment income | | | | | | | | | |
| | | Institutional Class | | | (417,380 | ) | | | | (363,538 | ) |
| | Net realized gain: | | | | | | | | | |
| | | Institutional Class | | | (3,624,229 | ) | | | | (7,137,677 | ) |
| | | Investor Class | | | (26,017 | ) | | | | (66,579 | ) |
| Total Distributions to Shareholders | | | (4,067,626 | ) | | | | (7,567,794 | ) |
| | | | | | | | | | | | |
| CAPITAL SHARE TRANSACTIONS | | | | | | | | | |
| | Sale of shares: | | | | | | | | | |
| | | Institutional Class | | | 13,675,259 | | | | | 41,911,303 | |
| | | Investor Class | | | 43,486 | | | | | 179,407 | |
| | Reinvestment of distributions: | | | | | | | | | |
| | | Institutional Class | | | 3,984,119 | | | | | 7,335,452 | |
| | | Investor Class | | | 25,276 | | | | | 64,779 | |
| | Redemption of shares: | | | | | | | | | |
| | | Institutional Class | | | (21,695,190 | ) | | | | (17,251,977 | ) |
| | | Investor Class | | | (276,575 | ) | | | | (276,241 | ) |
| Increase (Decrease) in Net Assets from Capital Share Transactions | | (4,243,625 | ) | | | | 31,962,723 | |
| Increase (Decrease) in Net Assets | | | (2,620,543 | ) | | | | 22,398,711 | |
| | | | | | | | | | | | |
| NET ASSETS | | | | | | | | | |
| | Beginning of Year | | | 106,653,119 | | | | | 84,254,408 | |
| | End of Year (Including line (a)) | | $ | 104,032,576 | | | | $ | 106,653,119 | |
| | | | | | | | | | | | |
| SHARE TRANSACTIONS | | | | | | | | | |
| | Sale of shares: | | | | | | | | | |
| | | Institutional Class | | | 1,322,813 | | | | | 3,830,755 | |
| | | Investor Class | | | 4,090 | | | | | 16,157 | |
| | Reinvestment of distributions: | | | | | | | | | |
| | | Institutional Class | | | 389,822 | | | | | 697,316 | |
| | | Investor Class | | | 2,445 | | | | | 6,109 | |
| | Redemption of shares: | | | | | | | | | |
| | | Institutional Class | | | (2,109,823 | ) | | | | (1,598,769 | ) |
| | | Investor Class | | | (26,559 | ) | | | | (25,190 | ) |
| Increase (Decrease) in Shares | | | (417,212 | ) | | | | 2,926,378 | |
| | | | | | | | | | | | |
| (a) | Undistributed net investment income | | $ | 147,044 | | | | $ | 85,792 | |
See Notes to Financial Statements. | 11 | |
MAI MANAGED VOLATILITY FUND |
| These financial highlights reflect selected data for a share outstanding throughout each year. | | | | | | |
| | | | |
| | | For the Years Ended August 31, | |
| | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | |
| INSTITUTIONAL CLASS | | | | | | | | | | | | | | | | | | | | |
| NET ASSET VALUE, Beginning | | | | | | | | | | | | | | | | | | | | |
| of Year | $ | 10.40 | | | $ | 11.49 | | | $ | 10.93 | | | $ | 10.86 | | | $ | 10.26 | | |
| INVESTMENT OPERATIONS | | | | | | | | | | | | | | | | | | | | |
| Net investment income (a) | | 0.06 | | | | 0.06 | | | | 0.04 | | | | 0.06 | | | | 0.07 | | |
| Net realized and unrealized | | | | | | | | | | | | | | | | | | | | |
| | gain (loss) | | 0.51 | | | | (0.29 | ) | | | 1.18 | | | | 0.44 | | | | 1.00 | | |
| Total from Investment | | | | | | | | | | | | | | | | | | | | |
| | Operations | | 0.57 | | | | (0.23 | ) | | | 1.22 | | | | 0.50 | | | | 1.07 | | |
| DISTRIBUTIONS TO | | | | | | | | | | | | | | | | | | | | |
| SHAREHOLDERS FROM | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.04 | ) | | | (0.04 | ) | | | (0.03 | ) | | | (0.05 | ) | | | (0.08 | ) | |
| Net realized gain | | (0.36 | ) | | | (0.82 | ) | | | (0.63 | ) | | | (0.38 | ) | | | (0.39 | ) | |
| Total Distributions to | | | | | | | | | | | | | | | | | | | | |
| | Shareholders | | (0.40 | ) | | | (0.86 | ) | | | (0.66 | ) | | | (0.43 | ) | | | (0.47 | ) | |
| NET ASSET VALUE, End | | | | | | | | | | | | | | | | | | | | |
| of Year | $ | 10.57 | | | $ | 10.40 | | | $ | 11.49 | | | $ | 10.93 | | | $ | 10.86 | | |
| TOTAL RETURN | | 5.65 | % | | (1.99) | % | | 11.62 | % | | 4.81 | % | | 10.71 | % |
| RATIOS/SUPPLEMENTARY | | | | | | | | | | | | | | | | | | | | |
| DATA | | | | | | | | | | | | | | | | | | | | |
| Net Assets at End of | | | | | | | | | | | | | | | | | | | | |
| | Year (000's omitted) | $103,436 | | | $105,857 | | | $83,343 | | | $71,896 | | | $46,352 | | |
| Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | 0.55 | % | | 0.53 | % | | 0.32 | % | | 0.52 | % | | 0.66 | % |
| Net expenses | | 0.99 | % | | 0.99 | % | | 0.99 | % | | 0.99 | % | | 0.99 | % |
| Gross expenses (b) | | 1.17 | % | | 1.11 | % | | 1.17 | % | | 1.21 | % | | 1.53 | % |
| PORTFOLIO TURNOVER RATE | | 85 | % | | 147 | % | | 203 | % | | 192 | % | | 102 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | Calculated based on average shares outstanding during each year. |
| (b) | Reflects the expense ratio excluding any waivers and/or reimbursements. |
See Notes to Financial Statements. | 12 | |
MAI MANAGED VOLATILITY FUND |
| These financial highlights reflect selected data for a share outstanding throughout each year. | | | | | | |
| | | | |
| | | For the Years Ended August 31, | |
| | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 | |
| INVESTOR CLASS | | | | | | | | | | | | | | | | | | | | |
| NET ASSET VALUE, Beginning | | | | | | | | | | | | | | | | | | | | |
| of Year | $ | 10.51 | | | $ | 11.60 | | | $ | 11.00 | | | $ | 10.90 | | | $ | 10.27 | | |
| INVESTMENT OPERATIONS | | | | | | | | | | | | | | | | | | | | |
| Net investment income (a) | | 0.03 | | | | 0.03 | | | | 0.01 | | | | 0.03 | | | | 0.04 | | |
| Net realized and unrealized | | | | | | | | | | | | | | | | | | | | |
| | gain (loss) | | 0.53 | | | | (0.30 | ) | | | 1.22 | | | | 0.45 | | | | 1.00 | | |
| Total from Investment | | | | | | | | | | | | | | | | | | | | |
| | Operations | | 0.56 | | | | (0.27 | ) | | | 1.23 | | | | 0.48 | | | | 1.04 | | |
| DISTRIBUTIONS TO | | | | | | | | | | | | | | | | | | | | |
| SHAREHOLDERS FROM | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | — | | | | — | | | | — | | | | — | | | | (0.02 | ) | |
| Net realized gain | | (0.36 | ) | | | (0.82 | ) | | | (0.63 | ) | | | (0.38 | ) | | | (0.39 | ) | |
| Total Distributions to | | | | | | | | | | | | | | | | | | | | |
| | Shareholders | | (0.36 | ) | | | (0.82 | ) | | | (0.63 | ) | | | (0.38 | ) | | | (0.41 | ) | |
| NET ASSET VALUE, End | | | | | | | | | | | | | | | | | | | | |
| of Year | $ | 10.71 | | | $ | 10.51 | | | $ | 11.60 | | | $ | 11.00 | | | $ | 10.90 | | |
| TOTAL RETURN | | 5.46 | % | | (2.33) | % | | 11.62 | % | | 4.58 | % | | 10.35 | % |
| RATIOS/SUPPLEMENTARY | | | | | | | | | | | | | | | | | | | | |
| DATA | | | | | | | | | | | | | | | | | | | | |
| Net Assets at End of | | | | | | | | | | | | | | | | | | | | |
| | Year (000's omitted) | $596 | | | $796 | | | $912 | | | $916 | | | $6,070 | | |
| Ratios to Average Net Assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | 0.29 | % | | 0.29 | % | | 0.07 | % | | 0.28 | % | | 0.43 | % |
| Net expenses | | 1.24 | % | | 1.24 | % | | 1.24 | % | | 1.24 | % | | 1.24 | % |
| Gross expenses (b) | | 4.33 | % | | 3.54 | % | | 3.40 | % | | 2.21 | % | | 2.12 | % |
| PORTFOLIO TURNOVER RATE | | 85 | % | | 147 | % | | 203 | % | | 192 | % | | 102 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | Calculated based on average shares outstanding during each year. |
| (b) | Reflects the expense ratio excluding any waivers and/or reimbursements. |
See Notes to Financial Statements. | 13 | |
MAI MANAGED VOLATILITY FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2016 |
Note 1. Organization
The MAI Managed Volatility Fund (the "Fund") is a diversified portfolio of Forum Funds (the "Trust"). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the "Act"). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of the Fund's shares of beneficial interest without par value. The Fund currently offers two classes of shares: Institutional Class and Investor Class. Institutional Class and Investor Class commenced operations on September 23, 2010, and December 2, 2010, respectively. The Fund's investment objective is income and long-term capital appreciation. Prior to September 28, 2015, the Fund was named Dividend Plus+ Income Fund.
Note 2. Summary of Significant Accounting Policies
These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security Valuation – Exchange-traded securities and over-the-counter securities are valued using the last quoted trade or official closing price, provided by independent pricing services as of the close of trading on the market or exchange for which they are primarily traded, on each Fund business day. In the absence of a sale, such securities are valued at the mean of the last bid and ask price provided by independent pricing services. Non-exchange-traded securities for which quotations are available are valued using the last quoted sales price, or in the absence of a sale, at the mean of the last bid and ask prices provided by independent pricing services. Debt securities may be valued at prices supplied by a fund's pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics such as rating, interest rate and maturity. Short-term investments that mature in 60 days or less may be valued at amortized cost. Exchange-traded options for which the last quoted sale price is outside the closing bid and ask price, will be valued at the mean of the closing bid and ask price.
The Fund values its investments at fair value pursuant to procedures adopted by the Trust's Board of Trustees (the "Board") if (1) market quotations are insufficient or not readily available or (2) the Adviser, as defined in Note 3, believes that the values available are unreliable. The Trust's Valuation Committee, as defined in the Fund's registration statement, performs certain functions as they relate to the administration and oversight of the Fund's valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad-hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.
The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics which may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.
Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security's market price and may not be the price at which the asset may be sold. Fair valuation could result in a different Net Asset Value ("NAV") than a NAV determined by using market quotes.
The Fund has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various "inputs" used to determine the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1 — quoted prices in active markets for identical assets and liabilities
Level 2 — other significant observable inputs (including quoted prices of similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The aggregate value by input level, as of August 31, 2016, for the Fund's investments is included in the Fund's Notes to Schedules of Investments and Call and Put Options Written.
MAI MANAGED VOLATILITY FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2016 |
Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as possible after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.
Securities Sold Short – The Fund may sell a security short to increase investment returns. The Fund may also sell a security short in anticipation of a decline in the market value of a security. A short sale is a transaction in which a Fund sells a security that it does not own. To complete the transaction, the Fund must borrow the security in order to deliver it to the buyer. The Fund must replace the borrowed security by purchasing it at market price at the time of replacement; the price may be higher or lower than the price at which the Fund sold the security. The Fund incurs a loss from a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a profit if the price of the security declines between those dates.
Until the Fund replaces the borrowed security, the Fund will maintain on its books and records cash and long securities to sufficiently cover its short position on a daily basis. The collateral for the securities sold short includes the Deposits with Brokers as shown on the Statement of Assets and Liabilities and the securities held long as shown on the Schedule of Investments. Dividends and interest paid on securities sold short are recorded as an expense on the Fund's Statement of Operations.
Written Options – When a fund writes an option, an amount equal to the premium received by the fund is recorded as a liability and is subsequently adjusted to the current value of the option written. Premiums received from writing options that expire unexercised are treated by the fund on the expiration date as realized gain from written options. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the fund. The fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Written options are non-income producing securities.
The values of each individual written option outstanding as of August 31, 2016, are disclosed in the Fund's Schedule of Call and Put Options Written.
Transactions in written options during the year ended August 31, 2016, were as follows:
MAI MANAGED VOLATILITY FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2016 |
Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner. The Fund's class-specific expenses are charged to the operations of that class of shares. Income and expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on the class' respective net assets to the total net assets of the Fund.
Commitments and Contingencies – In the normal course of business, the Fund enters into contracts that provide general indemnifications by the Fund to the counterparty to the contract. The Fund's maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, the risk of loss from such claims is considered remote.
Note 3. Fees and Expenses
Investment Adviser – MAI Capital Management, LLC, (the "Adviser") is the investment adviser to the Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee from the Fund at an annual rate of 0.75% of the Fund's average daily net assets.
Distribution – Foreside Fund Services, LLC serves as the Fund's distributor (the "Distributor"). The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) ("Atlantic") or their affiliates. The Fund has adopted a Distribution Plan (the "Plan") for Investor Class shares in accordance with Rule 12b-1 of the Act. Under the Plan, the Fund pays the Distributor and/or any other entity as authorized by the Board a fee of up to 0.25% of the average daily net assets of Investor Class.
Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to the Fund. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, the Fund pays Atlantic customary fees for its services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to the Fund, as well as certain additional compliance support functions.
Trustees and Officers – The Trust pays each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman). The Audit Committee Chairman and Vice Chairman receive an additional $6,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees' fees attributable to the Fund is disclosed in the Statement of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from the Fund.
Note 4. Expense Reimbursements and Fees Waived
The Adviser has contractually agreed to waive its fees and/or reimburse expenses through January 1, 2017, to the extent necessary to maintain the total operating expenses (excluding other expenses, taxes, leverage interest, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions, and extraordinary expenses such as litigation) at 0.99% and 1.24%, of the Institutional Class and Investor Class, respectively. The contractual waivers may be changed or eliminated at any time with consent of the Board. During the year ended August 31, 2016, fees waived and expenses reimbursed were $200,391.
The Fund may pay the Adviser for fees waived and expenses reimbursed pursuant to the Expense Cap if (1) such payment is made within three years of the fees waived or expense reimbursement and (2) the resulting expenses do not exceed 0.99% and 1.24% of the Institutional Class and Investor Class, respectively. As of August 31, 2016, the amount of waived fees and reimbursed expenses subject to recapture by the Adviser are as follows:
MAI MANAGED VOLATILITY FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2016 |
Note 5. Security Transactions
The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments during the year ended August 31, 2016, were $43,847,848 and $45,243,279, respectively.
Note 6. Summary of Derivative Activity
The volume of open derivative positions may vary on a daily basis as the Fund transacts derivative contracts in order to achieve the exposure desired by the Adviser. The notional value of activity for the year ended August 31, 2016 for any derivative type that was held during the period is as follows:
MAI MANAGED VOLATILITY FUND NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2016 |
As of August 31, 2016, distributable earnings (accumulated loss) on a tax basis were as follows:
| Undistributed Ordinary Income | | $ | 147,044 | |
| Capital and Other Losses | | | (647,194 | ) |
| Unrealized Depreciation | | | (990,815 | ) |
| Total | | $ | (1,490,965 | ) |
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to temporary book/tax differences relating to constructive sales, wash sales and straddles.
For tax purposes, the current year post-October loss was $647,194 (realized during the period November 1, 2015 through August 31, 2016). This loss will be recognized for tax purposes on the first business day of the Fund's next fiscal year, September 1, 2016.
On the Statement of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended August 31, 2016. The following reclassification was the result of partnerships and real estate investment trusts and has no impact on the net assets of the Fund.
| Undistributed Net Investment Income | | $ | (88,762 | ) |
| Accumulated Net Realized Loss | | | 88,762 | |
Note 8. Underlying Investment in Other Investment Companies
The Fund currently meets the collateral requirements of a tri-party agreement between the prime broker, custodian and the Fund by investing a portion of its assets in the Fidelity Investments Money Market Government Portfolio – Class I and holding the shares in a segregated account pledged to the prime broker. The performance of the Fund may be directly affected by the performance of the Fidelity Investments Money Market Government Portfolio – Class I. As of August 31, 2016, the percentage of net assets invested in the Fidelity Investments Money Market Government Portfolio – Class I was 27.7%. The latest financial statements for the Fidelity Investments Money Market Government Portfolio – Class I can be found at www.sec.gov.
Note 9. Subsequent Events
Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact and the Fund has had no such events.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Board of Trustees of Forum Funds
and the Shareholders of MAI Managed Volatility Fund
We have audited the accompanying statement of assets and liabilities of the MAI Managed Volatility Fund (formerly known as Dividend Plus+ Income Fund), a series of shares of beneficial interest in the Forum Funds, including the schedule of investments, as of August 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2016 by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MAI Managed Volatility Fund as of August 31, 2016, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
October 19, 2016
MAI MANAGED VOLATILITY FUND ADDITIONAL INFORMATION (Unaudited) AUGUST 31, 2016 |
Proxy Voting Information
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling (877) 414-7884 and on the U.S. Securities and Exchange Commission's (the "SEC") website at www.sec.gov. The Fund's proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (877) 414-7884 and on the SEC's website at www.sec.gov.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC's website at www.sec.gov or may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
Shareholder Expense Example
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2016, through August 31, 2016.
Actual Expenses – The first line under each share class of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes – The second line under each share class of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
MAI MANAGED VOLATILITY FUND ADDITIONAL INFORMATION (Unaudited) AUGUST 31, 2016 |
Federal Tax Status of Dividends Declared during the Fiscal Year
For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. The Fund designates 37.29% of its income dividend distributed as qualifying for the corporate dividends-received deduction (DRD) and 39.39% for the qualified dividend rate (QDI) as defined in Section 1(h)(11) of the Code. The Fund also designates 89.52% as short-term capital gain dividends exempt from U.S. tax for foreign shareholders (QSD).
Trustees and Officers of the Trust
The Board is responsible for oversight of the management of the Trust's business affairs and of the exercise of all the Trust's powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. Mr. Keffer is considered an Interested Trustee due to his affiliation with Atlantic. The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (877) 414-7884.
MAI MANAGED VOLATILITY FUND ADDITIONAL INFORMATION (Unaudited) AUGUST 31, 2016 |
Name and Year of Birth | Position with the Trust | Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Series of Fund Complex¹ Overseen by Trustee | Other Directorships Held by Trustee |
| Officers | | | | | |
Jessica Chase Born: 1970 | President; Principal Executive Officer | Since 2015 | Senior Vice President, Atlantic since 2008. | N/A | N/A |
Karen Shaw Born: 1972 | Treasurer; Principal Financial Officer | Since 2008 | Senior Vice President, Atlantic since 2008. | N/A | N/A |
Zachary Tackett Born: 1988 | Vice President; Secretary; Anti-Money Laundering Compliance Officer | Since 2014 | Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010-2013. | N/A | N/A |
Michael J. McKeen Born: 1971 | Vice President | Since 2009 | Senior Vice President, Atlantic since 2008. | N/A | N/A |
Timothy Bowden Born: 1969 | Vice President | Since 2009 | Manager, Atlantic since 2008. | N/A | N/A |
Geoffrey Ney Born: 1975 | Vice President | Since 2013 | Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008-2013. | N/A | N/A |
Todd Proulx Born: 1978 | Vice President | Since 2013 | Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008-2013. | N/A | N/A |
Carlyn Edgar Born: 1963 | Vice President | Since 2008 | Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016. | N/A | N/A |
Dennis Mason Born: 1967 | Chief Compliance Officer | Since 2016 | Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011-2013; Senior Analyst, Atlantic 2008-2011. | N/A | N/A |
1The Fund Complex includes the Trust, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds and is overseen by different Boards of Trustees. |
ITEM 2. CODE OF ETHICS.
| (a) | As of the end of the period covered by this report, Forum Funds (the "Registrant") has adopted a code of ethics, which applies to its Principal Executive Officer and Principal Financial Officer (the "Code of Ethics"). |
| (b) | There have been no amendments to the Registrant's Code of Ethics during the period covered by this report. |
| (c) | There have been no waivers to the Registrant's Code of Ethics during the period covered by this report. |
(f) (1) A copy of the Code of Ethics is being filed under Item 12(a) hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that no member of the Audit Committee is an "audit committee financial expert" as that term is defined under applicable regulatory guidelines.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees - The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant for the audit of the Registrant's annual financial statements, or services that are normally provided by the principal accountant in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $14,500 in 2015 and $14,500 in 2016.
(b) Audit-Related Fees – The aggregate fees billed in the Reporting Periods for assurance and related services rendered by the principal accountant that were reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $0 in 2015 and $0 in 2016.
(c) Tax Fees - The aggregate fees billed in the Reporting Periods for professional services rendered by the principal accountant to the Registrant for tax compliance, tax advice and tax planning were $3,000 in 2015 and $3,000 in 2016. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns.
(d) All Other Fees - The aggregate fees billed in the Reporting Periods for products and services provided by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2015 and $0 in 2016.
(e) (1) The Audit Committee reviews and approves in advance all audit and "permissible non-audit services" (as that term is defined by the rules and regulations of the Securities and Exchange Commission) to be rendered to a series of the Registrant (each, a "Series"). In addition, the Audit Committee reviews and approves in advance all "permissible non-audit services" to be provided to an investment adviser (not including any sub-adviser) of a Series, or an affiliate of such investment adviser, that is controlling, controlled by or under common control with the investment adviser and provides on-going services to the Registrant ("Affiliate"), by the Series' principal accountant if the engagement relates directly to the operations and financial reporting of the Series. The Audit Committee considers whether fees paid by a Series' investment adviser or an Affiliate to the Series' principal accountant for audit and permissible non-audit services are consistent with the principal accountant's independence.
(e) (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable
(g) The aggregate non-audit fees billed by the principal accountant for services rendered to the Registrant for the Reporting Periods were $0 in 2015 and $0 in 2016. There were no fees billed in either of the Reporting Periods for non-audit services rendered by the principal accountant to the Registrant's investment adviser or any Affiliate.
(h) During the Reporting Period, the Registrant's principal accountant provided no non-audit services to the investment advisers or any entity controlling, controlled by or under common control with the investment advisers to the series of the Registrant to which this report relates.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
| (a) | Included as part of report to shareholders under Item 1. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant does not accept nominees to the board of trustees from shareholders.
ITEM 11. CONTROLS AND PROCEDURES
(a) The Registrant's Principal Executive Officer and Principal Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) are effective, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as of a date within 90 days of the filing date of this report.
(b) There were no changes in the Registrant's internal control over financial reporting (as defined in
Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics (Exhibit filed herewith).
(a)(2) Certifications pursuant to Rule 30a-2(a) of the Act, and Section 302 of the Sarbanes-Oxley Act of 2002. (Exhibits filed herewith)
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) of the Act, and Section 906 of the Sarbanes-Oxley Act of 2002. (Exhibit filed herewith)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Forum Funds
| By | /s/ Jessica Chase | |
| | Jessica Chase, Principal Executive Officer | |
| | | |
| Date | October 19, 2016 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By | /s/ Jessica Chase | |
| | Jessica Chase, Principal Executive Officer | |
| | | |
| Date | October 19, 2016 | |
| By | /s/ Karen Shaw | |
| | Karen Shaw, Principal Financial Officer | |
| | | |
| Date | October 19, 2016 | |
