497 1 d497e.htm FORUM FUNDS // ABSOLUTE OPPORTUNITIES FUND / ABSOLUTE STRATEGIES FUND d497e.htm


 
 
 
ABSOLUTE OPPORTUNITIES FUND
 
 
 


 
 
 
PROSPECTUS
 
August 1, 2010 , as supplemented February 22, 2011
 

ABSOLUTE INVESTMENT ADVISERS LLC
INSTITUTIONAL SHARES
(AOFOX)
 
 
 
 


 
The Securities and Exchange Commission has not approved or disapproved the
Fund’s shares or determined whether this Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
 
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
 
ABSOLUTE INVESTMENT ADVISERS
 
Absolute Opportunities Fund and Absolute Investment Advisers are registered service marks of
Absolute Investment Advisers LLC (“AIA” and “Absolute”) and the respective logos are service marks of AIA;
and other marks referred to herein are the trademarks, service marks, registered trademarks or
registered service marks of the respective owners thereof.
 
 
 

 
 ABSOLUTE OPPORTUNITIES FUND
 
 
Table of Contents
       
 
Summary Section
2
 
 
Investment Objective
2
 
 
Fees and Expenses
2
 
 
Example
3
 
 
Portfolio Turnover
3
 
 
Principal Investment Strategies
3
 
 
Principal Investment Risks
5
 
 
Performance Information
8
 
 
Management
9
 
 
Purchase and Sale of Fund Shares
9
 
 
Tax Information
10
 
 
Payments to Broker-Dealers and Other Financial Intermediaries
10
 
     
 
Investment Details Regarding the Fund
11
 
 
Additional Information Regarding Principal Investment Strategies
11
 
 
Additional Information Regarding Principal Investment Risks
13
 
       
 
Management
18
 
 
The Adviser and Subadvisers
18
 
 
Portfolio Manager
20
 
 
Other Service Providers
20
 
 
Fund Expenses
21
 
       
 
Your Account
22
 
 
How to Contact the Fund
22
 
 
General Information
22
 
 
Buying Shares
25
 
 
Selling Shares
29
 
 
Retirement Accounts 
30
 
       
 
Other Information
31
 
 
Distributions and Dividend Reinvestments
31
 
 
Taxes
31
 
 
Organization
32
 
   
 
 
 
Financial Highlights
33
 
 
 
 
 

 
 ABSOLUTE OPPORTUNITIES FUND
 

Summary Section
 
Investment Objective
 
The Fund seeks to achieve long-term capital appreciation with an emphasis on risk-adjusted returns and lower volatility than traditional equity market indices such as the S&P 500 Index.
 
Fees and Expenses
 
The following table describes the various fees and expenses that you may pay if you invest in the Fund.
 
Shareholder Fees (fees paid directly from your investment)
   
   
Institutional
Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of the offering price)
 
None
Redemption Fee (as a percentage of amount redeemed, if applicable)
 
None
Exchange Fee (as a percentage of amount redeemed, if applicable)
 
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
   
Management Fees
 
2.75%
Distribution and/or Service (12b-1) Fees
 
None
Other Expenses
 
0.45%
Dividend and Interest Expenses on Short Sales
 
0.46%
Acquired Fund Fees and Expenses
 
0.02%
Total Annual Fund Operating Expenses(1)
 
3.68%
Fee Reduction and Expense Reimbursement(2)
 
(0.25)%
Net Annual Fund Operating Expenses(3)
 
3.43%
 
(1)   Total annual fund operating expenses do not correlate to the ratio of expenses to average net assets given the financial highlights which reflects the operating expenses of the Fund and does not include acquired fund fees and expenses (“AFFE”).
 
(2)  
Absolute has contractually agreed to reduce a portion of its fee and reimburse Fund expenses to limit Total Annual Operating Expenses (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, AFFE, proxy expenses and extraordinary expenses) of Institutional Shares to 2.95% through at least July 31, 2011 (“Expense Cap”). The Expense Cap may be changed or eliminated at any time with the consent of the Board. The Fund will repay Absolute for fees waived and expenses reimbursed by Absolute pursuant to the Expense Cap if (1) such payment is made within three years of the fees waived or expense reimbursement; (2) such payment is approved by the Board and (3) the resulting class expenses do not exceed 2.95% for Institutional Shares. Net Annual Fund Operating Expenses may increase if exclusions from the Expense Cap would apply.
 
(3)  
Excluding the effect of expenses attributable to dividend and interest expenses on short sales andAFFE, the Fund’s Total Annual Operating Expenses would be 3.20%; while the Fund’s Net Annual Operating Expenses would be 2.95%. Dividend and Interest Expenses on Short Sales occur when the Fund sells an equity or debt security short to gain the inverse exposure necessary to meet its investment objective. When the Fund sells a security short, the Fund borrows the security from a lender and then sells the security in the general market. The Fund is obligated to pay any dividend declared or interest paid during the duration of the short position to the lender from which the Fund borrowed the security and the Fund is obligated to record the payment of the dividend or interest as an expense. For tax purposes, any such payment on a security sold short generally reduces the basis of the shorted security, thereby increasing the Fund's unrealized gain or reducing the Fund's unrealized loss on the short sale transaction. Dividend and Interest Expenses on Short Sales are not fees charged to shareholders by the Fund or any Fund service provider but are similar to transaction charges or capital expenditures related to the on-going management of the Fund’s portfolio.
 
 
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 ABSOLUTE OPPORTUNITIES FUND
 

Example
 
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods.  The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same.  Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 
1 Year
3 Years
5 Years
10 Years
Institutional Shares
$346
$1,103
$1,881
$3,916
 
Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example, affect the Fund’s performance.   During the most recent fiscal year, the Fund’s portfolio turnover rate was 597% of the average value of its portfolio.

Principal Investment Strategies
 
Absolute Investment Advisers, LLC (“Absolute” or “Adviser”), the Fund’s investment adviser, will generally allocate Fund assets to a carefully chosen group of such skilled money managers (the “Subadvisers”) who employ a wide range of specialized investment strategies that Absolute believes offer the potential for attractive long-term risk-adjusted investment returns.  Absolute believes that there are important benefits that come from investing through skilled money managers whose strategies can be combined to seek to provide enhanced risk-adjusted returns, lower volatility and lower sensitivity to traditional financial market indices.

The Subadvisers utilize strategies and investment techniques aimed to produce enhanced risk-adjusted returns and absolute returns over a full market cycle while managing risk exposure. These strategies are common among hedge funds and certain of them may exploit disparities or inefficiencies; take advantage of security mispricings or anticipated price movements, and/or benefit from cyclical themes and relationships or special situations and events (such as spin­offs or reorganizations). Such strategies may have low sensitivity to traditional markets because they seek opportunities and risks that are unrelated to traditional markets.
 
Absolute  seeks to diversify the Fund’s portfolio across multiple strategies and investment styles that Absolute believes are complementary and, when combined, will produce enhanced risk-adjusted returns. Absolute reviews a range of qualitative and quantitative factors (e.g., investment process and statistical analysis) when evaluating each Subadviser and its appropriate asset allocation. Absolute may direct a Subadviser to reduce or limit its investment in certain assets or asset classes in order to achieve the desired composition of the Fund’s portfolio. There is no fixed or minimum allocation to any Subadviser. Absolute retains the discretion to invest the Fund’s assets in securities and other instruments directly. Absolute may add or remove Subadvisers.  The Subadvisers may use a combination of the following investment strategies:

Opportunistic and Long-Biased Equity Strategies capitalize on underpriced equity securities (common stock, preferred stock, convertible securities, warrants, rights and American Depositary Receipts (“ADRs”)) or on positive market trends and may focus in certain securities, markets, industries, company sizes, or geographical areas. Strategies are primarily managed for absolute return, and Subadvisers assess risk and opportunity on an absolute, not an index-relative, basis by focusing on relatively few investments that the Subadviser believes are

 
 
3

 
 ABSOLUTE OPPORTUNITIES FUND
 

undervalued and either offer a margin-of-safety or offer high growth opportunities. Selective hedging through the use of short sales or options may be utilized to manage risk exposure.
 
Special Situations and Event-Driven Strategies involve making evaluations and predictions about both the like­lihood that a particular event, such as a merger, acquisition, bankruptcy or other catastrophic event in the life of a company, will occur and the impact such an event will have on the value of the company’s securities. The Subadvisers focus on relatively few investments believed to be undervalued and may invest in securities of com­panies enmeshed in special situations, including companies involved in (or the target of) acquisition attempts, tender offers, work-outs, liquidations, spin-offs, reorganizations, bank loans, bankruptcies, exchanges and similar trans­actions. Such investments may involve a long-term time horizon as well as idiosyncratic event risk.
 
Long/Short or Hedged Equity Strategies invest in securities believed to be undervalued or offer high growth opportunities while also attempting to minimize overall market risk or take advantage of an anticipated decline in the price of an overvalued company or index by using short sales or options on common stocks or indexes to hedge risk. Sub-Advisers may also use leverage and derivatives, including options, financial futures and options on futures. The concept of leverage involves the use of debt by the Fund to finance the purchase of investments and results in the Fund controlling substantially more assets than it has equity to increase returns. Long and short positions may not be invested in equal dollars and, as such, may not seek to neutralize general market risks.
 
Long/Short Credit and Distressed Debt Strategy invests primarily in debt securities of domestic and foreign governments, agencies, and companies of all maturities and qualities, including high yield “junk bonds”, bank loans and other defaulted debt securities, TIPS (Treasury Inflation Protected Securities), exchange traded funds (“ETFs”) and emerging market debt.Debt securities of foreign governments are sometimes referred to as sovereign debt obligations and they may be issued or guaranteed by foreign governments or their agencies. The Fund may invest in mortgage-backed securities, collateralized mortgage obligations, asset-backed securities and other mortgage related securities (“Mortgage Related Securities”). Strategies may focus on short positions by utilizing credit default swaps to anticipate the decline in the price of an overvalued security or utilizing treasury futures to hedge interest-rate risk. Mortgage Related Securities may also include securities rated below investment grade (i.e., junk bonds) or unrated, under-performing or distressed debt and equity securities issued by issuers of collateralized debt obligations and special situation investments, such as distressed corporate or sub-prime mortgage securities. Distressed securities may also be issued by companies ranging from those undergoing restructurings in bankruptcy proceedings to those attempting to restructure out of court to those that are healthy but have short-term cash flow or liquidity problems. Strategies may also involve leverage and hedging through the use of ETFs or various derivatives, such as futures, credit default swaps or total return swaps or committed term reverse repurchase facilities or other financings in order to enhance total return. The Fund may use certain derivatives to obtain greater leverage (with fewer assets) than would otherwise be achievable.
 
Global Macro and Emerging Market Strategy seeks to take advantage of investment opportunities that are believed to have the highest probability of success (long investment) or failure (short investment). Subadvisers may invest in equity, fixed income, currencies, precious metals or commodities, in domestic, international and high-growth emerging markets. Subadvisers may utilize positions held through individual securities, ETFs, derivative contracts, futures, swaps or other financial instruments linked to major market, sector or country indices, fixed income securities, currencies and commodities. Subadvisers may invest in a limited number of securities, issuers, industries, or countries which may result in higher volatility.
 
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 ABSOLUTE OPPORTUNITIES FUND
 

The Fund may trade frequently and may invest in a wide range of instruments, markets and asset classes in the U.S. and other markets. Investments generally include equity securities, fixed income securities and derivatives.
 
·  
The Fund may invest in equity securities of issuers of any market capitalization in the U.S. or abroad, including convertible, private placement/restricted, initial public offering ("IPOs") and emerging market securities, with certain exposures to non-U.S. issuers obtained through investments in ADRs.  The Fund may also invest in pooled investment vehicles, including other registered investment companies and ETFs.

·  
The Fund may invest in fixed income securities of any credit quality and maturity, including those of defaulted/distressed issuers and bank loans.  These securities can be rated below investment grade (i.e.,"junk bonds") and thus rated below Baa3 by Moody’s, BBB- by S&P or BBB- by Fitch Ratings Ltd. or unrated and securities in default. 
 
·  
The Fund may invest in derivatives, which are financial instruments that have a value that depends upon, or is derived from, a reference asset, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies.  The most common types of derivatives in which the Fund may invest are swaps, futures and options contracts; equity, interest rate, index, credit default swap agreements; currency rate swap agreements; futures contracts on securities, commodities, and securities indices; and options on securities, securities indices, commodities and futures.  The Fund may invest in derivatives to hedge (or reduce) its exposure to a portfolio asset or risk, to obtain leverage for the portfolio, to manage cash and/or as a substitute for taking a position in the reference asset or to gain exposure to certain asset classes, in which case the derivatives may have economic characteristics similar to those of the reference asset and the Fund’s investment in the derivatives may be applied toward meeting a requirement to invest a certain percentage of its net assets in instruments with such characteristics.  Leverage involves the use of debt by the Fund to finance the purchase of investments and results in the Fund controlling substantially more assets than it has equity in an effort to increase returns.

In order to respond to adverse market, economic, political or other conditions, the Fund may assume a temporary defensive position that is inconsistent with its principal investment strategies.

Principal Investment Risks

General Market Risk The Fund’s net asset value (“NAV”) and investment return will fluctuate based upon changes in the value of its portfolio securities. You could lose money on your investment in the Fund, or the Fund could underperform other investments. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Recent Market Events Risk It is important that investors closely review and understand the risks of investing in the Fund. Unprecedented recent turbulence in financial markets and reduced liquidity in equity, credit and fixed-income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund.

Bank Loan Risk The Fund may purchase secured and unsecured participations in loans and may purchase assignments of such loans. The Fund may invest in loan participations of any credit quality, including “distressed” companies with respect to which there is a substantial risk of losing the entire amount invested.  In addition, certain bank loans in which the Fund may invest may be illiquid and, therefore, difficult to value and/or sell.

Convertible Securities Risk Convertible securities entail interest rate and credit risks. While fixed-income securities generally have a priority claim on a corporation’s assets over that of common stock, convertible securities held by the Fund that are rated below investment grade (i.e., junk bonds) are subject to special risks, including the risk of default in interest or principal payments, which could result in a loss of income to the Fund or a decline in the market value of the securities. The Fund has no pre-established minimum credit quality standards for convertible securities and may invest in convertible securities of any quality as well as unrated securities.

 
 
5

 
 ABSOLUTE OPPORTUNITIES FUND
 


Credit Risk The value of your investment in the Fund may change in response to changes in the credit ratings of the Fund’s portfolio securities. Generally, investment risk and price volatility increase as a security’s credit rating declines. A lowered credit rating typically causes a fall in the value of the fixed income securities in which the Fund invests.

Derivatives Risk  Derivatives, such as options, futures and swaps, can be volatile, and a small investment in a derivative can have a large impact on the performance of the Fund. The risks of investments in derivatives include imperfect correlation between the value of these instruments and the underlying assets; risks of default by the other party to the derivative transactions; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the derivative transactions may not be liquid.

Distressed Investments Risk The Fund’s investment in instruments involving loans, loan participations, bonds, notes, non-performing and sub-performing mortgage loans, many of which are not publicly traded, may involve a substantial degree of risk.  These instruments may become illiquid and the prices of such instruments may be extremely volatile. Valuing such instruments may be difficult and the Fund may lose all of its investment, or it may be required to accept cash or securities with a value less than the Fund’s original investment. Issuers of distressed securities are typically in a weak financial condition and may default, in which case the Fund may lose its entire investment.

Emerging Markets Risk Emerging markets securities are subject to the same risks as foreign securities and additional risks due to greater political and economic uncertainties as well as a relative lack of information about companies in such markets. Moreover, many of the emerging securities markets are relatively small, potentially illiquid, occasionally volatile and subject to high transaction costs.

Equity Risk The Fund is subject to the risks of broad stock market decline or a decline in particular holdings. In addition, the value of a security may decline for a number of reasons that directly relate to the issuer of a security, such as management performance, financial leverage and reduced demand for the issuer’s goods or services.

Event-Driven Strategies Risk Inherently speculative in nature, investments pursuant to special situations and event-driven strategies require a Subadviser to make predictions about a corporate event and its impact on a company. A Subadviser may make inaccurate predictions and the anticipated event and/or contemplated corporate transaction may not take place as expected or at all.  This may result in the distribution of a new, less valuable security in place of the security (or derivative). The Fund may have to sell a security at a loss, and such securities are subject to the risk of complete loss of value.

Foreign Risk Foreign investments are subject to the same risks as domestic investments and  additional risks, including international trade, currency, political, regulatory and diplomatic risks, which may affect their value. Also, foreign securities are subject to the risk that their market price may not reflect the issuer’s condition because there is not sufficient publicly available information about the issuer.

High Turnover Risk The Fund’s strategy may result in high turnover rates, which may increase the Fund’s brokerage commission costs and negatively impacting the Fund’s performance. Such portfolio turnover also may generate short-term capital gains.

Interest Rate Risk The value of your investment in the Fund may change in response to changes in interest rates. An increase in interest rates typically causes a fall in the value of the fixed-income securities in which the Fund may invest.
 
 
6

 
 ABSOLUTE OPPORTUNITIES FUND
 


IPO Risk Securities that are acquired in an IPO or private placement, or are restricted (subject to contractual or legal restrictions on resale because they are not registered under the Securities Act of 1933) and may be illiquid; thus the Fund may not be able to dispose of them promptly at the price at which they are valued.

Large Capitalization Company Risk Large-cap company stocks may underperform other segments of the equity market or the equity market as a whole.

Leverage Risk  Certain transactions of the Fund, such as reverse repurchase agreements, dollar rolls, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions, may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged.

Liquidity Risk Certain securities eligible for investment by the Fund may be deemed to be illiquid under applicable law. During periods of market turbulence or unusually low trading activity, in order to meet redemptions it may be necessary for the Fund to sell such securities at prices that could have an adverse effect on the Fund’s share price.

Management Risk The Fund’s performance may deviate from overall market returns to a greater degree than other funds that do not employ an absolute return strategy, in part. Alternatively, if the Fund or a Subadviser takes a defensive posture by hedging its portfolio, then stock prices advance, the return to Fund investors may be lower than expected and lower than if the portfolio had not been hedged. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives.

Medium Capitalization Company Risk Medium capitalization company stocks may have greater fluctuations in price and may be more difficult to liquidate than the stocks of larger, more widely traded companies during market downturns.

Multi-Manager Risk The methodology by which Absolute allocates Fund assets to the Subadvisers may cause the Fund to lose money or underperform other mutual funds. Because the Subadvisers each make their trading decisions independently, it is possible that Subadvisers may purchase or sell the same security at the same time without aggregating their transactions. This may cause unnecessary brokerage and other expenses and the Fund may incur losses as a result.

Non-Diversification Risk The Fund is non-diversified, which means that it may invest in securities of a limited number of issuers. Such non-diversification exposes the Fund to greater market risk and potential monetary losses than if its assets were diversified.

Pooled Investment Vehicle Risk Pooled investment vehicles in which the Fund may invest may charge fees, and such fees may be more than the Fund would pay if the manager of the pooled vehicle managed the Fund’s assets directly.

Prepayment Risk Debt securities are subject to interest rate, credit and prepayment risk. Prepayment of debt securities, which are more common when interest rates are declining, can shorten such securities’ maturity and reduce the Fund’s return.

Registered Investment Company and ETF Risk Registered investment companies (including ETFs) generally entail the same risks as the individual stocks held by them. ETFs, however, may trade at a premium or discount to the aggregate value of the underlying securities. Trading in an ETF may be halted if the trading in one or more of the ETF’s underlying securities is halted.

 
 
7

 
 ABSOLUTE OPPORTUNITIES FUND
 

Restricted Securities Risk Rule 144A Securities are restricted securities and may be less liquid investments because such securities may not be readily marketable in broad public markets. The Fund may not be able to sell the restricted security when the Adviser considers it desirable to do so and/or may have to sell the security at a lower price. A restricted security which when purchased was liquid may subsequently become illiquid. In addition, transaction costs may be higher for Rule 144A securities than for more liquid securities.

Small Capitalization Company Risk Securities of smaller companies may be more volatile than securities of larger companies and as a result, the price of smaller companies may decline more in response to selling pressure.

Short Selling Risk  Short selling involves borrowing a security, selling it and buying it back.  If the Fund buys back the security at a price higher than the price at which it sold the security plus accrued interest, the Fund will have a loss on the transaction.  In addition, a short sale may create leverage and, as a result, may cause relatively smaller adverse market movements to have a disproportionate impact on the Fund’s performance.

Swap Contract Risk The use of swaps involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In addition, each swap exposes the Fund to counterparty risk when a counterparty to a financial instrument entered into by the Fund may become bankrupt or otherwise fail to perform its obligations due to financial difficulties.  As a result, the Fund may experience delays in or be prevented from obtaining payments owed to it pursuant to a swap contract.

Performance Information

The following chart and tables illustrate the variability of the Fund’s returns. The chart and tables provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and how the Fund’s returns compare to the S&P 500 Index, a broad measure of market performance. Updated performance information is available by calling (888) 99-ABSOLUTE or (888) 992-2765.

Performance information (before and after taxes) represents only past performance and does not necessarily indicate future results.

 Calendar Year Total Returns
 
YEARS ENDED DECEMBER 31
 
ABSOLUTE OPPORTUNITIES PERFORMANCE CHART
 
The calendar year-to-date total return as of June 30, 2010 was 3.73%.

During the period shown in the chart, the highest quarterly return was 10.50% (for the quarter ended June 30, 2009) and the lowest quarterly return was (0.49)% (for the quarter ended December 31, 2009).

 
 
8

 
 ABSOLUTE OPPORTUNITIES FUND
 
 
AVERAGE ANNUAL TOTAL RETURNS
 
 
1 Year
Since
10/21/08
Return Before Taxes
20.69%
19.25%
Return After Taxes on Distributions
18.07%
17.02%
Return After Taxes on Distributions and Sale of Fund Shares
13.56%
15.17%
S&P 500 Index (reflects no deduction for fees, expenses or taxes)
26.46%
16.82%
 
After-tax returns are calculated using the historical highest individual Federal marginal income tax rates and do not reflect the impact of state and local income taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.

Management

Adviser

Absolute Investment Advisers LLC is the Fund’s Adviser.

Subadvisers

ClearStream Investments , LLC, Green Eagle Capital, LLC, Kingstown Capital Management, LP, Madden Asset Management, LLC, MetWest Asset Management, LLC and Semaphore Management LLC are the Subadvisers to the Fund.

Portfolio Manager

Mr. Jay Compson is  the portfolio manager of the Fund.  Mr. Compson has managed the Fund since its commencement in October 2008.

Purchase and Sale of Fund Shares

You may purchase or redeem shares of the Fund on any business day through your financial intermediary, or by mail to Absolute Opportunities Fund, Attn: Transfer Agent, Atlantic Fund Services , P.O. Box 588, Portland, Maine, 04112. Telephone requests may be made to (888) 99-ABSOLUTE or (888) 992-2765 (toll free).  Shares also may be purchased by check, wire, or electronic bank transfer.  The Fund accepts investments in the following minimum amounts:

 
Minimum Initial(1)(2)
Minimum Additional(1)(2)
All Accounts
$1,000,000
None
 
(1)  
If you invest through a broker or other financial intermediary, the policies and fees of the intermediary may be different than the policies and fees of the Fund. Among other things, such financial intermediaries may charge transaction fees and may set different minimum investments or limitations on buying (selling) Fund shares. You should consult your broker or other representative of your financial intermediary for more information.
 
 
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 ABSOLUTE OPPORTUNITIES FUND
 

(2)  
No initial or subsequent investment minimums for accounts maintained by financial institutions for the benefit of their clients who purchase shares through investment programs such as (1) fee-based advisory programs; (2) employee benefit plans like 401(k) retirement plans; (3) mutual fund platforms; and (4) consulting firms. No initial or subsequent investment minimum for Trustees or officers of the Trust, directors, officers and employees of Absolute, employees of the Subadvisers, and employees and affiliates of the Fund, or the distributor or any of their affiliates, or the spouse, sibling, direct ancestor, or direct descendent (collectively, “relatives”) of any such person, any trust or individual retirement account or self-employed retirement plan for the benefit of any such person or relative; or the estate of any such person or relative.

If deemed appropriate by the Trust officers, the Fund may waive investment minimum requirements.

Tax Information

The Fund’s distributions to shareholders will generally be taxed as ordinary income or capital gains.

Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a fund supermarket), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
 
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 ABSOLUTE OPPORTUNITIES FUND
 

Investment Details Regarding the Fund

The Fund seeks to achieve long-term capital appreciation with an emphasis on risk-adjusted returns and lower volatility than traditional equity market indices such as the S&P 500 Index. The Fund’s investment objective may be changed by the Board of Trustees (the “Board”) of the Trust without a shareholder vote.

Additional Information Regarding Principal Investment Strategies

The Fund is designed for investors who seek a long-term investment with lower volatility and less sensitivity to traditional markets, and who desire added diversification across multiple styles and strategies as a part of an overall disciplined investment program.

The Fund will pursue its investment objective by allocating assets among a carefully chosen group of Subadvisers. Absolute allocates and reallocates assets of the Fund among its respective Subadvisers to attempt to maximize risk-adjusted returns while reducing the Fund’s volatility and sensitivity to traditional markets. Absolute reviews a wide range of qualitative and quantitative factors when evaluating each Subadviser and establishing the asset allocation to each. These factors include, but are not limited to: proven risk-adjusted investment performance and capacity to adapt to various market conditions; well-defined and disciplined investment philosophy, strategy and process that have been consistently applied over time; portfolio characteristics and capacity of given strategy; consistency of investment style, purchase/sell discipline, and risk management procedures; correlation and vola­tility of results as compared with other Subadvisers; business focus, stability and depth of investment pro­fessionals; and portfolio manager interviews and ongoing dialogue. While Absolute does not evaluate the merits of a Subadviser’s individual investment decisions, it does monitor investment performance and style consistency.

Absolute has entered into subadvisory agreements with Subadvisers, each chosen for its particular investment style(s). The Subadvisers may employ aggressive investment strategies and techniques and focus investments in certain securities, sectors and geographical regions. By combining the expertise of several Subadvisers with Absolute’s approach to diversification and risk management, the Fund attempts to reduce volatility and provide enhanced risk-adjusted returns as compared to traditional equity markets. However, there can be no assurance that losses will be avoided.

Absolute may invest the Fund’s assets in securities and other instruments directly. Absolute may exercise this discretion in order to invest the Fund’s assets pending allocation to a Subadviser, to hedge the Fund against exposures created by the Subadvisers, or to modify the Fund’s exposure to a particular investment or market- related risk. Absolute may exercise its discretion over unallocated assets to invest Fund assets directly and may reallocate to itself assets previously allocated to a Subadviser.

From time to time, certain of the Subadvisers or their strategies may not be available to the Fund due to such reasons as investment minimums, capacity limitations, and regulatory limitations or other imposed constraints. Accordingly, the Fund may, for temporary purposes, utilize high-quality, short-term debt securities or other cash instruments as a substitute for certain Subadvisers’ strategies until Fund assets reach appropriate scale for optimal allocation.

The strategies utilized by the Fund include absolute return strategies as well as strategies aimed at enhanced risk-adjusted returns. They are common hedge fund-type strategies and may attempt to exploit disparities or inefficiencies in markets, geographical areas, andcompanies; take advantage of security mispricings or anticipated price movements; and/or benefit from cyclical themes and relationships or special situations and events (such as spin-offs or reorganizations). Such strategies may have low sensitivity to traditional markets because they seek opportunities and risks that are unrelated to traditional markets.
 
11

 
 ABSOLUTE OPPORTUNITIES FUND
 


There is no fixed or minimum allocation to any Subadviser. In the future, Absolute may add or remove Subadvisers. See “The Adviser and Subadvisers.”

To manage risk or enhance return (including through leverage), the Fund may invest in derivatives such as futures and options contracts and in equity, interest rate, index, credit default and currency rate swap agreements. The Fund may invest in futures contracts on securities, commodities, and securities indices.  The Fund may invest in options on securities, securities indices,  commodities and futures.

Options Contracts Options may be effected on an exchange or in the over-the-counter market. A call option is a contract under which the purchaser of the call option, in return for a premium paid, has the right to buy the security or commodity underlying the option at a specified price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation upon exercise of the option to deliver the underlying security or commodity against payment of the exercise price. A put option gives its purchaser, in return for a premium, the right to sell the underlying security or commodity at a specified price during the term of the option. The writer of the put, who receives the premium, has the obligation to buy, upon exercise of the option, the underlying security or commodity at the exercise price. An index cash option involves the delivery of cash equal to the difference between the exercise price and the closing price of the index. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the period of the option. The amount of a premium received or paid for an option is based upon certain factors including the market price of the underlying security or commodity, the relationship of the exercise price to the market price, the historical price volatility of the underlying security or commodity, the option period and interest rates.

Futures Contracts Futures may be effected on an exchange or in the over-the-counter market. A futures contract is a bilateral agreement where one party agrees to accept, and the other party agrees to make, delivery of cash, securities or commodities, as called for in the contract, at a specified date and at an agreed upon price. An index futures contract involves the delivery of an amount of cash equal to a specified dollar amount multiplied by the difference between the index value at the close of trading of the contract and at the price designated by the futures contract. A treasury futures contract is a bilateral agreement where one party agrees to accept and the other party agrees to make delivery of a U.S. Treasury security, as called for in the agreement, at a specified date and at an agreed upon price. Treasury futures contracts will be used by the Fund to manage credit risk.
Generally, these futures contracts are closed out or rolled over prior to their expiration date.

Swap Agreements In a standard swap transaction, two parties agree to exchange the returns earned on specific assets, such as the return on, or the increase in value of, a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index. A swap contract may not be assigned without the consent of the counterparty. Credit default swaps (“CDS”) are structured so that the “buyer” must pay the “seller” a periodic stream of payments over the term of the CDS provided no event of default by a selected entity (or entities) has occurred. In event of a default, the seller must pay the buyer the “par value” (full notational value) of the reference obligation in exchange for the reference obligation. CDS involve greater risk than if the Fund had invested in the reference obligation directly.

Temporary Defensive Position In order to respond to adverse market, economic, political or other conditions, the Fund may assume a temporary defensive position that is inconsistent with its principal investment strategies and invest, without limitation, in cash or high quality cash equivalents (including commercial paper, certificates of deposit, banker’s acceptances and time deposits). A defensive position, taken at the wrong time, may have an adverse impact on the Fund’s performance. The Fund may be unable to achieve its investment objective during the employment of a temporary defensive measure.
 
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 ABSOLUTE OPPORTUNITIES FUND
 


Additional Information Regarding Principal Investment Risks

General Market Risk The Fund’s net asset value will fluctuate based upon changes in the value of its portfolio securities. The market value of securities in which the Fund invests is based upon the market’s perception of value and is not necessarily an objective measure of the securities’ value. There is no assurance that the Fund will achieve its investment objective, and an investment in the Fund is not by itself a complete or balanced investment program. You could lose money on your investment in the Fund, or the Fund could underperform other investments. Other general market risks include:

Investment strategies that have historically demonstrated low sensitivity  to major world financial market indices may become sensitive at certain times and, as a result, may cease to function as anticipated;

Absolute or a Subadviser may be incorrect in assessing the value or growth capability of particular securities or asset classes contained in the Fund’s portfolio.

Recent Market Events Risk Global securities markets have experienced significant volatility since 2008.  The fixed-income markets have experienced substantially lower valuations, reduced liquidity, price volatility, credit downgrades, increased likelihood of default and valuation difficulties.  Concerns have spread to domestic and international equity markets.  In some cases, the prices of securities of individual companies have been negatively impacted, even though there may have been little or no apparent degradation in the financial conditions or prospects of those companies.  Continuing market problems may have adverse effects on the performance of the Fund.

Bank Loan Risk The Fund may purchase secured and unsecured participations in loans and may purchase assignments of such loans made by banks or other financial intermediaries to borrowers in which it will depend primarily upon the creditworthiness of the borrower for payment of principal and interest. If the Fund does not receive scheduled interest or principal payments on such indebtedness, the Fund’s share price could be adversely affected.  The Fund may invest in loan participations that are rated by a nationally recognized statistical rating organization (“NRSRO”) or unrated and may invest in loan participations of any credit quality, including “distressed” companies with respect to which there is a substantial risk of losing the entire amount invested.  In addition, certain bank loans in which the Fund may invest may be illiquid and, therefore, difficult to value and/or sell at a price that is good for the Fund.

Convertible Securities Risk Convertible securities entail some of the risks of both equity and debt securities. While fixed-income securities generally have a priority claim on a corporation's assets over that of common stock, some of the convertible securities which the Fund may hold are high-yield/high-risk securities that are subject to special risks, including the risk of default in interest or principal payments which could result in a loss of income from or a decline in the market value of, the securities. In addition, convertible securities often display a degree of market price volatility that is comparable to common stocks.  The credit risk associated with convertible securities generally is reflected by their ratings by organizations such as Moody’s or S&P or a similar determination of creditworthiness by a Subadviser. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities.

Credit Risk The financial condition of an issuer of a debt security may cause it to default or become unable to pay interest or principal due on the security. If an issuer defaults, the affected security could lose all of its value, be renegotiated at a lower interest rate or principal amount, or become illiquid. Higher yielding debt securities of lower credit quality have greater credit risk than lower yielding securities with higher credit quality. The Fund may invest in debt securities of any credit quality, including unrated and defaulted securities. Rated securities are those that have been rated by an NRSRO. The Fund may also invest in debt securities that are issued by U.S. Government sponsored entities such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Association, and the Federal Home Loan Banks. Investments in these securities involve credit risk as
 
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 ABSOLUTE OPPORTUNITIES FUND
 

they are not backed by the full faith and credit of the U.S. Government. The Fund may invest in collateralized mortgage obligations (“CMOs”) or collateralized debt obligations (“CDOs”). CMOs and CDOs are each divided into classes, which are referred to as “tranches.” Certain such tranches have priority over other tranches. With respect to CMOs, each tranch’s priority is generally with respect to payment of principal. With respect to CDOs, each tranch’s priority is generally with respect to the payment of cash flows to investors, and no payment of principal will be made on any tranch until all other tranches with earlier stated maturity or distribution dates have been paid in full. The CDO investor’s interest in the cash flows of the investment, rather than in its underlying assets, differentiates the CDO from a CMO.

Derivatives Risk  Derivatives are financial instruments that have a value which depends upon, or is derived from, a reference asset, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies.  Derivatives may result in investment exposures that are greater than their cost would suggest; in other words, a small investment in a derivative may have a large impact on the Fund’s performance.  The successful use of derivatives generally depends on the portfolio manager’s ability to predict market movements.

Derivatives are subject to a number of risks described elsewhere in this section, such as liquidity risk, interest rate risk, credit risk and general market risks.  The Fund’s use of derivatives may entail risks greater than, or possibly different from, such risks and other rpincipal risks to which the Fund is exposed, as described below.  Certain of the different risks to which the Fund might be exposed due to its use of derivatives include the following:

Hedging Risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they also may offset gains.

Correlation Risk is the risk that derivative instruments may be mispriced or improperly valued and that changes in the value of the derivatives may not correlate perfectly with the underlying asset or security.

Volatility Risk is the risk that, because the Fund may use some derivates that involve economic leverage, this economic leverage will increase the volatility of the derivative instruments as they may increase or decrease in value more quickly than the underlying currency, security, interest rate or other economic variable.

Credit Derivative Risk is the risk associated with the use of credit derivatives, which are highly specialized activity that involves strategies and risks different from those with ordinary portfolio security transactions.  If Absolute or a Subadviser is incorrect in its forecast of default risks, market spreads or other applicable factors, the Fund’s investment performance would diminish compared with what it would have been if these techniques were not used.  Moreover, even if Absolute or a Subadviser is correct in its forecast, there is a risk that a credit derivative position may correlate imperfectly with the price of the asset or liability being hedged.  The Fund’s risk of loss in a credit derivative transaction varies with the form of the transaction.

Segregation Risk is the risk associated with any requirement, which may be imposed on the Fund, to segregate assets or enter into offsetting positions in connection with investments in derivatives.  Such segregation will not limit the Fund’s exposure to loss, and the Fund may incur investment risk with respect to the segregated assets to the extent that, but for the applicable segregation requirement, the Fund would sell the segregated assets.

Distressed Investments Risk The Fund’s distressed debt strategy of investing in instruments involving loans, loan participations, bonds, notes, non-performing, sub-performing and sub-prime mortgage loans, many of which are not publicly traded, may involve a substantial degree of risk. In certain periods, there may be little or no liquidity in the markets for these instruments. The prices of such instruments may be extremely volatile. Valuing such instruments may be difficult, and the spread between the bid and asked prices of them may be greater than normally expected. If a Subadviser’s evaluation of a distressed security should prove incorrect, the Fund may lose a substantial portion or all of its investment, or it may be required to accept cash or securities with a value less
 
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 ABSOLUTE OPPORTUNITIES FUND
 

than the Fund’s original investment. Moreover, because issuers of distressed securities are typically in a weak financial condition, the likelihood of default is high, in which case the Fund may lose its entire investment in such defaulted securities.

Emerging Markets Risk The Fund may invest in foreign securities of issuers in emerging markets. Investments in such emerging markets present greater risks than investing in foreign issuers in general. The risk of political or social upheaval is greater in emerging markets. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and markets of certain emerging market countries. Moreover, many emerging markets are relatively small, have low trading volumes, suffer periods of relative illiquidity and are characterized by significant price volatility and high transaction costs.

Equity Risk The value of the Fund’s stock holdings may decline in price because of changes in prices of its holdings or a broad stock market decline. These fluctuations could be a sustained trend or a drastic movement. The stock markets generally move in cycles, with periods of rising prices followed by periods of declining prices. The value of your investment may reflect these fluctuations. In addition, common stocks in general are subject to the risk of an issuer liquidating or declaring bankruptcy, in which case the claims of owners of the issuer’s debt securities and preferred stock take precedence over the claims of common stockholders.

Event-Driven Strategies Risk Special situations and event-driven strategies are inherently speculative in nature. Investments pursuant to special situations and event driven strategies require a Subadviser to make predictions about the likelihood of a corporate event and its impact on a company, and any Subadviser may make inaccurate predictions. The anticipated event and/or impact of the event may never be realized and losses may result. A contemplated corporate transaction may never occur, may take more time than is expected or may result in the distribution of a new, less valuable security in place of the security (or derivative) purchased by the Fund. If a transaction does not occur, the Fund may have to sell securities purchased pursuant to this strategy at a loss. Any investment made pursuant to this strategy is subject to the risk of complete loss. In addition, the result of these strategies may be expected to fluctuate from period to period; thus, the results generated by the strategy in one period will not necessarily be indicative of the results that may be expected from the strategy in future periods.

Foreign Risk The value of foreign investments may be affected by the imposition of new or amended government regulations, changes in diplomatic relations between the United States and another country, political and economic instability, the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital, or nationalization, increased taxation or confiscation of investors’ assets. Changes in the exchange rate between U.S. dollars and a foreign currency may reduce the value of an investment made in a security denominated in that foreign currency. Also, foreign securities are subject to the risk that an issuer’s securities may not reflect the issuer’s condition because there is not sufficient publicly available information about the issuer. This risk may be greater for investments in issuers in emerging or developing markets.

High Turnover Risk The Fund’s investment strategy may from time to time result in higher turnover rates. This may increase the Fund’s brokerage commission costs. The performance of the Fund could be negatively impacted by the increased brokerage commission costs incurred by the Fund. Rapid portfolio turnover also exposes shareholders to a higher current realization of short-term capital gains, distributions of which would generally be taxed to you as ordinary income and thus cause you to pay higher taxes.

Interest Rate Risk The value of your investment in the Fund may change in response to changes in interest rates. An increase in interest rates typically causes a fall in the value of the debt securities that the Fund holds. The effect is usually more pronounced for debt securities with longer dates to maturity.
 
 
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 ABSOLUTE OPPORTUNITIES FUND
 


IPO Risk The Fund may purchase securities of companies in IPOs. Special risks associated with these securities may include illiquidity, unseasoned trading, lack of investor knowledge of the company, limited operating history and substantial price volatility. Some companies whose shares are sold through IPOs may be undercapitalized.

Large Capitalization Company Risk Large-cap company stocks may underperform other segments of the equity market or the equity market as a whole. Larger, more established companies may be slow to respond to challenges and may not be able to attain the high growth rate of successful smaller companies, especially during extended periods of economic expansion.

Leverage Risk Leverage transactions, including borrowing money, selling securities short, lending portfolio securities, entering into reverse repurchase agreements and investing in certain derivatives, create the risk of magnified capital losses. The use of leverage may increase (or decrease) the Fund’s return when the Fund earns a greater (or lesser) return on leveraged investments than the cost of the leverage. The effect of leverage on the Fund’s returns may be magnified by market movements or changes in the cost of leveraging. Changes in interest rates and related economic factors could cause the relationship between the cost of leveraging and the yield on leveraged investments to change in a manner that is unfavorable for the Fund. In an extreme case, the Fund’s current investment income may not be sufficient to meet the interest expense of leveraging, and it may be necessary for the Fund to liquidate certain of its investments at an inopportune time. Leverage may exaggerate the effect of a change in the value of the Fund’s portfolio securities, causing the Fund to be more volatile than if leverage was not used. The Fund will, where required, reduce leverage risk by either segregating an equal amount of liquid assets or “covering” the transactions that introduce such risk.

Liquidity Risk The Fund may invest in less liquid and restricted securities. Such securities may have limitations on resale, and the Fund may have to register a restricted security in order to dispose of it, resulting in expense and delay. Restricted and illiquid securities are extremely difficult to value and are not subject to disclosure or other investor protection requirements. The Fund may not be able to dispose of restricted or illiquid securities promptly and/or may only be able to do so at substantial discounts. As a result, the Fund may experience difficulty satisfying redemption requests. Significant positions in other instruments, including those in which there is low trading volume, may also be difficult for the Fund to liquidate and result in losses for the Fund.

Management Risk The Fund is actively managed, and its performance, therefore, will reflect Absolute’s and the Subadvisers’ ability to make investment decisions that are suited to achieving the Fund’s investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. Further, the Fund’s performance may deviate from overall market returns to a greater degree than other funds that do not employ an absolute return strategy, in part.

Medium Capitalization Company Risk  Medium capitalization company stocks may have greater fluctuations in price than the stocks of large companies.  Further, stocks of mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies.  Medium capitalization companies may have limited product lines or resources and may be dependant upon a particular market niche.

Multi-Manager Risk The methodology by which Absolute allocates Fund assets to the Subadvisers may not achieve desired results and may cause the Fund to lose money or underperform other mutual funds. In addition, the Subadvisers make their trading decisions independently, and, as a result, it is possible that one or more Subadvisers may take positions in the same security or purchase/sell the same security at the same time without aggregating their transactions. This may cause unnecessary brokerage and other expenses, and the Fund may incur losses as a result.
 
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Non-Diversification Risk The Fund is non-diversified and may focus its investments in the securities of a comparatively small number of issuers. Investing in a limited number of issuers exposes the Fund to greater risk and losses than if its assets were more diversified.

Pooled Investment Vehicle Risk The Fund may invest in pooled investment vehicles and will bear its ratable share of the vehicles’ expenses, including management and performance fees. The fees the Fund pays to invest in a pooled investment vehicle may be higher than if the manager of the pooled investment vehicle, including a Subadviser, managed the Fund’s assets directly. The incentive fees charged by certain vehicles may create an incentive for its manager to make investments that are riskier or more speculative than in the absence of an incentive fee.

Prepayment Risk Issuers may experience an acceleration in prepayments of mortgage loans or other receivables backing the issuers’ securities when interest rates decline, which can shorten the maturity of the security and reduce the Fund’s return. Issuers may also prepay their obligations on fixed rate debt securities when interest rates fall, forcing the Fund to invest in securities with lower interest rates.

Registered Investment Company and ETF Risk Investments in the securities of registered investment companies, including ETFs (which may, in turn invest in equities, bonds, and other financial instruments) may involve duplication of advisory fees and certain other expenses. By investing in another investment company or ETF, the Fund becomes a shareholder of that investment company or ETF and bears its proportionate share of the fees and expenses of the other investment company or ETF. As a result, shareholders of the Fund indirectly bear their proportionate share of the fees and expenses paid by the Fund to the other investment company or ETF, in addition to those that Fund shareholders directly bear in connection with the Fund’s own operations. If the investment company or ETF fails to achieve its investment objective, the Fund’s performance may be adversely affected. In addition, because ETF shares are listed and traded on national stock exchanges, they may trade at a discount or premium. Investments in ETFs are subject to brokerage and other trading costs, which could result in greater expenses to the Fund. Finally, because the value of ETF shares depends in part on the demand for them in the market, the Adviser may not be able to liquidate an ETF position at the net asset value of the ETF, adversely affecting the Fund’s performance.

Restricted Securities Risk Rule 144A securities, which are restricted securities, may be less liquid investments than registered securities because Rule 144A securities may not be readily marketable in broad public markets. A Rule 144A restricted security carries the risk that the Fund may not be able to sell the security when the portfolio manager considers it desirable to do so and/or may have to sell the security at a lower price. In addition, transaction costs may be higher for Rule 144A securities than for more liquid securities. Although there is a substantial institutional market for Rule 144A securities, it is not possible to predict exactly how the market for Rule 144A securities will develop. A restricted security that when purchased was liquid in the institutional markets may subsequently become illiquid.

Short Selling Risk Short selling involves borrowing a security, selling it and buying it back. If the Fund buys back the security at a price lower (or higher) than the price at which it sold the security plus accrued interest, the Fund will make a profit (or loss) on the transaction.  In addition, short sales may contribute to leverage, increase the volatility and decrease the liquidity of certain securities or positions, lowering the Fund’s return or resulting in a loss.

Small Capitalization Company Risk Investment in smaller companies may be more volatile than investments in larger companies because short-term changes in the demand for the securities of smaller companies may have a disproportionate effect on their market price, tending to make prices of these securities fall more in response to
 
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 ABSOLUTE OPPORTUNITIES FUND
 

selling pressure. The smaller the company, the greater effect these risks may have on that company’s operations and performance. As a result, an investment in the Fund may exhibit a higher degree of volatility than the general domestic securities market.

Swap Contract Risk The Fund may engage in interest rate, currency, and equity swaps and CDSs, and related instruments, which require Absolute or a Subadviser to forecast, among other things, interest rate movements, currency fluctuations, market values and the likelihood of credit event for a securities issuer. Such forecasting is inherently difficult and entails investment risk. The use of swaps involves investment techniques and risks different from those associated with ordinary portfolio security transactions. There is no guarantee that the Fund will be able to eliminate its exposure under an outstanding swap by entering into an offsetting swap, and the Fund may not assign a swap without the consent of the counterparty to it. In addition, each swap exposes the Fund to counterparty risk and Absolute or a Subadviser may determine to concentrate any or all of its swap transactions, including CDS, in a single counterparty or small group of counterparties. If a counterparty defaults, the Fund’s only recourse will be to pursue contractual remedies against the counterparty and the Fund may be unsuccessful in such pursuit. The Fund thus assumes the risk that it may be delayed in or prevented from obtaining payments owed to it pursuant to a swap contract.

Disclosure of Portfolio Holdings

A description of the Fund’s policies and procedures with respect to the disclosure of portfolio securities is available in the Fund’s Statement of Additional Information (“SAI”).

Management

The Fund is a series of Forum Funds (the “Trust”), an open-end, management investment company (mutual fund). The business of the Trust and the Fund is managed under the oversight of the Board. The Board oversees the Fund and meets periodically to review the Fund’s performance, monitor investment activities and practices, and discuss other matters affecting the Fund. Additional information regarding the Board, as well as the Trust’s executive officers, may be found in the Fund’s SAI.

The Adviser and Subadvisers

Absolute Investment Advisers LLC, 350 Lincoln Street, Suite 216, Hingham, MA 02043, is the Fund’s investment adviser. Absolute is a registered investment adviser and provides investment advisory services to the Fund. As of June 30, 2010, Absolute had approximately $2.53 billion of assets under management.

Absolute receives an advisory fee from the Fund at an annual rate equal to 2.75% of the Fund’s average daily net assets. Absolute pays any sub-advisory fees out of the fees it receives pursuant to the Investment Advisory Agreement with the Fund.

A discussion summarizing the basis on which the Board most recently approved the Fund’s Investment Management Agreement with Absolute and the Fund’s Sub-Advisory Agreements between Absolute and the Subadvisers is available in the Fund’s annual report for the period ended March 31, 2010.
 
Subject to the general supervision of the Board, Absolute is directly responsible for making the investment decisions for the Fund. Although Absolute delegates the day-to-day management of the Fund to a combination of the following Subadvisers, Absolute retains overall supervisory responsibility for the general management and investment of the Fund’s assets. Absolute pays any sub-advisory fees out of the fees it receives pursuant to the Investment Advisory Agreement with the Fund.
 
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 ABSOLUTE OPPORTUNITIES FUND
 
 
Subadviser
 
Investment Strategy
ClearStream Investments , LLC
Ten Post Office Square, Suite 1200
Boston, MA 02109
 
Global Macro and Absolute Return
Green Eagle Capital LLC
250 East Illinois Road, Suite 200, Lake Forest, IL 60045
 
Short-Biased Long/Short Credit
Kingstown Capital Management, LP
1270 Broadway, Suite 1009, New York, NY 10001
 
Concentrated Special Situations
Madden Asset Management LLC
One International Place, 24th Floor, Boston, MA 02110
 
Global Long/Short Growth Equity
MetWest Asset Management, LLC
856 South Figueroa Street
Los Angeles, CA 900 17
 
Opportunistic/Distressed Debt
Semaphore Management LLC
320 Park Avenue, 10th Floor, New York, NY 10022
 
Long/Short Equity and Credit

ClearStream Investments , LLC was founded in 2005 and provides investment advisory services for other pooled investment vehicles. The Fund is the second mutual fund for which the Subadviser provides investment advisory services.
 
Green Eagle Capital LLC was founded in 2004 and provides investment advisory services for other pooled investment vehicles. The Fund is the only mutual fund for which the Subadviser provides investment advisory services.
 
Kingstown Capital Management, LP was founded in 2006 and provides investment advisory services for other pooled investment vehicles. The Fund is the only mutual fund for which the Subadviser provides investment advisory services.

Madden Asset Management LLC was founded in 2007 and provides investment advisory services for other pooled investment vehicles. The Fund is the only mutual fund for which the Subadviser provides investment advisory services.
 
MetWest Asset Management, LLC commenced operations in 1996, and provides investment advisory services for institutional clients, high-net worth individuals, and mutual funds.
 
Semaphore Management LLC was founded in 2003 and provides investment advisory services for other pooled investment vehicles. The Fund is the first mutual fund for which the Subadviser provides investment advisory services.
 
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 ABSOLUTE OPPORTUNITIES FUND
 

Pursuant to an exemptive order from the U.S. Securities and Exchange Commission (the “SEC”), Absolute, subject to Board approval, is permitted to enter into new or modified subadvisory agreements with existing or new Subadvisers for the Fund without approval of Fund shareholders (“Exemptive Relief”). Pursuant to the Exemptive Relief, the Fund is required to notify shareholders of the retention of a new Subadviser within 90 days of the hiring of the new Subadviser. In the future, Absolute may propose to appoint or replace one or more Subadvisers subject to Board approval and applicable shareholder notice requirements.
 
Portfolio Manager

The Fund is managed by portfolio manager Jay Compson, a founder of Absolute. Mr. Compson is responsible for Subadviser selection and overall portfolio construction, allocation and monitoring of the Fund’s assets. Mr. Compson is also responsible for day to day management of the Fund and the relationships with the Subadvisers.

Jay Compson, Mr. Compson is the Portfolio Manager for the Fund and is responsible for manager selection and overall portfolio construction, allocation, and monitoring of the Fund's assets. Mr. Compson has

Prior to founding Absolute in 2004, Mr. Compson was a Portfolio Manager and Partner at Abington Capital LP, a Boston-based hedge fund. He also spent several years in corporate risk management roles at two investment banks - Lehman Brothers and Tucker Anthony Sutro. Mr. Compson began his career as a yacht insurance underwriter for the Chubb Group.

Mr. Compson received his BA degree from Franklin & Marshall College and his MBA in Finance and Management from New York University's Stern School of Business.

Generally, Absolute will assign responsibility for the day-to-day management of the Fund to a combination of the Subadvisers.

The SAI provides additional information about the Portfolio Manager’s compensation, other accounts managed by the Portfolio Manager, and the Portfolio Manager’s ownership of Fund shares.

Other Service Providers

Atlantic Fund Services (“Atlantic”) provides certain administration, compliance, portfolio accounting and transfer agency services to the Fund.

Atlantic provides the Fund with a Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”), Chief Compliance Officer (“CCO”), and an Anti-Money Laundering Compliance Officer (“AMLCO”) as well as certain additional compliance support functions.

Foreside Fund Services, LLC, the Trust’s principal underwriter (the “Distributor”) acts as the Trust’s Distributor in connection with the offering of the Fund’s shares. The Distributor may enter into arrangements with banks, broker-dealers and other financial intermediaries through which investors may purchase or redeem shares.
 
The Distributor is not affiliated with the Adviser, Atlantic or their affiliates.
 
Fund Expenses

The Fund pays expenses out of its own assets. Expenses of each share class include that class’ own expenses as well as Trust expenses that are allocated among the Fund, its classes of shares and all other portfolios of the
 
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Trust. Absolute or other service providers may reduce all or any portion of their fees and reimburse certain expenses of a Fund class. Any agreement to reduce fees or reimburse expenses  increases the investment performance of the Fund and its applicable share classes for the period during which the reduction or reimbursement is in effect.

Important Information Regarding Dividend and Interest Expenses On Short Sales

Dividend and Interest Expenses on Short Sales occur when the Fund sells an equity or debt security short to gain the inverse exposure necessary to meet its investment objective. When the Fund sells a security short, the Fund borrows the security from a lender and then sells the security in the general market. The Fund is obligated to pay an amount equal to any dividend declared or interest paid during the duration of the short to the lender from which the Fund borrowed the security and the Fund is obligated to record the payment as an expense. The Fund may also be obligated to pay an interest fee on monies borrowed from an intermediary, such as a prime broker, in connection with a short sale. For tax purposes, any such payment on a security sold short generally reduces the basis of the shorted security, thereby increasing the Fund's unrealized gain or reducing the Fund's unrealized loss on the short sale transaction. Also, the Dividend and Interest Expenses on Short Sales are typically offset, in their entirety or in part, by the income derived from earnings on the cash proceeds of the short sales. Nevertheless, the Fund will bear the cost of the Dividend and Interest Expenses on Short Sales. The Fund is also required to pay any applicable interest on a borrowed security and borrowings related to short sales.

The table below illustrates the Fund’s Total Annual Fund Operating Expenses with Fund expenses including the effect of Dividend and Interest Expenses on Short Sales and excluding the effect of Dividend and Interest Expenses on Short Sales. The Fund’s Total Annual Operating Expenses (expenses that are deducted from Fund assets) were:
 
Comparison of Expenses
Institutional Shares
Management Fees
2.75%
Distribution/Service (12b-1) Fees
None
Other Expenses
0.45%
Dividend and Interest Expenses on Short Sales
0.46%
Acquired Fund Fees and Expenses
0.02%
Total Annual Fund Operating Expenses With Dividend and Interest Expenses on Short Sales
3.68%
Less Dividend and Interest Expenses on Short Sales
(0.46)%
Total Annual Fund Operating Expenses Without Dividend and Interest Expenses on Short Sales(1)
3.22%

(1)  
Excluding the effect of expenses attributable to dividend and interest expenses on short sales and AFFE, the Fund’s Total Annual Operating Expenses would be 3.20%; while the Fund’s Net Annual Operating Expenses would be 2.95%.
 
 
 
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Your Account

HOW TO CONTACT THE FUND
 
Write to us at:
     Absolute Opportunities Fund
     P.O. Box 588
     Portland, Maine 04112
 
Overnight address:
     Absolute Opportunities Fund
     C/O Atlantic Fund Services
     Three Canal Plaza, Ground Floor
     Portland, Maine 04101
 
Telephone us at:
    (888) 992-2765 (toll free)
    (888) 99-ABSOLUTE (toll free)
 
Email us at:
     Absolute.ta@atlanticfund services .com
 
Wire investments (or ACH payments) to:
     Please contact the Transfer Agent at (888) 99-ABSOLUTE to obtain the ABA routing number and the account number for the Fund.
 
General Information

You may purchase or sell (redeem) shares on each weekday that the New York Stock Exchange (“NYSE”) is open. Under unusual circumstances, a Fund class may accept and process shareholder orders when the NYSE is closed if deemed appropriate by the Trust’s officers.

You may purchase or sell (redeem) shares at the NAV of a share of that Fund class next calculated (normally 4:00 p.m. Eastern Time) plus any applicable sales charge (or minus redemption fee in the case of redemptions) after the Transfer Agent receives your request in proper form (as described in this Prospectus on pages 22 through 27). If the Transfer Agent or an authorized agent of the Fund receives your purchase or redemption request in proper form after 4:00 p.m., Eastern Time,   your transaction will be priced at the next business day’s NAV of the relevant Fund class plus any applicable sales charge (or minus redemption fee in the case of redemptions). The Fund cannot accept orders that request a particular day or price for the transaction or any other special conditions.

The Fund does not issue share certificates.

If you purchase shares directly from a Fund, you will receive quarterly statements from the Fund detailing balances and all transactions completed during the prior quarter and a confirmation of each transaction. Automatic reinvestments of distributions and systematic investments/withdrawals may be confirmed only by quarterly statement. You should verify the accuracy of all transactions in your account as soon as you receive your confirmations and quarterly statements.
 
The Fund may suspend the right of redemption, or postpone the date of payment or satisfaction upon redemption of any redeemable security in accordance with its terms for up to seven days after the tender of such security to the Fund or its agent designated for that purpose upon redemption. The Fund reserves the right to refuse any purchase request, particularly requests that could adversely affect the Fund or its operations.

When and How NAV is Determined Each Fund class calculates its NAV as of the close of trading on the NYSE (normally 4:00 p.m., Eastern time) on each weekday except days when the NYSE is closed. The schedule of holidays when the NYSE is closed is below.  Under unusual circumstances, such as in the case of an emergency, the Fund may calculate its NAV and accept and process shareholder orders when the NYSE is closed.  The NAV of each Fund class is determined by taking the market value of the Fund class’ total assets, subtracting the Fund class’ liabilities, and then dividing the result (net assets) by the number of outstanding shares of the Fund class. Since the Fund invests in securities that may trade in foreign markets on days other than a Fund business day, the value of the Fund’s portfolio may change on days that shareholders will not be able to purchase or redeem Fund Shares.

The Fund values securities for which market quotations are readily available, including certain open-end investment companies, at current market value except certain short-term securities which are valued at amortized cost. Exchange traded securities for which market quotations are readily available are valued using the last reported sales price provided by independent pricing services as of the close of trading on the NYSE on each
 
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 ABSOLUTE OPPORTUNITIES FUND
 

Fund business day. In the absence of sales, such securities are valued at the mean of the last bid and ask price. Non-exchange traded securities for which quotations are readily available are generally valued at the mean between the current bid and asked price. Fixed income securities may be valued at prices supplied by the 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. Investments in other open-end registered investment companies are valued at their NAV.

Market quotations may not be readily available or may be unreliable if, among other things, (i) the exchange on which a Fund portfolio security is principally traded closes early, (ii) trading in a portfolio security was halted during the day and did not resume prior to the time as of which the Fund calculates its NAV, or (iii) events occur after the close of the securities markets on which the Fund’s portfolio securities primarily trade but before the time as of which the Fund calculates its NAV. Fair valuation has the effect of updating security prices to reflect market value based on, among other things, the recognition of a significant event.  The Fund values securities at fair value pursuant to procedures adopted by the Board if market quotations are not readily available or the Adviser believes that the prices or values available are unreliable. The Fund invests in the securities of small- and medium-sized companies. Such securities are more likely to require a fair value determination because they are more thinly traded and less liquid than the securities of larger capitalization companies.
 
The Board has delegated fair value determinations to a Valuation Committee composed of a member of the Board or the President or Treasurer and either a representative of the Fund’s Fund Accountant or, if needed, a portfolio manager or a senior representative of the Adviser, when the Fund’s securities require fair valuation.  Fair valuation may be based on subjective factors and as a result, the fair value price of a security may differ from the security’s market price and may not be the price at which the security may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotations.
 
The Fund may invest in foreign securities, the securities of smaller companies and derivatives. Foreign securities are more likely to require a fair value determination than domestic securities because circumstances may arise between the close of the market on which the securities trade and the time as of which the Fund values its portfolio securities, which may necessitate fair valuation. Securities of smaller companies and certain derivatives are also more likely to require a fair value determination because they may be thinly traded and less liquid than traditional securities of larger companies.
 
Government, corporate, asset-backed and municipal bonds and convertible securities, including high-yield or junk bonds, normally are valued on the basis of prices provided by independent pricing services. Prices provided by the pricing services may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, maturity and other market data. Prices received from pricing services are fair value prices. In addition, if the prices provided by the pricing service and independent quoted prices are unreliable, the valuation committee described above will fair value the security using the Fund’s fair value procedures.
 
NYSE Holiday Schedule The NYSE is open every weekday, Monday through Friday, except on the following holidays: New Year's Day, Martin Luther King, Jr. Day (the third Monday in January), President's Day (the third Monday in February), Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. Exchange holiday schedules are subject to change without notice. The NYSE may close early on the day before each of these holidays and the day after Thanksgiving Day.

If the exchange or market on which the Fund’s underlying investments are primarily traded closes early, the NAV may be calculated prior to its normal market calculation time.  For example, the primary trading markets for the
 
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 ABSOLUTE OPPORTUNITIES FUND
 

Fund may close early on the day before certain holidays and the day after Thanksgiving. To the extent the Fund's portfolio investments trade in markets on days when the Fund is not open for business, the Fund's NAV may vary on those days. In addition, trading in certain portfolio investments may not occur on days the Fund is open for business because markets or exchanges other than the NYSE may be closed.

Transactions through Financial Intermediaries   The Fund has authorized certain financial services companies, broker-dealers, banks and other agents, including the designees of such entities when approved by the Fund (collectively, “financial intermediaries”) to accept purchase and redemption orders on the Fund’s behalf. If you invest through a broker or other financial intermediary, the policies and fees of the intermediary may be different than the policies and fees of the Fund. Among other things, such financial intermediaries may charge transaction fees and may set different minimum investment restrictions or limitations on buying (selling) Fund shares. You should consult your broker or other representative of your financial intermediary for more information.

All orders to purchase or sell shares are executed as of the next NAV calculated after the order has been  received in “good order” by a financial intermediary. Orders are accepted until the close of regular trading on the NYSE every business day, normally 4:00 p.m., Eastern Time, and are executed the same day at that day’s NAV. To ensure this occurs, the financial intermediaries are responsible for transmitting all orders to the Fund in compliance with their contractual deadline.

Payments to Financial Intermediaries The Fund and its affiliates (at their own expense) may pay compensation to financial intermediaries for shareholder-related services and, if applicable, distribution-related services, including administrative, subtransfer agency, recordkeeping and shareholder communication services. Fund supermarkets are brokerage firms that provide access to funds in different fund families and are considered to be financial intermediaries. For example, compensation may be paid to make Fund shares available to sales representatives and/or customers of a fund supermarket platform or similar program sponsor or for services provided in connection with such fund supermarket platforms and programs.

The amount of compensation paid to different financial intermediaries may differ. The compensation paid to a financial intermediary may be based on a variety of factors, including average assets under management in accounts distributed and/or serviced by the financial intermediary, gross sales by the financial intermediary and/or the number of accounts serviced by the financial intermediary that invest in the Fund. To the extent that the Fund pays (a portion) of such compensation, it is designed to compensate the financial intermediary for providing services that would otherwise be provided by the Fund or its Transfer Agent. To the extent a Fund affiliate pays such compensation, it would likely include amounts from that affiliate’s own resources and constitute what is sometimes referred to as “revenue sharing.”

Compensation received by a financial intermediary from the Adviser or another Fund affiliate may include payments for marketing and/or training expenses incurred by the financial intermediary, including expenses incurred by the financial intermediary in educating itself and its salespersons with respect to Fund shares. For example, such compensation may include reimbursements for expenses incurred in attending educational seminars regarding the Fund, including travel and lodging expenses. It may also cover costs incurred by financial intermediaries in connection with their efforts to sell Fund shares, including costs incurred compensating registered sales representatives and preparing, printing and distributing sales literature.

Any compensation received by a financial intermediary, whether from the Fund or its affiliate(s), and the prospect of receiving it may provide the financial intermediary with an incentive to recommend the shares of the Fund over other potential investments. Similarly, the compensation may cause financial intermediaries to elevate the prominence of the Fund within its organization by, for example, placing it on a list of preferred funds.
 
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 ABSOLUTE OPPORTUNITIES FUND
 

Anti-Money Laundering Program Customer identification and verification are part of the Fund’s overall obligation to deter money laundering under Federal Law. The Trust has adopted an Anti-Money Laundering Program designed to prevent the Fund from being used for money laundering or the financing of terrorist activities. In this regard, the Fund reserves the right, to the extent permitted by law, to (i) refuse, cancel or rescind any purchase order; or (ii) freeze any account and/or suspend account services. These actions will be taken when, in the sole discretion of Trust management, they are deemed to be in the best interest of the Fund or in cases when the Fund is requested or compelled to do so by governmental or law enforcement authority or applicable law.  If your account is closed at the request of governmental or law enforcement authorities, you may not receive proceeds of the redemption if the Fund is required to withhold such proceeds.

Buying Shares
 
How to Make Payments Unless purchased through a third-party financial institution, all investments must be made by check, ACH, or wire. All checks must be payable in U.S. dollars and drawn on U.S. financial institutions. In the absence of the granting of an exception consistent with the Trust’s anti-money laundering procedures adopted on behalf of the Fund, the Fund does not accept purchases made by credit card check, starter check, cash or cash equivalents (for instance, you may not pay by money order, bank draft, cashier’s check or traveler’s check).
 
Checks Checks must be made payable to “Absolute Opportunities Fund.”  For individual, sole proprietorship, joint, Uniform Gift to Minors Act (“UGMA”) or Uniform Transfer to Minors Act (“UTMA”) accounts, checks may be made payable to one or more owners of the account and endorsed to “Absolute Opportunities Fund.” A $20 charge may be imposed on any returned checks.

ACH ACH refers to the “Automated Clearing House” system maintained by the Federal Reserve Bank, which allows banks to process checks, transfer funds and perform other tasks. Your financial institution may charge you a fee for this service.
 
Wires Instruct your financial institution with whom you have an account to make a Federal Funds wire payment to us. Your financial institution may charge you a fee for this service.
 
Minimum Investments The Fund accepts investments in the following minimum amounts:
 
 
Minimum Initial(1)(2)
Minimum Additional(1)(2)
All Accounts
$1,000,000
None
 
(1)  
If you invest through a broker or other financial intermediary, the policies and fees of the intermediary may be different than the policies and fees of the Fund. Among other things, such financial intermediaries may charge transaction fees and may set different minimum investments or limitations on buying (selling) Fund shares. You should consult your broker or other representative of your financial intermediary for more information.
 
(2)  
No initial or subsequent investment minimums for accounts maintained by financial institutions for the benefit of their clients who purchase shares through investment programs such as (1) fee-based advisory programs; (2) employee benefit plans like 401(k) retirement plans; (3) mutual fund platforms; and (4) consulting firms. No initial or subsequent investment minimum for Trustees or officers of the Trust, directors, officers and employees of Absolute, employees of the Subadvisers, and employees and affiliates of the Fund, or the distributor or any of their affiliates, or the spouse, sibling, direct ancestor, or direct descendent (collectively, “relatives”) of any such person, any trust or individual retirement account (“IRA”) or self-employed retirement plan for the benefit of any such person or relative; or the estate of any such person or relative.

 
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 ABSOLUTE OPPORTUNITIES FUND
 
 
If deemed appropriate by the Trust officers, the Fund may waive investment minimum requirements.

Account Requirements
 
Type of Account
Requirement
Individual, Sole Proprietorship and Joint Accounts
Individual accounts are owned by one person, as are sole proprietorships accounts.  Joint accounts have two or more owners (tenants).
•Instructions must be signed by all persons required to sign exactly as their names appear on the account.
Gifts or Transfers to a Minor (UGMA, UTMA)
These custodial accounts provide a way to give
money to a child and obtain tax benefits.
•Depending on state laws, you may set up a custodial account under the UGMA or the UTMA.
•The custodian must sign instructions in a manner indicating custodial capacity.
Corporations/Other
•The entity should submit a certified copy of its articles of incorporation (or a government-issued business license or other document that reflects the existence of the entity) and a corporate resolution or a secretary’s certificate.
Trusts
•The trust must be established before an account can be opened.
•The trust should provide the first and signature pages from the trust document identifying the trustees.
 
Account Application and Customer Identity Verification To help the government fight the funding of terrorism and money laundering activities, Federal law requires financial intermediaries to, among other measures, obtain, verify, and record information that identifies each person who opens an account.
 
When you open an account, the Fund will ask for your first and last name, taxpayer identification number, physical street address, date of birth,  and other information or documents that will allow us to identify you. For certain types of accounts, additional information may be required.
 
If you do not supply the required information, the Fund will attempt to contact you or, if applicable, your broker. If the Fund cannot obtain the required information within a timeframe established in our sole discretion, your application will be rejected.
 
When your application is in proper form and includes all required information, your orderapplication will normally be accepted and your order will be processed at the NAV next calculated after receipt of your application. and investment amount.  Once your application is accepted, the Fund will then attempt to verify your identity using the information you have supplied and other information about you that is available from third parties, including information available in public and private databases such as consumer reports from credit reporting agencies.
 
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 ABSOLUTE OPPORTUNITIES FUND
 

The Fund will try to verify your identity within a timeframe established in its sole discretion. If the Fund cannot do so, the Fund reserves the right to redeem your investment at the NAV next calculated after the Fund decides to close your account. If your account is closed, you may be subject to a gain or loss on Fund shares and will be subject to any related taxes and will not be able to recoup any sales charges or redemption fees assessed.  If the Fund has not yet collected payment for the shares you are selling, it may delay sending redemption proceeds until such payment is received, which may be up to 15 calendar days from date of purchase.

Policy on Prohibition on Foreign Shareholders The Fund requires that all shareholders must be U.S.  persons with a valid U.S. Taxpayer Identification Number to open an account with the Fund.
 
Investment Procedures
 
How to Open an Account
 
How to Add to Your Account
Through a Financial Institution
· Contact your Financial Institution using the method that is most convenient for you.
 
 
Through a Financial Institution
· Contact your Financial Institution using the method that is most convenient for you.
By Check
· Call, write us or email us at Absolute.ta@atlanticfund services .com for an account application.
· Complete the application (and other required documents, if applicable).
· Mail us your application (and other required documents, if applicable) and a check.
 
 
By Check
· Fill out an investment slip from a confirmation or write us a letter.
· Write your account number on your check.
· Mail us the slip (or your letter) and the check.
 
By Wire
· Call, write us or email us at Absolute.ta@atlanticfund services .com for an account application.
· Complete the application (and other required documents, if applicable).
· Call us to fax the completed application (and other required documents, if applicable) and we will assign you an account number.
· Mail us your original application (and other required documents, if applicable).
· Instruct your U.S. financial institution to wire your money to us.
 
 
By Wire
· Instruct your U.S. financial institution to wire your money to us.
 
 
 
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 ABSOLUTE OPPORTUNITIES FUND
 
 
How to Open an Account
 
How to Add to Your Account
By ACH Payment
· Call, write us or email us at Absolute.ta@atlanticfund services .com for an account application.
· Complete the application (and other required documents, if applicable).
· Call us to fax the completed application (and other required documents) and we will assign you an account number.
· Mail us your original application (and other required documents, if applicable).
· We will electronically debit the purchase proceeds from the financial institution account identified on your account application.
· Purchases are limited to $25,000 per day.
 
 
By ACH Payment
· Call to request a purchase by ACH payment.
· We will electronically debit the purchase proceeds from the financial institution account identified on your account application.
· Purchases are limited to $25,000 per day.
 
 
 
Systematic Investments You may establish a systematic investment plan to automatically invest a specified amount of money (up to $25,000 per day) into your account on a specified day and frequency not to exceed two investments per month.  Payments for systematic investments are automatically debited from your designated savings or checking account via ACH.  Systematic investments must be for at least $100 per occurrence.

Frequent Trading  Because of the Fund’s low volatility and numerous portfolio holdings, generally the Fund is not susceptible to market timing. Thus, the Board has adopted a policy of not monitoring for frequent purchases and redemptions of Fund shares. Frequent trading by Fund shareholders poses risks to other shareholders in the Fund, including (i) the dilution of the Fund’s NAV, (ii) an increase in the Fund’s expenses, and (iii) interference with the portfolio manager’s ability to execute efficient investment strategies.
 
Canceled or Failed Payments The Fund accepts checks and ACH transfers at full value subject to collection. If the Fund does not receive your payment for shares or you pay with a check or ACH transfer that does not clear, your purchase will be canceled within two business days of notification from your bank that your funds did not clear. You will be responsible for any actual losses or expenses incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you own in the account (or another identically registered account that you maintain with the Transfer Agent) as reimbursement. The Fund and its agents have the right to reject or cancel any purchase due to nonpayment.
 
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 ABSOLUTE OPPORTUNITIES FUND
 
 
Selling Shares
 
The Fund processes redemption orders received in good order at the next calculated NAV.  Under normal circumstances, the Fund will send redemption proceeds to you within a week.  If the Fund has not yet collected payment for the shares you are selling, it may delay sending redemption proceeds until it receives payment, which may be up to 15 calendar days from the date of purchase.  
 
How to Sell Shares from Your Account
Through a Financial Intermediary
•  Contact your financial intermediary using the method that is most convenient for you.
 
By Mail
•Prepare a written request including:
•Your name(s) and signature(s)
•Your account number
•The Fund name and class
•The dollar amount or number of shares you want to sell
•How and where to send the redemption proceeds.
•Obtain a signature guarantee (if required).
•Obtain other documentation (if required).
•Mail us your request and documentation.
 
By Telephone
•Call us with your request (unless you declined telephone redemption privileges on your account application).
•Provide the following information:
•Your account number
•Exact name(s) in which the account is registered
•Additional form of identification.
•  Redemption proceeds will be mailed to you by check or electronically credited to your account at the
financial institution identified on your account application.
 
Systematically
•Complete the systematic withdrawal section of the application.
•Attach a voided check to your application.
•Mail us your completed application.
•Redemption proceeds will be mailed to you by check or electronically credited to your account at the financial institution identified on your account application.
 
 
Wire Redemption Privileges You may redeem your shares by wire unless you declined wire redemption privileges on your account application. The minimum amount that may be redeemed by wire is $5,000.
 
Telephone Redemption Privileges You may redeem your shares by telephone unless you declined telephone redemption privileges on your account application. You may be responsible for any unauthorized telephone order as long as the Transfer Agent takes reasonable measures to verify that the order is genuine. Telephone redemption orders may be difficult to complete during periods of significant economic or market activity. If you are not able to reach the Fund by phone, you may mail us your redemption order.
 
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 ABSOLUTE OPPORTUNITIES FUND
 


Systematic Withdrawals You may establish a systematic withdrawal plan to automatically redeem a specified amount of money or shares from your account on a specified date with a frequency not to exceed one withdrawal per month. These payments are sent from your account by check to your address of record, or if you so designate, to your bank account by ACH payment.
 
Signature Guarantee Requirements To protect you and the Fund against fraud, signatures on certain requests must have a Medaliion Signature Guarantee.  A Medallion Signature Guarantee verifies the authenticity of your signature. You can obtain a Medallion Signature Guarantee from most banking institutions or securities brokers, but not from a notary public. The Transfer Agent will need written instructions signed by all registered shareholders with a Medallion Signature Guarantee for each shareholder for any of the following:

·  
Written requests to redeem $100,000 or more
 
·  
Changes to a shareholder’s record name or account registration
 
·  
Paying redemption proceeds from an account for which the address has changed within the last 30 days
 
·  
Sending redemption and distribution proceeds to any person, address or financial institution account not on record
 
·  
Sending redemption and distribution proceeds to an account with a different registration (name or ownership) from your account; and
 
·  
Adding or changing ACH or wire instructions, telephone redemption options, or any other election in connection with your account
 
The Transfer Agent reserves the right to require Medallion Signature Guarantees on all redemptions.
 
Small Accounts If the value of your account falls below $5,000, the Fund may ask you to increase your balance. If the account value is still below $5,000 after 60 days, the Fund retains the right to close your account and send you the proceeds. The Fund will not close your account if it falls below these amounts solely as a result of Fund performance.
 
Redemptions In-Kind Pursuant to an election filed with the SEC, the Fund reserves the right to pay redemption proceeds in portfolio securities rather than in cash. To the extent a fund shareholder redeems its shares in this manner, the shareholder assumes the risk of a subsequent change in the market value of these securities and the cost of liquidating the securities. In addition, the shareholder will bear any brokerage and related costs in disposing of or selling the portfolio securities it receives from the Fund.  Pleas see the Statement of Additional Information for more detail on redemptions in-kind.
 
Lost Accounts The Transfer Agent will consider your account “lost” if correspondence to your address of record is returned as undeliverable on two consecutive occasions, unless the Transfer Agent determines your new address. When an account is “lost”, all distributions on the account will be reinvested in additional Fund shares. In addition, the amount of any outstanding (unpaid for six months or more) checks that have been returned to the Transfer Agent may be reinvested at the then-current NAV and the checks will be canceled.
 
However, checks will not be reinvested into accounts with a zero balance, but will be held in an account until the Transfer Agent locates you or escheats the funds to the state of your last known address.
 
Retirement Accounts
 
You may invest in Fund shares through an IRA, including traditional and Roth IRAs, also known as “Qualified Retirement Accounts.”  The Fund may also be appropriate for other retirement plans. Before investing in any IRA or other retirement plan, you should consult your tax adviser. Whenever making an investment in an IRA, be sure to indicate the year for which the contribution is made.
 
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Other Information
 
Distributions and Dividend Reinvestments
 
The Fund declares distributions from net investment income at least semi-annually. Any net capital gain realized by the Fund will be distributed at least annually.
 
Most investors have their income dividends and capital gain distributions (each, a “distribution”) reinvested in additional shares of the Fund. If you choose this option, or if you do not indicate any choice, your distributions will be reinvested. Alternatively, you may choose to have your distributions of $10 or more sent directly to your bank account or paid to you by check. However, if a distribution is less than $10, your proceeds will be reinvested. If five or more of your distribution checks remain uncashed after 180 days, all subsequent distributions may be reinvested. For Federal income tax purposes, distributions are treated the same whether they are received in cash or reinvested. 
 
Taxes
 
The Fund generally intends to operate in a manner such that it will not be liable for Federal income or excise taxes.
 
The Fund’s distributions of net investment income and net short-term capital gain are taxable to you as ordinary income. The Fund’s distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss), if any, are taxable to you as long-term capital gain, regardless of how long you have held your shares. Distributions may also be subject to certain state and local taxes. Some Fund distributions may also include a nontaxable return of capital. Return of capital distributions reduce your tax basis in your Fund shares and are treated as gain from the sale of the shares to the extent they exceed your basis.
 
A portion of the Fund’s distributions may be treated as “qualified dividend income,” taxable to individuals at a maximum Federal tax rate of 15% (0% for individuals in lower tax brackets) through 2010. A distribution is treated as qualified dividend income to the extent that the Fund receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that holding period and other requirements are met.
 
A distribution reduces the NAV of the Fund’s shares by the amount of the distribution. If you purchase shares prior to a distribution, you are taxed on the distribution even though the distribution represents a partial return of your investment.
 
The sale (redemption) of Fund shares is a taxable transaction for Federal income tax purposes. You will recognize a gain or loss on the transaction equal to the difference, if any, between the amount of your net redemption proceeds and your tax basis in the Fund shares. The gain or loss will be capital gain or loss if you held your Fund shares as capital assets. Any capital gain or loss will be treated as long-term capital gain or loss if you held the Fund shares for more than one year at the time of the redemption. Any capital loss arising from the redemption of shares held for six months or less, however, will be treated as long-term capital loss to the extent of the amount of any net capital gain distributions with respect to those shares.
 
The Fund will be required to withhold federal income tax at the rate of 28% on all distributions and redemption proceeds (regardless of the extent to which you realize gain or loss) otherwise payable to you (if you are an individual or certain other non-corporate shareholder) if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue
 
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 ABSOLUTE OPPORTUNITIES FUND
 


Service that you are subject to backup withholding. Backup withholding is not an additional tax, and any amounts withheld may be credited against your Federal income tax liability once you provide the required information or certification.
 
After December 31 of each year, the Fund will mail you reports containing information about the income tax classification of distributions paid during the year.
 
For further information about the tax effects of investing in the Fund, please see the SAI and consult your tax adviser.
 
Organization
 
The Trust is a Delaware statutory trust, and the Fund is a series thereof. The Fund does not expect to hold shareholders’ meetings unless required by Federal or Delaware law. Shareholders of each series of the Trust are entitled to vote at shareholders’ meetings unless a matter relates only to a specific series (such as approval of an advisory agreement for the Fund). From time to time, large shareholders may control the Fund or the Trust.
 
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 ABSOLUTE OPPORTUNITIES FUND
 
 
Financial Highlights
 
The financial highlights table is intended to help you understand the financial performance of the Fund for the period of the Fund’s operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of all dividends and distributions. The information for the year ended March 31, 2010 has been audited by BBD, LLP, an independent registered public accounting firm, whose report, along with the Fund’s’ financial statements, are included in the Annual Report dated March 31, 2010, which is available upon request.

   
For the Year
Ended
March 31, 2010
 
October 21, 2008 (a)
through
March 31, 2009
INSTITUTIONAL SHARES
           
NET ASSET VALUE, Beginning of Period
   
$ 10.57
   
$ 10.00
INVESTMENT OPERATIONS
           
Net investment income (loss) (b)
   
(0.11)
   
0.04
Net realized and unrealized gain
   
2.11
   
0.55
Total from Investment Operations
   
2.00
   
0.59
DISTRIBUTIONS TO SHAREHOLDERS FROM
           
Net investment income
   
(0.01)
   
(0.02)
Net realized investment gains
   
(0.75)
   
-(c)
Return of capital
   
(0.04)
   
-
Total Distributions to Shareholders
   
(0.80)
   
(0.02)
NET ASSET VALUE, End of Period
   
$ 11.77
   
$ 10.57
TOTAL RETURN
   
19.00%
   
5.95%(d)
RATIOS/SUPPLEMENTARY DATA
           
Net Assets at End of Period (000’s omitted)
   
$285,639
   
$77,245
Ratios to Average Net Assets:
           
Net investment income (loss)
   
(0.90)%
   
0.84%(e)
Net expense (f)
   
2.95%
   
2.95%(e)
Dividend and interest expense
   
0.46%
   
0.05%(e)
Gross Expense (g)
   
3.66%
   
3.82%(e)
PORTFOLIO TURNOVER RATE
   
597%
   
281%(d)

a)  
Commencement of operations.
b)  
Calculated based on average shares outstanding during the period.
c)  
Less than $0.01 per share.
d)  
Not annualized.
e)  
Annualized.
f)  
Excludes dividend and interest expense.
g)  
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
 
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ABSOLUTE OPPORTUNITIES FUND
 
 
 
 

For More Information
Annual/Semi-Annual Reports
 
Additional information about the Fund’s investments will be available in the Fund’s annual/semi-annual reports to
shareholders. In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during its last fiscal year.
 
Statement of Additional Information (“SAI”)
The SAI provides more detailed information about the Fund and is incorporated
by reference into, and is legally part of, this Prospectus.
 
Contacting the Fund
You can get free copies of the annual/semi-annual reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
 
Absolute Opportunities Fund
P.O. Box 588
Portland, Maine 04112
(888) 992-2765 (toll free)
(888) 99-ABSOLUTE (toll free)
 
Securities and Exchange Commission Information
You can also review the Fund’s annual/semi-annual reports, the SAI and other information about the Fund
at the Public Reference Room of the Securities and Exchange Commission (“SEC”). The scheduled hours of operation
of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. You can get copies of the
reports, for a duplication fee, by e-mailing or writing to:
 
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-1520
E-mail address: publicinfo@sec.gov
 
Fund information, including copies of the annual/semi-annual reports and the SAI, is available on the
SEC’s website at www.sec.gov and on the EDGAR database.
 
 
Distributor
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, Maine 04101
http://www.foreside.com
 
 
Investment Company Act File No. 811-3023
212-PRU2-0810
 
 
 
 
 
 
 
 
 
 

 
 
 
 
ABSOLUTE STRATEGIES FUND
 
 
 
 
 

PROSPECTUS
 
August 1, 2010 , as supplemented
December 9, 2010 and February 22, 2011

 
ABSOLUTE INVESTMENT ADVISERS LLC
INSTITUTIONAL SHARES (ASFIX)
R SHARES (ASFAX)
 
 

The Securities and Exchange Commission has not approved or disapproved the
Fund’s shares or determined whether this Prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
 
 
 
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
 
 
 
ABSOLUTE INVESTMENT ADVISERS
 
 
Absolute Strategies Fund and Absolute Investment Advisers are registered service marks of Absolute Investment Advisers LLC
(“AIA” and “Absolute”) and the respective logos are service marks of AIA; and other marks referred to herein are the trademarks,
service marks, registered trademarks or registered service marks of the respective owners thereof.
 
 
 

 
 ABSOLUTE STRATEGIES FUND
 
 
 
Table of Contents
       
 
Summary Section
2
 
 
Investment Objective
2
 
 
Fees and Expenses
2
 
 
Example
3
 
 
Portfolio Turnover
3
 
 
Principal Investment Strategies
3
 
 
Principal Investment Risks
5
 
 
Performance Information
9
 
 
Management
10
 
 
Purchase and Sale of Fund Shares
10
 
 
Tax Information
11
 
 
Payments to Broker-Dealers and Other Financial Intermediaries
11
 
     
 
Investment Details Regarding the Fund
12
 
 
Additional Information Regarding Principal Investment Strategies
12
 
 
Additional Information Regarding Principal Investment Risks
14
 
       
 
Management
20
 
 
The Adviser and Subadvisers
20
 
 
Portfolio Manager
22
 
 
Other Service Providers
23
 
 
Fund Expenses
23
 
       
 
Your Account
25
 
 
How to Contact the Fund
25
 
 
General Information
25
 
 
Buying Shares
28
 
 
Selling Shares
33
 
 
Retirement Accounts 
35
 
       
 
Other Information
36
 
 
Distributions and Dividend Reinvestments
36
 
 
Taxes
36
 
 
Organization
37
 
       
 
Financial Highlights
38
 
 
 
 

 
 ABSOLUTE STRATEGIES FUND
 
 

Summary Section

Investment Objective

Absolute Strategies Fund (the “Fund”) seeks to achieve long-term capital appreciation with an emphasis on absolute (positive) returns and low sensitivity to traditional financial market indices such as the S&P 500 Index.

Fees and Expenses

The following table describes the various fees and expenses that you may pay if you invest in the Fund.

Shareholder Fees (fees paid directly from your investment)
Institutional Shares
R Shares
 
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of the offering price)
None
None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None
None
Exchange Fee (as a percentage of amount redeemed, if applicable)
None
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the offering price)
   
Management Fees
1.60%
1.60%
Distribution and/or Service (12b-1) Fees
None
0.25%
Other Expenses
0.18%
0.37%
Dividend and Interest Expenses on Short Sales
0.34%
0.34%
Acquired Fund Fees and Expenses
0.02%
0.02%
Total Annual Fund Operating Expenses(1)(2)(3)
2.14%
2.58%
 
 
(1)    Total annual fund operating expenses do not correlate to the ratio of expenses to average net assets given the financial highlights which reflects the operating expenses of the Fund and does not include acquired fund fees and expenses ("AFFE”).
 
(2)  
For the fiscal year ended March 31, 2010, the Class R shares reimbursed Absolute 0.06% for fees previously waived and/or expenses reimbursed under the expense cap.

(3)  
Excluding the effect of expenses attributable to dividend and interest expenses on short sales and acquired fund fees and expenses, the Fund’s Total Annual Operating Expenses were 1.78% and 2.22% for Institutional and R shares, respectively. Dividend and Interest Expenses on Short Sales occur when the Fund sells an equity or debt security short to gain the inverse exposure necessary to meet its investment objective. When the Fund sells a security short, the Fund borrows the security from a lender and then sells the security in the general market. The Fund is obligated to pay any dividend declared or interest paid during the duration of the short position to the lender from which the Fund borrowed the security and the Fund is obligated to record the payment of the dividend or interest as an expense. For tax purposes, any such payment on a security sold short generally reduces the basis of the shorted security, thereby increasing the Fund's unrealized gain or reducing the Fund's unrealized loss on the short sale transaction. Dividend and Interest Expenses on Short Sales are not fees charged to shareholders by the Fund or any Fund service provider but are similar to transaction charges or capital expenditures related to the on-going management of the Fund’s portfolio.
 
 
2

 
 ABSOLUTE STRATEGIES FUND
 

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

 
1 Year
3 Years
5 Years
10 Years
Institutional Shares
$217
$670
$1,149
$2,472
R Shares
$261
$802
$1,370
$2,915

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the Example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 114% of the average value of its portfolio.

Principal Investment Strategies

Absolute Investment Advisers LLC (“Absolute” or “Adviser”), the Fund’s investment adviser, believes that there are important benefits that come from investing alongside skilled money managers whose strategies, when combined, seek to provide enhanced risk-adjusted returns, lower volatility and lower sensitivity to financial market indices. Based on this belief, the Fund will pursue absolute returns by allocating assets among a carefully chosen group of asset managers (the “Subadvisers”) who employ a wide range of specialized investment strategies. Absolute will allocate Fund assets among strategies of the Subadvisers that it believes offer the potential for attractive long-term investment returns individually and are expected to blend within the Fund’s portfolio so that it will have low sensitivity and low volatility relative to the broader stock and bond markets.

The Subadvisers utilize strategies and investment techniques aimed to produce enhanced risk-adjusted returns and absolute returns over a full market cycle while managing risk exposure. These strategies are common hedge fund-type strategies and may attempt to exploit disparities or inefficiencies in markets, geographical areas, and companies; take advantage of security mispricings or anticipated price movements; and/or benefit from cyclical themes and relationships or special situations and events (such as spin-offs or reorganizations). Such strategies may have low sensitivity to traditional markets because they seek opportunities and risks that are unrelated to traditional markets.

Absolute has primary responsibility for allocating Fund assets in a manner that attempts to diversify the Fund’s portfolio across multiple strategies and investment styles that Absolute believes are complementary and, when combined, will produce enhanced risk-adjusted returns. To this end, Absolute will be responsible for selecting the Fund’s Subadvisers and determining the portion of the Fund’s assets to be allocated to each Subadviser. Absolute reviews a range of qualitative and quantitative factors (e.g., investment process and statistical analysis) when evaluating each Subadviser and its appropriate asset allocation. Absolute may direct a Subadviser to reduce or limit its investment in certain assets or asset classes in order to achieve the desired composition of the Fund’s portfolio. Absolute will limit allocations to any one Subadviser strategy to a maximum of 20% of total Fund
 
3

 
 ABSOLUTE STRATEGIES FUND
 
assets and retains the discretion to invest the Fund’s assets in securities and other instruments directly. Absolute may add or remove Subadvisers.  The Subadvisers may use a combination of the following investment strategies:

Opportunistic and Long-Biased Equity Strategies capitalize on underpriced equity securities or on positive market trends and may focus in certain securities markets, industries, company sizes, or geographical areas. Strategies are primarily managed for absolute return and Subadvisers assess risk and opportunity on an absolute, not an index-relative basis, by focusing on relatively few investments that the manager believes are undervalued and either offer a margin-of-safety, or offer high growth opportunities. Selective hedging through the use of short sales or options may be utilized to manage risk exposure. Strategies may also focus on special situations or events, including distressed equities.

Long/Short Equity Market Neutral Strategies attempt to neutralize exposure to general domestic market risk by primarily investing in common stocks that are undervalued and short selling those stocks that are considered to be overvalued. Strategies may attempt to realize a valuation discrepancy in the relationship between multiple securities (relative value or value arbitrage), or may utilize quantitative factors to measure investment attractiveness among securities. Other qualitative and quantitative factors such as quality and momentum may be considered.  Sub-Advisers intend to maintain approximately equal value exposure in long and short positions in order to offset the effects of general stock market movements.

Convertible Arbitrage Strategies seek to take advantage of the pricing inefficiencies of the embedded option in a convertible bond. Convertible arbitrage involves purchasing a portfolio of convertible securities, generally convertible bonds, and hedging a portion of the equity risk by selling short the underlying common stock.   Subadvisers may also seek to hedge interest rate exposure and some may employ derivatives and leverage to increase returns. Subadvisers may maintain a sector and market neutral portfolio. The average grade of bond in a convertible arbitrage portfolio is typically below investment grade with individual ratings ranging from AA to CCC. Such “junk bonds” typically are rated below Baa3 by Moody’s, BBB- by S&P or BBB- by Fitch. Generally, the default risk of the company is hedged by shorting the underlying common stock.

Long/Short or Hedged Equity Strategies invest in securities believed to be undervalued or offer high growth opportunities while also attempting to minimize overall market risk or take advantage of an anticipated decline in the price of an overvalued company or index by using short sales or options on common stocks or indexes to hedge risk. Subadvisers may also use derivatives, including options, financial futures and options on futures. Long and short positions may not be invested in equal dollars and, as such, may not seek to neutralize general market risks.

Fixed Income, Long/Short Credit and Distressed Debt Strategies invest primarily in debt securities of domestic and foreign governments, agencies, and companies of all maturities and qualities, including “junk bonds” and other defaulted debt securities, TIPS (Treasury Inflation Protected Securities), exchange traded funds (“ETFs”) and emerging market debt.  Debt securities of foreign governments are sometimes referred to as sovereign debt obligations and they may be issued or guaranteed by foreign governments or their agencies. The Fund may invest in mortgage-backed securities, collateralized mortgage obligations, asset-backed securities and other mortgage related securities (“Mortgage Related Securities”). Strategies may focus on short positions by utilizing credit default swaps to anticipate the decline in the price of an overvalued security or utilizing treasury futures to hedge interest-rate risk. Mortgage Related Securities may also include securities rated below investment grade (i.e., junk bonds) or unrated, under-performing or distressed debt and equity securities issued by issuers of collateralized debt obligations and special situation investments, such as distressed corporate or sub-prime mortgage securities. Distressed securities may also be issued by companies ranging from those undergoing restructurings in bankruptcy proceedings to those attempting to restructure out of court to those that
 
4

 
 ABSOLUTE STRATEGIES FUND
 
 
are healthy but have short- term cash flow or liquidity problems. Strategies may also involve leverage and hedging through the use of ETFs or various derivatives, such as futures, credit default swaps or total return swaps or committed term reverse repurchase facilities or other financings in order to enhance risk-adjusted return.

Global Macro and Emerging Market Strategies seek to take advantage of investment opportunities that are believed to have the highest probability of success (long investment) or failure (short investment). Subadvisers may invest in equity, fixed income, currencies, precious metals or commodities in domestic, international and high-growth emerging markets. Subadvisers may utilize positions held through individual securities, ETFs, derivative contracts, swaps or other financial instruments linked to major market, sector or country indices, fixed-income securities, currencies and commodities. Subadvisers may invest in a limited number of securities, issuers, industries, or countries which may result in higher volatility.

The Fund may trade frequently and may invest in a wide range of instruments, markets and asset classes in the U.S. and other markets. Investments generally include equity securities, fixed income securities and derivatives.
 
·  
The Fund may invest in equity securities of issuers of any market capitalization in the U.S. or abroad, including convertible, private placement/restricted, initial public offering ("IPOs") and emerging market securities, with certain exposures to non-U.S. issuers obtained through investments in American Depositary Receipts ("ADRs").  The Fund may also invest in pooled investment vehicles, including other registered investment companies and ETFs.

·  
The Fund may invest in fixed income securities of any credit quality and maturity, including those of defaulted/distressed issuers and bank loans.  These securities can be rated below investment grade (i.e., "junk bonds") and thus rated below Baa3 by Moody’s, BBB- by S&P or BBB- by Fitch Ratings Ltd. or unrated and securities in default.. 
 
·  
The Fund may invest in derivatives, which are financial instruments that have a value that depends upon, or is derived from, a reference asset, such as one or more underlying securities, pools of securities, options, futures, indexes or currencies.  The most common types of derivatives in which the Fund may invest are swaps, futures and options contracts; equity, interest rate, index, credit default swap agreements; currency rate swap agreements; futures contracts on securities, commodities, and securities indices; and options on securities, securities indices, commodities and futures.  The Fund may invest in derivatives to hedge (or reduce) its exposure to a portfolio asset or risk, to obtain leverage for the portfolio, to manage cash and/or as a substitute for taking a position in the reference asset or to gain exposure to certain asset classes, in which case the derivatives may have economic characteristics similar to those of the reference asset and the Fund’s investment in the derivatives may be applied toward meeting a requirement to invest a certain percentage of its net assets in instruments with such characteristics.  Leverage involves the use of debt by the Fund to finance the purchase of investments and results in the Fund controlling substantially more assets than it has equity in an effort to increase returns.

In order to respond to adverse market, economic, political or other conditions, the Fund may assume a temporary defensive position that is inconsistent with its principal investment strategies.

Principal Investment Risks

General Market Risk The Fund’s net asset value (“NAV”) and investment return will fluctuate based upon changes in the value of its portfolio securities. You could lose money on your investment in the Fund, or the Fund could underperform other investments. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
 
5

 
 ABSOLUTE STRATEGIES FUND
 
 
Recent Market Events Risk It is important that investors closely review and understand the risks of investing in the Fund. Unprecedented recent turbulence in financial markets and reduced liquidity in equity, credit and fixed-income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund.

Bank Loans Risk The Fund may purchase secured and unsecured participations in loans and may purchase assignments of such loans. The Fund may invest in loan participations of any credit quality, including “distressed” companies with respect to which there is a substantial risk of losing the entire amount invested.  In addition, certain bank loans in which the Fund may invest may be illiquid and, therefore, difficult to value and/or sell.

Convertible Securities Risk Convertible securities entail interest rate and credit risks. While fixed-income securities generally have a priority claim on a corporation’s assets over that of common stock, convertible securities held by the Fund that are rated below investment grade (i.e.,”junk bonds”) are subject to special risks, including the risk of default in interest or principal payments, which could result in a loss of income to the Fund or a decline in the market value of the securities. The Fund has no pre-established minimum credit quality standards for convertible securities and may invest in convertible securities of any quality as well as unrated securities and securities in default.

Credit Risk The value of your investment in the Fund may change in response to changes in the credit ratings of the Fund’s portfolio securities. Generally, investment risk and price volatility increase as a security’s credit rating declines. A lowered credit rating typically causes a fall in the value of the fixed income securities in which the Fund invests.

Derivatives Risk  Derivatives, such as options, futures and swaps, can be volatile, and a small investment in a derivative can have a large impact on the performance of the Fund. Other risks of investments in derivatives include imperfect correlation between the value of these instruments and the underlying assets; risks of default by the other party to the derivative transactions; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the derivative transactions may not be liquid.

Distressed Investments Risk The Fund’s investment in instruments involving loans, loan participations, bonds, notes, non-performing and sub-performing mortgage loans, many of which are not publicly traded, may involve a substantial degree of risk.  These instruments may become illiquid and the prices of such instruments may be extremely volatile. Valuing such instruments may be difficult and the Fund may lose all of its investment, or it may be required to accept cash or securities with a value less than the Fund’s original investment. Issuers of distressed securities are typically in a weak financial condition and may default, in which case the Fund may lose its entire investment.

Emerging Markets Risk Emerging markets securities are subject to the same risks as foreign investments and to additional risks due to greater political and economic uncertainties as well as a relative lack of information about companies in such markets. Moreover, many of the emerging securities markets are relatively small, potentially illiquid, occasionally volatile and subject to high transaction costs.

Equity Risk The Fund is subject to the risks of broad stock market decline or a decline in particular holdings. In addition, the value of a security may decline for a number of reasons that directly relate to the issuer of a security, such as management performance, financial leverage and reduced demand for the issuer’s goods or services.
 
Event-Driven Strategies Risk Inherently speculative in nature, investments pursuant to special situations and event-driven strategies require a Subadviser to make predictions about a corporate event and its impact on a company. A Subadviser may make inaccurate predictions and the anticipated event and/or contemplated
 
6

 
 ABSOLUTE STRATEGIES FUND
 
 
corporate transaction may not take place as expected or at all.  This may result in the distribution of a new, less valuable security in place of the security (or derivative). The Fund may have to sell a security at a loss, and such securities are subject to the risk of complete loss of value.

Foreign Risk Foreign investments are subject to the same risks as domestic investments and additional risks, including international trade, currency, political, regulatory and diplomatic risks, which may affect their value. Also, foreign securities are subject to the risk that their market price may not reflect the issuer’s condition because there is not sufficient publicly available information about the issuer.

High Turnover Risk The Fund’s strategy may result in high turnover rates, which may increase the Fund’s brokerage commission costs and negatively impact the Fund’s performance. Such portfolio turnover also may generate short-term capital gains.

Interest Rate Risk The value of your investment in the Fund may change in response to changes in interest rates. An increase in interest rates typically causes a fall in the value of the fixed-income securities in which the Fund may invest.

IPO Risk Securities that are acquired in an IPO or private placement, or are restricted (subject to contractual or legal restrictions on resale because they are not registered under the Securities Act of 1933) and may be illiquid; thus the Fund may not be able to dispose of them promptly at the price at which they are valued.

Large Capitalization Company Risk Large-cap company stocks may underperform other segments of the equity market or the equity market as a whole.

Leverage Risk Certain transactions of the Fund, such as reverse repurchase agreements, dollar rolls, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions, may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged.

Liquidity Risk Certain securities eligible for investment by the Fund may be deemed to be illiquid under applicable law. During periods of market turbulence or unusually low trading activity, in order to meet redemptions it may be necessary for the Fund to sell such securities at prices that could have an adverse effect on the Fund’s share price.

Management Risk The Fund’s performance may deviate from overall market returns to a greater degree than other funds that do not employ an absolute return focus. Alternatively, if the Fund or Subadviser takes a defensive posture by hedging its portfolio, then stock prices advance, the return to Fund investors may be lower than expected and lower than if the portfolio had not been hedged. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives.

Medium Capitalization Company Risk Medium capitalization company stocks may have greater fluctuations in price and may be more difficult to liquidate than the stocks of larger, more widely traded companies during market downturns.

Multi-Manager Risk The methodology by which Absolute allocates Fund assets to the Subadvisers may cause the Fund to lose money or underperform other mutual funds. Because the Subadvisers each make their trading decisions independently, it is possible that Subadvisers may purchase or sell the same security at the same time without aggregating their transactions. This may cause unnecessary brokerage and other expenses and the Fund may incur losses as a result.
 
7

 
 ABSOLUTE STRATEGIES FUND
 
 
Non-Diversification Risk The Fund is non-diversified, which means that it may invest in securities of a limited number of issuers. Such non-diversification exposes the Fund to greater market risk and potential monetary losses than if its assets were diversified.

Pooled Investment Vehicle Risk  Pooled investment vehicles in which the Fund may invest may charge fees, and such fees may be more than the Fund would pay if the manager of the pooled vehicle managed the Fund’s assets directly.

Prepayment Risk Debt securities are subject to interest rate, credit and prepayment risk. Prepayment of debt securities, which is more common when interest rates are declining, can shorten such securities’ maturity and reduce the Fund’s return.

Registered Investment Company and ETF Risk  Registered investment companies (including ETFs) generally entail the same risks as the individual stocks held by them. ETFs, however, may trade at a premium or discount to the aggregate value of the underlying securities. Trading in an ETF may be halted if the trading in one or more of the ETF’s underlying securities is halted.

Restricted Securities Risk Rule 144A Securities are restricted securities and may not be readily marketable in broad public markets. The Fund may not be able to sell the restricted security when the Adviser considers it desirable to do so and/or may have to sell a security at a lower price. A restricted security which when purchased was liquid may subsequently become illiquid. In addition, transaction costs may be higher for Rule 144A securities than for more liquid securities.

Short Selling Risk   Short selling involves borrowing a security, selling it and buying it back.  If the Fund buys back the security at a price higher than the price at which it sold the security plus accrued interest, the Fund will have a loss on the transaction.  In addition, a short sale may create leverage and, as a result, may cause relatively smaller adverse market movements to have a disproportionate impact on the Fund’s performance.

Small Capitalization Company Risk Securities of smaller companies may be more volatile than securities of larger companies and as a result, the price of smaller companies may decline more in response to selling pressure.

Swap Contract Risk The use of swaps involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In addition, each swap exposes the Fund to counterparty risk when a counterparty to a financial instrument entered into by the Fund may become bankrupt or otherwise fail to perform its obligations due to financial difficulties.  As a result, the Fund may experience delays in or be prevented from obtaining payments owed to it pursuant to a swap contract.
 
8

 
 ABSOLUTE STRATEGIES FUND
 
 
Performance Information

The following chart and tables illustrate the variability of the Fund’s returns. The chart and tables provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and how the Fund’s returns compare to the S&P 500 Index, a broad measure of market performance. Updated performance information is available online at www.absoluteadvisers.com or by calling (888) 99-ABSOLUTE or (888) 992-2765.

Performance information (before and after taxes) represents only past performance and does not necessarily indicate future results.

Calendar Year Total Returns

The following chart shows the annual total return of the Institutional Share Class for each full calendar year that the class has operated.

Years Ended December 31
ABSOLUTE STRATEGIES PERFORMANCE CHART
 
The calendar year-to-date total return as of June 30, 2010 was 0.62%.

During the period shown in the chart, the highest quarterly return was 10.83% (for the quarter ended June 30, 2009) and the lowest quarterly return was (9.59)% (for the quarter ended December 31, 2008).

AVERAGE ANNUAL TOTAL RETURNS

 
1 Year
Since
July 27, 2005(1)
Institutional Shares — Return Before Taxes
18.51%
3.35%
Institutional Shares — Return After Taxes on Distributions
18.09%
2.71%
Institutional Shares — Return After Taxes on Distributions and Sale of Fund Shares
12.16%
2.55%
R Shares(1) — Return Before Taxes
18.10%
2.96%
S&P 500 Index (reflects no deduction for fees, expenses or taxes)
26.46%
(0.21)%
Barclays Capital U.S. Aggregate Bond Index (reflects no deduction for fees, expenses or taxes)
5.93%
5.25%

(1)  
Effective August 1, 2008, the Class A shares were renamed Class R shares and ceased to carry a sales load. The performance information presented does not reflect the imposition of any sales charges.  Effective August 1, 2009, Class C shares were converted to R shares.
 
 
9

 
 ABSOLUTE STRATEGIES FUND
 
 
After-tax returns are calculated using the historical highest individual Federal marginal income tax rates and do not reflect the impact of state and local income taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.

Management

Adviser

Absolute Investment Advisers LLC is the Adviser to the Fund.

Subadvisers

Aronson+Johnson+Ortiz, LP, ClearStream Investments , LLC, Horizon Asset Management, Inc., Kovitz Investment Group, LLC, Longhorn Capital Partners, L.P., MetWest Asset Management, LLC, Mohican Financial Management, LLC, SSI Investment Management, Inc., St. James Investment Company, LLC , TWIN Capital Management, Inc., and Yacktman Asset Management Co. are the Subadvisers to the Fund.

Portfolio Manager

Mr. Jay Compson is the portfolio manager of the Fund. Mr. Compson has managed the Fund since its commencement in July 2005.

Purchase and Sale of Fund Shares

The Fund is closed to new investments, except as provided below.

Existing shareholders of the Fund are permitted to add to their accounts through the purchase of additional shares and through the reinvestment of dividends and capital gain distributions.

In addition, Trustees and officers of the Trust and employees and managers of Absolute and its affiliates, or the spouse, sibling, direct ancestor, or direct descendent of any such person, may establish new accounts and continue to add to existing accounts in the Fund. Trust officers may permit the establishment of new accounts or permit additional sales to existing accounts under circumstances not identified above if the Adviser, as investment manager of the Fund, deems it to be in the best interest of the Fund and its shareholders. The Board reserves the right to re-open the Fund to new investors at any time or to modify the extent to which future sales of shares are limited.

As permitted above, shares of the Fund may be purchased or redeemed on any business day through a financial intermediary, or by mail to Absolute Strategies Fund, Attn: Transfer Agent, Atlantic Fund Services , P.O. Box 588, Portland, Maine, 04112. Telephone requests may be made to (888) 99-ABSOLUTE or (888) 992-2765 (toll free).  
 
10

 
 ABSOLUTE STRATEGIES FUND
 
 
Shares also may be purchased by check, wire, or electronic bank transfer.  The Fund accepts investments in the following minimum amounts:

 
Minimum Initial(1)(2)
Minimum Additional(1)(2)
Institutional Shares
   
All Accounts
$1,000,000
None
R Shares
   
Standard Accounts
$250,000
$100
Retirement Accounts
$5,000
$100
 
(1)  
If you invest through a broker or other financial intermediary, the policies and fees of the intermediary may be different than the policies and fees of the Fund. Among other things, such financial intermediaries may charge transaction fees and may set different minimum investments or limitations on buying (selling) Fund shares. You should consult your broker or other representative of your financial intermediary for more information.
 
(2)  
No initial or subsequent investment minimums for accounts maintained by financial institutions for the benefit of their clients who purchase shares through investment programs such as (1) fee-based advisory programs; (2) employee benefit plans like 401(k) retirement plans; (3) mutual fund platforms; and (4) consulting firms. No initial or subsequent investment minimum for Trustees or officers of the Trust, directors, officers and employees of Absolute, employees of the Subadvisers, and employees and affiliates of the Fund, or the distributor or any of their affiliates, or the spouse, sibling, direct ancestor, or direct descendent (collectively, “relatives”) of any such person, any trust or individual retirement account or self-employed retirement plan for the benefit of any such person or relative; or the estate of any such person or relative.

If deemed appropriate by the Trust officers, the Fund may waive investment minimum requirements.

Tax Information

The Fund’s distributions to shareholders will generally be taxed as ordinary income or capital gains.
 
Payments to Broker-Dealers and Other Financial Intermediaries

If you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a fund supermarket), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
 
11

 
 ABSOLUTE STRATEGIES FUND
 
 
Investment Details Regarding the Fund

Absolute Strategies Fund (the “Fund”) seeks to achieve long-term capital appreciation with an emphasis on absolute (positive) returns and low sensitivity to traditional financial market indices such as the S&P 500 Index. The Fund’s investment objective may be changed by the Board of Trustees (the “Board”) of the Trust without a shareholder vote.

Additional Information Regarding Principal Investment Strategies

The Fund is designed for investors who seek a long-term investment with low sensitivity to traditional markets and who desire added diversification across multiple asset classes and strategies as a part of an overall disciplined investment program.

The Fund will pursue absolute returns by allocating assets among a carefully chosen group of asset managers (the “Subadvisers”) who employ a wide range of specialized investment strategies. Absolute allocates and reallocates assets of the Fund among its respective Subadvisers to attempt to maximize risk-adjusted returns while reducing the Fund’s volatility and lower sensitivity to traditional markets. Absolute has primary responsibility for allocating Fund assets in a manner that attempts to diversify the Fund’s portfolio across multiple strategies and investment styles that Absolute believes are complementary and, when combined, will produce enhanced risk-adjusted returns. To this end, Absolute will be responsible for selecting the Fund’s Subadvisers and determining the portion of the Fund’s assets to be allocated to each Subadviser.

Absolute reviews a wide range of qualitative and quantitative factors when evaluating each Subadvisers and establishing the asset allocation to each. These factors include, but are not limited to: proven risk-adjusted investment performance and capacity to adapt to various market conditions; well-defined and disciplined investment philosophy, strategy and process that have been consistently applied over time; portfolio characteristics and capacity of given strategy; consistency of investment style, purchase/sell discipline, and risk management procedures; sensitivity and volatility of results as compared with other similar Subadvisers; business focus, stability and depth of investment professionals; and portfolio manager interviews and ongoing dialogue. While Absolute does not evaluate the merits of a Subadvisers’s individual investment decisions, it does monitor investment performance and style consistency.

Absolute has entered into subadvisory agreements with Subadvisers, each chosen for its particular investment style(s). The Subadvisers may employ aggressive investment strategies and techniques and focus investments in certain securities sectors and geographical regions. The Subadvisers employ techniques, strategies and analyses based on relationships and correlations between and assumptions about securities, instruments, commodities, markets or other factors, or the occurrence of certain events. By combining the expertise of several Subadvisers with Absolute’s approach to diversification and risk management, the Fund attempts to reduce volatility and provide enhanced risk-adjusted returns. However, there can be no assurance that losses will be avoided.

Absolute may invest the Fund’s assets in securities and other instruments directly. Absolute may exercise this discretion in order to invest the Fund’s assets pending allocation to a Subadviser, to hedge the Fund against exposures created by the Subadvisers, or to modify the Fund’s exposure to a particular investment or market- related risk. Absolute may exercise its discretion over unallocated assets to invest Fund assets directly and may reallocate to itself assets previously allocated to a Subadviser.

From time to time, certain of the Subadvisers or their strategies may not be available to the Fund due to such reasons as investment minimums, capacity limitations, and regulatory limitations or other imposed constraints.
 
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Accordingly, the Fund may, for temporary purposes, utilize high-quality, short-term debt securities or other cash instruments as a substitute for certain Subadvisers’ strategies until Fund assets reach appropriate scale for optimal allocation.

The strategies utilized by the Fund include absolute return strategies as well as strategies aimed at enhanced risk-adjusted returns. The strategies and investment techniques employed by the Subadvisers aim to produce absolute returns over a full market cycle while managing risk exposure. They are common hedge fund-type strategies and may attempt to exploit disparities or inefficiencies in markets, geographical areas, and companies; take advantage of security mispricings or anticipated price movements; and/or benefit from cyclical themes and relationships or special situations and events (such as spin-offs or reorganizations). Such strategies may have low sensitivity to traditional markets because they seek opportunities and risks that are unrelated to traditional markets.
 
There is no fixed or minimum allocation to any Subadviser; however, Absolute will limit allocations to any one Subadviser strategy to a maximum of 20% of total Fund assets. In the future, Absolute may add or remove Subadvisers. See “The Adviser and Subadvisers.”

To manage risk or enhance return (including through leverage), the Fund may invest in derivatives such as futures and options contracts and in equity, interest rate, index, credit default swap agreements and currency rate swap agreements. The Fund may invest in futures contracts on securities, commodities, and securities indices. The Fund may invest in options on securities, securities indices, commodities and futures.

Options Contracts Options may be effected on an exchange or in the over-the-counter market. A call option is a contract under which the purchaser of the call option, in return for a premium paid, has the right to buy the security or commodity underlying the option at a specified price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation upon exercise of the option to deliver the underlying security or commodity against payment of the exercise price. A put option gives its purchaser, in return for a premium, the right to sell the underlying security or commodity at a specified price during the term of the option. The writer of the put, who receives the premium, has the obligation to buy, upon exercise of the option, the underlying security or commodity at the exercise price. An index cash option involves the delivery of cash equal to the difference between the exercise price and the closing price of the index. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the period of the option. The amount of a premium received or paid for an option is based upon certain factors including the market price of the underlying security or commodity, the relationship of the exercise price to the market price, the historical price volatility of the underlying security or commodity, the option period and interest rates.

Futures Contracts Futures may be effected on an exchange or in the over-the-counter market. A futures contract is a bilateral agreement where one party agrees to accept, and the other party agrees to make, delivery of cash, securities or commodities, as called for in the contract, at a specified date and at an agreed upon price. An index futures contract involves the delivery of an amount of cash equal to a specified dollar amount multiplied by the
difference between the index value at the close of trading of the contract and at the price designated by the futures contract. A treasury futures contract is a bilateral agreement where one party agrees to accept and the other party agrees to make delivery of a U.S. Treasury security, as called for in the agreement, at a specified date and at an agreed upon price. Treasury futures contracts will be used by the Fund to manage credit risk. Generally, futures contracts are closed out or rolled over prior to their expiration date.
 
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Swap Agreements In a standard swap transaction, two parties agree to exchange the returns earned on specific assets, such as the return on, or the increase in value of, a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index. A swap contract may not be assigned without the consent of the counterparty. Credit default swaps (“CDS”) are structured so that the “buyer” must pay the “seller” a periodic stream of payments over the term of the CDS provided no event of default by a selected entity (or entities) has occurred. In event of a default, the seller must pay the buyer the “par value” (full notational value) of the reference obligation in exchange for the reference obligation. CDS involve greater risk than if the Fund had invested in the reference obligation directly.

Temporary Defensive Position In order to respond to adverse market, economic, political or other conditions, the Fund may assume a temporary defensive position that is inconsistent with its principal investment strategies and invest, without limitation, in cash or high quality cash equivalents (including commercial paper, certificates of deposit, banker’s acceptances and time deposits). A defensive position, taken at the wrong time, may have an adverse impact on the Fund’s performance. The Fund may be unable to achieve its investment objective during the employment of a temporary defensive measure.
 
Additional Information Regarding Principal Investment Risks
 
General Market Risk The Fund’s net asset value will fluctuate based upon changes in the value of its portfolio securities. The market value of securities in which the Fund invests is based upon the market’s perception of value and is not necessarily an objective measure of the securities’ value. There is no assurance that the Fund will achieve its investment objective, and an investment in the Fund is not by itself a complete or balanced investment program. You could lose money on your investment in the Fund, or the Fund could underperform other investments. Other general market risks include:

Investment strategies that have historically demonstrated low sensitivity to major world financial market indices may become sensitive at certain times and, as a result, may cease to function as anticipated;

Absolute or a Subadviser may be incorrect in assessing the value or growth capability of particular securities or asset classes contained in the Fund’s portfolio.

Recent Market Events Risk Global securities markets have experienced significant volatility since 2008.  The fixed-income markets have experienced substantially lower valuations, reduced liquidity, price volatility, credit downgrades, increased likelihood of default and valuation difficulties.  Concerns have spread to domestic and international equity markets.  In some cases, the prices of securities of individual companies have been negatively impacted, even though there may have been little or no apparent degradation in the financial conditions or prospects of those companies.  Continuing market problems may have adverse effects on the performance of the Fund.

Bank Loan Risk The Fund may purchase secured and unsecured participations in loans and may purchase assignments of such loans made by banks or other financial intermediaries to borrowers in which it will depend primarily upon the creditworthiness of the borrower for payment of principal and interest. If the Fund does not receive scheduled interest or principal payments on such indebtedness, the Fund’s share price could be adversely affected.  The Fund may invest in loan participations that are rated by a nationally recognized statistical rating organization or unrated and may invest in loan participations of any credit quality, including “distressed” companies with respect to which there is a substantial risk of losing the entire amount invested.  In addition, certain bank loans in which the Fund may invest may be illiquid and, therefore, difficult to value and/or sell at a price that is good for the Fund.
 
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Convertible Securities Risk Convertible securities entail some of the risks of both equity and debt securities. While fixed-income securities generally have a priority claim on a corporation's assets over that of common stock, some of the convertible securities which the Fund may hold are high-yield/high-risk securities that are subject to special risks, including the risk of default in interest or principal payments which could result in a loss of income from or a decline in the market value of, the securities. In addition, convertible securities often display a degree of market price volatility that is comparable to common stocks.  The credit risk associated with convertible securities generally is reflected by their ratings by organizations such as Moody’s or S&P or a similar determination of creditworthiness by a Subadviser. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities.

Credit Risk The financial condition of an issuer of a debt security may cause it to default or become unable to pay interest or principal due on the security. If an issuer defaults, the affected security could lose all of its value, be renegotiated at a lower interest rate or principal amount, or become illiquid. Higher yielding debt securities of lower credit quality have greater credit risk than lower yielding securities with higher credit quality. The Fund may invest in debt securities that are issued by U.S. Government sponsored entities such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Association, and the Federal Home Loan Banks. Investments in these securities involve credit risk as they are not backed by the full faith and credit of the U.S. Government. The Fund may invest in Collateralized mortgage obligations (“CMOs”) or collateralized debt obligations (“CDOs”). CMOs and CDOs are each divided into classes, which are referred to as “tranches.” Certain such tranches have priority over other tranches. With respect to CMOs, each tranche’s priority is generally with respect to payment of principal. With respect to CDOs, each tranche’s priority is generally with respect to the payment of cash flows to investors, and no payment of principal will be made on any tranche until all other tranches with earlier stated maturity or distribution dates have been paid in full. The CDO investor’s interest in the cash flows of the investment, rather than in its underlying assets, differentiates the CDO from a CMO.

Event-Driven Strategies Risk Special situations and event-driven strategies are inherently speculative in nature. Investments pursuant to special situations and event driven strategies require a Subadviser to make predictions about the likelihood of a corporate event and its impact on a company, and any Subadviser may make inaccurate predictions. The anticipated event and/or impact of the event may never be realized and losses may result. A contemplated corporate transaction may never occur, may take more time than is expected or may result in the distribution of a new, less valuable security in place of the security (or derivative) purchased by the Fund. If a transaction does not occur, the Fund may have to sell securities purchased pursuant to this strategy at a loss. Any investment made pursuant to this strategy is subject to the risk of complete loss. In addition, the result of these strategies may be expected to fluctuate from period to period; thus, the results generated by the strategy in one period will not necessarily be indicative of the results that may be expected from the strategy in future periods.
 
Distressed Investments Risk The Fund’s distressed debt strategy of investing in instruments involving loans, loan participations, bonds, notes, non-performing and sub-performing mortgage loans, many of which are not publicly traded, may involve a substantial degree of risk. In certain periods, there may be little or no liquidity in the markets for these instruments. The prices of such instruments may be extremely volatile. Valuing such instruments may be difficult, and the spread between the bid and asked prices of them may be greater than normally expected. If a Subadviser’s evaluation of a distressed security should prove incorrect, the Fund may lose a substantial portion or all of its investment, or it may be required to accept cash or securities with a value less than the Fund’s original investment. Moreover, because issuers of distressed securities are typically in a weak financial condition, the likelihood of default is high, in which case the Fund may lose its entire investment in such defaulted securities.
 
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Derivatives Risk Derivatives are financial instruments that have a value which depends upon, or is derived from, a reference asset, such as one or more underlying securities, pools of securities, options, futures, indexes or
currencies. Derivatives may result in investment exposures that are greater than their cost would suggest; in other words, a small investment in a derivative may have a large impact on the Fund’s performance. The successful use of derivatives generally depends on the portfolio manager’s ability to predict market movements.

The Fund may use derivatives in various ways. The Fund may use derivatives as a substitute for taking a position in the reference asset or to gain exposure to certain asset classes; under such circumstances, the derivatives may have economic characteristics similar to those of the reference asset, and the Fund’s investment in the derivatives may be applied toward meeting a requirement to invest a certain percentage of its net assets in instruments with such characteristics. The Fund may use derivatives to hedge (or reduce) its exposure to a portfolio asset or risk. The Fund may use derivatives for leverage. The Fund may also use derivatives to manage cash.

Derivatives are subject to a number of risks described elsewhere in this section, such as liquidity risk, interest rate risk, credit risk and general market risks. The Fund’s use of derivatives may entail risks greater than, or possibly different from, such risks and other principal risks to which the Fund is exposed, as described below. Certain of the different risks to which the Fund might be exposed due to its use of derivatives include the following:

Hedging Risk is the risk that derivative instruments used to hedge against an opposite position may offset losses, but they also may offset gains.

Correlation Risk is the risk that derivative instruments may be mispriced or improperly valued and that changes in the value of the derivatives may not correlate perfectly with the underlying asset or security.

Volatility Risk is the risk that, because the Fund may use some derivates that involve economic leverage, this economic leverage will increase the volatility of the derivative instruments as they may increase or decrease in value more quickly than the underlying currency, security, interest rate or other economic variable.

Credit Derivative Risk is the risk associated with the use of credit derivatives, which are highly specialized activity that involves strategies and risks different from those with ordinary portfolio security transactions. If Absolute or a Subadviser is incorrect in its forecast of default risks, market spreads or other applicable factors, the Fund’s investment performance would diminish compared with what it would have been if these techniques were not used. Moreover, even if Absolute or a Subadviser is correct in its forecast, there is a risk that a credit derivative position may correlate imperfectly with the price of the asset or liability being hedged. The Fund’s risk of loss in a credit derivative transaction varies with the form of the transaction.

Segregation Risk is the risk associated with any requirement, which may be imposed on the Fund, to segregate assets or enter into offsetting positions in connection with investments in derivatives. Such segregation will not limit the Fund’s exposure to loss, and the Fund may incur investment risk with respect to the segregated assets to the extent that, but for the applicable segregation requirement, the Fund would sell the segregated assets.

Emerging Markets Risk The Fund may invest in foreign securities of issuers in emerging markets. Investments in such emerging markets present greater risks than investing in foreign issuers in general. The risk of political or social upheaval is greater in emerging markets. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and markets of certain emerging market countries. Moreover, many emerging markets are relatively small, have low trading volumes, suffer periods of relative illiquidity and are characterized by significant price volatility and high transaction costs.
 
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Equity Risk The value of the Fund’s stock holdings may decline in price because of changes in prices of its holdings or a broad stock market decline. These fluctuations could be a sustained trend or a drastic movement. The stock markets generally move in cycles, with periods of rising prices followed by periods of declining prices. The value of your investment may reflect these fluctuations. In addition, common stocks in general are subject to the risk of an issuer liquidating or declaring bankruptcy, in which case the claims of owners of the issuer’s debt securities and preferred stock take precedence over the claims of common stockholders.

Foreign Risk The value of foreign investments may be affected by the imposition of new or amended government regulations, changes in diplomatic relations between the United States and another country, political and economic instability, the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital, or nationalization, increased taxation or confiscation of investors’ assets. Changes in the exchange rate between U.S. dollars and a foreign currency may reduce the value of an investment made in a security denominated in that foreign currency. Also, foreign securities are subject to the risk that their market price may not reflect the issuer’s condition because there is not sufficient publicly available information about the issuer. This risk may be greater for investments in issuers in emerging or developing markets.

High Turnover Risk The Fund’s investment strategy may result in high turnover rates. This may increase the Fund’s brokerage commission costs. The performance of the Fund could be negatively impacted by the increased brokerage commission cost incurred by the Fund. Rapid portfolio turnover also exposes shareholders to a higher current realization of short-term capital gains, distributions of which would generally be taxed to you as ordinary income and thus cause you to pay higher taxes.

Initial Public Offerings Risk The Fund may purchase securities of companies in initial public offerings (“IPOs”). Special risks associated with these securities may include illiquidity, unseasoned trading, lack of investor knowledge of the company, limited operating history and substantial price volatility. The limited number of shares available for trading in some initial public offerings may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing market prices. Some companies whose shares are sold through IPOs are involved in relatively new industries or lines of business, which may not be widely understood by investors. Some of these companies may be undercapitalized or regarded as developmental stage companies without revenues or operating income, or the near-term prospects of achieving them.

Interest Rate Risk The value of your investment in the Fund may change in response to changes in interest rates. An increase in interest rates typically causes a fall in the value of the debt securities that the Fund holds. The effect is usually more pronounced for debt securities with longer dates to maturity.

Large Capitalization Company Risk Large-cap company stocks may underperform other segments of the equity market or the equity market as a whole. Larger, more established companies may be slow to respond to challenges and may not be able to attain the high growth rate of successful smaller companies, especially during extended periods of economic expansion.

Leverage Risk Leverage transactions, including investing in certain derivatives, borrowing money, selling securities short and entering into agreements, create the risk of magnified capital losses. The use of leverage may increase (or decrease) the Fund’s return when the Fund earns a greater (or lesser) return on leveraged investments than the cost of the leverage. The effect of leverage on the Fund’s returns may be magnified by market movements or changes in the cost of leveraging. Changes in interest rates and related economic factors could cause the relationship between the cost of leveraging and the yield on leveraged investments to change in a manner that is unfavorable for the Fund. In an extreme case, the Fund’s current investment income may not be sufficient to meet the interest expense of leveraging, and it may be necessary for the Fund to liquidate certain of
 
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 ABSOLUTE STRATEGIES FUND
 
 
its investments at an inopportune time. Leverage may exaggerate the effect of a change in the value of the Fund’s portfolio securities, causing the Fund to be more volatile than if leverage was not used. The Fund will, where required, reduce leverage risk by either segregating an equal amount of liquid assets or “covering” the transactions that introduce such risk.

Liquidity Risk The Fund may invest in less liquid and restricted securities. Such securities may have limitations on resale, and the Fund may have to register a restricted security in order to dispose of it, resulting in expense and delay. Restricted and illiquid securities are extremely difficult to value and are not subject to disclosure or other investor protection requirements. The Fund may not be able to dispose of restricted or illiquid securities promptly and/or may only be able to do so at substantial discounts. As a result, the Fund may experience difficulty satisfying redemption requests. Significant positions in other instruments, including those in which there is low trading volume, also may be difficult for the Fund to liquidate and result in losses for the Fund.

Management Risk The Fund is actively managed, and its performance, therefore, will reflect Absolute’s and the Subadvisers’ ability to make investment decisions that are suited to achieving the Fund’s investment objective. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives. Further, the Fund’s performance may deviate from overall market returns to a greater degree than other funds that do not employ an absolute return focus.

Medium Capitalization Company Risk Medium capitalization company stocks may have greater fluctuations in price than the stocks of large companies. Further, stocks of mid-sized companies could be more difficult to liquidate during market downturns compared to larger, more widely traded companies. Medium capitalization companies may have limited product lines or resources and may be dependant upon a particular market niche.

Multi-Manager Risk The methodology by which Absolute allocates Fund assets to the Subadvisers may not achieve desired results and may cause the Fund to lose money or underperform other mutual funds. In addition, the Subadvisers make their trading decisions independently, and, as a result, it is possible that one or more Subadvisers may take positions in the same security or purchase/sell the same security at the same time without aggregating their transactions. This may cause unnecessary brokerage and other expenses, and the Fund may incur losses as a result.

Non-Diversification Risk The Fund is non-diversified and may focus its investments in the securities of a comparatively small number of issuers. Investing in a limited number of issuers exposes the Fund to greater risk and losses than if its assets were more diversified.

Pooled Investment Vehicle Risk The Fund may invest in pooled investment vehicles and will bear its ratable share of the vehicles’ expenses, including management and performance fees. The fees the Fund pays to invest in a pooled investment vehicle may be higher than if the manager of the pooled investment vehicle, including a Subadviser, managed the Fund’s assets directly. The incentive fees charged by certain vehicles may create an incentive for its manager to make investments that are riskier or more speculative than those it might have made in the absence of an incentive fee.

Prepayment Risk Issuers may experience an acceleration in prepayments of mortgage loans or other receivables backing the issuers’ securities when interest rates decline, which can shorten the maturity of the security and reduce the Fund’s return. Issuers may also prepay their obligations on fixed rate debt securities when interest rates fall, forcing the Fund to invest in securities with lower interest rates.
 
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Registered Investment Company and ETF Risk Investments in the securities of registered investment companies, including ETFs (which may, in turn invest in equities, bonds, and other financial instruments) may involve duplication of advisory fees and certain other expenses. By investing in another investment company or ETF, the Fund becomes a shareholder of that investment company or ETF and bears its proportionate share of the fees and expenses of the other investment company or ETF. As a result, shareholders of the Fund indirectly bear their proportionate share of the fees and expenses paid by the Fund to the other investment company or ETF, in addition to those that Fund shareholders directly bear in connection with the Fund’s own operations. If the investment company or ETF fails to achieve its investment objective, the Fund’s performance may be adversely affected. In addition, because ETF shares are listed and traded on national stock exchanges, they may trade at a discount or premium. Investments in ETFs are subject to brokerage and other trading costs, which could result in greater expenses to the Fund. Finally, because the value of ETF shares depends in part on the demand for them in the market, the Adviser may not be able to liquidate an ETF position at the net asset value of the ETF, adversely affecting the Fund’s performance.

Restricted Securities Risk Rule 144A securities, which are restricted securities, may not be readily marketable in broad public markets. A Rule 144A restricted security carries the risk that the Fund may not be able to sell a security when the portfolio manager considers it desirable to do so and/or may have to sell the security at a lower price. In addition, transaction costs may be higher for Rule 144A securities than for more liquid securities. Although there is a substantial institutional market for Rule 144A securities, it is not possible to predict exactly how the market for Rule 144A securities will develop. A restricted security that when purchased was liquid in the institutional markets may subsequently become illiquid.

Short Selling Risk Short selling involves borrowing a security, selling it and buying it back. If the Fund buys back the security at a price lower (or higher) than the price at which it sold the security plus accrued interest, the
Fund will make a profit (or loss) on the transaction. The Fund’s use of short sales may involve additional transactions costs and other expenses, which may cause the Fund to lose money. In addition, short sales may contribute to leverage, increase the volatility and decrease the liquidity of certain securities or positions, lowering the Fund’s return or resulting in a loss.

Small Capitalization Company Risk Investment in smaller companies may be more volatile than investments in larger companies because short-term changes in the demand for the securities of smaller companies may have a disproportionate effect on their market price, tending to make prices of these securities fall more in response to selling pressure. The smaller the company, the greater effect these risks may have on that company’s operations and performance. As a result, an investment in the Fund may exhibit a higher degree of volatility than the general domestic securities market.

Swap Contract Risk The Fund may engage in interest rate, currency, and equity swaps and CDSs, and related instruments, which require Absolute or a Subadviser to forecast, among other things, interest rate movements, currency fluctuations, market values and the likelihood of credit event for a securities issuer. Such forecasting is inherently difficult and entails investment risk. The use of swaps involves investment techniques and risks different from those associated with ordinary portfolio security transactions. There is no guarantee that the Fund will be able to eliminate its exposure under an outstanding swap by entering into an offsetting swap, and the Fund may not assign a swap without the consent of the counterparty to it. In addition, each swap exposes the Fund to counterparty risk and Absolute or a Subadviser may determine to concentrate any or all of its swap transactions, including CDS, in a single counterparty or small group of counterparties. If a counterparty defaults, the Fund’s only recourse will be to pursue contractual remedies against the counterparty and the Fund may be unsuccessful in such pursuit. The Fund thus assumes the risk that it may be delayed in or prevented from obtaining payments owed to it pursuant to a swap contract.
 
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Disclosure of Portfolio Holdings

A description of the Fund’s policies and procedures with respect to the disclosure of portfolio securities is available in the Fund’s Statement of Additional Information (“SAI”), which is available on the Fund’s website at www.absoluteadvisers.com.
 
Management

The Fund is a series of Forum Funds (the “Trust”), an open-end, management investment company (mutual fund). The business of the Trust and the Fund is managed under the oversight of the Board. The Board oversees the Fund and meets periodically to review the Fund’s performance, monitor investment activities and practices, and discuss other matters affecting the Fund. Additional information regarding the Board, as well as the Trust’s executive officers, may be found in the Fund’s SAI.

The Adviser and Subadvisers

Absolute Investment Advisers LLC, 350 Lincoln Street, Suite 216, Hingham, MA 02043, is the Fund’s investment adviser. Absolute is a registered investment adviser and provides investment advisory services to the Fund. As of June 30, 2010, Absolute had approximately $2.53 billion of assets under management.

Absolute receives an advisory fee from the Fund at an annual rate equal to 1.60% of the Fund’s average annual daily net assets. For the Fund’s fiscal year ended March 31, 2010, Absolute received an advisory fee of 1.60% (net of waivers and expense reimbursements) of the average daily net assets of the Fund. Absolute pays any subadvisory fees out of the fees it receives pursuant to the Investment Advisory Agreement with the Fund. A discussion summarizing the basis on which the Board most recently approved the Advisory Agreement and the Subadvisory Agreements with Absolute and the Subadvisers is available in the Fund’s annual report for the period ended March 31, 2010.

Subject to the general supervision of the Board, Absolute is responsible for making the investment decisions for the Fund. Although Absolute delegates the day-to-day management of the Fund to a combination of the following Subadvisers, Absolute retains overall supervisory responsibility for the general management and investment of the Fund’s assets.

Subadviser
Investment Strategy
Aronson+Johnson+Ortiz, LP
230 South Broad St, 20th Floor
Philadelphia, PA 19102
Dollar-Neutral Long/Short Equity
ClearStream Investments , LLC
225 Franklin Street, 26th Floor
Boston, MA 02110
Global Macro and Absolute Return
Horizon Asset Management, Inc.
470 Park Ave South
New York, NY 10016
Synthetic Short Sale & Distressed Debt
Kovitz Investment Group, LLC
115 South LaSalle Street, 27th Floor
Chicago, IL 60603
Fundamental Long/Short Equity
 
 
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Subadviser
Investment Strategy
Longhorn Capital Partners, L.P.
1445 Ross Avenue, Suite 5000
Dallas, TX 75202
Global Long/Short Equity
MetWest Asset Management, LLC
865 S Figueroa Street
Los Angeles, CA 90017
Fixed Income & Distressed Debt
Mohican Financial Management, LLC
21 Railroad Avenue, Suite 35
Cooperstown, NY 13326
Small/Mid-Cap Convertible Arbitrage
SSI Investment Management, Inc.
9440 Santa Monica Blvd., 8th Floor
Beverly Hills, CA 90210
Convertible Arbitrage & Market Neutral Equity
St. James Investment Company, LLC
2716 Fairmount Street
Dallas, TX 75201
Concentrated Equity
TWIN Capital Management, Inc.
 3244 Washington Rd, Suite 202
McMurray, PA 15317
Momentum Long/Short Market Neutral
Yacktman Asset Management Co.
6300 Bridgepoint Parkway, Building One, Suite 320
Austin, TX 78730
Concentrated Long-biased Equity
 
Aronson+Johnson+Ortiz, LP commenced operations in 1984, and provides investment advisory services for mostly institutional clients, including mutual funds.

ClearStream Investments , LLC was founded in 2005 and provides investment advisory services for other pooled investment vehicles. The Fund is the first mutual fund for which the Subadviser provides investment advisory services.

Horizon Asset Management, Inc. commenced operations in 1994, and provides investment advisory services for institutional clients and high-net worth individuals. The Fund is the first mutual fund for which the Subadviser provides advisory services.

Kovitz Investment Group, LLC commenced operations in 2003 and provides investment advisory services for corporations, individuals, pension and profit sharing plans and other pooled investment vehicles. The Fund is the first mutual fund for which the Subadviser provides investment advisory services.

Longhorn Capital Partners, L.P. commenced operations in 2006, and provides investment advisory services for other pooled investment vehicles.   The Fund is the first mutual fund for which the Subadviser provides investment advisory services.
 
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MetWest Asset Management, LLC commenced operations in 1996, and provides investment advisory services for institutional clients, high-net worth individuals, and mutual funds.

Mohican Financial Management, LLC was founded in 2003 and provides investment advisory services for another pooled investment vehicle. The Fund is the first mutual fund for which the Subadviser provides investment advisory services.

SSI Investment Management, Inc. commenced operations in 1973, and provides investment advisory services for pension and profit sharing plans, corporations, college endowments, Taft-Hartley plans, high-net worth individuals and mutual funds.

St. James Investment Company, LLC commenced operations in 1999, and manages assets for institutional clients, high-net worth individuals, and mutual funds .

TWIN Capital Management, Inc. commenced operations in 1990, and provides investment advisory services for institutional clients, high-net worth individuals, and mutual funds.

Yacktman Asset Management Co. commenced operations in 1992, and provides investment advisory services for institutional clients and long-term investors. The Subadviser is also the investment adviser for two mutual funds: The Yacktman Fund and The Yacktman Focused Fund.

Pursuant to an exemptive order from the U.S. Securities and Exchange Commission (the “SEC”), Absolute, subject to Board approval, is permitted to enter into new or modified subadvisory agreements with existing or new Subadvisers for the Fund without approval of Fund shareholders (“Exemptive Relief”). Pursuant to the Exemptive Relief, the Fund is required to notify shareholders of the retention of a new Subadviser within 90 days of the hiring of the new Subadviser. In the future, Absolute may propose to appoint or replace one or more Subadvisers subject to Board approval and applicable shareholder notice requirements.

Portfolio Manager

The Fund is managed by portfolio manager Jay Compson, a founder of Absolute. Mr. Compson is responsible for Subadviser selection and overall portfolio construction, allocation and monitoring of the Fund’s assets.
Mr. Compson is also responsible for day to day management of the Fund and the relationships with the Subadvisers.

Jay Compson, Mr. Compson is the Portfolio Manager for the Fund and is responsible for manager selection and overall portfolio construction, allocation, and monitoring of the Fund's assets.

Prior to founding Absolute in 2004, Mr. Compson was a Portfolio Manager and Partner at Abington Capital LP, a Boston-based hedge fund. He also spent several years in corporate risk management roles at two investment banks - Lehman Brothers and Tucker Anthony Sutro. Mr. Compson began his career as a yacht insurance underwriter for the Chubb Group.

Mr. Compson received his BA degree from Franklin & Marshall College and his MBA in Finance and Management from New York University's Stern School of Business.

Generally, Absolute will assign responsibility for the day-to-day management of the Fund to a combination of the Subadvisers.
 
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 ABSOLUTE STRATEGIES FUND
 
 
The SAI provides additional information about the Portfolio Manager’s compensation, other accounts managed by the Portfolio Manager, and the Portfolio Manager’s ownership of Fund shares.

Other Service Providers

Atlantic Fund Services (“Atlantic”) provides certain administration, portfolio accounting and transfer agency services to the Fund and supplies certain officers to the Trust.

Atlantic provides the Fund with a Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”), Chief Compliance Officer (“CCO”), and an Anti-Money Laundering Compliance Officer (“AMLCO”) as well as certain additional compliance support functions.

Foreside Fund Services, LLC, the Trust’s principal underwriter (the “Distributor”) acts as the Trust’s Distributor in connection with the offering of the Fund’s shares. The Distributor may enter into arrangements with banks, broker-dealers and other financial intermediaries through which investors may purchase or redeem shares.

The Distributor is not affiliated with the Adviser, Atlantic, or their affiliates.
 
Fund Expenses

The Fund pays expenses out of its own assets. Expenses of each share class include that class’ own expenses as well as Trust expenses that are allocated among the Fund, its classes of shares and all other funds of the Trust. Absolute or other service providers may reduce all or any portion of their fees and reimburse certain expenses of a Fund class. Any agreement to reduce fees or reimburse expenses increases the investment performance of the Fund and its applicable share classes for the period during which the reduction or reimbursement is in effect.
 
Important Information Regarding Dividend and Interest Expenses On Short Sales

Dividend and Interest Expenses on Short Sales occur when the Fund sells an equity or debt security short to gain the inverse exposure necessary to meet its investment objective. When the Fund sells a security short, the Fund borrows the security from a lender and then sells the security in the general market. The Fund is obligated to pay an amount equal to any dividend declared or interest paid during the duration of the short to the lender from which the Fund borrowed the security and the Fund is obligated to record the payment as an expense. The Fund may also be obligated to pay an interest fee on monies borrowed from an intermediary, such as a prime broker, in connection with a short sale. For tax purposes, any such payment on a security sold short generally reduces the basis of the shorted security, thereby increasing the Fund's unrealized gain or reducing the Fund's unrealized loss on the short sale transaction. Also, the Dividend and Interest Expenses on Short Sales are typically offset, in their entirety or in part, by the income derived from earnings on the cash proceeds of the short sales. Nevertheless, the Fund will bear the cost of the Dividend and Interest Expenses on Short Sales. The Fund is also required to pay any applicable interest on a borrowed security and borrowings related to short sales.
 
23

 
 ABSOLUTE STRATEGIES FUND
 

The table below illustrates the Fund’s Total Annual Fund Operating Expenses with Fund expenses including the effect of Dividend and Interest Expenses on Short Sales and excluding the effect of Dividend and Interest Expenses on Short Sales. The Fund’s Total Annual Operating Expenses (expenses that are deducted from Fund assets) were:
 
Comparison of Expenses
Institutional Shares
R Shares
Management Fees
1.60%
1.60%
Distribution/Service (12b-1) Fees
None
0.25%
Other Expenses
0.18%
0.37%
Dividend and Interest Expenses on Short Sales
0.34%
0.34%
Acquired Fund Fees and Expenses
0.02%
0.02%
Total Annual Fund Operating Expenses With Dividend and Interest Expenses on Short Sales
2.14%
2.58%
Less Dividend and Interest Expenses on Short Sales
(0.34)%
(0.34)%
Total Annual Fund Operating Expenses Without Dividend and Interest Expenses on Short Sales
1.80%
2.24%
 
 
24

 
 ABSOLUTE STRATEGIES FUND
 
 
Your Account
 
HOW TO CONTACT THE FUND
Write to us at:
     Absolute Strategies Fund
     P.O. Box 588
     Portland, Maine 04112
Overnight address:
     Absolute Strategies Fund
     C/o Atlantic Fund Services
     Three Canal Plaza, Ground Floor Portland, Maine 04101
Telephone us at:
     (888) 992-2765 (toll free)
     (888) 99-ABSOLUTE (toll free)
 Email us at:
     Absolute.ta@atlanticfund services .com
Wire investments (or ACH payments) to:
     Please contact the Transfer Agent at (888) 99-ABSOLUTE to obtain the ABA routing number and the account number for the Fund.
 

General Information

You may purchase or sell (redeem) shares of a Fund class on each weekday that the New York Stock Exchange (“NYSE”) is open. Under unusual circumstances, a Fund class may accept and process shareholder orders when the NYSE is closed if deemed appropriate by the Trust’s officers.

You may purchase or sell (redeem) shares of each Fund class at the NAV of a share of that Fund class next calculated (normally 4:00 p.m. Eastern Time) after the Transfer Agent or an authorized agent of the Fund receives your request in proper form (as described in this Prospectus on pages 28 through 34. If the Transfer Agent or an authorized agent of the Fund receives your purchase or redemption request in proper form after 4:00 p.m., Eastern Time, your transaction will be priced at the next business day’s NAV of the relevant Fund class (minus redemption fee in the case of redemptions). The Fund cannot accept orders that request a particular day or price for the transaction or any other special conditions.

The Fund does not issue share certificates.

If you purchase shares directly from a Fund, you will receive quarterly statements from the Fund detailing balances and all transactions completed during the prior quarter and a confirmation of each transaction. Automatic reinvestments of distributions and systematic investments/withdrawals may be confirmed only by quarterly statement. You should verify the accuracy of all transactions in your account as soon as you receive your confirmations and quarterly statements.

The Fund may suspend the right of redemption, or postpone the date of payment or satisfaction upon redemption of any redeemable security in accordance with its terms for up to seven days after the tender of such security to the Fund or its agent designated for that purpose upon redemption. The Fund reserves the right to refuse any purchase request, particularly requests that could adversely affect the Fund or its operations.

When and How NAV is Determined Each Fund class calculates its NAV as of the close of trading on the NYSE (normally 4:00 p.m., Eastern time) on each weekday except days when the NYSE is closed. The schedule of holidays when the NYSE is closed is below.  Under unusual circumstances, such as in the case of an emergency, the Fund may calculate its NAV and accept and process shareholder orders when the NYSE is closed.  The NAV of each Fund class is determined by taking the market value of the Fund class’ total assets, subtracting the Fund class’ liabilities, and then dividing the result (net assets) by the number of outstanding shares of the Fund class. Since the Fund invests in securities that may trade in foreign markets on days other than a Fund business day, the value of the Fund’s portfolio may change on days that shareholders will not be able to purchase or redeem Fund Shares.
 
The Fund values securities for which market quotations are readily available, including certain open-end investment companies, at current market value except certain short-term securities which are valued at amortized cost. Exchange traded securities for which market quotations are readily available are valued using the last
 
25

 
 ABSOLUTE STRATEGIES FUND
 
 
reported sales price provided by independent pricing services as of the close of trading on the NYSE on each Fund business day. In the absence of sales, such securities are valued at the mean of the last bid and asked price. Non-exchange traded securities for which quotations are readily available are generally valued at the mean between the current bid and asked price. Fixed income securities may be valued at prices supplied by the 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. Investments in other open-end regulated investment companies are valued at their NAV.

Market quotations may not be readily available or may be unreliable if, among other things, (i) the exchange on which a Fund portfolio security is principally traded closes early, (ii) trading in a portfolio security was halted during the day and did not resume prior to the time as of which the Fund calculates its NAV, or (iii) events occur after the close of the securities markets on which the Fund’s portfolio securities primarily trade but before the time as of which the Fund calculates its NAV. Fair valuation has the effect of updating security prices to reflect market value based on, among other things, the recognition of a significant event.  The Fund values securities at fair value pursuant to procedures adopted by the Board if market quotations are not readily available or the Adviser believes that the prices or values available are unreliable. The Fund invests in the securities of small- and medium-sized companies. Such securities are more likely to require a fair value determination because they are more thinly traded and less liquid than the securities of larger capitalization companies.

The Board has delegated fair value determinations to a Valuation Committee composed of a member of the Board or the President or Treasurer and either a representative of the Fund’s Fund Accountant or, if needed, a portfolio manager or a senior representative of the Adviser, when the Fund’s securities require fair valuation.  Fair valuation may be based on subjective factors and as a result, the fair value price of a security may differ from the security’s market price and may not be the price at which the security may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotations.

The Fund may invest in foreign securities, the securities of smaller companies and derivatives. Foreign securities are more likely to require a fair value determination than domestic securities because circumstances may arise between the close of the market on which the securities trade and the time as of which the Fund values its portfolio securities, which may necessitate fair valuation. Securities of smaller companies and certain derivatives are also more likely to require a fair value determination because they may be thinly traded and less liquid than traditional securities of larger companies.

Government, corporate, asset-backed and municipal bonds and convertible securities, including high-yield or junk bonds, normally are valued on the basis of prices provided by independent pricing services. Prices provided by the pricing services may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to special securities, dividend rate, maturity and other market data. Prices received from pricing services are fair value prices. In addition, if the prices provided by the pricing service and independent quoted prices are unreliable, the valuation committee described above will fair value the security using the Fund’s fair value procedures.

NYSE Holiday Schedule The NYSE is open every week, Monday through Friday, except on the following holidays: New Year’s Day, Martin Luther King, Jr. Day (the third Monday in January), President’s Day (the third Monday in February), Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November), and Christmas Day. The NYSE holiday schedules are subject to change without notice. The NYSE may close early on the day before each of these holidays and the day after Thanksgiving Day.
 
26

 
 ABSOLUTE STRATEGIES FUND
 
 
If the exchange or market on which the Fund’s underlying investments are primarily traded closes early, the NAV may be calculated prior to its normal market calculation time. For example, the primary trading markets for the Fund may close early on the day before certain holidays and the day after Thanksgiving. To the extent the Fund’s portfolio investments trade in markets on days when that Fund is not open for business, the value of the Fund’s assets may vary on those days. In addition, trading in certain portfolio investments may not occur on days the Fund is open for business because markets or exchanges other than the NYSE may be closed.
 
Transactions through Financial Intermediaries   The Fund has authorized certain financial services companies, broker-dealers, banks and other agents, including the designees of such entities when approved by the Fund (collectively, “financial intermediaries”) to accept purchase and redemption orders on the Fund’s behalf. If you invest through a broker or other financial intermediary, the policies and fees of the intermediary may be different than the policies and fees of the Fund. Among other things, such financial intermediaries may charge transaction fees and may set different minimum investment restrictions or limitations on buying (selling) Fund shares. You should consult your broker or other representative of your financial intermediary for more information.

All orders to purchase or sell shares are executed as of the next NAV calculated after the order has been received in “good order” by a financial intermediary. Orders are accepted until the close of regular trading on the NYSE every business day, normally 4:00 p.m., Eastern Time, and are executed the same day at that day’s NAV. To ensure this occurs, the financial intermediaries are responsible for transmitting all orders to the Fund in compliance with their contractual deadline.

Payments to Financial Intermediaries The Fund and its affiliates (at their own expense) may pay compensation to financial intermediaries for shareholder-related services and, if applicable, distribution-related services, including administrative, subtransfer agency, recordkeeping and shareholder communication services. Fund supermarkets are brokerage firms that provide access to funds in different fund families and are considered to be financial intermediaries. For example, compensation may be paid to make Fund shares available to sales representatives and/or customers of a fund supermarket platform or similar program sponsor or for services provided in connection with such fund supermarket platforms and programs.

The amount of compensation paid to different financial intermediaries may differ. The compensation paid to a financial intermediary may be based on a variety of factors, including average assets under management in accounts distributed and/or serviced by the financial intermediary, gross sales by the financial intermediary and/or the number of accounts serviced by the financial intermediary that invest in the Fund. To the extent that the Fund pays (a portion) of such compensation, it is designed to compensate the financial intermediary for providing services that would otherwise be provided by the Fund or its Transfer Agent. To the extent a Fund affiliate pays such compensation, it would likely include amounts from that affiliate’s own resources and constitute what is sometimes referred to as “revenue sharing.”

Compensation received by a financial intermediary from the Adviser or another Fund affiliate may include payments for marketing and/or training expenses incurred by the financial intermediary, including expenses incurred by the financial intermediary in educating itself and its salespersons with respect to Fund shares. For example, such compensation may include reimbursements for expenses incurred in attending educational seminars regarding the Fund, including travel and lodging expenses. It may also cover costs incurred by financial intermediaries in connection with their efforts to sell Fund shares, including costs incurred compensating registered sales representatives and preparing, printing and distributing sales literature.

Any compensation received by a financial intermediary, whether from the Fund or its affiliate(s), and the prospect of receiving it may provide the financial intermediary with an incentive to recommend the shares of the Fund over
 
27

 
 ABSOLUTE STRATEGIES FUND
 
 
other potential investments. Similarly, the compensation may cause financial intermediaries to elevate the prominence of the Fund within its organization by, for example, placing it on a list of preferred funds.

Anti-Money Laundering Program Customer identification and verification are part of the Fund’s overall obligation to deter money laundering under Federal Law. The Trust has adopted an Anti-Money Laundering Program designed to prevent the Fund from being used for money laundering or the financing of terrorist activities. In this regard, the Fund reserves the right, to the extent permitted by law, to (i) refuse, cancel or rescind any purchase order; or (ii) freeze any account and/or suspend account services. These actions will be taken when, in the sole discretion of Trust management, they are deemed to be in the best interest of the Fund or in cases when the Fund is requested or compelled to do so by governmental or law enforcement authority or applicable law. If your account is closed at the request of governmental or law enforcement authority, you may not receive proceeds of the redemption if the Fund is required to withhold such proceeds.

Buying Shares

The Fund is closed to new investments, except as provided below.

Existing shareholders of the Fund are permitted to add to their accounts through the purchase of additional shares and through the reinvestment of dividends and capital gain distributions.

In addition, Trustees and officers of the Trust and employees and managers of Absolute and its affiliates, or the spouse, sibling, direct ancestor, or direct descendent of any such person, may establish new accounts and continue to add to existing accounts in the Fund. Trust officers may permit the establishment of new accounts or permit additional sales to existing accounts under circumstances not identified above if the Adviser, as investment manager of the Fund, deems it to be in the best interest of the Fund and its shareholders. The Board reserves the right to re-open the Fund to new investors at any time or to modify the extent to which future sales of shares are limited.

How to Make Payments Unless purchased through a third-party financial institution, all investments must be made by check, ACH, or wire. All checks must be payable in U.S. dollars and drawn on U.S. financial institutions. In the absence of the granting of an exception consistent with the Trust’s anti-money laundering procedures adopted on behalf of the Fund, the Fund does not accept purchases made by credit card check, starter check, cash or cash equivalents (for instance, you may not pay by money order, bank draft, cashier’s check or traveler’s check).

Checks Checks must be made payable to “Absolute Strategies Fund.” For individual, sole proprietorship, joint, Uniform Gift to Minors Act (“UGMA”) and Uniform Transfer to Minors Act (“UTMA”) accounts, checks may be made payable to one or more owners of the account and endorsed to “Absolute Strategies Fund.” A $20 charge may be imposed on any returned checks.

ACH ACH refers to the “Automated Clearing House” System maintained by the Federal Reserve Bank, which allows banks to process checks, transfer funds and perform other tasks. Your financial institution may charge you a fee for this service.

Wires Instruct your financial institution with whom you have an account to make a Federal Funds wire payment to us. Your financial institution may charge you a fee for this service.
 
28

 
 ABSOLUTE STRATEGIES FUND
 
 
Minimum Investments:

As permitted above, the Fund accepts investments in the following minimum amounts:

 
Minimum Initial(1)(2)
Minimum Additional(1)(2)
Institutional Shares
   
All Accounts
$1,000,000
None
R Shares
   
Standard Accounts
$250,000
$100
Retirement Accounts
$5,000
$100

(1)  
If you invest through a broker or other financial intermediary, the policies and fees of the intermediary may be different than the policies and fees of the Fund. Among other things, such financial intermediaries may charge transaction fees and may set different minimum investments or limitations on buying (selling) Fund shares. You should consult your broker or other representative of your financial intermediary for more information.
(2)  
No initial or subsequent investment minimums for accounts maintained by financial institutions for the benefit of their clients who purchase shares through investment programs such as (1) fee-based advisory programs; (2) employee benefit plans like 401(k) retirement plans; (3) mutual fund platforms; and (4) consulting firms. No initial or subsequent investment minimum for Trustees or officers of the Trust, directors, officers and employees of Absolute, employees of the Subadvisers, and employees and affiliates of the Fund, or the distributor or any of their affiliates, or the spouse, sibling, direct ancestor, or direct descendent (collectively, “relatives”) of any such person, any trust or individual retirement account (“IRA”) or self-employed retirement plan for the benefit of any such person or relative; or the estate of any such person or relative.

If deemed appropriate by the Trust officers, the Fund may waive investment minimum requirements.
 
29

 
 ABSOLUTE STRATEGIES FUND
 
 
Account Requirements

Type of Account
 
Requirement
Individual, Sole Proprietorship and Joint Accounts
Individual accounts are owned by one person, as are sole proprietorships accounts.  Joint accounts have two or more owners (tenants).
 
 
•Instructions must be signed by all persons required to sign exactly as their names appear on the account.
Gifts or Transfers to a Minor (UGMA, UTMA)
These custodial accounts provide a way to give money to a child and obtain tax benefits.
 
 
•Depending on state laws, you may set up a custodial account under the UGMA or the UTMA.
•The custodian must sign instructions in a manner indicating custodial capacity.
Corporations/Other
 
•The entity should submit a certified copy of its articles of incorporation (or a government-issued business license or other document that reflects the existence of the entity) and a corporate resolution or a secretary’s certificate.
 
Trusts
 
•The trust must be established before an account can be opened.
•The trust should provide the first and signature pages from the trust document identifying the trustees.
 

Account Application and Customer Identity Verification To help the government fight the funding of terrorism and money laundering activities, Federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account.

When you open an account, the Fund will ask for your first and last name, taxpayer identification number, physical street address, date of birth, and other information or documents that will allow the Fund to identify you.

If you do not supply the required information, the Fund will attempt to contact you or, if applicable, your broker. If the Fund cannot obtain the required information within a timeframe established in the Fund’s sole discretion, your application will be rejected.

When your application is in proper form and includes all required information, your application will normally be accepted and your order will be processed at the NAV next calculated after receipt of your application and investment amount.  Once your application is accepted, the Fund will then attempt to verify your identity using the information you have supplied and other information about you that is available from third parties, including information available in public and private databases such as consumer reports from credit reporting agencies.

The Fund will try to verify your identity within a timeframe established in its sole discretion. If the Fund cannot do so, the Fund reserves the right to close your account at the NAV next calculated after the Fund decides to close your account. If your account is closed, you may be subject to a gain or loss on Fund shares and will be subject to any related taxes and will not be able to recoup any sales charges or redemption fees assessed. If the Fund has not yet collected payment for the shares you are selling, it may delay sending redemption proceeds until such payment is received, which may be up to 15 calendar days.
 
30

 
 ABSOLUTE STRATEGIES FUND
 
 
Policy on Prohibition on Foreign Shareholders The Fund requires that all shareholders must be U.S. persons with a valid U.S. Taxpayer Identification Number to open an account with the Fund.

Investment Procedures

How to Open an Account
 
How to Add to Your Account
Through a Financial Intermediary
· Contact your financial intermediary using the method that is most convenient for you.
 
 
Through a Financial Intermediary
· Contact your financial intermediary using the method that is most convenient for you.
By Check
· Call, write us or email us at Absolute.ta@atlanticfund services .com for an account application.
· Complete the application (and other required documents, if applicable).
· Mail us your application (and other required documents, if applicable) and a check.
 
 
By Check
· Fill out an investment slip from a confirmation or write us a letter.
· Write your account number on your check.
· Mail us the slip (or your letter) and the check.
 
By Wire
· Call, write us or email us at Absolute.ta@atlanticfund services .com for an account application.
· Complete the application (and other required documents, if applicable).
· Call us to fax the completed application (and other required documents, if applicable) and we will assign you an account number.
· Mail us your original application (and other required documents, if applicable).
· Instruct your U.S. financial institution to wire your money to us.
 
 
By Wire
· Instruct your U.S. financial institution to wire your money to us.
 
By ACH Payment
· Call, write us or email us at  Absolute.ta@atlanticfund services .com for an account application.
· Complete the application (and other required documents, if applicable).
· Call us to fax the completed application (and other required documents, if applicable) and we will assign you an account number.
· Mail us your original application (and other required documents, if applicable).
· We will electronically debit the purchase proceeds from the financial institution account identified on your account application.
· Purchases are limited to $25,000 per day.
 
 
By ACH Payment
· Call to request a purchase by ACH payment.
· We will electronically debit the purchase proceeds from the financial institution account identified on your account application.
· Purchases are limited to $25,000 per day.
 
 
 
 
31

 
 ABSOLUTE STRATEGIES FUND
 
 
Systematic Investments You may establish a systematic investment plan to automatically invest a specified amount of money (up to $25,000 per day) into your account on a specified day and frequency not to exceed two investments per month. Payments for systematic investments are automatically debited from your designated savings or checking account via ACH. Systematic investments must be for at least $100 per occurrence.

Frequent Trading Because of the Fund’s low volatility and numerous portfolio holdings, generally the Fund is not susceptible to market timing. Thus, the Board has adopted a policy of not monitoring for frequent purchases and redemptions of Fund shares. Frequent trading by Fund shareholders poses risks to other shareholders in the Fund, including (i) the dilution of the Fund’s NAV, (ii) an increase in the Fund’s expenses, and (iii) interference with the portfolio manager’s ability to execute efficient investment strategies.
 
Canceled or Failed Payments The Fund accepts checks and ACH transfers at full value subject to collection. If the Fund does not receive your payment for shares or you pay with a check or ACH transfer that does not clear, your purchase will be canceled within two business day of notification from your bank that your funds did not clear. You will be responsible for any actual losses or expenses incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you own in the account (or another identically registered account that you maintain with the Transfer Agent) as reimbursement. The Fund and its agents have the right to reject or cancel any purchase due to nonpayment.
 
32

 
 ABSOLUTE STRATEGIES FUND
 
 
Selling Shares

The Fund processes redemption orders received in good order at the next calculated NAV.  Under normal circumstances, the Fund will send redemption proceeds to you within a week.  If the Fund has not yet collected payment for the shares you are selling, it may delay sending redemption proceeds until it receives payment, which may be up to 15 calendar days from the date of purchase.

How to Sell Shares from Your Account
Through a Financial Intermediary
•  Contact your financial intermediary using the method that is most convenient for you.
 
By Mail
•Prepare a written request including:
•Your name(s) and signature(s)
•Your account number
•The Fund name and class
•The dollar amount or number of shares you want to sell
•How and where to send the redemption proceeds.
•Obtain a signature guarantee (if required).
•Obtain other documentation (if required).
•Mail us your request and documentation.
 
By Telephone
•Call us with your request (unless you declined telephone redemption privileges on your account application).
•Provide the following information:
•Your account number
•Exact name(s) in which the account is registered
•Additional form of identification.
•  Redemption proceeds will be mailed to you by check or electronically credited to your account at the
financial institution identified on your account application.
 
Systematically
•Complete the systematic withdrawal section of the application.
•Attach a voided check to your application.
•Mail us your completed application.
•Redemption proceeds will be mailed to you by check or electronically credited to your account at the financial institution identified on your account application.
 
 
Wire Redemption Privileges You may redeem your shares by wire unless you declined wire redemption privileges on your account application. The minimum amount that may be redeemed by wire is $5,000.

Telephone Redemption Privileges You may redeem your shares by telephone unless you declined telephone redemption privileges on your account application. You may be responsible for any unauthorized telephone order as long as the Transfer Agent takes reasonable measures to verify that the order is genuine. Telephone redemption orders may be difficult to complete during periods of significant economic or market activity. If you are not able to reach the Fund by phone, you may mail us your redemption order.
 
33

 
 ABSOLUTE STRATEGIES FUND
 
 
Systematic Withdrawals You may establish a systematic withdrawal plan to automatically redeem a specified amount of money or shares from your account on a specified date with a frequency not to exceed one withdrawal per month. These payments are sent from your account by check to your address of record, or if you so designate, to you bank account by ACH payment.

Signature Guarantee Requirements To protect you and the Fund against fraud, signatures on certain requests must have a Medallion Signature Guarantee. A Medallion Signature Guarantee verifies the authenticity of your signature. You can obtain a Medallion Signature Guarantee from most banking institutions or securities brokers, but not from a notary public. The Transfer Agent will need written instructions signed by all registered shareholders with a Medallion Signature Guarantee for each shareholder for any of the following:

·  
Written requests to redeem $100,000 or more

·  
Changes to a shareholder’s record name or account registration

·  
Paying redemption proceeds from an account for which the address has changed within the last 30 days

·  
Sending redemption and distribution proceeds to any person, address or financial institution account not on record

·  
Sending redemption and distribution proceeds to an account with a different registration (name or ownership) from your account; and

·  
Adding or changing ACH or wire instructions, telephone redemption options, or any other election in connection with your account

The Transfer Agent reserves the right to require Medallion Signature Guarantees on all redemptions.

Small Accounts If the value of your account falls below $5,000, the Fund may ask you to increase your balance. If the account value is still below $5,000 after 60 days, the Fund retains the right to close your account and send you the proceeds. The Fund will not close your account if it falls below these amounts solely as a result of Fund performance.
 
Redemptions In-Kind  Pursuant to an election filed with the SEC, the Fund reserves the right to pay redemption proceeds in portfolio securities rather than in cash. To the extent a fund shareholder redeems its shares in this manner, the shareholder assumes the risk of a subsequent change in the market value of these securities and the cost of liquidating the securities.  In addition, the shareholder will bear any brokerage and related costs in disposing of or selling the portfolio securities it receives from the Fund. Pleas see the Statement of Additional Information for more detail on redemptions in-kind.

Lost Accounts The Transfer Agent will consider your account “lost” if correspondence to your address of record is returned as undeliverable on two consecutive occasions, unless the Transfer Agent determines your new address. When an account is “lost”, all distributions on the account will be reinvested in additional Fund shares. In addition, the amount of any outstanding (unpaid for six months or more) checks that have been returned to the Transfer Agent may be reinvested at the then-current NAV and the checks will be canceled. However, checks will not be reinvested into accounts with a zero balance, but will be held in an account until the Transfer Agent locates you or escheats the funds to the state of your last known address.
 
34

 
 ABSOLUTE STRATEGIES FUND
 
 
Choosing a Share Class

The following is a summary of the differences between Institutional Shares and R Shares of the Fund:

Institutional Shares
 
R Shares
· Designed for pension and profit-sharing plans, employee benefit trusts, endowments, foundations and corporations, as well as high net worth individuals and financial intermediaries who are willing to maintain a minimum account balance of $1,000,000 and omnibus accounts maintained by financial institutions for the benefit of their clients who purchase shares through investment programs such as (1) fee-based advisory
programs; (2) employee benefit plans like 401(k) retirement plans; and (3) mutual fund platforms. Also designed for retail investors investing through fee based financial advisers.
· No initial or deferred sales charges or Rule 1 2b-1 fees
· Lower expense ratio than R Shares
 
 
· Designed for retail investors investing individually or through financial institutions
· No initial or deferred sales charges
· $250,000 initial investment minimum
· Rule 1 2b-1 fees to participating financial institutions are accrued immediately on a daily basis and are paid at least quarterly

Fees vary considerably between the Fund’s classes. You should carefully consider the differences in the classes’ fee structure as well as the length of time you wish to invest in the Fund before choosing which class to purchase. Please review the Fee Table for the Fund before investing in the Fund. You may also want to consult with a financial advisor in order to help you determine which class is most appropriate for you.

Rule 12b-1 Distribution and Shareholder Service Fees The Trust has adopted a Rule 12b-1 plan under which the Fund pays the distributor up to 0.35% of the average daily net assets of R Shares for distribution services and the servicing of shareholder accounts. Rule 12b-1 payments to participating financial institutions begin to accrue immediately on a daily basis for R Shares and are paid at least quarterly. Although the plan provides for payments of up to 0.35% on R shares, the Board, however, currently limits payments on R shares to 0.25% of average daily net assets.

The plan provides for the payment of both asset-based distribution fees and shareholder service fees. The distributor may pay any fee received under the Rule 12b-1 plan to Absolute or other financial institutions that provide distribution and shareholder services with respect to R Shares.
 
Retirement Accounts
 
You may invest in Fund shares through an IRA, including traditional and Roth IRAs, also known as “Qualified Retirement Accounts.”  The Fund may also be appropriate for other retirement plans. Before investing in any IRA or other retirement plan, you should consult your tax adviser. Whenever making an investment in an IRA, be sure to indicate the year for which the contribution is made.
 
35

 
 ABSOLUTE STRATEGIES FUND
 
 
Other Information
 
Distributions and Dividend Reinvestments
 
The Fund declares distributions from net investment income at least semi-annually. Any net capital gain realized by the Fund will be distributed at least annually.
 
Most investors have their income dividends and capital gain distributions (each, a “distribution”) reinvested in additional shares of the Fund. If you choose this option, or if you do not indicate any choice, your distributions will be reinvested. Alternatively, you may choose to have your distributions of $10 or more sent directly to your bank account or paid to you by check. However, if a distribution is less than $10, your proceeds will be reinvested. If five or more of your distribution checks remain uncashed after 180 days, all subsequent distributions may be reinvested. For Federal income tax purposes, distributions are treated the same whether they are received in cash or reinvested. 
 
Taxes
 
The Fund generally intends to operate in a manner such that it will not be liable for Federal income or excise taxes.
 
The Fund’s distributions of net investment income and net short-term capital gain are taxable to you as ordinary income. The Fund’s distributions of net capital gain (that is, the excess of net long-term capital gain over net short-term capital loss), if any, are taxable to you as long-term capital gain, regardless of how long you have held your shares. Distributions may also be subject to certain state and local taxes. Some Fund distributions may also include a nontaxable return of capital. Return of capital distributions reduce your tax basis in your Fund shares and are treated as gain from the sale of the shares to the extent they exceed your basis.
 
A portion of the Fund’s distributions may be treated as “qualified dividend income,” taxable to individuals at a maximum Federal tax rate of 15% (0% for individuals in lower tax brackets) through 2010. A distribution is treated as qualified dividend income to the extent that the Fund receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that holding period and other requirements are met.
 
A distribution reduces the NAV of the Fund’s shares by the amount of the distribution. If you purchase shares prior to a distribution, you are taxed on the distribution even though the distribution represents a partial return of your investment.
 
The sale (redemption) of Fund shares is a taxable transaction for Federal income tax purposes. You will recognize a gain or loss on the transaction equal to the difference, if any, between the amount of your net redemption proceeds and your tax basis in the Fund shares. The gain or loss will be capital gain or loss if you held your Fund shares as capital assets. Any capital gain or loss will be treated as long-term capital gain or loss if you held the Fund shares for more than one year at the time of the redemption. Any capital loss arising from the redemption of shares held for six months or less, however, will be treated as long-term capital loss to the extent of the amount of any net capital gain distributions with respect to those shares.
 
The Fund will be required to withhold federal income tax at the rate of 28% on all distributions and redemption proceeds (regardless of the extent to which you realize gain or loss) otherwise payable to you (if you are an individual or certain other non-corporate shareholder) if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue
 
36

 
 ABSOLUTE STRATEGIES FUND
 
 
Service that you are subject to backup withholding. Backup withholding is not an additional tax, and any amounts withheld may be credited against your Federal income tax liability once you provide the required information or certification.

After December 31 of each year, the Fund will mail you reports containing information about the income tax classification of distributions paid during the year.
 
For further information about the tax effects of investing in the Fund, please see the SAI and consult your tax adviser.
 
Organization
 
The Trust is a Delaware statutory trust, and the Fund is a series thereof. The Fund does not expect to hold shareholders’ meetings unless required by Federal or Delaware law. Shareholders of each series of the Trust are entitled to vote at shareholders’ meetings unless a matter relates only to a specific series (such as approval of an advisory agreement for the Fund). From time to time, large shareholders may control the Fund or the Trust.
 
37

 
 ABSOLUTE STRATEGIES FUND
 
 
Financial Highlights

The financial highlights table is intended to help you understand the financial performance of the Fund since in­ception. Certain information reflects financial results for a single Fund share. The total returns in the table repre­sent the rate that an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of all dividends and distributions. The information for the year ended March 31, 2010 has been audited by BBD LLP, an independent registered public accounting firm, whose report, along with the Fund’s financial statements, are included in the Annual Report dated March 31, 2010, which is available upon request. The information for the fiscal years ended July 11, 2005 to March 31, 2008, was audited by the Fund’s previous independent registered public accounting firm.

   
For the Year
Ended
March 31, 2010
 
For the Year
Ended
March 31, 2009
 
For the Year
Ended
March 31, 2008
 
For the Year
Ended
March 31, 2007
 
July 11,2005(a)
through
March 31, 2006
INSTITUTIONAL SHARES
NET ASSET VALUE, Beginning of Period
 
$8.79
 
$10.52
 
$10.62
 
$10.29
 
$10.00
INVESTMENT OPERATIONS
                   
Net investment income (b)
 
0.1
 
0.08
 
0.16
 
0.26
 
0.14
Net realized and unrealized gain (loss)
 
1.91
 
(1.38)
 
(0.11)
 
0.29
 
0.22
Total from Investment Operations
 
2.01
 
(1.30)
 
0.05
 
0.55
 
0.36
DISTRIBUTIONS TO SHAREHOLDERS FROM
                   
Net investment income
 
(0.14)
 
(0.08)
 
(0.15)
 
(0.22)
 
(0.07)
Net realized investment gains
 
-(c)
 
(0.35)
 
-
 
-(c)
 
-(c)
Total Distributions to Shareholders
 
(0.14)
 
(0.43)
 
(0.15)
 
(0.22)
 
(0.07)
REDEMPTION FEES (b)
 
-
 
-
 
-
 
-(c)
 
-(c)
NET ASSET VALUE, End of Period
 
$10.66
 
$8.79
 
$10.52
 
$10.62
 
$10.29
TOTAL RETURN
 
22.95%
 
-12.41%
 
0.41%
 
5.38%
 
3.60%(d)
RATIOS/SUPPLEMENTARY DATA
               
Net Assets at End of
                   
Period (000’s omitted)
 
2,116,412
 
$786,766
 
$856,441
 
$196,602
 
$66,888
Ratios to Average Net Assets:
                   
Net investment income
 
0.98%
 
0.78%
 
1.50%
 
2.46%
 
1.91%(f)
Net expense (g)
 
1.78%
 
1.81%
 
1.88%
 
1.95%
 
1.95%(f)
Dividend and interest expense
 
0.34%
 
0.50%
 
0.50%
 
0.43%
 
0.38%(f)
Gross Expense (h)
 
2.12%
 
2.31%
 
2.38%
 
2.44%
 
2.59%(f)
PORTFOLIO TURNOVER RATE
 
114%
 
133%
 
553%
 
424%
 
405%(d)(i)

(a)  
Commencement of operations.
(b)  
Calculated based on average shares outstanding during the period.
(c)  
Less than $0.01 per share.
(d)  
Not annualized.
(e)  
Total return excludes the effect of the applicable sales load.
(f)  
Annualized.
(g)  
Excludes dividend and interest expense.
(h)  
Reflects the expense ratio excluding any waivers and/or reimbursements.
(i)  
As revised, to reflect a computational error. Such amount was previously reported as 95%.
 
 
38

 
 ABSOLUTE STRATEGIES FUND
 
 

   
For the Year
Ended
March 31, 2010
 
For the Year
Ended
March 31, 2009
 
For the Year
Ended
March 31, 2008
 
For the Year
Ended
March 31, 2007
 
July 11, 2005(a)
through
March 31, 2006
R SHARES (j) NET ASSET VALUE, Beginning of Period
 
$ 8.82
 
$ 10.55
 
$ 10.63
 
$ 10.28
 
$ 10.00
INVESTMENT OPERATIONS
                   
Net investment income (b)
 
0.05
 
0.04
 
0.13
 
0.22
 
0.10
Net realized and unrealized
                   
gain (loss)
 
1.91
 
(1.39)
 
(0.13)
 
0.30
 
0.22
Total from Investment
                   
Operations
 
1.96
 
(1.35)
 
0.00
 
0.52
 
0.32
DISTRIBUTIONS TO
                   
SHAREHOLDERS FROM
                   
Net investment income
 
(0.11)
 
(0.03)
 
(0.08)
 
(0.17)
 
(0.04)
Net realized investment
                   
gains
 
-(c)
 
(0.35)
 
-
 
-(c)
 
-(c)
Total Distributions to
                   
Shareholders
 
(0.11)
 
(0.38)
 
(0.08)
 
(0.17)
 
(0.04)
REDEMPTION FEES (b)
 
-
 
-
 
-
 
-(c)
 
-(c)
NET ASSET VALUE, End of
                   
Period
 
$ 10.67
 
$ 8.82
 
$ 10.55
 
$ 10.63
 
$ 10.28
TOTAL RETURN
 
22.28%
 
(12.73)%
 
0.01%(e)
 
5.12%(e)
 
3.24%(d)(e)
RATIOS/SUPPLEMENTARY DATA
               
Net Assets at End of
                   
Period (000’s omitted)
 
$93,696
 
$27,600
 
$32,106
 
$36,613
 
$42,755
Ratios to Average Net
                   
Assets:
                   
Net investment income
 
0.52%
 
0.37%
 
1.17%
 
2.07%
 
1.42%(f)
Net expense (g)
 
2.22%
 
2.23%
 
2.25%
 
2.25%
 
2.24%(f)
Dividend and interest
                   
expense
 
0.34%
 
0.50%
 
0.48%
 
0.41%
 
0.35%(f)
Gross Expense (h)
 
2.56%
 
2.73%
 
2.76%
 
2.78%
 
3.07%(f)
PORTFOLIO TURNOVER RATE
 
114%
 
133%
 
553%
 
424%
 
405%(d)(i)

(a)  
Commencement of operations.
(b)  
Calculated based on average shares outstanding during the period.
(c)  
Less than $0.01 per share.
(d)  
Not annualized.
(e)  
Total return excludes the effect of the applicable sales load.
(f)  
Annualized.
(g)  
Excludes dividend and interest expense.
(h)  
Reflects the expense ratio excluding any waivers and/or reimbursements.
(i)  
As revised, to reflect a computational error. Such amount was previously reported as 95%.
 (j)  
Effective July 31, 2009, C shares were reclassified as R Shares. For the period April 1, 2009 through July 31, 2009, total return for the C Shares was 14.02%. For the aforementioned period, the annualized gross expense and net expense ratios were 3.56% and 3.30%, respectively.
 
 
39

 
 
 
 
 
 
ABSOLUTE STRATEGIES FUND
 
 
 
 
INSTITUTIONAL SHARES
R SHARES
 
For More Information
 
Annual/Semi-Annual Reports
Additional information about the Fund’s investments is available in the Fund’s annual/semi-annual reports to
shareholders. In the Fund’s annual report, you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during its last fiscal year.
 
Statement of Additional Information (“SAI”)
The SAI provides more detailed information about the Fund and is incorporated
by reference into, and is legally part of, this Prospectus.
 
Contacting the Fund
You can get free copies of the annual/semi-annual reports and the SAI, request other information and
discuss your questions about the Fund by contacting the Fund at:
 
Absolute Strategies Fund
P.O. Box 588
Portland, Maine 04112
(888) 992-2765 (toll free)
(888) 99-ABSOLUTE (toll free)
 
The Fund’s prospectus, SAI and annual/semi-annual reports are also available, without charge,
on the Fund’s website at www.absoluteadvisers.com.
 
Securities and Exchange Commission Information
You can also review the Fund’s annual/semi-annual reports, the SAI and other information about the Fund
at the Public Reference Room of the Securities and Exchange Commission (“SEC”). The scheduled hours of operation
of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. You can get copies of this
information, for a duplication fee, by e-mailing or writing to:
 
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-1520
E-mail address: publicinfo@sec.gov
 
Fund information, including copies of the annual/semi-annual reports and the SAI, is available on the
SEC’s website at www.sec.gov.
 
  Distributor
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, Maine 04101
http://www.foreside.com
 
 
Investment Company Act File No. 811-03023
212-PRU 1-0810
 
 
 
 
 
 
 
 

 
 

 


 
Statement of Additional Information
 
August 1, 2010 , as supplemented August 27, 2010, and February 22, 2011


 
ABSOLUTE OPPORTUNITIES FUND
 
 
Institutional Shares (AOFOX)
 


Investment Adviser:
Absolute Investment Advisers LLC
350 Lincoln Street, Suite 216
Hingham, MA 02043


Account Information
and Shareholder Services:
ATTN: Transfer Agent
Atlantic Fund Services
P.O. Box 588
Portland, Maine 04112
(888) 992-2765
(888) 99-ABSOLUTE











This Statement of Additional Information (the “SAI”) supplements the prospectus dated August 1, 2010, as supplemented August 27, 2010, and February 22, 2011, and as amended from time to time (the “Prospectus”), offering Institutional Shares of Absolute Opportunities Fund (the “Fund”), a separate series of Forum Funds, a registered, open-end management investment company (the “Trust”). This SAI is not a prospectus and should only be read in conjunction with the Prospectus. You may obtain the Prospectus without charge by contacting Atlantic Fund Services at the address or telephone number listed above.

Financial Statements for the Fund for the fiscal period ended March 31, 2010 are included in the Annual Report to shareholders and are incorporated by reference into, and legally part of, this SAI. Copies of the Annual Report may be obtained, without charge, upon request by contacting Atlantic Fund Services at the address or telephone number listed above.

 
 

 


TABLE OF CONTENTS
 
 
GLOSSARY
2
     
 
1. INVESTMENT POLICIES AND RISKS
3
     
 
2. INVESTMENT LIMITATIONS
24
     
 
3. MANAGEMENT
25
     
 
4. PORTFOLIO TRANSACTIONS
34
     
 
5. PURCHASE AND REDEMPTION INFORMATION
37
     
 
6. TAXATION
38
     
 
7. OTHER MATTERS
43
     
 
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A-1
     
 
APPENDIX B – MISCELLANEOUS TABLES
B-1
     
 
APPENDIX C – TRUST PROXY VOTING PROCEDURES
C-1
     
  APPENDIX D – ADVISER/SUBADVISER PROXY VOTING PROCEDURES D-1
 
 
 

 

 
Glossary
 
As used in this SAI, the following terms have the meanings listed.
 
“Absolute” or “Adviser” means Absolute Investment Advisers LLC, the Fund’s investment adviser.
 
“Administrator” means Atlantic.
 
“Atlantic” means Atlantic Fund Services .
 
“Board” means the Board of Trustees of the Trust.
 
“CFTC” means Commodities Future Trading Commission.
 
“Code”  means the Internal Revenue Code of 1986, as amended, and includes the regulations thereunder and IRS interpretations  upon which the Fund may rely and private letter rulings and similar authority.
 
“Custodian” means Citibank, N.A.
 
“Distributor” means Foreside Fund Services, LLC.
 
“Fitch” means Fitch Ratings Ltd.
 
“Fund” means Absolute Opportunities Fund, a series of the Trust.
 
“Fund Accountant” means Atlantic.
 
“Independent Trustee” means a Trustee that is not an “interested person” of the Trust, as that term is defined in Section 2(a)(19) of the 1940 Act.
 
“IRS” means the U.S. Internal Revenue Services.
 
“Moody’s” means Moody’s Investors Service, Inc.
 
“NAV” means net asset value per share.
 
“NRSRO” means a nationally recognized statistical rating organization.
 
“NYSE” means New York Stock Exchange.
 
“SAI” means this Statement of Additional Information.
 
“SEC” means the U.S. Securities and Exchange Commission.
 
“S&P” means Standard & Poor’s, a division of The McGraw-Hill Companies,  Inc.
 
“Subadviser” means each of ClearStream Investments, LLC , MetWest Asset Management, LLC, Green Eagle Capital LLC, Kingstown Capital Management LP, Madden Asset Management LLC, and Semaphore Management LLC.
 
“Transfer Agent” means Atlantic Shareholder Services, LLC.
 
“Trust” means Forum Funds, a Delaware statutory trust.
 
“U.S.” means United States.
 
 “U.S. Government Security” means an obligation issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
 
“1933 Act” means the Securities Act of 1933, as amended and including rules and regulations promulgated thereunder.
 
“1934 Act” means the Securities Exchange Act of 1934, as amended and including rules and regulations promulgated thereunder.
 
 “1940 Act” means the Investment Company Act of 1940, as amended and including rules, regulations and SEC interpretations and any exemptive orders or interpretive relief applicable to the Fund.
 
2

 
1.     Investment Policies and Risks


The Fund is a non-diversified series of the Trust. The Fund offers Institutional Shares. This section discusses in greater detail than the Fund’s Prospectus certain investments that the Fund can make. Please see the Prospectus for a discussion of the principal risks of investing in the Fund.

The greatest risk of investing in a mutual fund is that its returns will fluctuate and you could lose money. Recent events in the financial sector have resulted, and may continue to result, in an unusually high degree of volatility in the financial markets. Both domestic and foreign equity markets could experience increased volatility and turmoil, with issuers that have exposure to the real estate, mortgage and credit markets particularly affected, and it is uncertain whether or for how long these conditions could continue. The U.S. Government has already taken a number of unprecedented actions to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and, in some cases, a lack of liquidity. Reduced liquidity in equity, credit and fixed-income markets may adversely affect many issuers worldwide. This reduced liquidity may result in less money being available to purchase raw materials, goods and services from emerging markets, which may, in turn, bring down the prices of these economic staples. It may also result in emerging market issuers having more difficulty obtaining financing, which may, in turn, cause a decline in their stock prices. These events and possible continued market turbulence may have an adverse effect on the Fund.

Security Ratings Information. The Fund’s investments in convertible and debt securities are subject to the credit risk relating to the financial condition of the issuers of the securities that the Fund holds.  The Fund may invest in convertible and other debt securities that are investment or non-investment grade.  The Fund may also purchase unrated securities if, at the time of purchase, the Advisor believes that they are of comparable quality to rated securities that the Fund may purchase.  Unrated securities may not be as actively traded as rated securities.
 
Moody’s, S&P and other NRSROs are private services that provide ratings of the credit quality of debt obligations, including convertible securities.  A description of the range of ratings assigned to various types of bonds and other securities by several NRSROs is included in Appendix A to this SAI.  The Fund may use these ratings to determine whether to purchase, sell or hold a security.  Because a downgrade often results in a reduction in the market price of the security, sale of a downgraded security may result in a loss.  To the extent that the ratings given by an NRSRO may change as a result of changes in such NRSRO or their rating systems, the Advisor may attempt to substitute comparable ratings or/and use such information to determine whether the 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.  Ratings are general and are not absolute standards of quality.  The rating of an issuer is a rating agency’s view of potential developments related to the issuer and may not necessarily reflect actual outcomes.  Also, rating agencies may fail to make timely changes in credit ratings.  An issuer’s current financial condition may be better or worse than a rating indicates.

A.     Equity Securities

1.     Common and Preferred Stock
 
General. The Fund may invest in the common stock of companies. Common stock represents an equity (ownership) interest in a company, and usually possesses voting rights and earns dividends. Dividends on common stock are not fixed but are declared at the discretion of the issuer. Common stock generally represents the riskiest investment in a company. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company’s stock price.
 
The Fund may invest in preferred stock, including adjustable-rate preferred stock. Preferred stock is a class of stock having a preference over common stock as to the payment of dividends and the recovery of investment should a company be liquidated, although preferred stock is usually junior to the debt securities of the issuer. Preferred stock typically does not possess voting rights and its market value may change based on changes in interest rates.
 
The Fund may purchase trust preferred securities, also known as “trust preferreds”, which are preferred stocks issued by a special purpose trust subsidiary backed by subordinated debt of the corporate parent. An issuer creates trust preferred securities by creating a trust and issuing debt to the trust. The trust in turn issues trust preferred securities. Trust preferred securities are hybrid securities with characteristics of both subordinated debt and preferred stock. Such characteristics include long maturities (typically 30 years or more), early redemption by the issuer, periodic fixed or variable interest payments, and maturities at face value. In addition, trust preferred securities issued by bank holding
 
3

 
company may allow deferral of interest payments for up to 5 years. Holders of trust preferred securities have limited voting rights to control the activities of the trust, and no voting rights with respect to the parent company.
 
Risks. The fundamental risk of investing in common and preferred stock is the risk that the value of the stock might decrease. Stock values fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks have provided greater long-term returns and have entailed greater short-term risks than preferred stocks, fixed-income and money market investments. The market value of all securities, including common and preferred stocks, is based upon the market’s perception of value and not necessarily the book value of an issuer or other objective measures of a company’s worth. If you invest in the Fund, you should be willing to accept the risks of the stock market and should consider an investment in the Fund only as a part of your overall investment portfolio.

2.     Convertible Securities and Convertible Arbitrage

General. The Fund may invest in convertible securities. Convertible securities include debt securities, preferred stock or other securities that may be converted into or exchanged for a given amount of common stock of the same or a different issuer during a specified period and at a specified price in the future. A convertible security entitles the holder to receive interest on debt or the dividend on preferred stock until the convertible security matures or is redeemed, converted or exchanged.

Convertible securities rank senior to common stock in a company’s capital structure but are usually subordinated to comparable nonconvertible securities. 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.

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 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.

Moody’s, S&P and other NRSROs are private services that provide ratings of the credit quality of debt obligations, including convertible securities. A description of the range of ratings assigned to various types of bonds and other securities by several NRSROs is included in Appendix A to this SAI. The Fund may use these ratings to determine whether to purchase, sell or hold a security. Ratings are general and are not absolute standards of quality. Securities with the same maturity, interest rate and rating may have different market prices. Credit ratings attempt to evaluate the safety of principal and interest payments and do not evaluate the risks of fluctuations in market value. The rating of an issuer is a rating agency’s view of potential developments related to the issuer and may not necessarily reflect actual outcomes. Also, rating agencies may fail to make timely changes in credit ratings. An issuer’s current financial condition may be better or worse than a rating indicates.

Convertible Arbitrage. Convertible arbitrage involves purchasing a portfolio of convertible securities, generally convertible bonds, and hedging a portion of the equity risk by selling short the underlying common stock. The Fund may also seek to hedge interest rate exposure under some circumstances or use certain strategies to maintain a sector and market neutral portfolio. The average grade of bond in a portfolio is typically below investment grade with individual ratings ranging from AA to CCC. However, as the default risk of the company is hedged by shorting the underlying common stock, the risk is considerably better than the rating of the unhedged bond indicates.

Risks. Investment in convertible securities generally entails less risk than an investment in the issuer’s common stock. Convertible securities are typically issued by smaller capitalized companies whose stock price may be volatile. Therefore, the price of a convertible security may reflect variations in the price of the underlying common stock in a way that nonconvertible debt does not. The extent to which such risk is reduced, however, depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. Convertible arbitrage is subject to special risks, including the risk of default in interest or principal payments, which could result in a loss of income to the Fund, or a decline in the market value of the securities.

3.     Warrants and Rights

General. The Fund may invest in warrants and rights. Warrants are securities, typically issued with preferred stock or bonds, that give the holder the right to purchase a given number of shares of common stock at a specified price and time. The price of the warrant usually represents a premium over the applicable market value of the common stock at the time of the
 
4

 
warrant’s issuance. Warrants have no voting rights with respect to the common stock, receive no dividends and have no rights with respect to the assets of the issuer. A stock right is an option given to a shareholder to buy additional shares at a predetermined price during a specified time.

Risks. Investments in warrants and rights involve certain risks, including the possible lack of a liquid market for the resale of the warrants and rights, potential price fluctuations due to adverse market conditions or other factors and failure of the price of the common stock to rise. If the warrant is not exercised within the specified time period, it becomes worthless.

4.     Depositary Receipts

General. The Fund may invest in depositary receipts. A depositary receipt is a receipt for shares of a foreign-based company that entitles the holder to distributions on the underlying security. Depositary receipts include sponsored and unsponsored American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”) and other similar global instruments. ADRs typically are issued by a U.S. bank or trust company, evidence ownership of underlying securities issued by a foreign company, and are designed for use in U.S. securities markets. EDRs (sometimes called Continental Depositary Receipts) are receipts issued by a European financial institution evidencing an arrangement similar to that of ADRs, and are designed for use in European securities markets.

Risks.  ADRs may involve additional risks relating to political, economic or regulatory conditions in foreign countries. These risks include less stringent investor protection and disclosure standards in some foreign markets and fluctuations in foreign currencies. The securities underlying ADRs are typically denominated (or quoted) in a currency other than U.S. dollars. As a result, changes in foreign currency exchange rates affect the value of the Fund’s portfolio. Generally, when the U.S. dollar rises in value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S. dollars. Conversely, when the U.S. dollar decreases in value against a foreign currency, a security denominated in that currency gains value because the currency is worth more U.S. dollars. This risk means that a strong U.S. dollar will increase those returns. In addition, the securities underlying ADRs trade on foreign exchanges at times when the U.S. markets are not open for trading. As a result, the value of ADRs representing those underlying securities may change materially at times when the U.S. markets are not open for trading.

Unsponsored depositary receipts may be created without the participation of the foreign issuer. Holders of these receipts generally bear all the costs of the depositary receipt facility, whereas foreign issuers typically bear certain costs of a sponsored depositary receipt. The bank or trust company depositary of an unsponsored depositary receipt may be under no obligation to distribute shareholder communications received from the foreign issuer or to pass through voting rights. Accordingly, available information concerning the issuer may not be current and the prices of unsponsored depositary receipts may be more volatile than the prices of sponsored depositary receipts.

 5.     Real Estate Investment and Royalty Trusts

General. The Fund may purchase interests in real estate investment trusts (“REITs”) and royalty trusts. A REIT is a company that pools investor funds to invest primarily in income producing real estate or real estate related loans or interests. A royalty trust is an entity that typically owns oil or natural gas wells or the mineral rights of wells and of property, such as mines. REITs are not taxed on income distributed to their shareholders if, among other things, they distribute substantially all of taxable income (other than net capital gains) for each taxable year.

Risks. Because REITs and royalty trusts have ongoing fees and expenses, which may include management, operating and administration expenses, REIT and royalty trust shareholders, including the Fund, will indirectly bear a proportionate share of those expenses in addition to the expenses of the Fund.

The Fund also may be subject to certain risks associated with the direct investments of the REITs.  REITs may be affected by changes in their underlying properties and by defaults by borrowers or tenants.  Mortgage REITs may be affected by the quality of the credit extended.  Furthermore, REITs are dependent on specialized management skills.  Some REITs may have limited diversification and may be subject to risks inherent in financing a limited number of properties.  REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and to self-liquidations.  In addition, the performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Code or its failure to maintain exemption from registration under the 1940 Act.
 
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In addition, royalty trusts may be subject to certain risks associated with a decline in demand for crude oil, natural gas and refined petroleum products, which, in turn, could adversely affect income and royalty trust revenues and cash flows.  Factors that could lead to a decrease in market demand include a recession or other adverse economic conditions, an increase in the market price of the underlying commodity, higher taxes or other regulatory actions that increase costs, or a shift in consumer demand for such products.  A rising interest rate environment could adversely impact the performance of royalty trusts.  Rising interest rates could limit the capital appreciation of royalty trusts because of the increased availability of alternative investments at more competitive yields.

6.      Investments in LLCs and LPs

General. The Fund may invest in one or more limited liability companies (“LLCs”) and limited partnerships (“LPs”). Certain LLCs and LPs in which the Fund invests may be operating companies or private funds.  Private funds are investment vehicles that are not registered under the 1940 Act. Certain shares of the operating companies and private funds that are organized as LLCs and LPs may not be registered under the 1933 Act.

Risks. For a discussion of the risks related to investments in LLCs and LPs see “Taxation – Investments in LLCs, LPs and Grantor Trusts.”  The Fund will monitor its investments in such companies to assure its compliance with the tax requirements of registered investment companies.

7.      Initial Public Offerings

General. The Fund may purchase securities of companies in initial public offerings.

Risks. Special risks associated with these securities may include a limited number of shares available for trading, unseasoned trading, lack of investor knowledge of the company and limited operating history. These factors may contribute to substantial price volatility for the shares of these companies. The limited number of shares available for trading in some initial public offerings may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing market prices. Some companies whose shares are sold through initial public offerings are involved in relatively new industries or lines of business, which may not be widely understood by investors. Some of these companies may be undercapitalized or regarded as developmental stage companies without revenues or operating income, or the near-term prospects of achieving them.

B.     Fixed Income Securities

1.      General

U.S. Government Securities. The Fund may invest in U.S. Government Securities. U.S. Government Securities include securities issued by the U.S. Treasury and by U.S. Government agencies and instrumentalities.  U.S. Government Securities may be supported by the full faith and credit of the United States (such as mortgage-backed securities and certificates of the Government National Mortgage Association (“GNMA”) and securities of the Small Business Administration); by the right of the issuer to borrow from the U.S. Treasury (for example, Federal Home Loan Bank securities); by the discretionary authority of the U.S. Treasury to lend to the issuer (for example, Fannie Mae (formerly the Federal National Mortgage Association) (“FNMA”) securities); or solely by the creditworthiness of the issuer (for example, Federal Home Loan Mortgage Corporation (“FHLMC”) securities).

U.S. Government Securities not backed by the full faith and credit of the United States must look principally to the agency or instrumentality issuing the obligation for repayment and may not be able to assert a claim against the United States in the event that the agency or instrumentality does not meet its commitment.  No assurance can be given that the U.S. Government would provide support if it were not obligated to do so by law.  Neither the U.S. Government nor any of its agencies or instrumentalities guarantees the market value of the securities they issue.

Corporate Debt Obligations. The Fund may invest in corporate debt obligations. Corporate debt obligations include corporate bonds, debentures, notes, commercial paper and other similar debt obligations , which are instruments, used by companies to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and must repay the amount borrowed at maturity.
 
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Commercial paper (short-term unsecured promissory notes) is issued by companies to finance their current obligations and normally has a maturity of less than 9 months. The Fund may also invest in corporate fixed income securities registered and sold in the U.S. by foreign issuers (Yankee bonds) and those sold outside the U.S. by foreign or U.S. issuers (Eurobonds).

Treasury Inflation Protected Securities. The Fund may invest in treasury inflation protected securities (“TIPS”). TIPS are income-generating instruments whose interest and principal payments are adjusted for inflation—a sustained increase in prices that erodes the purchasing power of money. The inflation adjustment, which is typically applied monthly to the bond’s principal, follows a designated inflation index, such as the consumer price index (CPI). A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the principal value and the interest payments increase. This adjustment can provide investors with a hedge against inflation, as it helps preserve the purchasing power of their investments. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds. TIPS are subject to certain risks, include interest rate risk and deflation r