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Forum Funds – ‘N-CSR’ for 3/31/18

On:  Monday, 6/4/18, at 3:38pm ET   ·   Effective:  6/4/18   ·   For:  3/31/18   ·   Accession #:  1435109-18-370   ·   File #:  811-03023

Previous ‘N-CSR’:  ‘N-CSR’ on 3/2/18 for 12/31/17   ·   Next:  ‘N-CSR’ on 6/26/18 for 4/30/18   ·   Latest:  ‘N-CSR’ on 3/1/24 for 12/31/23

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/04/18  Forum Funds                       N-CSR       3/31/18    4:10M                                    Atlantic Fd Admi… LLC/FAAbsolute Capital Opportunities Fund Institutional Shares (CAPOX)Absolute Convertible Arbitrage Fund Institutional Shares (ARBIX)Absolute Strategies Fund Institutional Shares (ASFIX) — R Shares (ASFAX)Adalta International Fund ADAQXBeck, Mack & Oliver Partners Fund BMPEXLMCG Global Market Neutral Fund Institutional Shares (GMNIX) — Investor Shares (GMNRX)LMCG Global MultiCap Fund Institutional Shares (GMCIX) — Investor Shares (GMCRX)LMCG International Small Cap Fund Institutional Shares (ISMIX) — Investor shares (ISMRX)Merk Absolute Return Currency Fund Institutional Share Class (MAAIX) — Investor (MABFX)Merk Hard Currency Fund Institutional Share Class (MHCIX) — Investor Shares (MERKX)Payson Total Return Fund PBFDX

Certified Annual Shareholder Report by a Management Investment Company   —   Form N-CSR
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report by a            HTML   2.85M 
                          Management Investment Company                          
 4: EX-99.906 CERT  Miscellaneous Exhibit                           HTML      8K 
 3: EX-99.CERT  Miscellaneous Exhibit                               HTML     17K 
 2: EX-99.CODE ETH  Miscellaneous Exhibit                           HTML     67K 


N-CSR   —   Certified Annual Shareholder Report by a Management Investment Company


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 C: 
As filed with the Securities and Exchange Commission on June 4, 2018

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number 811-03023

FORUM FUNDS
Three Canal Plaza, Suite 600


Jessica Chase, Principal Executive Officer
Three Canal Plaza, Suite 600
207-347-2000


Date of fiscal year end: March 31

Date of reporting period: April 1, 2017March 31, 2018

 
 
 

ITEM 1. REPORT TO STOCKHOLDERS.
 

 
 

 
ANNUAL REPORT
 
 

 

 


The views in this report were those of Absolute Investment Advisers LLC (“AIA” and “Absolute”), the investment  adviser to the Absolute Strategies Fund, Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund (each a “Fund” and collectively the “Funds”) as of March 31, 2018, and may not reflect their views on the date this report is first published or any time thereafter. These views are intended to assist shareholders in understanding their investment in the Funds and do not constitute investment advice. None of the information presented should be construed as an offer to sell or recommendation of any security mentioned  herein.
 
The Absolute Strategies Fund utilizes multi-manager strategies with multiple sub-advisers, they may be exposed to varying forms of risk. These risks include, but are not limited to, general market risk, multi-manager risk, focused portfolio risk, small company risk, foreign risk, interest rate risk, credit risk, prepayment risk, IPO risk, liquidity risk, high turnover risk, leverage risk, derivatives risk and cash and cash equivalents holdings risk. For a complete description of the Funds’ principal investment risks, please refer to each Fund’s prospectus.
 
Beta is a measure of an asset’s sensitivity to broad market moves, as measured for instance by the S&P 500® Index. A fund with a realized beta of 0.5 with respect to the S&P 500® Index infers that about 50% of the fund’s  returns were explained by the performance of the index (the rest of the performance was independent of the index). The HFR Indices are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. One cannot invest directly in an index.
 
Absolute Strategies Fund, Absolute Funds, and Absolute Investment Advisers are registered service marks.  Other marks referred to herein are the trademarks, service marks or registered trademarks of their respective owners.


ABSOLUTE STRATEGIES FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

 
Dear Shareholder,

We are pleased to present the Annual Report for the Absolute Strategies Fund (the “Fund”) for the year ended March 31, 2018.

Capital preservation/downside protection through unique risk and return positioning that helps diversify traditional portfolios are important themes of the Fund. Achieving these over the course of an investment cycle often means constructing a portfolio of investments that looks very different from other investment funds, including alternative ones. It requires being defensive at times when others are overly aggressive. It requires looking for value in areas of the market that are over-looked or unloved by other investors. Achieving these goals also means that the Fund’s performance is likely to go through periods of under-performance as well as out-performance versus other strategies. We believe that over time the uniqueness of the strategy creates significant non-correlation and diversification characteristics. The markets provided favorable conditions for the Fund during the volatile months of February and March of 2018. For those two months the Fund (Institutional Shares) returned 3.46% vs. -3.38% and -6.13% for the HRFX Global Hedge Fund Index and the S&P 500 Index respectively. For much of the remainder of the Fund’s fiscal  year, however, extreme low levels of volatility hindered our ability to generate performance and the Fund (Institutional Shares) returned -4.45% over the 12 months ended March 31, 2018. By comparison, the HRFX Global Hedge Fund Index returned 3.20% and the S&P 500 Index returned 13.99%.

We believe that recent dynamics have resulted in a market that is narrow and highly inefficient. Since the introduction of asset purchases by central banks (also known as quantitative easing), financial assets have become increasingly expensive and highly correlated; price-discovery and volatility are artificially suppressed. We believe that constructing  a portfolio of various industry-favored hedge fund strategies will not achieve the risk-adjusted results we desire. Traditional assets classes and most hedge fund strategies have become a correlated beta trade that acts in unison  with the overall equity markets. We believe there is little, if any, potential for a diversified portfolio of typical hedge fund strategies to produce anything other than the returns of a traditional portfolio. In effect, the entire hedge fund universe has become as crowded as the ETF universe, and both are taking nearly the same risks that also require abnormally low levels of volatility. A repricing of financial markets caused by artificially suppressed interest rates  would very likely result in large losses across equities, fixed income and many alternative investments. To produce alpha within such an environment would require an investment strategy to do something very different including, at times, to take the other side. While this approach has been frustrating over the past few years, we believe the eventual unwind of correlated asset risks creates an opportunity to set up a portfolio that can generate significant outperformance. We believe markets are setting up for an extensive long/short opportunity that takes advantage of confusion and continuous volatility. In fact, it may have already begun. Extended periods of extreme low levels of volatility are an historical anomaly. We believe the long-awaited return to normal levels of market volatility will provide a much improved environment for the Fund’s performance while creating challenges for funds geared toward passive market beta.

During the year, our discipline and process was preserved and the Fund maintained a balance of long and short exposures. We  continue to allocate capital based on opportunities to be long and short. The challenge has come from a market cycle that has been skewed by central bank intrusions. In this regard, as prudent investors who view markets through a lens of capital at risk, we must take into account what we believe are extreme levels of high valuations, the proliferation of momentum/trend investing, and artificially suppressed volatility when constructing the Fund’s portfolio.  All of these have been coiled against us in both time and price.  From a long/short perspective, we tend to favor underpriced or out of favor long ideas vs a short portfolio of overpriced or crowded areas. Many of these positions are simply relative-value relationships that revert to the mean as assets begin to seek value once areas of perfection eventually turn out to be illusory.  Volatility is used to help monetize these relationships over   time.  Our performance has been directly impacted by a lack of volatility, and an extreme turn of the market cycle that has punished out-of-favor longs while rewarding crowded, over-valued indexing.  This  has  created  a  large  spread between our long and short positions that has pushed our overall portfolio to opportunity levels we have not seen since 2009. We are now currently positioned for extensive mean reversion opportunities that have been  stretched  over several
 
 
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ABSOLUTE STRATEGIES FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

 
years and have recently reached historic levels. Details of these opportunities along with recent performance are outlined below.

Value vs Growth. One major side effect from all of the central bank activity and momentum chasing is that value investing is currently stuck in one of the worst stretches on record. Value stocks have significantly lagged growth stocks over the past year, compounding a gap that has persisted since the end of the financial crisis almost ten years ago. Growth has outperformed value by 14% over the past 12 months and by approximately 70% since 2007. This has caused the bulk of our poor returns this year. However, the last time value underperformed growth to this degree was in 1999.   During the next three years, value outperformed growth by more than 100%.   We believe this is a significant market-neutral, risk/reward opportunity. Approximately 40-45% of our portfolio is positioned for this mean reversion idea of long value, short  growth/indices.

Short Equity. Market indices are trading at valuation levels only seen near 1929 and 2000 peaks. The median price/ sales for the S&P 500 is over 2.5x, or nearly 50% higher than the prior peak in 2007. The Russell 2000 Index trades for a P/E near 100. The Nasdaq Composite P/E is over 50.  While having a net short equity allocation has had a  negative impact on Fund performance, we believe many securities in various global markets and sectors are at risk of significant repricing, some upwards of 50% or more. Approximately 20% of the portfolio is currently positioned net short  equity securities.

Convertible Arbitrage. Convertible arbitrage is one of few areas of the financial markets that is not flooded with excess capital and has provided modest returns. Hedged convertible securities currently offer attractive return and risk characteristics relative to most other areas of the bond market. This strategy also offers a relatively steady return profile to diversify away from other areas of our portfolio. Approximately 20% of the portfolio is allocated to convertible arbitrage.

Energy. Energy is another area that is seeing significant divergence as compared to the overall market. The energy sector is close to its lowest weighting in the S&P 500 on record of only 4-5%; this was last seen near the 2000 bubble peak. Oil services companies recently traded near 2009 financial crisis lows.  Relative underperformance of energy  year to date versus the S&P 500 is -25%, and this has contributed to negative performance. However, following the  last low weighting in the S&P in 2000, energy companies outperformed the S&P by over 50% during the next three years and over 150% during the next six years. Approximately 10-12% of our portfolio is positioned long energy vs short  market indices.

Commodities. Other commodities are also at an extreme low vs overall equity market indices. The CRB Commodity Index has underperformed the S&P 500 by 40% over the last few years, a deficit nearly identical to that during the late 1990s. The ratio of commodities/S&P 500 is also on par with the early 1970s, a period that preceded significant commodity inflation. Both time periods saw commodities outperform the S&P 500 by over 100% during the following three years. A more modest 5-7% of our portfolio is targeted for long commodity-sensitive securities vs market  indices.

Volatility. Up until very recently, volatility has never been more compressed than it is today. The US equity market recently set a record for the number of days without a 3% dip in prices. Market players across financial markets are now using volatility as an input for risk taking. This is most certainly the case with risk parity strategies, but institutions and retail investors are also using short volatility trading to generate income or excess yield. This is very similar to the idea of selling credit default swaps (selling insurance) during the housing bubble which then led to the financial crisis.  It is estimated that risk parity, quants and Commodity Trading Adviser (CTA) strategies amount to $1 trillion in implicit short volatility strategies. Additionally, tens of billions are being bet directly on short volatility through ETFs. Volatility has never been more suppressed and, as seen in recent months, can return quickly.  We believe our overall portfolio is set up to benefit from an increase in volatility and should be able to capitalize on large spikes in market movements both long and  short.

In summary, many of the Fund’s long securities don’t have a big story or theme attached to them and may not be a major part of an index. The Fund’s short securities may be expensive and/or exhibiting low growth with significant  economic
 
 
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ABSOLUTE STRATEGIES FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)


sensitivity. Equity index securities are also used on the short side to create relative-value arbitrage opportunities versus Fund long securities.  Sub-adviser strategies based on long equity exposure were the Fund’s  top performers  over the last year with the exception of energy related securities, which provided negative performance. Convertible arbitrage also performed well during the period. This is notable because the strategy typically exhibits low sensitivity  to equity markets. Strategies that included short exposure were the largest detractors. Shorting has been particularly difficult as few things seemed to have gone down in price regardless of how poorly a company or group of companies performed. The Fund’s short exposure remains flexible and has varied over the past year as large spikes in volatility have offered opportunities to monetize short term gains. During periods of low volatility the Fund has maintained a large amount of short exposure due to historically high valuations and weak fundamentals (see below). The timing is uncertain but we believe the payoff in short opportunities could be significant. Long periods of low volatility and high valuations have historically given way to periods of high volatility, leading to market valuations reverting to the  mean.

We believe markets move in cycles over time. Occasionally cycles reach extremes, which has actually been a common occurrence over the past 20 years. Additionally, some markets may be nearing the end of an extreme bull cycle while others may be ending an extreme bear cycle. It is very difficult to know the timing of when a market cycle turns, and patience can be especially tested when both long and short positions are fighting the last trend.
 
In late 2008, it seemed as if the market would never stop going down.  Price-insensitive  sellers  dominated  the market.  Yet, we removed the bulk of our shorts and increased our net long position to the largest ever at the time.   We were early, but the opportunity was very large. Today, we see the inverse of that cycle. The market seems as if it  will never go down and price-insensitive buyers are dominating the market. Again, we may be early but the opportunity warrants our positioning.
 
Comment on recent market volatility and positioning:
 
In a prior commentary, we stressed that much of the distortions in asset prices were being leveraged further by large momentum players betting on short volatility, which could contribute a spark for an eventual market turbulence and we were well positioned for this turbulence in early  2018:
 
“We  have witnessed historic financial market intrusions by central banks that has created extreme distortions in asset prices and caused volatility to collapse. A lack of volatility has led risk-parity strategies, quant funds and momentum players to bet further on these extremes.  We  are even witnessing a massive bet on “short volatility”  which is essentially a replay of the “selling of insurance” gravy train that led up to the financial crisis. Is this a permanent new paradigm? Is it really different this time?  Those questions have been repeated throughout history  and the predictions have always proved incorrect.”
 
We continue to remind investors of what we see as extreme market risks in our dialogue, and it should, at a minimum, serve as a warning for what could eventually materialize into a much larger problem.  It is hard to tell exactly where   we go from here but we feel certain that downside risks are as great as anything we can analyze historically. At this time, we are maintaining our positioning. Should markets experience a large drawdown, there may be a short term opportunity to reduce some of our net short exposure. Option positions have also been utilized opportunistically for
 
 
3
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ABSOLUTE STRATEGIES FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)


both upside and downside tail risk. In effect, the Fund may capitalize on either significant spikes up or down in market indices.

The volatility shock of February 2018 should serve as a glimpse of what we believe is likely to come in the future. Just as the sub-prime and CDS crisis, it may not happen all at once. Sometimes a slower progression with large intermediate swings in asset prices can hurt just the same as an undiversified portfolio erodes over time.

Sincerely,
 
-s- Jay Compson
 
Jay Compson
Portfolio Manager
Absolute  Investment  Advisers LLC
 
 
4
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
The following charts reflect the change in the value of a hypothetical $1,000,000 investment in Institutional Shares and a $250,000 investment in R Shares, including reinvested dividends and distributions, in Absolute Strategies Fund (the “Fund”) compared with the performance of the benchmarks, S&P 500 Index (“S&P 500”), Bloomberg Barclays U.S. Aggregate Bond Index (“Barclays Index”), the HFRX Global Hedge Fund Index (“HFRX”) and the MSCI World Index (“MSCI World”), over the past ten fiscal years. The S&P 500 is a broad-based, measurement of the U.S. stock market based on the performance of 500 widely held large capitalization common stocks. The Barclays Index is a broad based measurement of the U.S. dollar-denominated, investment-grade, fixed-rate, SEC registered taxable bond market. The HFRX is a broad-based measurement of the performance of the hedge fund universe; it is comprised of eight strategies - convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset-weighted based on the distribution of assets in the hedge fund industry. The MSCI World measures the performance of a diverse range of 24 developed countries’ stock markets including the United States and Canada, and countries in Europe, the Middle East; Asia and the Pacific. The total return of the indices include the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the indices do not include expenses. The Fund is professionally managed, while the indices are unmanaged and are not available for investment.
 
Comparison of Change in Value of a $1,000,000 Investment
Absolute Strategies Fund - Institutional Shares vs. S&P 500 Index, Bloomberg Barclays U.S. Aggregate Bond Index,
HFRX Global Hedge Fund Index and MSCI World Index
 
(LINE GRAPH)
 
 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Five Year
Ten Year
 
 
Absolute  Strategies  Fund  -  Institutional   Shares
-4.45%
-1.54%
0.60%
 
 
S&P 500 Index
13.99%
13.31%
9.49%
 
 
Bloomberg Barclays U.S. Aggregate Bond   Index
1.20%
1.82%
3.63%
 
 
HFRX Global Hedge Fund  Index
3.20%
1.29%
-0.24%
 
 
MSCI World Index
13.59%
9.70%
5.90%
 
 
 
5
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
MARCH  31,  2018
 
Comparison of Change in Value of a $250,000 Investment
Absolute Strategies Fund - R Shares vs. S&P 500 Index, Bloomberg Barclays U.S. Aggregate Bond Index,
HFRX Global Hedge Fund Index and MSCI World  Index
 
(LINE GRAPH)
 
 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Five Year
Ten Year
 
 
Absolute  Strategies  Fund  -  R    Shares
-5.30%
-2.12%
0.10%
 
 
S&P 500 Index
13.99%
13.31%
9.49%
 
 
Bloomberg Barclays U.S. Aggregate Bond   Index
1.20%
1.82%
3.63%
 
 
HFRX Global Hedge Fund  Index
3.20%
1.29%
-0.24%
 
 
MSCI World Index
13.59%
9.70%
5.90%
 
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Institutional Shares and R Shares are 2.94% and 3.56%, respectively. Excluding the effect of expenses attributable to dividends and interest on short sales and acquired fund fees and expenses, the Fund's total annual operating expense ratios for Institutional Shares and R Shares would be 1.94% and 2.51%, respectively. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.99% and 2.24% for Institutional Shares and R Shares, respectively, through August 1, 2019 (the “Expense Cap”). The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant  to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. To the extent that the Fund invests in another fund sponsored by the Fund's adviser or its affiliates, the adviser may waive certain fees and expenses. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please  call  (888) 992-2765.
 
 
6
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Dear Shareholder,
 
For the year ending March 31, 2018, the Absolute Capital Opportunities Fund (the “Fund”) returned 14.13%. By comparison, the HFRX Equity Hedge Index returned 8.35%.
 
Over the past year, the Fund has been positioned defensively but has also owned broad market equity options, mostly on the S&P 500 Index, that should benefit from increased stock market volatility regardless of direction. Much of the Fund’s return was generated from these options in the first quarter of 2018 when market volatility returned. The options also detracted from performance in parts of 2017 when volatility was muted.
 
Kovitz Investment Group Partners, LLC (“Kovitz”), the Fund’s subadviser, utilizes a core equity long-short portfolio with opportunistic tail hedging, both upside and downside. This hedging allowed the Fund to generate a solid return, despite maintaining a value bias on the long side, in an environment where value under-performed growth by a significant margin (as measured by Russell 3000 Value and Growth Indices).
 
The Fund continues to be positioned much as it was in the first quarter of 2018. The Fund continues to be well hedged toward the downside. Kovitz believes the level of defensive positioning is prudent given the heightened starting valuations, low but potentially rising interest rates, and the potential (not probable) for geopolitical missteps. It is worth noting that the Fund does own a portfolio of competitively advantaged businesses generally trading at 12-16 times Kovitz’ estimation of normalized earnings, and call options designed to benefit from continued upside volatility or a generally rising stock market.
 
We believe the Fund is positioned well for a variety of market environments, particularly if equity markets remain volatile.

Sincerely,
-s- Jay Compson
Jay Compson
Portfolio Manager
Absolute Investment Advisers LLC
 
 
7
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
MARCH 31, 2018
 
The following chart reflects the change in the value of a hypothetical $1,000,000 investment, including reinvested dividends and distributions, in the Absolute Capital Opportunities Fund (the “Fund”) compared with the performance of the benchmarks, the HFRX Equity Hedge Index (“HFRX Equity”) and the S&P 500 Index (“S&P 500”), since inception. HFRX Equity measures the performance of strategies that maintain positions both    long and short in primarily equity and equity derivative securities. The S&P 500 is a broad-based measurement of the U.S. stock market based on the performance of 500 widely held large capitalization common stocks. The total return of the indices includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the indices do not include expenses. The Fund is professionally managed, while the indices are unmanaged and are not available for investment.

Comparison of Change in Value of a $1,000,000 Investment
Absolute Capital Opportunities Fund vs. HFRX Equity Hedge Index
and S&P 500 Index
 

 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Since Inception
12/30/15
Absolute Capital Opportunities Fund
14.13%
10.49%
HFRX Equity Hedge Index
8.35%
4.82%
S&P 500 Index
13.99%
13.91%
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratio (gross) is 3.51%. Excluding the effect of expenses attributable to dividends and interest on short sales, the Fund's total annual operating expense ratio would be 2.81%. However, the Fund’s adviser has contractually agreed  to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.75%, through August 1, 2019 (the “Expense Cap”). The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the    lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (888)  992-2765.
 
 
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ABSOLUTE FUNDS


ABSOLUTE CONVERTIBLE ARBITRAGE FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
MARCH  31,  2018
 
Dear Shareholder,

For the period ending March 31, 2018, the Absolute Convertible Arbitrage Fund (the “Fund”) returned 5.94%. By comparison, the HFRX Fixed Income Convertible Arbitrage Index returned 4.71%.

The Fund’s subadviser, Mohican Financial Management, LLC (“Mohican”), executes a convertible arbitrage strategy with a particular focus on small and mid-cap issues. Even though convertible bonds are hybrid securities, they are fixed income securities with some exposure to interest rates. Interest rates rose steadily during the period which put downward pressure on valuations.

Performance can be classified as “slow and steady” over the past year. Returns in each month were positive and the Fund exhibited extremely low volatility. Sensitivity to broad equity and fixed income markets has also been very low.

Mohican believes that the convertible asset class today looks healthy in terms of credit quality, short durations, security profile and liquidity. There were no convertible defaults in the first quarter following a year where the default rate was less than 1%. The average duration for the asset class is about 3 years, which we believe provides investors significant protection against interest rate fluctuations. Despite the recent drawdowns in equities, stock prices remain overvalued which means the convertible market continues to offer ample supply of “in-the-money”, heavier hedged, volatility arbitrage opportunities, and we expect liquidity to steadily improve.
 
Mohican also notes that convertible new issuance in the first quarter of 2018 was strong. 32 deals were priced which annualizes to 128 – well in excess of the 104 deals priced in 2017. Importantly, 30 of the 32 deals were issued by small and mid- cap companies and 31 of the 32 deals were not rated by the rating agencies. Mohican believes non-rated, small and mid-cap convertibles offer a consistent source of inefficiencies and value in the convertibles marketplace where returns can be extracted.

We believe the Fund is positioned for a variety of market environments, particularly if credit markets remain volatile.
 
Sincerely,
 
 
Jay Compson
Portfolio Manager
Absolute Investment Advisers LLC
 
 
9
ABSOLUTE FUNDS


ABSOLUTE CONVERTIBLE ARBITRAGE FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
The following chart reflects the change in the value of a hypothetical $25,000 investment, including reinvested dividends and distributions, in Absolute Convertible Arbitrage Fund (the “Fund”) compared with the performance of the benchmarks, HFRX Fixed Income Convertible Arbitrage Index ("HFRX Fixed Income"), Bloomberg Barclays U.S. Aggregate Bond Index ('Barclays Index'), IBoxx High Yield Index ("iBoxx Index") and the S&P 500 Index ("S&P 500"), over the past ten fiscal years. The HFRX Fixed Income measures the performance of hedge fund strategies that are predicated on realizing of a spread between related instruments at least one of which is a convertible fixed income instrument. The iBoxx Index consists of liquid USD high yield bonds, selected to provide a balanced representation of the broad USD high yield corporate bond universe. The S&P 500 is a broad-based measurement of the U.S. stock market based on the performance of 500 widely held large capitalization common stocks. The Barclays Index is a broad based measurement of the U.S. dollar-denominated, investment-grade, fixed-rate, SEC registered taxable bond market. The total return of the indices include the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the indices do not include expenses. The Fund is professionally managed, while the indices are unmanaged and are not available for investment.

Comparison of Change in Value of a $25,000 Investment
Absolute Convertible Arbitrage Fund vs. HFRX Fixed Income Convertible Arbitrage Index, Bloomberg Barclays U.S. Aggregate Bond Index,
iBoxx High Yield Index and S&P 500 Index
 
(line graph)
 
 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Five Year
Ten Year
 
 
Absolute  Convertible  Arbitrage  Fund  -  Institutional  Shares
5.94%
4.35%
6.41%
 
 
HFRX Fixed Income Convertible Arbitrage Index
4.71%
1.82%
-2.10%
 
 
Bloomberg Barclays U.S. Aggregate Bond   Index
1.20%
1.82%
3.63%
 
 
IBoxx High Yield Index
2.83%
4.07%
6.75%
 
 
S&P 500 Index
13.99%
13.31%
9.49%
 
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratio (gross) is 2.83%. Excluding the effect of expenses attributable to dividends and interest on short sales, the Fund's total annual operating expense ratio would be 2.58%. However, the Fund’s adviser has contractually agreed  to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, dividend and interest on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.60%, through August 1, 2019 (the “Expense Cap”). The adviser may be reimbursed by the Fund for fees waived     and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the    lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. The performance table and graph do not reflect the
 
 
10
ABSOLUTE FUNDS


ABSOLUTE CONVERTIBLE ARBITRAGE FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (888)  992-2765.

In August 2017, a hedge fund managed by Mohican Financial Management LLC reorganized into the Fund. The Fund’s performance for periods prior to the commencement of operations is that of the hedge fund and is based on calculations that are different from the standardized method of calculations adopted by the SEC. The performance of the hedge fund was calculated net of the hedge fund’s fees and expenses. The performance of the hedge fund is not the performance of the Fund, has not been restated to reflect the fees, estimated expenses and fee waivers and/or expense limitations of the Fund, and is not necessarily indicative of the Fund’s future performance. If the performance of the hedge fund had been restated to reflect the applicable fees and expenses of the Fund, the performance may have been lower. The hedge fund was not registered under the Investment Company Act of 1940 (“1940 Act”) and was not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, which, if applicable, may have adversely affected its performance.
 
 
11
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
PORTFOLIO HOLDINGS SUMMARY (Unaudited)

 
Portfolio Breakdown (% of Net Assets)
Long Positions
Common Stock
29.7%
Asset Backed Obligations
0.2%
Investment Companies
38.0%
Money Market Fund
24.3%
Purchased Options
0.4%
Short Positions
Common Stock
(17.6)%
Investment Company
(1.4)%
Other Assets & Liabilities, Net *
26.4%
 
100.0%
 
*
Consists of deposits with the custodian and/or brokers for securities sold short, cash, foreign currency, prepaid expenses, receivables, payables and accrued liabilities. Deposits with the custodian and/or brokers for securities sold short represent 24.6% of net assets. See Note 2 of the accompanying Notes to Financial  Statements.
 
 
(% of Equity Holdings)
Sector Breakdown
Long
Short
Consumer Discretionary
11.9%
31.5%
Consumer Staples
10.9%
13.8%
Energy
32.8%
0.0%
Financial
12.9%
23.9%
Healthcare
5.1%
0.0%
Industrial
8.9%
19.6%
Information  Technology
1.9%
7.4%
Materials
11.5%
0.8%
Telecommunication Services
2.1%
3.0%
Utilities
2.0%
0.0%
 
100.0%
100.0%
 
See Notes to Financial Statements.
12
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
SCHEDULE OF INVESTMENTS

 
Shares  
Security Description
 
Value
 
Long Positions - 92.6%  
Common Stock - 29.7%
 
Consumer Discretionary - 3.6%
 
 
7,000
 
Anheuser-Busch  InBev  SA/NV, ADR
 
$
769,580
 
 
20,000
 
CVS  Health Corp.
   
1,244,200
 
 
39,630
 
Freshpet, Inc. (a)(b)
   
651,914
 
 
52,588
 
Green Plains Partners LP (a)
   
915,031
 
 
6,859
 
Lithia Motors, Inc., Class A (a)
   
689,467
 
 
106,698
 
Luby's, Inc. (b)
   
296,620
 
 
12,194
 
PetIQ, Inc. (a)(b)
   
324,360
 
 
14,600
 
The TJX Cos., Inc.
   
1,190,776
 
           
6,081,948
 
Consumer Staples - 3.2%
 
 
8,383
 
Calavo Growers, Inc. (a)
   
772,912
 
 
16,767
 
General  Mills, Inc.
   
755,521
 
 
10,000
 
Nestle SA, ADR
   
790,500
 
 
31,247
 
Pilgrim's Pride Corp.  (a)(b)
   
768,989
 
 
11,432
 
Post Holdings, Inc. (a)(b)
   
866,088
 
 
28,961
 
Sprouts Farmers Market, Inc.  (a)(b)
   
679,715
 
 
12,194
 
Tyson Foods, Inc., Class A (a)
   
892,479
 
           
5,526,204
 
Energy  -  9.7%
           
 
5,221
 
Andeavor
   
525,024
 
 
9,833
 
Antero Midstream GP LP
   
157,230
 
 
11,791
 
Antero Resources Corp. (b)
   
234,051
 
 
33,872
 
Cabot Oil & Gas  Corp.
   
812,251
 
 
23,434
 
Centennial  Resource  Development, Inc., Class  A (b)
   
430,014
 
 
18,270
 
Cheniere Energy, Inc. (b)
   
976,532
 
 
2,627
 
Cimarex Energy Co.
   
245,624
 
 
2,029
 
Concho Resources, Inc. (b)
   
305,019
 
 
10,562
 
Continental Resources, Inc./OK (b)
   
622,630
 
 
12,389
 
Devon Energy Corp.
   
393,846
 
 
5,070
 
Diamondback Energy, Inc. (b)
   
641,456
 
 
60,000
 
Enbridge, Inc.
   
1,888,200
 
 
17,991
 
Energy Transfer Partners LP
   
291,814
 
 
9,455
 
EOG Resources, Inc.
   
995,328
 
 
18,127
 
EQT Corp.
   
861,214
 
 
8,082
 
FTS International, Inc.  (b)
   
148,628
 
 
9,566
 
Halliburton Co.
   
449,028
 
 
6,177
 
HollyFrontier Corp.
   
301,808
 
 
9,716
 
Keane Group, Inc. (b)
   
143,797
 
 
6,424
 
Marathon Petroleum Corp.
   
469,659
 
 
12,774
 
MPLX LP
   
422,053
 
 
6,347
 
ONEOK, Inc.
   
361,271
 
 
1,929
 
Phillips 66
   
185,030
 
 
1,750
 
Pioneer Natural Resources Co.
   
300,615
 
 
16,965
 
Plains GP Holdings, LP
   
368,989
 
 
13,980
 
ProPetro Holding Corp. (b)
   
222,142
 
 
11,681
 
RSP  Permian, Inc. (b)
   
547,605
 
 
15,000
 
Schlumberger, Ltd.
   
971,700
 
 
29,190
 
Tallgrass Energy GP LP
   
555,194
 
 
13,401
 
Targa Resources Corp.
   
589,644
 
 
37,865
 
The  Williams  Cos., Inc.
   
941,324
 
 
20,860
 
WPX Energy, Inc. (b)
   
308,311
 
           
16,667,031
 
Financial  - 3.8%
           
 
6,600
 
Berkshire  Hathaway,  Inc., Class  B (b)
   
1,316,568
 
 
35,000
 
Brookfield Asset Management, Inc., Class A
   
1,365,000
 
 
20,000
 
Loews Corp.
   
994,600
 
 
25,000
 
The Bank of New York Mellon  Corp.
   
1,288,250
 
 
3,000
 
The Howard Hughes Corp. (b)
   
417,390
 
 
16,000
 
WR Berkley Corp.
   
1,163,200
 
           
6,545,008
 
 
See Notes to Financial Statements.
13
ABSOLUTE FUNDS
 


ABSOLUTE STRATEGIES FUND
SCHEDULE OF INVESTMENTS

 
Shares
 
Security Description
 
Value
 
Healthcare - 1.5%
     
 
45,000
 
Sanofi, ADR
 
$
1,803,600
 
 
9,603
 
Zoetis, Inc. (a)
   
801,947
 
           
2,605,547
 
Industrial - 2.7% 
       
 
6,432
 
Alamo Group, Inc.
   
706,877
 
 
32,771
 
Briggs & Stratton Corp. (a)
   
701,627
 
 
6,097
 
Deere & Co. (a)
   
946,986
 
 
10,000
 
Expeditors International of Washington, Inc.
   
633,000
 
 
6,402
 
John Bean Technologies Corp. (a)
   
725,987
 
 
22,102
 
Trimble, Inc. (a)(b)
   
793,019
 
           
4,507,496
 
Information Technology - 0.6%
       
 
53,000
 
Conduent, Inc. (b)
   
987,920
 
Materials - 3.4%
       
 
21,000
 
Axalta Coating Systems, Ltd. (b)
   
633,990
 
 
60,000
 
Cameco Corp.
   
545,400
 
 
8,383
 
Compass Minerals International, Inc.
   
505,495
 
 
8,383
 
Innophos Holdings, Inc.
   
337,080
 
 
5,000
 
Monsanto Co.
   
583,450
 
 
14,327
 
Nutrien, Ltd. (a)
   
677,094
 
 
19,500
 
Royal Gold, Inc.
   
1,674,465
 
 
8,534
 
US Silica Holdings, Inc.
   
217,788
 
 
5,911
 
Westlake Chemical Corp.
   
657,008
 
           
5,831,770
 
Telecommunication Services - 0.6%
       
 
25,000
 
Liberty Global PLC, Class C (b)
   
760,750
 
 
20,000
 
News Corp., Class A
   
316,000
 
           
1,076,750
 
 
Utilities - 0.6%
           
 
14,900
  Dominion Energy, Inc.    
1,004,707
 
               
Total Common Stock (Cost $44,295,545)
   
50,834,381
 
 
Principal
 
Security Description
 
Rate
 
Maturity
 
Value
 
Asset Backed Obligations - 0.2%
             
48,385
 
Adjustable Rate Mortgage Trust, Series 2005-12 2A1 (c)
 
3.74
%
03/25/36
   
44,586
 
 
 35,424
 
Adjustable Rate Mortgage Trust, Series 2006-1 3A3 (c)
 
3.58
 
03/25/36
   
31,456
 
 
 22,655
 
Banc of America Funding Corp., Series 2006-E 2A1 (c)
 
3.70
 
06/20/36
   
22,192
 
 
 44,630
 
Banc of America Funding Corp., Series 2007-E 4A1 (c)
 
3.54
 
07/20/47
   
37,523
 
 
 65,788
 
CitiMortgage Alternative Loan Trust, Series 2006-A7 1A12
 
6.00
 
12/25/36
   
62,377
 
 
 25,202
 
CitiMortgage Alternative Loan Trust, Series 2007-A4 1A6
 
5.75
 
04/25/37
   
23,952
 
 
28,238
 
Countrywide Alternative Loan Trust, Series 2005-50CB 1A1
 
5.50
 
11/25/35
   
26,332
 
 
 38,397
 
Countrywide Home Loan Mortgage Pass-Through Trust, Series 2007-HY5 1A1 (c)
 
3.80
 
09/25/47
   
37,424
 
 
 50,643
 
IndyMac Index Mortgage Loan Trust, Series 2006-AR25 3A1 (c)
 
3.65
 
09/25/36
   
43,875
 
 
 22,714
 
JPMorgan Mortgage Trust, Series 2007-A2 4A1M (c)
 
3.61
 
04/25/37
   
21,936
 
 
 32,375
 
Structured Adjustable Rate Mortgage Loan Trust, Series 2007-3 3A1 (c)
 
3.63
 
04/25/47
   
24,894
 
Total Asset Backed Obligations (Cost $249,667)
           
376,547
 
     
Shares
 
Security Description
 
Value
 
Investment Companies - 38.0%
       
 
1,529,930
 
Absolute Capital Opportunities Fund (b)(d)
   
19,154,722
 
 
2,840,976
 
Absolute Convertible Arbitrage Fund (d)
   
29,233,640
 
 
52,835
 
SPDR S&P 500 ETF Trust
   
13,903,530
 
 
125,000
 
VanEck Vectors Gold Miners ETF
   
2,747,500
 
Total Investment Companies (Cost $53,720,351)
   
65,039,392
 
    
Shares  
Security Description
  Value  
Money Market Fund - 24.3%         
 
41,734,470
 
State Street Institutional Treasury Money Market Fund, Premier Share Class, 1.50% (e)
(Cost $41,734,470)
   
41,734,470
 
 
See Notes to Financial Statements.
14
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
SCHEDULE OF INVESTMENTS

 
 
Security Description
 
Strike Price
   
Exp. Date
   
Notional Contract Value
   
Value
 
Purchased Options - 0.4%
 
Call Options Purchased - 0.0%
 
 
3,429
 
PowerShares DB Commodity Index Tracking Fund ETF
(Premiums Paid $97,315)
 
$
17.00
     
04/18
   
$
5,829,300
   
$
68,580
 
Put Options Purchased - 0.4% 
                               
 
1,860
 
iShares Russell 2000 ETF
(Premiums Paid $574,187) 
   
150.00
     
05/18
     
28,240,380
     
619,380
 
Total Purchased Options (Premiums Paid $671,502)
                           
687,960
 
Total  Long  Positions  -  92.6%  (Cost  $140,671,535)
                           
158,672,750
 
Total Short Positions - (19.0)% (Proceeds   $(34,589,488))
                           
(32,481,023
)
Other Assets & Liabilities, Net - 26.4%
                           
45,132,462
 
Net  Assets  - 100.0%
                         
$
171,324,189
 
 
See Notes to Financial Statements.
15
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
SCHEDULE OF SECURITIES SOLD SHORT

 
Shares  
Security Description
 
Value
 
Short Positions - (19.0)%
 
Common Stock - (17.6)%
 
Consumer Discretionary - (5.5)%  
 
(365
)
Amazon.com, Inc.
 
$
(528,279
)
 
(21,035
)
Bojangles', Inc.
   
(291,335
)
 
(6,859
)
Brinker International, Inc.
   
(247,610
)
 
(7,050
)
Carnival Corp.
   
(462,339
)
 
(1,067
)
Chipotle Mexican Grill, Inc.
   
(344,758
)
 
(1,981
)
Cracker Barrel Old Country Store,  Inc.
   
(315,375
)
 
(6,402
)
Dave & Buster's Entertainment,   Inc.
   
(267,220
)
 
(2,439
)
Dollarama, Inc.
   
(296,425
)
 
(13,250
)
DR Horton, Inc.
   
(580,880
)
 
(18,291
)
Duluth Holdings, Inc., Class B
   
(342,590
)
 
(6,097
)
Dunkin' Brands Group,  Inc.
   
(363,930
)
 
(10,200
)
Fiat Chrysler Automobiles NV
   
(207,110
)
 
(8,688
)
Fiesta Restaurant Group, Inc.
   
(160,728
)
 
(4,400
)
HD Supply Holdings, Inc.
   
(166,936
)
 
(2,743
)
LCI Industries
   
(285,684
)
 
(8,470
)
Leggett & Platt, Inc.
   
(375,729
)
 
(5,680
)
Lowe's Cos., Inc.
   
(498,420
)
 
(2,290
)
Mohawk Industries, Inc.
   
(531,784
)
 
(36,582
)
Noodles & Co.
   
(276,194
)
 
(6,097
)
Red Robin Gourmet Burgers, Inc.
   
(353,626
)
 
(6,707
)
Shake Shack, Inc.
   
(279,212
)
 
(21,993
)
The Habit Restaurants, Inc., Class A
   
(193,538
)
 
(2,830
)
The Home Depot, Inc.
   
(504,419
)
 
(9,000
)
Tractor  Supply Co.
   
(567,180
)
 
(820
)
Ulta Beauty, Inc.
   
(167,501
)
 
(15,242
)
Vista Outdoor, Inc.
   
(248,750
)
 
(14,700
)
Volvo AB, Class B
   
(268,039
)
 
(1,219
)
WW Grainger, Inc.
   
(344,087
)
           
(9,469,678
)
Consumer Staples - (2.4)%
 
 
(8,530
)
AerCap Holdings NV
   
(432,642
)
 
(20,582
)
Amira Nature Foods, Ltd.
   
(85,827
)
 
(8,993
)
Archer-Daniels-Midland Co.
   
(390,026
)
 
(1,829
)
Dr.  Pepper Snapple Group, Inc.
   
(216,517
)
 
(2,050
)
FleetCor  Technologies, Inc.
   
(415,125
)
 
(15,242
)
Flowers Foods, Inc.
   
(333,190
)
 
(20,882
)
Hostess Brands, Inc.
   
(308,845
)
 
(2,591
)
Ingredion, Inc.
   
(334,032
)
 
(10,670
)
Macquarie Infrastructure Corp.
   
(394,043
)
 
(3,201
)
McCormick & Co., Inc., Non-Voting  Shares
   
(340,554
)
 
(3,201
)
PepsiCo., Inc.
   
(349,389
)
 
(2,591
)
Sanderson Farms, Inc.
   
(308,381
)
 
(3,811
)
The Kraft Heinz  Co.
   
(237,387
)
           
(4,145,958
)
Financial - (4.2)%          
 
(330,000
)
Agricultural Bank of China, Ltd., Class H
   
(187,535
)
 
(8,840
)
Air  Lease Corp.
   
(376,761
)
 
(2,025
)
Alliance Data Systems Corp.
   
(431,041
)
 
(3,280
)
Ameriprise  Financial, Inc.
   
(485,243
)
 
(71,158
)
Banco Santander SA, ADR
   
(466,085
)
 
(18,550
)
Bank of America  Corp.
   
(556,315
)
 
(338,000
)
Bank of China, Ltd., Class H
   
(181,745
)
 
(228,000
)
Bank  of  Communications  Co., Ltd., Class H
   
(178,666
)
 
(245,000
)
China CITIC Bank Corp., Ltd., Class  H
   
(167,326
)
 
(177,000
)
China  Construction  Bank  Corp., Class H
   
(181,778
)
 
(232,000
)
China Galaxy Securities Co., Ltd., Class  H
   
(154,309
)
 
(47,000
)
China Merchants Bank Co., Ltd., Class H
   
(192,536
)
 
(76,000
)
CITIC Securities Co., Ltd., Class  H
   
(173,921
)
 
(20,800
)
Deutsche  Bank AG
   
(290,784
)
 
(7,100
)
Fastighets  AB Balder
   
(178,227
)
 
(237,000
)
Industrial & Commercial Bank of China, Ltd., Class H
   
(203,234
)
 
(61,700
)
Intesa Sanpaolo SpA
   
(224,226
)
 
See Notes to Financial Statements.
16
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
SCHEDULE OF SECURITIES SOLD SHORT

 
Shares
 
Security Description
 
Value
 
Financial - (4.2)% (continued)
     
 
(2,650
)
M&T Bank Corp.
 
$
(488,554
)
 
(4,775
)
OTP Bank PLC
   
(214,814
)
 
(9,300
)
Swedbank AB, Class A
   
(208,280
)
 
(16,200
)
Synchrony Financial
   
(543,186
)
 
(17,900
)
The Blackstone Group LP
   
(571,905
)
 
(10,250
)
The Charles Schwab Corp.
   
(535,255
)
           
(7,191,726
)
Industrial - (3.4)%
       
 
(3,811
)
AGCO Corp.
   
(247,143
)
 
(5,800
)
Atlas Copco AB, Class A
   
(250,899
)
 
(6,530
)
Eaton Corp. PLC
   
(521,812
)
 
(5,200
)
Emerson Electric Co.
   
(355,160
)
 
(3,060
)
Illinois Tool Works, Inc.
   
(479,380
)
 
(7,800
)
Jacobs Engineering Group, Inc.
   
(461,370
)
 
(1,430
)
Martin Marietta Materials, Inc.
   
(296,439
)
 
(16,700
)
Peab AB
   
(150,204
)
 
(11,900
)
SKF AB, Class B
   
(242,994
)
 
(1,905
)
Snap-on, Inc.
   
(281,064
)
 
(6,725
)
Spirit AeroSystems Holdings, Inc., Class A
 
(562,882
)
 
(4,800
)
Textron, Inc.
   
(283,056
)
 
(1,160
)
The Boeing Co.
   
(380,341
)
 
(5,704
)
The Middleby Corp.
   
(706,098
)
 
(2,170
)
Vulcan Materials Co.
   
(247,749
)
 
(5,300
)
Wartsila OYJ Abp
   
(117,059
)
 
(15,395
)
Welbilt, Inc.
   
(299,433
)
           
(5,883,083
)
Information Technology - (1.3)%
       
 
(2,170
)
Autodesk, Inc.
   
(272,508
)
 
(9,600
)
CA, Inc.
   
(325,440
)
 
(9,000
)
Intel Corp.
   
(468,720
)
 
(1,440
)
NVIDIA Corp.
   
(333,490
)
 
(6,600
)
Oracle Corp.
   
(301,950
)
 
(4,430
)
salesforce.com, Inc.
   
(515,209
)
           
(2,217,317
)
Materials - (0.2)%
       
 
(12,194
)
American Vanguard Corp.
   
(246,319
)
Telecommunication Services - (0.6)%
       
 
(175
)
Booking Holdings, Inc.
   
(364,068
)
 
(3,460
)
Facebook, Inc., Class A
   
(552,874
)
           
(916,942
)
Total Common Stock (Proceeds $(32,569,391)) 
   
(30,071,023
)
 
Shares  
Security Description
 
Value
 
Investment Company - (1.4)%  
 
(20,000
First Trust Dow Jones Internet Index Fund  ETF
(Proceeds $(2,020,097)) 
   
(2,410,000
)
Total Short Positions - (19.0)% (Proceeds   $(34,589,488))  
$
(32,481,023
)
 
See Notes to Financial Statements.
17
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
NOTES TO SCHEDULES OF INVESTMENTS AND SECURITIES SOLD SHORT

 
ADR
American Depositary Receipt
ETF
Exchange Traded Fund
LP
Limited Partnership
PLC
Public Limited Company
(a)
All or a portion of this security is held as collateral for securities sold short.
(b)
Non-income producing security.
(c)
Variable rate security, the interest rate of which adjusts periodically based on changes in current interest rates. Rate represented is as of March 31, 2018.
(d)
Affiliated Company.
(e)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.
 
At March 31, 2018, the Fund held the following exchange traded futures contracts:
Contracts          
 
Type
 
Expiration Date
 
Notional Contract Value
   
Value
   
Net Unrealized Appreciation (Depreciation)
 
(150
CME E-Mini Russell  Future
 
06/15/18
 
$
(11,373,647
)
 
$
(11,484,000
)
 
$
(110,353
)
(475
S&P 500 E-mini Future
 
06/15/18
   
(64,716,974
)
   
(62,771,250
)
   
1,945,724
 
25
 
Silver Future
 
05/29/18
   
2,075,692
     
2,033,500
     
(42,192
)
             
$
(74,014,929
)
 
$
(72,221,750
)
 
$
1,793,179
 
 
Affiliated investments are investments that are managed by the adviser, and are noted in the Absolute Strategies Fund’s Schedule of Investments. Transactions during the year with affiliates were as  follows:

Investment Companies
                                         
Absolute Capital Opportunities Fund
 
Balance 3/31/2017
   
Gross Additions
   
Gross Reductions
   
Change in Unrealized Appreciation
   
Balance 3/31/2018
   
Realized Gain/(Loss)
   
Investment Income
 
Shares/Principal
   
1,289,545
     
240,385
     
     
     
1,529,930
             
Cost
 
$
13,010,000
   
$
3,000,000
   
$
   
$
   
$
16,010,000
   
$
   
$
 
Value
   
14,146,311
     
     
     
2,008,411
     
19,154,722
                 
 
Absolute Convertible Arbitrage Fund
 
Balance 3/31/2017
   
Gross Additions
   
Gross Reductions
   
Change in Unrealized Appreciation
   
Balance 3/31/2018
   
Realized Gain/(Loss)
   
Investment Income
 
Shares/Principal
   
     
2,840,976
     
     
     
2,840,976
                 
Cost
 
$
   
$
29,047,189
   
$
   
$
   
$
29,047,189
   
$
   
$
47,189
 
Value
   
     
     
     
186,451
     
29,233,640
                 
 
The following is a summary of the inputs used to value the Fund's investments and other financial instruments and liabilities as of March 31, 2018.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
     
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Investments at Value
                       
Common Stock
                       
Consumer Discretionary
 
$
6,081,948
   
$
   
$
   
$
6,081,948
 
Consumer Staples
   
5,526,204
     
     
     
5,526,204
 
Energy
   
16,667,031
     
     
     
16,667,031
 
Financial
   
6,545,008
     
     
     
6,545,008
 
Healthcare
   
2,605,547
     
     
     
2,605,547
 
Industrial
   
4,507,496
     
     
     
4,507,496
 
Information Technology
   
987,920
     
     
     
987,920
 
Materials
   
5,831,770
     
     
     
5,831,770
 
Telecommunication Services
   
1,076,750
     
     
     
1,076,750
 
Utilities
   
1,004,707
     
     
     
1,004,707
 
Asset Backed Obligations
   
     
376,547
     
     
376,547
 
Investment Companies
   
65,039,392
     
     
     
65,039,392
 
Money Market Fund
   
     
41,734,470
     
     
41,734,470
 
 
See Notes to Financial Statements.
18
ABSOLUTE FUNDS


ABSOLUTE STRATEGIES FUND
NOTES TO SCHEDULES OF INVESTMENTS AND SECURITIES SOLD SHORT


   
Level 1
   
Level 2
   
Level 3
   
Total
 
Purchased Options
 
$
687,960
   
$
   
$
   
$
687,960
 
Investments at Value
 
$
116,561,733
   
$
42,111,017
   
$
   
$
158,672,750
 
Other Financial Instruments*
                               
Futures
   
1,945,724
     
     
     
1,945,724
 
Total Other Financial Instruments*
 
$
1,945,724
   
$
   
$
   
$
1,945,724
 
Total Assets
 
$
118,507,457
   
$
42,111,017
   
$
   
$
160,618,474
 
                                 
Liabilities
                               
Securities Sold Short
                               
Common Stock
 
$
(30,071,023
)
 
$
   
$
   
$
(30,071,023
)
Investment Company
   
(2,410,000
)
   
     
     
(2,410,000
)
Securities Sold Short
 
$
(32,481,023
)
 
$
   
$
   
$
(32,481,023
)
Other Financial Instruments*
                               
Futures
   
(152,545
)
   
     
     
(152,545
)
Total Liabilities
 
$
(32,633,568
)
 
$
   
$
   
$
(32,633,568
)
 
*
Other Financial Instruments are derivatives not reflected in the Schedule of Investments and Schedule of Securities Sold Short, such as futures, which are valued at the unrealized appreciation/(depreciation) at year  end.
 
The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value.
 
     
Written Options
   
 
Balance as of 03/31/17
 
$
(126
)
 
 
Change in Unrealized Appreciation /(Depreciation)
   
(26,271
)
 
 
Sales/Covers
   
229
   
 
Realized Gain (Loss)
   
26,168
   
 
Balance as of 03/31/18
 
$
-
   
 
Net change in unrealized appreciation / (depreciation) from investments held as of 03/31/18
 
$
-
   
 
The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
See Notes to Financial Statements.
19
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
PORTFOLIO HOLDINGS SUMMARY (Unaudited)

Portfolio Breakdown (% of Net Assets)
 
Long Positions
 
Common Stock
60.1%
Money Market Fund
29.5%
Purchased Options
2.1%
Short Positions
 
Common Stock
(1.0)%
Investment Company
(36.6)%
Written Options
(0.4)%
Other Assets & Liabilities, Net *
46.3%
 
100.0%

*
Consists of deposits with the custodian and/or brokers for securities sold short, cash, prepaid expenses, receivables, payables and accrued liabilities. Deposits with the custodian and/or brokers for securities sold short represent 45.0% of net assets. See Note 2 of the accompanying Notes to Financial Statements.

See Notes to Financial Statements.
20
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS
 
Shares
 
Security Description
 
Value
 
Long Positions - 91.7%
     
Common Stock - 60.1%
     
Consumer Discretionary - 7.9%
     
 
9,556
 
American Airlines Group, Inc. (a)
 
$
496,530
 
 
1,838
 
CarMax, Inc. (a)(b)
   
113,846
 
 
20,382
 
General Motors Co. (a)(c)
   
740,682
 
 
7,328
 
Harley-Davidson, Inc. (a)(c)(d)
   
314,224
 
 
7,595
 
Robert Half International, Inc.
   
439,674
 
 
4,276
 
The Cheesecake Factory, Inc.
   
206,189
 
 
2,529
 
The Walt Disney Co. (a)(c)
   
254,013
 
           
2,565,158
 
Consumer Staples - 1.6%
 
 
1,473
 
AMERCO (b)
   
508,332
 
               
Energy - 2.7%
 
 
14,559
 
Halliburton Co. (a)
   
683,400
 
 
2,850
 
Schlumberger, Ltd. (a)
   
184,623
 
           
868,023
 
Financial - 18.1%
 
 
4,221
 
American Express Co. (a)
   
393,735
 
 
3,584
 
Aon PLC (a)
   
502,943
 
 
29,019
 
Bank of America Corp. (a)
   
870,280
 
 
5,756
 
Berkshire Hathaway, Inc., Class B (a)(b)
   
1,148,207
 
 
13,833
 
CBRE Group, Inc., Class A (a)(b)
   
653,194
 
 
6,792
 
Citigroup, Inc. (a)
   
458,460
 
 
8,238
 
JPMorgan Chase & Co. (a)
   
905,933
 
 
13,593
 
The Blackstone Group LP
   
434,296
 
 
1,991
 
The Goldman Sachs Group, Inc.
   
501,453
 
           
5,868,501
 
Healthcare - 3.8%
 
 
2,757
 
Bayer AG
   
311,384
 
 
9,449
 
Henry Schein, Inc. (b)
   
635,067
 
 
2,044
 
McKesson Corp.
   
287,938
 
           
1,234,389
 
Industrial - 9.0%
 
 
5,881
 
Delta Air Lines, Inc.
   
322,338
 
 
16,995
 
General Electric Co.
   
229,092
 
 
12,767
 
Jacobs Engineering Group, Inc. (a)
   
755,168
 
 
25,542
 
Quanta Services, Inc. (a)(b)
   
877,368
 
 
1,284
 
The Boeing Co. (a)
   
420,998
 
 
2,785
 
United Parcel Service, Inc., Class B (a)
   
291,478
 
           
2,896,442
 
Information Technology - 6.6%
 
 
5,899
 
Analog Devices, Inc.
   
537,576
 
 
7,185
 
Apple, Inc. (a)
   
1,205,499
 
 
613
 
IBM
   
94,053
 
 
2,145
 
Intel Corp.
   
111,712
 
 
2,145
 
Micron Technology, Inc. (b)(d)
   
111,840
 
 
1,379
 
QUALCOMM, Inc.
   
76,410
 
           
2,137,090
 
Materials - 1.3%
 
 
3,754
 
PPG Industries, Inc.
   
418,946
 
               
Telecommunication Services - 9.1%
 
 
491
 
Alphabet, Inc., Class A (a)(b)
   
509,236
 
 
327
 
Alphabet, Inc., Class C (a)(b)
   
337,395
 
 
22,715
 
CBS Corp., Class B (a)
   
1,167,324
 
 
2,298
 
Comcast Corp., Class A
   
78,523
 
 
1,838
 
DISH Network Corp., Class A (b)
   
69,642
 
 
4,202
 
Facebook, Inc., Class A (b)(c)
   
671,437
 
 
1,225
 
Omnicom Group, Inc.
   
89,021
 
 
2,449
 
Spark Networks SE, ADR (b)
   
36,490
 
           
2,959,068
 
Total Common Stock (Cost $18,794,321)
   
19,455,949
 
 
See Notes to Financial Statements.
21
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS

Shares
 
Security Description
 
Value
 
Money Market Fund - 29.5%
     
 
9,538,969
 
State Street Institutional Treasury Money Market Fund, Premier Share Class, 1.50% (e)
(Cost $9,538,969)
 
$
9,538,969
 

 
Security Description
 
Strike Price
   
Exp. Date
   
Notional Contract Value
   
Value
 
Purchased Options - 2.1%
                       
Call Options Purchased - 0.4%
                       
 
42
 
Caterpillar, Inc.
 
$
200.00
   
01/19
   
$
840,000
     
6,762
 
 
455
 
General Motors Co.
   
65.00
   
01/19
     
2,957,500
     
910
 
 
400
 
General Motors Co.
   
55.00
   
01/19
     
2,200,000
     
4,400
 
 
239
 
Harley-Davidson, Inc.
   
65.00
   
01/19
     
1,553,500
     
5,497
 
 
3,084
 
SPDR S&P 500 ETF Trust
   
285.00
   
04/18
     
87,894,000
     
24,672
 
 
72
 
United Continental Holdings, Inc.
   
65.00
   
01/19
     
468,000
     
82,800
 
Total Call Options Purchased (Premiums Paid $345,244)
                         
125,041
 
Put Options Purchased - 1.7%
                             
 
22
 
Comcast Corp.
   
40.00
   
01/20
     
75,174
     
18,040
 
 
19
 
DISH Network Corp.
   
47.50
   
01/20
     
71,991
     
25,080
 
 
7
 
IBM
   
165.00
   
01/20
     
107,401
     
18,410
 
 
21
 
Intel Corp.
   
42.00
   
01/20
     
109,368
     
6,615
 
 
21
 
Micron Technology, Inc.
   
42.00
   
01/20
     
109,494
     
13,493
 
 
12
 
Omnicom Group, Inc.
   
72.50
   
01/20
     
87,204
     
10,440
 
 
13
 
QUALCOMM, Inc.
   
65.00
   
01/20
     
72,033
     
20,150
 
 
472
 
SPDR S&P 500 ETF Trust
   
271.00
   
04/18
     
12,420,680
     
432,824
 
Total Put Options Purchased (Premiums Paid $519,902)            
   
545,052
 
Total Purchased Options (Premiums Paid $865,146)           
   
670,093
 
Total Long Positions - 91.7% (Cost $29,198,436)          
   
29,665,011
 
Total Short Positions - (37.6)% (Proceeds $(12,506,272))          
   
(12,139,511
)
Total Written Options - (0.4)% (Premiums Received $(138,666))            
   
(141,259
)
Other Assets & Liabilities, Net - 46.3%           
   
14,953,693
 
Net Assets - 100.0%           
 
$
32,337,934
 
 
See Notes to Financial Statements.
22
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
SCHEDULE OF SECURITIES SOLD SHORT

Shares
 
Security Description
 
Value
 
Short Positions - (37.6)%
     
Common Stock - (1.0)%
     
Industrial - (1.0)%
     
 
(2,065
)
Caterpillar, Inc. (Proceeds $(294,377))
 
$
(304,340
)
Investment Company - (36.6)%
       
 
(44,975
)
SPDR S&P 500 ETF Trust (Proceeds $(12,211,895))
   
(11,835,171
)
Total Short Positions - (37.6)% (Proceeds $(12,506,272))
 
$
(12,139,511
)
 
See Notes to Financial Statements.
23
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
SCHEDULE OF CALL AND PUT OPTIONS WRITTEN
 
 
Security Description
 
Strike Price
   
Exp. Date
   
Notional Contract Value
   
Value
 
Written Options - (0.4)%
                       
Call Options Written - (0.1)%
                       
 
(215
)
Harley-Davidson, Inc.
 
$
75.00
   
01/19
   
$
921,920
   
$
(215
)
 
(21
)
Micron Technology, Inc.
   
70.00
   
01/20
     
109,494
     
(17,955
)
 
(72
)
United Continental Holdings, Inc.
   
100.00
   
01/19
     
500,184
     
(8,280
)
Total Call Options Written (Premiums Received $(30,459))
                         
(26,450
)
Put Options Written - (0.3)%
                             
 
(16
)
Facebook, Inc., Class A
   
165.00
   
01/19
     
264,000
     
(30,640
)
 
(33
)
General Motors Co.
   
45.00
   
01/20
     
148,500
     
(36,795
)
 
(14
)
Harley-Davidson, Inc.
   
55.00
   
01/20
     
77,000
     
(20,685
)
 
(42
)
NIKE, Inc., Class B
   
45.00
   
01/19
     
189,000
     
(2,940
)
 
(55
)
The Kroger Co.
   
22.00
   
04/18
     
121,000
     
(935
)
 
(12
)
The Walt Disney Co.
   
90.00
   
01/19
     
108,000
     
(4,410
)
 
(20
)
Time Warner, Inc.
   
90.00
   
01/19
     
180,000
     
(10,700
)
 
(72
)
United Continental Holdings, Inc.
   
45.00
   
01/19
     
324,000
     
(7,704
)
Total Put Options Written (Premiums Received $(108,207))        
     
(114,809
)
Total Written Options - (0.4)% (Premiums Received $(138,666))         
   
$
(141,259
)
 
See Notes to Financial Statements.
24
ABSOLUTE FUNDS


ABSOLUTE CAPITAL OPPORTUNITIES FUND
NOTES TO SCHEDULES OF INVESTMENTS, SECURITIES SOLD SHORT AND CALL AND PUT OPTIONS WRITTEN

ADR
American Depositary Receipt
ETF
Exchange Traded Fund
LP
Limited Partnership
PLC
Public Limited Company
(a)
All or a portion of this security is held as collateral for securities sold short.
(b)
Non-income producing security.
(c)
Subject to put option written by the Fund.
(d)
Subject to call option written by the Fund.
(e)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.
 
The following is a summary of the inputs used to value the Fund's investments and other financial instruments and liabilities as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Investments at Value
                       
Common Stock
                       
Consumer Discretionary
 
$
2,565,158
   
$
   
$
   
$
2,565,158
 
Consumer Staples
   
508,332
     
     
     
508,332
 
Energy
   
868,023
     
     
     
868,023
 
Financial
   
5,868,501
     
     
     
5,868,501
 
Healthcare
   
1,234,389
     
     
     
1,234,389
 
Industrial
   
2,896,442
     
     
     
2,896,442
 
Information Technology
   
2,137,090
     
     
     
2,137,090
 
Materials
   
418,946
     
     
     
418,946
 
Telecommunication Services
   
2,959,068
     
     
     
2,959,068
 
Money Market Fund
   
     
9,538,969
     
     
9,538,969
 
Purchased Options
   
140,976
     
529,117
     
     
670,093
 
Investments at Value
 
$
19,596,925
   
$
10,068,086
   
$
   
$
29,665,011
 
Total Assets
 
$
19,596,925
   
$
10,068,086
   
$
   
$
29,665,011
 
                                 
Liabilities
                               
Securities Sold Short
                               
Common Stock
 
$
(304,340
)
 
$
   
$
   
$
(304,340
)
Investment Company
   
(11,835,171
)
   
     
     
(11,835,171
)
Securities Sold Short
 
$
(12,139,511
)
 
$
   
$
   
$
(12,139,511
)
Other Financial Instruments*
                               
Written Options
   
(105,249
)
   
(36,010
)
   
     
(141,259
)
Total Liabilities
 
$
(12,244,760
)
 
$
(36,010
)
 
$
   
$
(12,280,770
)

*
Other Financial Instruments are derivatives not reflected in the Schedule of Investments and Schedule of Securities Sold Short, such as written options, which are reported at their market value at year end.
 
The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value.
 
   
Written Options
 
Balance as of 03/31/17
 
$
(14
)
Change in Unrealized Appreciation/(Depreciation)
   
(2,919
)
Sales/Covers
   
-
 
Realized Gain (Loss)
   
2,933
 
Balance as of 03/31/18
 
$
-
 
Net change in unrealized appreciation/(depreciation) from investments held as of 03/31/18
 
$
-
 

The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
See Notes to Financial Statements.
25
ABSOLUTE FUNDS


ABSOLUTE CONVERTIBLE ARBITRAGE
PORTFOLIO HOLDINGS SUMMARY (Unaudited)


Portfolio Breakdown (% of Net Assets)
 
Long Positions
 
Corporate Convertible Bonds
78.8%
Money Market Fund
60.4%
Short Positions
 
Common Stock
(38.5)%
Other Assets & Liabilities, Net *
(0.7)%
 
100.0%

*
Consists of prepaid expenses, deferred offering costs, receivables, payables and accrued liabilities. See Note 2 of the accompanying Notes to Financial Statements.

See Notes to Financial Statements.
26
ABSOLUTE FUNDS



ABSOLUTE CONVERTIBLE ARBITRAGE
SCHEDULE OF INVESTMENTS

 
Principal  
Security Description
 
Rate
 
Maturity
 
Value
 
Long Positions - 139.2% (a)
           
Corporate Convertible Bonds - 78.8%
             
Consumer Discretionary - 3.0%
             
$
500,000
 
Horizon Global Corp.
 
2.75
%
07/01/22
 
$
412,326
 
 
1,000,000
 
Live Nation Entertainment, Inc. (b)
 
2.50
 
03/15/23
   
1,011,681
 
 
250,000
 
Marriott Vacations Worldwide Corp. (b)
 
1.50
 
09/15/22
   
274,231
 
                   
1,698,238
 
Consumer Staples - 1.7%
               
 
600,000
 
Carriage Services, Inc.
 
2.75
 
03/15/21
   
789,404
 
 
125,000
 
Flexion Therapeutics, Inc. (b)
 
3.38
 
05/01/24
   
142,639
 
                   
932,043
 
Energy - 4.2%
                   
 
250,000
 
Bristow Group, Inc.
 
4.50
 
06/01/23
   
276,737
 
 
150,000
 
Helix Energy Solutions Group, Inc.
 
4.25
 
05/01/22
   
142,377
 
 
500,000
 
Helix Energy Solutions Group, Inc.
 
4.13
 
09/15/23
   
506,512
 
 
500,000
 
Newpark Resources, Inc. (b)
 
4.00
 
12/01/21
   
581,250
 
 
750,000
 
Renewable Energy Group, Inc.
 
2.75
 
06/15/19
   
843,119
 
                   
2,349,995
 
Financial - 1.7%
                   
 
300,000
 
Encore Capital Group, Inc.
 
3.00
 
07/01/20
   
344,100
 
 
628,000
 
Encore Capital Group, Inc.
 
2.88
 
03/15/21
   
629,884
 
                   
973,984
 
Healthcare - 21.0%
               
 
500,000
 
Accelerate Diagnostics, Inc. (b)
 
2.50
 
03/15/23
   
484,816
 
 
1,000,000
 
Accuray, Inc. (b)
 
3.75
 
07/15/22
   
1,140,000
 
 
1,300,000
 
Alder Biopharmaceuticals, Inc.
 
2.50
 
02/01/25
   
1,201,534
 
 
500,000
 
Avadel Finance Cayman, Ltd. (b)
 
4.50
 
02/01/23
   
505,750
 
 
500,000
 
DexCom, Inc. (b)
 
0.75
 
05/15/22
   
515,681
 
 
1,000,000
 
Exact Sciences Corp.
 
1.00
 
01/15/25
   
893,388
 
 
1,400,000
 
Insmed, Inc.
 
1.75
 
01/15/25
   
1,237,898
 
 
700,000
 
Insulet Corp. (b)
 
1.38
 
11/15/24
   
802,915
 
 
400,000
 
Ironwood Pharmaceuticals, Inc.
 
2.25
 
06/15/22
   
472,848
 
 
750,000
 
Jazz Investments I, Ltd. (b)
 
1.50
 
08/15/24
   
734,147
 
 
650,000
 
Novavax, Inc.
 
3.75
 
02/01/23
   
462,790
 
 
500,000
 
Pacira Pharmaceuticals, Inc.
 
2.38
 
04/01/22
   
458,125
 
 
750,000
 
Quidel Corp.
 
3.25
 
12/15/20
   
1,301,025
 
 
750,000
 
Repligen Corp.
 
2.13
 
06/01/21
   
976,564
 
 
100,000
 
Senseonics Holdings, Inc.
 
5.25
 
02/01/23
   
107,900
 
 
500,000
 
Theravance Biopharma, Inc.
 
3.25
 
11/01/23
   
508,423
 
                   
11,803,804
 
Industrial - 10.6% 
               
 
750,000
 
Fluidigm Corp.
 
2.75
 
02/01/34
   
688,428
 
 
461,000
 
Fluidigm Corp.
 
2.75
 
02/01/34
   
393,606
 
 
1,150,000
 
II-VI, Inc. (b)
 
0.25
 
09/01/22
   
1,273,050
 
 
1,100,000
 
Kaman Corp. (b)
 
3.25
 
05/01/24
   
1,253,385
 
 
1,000,000
 
Team, Inc. (b)
 
5.00
 
08/01/23
   
992,562
 
 
350,000
 
TimkenSteel Corp.
 
6.00
 
06/01/21
   
514,745
 
 
500,000
 
TTM Technologies, Inc.
 
1.75
 
12/15/20
   
833,438
 
                   
5,949,214
 
Information Technology - 26.1%
               
 
1,048,000
 
Advanced Micro Devices, Inc.
 
2.13
 
09/01/26
   
1,536,158
 
 
700,000
 
Apptio, Inc. (b)
 
0.88
 
04/01/23
   
690,900
 
 
500,000
 
Avid Technology, Inc.
 
2.00
 
06/15/20
   
421,750
 
 
1,365,000
 
Carbonite, Inc. (b)
 
2.50
 
04/01/22
   
1,782,266
 
 
1,090,000
 
Coupa Software, Inc. (b)
 
0.38
 
01/15/23
   
1,320,643
 
 
500,000
 
Integrated Device Technology, Inc.
 
0.88
 
11/15/22
   
564,500
 
 
1,000,000
 
Nutanix, Inc. (b)(c)
 
0.00
 
01/15/23
   
1,205,803
 
 
1,000,000
 
Red Hat, Inc.
 
0.25
 
10/01/19
   
2,027,092
 
 
1,500,000
 
ServiceNow, Inc. (b)(c)
 
0.00
 
06/01/22
   
1,994,475
 
 
1,000,000
 
Silicon Laboratories, Inc.
 
1.38
 
03/01/22
   
1,160,000
 
 
500,000
 
Teradyne, Inc.
 
1.25
 
12/15/23
   
763,603
 
 
1,250,000
 
Veeco Instruments, Inc.
 
2.70
 
01/15/23
   
1,140,871
 
                   
14,608,061
 

See Notes to Financial Statements.
27
ABSOLUTE FUNDS



ABSOLUTE CONVERTIBLE ARBITRAGE
SCHEDULE OF INVESTMENTS


Principal
 
Security Description
 
Rate
 
Maturity
 
Value
 
Materials - 1.7%
             
$
500,000
 
Aceto Corp.
 
2.00
%
11/01/20
 
$
441,274
 
 
500,000
 
SSR Mining, Inc.
 
2.88
 
02/01/33
   
497,188
 
                   
938,462
 
Telecommunication Services - 8.8%
               
 
569,000
 
CalAmp Corp.
 
1.63
 
05/15/20
   
609,583
 
 
1,000,000
 
Chegg, Inc. (b)
 
0.25
 
05/15/23
   
1,030,302
 
 
500,000
 
Global Eagle Entertainment, Inc.
 
3.25
 
02/15/35
   
316,000
 
 
1,000,000
 
Harmonic, Inc.
 
4.00
 
12/01/20
   
986,250
 
 
550,000
 
Pandora Media, Inc.
 
1.75
 
12/01/20
   
503,597
 
 
500,000
 
Quotient Technology, Inc. (b)
 
1.75
 
12/01/22
   
519,413
 
 
750,000
 
RingCentral, Inc. (b)(c)
 
0.00
 
03/15/23
   
755,550
 
 
250,000
 
Wayfair, Inc. (b)
 
0.38
 
09/01/22
   
238,000
 
                   
4,958,695
 
Total Corporate Convertible Bonds (Cost $42,637,553)
           
44,212,496
 

Shares  
Security Description
 
Value
 
Money Market Fund - 60.4%      
 
33,852,237
 
State Street Institutional Treasury Money Market Fund, Premier Share Class, 1.50%(d)
(Cost $33,852,237) 
   
33,852,237
 
         
Total Long Positions - 139.2% (Cost $76,489,790)    
78,064,733
 
Total Short Positions - (38.5)% (Proceeds $(21,171,559))    
(21,593,223
)
Other Assets & Liabilities, Net - (0.7)%    
(406,814
)
Net Assets - 100.0%  
$
56,064,696
 

See Notes to Financial Statements.
28
ABSOLUTE FUNDS



ABSOLUTE CONVERTIBLE ARBITRAGE
SCHEDULE OF SECURITIES SOLD SHORT


Shares
 
Security Description
 
Value
 
Short Positions - (38.5)%
     
Common Stock - (38.5)%
     
Consumer Discretionary - (0.8)%
     
 
(5,380
)
Horizon Global Corp.
 
$
(44,331
)
 
(6,400
)
Live Nation Entertainment, Inc.
   
(269,696
)
 
(953
)
Marriott Vacations Worldwide Corp.
   
(126,940
)
           
(440,967
)
Consumer Staples - (1.2)%
       
 
(21,436
)
Carriage Services, Inc.
   
(592,920
)
 
(2,900
)
Flexion Therapeutics, Inc.
   
(64,989
)
           
(657,909
)
Energy - (1.6)%
       
 
(11,100
)
Bristow Group, Inc.
   
(144,300
)
 
(22,683
)
Helix Energy Solutions Group, Inc.
   
(131,334
)
 
(35,600
)
Newpark Resources, Inc.
   
(288,360
)
 
(26,982
)
Renewable Energy Group, Inc.
   
(345,370
)
           
(909,364
)
Financial - (0.8)%
       
 
(9,577
)
Encore Capital Group, Inc.
   
(432,880
)
Healthcare - (9.4)%
       
 
(1,800
)
Accelerate Diagnostics, Inc.
   
(41,130
)
 
(117,700
)
Accuray, Inc.
   
(588,500
)
 
(41,700
)
Alder Biopharmaceuticals, Inc.
   
(529,590
)
 
(21,800
)
Avadel Pharmaceuticals PLC, ADR
   
(158,922
)
 
(2,320
)
DexCom, Inc.
   
(172,051
)
 
(7,650
)
Exact Sciences Corp.
   
(308,524
)
 
(22,000
)
Insmed, Inc.
   
(495,440
)
 
(4,900
)
Insulet Corp.
   
(424,732
)
 
(17,560
)
Ironwood Pharmaceuticals, Inc.
   
(270,951
)
 
(1,762
)
Jazz Pharmaceuticals PLC
   
(266,044
)
 
(51,200
)
Novavax, Inc.
   
(107,520
)
 
(2,750
)
Pacira Pharmaceuticals, Inc.
   
(85,663
)
 
(19,034
)
Quidel Corp.
   
(986,152
)
 
(16,500
)
Repligen Corp.
   
(596,970
)
 
(1,000
)
Senseonics Holdings, Inc.
   
(3,000
)
 
(9,000
)
Theravance Biopharma, Inc.
   
(218,250
)
           
(5,253,439
)
Industrial - (5.2)%
       
 
(34,250
)
Fluidigm Corp.
   
(200,020
)
 
(16,200
)
II-VI, Inc.
   
(662,580
)
 
(10,400
)
Kaman Corp.
   
(646,048
)
 
(26,000
)
Team, Inc.
   
(357,500
)
 
(21,940
)
TimkenSteel Corp.
   
(333,269
)
 
(46,900
)
TTM Technologies, Inc.
   
(717,101
)
           
(2,916,518
)
Information Technology - (16.5)%
       
 
(109,580
)
Advanced Micro Devices, Inc.
   
(1,101,279
)
 
(8,422
)
Apptio, Inc., Class A
   
(238,680
)
 
(4,000
)
Avid Technology, Inc.
   
(18,160
)
 
(38,800
)
Carbonite, Inc.
   
(1,117,440
)
 
(17,628
)
Coupa Software, Inc.
   
(804,189
)
 
(10,497
)
Integrated Device Technology, Inc.
   
(320,788
)
 
(14,540
)
Nutanix, Inc., Class A
   
(714,059
)
 
(13,372
)
Red Hat, Inc.
   
(1,999,248
)
 
(8,954
)
ServiceNow, Inc.
   
(1,481,439
)
 
(7,300
)
Silicon Laboratories, Inc.
   
(656,270
)
 
(13,350
)
Teradyne, Inc.
   
(610,229
)
 
(11,000
)
Veeco Instruments, Inc.
   
(187,000
)
           
(9,248,781
)
Materials - 0.0%
       
 
(300
)
Aceto Corp.
   
(2,280
)
 
(3,000
)
SSR Mining, Inc.
   
(28,800
)
           
(31,080
)

See Notes to Financial Statements.
29
ABSOLUTE FUNDS



ABSOLUTE CONVERTIBLE ARBITRAGE
SCHEDULE OF SECURITIES SOLD SHORT


Shares  
Security Description
 
Value
 
Telecommunication Services - (3.0)%      
(10,903
CalAmp Corp.
 
$
(249,461
)
 
 (22,000
)
Chegg, Inc.
   
(454,520
)
 
 (4,200
)
Global Eagle Entertainment, Inc.
   
(6,174
)
 
 (76,400
)
Harmonic, Inc.
   
(290,320
)
 
 (2,887
)
Pandora Media, Inc.
   
(14,522
)
 
 (17,600
)
Quotient Technology, Inc.
   
(230,560
)
 
 (5,725
)
RingCentral, Inc., Class A
   
(363,537
)
 
 (1,380
)
Wayfair, Inc., Class A
   
(93,191
)
           
(1,702,285
)
Total Common Stock (Proceeds $(21,171,559))    
(21,593,223
)
Total Short Positions - (38.5)% (Proceeds $(21,171,559))  
$
(21,593,223
)

See Notes to Financial Statements.
30
ABSOLUTE FUNDS



ABSOLUTE CONVERTIBLE ARBITRAGE
NOTES TO SCHEDULES OF INVESTMENTS AND SECURITIES SOLD SHORT


ADR
American Depositary Receipt
PLC
Public Limited Company
(a)
All or a portion of these securities are held as collateral for securities sold short.
(b)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $19,249,459 or 34.3% of net assets.
(c)
Zero coupon bond. Interest rate presented is yield to maturity.
(d)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.

The following is a summary of the inputs used to value the Fund's investments and other financial instruments and liabilities as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Investments at Value
                       
Corporate Convertible Bonds
 
$
   
$
44,212,496
   
$
   
$
44,212,496
 
Money Market Fund
   
     
33,852,237
     
     
33,852,237
 
Investments at Value
 
$
   
$
78,064,733
   
$
   
$
78,064,733
 
Total Assets
 
$
   
$
78,064,733
   
$
   
$
78,064,733
 
                                 
Liabilities
                               
Securities Sold Short
                               
Common Stock
 
$
(21,593,223
)
 
$
   
$
   
$
(21,593,223
)
Securities Sold Short
 
$
(21,593,223
)
 
$
   
$
   
$
(21,593,223
)
Total Liabilities
 
$
(21,593,223
)
 
$
   
$
   
$
(21,593,223
)

The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.

See Notes to Financial Statements.
31
ABSOLUTE FUNDS



ABSOLUTE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2018

 
 
ABSOLUTE STRATEGIES FUND
   
ABSOLUTE CAPITAL OPPORTUNITIES FUND
   
ABSOLUTE CONVERTIBLE ARBITRAGE FUND
 
ASSETS
                 
Investments, at value (Cost $95,614,346, $29,198,436 and $76,489,790, respectively)
 
$
110,284,388
   
$
29,665,011
   
$
78,064,733
 
Investments in affiliates, at value (Cost $45,057,189, $0 and $0, respectively)
   
48,388,362
     
     
 
 
 
$
158,672,750
   
$
29,665,011
   
$
78,064,733
 
Cash
   
4,529,451
     
2,614
     
 
Deposits with broker
   
42,161,700
     
14,568,191
     
 
Foreign currency (Cost $108,878, $0 and $0, respectively)
   
110,970
     
     
 
Receivables:
                       
Fund shares sold
   
42,803
     
432,006
     
94,926
 
Investment securities sold
   
2,487,952
     
46
     
1,008,207
 
Dividends and interest
   
238,300
     
20,598
     
235,136
 
Prepaid expenses
   
12,500
     
11,724
     
1,904
 
Deferred offering costs
   
     
     
11,964
 
Total Assets
   
208,256,426
     
44,700,190
     
79,416,870
 
LIABILITIES
                       
Call options written, at value (Premiums received $0, $30,459 and $0, respectively)
   
     
26,450
     
 
Put options written, at value (Premiums received $0, $108,207 and $0, respectively)
   
     
114,809
     
 
Securities sold short, at value (Proceeds $34,589,488, $12,506,272 and $21,171,559, respectively)
   
32,481,023
     
12,139,511
     
21,593,223
 
Payables:
                       
Investment securities purchased
   
3,852,363
     
30,639
     
1,542,044
 
Fund shares redeemed
   
377,941
     
     
 
Due to custodian
   
     
     
45,341
 
Dividends on securities sold short
   
18,832
     
     
2,090
 
Accrued Liabilities:
                       
Investment adviser fees
   
3,627
     
13,418
     
104,217
 
Trustees’ fees and expenses
   
400
     
50
     
50
 
Fund services fees
   
33,638
     
4,747
     
2,424
 
Other expenses
   
164,413
     
32,632
     
62,785
 
Total Liabilities
   
36,932,237
     
12,362,256
     
23,352,174
 
NET ASSETS
 
$
171,324,189
   
$
32,337,934
   
$
56,064,696
 
COMPONENTS OF NET ASSETS
                       
Paid-in capital
 
$
196,537,608
   
$
29,145,174
   
$
55,294,361
 
Undistributed net investment income (Accumulated net investment loss)
   
(585,480
)
   
     
310,066
 
Accumulated net realized gain (loss)
   
(46,533,183
)
   
2,361,991
     
(693,010
)
Net unrealized appreciation
   
21,905,244
     
830,769
     
1,153,279
 
NET ASSETS
 
$
171,324,189
   
$
32,337,934
   
$
56,064,696
 
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
                       
Institutional Shares
   
19,869,235
     
2,583,325
     
5,448,972
 
R Shares
   
615,709
     
     
 
 
                       
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
                       
Institutional Shares (based on net assets of $166,373,325, $32,337,934 and $56,064,696, respectively)
 
$
8.37
   
$
12.52
   
$
10.29
 
R Shares (based on net assets of $4,950,864, $0 and $0)
 
$
8.04
   
$
   
$
 
 
See Notes to Financial Statements.
32
ABSOLUTE FUNDS


ABSOLUTE FUNDS
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED MARCH 31, 2018
 
 
 
ABSOLUTE STRATEGIES FUND
   
ABSOLUTE CAPITAL OPPORTUNITIES FUND
   
ABSOLUTE CONVERTIBLE ARBITRAGE FUND*
 
INVESTMENT INCOME
                 
Dividend income (Net of foreign withholding taxes of $136,736, $5,713 and $0, respectively)
 
$
4,454,873
   
$
214,436
   
$
139,043
 
Dividend income from affiliated investment
   
47,189
     
     
 
Interest income
   
2,150,544
     
     
320,109
 
Net amortization expense
   
     
     
(429,427
)
Total Investment Income
   
6,652,606
     
214,436
     
29,725
 
EXPENSES
                       
Investment adviser fees
   
5,580,081
     
246,156
     
277,313
 
Fund services fees
   
486,104
     
48,409
     
42,503
 
Transfer agent fees:
                       
Institutional Shares
   
100,515
     
     
 
R Shares
   
54,648
     
     
 
Distribution fees:
                       
R Shares
   
31,193
     
     
 
Custodian fees
   
554,466
     
30,308
     
42,091
 
Registration fees:
                       
Institutional Shares
   
22,387
     
19,166
     
116
 
R Shares
   
18,822
     
     
 
Professional fees
   
150,294
     
47,985
     
64,791
 
Trustees' fees and expenses
   
33,236
     
5,955
     
3,384
 
Offering costs
   
     
     
59,870
 
Dividend expense on securities sold short
   
2,359,961
     
114,052
     
10,978
 
Interest expense
   
504,093
     
22,643
     
108,147
 
Other expenses
   
446,362
     
22,798
     
15,343
 
Total Expenses
   
10,342,162
     
557,472
     
624,536
 
Fees waived
   
(565,273
)
   
(136,243
)
   
(179,010
)
Net Expenses
   
9,776,889
     
421,229
     
445,526
 
NET INVESTMENT LOSS
   
(3,124,283
)
   
(206,793
)
   
(415,801
)
NET REALIZED AND UNREALIZED GAIN (LOSS)
                       
Net realized gain (loss) on:
                       
Investments in unaffiliated issuers
   
85,735,917
     
3,960,258
     
820,141
 
Foreign currency transactions
   
343,372
     
(3,395
)
   
 
Securities sold short
   
(21,589,630
)
   
(1,007,520
)
   
(692,699
)
Written options
   
1,567,689
     
75,311
     
 
Futures
   
(23,935,334
)
   
     
 
Swaps
   
(1,402,368
)
   
     
 
Net realized gain
   
40,719,646
     
3,024,654
     
127,442
 
Net change in unrealized appreciation (depreciation) on:
                       
Investments in unaffiliated issuers
   
(63,244,578
)
   
(1,262,567
)
   
1,574,943
 
Investments in affiliated issuers
   
2,194,862
     
     
 
Foreign currency translations
   
(75,514
)
   
26
     
 
Securities sold short
   
(2,939,668
)
   
345,964
     
(421,664
)
Written options
   
(708,906
)
   
(30,367
)
   
 
Futures
   
4,246,493
     
     
 
Swaps
   
981,271
     
     
 
Net change in unrealized appreciation (depreciation)
   
(59,546,040
)
   
(946,944
)
   
1,153,279
 
NET REALIZED AND UNREALIZED GAIN (LOSS)
   
(18,826,394
)
   
2,077,710
     
1,280,721
 
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
 
$
(21,950,677
)
  $ 1,870,917     $ 864,920  
 
*
Commencement of operations was August 14, 2017.
 
See Notes to Financial Statements.
33
ABSOLUTE FUNDS


ABSOLUTE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
 


   
ABSOLUTE STRATEGIES FUND
   
ABSOLUTE CAPITAL OPPORTUNITIES FUND
   
ABSOLUTE CONVERTIBLE ARBITRAGE FUND
 
                   
   
For the Years Ended March 31,
   
For the Years Ended March 31,
     
   
2018
   
2017
   
2018
   
2017
 
OPERATIONS
                             
Net investment loss
 
$
(3,124,283
)
 
$
(7,890,519
)
 
$
(206,793
)
 
$
(199,094
)
 
$
(415,801
)
Net realized gain (loss)
   
40,719,646
     
3,597,735
     
3,024,654
     
(69,602
)
   
127,442
 
Net change in unrealized appreciation (depreciation)
   
(59,546,040
)
   
(16,429,187
)
   
(946,944
)
   
1,193,645
     
1,153,279
 
Increase (Decrease) in Net Assets Resulting from Operations
   
(21,950,677
)
   
(20,721,971
)
   
1,870,917
     
924,949
     
864,920
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                 
Net realized gain:
                                       
Institutional Shares
   
     
(85,840,670
)
   
     
     
(94,585
)
R Shares
   
     
(3,055,044
)
   
     
     
 
Total Distributions to Shareholders
   
     
(88,895,714
)
   
     
     
(94,585
)
                                         
CAPITAL SHARE TRANSACTIONS
                                 
Sale of shares:
                                       
Institutional Shares
   
40,442,084
     
245,205,577
     
16,426,763
     
1,042,238
     
55,873,359
 
R Shares
   
4,996,291
     
12,641,234
     
     
     
 
Reinvestment of distributions:
                                       
Institutional Shares
   
     
78,733,255
     
     
     
94,585
 
R Shares
   
     
2,739,828
     
     
     
 
Redemption of shares:
                                       
Institutional Shares
   
(354,894,965
)
   
(633,166,321
)
   
(147,450
)
   
     
(673,583
)
R Shares
   
(18,458,224
)
   
(18,077,731
)
   
     
     
 
Increase (Decrease) in Net Assets from Capital Share Transactions
   
(327,914,814
)
   
(311,924,158
)
   
16,279,313
     
1,042,238
     
55,294,361
 
Increase (Decrease) in Net Assets
   
(349,865,491
)
   
(421,541,843
)
   
18,150,230
     
1,967,187
     
56,064,696
 
                                         
NET ASSETS
                                       
Beginning of Period
   
521,189,680
     
942,731,523
     
14,187,704
     
12,220,517
     
 
End of Period (Including line (a))
 
$
171,324,189
   
$
521,189,680
   
$
32,337,934
   
$
14,187,704
   
$
56,064,696
 
                                         
SHARE TRANSACTIONS
                                       
Sale of shares:
                                       
Institutional Shares
   
4,731,888
     
24,990,146
     
1,302,256
     
96,537
     
5,506,489
 
R Shares
   
599,477
     
1,377,012
     
     
     
 
Reinvestment of distributions:
                                       
Institutional Shares
   
     
8,846,433
     
     
     
9,273
 
R Shares
   
     
317,110
     
     
     
 
Redemption of shares:
                                       
Institutional Shares
   
(42,135,763
)
   
(64,717,097
)
   
(12,164
)
   
     
(66,790
)
R Shares
   
(2,260,126
)
   
(1,972,440
)
   
     
     
 
Increase (Decrease) in Shares
   
(39,064,524
)
   
(31,158,836
)
   
1,290,092
     
96,537
     
5,448,972
 
                                         
(a) Undistributed net investment income (Accumulated net investment loss)
 
$
(585,480
)
 
$
(2,836,297
)
 
$
   
$
(40,691
)
 
$
310,066
 
 
*
Commencement of operations.
 
See Notes to Financial Statements.
34
ABSOLUTE FUNDS


ABSOLUTE FUNDS
FINANCIAL HIGHLIGHTS
 


       
Investment Operations
   
Distributions to Shareholders from:
                   
Period Ended
 
Net Asset Value, Beginning of Period
   
Net Investment Income (Loss)(a)
   
Net Realized and Unrealized Gains (Losses) on Investments
   
Total from Investment Operations
   
Net Realized Gains
   
Total Distribution to Shareholders
   
Net Asset Value, End of Period
   
Total Return
   
Net Assets, End of Period (000's)
 
ABSOLUTE STRATEGIES FUND 
                                     
INSTITUTIONAL SHARES 
                                     
03/31/18
 
$
8.76
   
$
(0.07
)
 
$
(0.32
)
 
$
(0.39
)
 
$
   
$
   
$
8.37
     
(4.45
)%
 
$
166,373
 
03/31/17
   
10.40
     
(0.10
)
   
(0.23
)
   
(0.33
)
   
(1.31
)
   
(1.31
)
   
8.76
     
(3.40
)
   
501,866
 
03/31/16
   
11.04
     
(0.11
)
   
0.31
     
0.20
     
(0.84
)
   
(0.84
)
   
10.40
     
2.05
     
916,747
 
03/31/15
   
11.01
     
(0.08
)
   
0.11
     
0.03
     
     
     
11.04
     
0.27
     
1,592,872
 
03/31/14
   
11.24
     
(0.10
)
   
(0.13
)
   
(0.23
)
   
     
     
11.01
     
(2.05
)
   
2,697,675
 
R SHARES
                                                                       
03/31/18
   
8.49
     
(0.13
)
   
(0.32
)
   
(0.45
)
   
     
     
8.04
     
(5.30
)
   
4,951
 
03/31/17
   
10.17
     
(0.11
)
   
(0.26
)
   
(0.37
)
   
(1.31
)
   
(1.31
)
   
8.49
     
(3.89
)
   
19,324
 
03/31/16
   
10.88
     
(0.17
)
   
0.30
     
0.13
     
(0.84
)
   
(0.84
)
   
10.17
     
1.41
     
25,985
 
03/31/15
   
10.90
     
(0.13
)
   
0.11
     
(0.02
)
   
     
     
10.88
     
(0.18
)
   
48,577
 
03/31/14
   
11.18
     
(0.14
)
   
(0.14
)
   
(0.28
)
   
     
     
10.90
     
(2.50
)
   
66,589
 
ABSOLUTE CAPITAL OPPORTUNITIES FUND
                                 
INSTITUTIONAL SHARES 
                                                         
03/31/18
 
$
10.97
   
$
(0.15
)
 
$
1.70
   
$
1.55
   
$
   
$
   
$
12.52
     
14.13
%
 
$
32,338
 
03/31/17
   
10.21
     
(0.16
)
   
0.92
     
0.76
     
     
     
10.97
     
7.44
     
14,188
 
03/31/16(c)
   
10.00
     
(0.03
)
   
0.24
     
0.21
     
     
     
10.21
     
2.10
(d)
   
12,221
 
ABSOLUTE CONVERTIBLE ARBITRAGE FUND 
                                 
INSTITUTIONAL SHARES
                                                 
03/31/18(f)
 
$
10.00
   
$
(0.13
)
 
$
0.44
   
$
0.31
   
$
(0.02
)
 
$
(0.02
)
 
$
10.29
     
3.14
%(d)
 
$
56,065
 
 
(a)
Calculated based on average shares outstanding during each period.
(b)
Reflects the expense ratio excluding any waivers and/or reimbursements.
(c)
Commencement of operations was December 30, 2015.
(d)
Not annualized.
(e)
Annualized.
(f)
Commencement of operations was August 14, 2017.
 
See Notes to Financial Statements.
35
ABSOLUTE FUNDS


ABSOLUTE FUNDS
FINANCIAL HIGHLIGHTS
 


Ratios/Supplemental Data (Ratios to Average Net Assets)
   
Net Investment Income (Loss)
   
Net Expenses
   
Dividend and Interest Expenses
   
Net Expenses without Dividend and Interest Expenses
   
Gross Expenses
   
Portfolio Turnover
   
                                   
(0.87
)%
   
2.78
%
   
0.82
%
   
1.96
%
   
2.94
%(b)
   
86
%
 
(0.99
)
   
2.86
     
0.95
     
1.91
     
2.89
(b)
   
72
   
(1.02
)
   
2.65
     
0.81
     
1.84
     
2.66
(b)
   
70
   
(0.70
)
   
2.58
     
0.79
     
1.79
     
2.58
     
78
   
(0.85
)
   
2.45
     
0.72
     
1.73
     
2.47
(b)
   
75
   
(1.59
)
   
3.50
%
   
0.83
%
   
2.67
%
   
3.76
%(b)
   
86
%
 
(1.14
)
   
3.50
     
1.01
     
2.49
     
3.52
(b)
   
72
   
(1.59
)
   
3.23
     
0.83
     
2.40
     
3.24
(b)
   
70
   
(1.17
)
   
3.09
     
0.79
     
2.30
     
3.09
     
78
   
(1.23
)
   
2.92
     
0.73
     
2.19
     
2.93
(b)
   
75
   
                                             
(1.30
)%
   
2.66
%
   
0.86
%
   
1.79
%
   
3.52
%(b)
   
66
%
 
(1.53
)
   
2.62
     
0.70
     
1.92
     
3.70
(b)
   
29
   
(1.13
)(e)
   
2.20
(e)
   
0.25
(e)
   
1.95
(e)
   
4.37
(b)(e)
   
6
(d)
 
                                             
(2.08
)%(e)
   
2.23
%(e)
   
0.60
%(e)
   
1.63
%(e)
   
3.13
%(b)(e)
   
76
%(d)
 
 

See Notes to Financial Statements.
36
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018 
 
Note 1. Organization
 
Absolute Strategies Fund, Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund (individually, a “Fund” and collectively, the “Funds”) are diversified portfolios of Forum Funds (the “Trust”). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of each Fund’s shares of beneficial interest without par value. Absolute Strategies Fund currently offers two classes of shares: Institutional Shares and R Shares. Institutional and R Shares commenced operations on July 11, 2005. Absolute Strategies 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. Absolute Capital Opportunities Fund currently offers Institutional Shares. Absolute Capital Opportunities Fund commenced operations on December 30, 2015. Absolute Capital Opportunities Fund seeks to achieve long-term capital appreciation with a lower sensitivity to traditional financial market indices, such as the S&P 500 Index.
 
The Absolute Convertible Arbitrage Fund commenced operations on August 14, 2017, after it acquired the net assets of the Mohican VCA Fund, LP, a privately offered hedge fund (the “Predecessor Fund”), in exchange for Fund shares. The Predecessor Fund commenced operations in 2002. The Absolute Convertible Arbitrage Fund seeks to achieve positive absolute returns over the long-term with low volatility when compared to traditional market indices. The Predecessor Fund had an investment objective and strategies that were, in all material respects, identical to those of the Absolute Convertible Arbitrage Fund. On August 14, 2017, the Predecessor Fund reorganized into the Absolute Convertible Arbitrage Fund. The reorganization of net assets from this transaction was as follows:
 
 
Date of Contribution
 
Net Assets
   
Shares
   
Market Value of Investments
   
   
$
16,686,633
     
1,668,929
   
$
10,790,692
   
 
In addition to the securities transferred in, as noted above, $5,895,941 of cash and other receivables were also transferred in as part of the reorganization.
 
Note 2. Summary of Significant Accounting Policies
 
The Funds are investment companies and follow accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of each Fund:
 
Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service. Debt securities may be valued at prices supplied by a fund’s pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics such as rating, interest rate and maturity. Futures contracts are valued at the day’s settlement price on the exchange where the contract is traded. Forward currency contracts are generally valued based on interpolation of forward curve data points obtained from major banking institutions that deal in foreign currencies and currency dealers. Exchange-traded options for which the last quoted sale price is outside the closing bid and ask price, will be valued at the mean of the closing bid and ask price. Shares of non-exchange traded open-end mutual funds are valued at net asset value (“NAV”). Short-term investments that mature in sixty days or less may be valued at amortized cost.
 
 
37
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018
 
Each Fund values its investments at fair value pursuant to procedures adopted by the Trust’s Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 4, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in each Fund’s registration statement, performs certain functions as they relate to the administration and oversight of each Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.
 
The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.
 
Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotes.
 
GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of each Fund’s investments. These inputs are summarized in the three broad levels listed below:
 
Level 1 - Quoted prices in active markets for identical assets and liabilities.
 
Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities respective local market closes and the close of the U.S. market.
 
Level 3 - Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments).
 
The aggregate value by input level, as of March 31, 2018, for each Fund’s investments is included in each Fund’s Notes to Schedules of Investments, Securities Sold Short and Call and Put Options Written.
 
Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income and expense recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Foreign dividend income and expense recorded on the ex-dividend date or as soon as possible after determining the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes. Each Fund estimates components of distributions from real estate investment trusts (“REITs”). Distributions received in excess of income are recorded as a reduction of the cost of the related investments.
 
Foreign Currency Translations – Foreign currency amounts are translated into U.S. dollars as follows: (1) assets and liabilities at the rate of exchange at the end of the respective period; and (2) purchases and sales of securities and
 
 
38
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018 
 
income and expenses at the rate of exchange prevailing on the dates of such transactions. The portion of the results of operations arising from changes in the exchange rates and the portion due to fluctuations arising from changes in the market prices of securities are not isolated. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
 
Foreign Currency Transactions – Each Fund may enter into transactions to purchase or sell foreign currency contracts and options on foreign currency. Forward currency contracts are agreements to exchange one currency for another at a future date and at a specified price. A fund may use forward currency contracts to facilitate transactions in foreign securities, to manage a fund’s foreign currency exposure and to protect the U.S. dollar value of its underlying portfolio securities against the effect of possible adverse movements in foreign exchange rates. These contracts are intrinsically valued daily based on forward rates, and a fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is recorded as a component of NAV. These instruments involve market risk, credit risk, or both kinds of risks, in excess of the amount recognized in the Statements of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks associated with these transactions, a fund could incur losses up to the entire contract amount, which may exceed the net unrealized value included in its NAV.
 
Futures ContractsEach Fund may purchase futures contracts to gain exposure to market changes, which may be more efficient or cost effective than actually buying the securities. A futures contract is an agreement between parties to buy or sell a security at a set price on a future date. Upon entering into such a contract, a fund is required to pledge to the broker an amount of cash, U.S. Government obligations or other high-quality debt securities equal to the minimum “initial margin” requirements of the exchange on which the futures contract is traded. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin” and are recorded by the fund as unrealized gains or losses. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and value at the time it was closed. Risks of entering into futures contracts include the possibility that there may be an illiquid market and that a change in the value of the contract may not correlate with changes in the value of the underlying securities.
 
Notional amounts of each individual futures contract outstanding as of March 31, 2018, for Absolute Strategies Fund, are disclosed in the Notes to Schedule of Investments and Securities Sold Short.
 
Securities Sold Short – Each Fund may sell a security short to increase investment returns. Each Fund may also sell a security short in anticipation of a decline in the market value of a security. A short sale is a transaction in which the Fund sells a security that it does not own. To complete the transaction, the Fund must borrow the security in order to deliver it to the buyer. The Fund must replace the borrowed security by purchasing it at market price at the time of replacement; the price may be higher or lower than the price at which the Fund sold the security. The Fund incurs a loss from a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a profit if the price of the security declines between those dates.
 
Until the Fund replaces the borrowed security, the Fund will maintain on its books and records cash and long securities to sufficiently cover its short position on a daily basis. The collateral for the securities sold short includes the Deposits with Brokers as shown on the Statements of Assets and Liabilities and the securities held long as shown on the Schedules of Investments. Dividends and interest paid on securities sold short are recorded as an expense on the Statements of Operations.
 
Purchased Options – When a fund purchases an option, an amount equal to the premium paid by the fund is recorded as an investment and is subsequently adjusted to the current value of the option purchased. If an option expires on the stipulated expiration date or if the fund enters into a closing sale transaction, a gain or loss is realized. If a call option is exercised, the cost of the security acquired is increased by the premium paid for the call. If a put option
 
 
39
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018 
 
is exercised, a gain or loss is realized from the sale of the underlying security, and the proceeds from such sale are decreased by the premium originally paid. Purchased options are non-income producing securities.
 
The values of each individual purchased option outstanding as of March 31, 2018, for each Fund, if any, are disclosed in each Fund’s Schedule of Investments.
 
Written Options – When a fund writes an option, an amount equal to the premium received by the fund is recorded as a liability and is subsequently adjusted to the current value of the option written. Premiums received from writing options that expire unexercised are treated by the fund on the expiration date as realized gain from written options. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the fund has realized a gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the fund. The fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Written options are non-income producing securities.
 
The values of each individual written option outstanding as of March 31, 2018, for each Fund, if any, are disclosed in each Fund’s Schedule of Call and Put Options Written.
 
Credit Default Swaps – Each Fund may invest in credit default swaps. A credit default swap gives one party (the buyer) the right to recoup the economic value of a decline in the value of debt securities of the reference issuer (including sovereign debt obligations) if a credit event (a downgrade or default) occurs. This value is obtained by delivering a debt security of the reference issuer to the party in return for a previously agreed payment from the other party (frequently, the par value of the debt security). Credit default swaps may require initial premium (discount) payments as well as periodic payments (receipts) related to the interest leg of the swap or to the default of a reference obligation.
 
If a fund is a seller of a credit default swap contract, the fund would be required to pay the par (or other agreed upon) value of a referenced debt obligation to the counterparty in the event of a default or other credit event by the reference issuer, such as a U.S. or foreign corporate issuer, with respect to such debt obligations. In return, the fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the fund would keep the stream of payments and would have no payment obligations. As the seller, the fund would be subject to investment exposure on the notional amount of the swap.
 
If a fund is the buyer of a credit default swap contract, the fund would have the right to deliver a referenced debt obligation and receive the par (or other agreed-upon) value of such debt obligation from the counterparty in the event of a default or other credit event (such as a credit downgrade) by the reference issuer, such as a U.S. or foreign corporation, with respect to its debt obligations. In return, the fund would pay the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the counterparty would keep the stream of payments and would have no further obligations to the fund.
 
As of March 31, 2018, there were no credit default swap agreements outstanding.
 
Interest Rate Swaps – Each Fund may enter into interest rate swaps for investment purposes to manage exposure to fluctuations in interest rates or to add leverage.
 
Interest rate swaps represent an agreement between two counterparties to exchange cash flows based on the difference in two interest rates, applied to the notional principal amount for a specified period. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The Fund settles accrued net receivables or payables under the swap contracts on a periodic basis.
 
The primary risk associated with interest rate swaps is that unfavorable changes in interest rates could adversely impact the Funds.
 
 
40
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018 
 
The Funds did not enter into any interest rate swaps during the year ended March 31, 2018.
 
Restricted Securities – Each Fund may invest in securities that are subject to legal or contractual restrictions on resale (“restricted securities”). Restricted securities may be resold in transactions that are exempt from registration under the Federal securities laws or if the securities are registered to the public. The sale or other disposition of these securities may involve additional expenses and the prompt sale of these securities at an acceptable price may be difficult. Information regarding restricted securities held by each Fund is included in their Schedule of Investments, if applicable.
 
When-Issued Transactions – Each Fund may purchase securities on a forward commitment or ‘when-issued’ basis. A fund records a when-issued transaction on the trade date and will segregate with the custodian qualifying assets that have a value sufficient to make payment for the securities purchased. Securities purchased on a when-issued basis are marked-to-market daily and the fund begins earning interest on the settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
 
Distributions to Shareholders – Distributions to shareholders of net investment income, if any, are declared and paid semi-annually. Distributions to shareholders of net capital gains and foreign currency gains, if any, are declared and paid at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by each Fund, timing differences and differing characterizations of distributions made by each Fund.
 
Federal Taxes – Each Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of their taxable income to shareholders. In addition, by distributing in each calendar year substantially all of their net investment income and capital gains, if any, the Funds will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. Each Fund files a U.S. federal income and excise tax return as required. Each Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of March 31, 2018, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.
 
Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.
 
Absolute Strategies Fund's class-specific expenses are charged to the operations of that class of shares. Income and expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on the class’ respective net assets to the total net assets of the Fund.
 
Commitments and Contingencies – In the normal course of business, each Fund enters into contracts that provide general indemnifications by each Fund to the counterparty to the contract. Each Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against each Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. Each Fund has determined that none of these arrangements requires disclosure on each Fund’s balance sheet.
 
Offering Costs – Offering costs for the Absolute Convertible Arbitrage Fund of $71,834 consisted of fees related to the mailing and printing of the initial prospectus, certain startup legal costs, and initial registration filings. Such costs are amortized over a twelve-month period beginning with the commencement of operations of the Absolute Convertible Arbitrage Fund.
 
 
41
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018 
 
Note 3. Cash – Concentration in Uninsured Account
 
For cash management purposes, each Fund may concentrate cash with each Fund’s custodian. This typically results in cash balances exceeding the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of March 31, 2018, Absolute Strategies and Absolute Capital Opportunities Fund had a total of $45,690,161 and $14,320,805, respectively, at State Street Bank and Trust Company and the Fund’s brokers that exceeded the FDIC insurance limit imposed at each institution.
 
Note 4. Fees and Expenses
 
Investment Adviser – Absolute Investment Advisers LLC (the “Adviser”) is the investment adviser to each Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee from Absolute Strategies Fund, Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund at an annual rate of 1.60%, 1.40% and 1.40%, respectively, of each Fund’s average daily net assets. Prior to February 2, 2018, the Adviser received an advisory fee from Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund at an annual rate of 1.60%.
 
Each sub-advisory fee, calculated as a percentage of each Fund’s average daily net assets managed by each subadviser, is paid by the Adviser.
 
Distribution – Foreside Fund Services, LLC serves as each Fund’s distributor (the “Distributor”). The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) (“Atlantic”) or their affiliates. Absolute Strategies Fund has adopted a Distribution Plan (the “Plan”) for R Shares of the Fund in accordance with Rule 12b-1 of the Act. Under the Plan, R Shares are subject to a Rule 12b-1 fee of up to 0.35% of the R Shares average daily net assets; however, currently the Board limits 12b-1 fees on R Shares to 0.25% of average daily net assets.
 
Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to each Fund. The fees related to these services are included in Fund services fees within the Statements of Operations. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, each Fund pays Atlantic customary fees for its services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to each Fund, as well as certain additional compliance support functions.
 
Trustees and Officers – Through December 31, 2017, the Trust paid each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman), and the Audit Committee Chairman and Vice Chairman received an additional $6,000 annually. Effective January 1, 2018, each independent Trustee’s annual retainer is $31,000 ($41,000 for the Chairman), and the Audit Committee Chairman receives an additional $2,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees’ fees attributable to each Fund is disclosed in the Statement of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from each Fund.
 
Note 5. Expense Reimbursement and Fees Waived
 
Effective September 29, 2017, the Adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit total annual operating expenses (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) of Absolute Strategies Fund’s Institutional Shares and R Shares to 1.99% and 2.24%, respectively, through August 1, 2019. During the year, Absolute Strategies Fund invested in Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund. As of March 31, 2018, Absolute Strategies Fund owned approximately 59.2% and 52.1% of Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund, respectively. The Adviser has agreed to waive fees in an amount equal to the fee it receives plus all operating expenses, if any, from Absolute Capital
 
 
42
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018 
 
Opportunities Fund and Absolute Convertible Arbitrage Fund based on Absolute Strategies Fund’s investment in Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund. Other Fund service providers have voluntarily agreed to waive a portion of their fees. For the year ended March 31, 2018, the Adviser waived fees of $529,394 and Other Fund service providers waived fees of $35,879 for Absolute Strategies Fund.
 
The Adviser has contractually agreed to waive its fee and/or reimburse expenses to limit total annual operating expenses (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) of Absolute Capital Opportunities to 1.75% through August 1, 2019. Prior to February 2, 2018, the Adviser had contractually agreed to waive its fee and/ or reimburse expenses to 1.85% on net assets up to $100 million, 1.75% on net assets between $100 million and $200 million, and 1.65% on net assets over $200 million. The Adviser waived fees of $136,243 for Absolute Capital Opportunities Fund for the year ended March 31, 2018.
 
The Adviser has also contractually agreed to waive its fee and/or reimburse expenses to limit total annual operating expenses (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) of Absolute Convertible Arbitrage Fund to 1.60% through August 1, 2019. Prior to February 2, 2018, the Adviser had contractually agreed to waive its fee and/or reimburse expenses to 1.75% on net assets up to $25 million and 1.49% on net assets exceeding $25 million. Other Fund service providers have voluntarily agreed to waive a portion of their fees. The Adviser waived fees of $163,671 and Other Fund service providers waived fees of $15,339, for Absolute Convertible Arbitrage Fund, for the period ended March 31, 2018.
 
The Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund may repay the Adviser for fees waived and expenses reimbursed pursuant to the expense cap if such payment is made within three years of the fee waiver or expense reimbursement and does not cause the total annual fund operating expenses after fee waiver and/or expense reimbursement of the Funds to exceed the lesser of (i) the then current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. As of March 31, 2018, $330,692 and $163,671 for Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund, respectively, is subject to recapture by the Adviser.
 
Note 6. Security Transactions
 
The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments during the year or period ended March 31, 2018, were as follows:
     
Non-U.S. Government Obligations
   
     
Purchases
   
Sales
   
 
Absolute Strategies Fund
 
$
213,981,415
   
$
491,683,224
   
 
Absolute Capital Opportunities Fund
   
18,227,303
     
6,670,792
   
 
Absolute Convertible Arbitrage Fund
   
51,335,710
*
   
18,856,794
   
 
*
Amount excludes the in-kind contribution of securities from the Predecessor Fund.
 
Note 7. Summary of Derivative Activity
 
The volume of open derivative positions may vary on a daily basis as each Fund transacts derivative contracts in order to achieve the exposure desired by the Adviser. The notional value of activity for the year ended March 31, 2018, for any derivative type during the year is as follows:
 
     
Absolute Strategies Fund
   
Absolute Capital Opportunities Fund
   
 
Forward Currency Contracts
 
$
40,682,989
   
$
   
 
Futures Contracts
   
4,930,094,295
     
   
 
Purchased Options
   
11,609,655
     
2,222,807
   
 
Written Options
   
(1,269,739
)
   
(149,038
)
 
 
 
43
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018
 
Each Fund’s use of derivatives for the year ended March 31, 2018, was limited to options, forward currency contracts, futures contracts and credit default   swaps.

Following is a summary of the effect of derivatives on the Statements of Assets and Liabilities as of March 31, 2018:

Absolute Strategies Fund

 
Location:          
 
Equity Risk
   
 
Asset derivatives:
   
 
Investments, at value
 
$
687,960
   
 
Absolute Capital Opportunities Fund
 
 
Location:          
 
Equity Risk
   
 
Asset derivatives:
   
 
Investments, at value
 
$
670,093
   
 
Liability derivatives:
         
 
Call options written
 
$
(26,450
)
 
 
Put options written
 
$
(114,809
)
 
 
Total liability derivatives
 
$
(141,259
)
 
 
Realized and unrealized gains and losses on derivatives contracts for the year ended March 31, 2018, are recorded by each Fund in the following locations on the Statements of Operations:

Absolute Strategies Fund
 
 
Location:
 
Commodity
   
Credit
   
Currency
   
Equity
   
Interest
   
Total
 
Net realized gain (loss) on:
                               
Investments
 
$
   
$
   
$
   
$
(3,088,935
)
 
$
   
$
(3,088,935
)
Foreign currency transactions
   
     
     
(6,567
)
   
     
     
(6,567
)
Written options
   
     
     
     
1,567,689
     
     
1,567,689
 
Futures
   
1,324,839
     
     
707,068
     
(26,503,735
)
   
536,494
     
(23,935,334
)
Swaps
   
     
(1,402,368
)
   
     
     
     
(1,402,368
)
Total net realized gain (loss)
 
$
1,324,839
   
$
(1,402,368
)
 
$
700,501
   
$
(28,024,981
)
 
$
536,494
   
$
(25,463,147
)
                                                 
Net change in unrealized appreciation (depreciation) on:
 
Investments
 
$
   
$
   
$
   
$
5,908,678
   
$
   
$
5,908,678
 
Written options
   
     
     
     
(708,906
)
   
     
(708,906
)
Futures
   
(298,202
)
   
     
     
4,707,938
     
(163,243
)
   
4,246,493
 
Swaps
   
     
981,271
     
     
     
     
981,271
 
Total net change in unrealized appreciation  (depreciation)
 
$
(298,202
)
 
$
981,271
   
$
   
$
9,907,710
   
$
(163,243
)
 
$
10,427,536
 
 
Absolute Capital Opportunities Fund
 
 
Location:          
 
Equity
 
Net realized gain (loss) on:
 
Investments
 
$
2,466,037
 
Written options
   
75,311
 
Total net realized gain (loss)
 
$
2,541,348
 
Net change in unrealized appreciation (depreciation) on:
       
Investments
 
$
(149,346
)
Written options
   
(30,367
)
Total net change in unrealized appreciation (depreciation)
 
$
(179,713
)
 
 
44
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018
 
Asset (Liability) amounts shown in the table below represent amounts for derivative related investments at March 31, 2018. These amounts may be collateralized by cash or financial instruments.
 
   
Gross Asset (Liability) as Presented in the Statement of Assets and Liabilities
   
Financial Instruments(Received) Pledged*
   
Cash Collateral (Received) Pledged*
   
Net Amount
 
Absolute Strategies Fund
                       
Assets:
                       
Over-the-counter   derivatives**
 
$
687,960
   
$
   
$
   
$
687,960
 
Absolute Capital Opportunities Fund
                               
Assets:
                               
Over-the-counter derivatives**
   
670,093
     
     
     
670,093
 
Liabilities:
                               
Over-the-counter derivatives**
   
(141,259
)
   
141,259
     
     
 
 
*
The actual financial instruments and cash collateral (received) pledged may be in excess of the amounts shown in the table. The table only reflects collateral amounts up to the amount of the financial instrument disclosed on the Statement of Assets and Liabilities.
**
Over-the-counter derivatives may consist of options contracts. The amounts disclosed above represent the exposure to one or more counterparties. For further detail on individual derivative contracts and the corresponding unrealized appreciation (depreciation), see the Schedule of Call and Put Options Written.
 
Note 8. Federal Income Tax

As of March 31, 2018, cost for federal income tax and net unrealized appreciation (depreciation) consists of:
 
     
Tax Cost of Investments
   
Gross Unrealized Appreciation
   
Gross Unrealized Depreciation
   
Net Unrealized Appreciation (Depreciation)
 
 
Absolute Strategies Fund
 
$
111,815,399
   
$
17,903,362
   
$
(3,527,034
)
 
$
14,376,328
 
 
Absolute Capital Opportunities Fund
   
17,307,516
     
1,180,952
     
(1,104,227
)
   
76,725
 
 
Absolute Convertible Arbitrage Fund
   
56,635,814
     
2,070,909
     
(2,235,213
)
   
(164,304
)
 
Distributions paid during the fiscal years ended as noted were characterized for tax purposes as follows:

     
Ordinary Income
   
Long-Term Capital Gain
   
Total
 
 
Absolute Strategies Fund
                 
 
2018
 
$
   
$
   
$
 
 
2017
   
34,763,539
     
54,132,175
     
88,895,714
 
 
Absolute Capital Opportunities Fund
 
 
2018
   
     
     
 
 
2017
   
     
     
 
 
Absolute Convertible Arbitrage Fund
 
 
2018
   
94,585
     
     
94,585
 
 
As of March 31, 2018, distributable earnings (accumulated loss) on a tax basis were as follows:
 
   
Undistributed Ordinary Income
   
Undistributed Long-Term Gain
   
Capital and Other Losses
   
Unrealized Appreciation (Depreciation)
   
Total
 
Absolute Strategies Fund
 
$
   
$
   
$
(39,592,131
)
 
$
14,378,712
   
$
(25,213,419
)
Absolute Capital Opportunities Fund
   
1,812,983
     
1,303,026
     
     
76,751
     
3,192,760
 
Absolute Convertible Arbitrage Fund
   
934,639
     
     
     
(164,304
)
   
770,335
 
 
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statements of Assets and Liabilities are primarily due to wash sales, futures, constructive sales, straddles, cover loss deferrals, short dividends, equity return of capital, convertible bond deemed distributions, partnerships and convertible bond premium.
 
 
45
ABSOLUTE FUNDS


ABSOLUTE FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018
 
As of March 31, 2018, the Absolute Strategies Fund had $39,310,239 of available short-term capital loss carryforwards that have no expiration date.

For tax purposes, the current deferred late year ordinary loss was $281,892 for Absolute Strategies Fund (realized during the period January 1, 2018 through March 31, 2018). These losses were recognized for tax purposes on the first business day of the Fund’s current fiscal year, April 1, 2018.

On the Statements of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended March 31, 2018. The following reclassifications were the result of book to tax differences resulting from real estate investment trusts, equity return of capital distributions, partnerships, passive foreign investment holdings, straddles, constructive sales, short dividend reclassifications, currency, paydowns, convertible bond deemed distributions, convertible bond premium adjustments, contingent payment debt instruments, credit default swap income, organization cost amortization and net operating losses and has no impact on the net assets of each Fund.

     
Undistributed Net Investment Income
   
Accumulated Net Realized Loss
   
Paid-in-Capital
 
 
Absolute Strategies Fund
 
$
5,375,100
   
$
(2,625,514
)
 
$
(2,749,586
)
 
Absolute Capital Opportunities Fund
   
247,484
     
(247,484
)
   
 
 
Absolute Convertible Arbitrage Fund
   
725,867
     
(725,867
)
   
 
 
Note 9. Underlying Investment in Other Investment Companies
 
The Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund currently seek to achieve their investment objective by investing a portion of their assets in State Street Institutional Treasury Money Market Fund, Premier Share Class (the “Premier”), a registered open-end management investment company organized as a Massachusetts business trust. The Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund may redeem their investments from Premier at any time if the Adviser determines that it is in the best interest of the Fund and its shareholders to do so. The latest financial statements for Premier can be found at www.sec.gov.

The performance of the Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund may be directly affected by the performance of Premier. As of March 31, 2018, the percentage of net assets invested in Premier was 29.5% and 60.4% for the Absolute Capital Opportunities Fund and Absolute Convertible Arbitrage Fund, respectively.

Note 10. Recent Accounting Pronouncements
 
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities, held at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities held at a discount; which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Management is currently evaluating the impact, if any, of applying this provision.

Note 11. Subsequent Events
 
Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and each Fund has had no such events.
 
 
46
ABSOLUTE FUNDS


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
To the Board of Trustees of Forum Funds
and the Shareholders of Absolute Strategies Fund,
Absolute Capital Opportunities Fund, and Absolute Convertible Arbitrage Fund
 
Opinion on the Financial Statements
 
We have audited the accompanying statements of assets and liabilities of Absolute Strategies Fund, Absolute Capital Opportunities Fund, and Absolute Convertible Arbitrage Fund, each a series of shares of beneficial interest in Forum Funds (the “Funds”), including the schedules of investments, as of March 31, 2018, and the related statements of operations for the year or period then ended, the statements of changes in net assets for each of the years or period in the two-year period then ended and the financial highlights for each of the years or periods in the five-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of March 31, 2018, and the results of their operations for the year or period then ended, the changes in their net assets for each of the years or period in the two-year period then ended and their financial highlights for each of the years or periods in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Funds' management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risk of material misstatement of those financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
 
BBD, LLP
 
We have served as the auditor of one or more of the Funds in the Forum Funds since 2009.
 
Philadelphia, Pennsylvania
 
 
47
ABSOLUTE FUNDS


ABSOLUTE FUNDS
ADDITIONAL INFORMATION (Unaudited)
 
Investment Advisory Agreement Approval
 
At the March 27, 2018 Board meeting, the Board, including the Independent Trustees, considered the approval of a new investment subadvisory agreement between Absolute Investment Advisers LLC (the “Adviser”) and Tortoise Capital Advisors, L.L.C. (the “Subadviser”) pertaining to the Fund (the “Subadvisory Agreement”). The Subadvisory Agreement was being considered in connection with the earlier termination of the original subadvisory agreement between the Adviser and the Subadviser (the “Original Agreement”) in connection with an anticipated change in control transaction involving the Subadviser’s parent entity (“Transaction”). In preparation for its deliberations, the Board requested and reviewed written responses from the Subadviser to due diligence questionnaires circulated on the Board's behalf concerning the services to be provided by the Subadviser with respect to the portion of the Fund managed by the Subadviser (the “Managed Portion”). In addition, the Board recognized that the Original Agreement between the Adviser and Subadviser had just recently been approved at an in-person meeting of the Board held on December 8, 2017 and, in this regard, the Board considered information provided by the Subadviser at that time. The Board also discussed the materials with Fund counsel and, as necessary, with the Trust's administrator, Atlantic Fund Services. During its deliberations, the Board received an oral presentation from the Adviser and was advised by Trustee counsel.

Nature, Extent and Quality of Services

The Board received a presentation from senior representatives of the Adviser and discussed the Subadviser’s personnel, operations and financial condition. In this context, the Board considered the adequacy of the Subadviser’s resources and the quality of services to be provided by the Subadviser under the Subadvisory Agreement. The Board reviewed information regarding the experience, qualifications and professional background of the portfolio managers and other personnel at the Subadviser who, under the Original Agreement had, and under the Subadvisory Agreement would continue to have, responsibility for the Managed Portion. The Board considered the Subadviser’s representation that the portfolio managers who were responsible for the Managed Portion under the Original Agreement would continue in that role as portfolio managers under the Subadvisory Agreement and that, notwithstanding turnover on the Subadviser’s investment committee in connection with the Transaction, there would be continuity and stability with respect to the Subadviser’s investment processes. The Board considered the investment philosophy and decision-making processes of the Subadviser and the capability and integrity of the Subadviser’s senior management and staff. The Board also evaluated the anticipated quality of the Subadviser’s services with respect to regulatory compliance and compliance with client investment policies and restrictions. In addition, the Board took into consideration the Adviser’s recommendation that the Board approve the Subadviser. The Board noted the Subadviser’s representation that it is financially stable and able to provide high-quality investment advisory services to the Managed Portion. The Board concluded that, overall, it was satisfied with the nature, extent, and quality of services to be provided to the Managed Portion by the Subadviser under the Subadvisory Agreement.

Performance

Recognizing that the Subadviser was relatively new and had not yet managed the Managed Portion for a meaningful period of time, the Board evaluated the Adviser’s assessment of the Subadviser’s historical performance in managing a strategy similar to the one to be employed for the Managed Portion, noting the Adviser had expressed satisfaction with the performance and had recommended the approval of the Subadvisory Agreement. Based on the Adviser’s evaluation of the Subadviser’s performance and the Adviser’s recommendation that the Board engage the Subadviser, among other relevant facts and circumstances, the Board concluded that the Subadviser’s management of the Managed Portion could benefit the Fund and its shareholders.

Compensation

The Board reviewed the Subadviser’s proposed compensation for providing subadvisory services to the Fund and noted that the total advisory fee paid by the Fund would not change because the subadvisory fees are paid by the Adviser and not the Fund. The Board considered information regarding the proposed compensation to be paid to the Subadviser by the Adviser and also noted the arm’s-length nature of the relationship between the Adviser and the
 
 
48
ABSOLUTE FUNDS



ABSOLUTE FUNDS
ADDITIONAL INFORMATION (Unaudited)
 
Subadviser with respect to the negotiation of such subadvisory fee rate. As a result, the Board concluded that the compensation to be paid to the Subadviser for providing subadvisory services to the Fund was not a material factor in considering the approval of the Subadvisory Agreement.

Cost of Services and Profitability

The Board noted that the Adviser, and not the Fund, was responsible for paying the subadvisory fees due under the Subadvisory Agreement. In that regard, the Board emphasized the arm’s length nature of the relationship between the Adviser and the Subadviser with respect to the negotiation of the subadvisory fee rate that would apply. The Board concluded that the Subadviser’s anticipated profitability was not a material factor in determining whether or not to approve the Subadvisory Agreement.

Economies of Scale

The Board considered whether the Fund would benefit from any economies of scale with respect to the Subadvisory Agreement. The Board noted that because the Adviser, and not the Fund, pays the subadvisory fee, shareholders would not benefit from any economies of scale in the form of breakpoints in the subadvisory fee rate. Based on the foregoing information and other materials presented, the Board concluded that economies of scale were not a material factor in approving the Subadvisory Agreement.

Other Benefits

The Board noted the Subadviser’s representation that, aside from its contractual subadvisory fees, it could benefit from its relationship with the Fund by way of additional market exposure. The Board concluded that other benefits accrued by the Subadviser were not a material factor in approving the Subadvisory Agreement.

Conclusion

The Board did not identify any single factor as being of paramount importance, and different Trustees may have given different weight to different factors; however, in light of the fact that the Fund is a multi-manager Fund for which the Adviser identifies subadvisers whose strategies it seeks to combine to achieve the Fund’s investment objective, the Board gave significant weight to the Adviser’s recommendation that the Subadviser be appointed as a subadviser to the Fund and to the Adviser’s representation that the appointment of the Subadviser would positively contribute to the Adviser successfully executing the overall strategy of the Fund. Based on its review, including consideration of each of the factors referenced above, the Board (including a majority of the Independent Trustees) determined, in the exercise of its reasonable business judgment, that the subadvisory arrangement, as outlined in the Subadvisory Agreement, was fair and reasonable in light of the services to be performed, expenses to be incurred by the Fund and such other matters as the Board considered relevant.

Shareholder Proxy Vote

At a special meeting of shareholders for all the Funds in the Trust, held on December 8, 2017, shares were voted as follows on the proposals presented to shareholders:

          Matter
For
Against
Abstain
To elect David Tucker to the Board of Trustees of the Trust
108,303,928.779
1,542,957.994
0
To elect Jennifer Brown-Strabley to the Board of Trustees of the Trust
108,183,952.495
1,662,934.278
0
To elect Mark D. Moyer to the Board of Trustees of the Trust.
108,142,412.946
1,704,473.827
0
To elect Jessica Chase to the Board of Trustees of the Trust.
107,632,924.803
2,213,961.970
0
To elect Stacey E. Hong to the Board of Trustees of the Trust.
105,777,266.997
4,069,619.776
0
 
Proxy Voting Information

A description of the policies and procedures that each Fund uses to determine how to vote proxies relating to securities held in each Fund’s portfolio is available, without charge and upon request, by calling (888) 992-2765 and
 
 
49
ABSOLUTE FUNDS



ABSOLUTE FUNDS
ADDITIONAL INFORMATION (Unaudited)
 
on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. Each Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (888) 992-2765 and on the SEC’s website at www.sec.gov.

Availability of Quarterly Portfolio Schedules

Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.

Shareholder Expense Example

As a shareholder of the Funds, you incur ongoing costs, including management fees, distribution (12b-1) fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2017 through March 31, 2018.

Actual Expenses – The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.

Hypothetical Example for Comparison Purposes – The second line of the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
 
 
50
ABSOLUTE FUNDS


ABSOLUTE FUNDS
ADDITIONAL INFORMATION (Unaudited)
 
   
Beginning
Account Value
   
Ending
Account Value
   
Expenses Paid
During Period*
   
Annualized
Expense Ratio*
 
Absolute Strategies Fund
                       
Institutional Shares
                       
Actual
 
$
1,000.00
   
$
1,000.00
   
$
10.37
     
2.08
%
Hypothetical (5% return before expenses)
 
$
1,000.00
   
$
1,014.56
   
$
10.45
     
2.08
%
R Shares
                               
Actual
 
$
1,000.00
   
$
1,000.00
   
$
15.26
     
3.06
%
Hypothetical (5% return before expenses)
 
$
1,000.00
   
$
1,009.67
   
$
15.33
     
3.06
%
Absolute Capital Opportunities Fund
                               
Actual
 
$
1,000.00
   
$
1,123.88
   
$
9.27
     
1.75
%
Hypothetical (5% return before expenses)
 
$
1,000.00
   
$
1,016.21
   
$
8.80
     
1.75
%
Absolute Convertible Arbitrage Fund
                               
Actual
 
$
1,000.00
   
$
1,021.22
   
$
8.26
     
1.64
%
Hypothetical (5% return before expenses)
 
$
1,000.00
   
$
1,016.75
   
$
13.09
     
1.64
%
 
*
Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182) divided by 365 to reflect the half-year period.
 
Federal Tax Status of Dividends Declared during the Fiscal Year
 
For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. The Absolute Convertible Arbitrage Fund designates 100.00% of its income dividends as short term capital gain dividends exempt from U.S. tax for foreign shareholders (QSD).
 
Trustees and Officers of the Trust
 
The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. Each Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (888) 992-2765.
 
 Name and Year of Birth
 Position with
the Trust
 Length of
Time Served
 Principal Occupation(s)
During Past Five Years
Number of Series in Fund Complex Overseen By Trustee
Other Directorships Held By Trustee During Past Five Years
Independent Trustees
David Tucker
Born: 1958
Trustee; Chairman of the Board
Since 2011 and Chairman since 2018
Director, Blue Sky Experience (a charitable endeavor) since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm) 1998-2008.
3
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
 
 
51
ABSOLUTE FUNDS


ABSOLUTE FUNDS
ADDITIONAL INFORMATION (Unaudited)
 
Name and Year of Birth
Position with
the Trust
Length of
Time Served
Principal Occupation(s)
During Past Five Years
Number of Series in Fund Complex Overseen By Trustee
Other Directorships Held By Trustee During Past Five Years
Mark D. Moyer
Born: 1959
Trustee
Since 2018
Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy) since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011-2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008- 2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012.
3
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Jennifer Brown-Strabley
Born: 1964
Trustee
Since 2018
Principal, Portland Global Advisors, 1996-2010.
3
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Interested Trustee
Stacey E. Hong(1)
Born: 1966
Trustee
Since 2018
President, Atlantic since 2008.
3
Trustee, Forum Funds II and U.S. Global Investors Funds
Born: 1970
Trustee
Since 2018
Senior Vice President, Atlantic since 2008.
3
None
 
(1)
Stacey E. Hong is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to his affiliation with Atlantic. Jessica Chase is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to her affiliation with Atlantic and her role as President of the Trust.
 
 
52
ABSOLUTE FUNDS


ABSOLUTE FUNDS
ADDITIONAL INFORMATION (Unaudited)
 
Name and Year of Birth
Position with the Trust
Length of
Time Served
Principal Occupation(s) During Past 5 Years
Officers
Born: 1970
President; Principal Executive Officer
Since 2015
Senior Vice President, Atlantic since 2008.
Born: 1972
Treasurer; Principal Financial Officer
Since 2008
Senior Vice President, Atlantic since 2008.
Zachary Tackett
Born: 1988
Vice President; Secretary and Anti-Money Laundering Compliance Officer
Since 2014
Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010- 2013.
Michael J. McKeen
Born: 1971
Vice President
Since 2009
Senior Vice President, Atlantic since 2008.
Timothy Bowden
Born: 1969
Vice President
Since 2009
Manager, Atlantic since 2008.
Geoffrey Ney
Born: 1975
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Todd Proulx
Born: 1978
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Carlyn Edgar
Born: 1963
Vice President
Since 2008
Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016
Dennis Mason
Born: 1967
Chief Compliance Officer
Since 2016
Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011- 2013; Senior Analyst, Atlantic, 2008-2011
 
 
53
ABSOLUTE FUNDS

 

 
P.O. BOX 588
(888) 992-2765 (TOLL FREE)
(888) 99-ABSOLUTE (TOLL FREE)


 
INVESTMENT ADVISER
 
Absolute Investment Advisers LLC
18 Shipyard Drive, Suite 3C
 
TRANSFER AGENT
 
Atlantic Fund Services
P.O. Box 588
(888) 992-2765 (Toll Free)
(888) 99-ABSOLUTE (Toll Free)
 
DISTRIBUTOR
 
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
 
This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus, which includes information regarding the Funds’ risks, objectives, fees and expenses, experience of its managements and other information.
 

 
212-ANR-0318
 

 


(COVER PAGE)


ADALTA INTERNATIONAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

Dear Shareholders:

We are pleased to provide the Adalta International Fund’s (the “International Fund’s”) annual report for the fiscal year ending March 31, 2018 (the “Fiscal Year” or the “Period”). The International Fund’s net asset value (“NAV”) was $17.54 per share as of March 31, 2018, realizing a return of 1.85% for the Fiscal Year. This return compares with a return of 16.53% for the International Fund’s benchmark, the MSCI ACWI ex US Index (the “MSCI ACWI ex US” or the “Benchmark”) and a 14.80% return for the MSCI EAFE Index (“MSCI EAFE”)1. For the 2017 calendar year, the International Fund returned 19.97% versus 27.19% for the MSCI ACWI ex US and 25.03% for the MSCI EAFE. For a longer perspective, the International Fund’s 1-, 3-, 5-, 10-year, and since inception average annual total returns as of March 31, 2018 are as follows:

Average Annual Total Returns Periods Ended March 31, 2018
One Year
Three Year
Five Year
Ten Year
Since Inception 12/08/93
Adalta International Fund
1.85%
4.08%
2.25%
2.43%
6.71%
MSCI ACWI ex US Index
16.53%
6.18%
5.89%
2.70%
N/A
MSCI EAFE Index
14.80%
5.55%
6.50%
2.74%
5.64%

(Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. For the most recent month-end performance, please call (800) 943-6786. Shares redeemed or exchanged within 60 days of purchase will be charged a 2.00% redemption fee. As stated in the current prospectus, the International Fund’s annual operating expense ratio (gross) is 3.28%. However, the International Fund’s adviser has agreed to contractually waive its fees and/or reimburse expenses to limit total operating expenses to 1.76% through at least September 30, 2018. During the period certain fees were waived and/or expenses reimbursed, otherwise returns would have been lower. Returns greater than one year are annualized.)

During the Period, the International Fund underperformed its relevant benchmarks as a result of stock selection and allocation. Contributors to the International Fund’s performance during the Fiscal Year included NIIT Technologies, Ltd. (India), STMicroelectronics NV, ADR (Switzerland), Sony Corp. (Japan), Yoox Net-A-Porter Group S.p.A. (Italy), Dewan Housing Finance Corp., Ltd. (India), and Baidu, Inc., ADR (China). Holdings that detracted from the International Fund’s performance during the period included Controladora Vuela Compañia de Aviación SAB de CV, ADR (Mexico), Secure Property Development & Investment PLC (Cyprus), Kandi Technologies Group, Inc. (China), Genting Hong Kong, Ltd. (Hong Kong), Obsidian Energy, Ltd. (Canada), and Tarkett SA (Russian Federation).

The following tables provide details of the International Fund’s top 10 positions at the end of the Period as well as positions added and exited since our September 30, 2017 semi-annual report. The decisions to exit positions resulted from a combination of the securities hitting our valuation targets or better opportunities elsewhere.
 

1
The MSCI ACWI ex US is a stock market index that is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Net index data is not available prior to its inception on 01/01/01. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the United States and Canada. The total return of the MSCI EAFE includes the reinvestment of dividends and income.  It is not possible to invest directly in any index.
1


ADALTA INTERNATIONAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

Top 10 Common Stock Holdings as of 3/31/2018
Country
Sector
% of Net Assets
NIIT Technologies, Ltd.
India
Technology
6.84%
TCG BDC, Inc.
United States
Asset Management
6.33%
GP Investments, Ltd., BDR
Brazil
Asset Management
6.01%
Dewan Housing Finance Corp., Ltd.
India
Financials
5.84%
Sony Corp.
Japan
Consumer Discretionary
5.63%
Baidu, Inc., ADR
China
Telecommunication Services
5.53%
Dufry AG
Switzerland
Consumer Discretionary
4.81%
BYD Co., Ltd., Class H
China
Consumer Discretionary
4.48%
Cellnex Telecom SA
Spain
Telecommunication Services
4.32%
KKR & Co. LP
United States
Asset Management
4.25%
Total
   
54.04%

New Positions Established as of 03/31/18
% of Net
Assets
 
Portfolio Positions Eliminated
% of Net
Assets(2)
Koninklijke Phillips NV, ADR
2.28%
 
Rakuten, Inc.
2.88%
Kandi Technologies Group, Inc.
2.58%
 
Granite REIT
2.12%
Silvershore Internet Opportunity Fund I LP
2.87%
 
Panin Financial TBK PT
2.32%
Silvershore GO I LP
2.25%
 
Yoox Net-A-Porter Group SpA
1.85%
Migo
1.75%
     

During the Fiscal Year, the International Fund invested in Kandi Technologies Group, Inc. (Kandi). Based in China, Kandi, through its subsidiaries, is engaged in the research, development, manufacturing, and sales of different vehicle products, including electric vehicles, all-terrain vehicles, battery packs, automobile motors, controllers for electric vehicles, and air-conditioning systems. Since 2013, Kandi has increased its focus on developing pure electric vehicles and expanding its market share in China, the largest market for electric vehicles. Kandi has a 50/50 joint venture with Geely Automobile Holdings Limited (one of the largest car brands in China) involved in the production of electric vehicles. While the stock has underperformed since the International Fund’s position was initiated in the fourth quarter of 2017, we believe the company is well-positioned to perform in a market that is projected to experience significant future growth.

Based in China and founded in 2000, International Fund holding Baidu, Inc. (Baidu) operates as an internet search provider which offers marketing and search solutions. Baidu also offers an e-commerce platform, online payment tools, web application software, and human resources-related services, among others. China has the largest internet user population in the world, totaling 731 million users as of December 2016. Outside of China, Baidu sees significant opportunity in countries like Brazil, Indonesia, Thailand, Egypt and Japan. As of December 2015, Baidu had more than 260 million active users internationally. The stock rallied in the third quarter of 2017 after the company announced a 14% revenue increase and plans to strengthen its mobile and artificial intelligence services.
 

2
Percent of net asset value (“NAV”) for exited positions reflect holdings at the previous reporting period ending 9/30/2017.
2


ADALTA INTERNATIONAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

During the fourth quarter of 2017 and the first quarter of 2018 the International Fund also undertook select private investments in what we believe are compelling opportunities for the International Fund. These investments included: Philippines based Migo, which looks to deliver digital products and services to consumers underserved by existing digital technologies; an e-commerce platform based in South Korea; and, the leading ride sharing platform in Southeast Asia.

According to the January 2018 International Monetary Fund’s (IMF) World Economic Outlook (WEO) (the “Report”), global output is estimated to have grown 3.7% in 2017, with broad-based growth and upside surprises in Europe and Asia. The Report maintains that the global economy is expected to grow 3.9% in both 2018 and 2019; this includes growth of 2.3% and 2.2% in Advanced Economies for 2018 and 2019, respectively, and growth of 4.9% and 5.0% in Emerging Markets and Developing Economies for 2018 and 2019, respectively. The Tax Cuts and Jobs Act approved last December in the US is expected to stimulate US economic activity and have a positive effect for its trading partners. The tax reform is expected to enable publicly traded companies to invest in expansion, return capital to shareholders in the form of higher dividends and repurchases of shares, and increase their employment base, therefore benefitting the US economy. Among the risks to this growth outlook are the tightening of financial terms from current low interest rates, less than expected impact from US tax reform, increased regulatory and trade barriers, and geopolitical tensions. During the first quarter of 2018, the newly appointed Federal Reserve Chairman, Jerome Powell, announced that the Fed will continue its interest rate hike program, raising the benchmark Federal Funds Rate by a 0.25% and anticipating another two rate hikes this year. The desire of the Federal Reserve is to achieve more normal interest rate levels without negatively impacting economic growth. If the foregoing fiscal and monetary policy are successful, we believe it portends an attractive environment for our investment portfolio.

Thank you for your continued trust and support. We believe your patience will be rewarded, and we remain enthusiastic shareholders with you in the International Fund.

Sincerely,

Adalta Capital Management LLC
 
IMPORTANT RISKS AND DISCLOSURE:

There is no assurance that the International Fund will achieve its investment objective. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, political and economic instability, and relatively illiquid markets. Emerging markets involve greater risks than more developed markets as they may be more volatile and less liquid. The International Fund’s exposure to foreign currencies may not be fully hedged at all times. Private fund securities are typically illiquid and difficult to value. The International Fund may invest in small and mid-sized capitalization companies meaning that these companies carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The risk of investing in Europe may be heightened due to the recent referendum in which the United Kingdom voted to withdraw from the European Union (EU). Also, if one or more countries were to exit the EU or abandon use of the euro, the value of investments tied to those countries or the euro could decline significantly and unpredictably. The risk of investing in China may be heightened by the potential trade policy modification between the US and China.
3


ADALTA INTERNATIONAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

The views in this report were those of the International Fund managers as of March 31, 2018 and may not reflect their views on the date this report is first published or any time thereafter. These views are intended to assist shareholders in understanding their investment in the International Fund and do not constitute investment advice. This letter may contain discussions about certain investments both held and not held in the portfolio. All current and future holdings are subject to risk and to change.
4


ADALTA INTERNATIONAL FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)

The following chart reflects the change in the value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in Adalta International Fund (the “Fund”) compared with the performance of the benchmarks, the MSCI All Cap World Index except United States (“MSCI ACWI ex US”), and the secondary benchmark, the MSCI EAFE Index (“MSCI EAFE”), over the past ten years. The MSCI ACWI ex US is a stock market index that is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets outside of the United States. The MSCI EAFE is a stock market index that is designed to measure the equity market performance with dividends reinvested of developed markets outside of the United States and Canada. The total return of the indices include the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the indices do not include expenses. The Fund is professionally managed, while the indices are unmanaged and are not available for investment.

Comparison of a $10,000 Investment
Adalta International Fund vs. MSCI ACWI ex US Index and MSCI EAFE Index
 
(LINE GRAPH)
 
Average Annual Total Returns Periods Ended March 31, 2018
One Year
Five Years
Ten Years
Adalta International Fund
1.85%
2.25%
2.43%
MSCI ACWI ex US Index
16.53%
5.89%
2.70%
MSCI EAFE Index
14.80%
6.50%
2.74%

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratio (gross) is 3.28% and the annual operating expenses after the fee waiver and/ or expense reimbursement (net) is 1.76% including acquired fund fees and expenses of 0.26%. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.50%, through at least September 30, 2018 (the “Expense Cap”). During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. Shares redeemed or exchanged within 60 days of purchase will be charged a 2.00% redemption fee. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (844) 284-9829.
5


ADALTA INTERNATIONAL FUND
PORTFOLIO PROFILE (Unaudited)

 
 
 
PORTFOLIO HOLDINGS (Unaudited)
   
 
% of Common Stock
   
 
Consumer Discretionary
30.1%
 
 
Asset Management
18.0%
 
 
Telecommunication Services
11.3%
 
 
Technology
11.2%
 
 
Financials
10.4%
 
 
Industrials
5.5%
 
 
Conglomerates
4.0%
 
 
Consumer Staples
3.8%
 
 
Energy
3.6%
 
 
Real Estate
2.1%
 
   
100.0%
 
6


ADALTA INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS

 
Shares  
Security Description
 
Value
 
Common Stock - 91.8%      
Belgium - 3.5%      
 
5,390
 
Anheuser-Busch InBev SA/NV, ADR
 
$
592,577
 
Brazil - 6.0%          
 
 535,300
 
GP Investments, Ltd., BDR (a)
   
1,029,595
 
Canada - 3.8%          
 
 576,750
 
Obsidian Energy, Ltd. (a)
   
564,581
 
 
 9,300
 
Points International, Ltd. (a)
   
90,861
 
           
655,442
 
China - 12.6%          
 
 4,246
 
Baidu, Inc., ADR (a)
   
947,665
 
 
 98,500
 
BYD Co., Ltd., Class H
   
768,105
 
 
 91,172
 
Kandi Technologies Group, Inc. (a)
   
442,184
 
           
2,157,954
 
Cyprus - 1.9%          
 
 2,021,534
 
Secure Property Development & Investment PLC (a)
   
326,165
 
Hong Kong - 3.6%        
 
 3,590,300
 
Genting Hong Kong, Ltd.
   
624,712
 
India - 12.7%          
 
 127,950
 
Dewan Housing Finance Corp., Ltd.
   
1,000,797
 
 
 88,400
 
NIIT Technologies, Ltd.
   
1,172,401
 
           
2,173,198
 
Indonesia - 0.0%        
 
 100
 
Panin Financial Tbk PT (a)
   
2
 
Japan - 5.6%          
 
 20,100
 
Sony Corp.
   
965,284
 
Mexico - 6.6%          
 
 80,506
 
Controladora Vuela Cia de Aviacion SAB de CV, ADR (a)
   
656,124
 
 
 4,779
 
Grupo Aeroportuario del Pacifico SAB de CV, ADR
   
476,179
 
           
1,132,303
 
Netherlands - 2.3%        
 
 10,200
 
Koninklijke Philips NV, ADR
   
390,762
 
Russian Federation - 4.2%        
 
 21,465
 
Tarkett SA
   
718,924
 
South Korea - 2.2%        
 
 2,108
 
GS Home Shopping, Inc.
   
371,604
 
Spain - 4.3%            
 
 27,764
 
Cellnex Telecom SA (b)
   
740,978
 
Switzerland - 8.2%        
 
 6,293
 
Dufry AG (a)
   
823,817
 
 
 26,278
 
STMicroelectronics NV, ADR
   
585,736
 
           
1,409,553
 
Shares  
Security Description
 
Value
 
United States - 14.3%      
 
35,846
 
KKR & Co. LP
 
$
727,674
 
 
60,604
 
TCG BDC, Inc.
   
1,084,813
 
 
20,000
 
The Blackstone Group LP
   
639,000
 
           
2,451,487
 
Total Common Stock (Cost $15,052,801)    
15,740,540
 

 
Principal
 
Security Description
 
Value
 
Private Equity Funds - 5.1%
     
Cayman Islands - 2.9%
     
$
492,966
 
Silvershore Internet Opportunity Fund I LP (a)(c)(d)
   
491,347
 
India - 0.0% 
       
 
36,915
 
Bharat Investors LP (a)(e)(f)
   
3,132
 
South Korea - 2.2%
       
 
400,000
 
Silvershore GO I LP (a)(d)(g)(h)
   
386,023
 
Total Private Equity Funds (Cost $929,882)
   
880,502
 
 
Principal  
Security Description
 
Rate
 
Maturity
 
Value
 
Fixed Income Securities - 1.8%          
Corporate Convertible Bond - 1.8%          
Philippines - 1.8%                
$
300,000
 
Migo (e)(i) (Cost $300,000)
 
7.50
%
06/14/19
   
300,000
 
Investments, at value - 98.7% (Cost $16,282,683)  
$
16,921,042
 
Other Assets & Liabilities, Net - 1.3%    
218,828
 
Net Assets - 100.0%      
$
17,139,870
 

ADR
American Depositary Receipt
BDR
Brazilian Depositary Receipt
LP
Limited Partnership
PLC
Public Limited Company

(a)
Non-income producing security.
(b)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $740,978 or 4.3% of net assets.
(c)
Private equity fund purchased on 03/02/18 that invests in Grab, Inc. Illiquid investment in which redemptions are not accepted. Unfunded commitments of $7,034 as of March 31, 2018.
(d)
Investment is valued using the practical expedient. For more information on the practical expedient, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
(e)
Security fair valued in accordance with procedures adopted by the Board of Trustees. At the period end, the value of these securities amounted to $303,132 or 1.8% of net assets.
 
 
 See Notes to Financial Statements.

7


ADALTA INTERNATIONAL FUND
SCHEDULE OF INVESTMENTS

 
(f)
Private equity fund purchased on 03/08/13 that invests in Unitech Corporate Parks PLC. Redemptions may be made on the last day of each calendar quarter upon 60 days written notice. No unfunded commitments as of March 31, 2018.
(g)
Affiliated Company.
(h)
Private equity fund purchased on 02/01/18 that invests in Greenoaks Opportunity Partners I LLC. Illiquid investment in which redemptions are not accepted. No unfunded commitments as of March 31, 2018.
(i)
Corporate convertible bond purchased on 12/13/17. Security fair valued using private transaction cost.

The following is a summary of the inputs used to value the Fund's inputs as of March 31, 2018.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.

Valuation Inputs
 
Investments in Securities
 
Practical expedient*
 
$
877,370
 
Level 1 – Quoted Prices
   
15,740,540
 
Level 2 - Other Significant Observable Inputs
   
 
Level 3 - Significant Unobservable Inputs
   
303,132
 
Total
 
$
16,921,042
 

*
As a practical expedient, certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been 
categorized in the fair value hierarchy. The fair value amount presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Investments.
 
The Level 1 value displayed in this table is Common Stock. The Level 3 value displayed in this table is a Private Equity Fund and a Corporate Convertible Bond. Refer to this Schedule of Investments for a further breakout of each security by country and instrument type.
 
An affiliate is an entity in which the Fund has ownership of at least 5% of the voting securities.  Transactions during the year with affiliates were as follows:
 
   
Private Equity Fund
 
Balance 03/31/17
     
Principal
 
$
 
Cost
 
$
 
Value
 
$
 
Gross Additions
       
Principal
 
$
400,000
 
Cost
 
$
400,000
 
Gross Reductions
       
Principal
 
$
 
Cost
 
$
 
Balance 03/31/18
       
Principal
 
$
400,000
 
Cost
 
$
400,000
 
Value
 
$
386,023
 
Realized Gain/(Loss)
 
$
 
Unrealized Depreciation
 
$
(13,977
)
 
 
The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value.

   
Preferred Stock
   
Private Equity Funds
   
Corporate Convertible Bond
 
Balance as of 03/31/17
 
$
-
   
$
4,693
   
$
-
 
Purchases
   
-
     
-
     
300,000
 
Realized loss
   
(200,000
)
   
-
     
-
 
Change in unrealized appreciation/(depreciation)
   
200,000
     
(1,561
)
   
-
 
Balance as of 03/31/18
 
$
-
   
$
3,132
   
$
300,000
 
Net change in unrealized appreciation/(depreciation) from investments held as of 03/31/18**
 
$
200,000
   
$
(1,561
)
 
$
-
 

**
The change in unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) of investments in the accompanying Statement of Operations.
 
The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
See Notes to Financial Statements.

8


ADALTA INTERNATIONAL FUND
STATEMENT OF ASSETS AND LIABILITIES


ASSETS
     
Investments, at value (Cost $15,882,683)
 
$
16,535,019
 
Investments in affiliates, at value (Cost $400,000)
   
386,023
 
Investments, at value
   
16,921,042
 
Cash
   
116,344
 
Foreign currency (Cost $56,462)
   
57,151
 
Receivables:
       
Fund shares sold
   
66
 
Dividends and interest
   
72,810
 
From investment adviser
   
775
 
Prepaid expenses
   
12,010
 
Total Assets
   
17,180,198
 
LIABILITIES
       
Accrued Liabilities:
       
Trustees’ fees and expenses
   
50
 
Fund services fees
   
5,416
 
Other expenses
   
34,862
 
Total Liabilities
   
40,328
 
NET ASSETS
 
$
17,139,870
 
         
COMPONENTS OF NET ASSETS
       
Paid-in capital
 
$
17,191,042
 
Undistributed net investment income
   
77,289
 
Accumulated net realized loss
   
(768,239
)
Net unrealized appreciation
   
639,778
 
NET ASSETS
 
$
17,139,870
 
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
   
977,395
 
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE*
 
$
17.54
 

*
Shares redeemed or exchanged within 60 days of purchase are charged a 2.00% redemption fee.

See Notes to Financial Statements.

9


ADALTA INTERNATIONAL FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2018

 
INVESTMENT INCOME
     
Dividend income
 
$
440,370
 
Interest income
   
7,769
 
Total Investment Income
   
448,139
 
EXPENSES
       
Investment adviser fees
   
282,550
 
Fund services fees
   
178,115
 
Custodian fees
   
25,648
 
Registration fees
   
18,929
 
Professional fees
   
45,228
 
Trustees' fees and expenses
   
6,018
 
Other expenses
   
36,103
 
Total Expenses
   
592,591
 
Fees waived
   
(310,041
)
Net Expenses
   
282,550
 
NET INVESTMENT INCOME
   
165,589
 
NET REALIZED AND UNREALIZED GAIN (LOSS)
       
Net realized gain (loss) on:
       
Investments (Net of foreign withholding taxes of $2,391)
   
1,795,605
 
Foreign currency transactions
   
(12,733
)
Net realized gain
   
1,782,872
 
Net change in unrealized appreciation (depreciation) on:
       
Investments in unaffiliated issuers
   
(1,527,626
)
Investments in affiliated issuers
   
(13,977
)
Deferred foreign capital gains taxes
   
6,456
 
Foreign currency translations
   
2,348
 
Net change in unrealized appreciation (depreciation)
   
(1,532,799
)
NET REALIZED AND UNREALIZED GAIN
   
250,073
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
415,662
 

See Notes to Financial Statements.

10


ADALTA INTERNATIONAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
 

 
   
For the Years Ended March 31,
 
             
    2018     2017  
OPERATIONS
           
Net investment income
 
$
165,589
   
$
156,130
 
Net realized gain
   
1,782,872
     
2,316,725
 
Net change in unrealized appreciation (depreciation)
   
(1,532,799
)
   
70,986
 
Increase in Net Assets Resulting from Operations
   
415,662
     
2,543,841
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income
   
(376,234
)
   
(211,892
)
Total Distributions to Shareholders
   
(376,234
)
   
(211,892
)
                 
CAPITAL SHARE TRANSACTIONS
               
Sale of shares
   
213,469
     
182,535
 
Reinvestment of distributions
   
349,137
     
191,469
 
Redemption of shares
   
(2,247,042
)
   
(31,016,736
)
Redemption fees
   
54
     
5
 
Decrease in Net Assets from Capital Share Transactions
   
(1,684,382
)
   
(30,642,727
)
Decrease in Net Assets
   
(1,644,954
)
   
(28,310,778
)
                 
NET ASSETS
               
Beginning of Year
   
18,784,824
     
47,095,602
 
End of Year (Including line (a))
 
$
17,139,870
   
$
18,784,824
 
                 
SHARE TRANSACTIONS
               
Sale of shares
   
11,678
     
11,589
 
Reinvestment of distributions
   
19,131
     
12,329
 
Redemption of shares
   
(122,216
)
   
(1,971,193
)
Decrease in Shares
   
(91,407
)
   
(1,947,275
)
                 
(a) Undistributed net investment income
 
$
77,289
   
$
237,417
 

See Notes to Financial Statements.

11


ADALTA INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
 

 
These financial highlights reflect selected data for a share outstanding throughout each year.
 
   
For the Years Ended March 31,
 
       
2017
   
2016
   
2015
   
2014
 
NET ASSET VALUE, Beginning of Year
 
$
17.58
   
$
15.61
   
$
17.19
   
$
18.50
   
$
20.73
 
INVESTMENT OPERATIONS
                                       
Net investment income (a)
   
0.16
     
0.09
     
0.11
     
0.15
     
0.18
 
Net realized and unrealized gain (loss)
   
0.18
     
2.06
     
(0.61
)
   
(0.23
)
   
(0.30
)
Total from Investment Operations
   
0.34
     
2.15
     
(0.50
)
   
(0.08
)
   
(0.12
)
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.38
)
   
(0.18
)
   
(1.08
)
   
(0.48
)
   
(1.46
)
Net realized gain
   
     
     
     
(0.75
)
   
(0.65
)
Total Distributions to Shareholders
   
(0.38
)
   
(0.18
)
   
(1.08
)
   
(1.23
)
   
(2.11
)
REDEMPTION FEES(a)
   
0.00
(b)
   
0.00
(b)
   
0.00
(b)
   
0.00
(b)
   
0.00
(b)
NET ASSET VALUE, End of Year
 
$
17.54
   
$
17.58
   
$
15.61
   
$
17.19
   
$
18.50
 
TOTAL RETURN
   
1.85
%
   
13.94
%
   
(2.84
)%
   
(0.32
)%
   
(0.54
)%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000s omitted)
 
$
17,140
   
$
18,785
   
$
47,096
   
$
68,526
   
$
91,898
 
Ratios to Average Net Assets:
                                       
Net investment income
   
0.87
%
   
0.56
%
   
0.66
%
   
0.84
%
   
0.90
%
Net expenses
   
1.50
%
   
1.50
%
   
1.50
%
   
1.50
%
   
1.41
%
Gross expenses (c)
   
3.15
%
   
3.02
%
   
2.14
%
   
1.90
%
   
1.90
%
PORTFOLIO TURNOVER RATE
   
44
%
   
42
%
   
38
%
   
52
%
   
39
%
 

 
(a)
Calculated based on average shares outstanding during each year.
(b)
Less than $0.01 per share.
(c)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.

12


ADALTA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS

 
Note 1. Organization
 
The Adalta International Fund (the “Fund”) is a diversified portfolio of Forum Funds (the “Trust”). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of the Fund’s shares of beneficial interest without par value. The Fund commenced operations on December 8, 1993, and seeks capital appreciation by investing primarily in a portfolio of common stock and securities convertible into common stock. From August 1, 2014 through June 30, 2016 the Fund was named the Beck, Mack & Oliver International Fund. From June 24, 2009 through August 1, 2014, the Fund was named Beck, Mack & Oliver Global Equity Fund. Prior to June 24, 2009, the Fund was named Austin Global Equity Fund.
 
Note 2. Summary of Significant Accounting Policies
 
The Fund is an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service. Debt securities may be valued at prices supplied by a fund’s pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics such as rating, interest rate and maturity. Forward currency contracts are generally valued based on interpolation of forward curve data points obtained from major banking institutions that deal in foreign currencies and currency dealers. Exchange-traded options for which the last quoted sale price is outside the closing bid and ask price, will be valued at the mean of the closing bid and ask price. Shares of non-exchange traded open-end mutual funds are valued at net asset value (“NAV”). Interests in private investments will generally be subject to fair valuation. Short-term investments that mature in sixty days or less may be valued at amortized cost.

The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition and market activity. The Fund values its investments at fair value pursuant to procedures adopted by the Trust’s Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 3, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in the Fund’s registration statement, performs certain functions as they relate to the administration and oversight of the Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.
13


ADALTA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS

 
The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. As permitted by GAAP, as a practical expedient, the Valuation Committee may measure the fair value of its investments in investment companies on the basis of the net asset value per share of such investments (or the equivalent) if the net asset value per share of such investments (or the equivalent) is calculated in a manner consistent with the measurement principles of applicable authoritative guidance as of the Fund’s reporting date. The fair value of the Fund’s investments in investment companies is based on the information provided by such investment company’s management, which reflects the Fund’s share of the fair value of the net assets of such investment company (i.e., the practical expedient is used). If the Valuation Committee determines, based on its own due diligence and investment valuation procedures, that alternative valuation techniques are more appropriate for any of the Fund’s investments in investment companies, such investments may be fair valued by the Valuation Committee using other suitable sources. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.

Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotes.

GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities respective local market closes and the close of the U.S. market.
 
Level 3 - Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
 
The aggregate value by input level, as of March 31, 2018, for the Fund’s investments is included at the end of the Fund’s Schedule of Investments.

Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-
14


ADALTA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS

 
dividend date or as soon as possible after determining the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.

Foreign Currency Translations – Foreign currency amounts are translated into U.S. dollars as follows: (1) assets and liabilities at the rate of exchange at the end of the respective period; and (2) purchases and sales of securities and income and expenses at the rate of exchange prevailing on the dates of such transactions. The portion of the results of operations arising from changes in the exchange rates and the portion due to fluctuations arising from changes in the market prices of securities are not isolated. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Foreign Currency Transactions – The Fund may enter into transactions to purchase or sell foreign currency contracts and options on foreign currency. Forward currency contracts are agreements to exchange one currency for another at a future date and at a specified price. A fund may use forward currency contracts to facilitate transactions in foreign securities, to manage a fund’s foreign currency exposure and to protect the U.S. dollar value of its underlying portfolio securities against the effect of possible adverse movements in foreign exchange rates. These contracts are intrinsically valued daily based on forward rates, and a fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is recorded as a component of NAV. These instruments involve market risk, credit risk, or both kinds of risks, in excess of the amount recognized in the Statement of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks associated with these transactions, a fund could incur losses up to the entire contract amount, which may exceed the net unrealized value included in its NAV.

Distributions to Shareholders – The Fund declares any dividends from net investment income and pays them annually. Any net capital gains and net foreign currency gains realized by the Fund are distributed at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by the Fund, timing differences and differing characterizations of distributions made by the Fund.

Federal Taxes – The Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of its taxable income to shareholders. In addition, by distributing in each calendar year substantially all of its net investment income and capital gains, if any, the Fund will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. The Fund files a U.S. federal income and excise tax return as required. The Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of March 31, 2018, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.
15


ADALTA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS

 
Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.

Redemption Fees – A shareholder who redeems or exchanges shares within 60 days of purchase will incur a redemption fee of 2.00% of the current NAV of shares redeemed or exchanged, subject to certain limitations. The fee is charged for the benefit of the remaining shareholders and will be paid to the Fund to help offset transaction costs. The fee is accounted for as an addition to paid-in capital. The Fund reserves the right to modify the terms of or terminate the fee at any time. There are limited exceptions to the imposition of the redemption fee. Redemption fees incurred for the Fund, if any, are reflected on the Statements of Changes in Net Assets.

Commitments and Contingencies – In the normal course of business, the Fund enters into contracts that provide general indemnifications by the Fund to the counterparty to the contract. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. The Fund has determined that none of these arrangements requires disclosure on the Fund’s balance sheet.

Note 3. Fees and Expenses

Investment Adviser – Adalta Capital Management LLC (the “Adviser”) is the investment adviser to the Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee, payable monthly, from the Fund at an annual rate of 1.50% of the Fund’s average daily net assets.

Distribution – Foreside Fund Services, LLC serves as the Fund’s distributor (the “Distributor”).  The Fund does not have a distribution (12b-1) plan; accordingly, the Distributor does not receive compensation from the Fund for its distribution services. The Adviser compensates the Distributor directly for its services. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) (“Atlantic”) or their affiliates.

Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to the Fund. The fees related to these services are included in Fund services fees within the Statement of Operations. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, the Fund pays Atlantic customary fees for its services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to the Fund, as well as certain additional compliance support functions.

Trustees and Officers – Through December 31, 2017, the Trust paid each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman), and the Audit Committee Chairman and Vice Chairman received an additional $6,000 annually. Effective January 1, 2018, each independent Trustee’s annual retainer is $31,000 ($41,000 for the Chairman), and the Audit Committee Chairman receives an additional $2,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees’ fees attributable to the Fund is disclosed in the Statement of Operations.
16


ADALTA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS

 
Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from the Fund.

Note 4. Expense Reimbursement and Fees Waived

The Adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.50%, through at least September 30, 2018. Other fund service providers have voluntarily agreed to waive a portion of their fees. The contractual waivers may be changed or eliminated at any time with the consent of the Board and voluntary fee waivers and expense reimbursements may be reduced or eliminated at any time. For the year ended March 31, 2018, fees waived were as follows:
 
    Investment Adviser Fees Waived  
Other Waivers
   
Total Fees Waived
   
    $
196,926
 
$
113,115
   
$
310,041
   
 
Note 5. Security Transactions
 
The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments during the year ended March 31, 2018, were $7,887,383 and $9,110,757, respectively.
 
Note 6. Federal Income Tax

As of March 31, 2018, the cost of investments for federal income tax purposes is $16,414,558 and the components of net unrealized appreciation were as follows:

 
Gross Unrealized Appreciation
 
$
3,373,102
   
 
Gross Unrealized Depreciation
   
(2,866,618
)
 
 
Net Unrealized Appreciation
 
$
506,484
   
 
Distributions paid during the fiscal years ended as noted were characterized for tax purposes as follows:
 
     
2018
   
2017
   
 
Ordinary Income
 
$
376,234
   
$
211,892
   
 
As of March 31, 2018, distributable earnings (accumulated loss) on a tax basis were as follows:

 
Undistributed Ordinary Income
 
$
98,322
   
 
Capital and Other Losses
   
(657,397
)
 
 
Net Unrealized Appreciation
   
507,903
   
  Total   $ (51,172 )  
          
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statement
17


ADALTA INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS

 
of Assets and Liabilities are primarily due to partnerships, wash sales and investments in passive foreign investment companies.

The Fund has $127,575 of available short-term capital loss carryforwards and $529,822 of available long-term capital loss carryforwards that have no expiration date.

On the Statement of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended March 31, 2018. The following reclassification was the result of currency gain/loss reclassifications, partnership distributions, K-1 income and investments in passive foreign investment companies and has no impact on the net assets of the Fund.

 
Undistributed Net Investment Income
 
$
50,517
   
 
Accumulated Net Realized Loss
   
(48,705
)
 
 
Paid-in-Capital
   
(1,812
)
 
 
Note 7. Subsequent Events
 
Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and the Fund has had no such events.
18


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
To the Board of Trustees of Forum Funds
and the Shareholders of Adalta International Fund

Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Adalta International Fund, a series of shares of beneficial interest in Forum Funds (the “Fund”), including the schedule of investments, as of March 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of March 31, 2018, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian, counterparties, and investee companies. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 

BBD, LLP
We have served as the auditor of one or more of the Funds in the Forum Funds since 2009.
Philadelphia, Pennsylvania
19


ADALTA INTERNATIONAL FUND
ADDITIONAL INFORMATION (Unaudited)

 
Investment Advisory Agreement Approval

At the March 27, 2018 Board meeting, the Board, including the Independent Trustees, considered the approval of the continuance of the investment advisory agreement between the Adviser and the Trust pertaining to the Fund (the “Advisory Agreement”). In preparation for its deliberations, the Board requested and reviewed written responses from the Adviser to a due diligence questionnaire circulated on the Board's behalf concerning the services provided by the Adviser. The Board also discussed the materials with Fund counsel and, as necessary, with the Trust's administrator, Atlantic Fund Services. During its deliberations, the Board received an oral presentation from the Adviser, and was advised by Trustee counsel.

At the meeting, the Board reviewed, among other matters: (1) the nature, extent and quality of the services provided to the Fund by the Adviser, including information on the investment performance of the Fund and Adviser; (2) the costs of the services provided and profitability to the Adviser of its relationship with the Fund; (3) the advisory fee and total expense ratio of the Fund compared to a relevant peer group of funds; (4) the extent to which economies of scale may be realized as the Fund grows and whether the advisory fee enables the Fund's investors to share in the benefits of economies of scale; and (5) other benefits received by the Adviser from its relationship with the Fund. In addition, the Board recognized that the evaluation process with respect to the Adviser was an ongoing one and, in this regard, the Board considered information provided by the Adviser at regularly scheduled meetings during the past year.

Nature, Extent and Quality of Services

Based on written materials received, a presentation from a senior representative of the Adviser, and a discussion with the Adviser about the Adviser’s personnel, operations and financial condition, the Board considered the quality of services provided by the Adviser under the Advisory Agreement. In this regard, the Board considered information regarding the experience, qualifications and professional background of the portfolio manager at the Adviser with principal responsibility for the Fund, as well as the investment philosophy and decision-making process of the Adviser and the capability and integrity of the Adviser’s senior management and staff.

The Board considered also the adequacy of the Adviser’s resources and the Adviser’s recent enhancements to its compliance, cyber security and business continuity programs. The Board noted the Adviser’s representations that the firm is in stable financial condition, that the firm is able to meet its expense reimbursement obligations to the Fund, and that the Adviser has the operational capability and the necessary staffing and experience to continue providing high-quality investment advisory services to the Fund. Based on the presentation and the materials provided by the Adviser in connection with the Board’s consideration of the renewal of the Advisory Agreement, among other relevant factors, the Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Performance

In connection with a presentation by the Adviser regarding its approach to managing the Fund, the Board reviewed the performance of the Fund compared to its primary benchmark index, the MSCI ACWI Ex U.S. Index. The Board observed that the Fund underperformed benchmark index for the one-, three-, and five-year periods ended December 31, 2017 and outperformed the benchmark for the 10-year period ended December 31, 2017. The Board also considered the Fund’s performance relative to an independent peer group of funds identified by Broadridge Financial Solutions, Inc. (“Broadridge”)
20


ADALTA INTERNATIONAL FUND
ADDITIONAL INFORMATION (Unaudited)

 
as having characteristics similar to those of the Fund. The Board observed that the Fund underperformed the median of its Broadridge peer group for the one-, three-, and five-year periods ended December 31, 2017. The Board noted the Adviser’s representation that the Fund’s relative underperformance during the periods could be attributed, in part, to the Adviser’s stock selection and geographic exposure. The Board also noted the Adviser’s representation that the Fund did not maintain a high degree of correlation to the primary benchmark, which was under review by the Adviser for appropriateness. Based on the Adviser’s investment style and the foregoing performance information, among other relevant considerations, the Board determined that the Fund and its shareholders could benefit from the Adviser’s continued management of the Fund.

Compensation

The Board evaluated the Adviser’s compensation for providing advisory services to the Fund and analyzed comparative information on actual advisory fee rates and actual total expenses of the Fund’s Broadridge peer group. The Board noted that the Adviser’s actual advisory fee rate was lower than the median of its Broadridge peer group and the Fund’s actual total expenses were higher than the median of its Broadridge peer group. The Board considered that the Adviser had contractually agreed to cap the Fund’s expenses to ensure they remain at competitive levels and that the Adviser had agreed to a breakpoint in the advisory fee at certain asset levels which had not yet been reached. Based on the foregoing and other relevant factors, the Board concluded that the Adviser’s advisory fee rate charged to the Fund was not unreasonable.

Costs of Services and Profitability

The Board considered information provided by the Adviser regarding the costs of services and its profitability with respect to the Fund. In this regard, the Board considered the Adviser’s resources devoted to the Fund, as well as the Adviser’s discussion of costs and profitability. The Board noted the Adviser’s representation that the Fund was not profitable for the Adviser due to the low asset levels resulting and that the Adviser was currently subsidizing the Fund’s operations pursuant to the contractual expense cap. Based on these and other applicable considerations, the Board concluded that the Adviser’s profits attributable to management of the Fund were reasonable in the context of all factors considered.

Economies of Scale

The Board considered whether the Fund would benefit from any economies of scale. In this respect, the Board noted the Adviser’s representation that the Fund could benefit from economies of scale at higher asset levels, and that the Adviser had agreed to a contractual breakpoint in the advisory fee upon reaching certain, higher asset levels. Based on the foregoing information and other applicable considerations, and in light of the size of the Fund, the Board concluded that economies of scale were not a material factor in approving the continuation of the Advisory Agreement.

Other Benefits

The Board noted the Adviser’s representation that, aside from its contractual advisory fees, it does not benefit in a material way from its relationship with the Fund. Based on the foregoing representation, the Board concluded that other benefits received by the Adviser from its relationship with the Fund were not a material factor in approving the continuation of the Advisory Agreement.
21


ADALTA INTERNATIONAL FUND
ADDITIONAL INFORMATION (Unaudited)

 
Conclusion

The Board did not identify any single factor as being of paramount importance, and different Trustees may have given different weight to different factors. The Board reviewed a memorandum from Fund counsel discussing the legal standards applicable to its consideration of the Advisory Agreement. Based on its review, including consideration of each of the factors referenced above, the Board determined, in the exercise of its reasonable business judgment, that the advisory arrangement, as outlined in the Advisory Agreement, was fair and reasonable in light of the services performed, expenses incurred and such other matters as the Board considered relevant.

Shareholder Proxy Vote

At a special meeting of shareholders for all the Funds in the Trust, held on December 8, 2017, shares were voted as follows on the proposals presented to shareholders:

Matter
 
For
 
Against
 
Abstain
To elect David Tucker to the Board of Trustees of the Trust
 
108,303,928.779
 
1,542,957.994
 
0
To elect Jennifer Brown-Strabley to the Board of Trustees of the Trust
 
108,183,952.495
 
1,662,934.278
 
0
To elect Mark D. Moyer to the Board of Trustees of the Trust.
 
108,142,412.946
 
1,704,473.827
 
0
To elect Jessica Chase to the Board of Trustees of the Trust.
 
107,632,924.803
 
2,213,961.970
 
0
To elect Stacey E. Hong to the Board of Trustees of the Trust.
 
105,777,266.997
 
4,069,619.776
 
0
 
Proxy Voting Information

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling (844) 284-9829 and on the Securities and Exchange Commission's ("SEC") website at www.sec.gov. The Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (844) 284-9829 and on the SEC’s website at www.sec.gov.

Availability of Quarterly Portfolio Schedules

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.

Shareholder Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees and exchange fees, and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund, and to compare these costs with the ongoing costs of investing in other mutual funds.
22


ADALTA INTERNATIONAL FUND
ADDITIONAL INFORMATION (Unaudited)

 
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2017 through March 31, 2018.

Actual Expenses – The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.

Hypothetical Example for Comparison Purposes – The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees and exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
 
   
Beginning
Account Value
   
Ending
Account Value
   
Expenses Paid
During Period*
   
Annualized
Expense Ratio*
 
Actual
 
$
1,000.00
   
$
956.00
   
$
7.31
     
1.50
%
Hypothetical (5% return before expenses)
 
$
1,000.00
   
$
1,017.45
   
$
7.54
     
1.50
%
 
*
Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182) divided by 365 to reflect the half-year period.

Federal Tax Status of Dividends Declared during the Fiscal Year

For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. The Fund designates 63.96% of its income dividend distributed as qualifying for the qualified dividend rate (QDI) as defined in Section 1(h)(11) of the Internal Revenue Code. The Fund also designates 0.34% as qualified interest income exempt from U.S. tax for foreign shareholders (QII).

Trustees and Officers of the Trust

The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and
23


ADALTA INTERNATIONAL FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. The Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (844) 284-9829.
 
Name and Year
of Birth
Position with
the Trust
Length of
Time Served
Principal Occupation(s)
During Past Five Years
Number of Series
in Fund Complex
Overseen
By Trustee
Other
Directorships
Held By Trustee
During Past
Five Years
Independent Trustees
David Tucker
Born: 1958
Trustee; Chairman of the
Board
Since 2011 and
Chairman since
2018
Director, Blue Sky Experience (a charitable endeavor) since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm) 1998-2008.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Mark D. Moyer
Born: 1959
Trustee
 
Since 2018
Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy) since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011-2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008-2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Jennifer Brown- Strabley
Born: 1964
Trustee
 
Since 2018
Principal, Portland Global Advisors, 1996-2010.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Interested Trustee
Stacey E. Hong(1)
Born: 1966
Trustee
 
Since 2018
President, Atlantic since 2008.
1
Trustee, Forum Funds II and U.S. Global Investors Funds
24


ADALTA INTERNATIONAL FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
Name and Year
of Birth
Position with
the Trust
Length of
Time Served
Principal Occupation(s)
During Past Five Years
Number of Series
in Fund Complex
Overseen
By Trustee
Other
Directorships
Held By Trustee
During Past
Five Years
Born: 1970
Trustee
Since 2018
Senior Vice President, Atlantic since 2008.
1
None
 
(1)
Stacey E. Hong is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to his affiliation with Atlantic. Jessica Chase is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to her affiliation with Atlantic and her role as President of the Trust.
 
 
Name and Year of Birth
Position with the Trust
 
Length of Time Served
Principal Occupation(s) During Past 5 Years
Officers
Born: 1970
President; Principal Executive Officer
Since 2015
Senior Vice President, Atlantic since 2008.
Born: 1972
Treasurer; Principal Financial Officer
Since 2008
Senior Vice President, Atlantic since 2008.
Zachary Tackett
Born: 1988
Vice President; Secretary and Anti- Money Laundering Compliance Officer
Since 2014
Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010-2013.
Michael J. McKeen
Born: 1971
Vice President
Since 2009
Senior Vice President, Atlantic since 2008.
Timothy Bowden
Born: 1969
Vice President
Since 2009
Manager, Atlantic since 2008.
Geoffrey Ney
Born: 1975
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Todd Proulx
Born: 1978
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Carlyn Edgar
Born: 1963
Vice President
Since 2008
Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016
Dennis Mason
Born: 1967
Chief Compliance Officer
Since 2016
Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011-2013; Senior Analyst, Atlantic, 2008-2011
25

 

(FRONT COVER PAGE)
 


BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Dear Fellow Shareholder:
 
The Beck, Mack & Oliver Partners Fund (the “Partners Fund”) returned +12.77% net of fees and expenses for the fiscal year ended March 31, 2018 (the “Fiscal Year”), resulting in a net asset value (“NAV”) of $11.56. By comparison, during the Fiscal Year, the S&P 500 Index, which is the Partners Fund’s principal benchmark, returned +13.99%.

Performance Update

Below is an updated version of a performance comparison table that was introduced in the letter for the fiscal year ended March 31, 2017 (the “March 2017 Letter”), and that was updated in the letter for the six-month semi-annual period ended September 30, 2017 (the “September 2017 Letter”). Among other things, we believe that this table is useful for evaluating the performance of the Partners Fund under its current management. For more details on the changes to the management of the Partners Fund that were completed in early calendar 2016, please see the September 2017 Letter and the March 2017 Letter, which are available at the following link: https://www.beckmack.com/USStrategy.aspx?category=shareholderReports.

 
12/1/09 – 3/31/14
3/31/14 – 3/31/16
3/31/16 – 3/31/18
Beck, Mack & Oliver Partners Fund
+90.28%
-21.46%
+30.19%
S&P 500 Index
+85.01%
+14.74%
+33.57%
 
(Performance data quoted represent past performance and are no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. For the most recent month-end performance, please call (800) 943-6786.)

Over the last two fiscal years, during which the Partners Fund has been managed by Robert C. Beck and Richard C. Fitzgerald, the Partners Fund generated a cumulative total return of +30.19% vs. +33.57% for the S&P 500 Index. While the NAV of the Partners Fund increased significantly during that period, there are two important observations to make about the relative performance over the last two years:
 
First, the +33.57% cumulative total return for the S&P 500 Index corresponds to an annualized total return of +15.57%, which is well in excess of the S&P 500 Index’s annualized total returns over long periods of time. Over the 10, 20, 30, 40, and 50 years ended March 31, 2018, the annualized total return of the S&P 500 Index was +9.49%, +6.45%, +10.45%, +11.94%, and +10.22%, respectively. The annualized total return of the Partners Fund over the last two years was +14.10%.
Second, over the last two fiscal years, the S&P 500 Growth Index has generated a cumulative total return of +38.09%, while the S&P 500 Value Index has generated a cumulative total return of +27.76%. While any distinction between “growth” and “value” is not absolute, we believe that the investment strategy of the Partners Fund— which emphasizes long-term fundamentals and seeks to purchase securities at prices below their intrinsic value—is generally more comparable to “value”-oriented investment strategies. Furthermore, over long periods of time, the total returns of the S&P 500 Growth Index and the S&P 500 Value Index tend to approximately converge on those of the S&P 500 Index. For instance, over the 20 years ended March 31, 2018, the annualized total return of the S&P 500 Growth Index was +6.63% vs. +5.95% for the S&P 500 Value Index and +6.45% for the S&P 500 Index. Hence, while “growth”-oriented investment strategies have generally outperformed “value”-oriented investment

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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
 
strategies over the last couple of years, periods during which “growth” or “value” significantly outperforms the other tend to be followed by periods during which “growth” or “value” underperforms the other.
 
To be clear, we continue to manage the Partners Fund with a focus on preserving your capital and outperforming the broader equity market (for which the S&P 500 Index is an appropriate proxy) over long periods of time. The observations made above are intended merely to provide relevant context for the relative performance of the Partners Fund over the last two years. Each investment professional of Beck, Mack & Oliver LLC (“BM&O”), which is the investment adviser to the Partners Fund, personally owns shares of the Partners Fund.

Largest Positive & Negative Contributors

The table below indicates the largest positive and negative single-security contributors to investment performance as well as the total returns of the underlying securities during the Fiscal Year.1

Largest Positive Contributors
 
Largest Negative Contributors
Position
Contribution
Total Return
 
Position
Contribution
Total Return
Credit Acceptance Corp.
+2.50%
+65.7%
 
Chicago Bridge & Iron Co. NV
-1.43%
-52.9%
Matador Resources Co.
+1.55%
+25.7%
 
CenturyLink, Inc.
-0.45%
-21.7%
Microsoft Corp.
+1.48%
+41.5%
 
Schlumberger, Ltd.
-0.40%
-14.5%
 
Credit Acceptance Corp.
 
The largest positive contributor to investment performance during the Fiscal Year was Credit Acceptance Corp. (“Credit Acceptance”), which is a subprime automotive lender with a unique business model based on making advances to the automotive dealer, who shares repayment risk with Credit Acceptance. Due primarily to valuation multiple expansion, we reduced the size of the Credit Acceptance position towards the end of the Fiscal Year, though it remains a core holding of the Partners Fund. We also discussed the Credit Acceptance position in the September 2017 Letter.

Matador Resources Co.
 
Fiscal 2018 represents the second consecutive fiscal year in which Matador Resources Co. (“Matador”) was among the three largest positive contributors to investment performance. Matador is an energy company primarily focused on the exploration and production of oil and natural gas, with a sizeable presence in the Permian Basin as well as a valuable midstream asset. BM&O has been a major shareholder of Matador since calendar 2013 and we have a high degree of confidence that the management team—led by co-founder, Chairman, and CEO Joe Foran—can continue to create shareholder value over time across a range of industry and market conditions.
 

1
Total return refers to the underlying security’s price appreciation plus reinvested dividends during the Fiscal Year. Contribution refers to the total return during the period of the Partners Fund’s ownership within the Fiscal Year multiplied by the percentage of the Partners Fund’s net assets that the security represents.

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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Microsoft Corp.
 
Microsoft Corp. (“Microsoft”) was also a major positive contributor to investment performance during the Fiscal Year. Under CEO Satya Nadella, Microsoft has been an innovative leader in enterprise software and cloud services. We believe that the company continues to benefit from multiple tailwinds and that the valuation of the stock remains attractive in light of prospective earnings growth, strong cash flow characteristics, and a solid balance sheet.

Other Positive Contributors
 
In addition to the three positive contributors discussed above, three other positions—Apollo Global Management, LLC; Alphabet, Inc.; and JPMorgan Chase & Co.—each contributed more than +1% to investment performance during the Fiscal Year. All six positions remain core holdings of the Partners Fund.

Chicago Bridge & Iron Co. NV
 
The largest negative contributor to investment performance during the Fiscal Year—by a long shot—was Chicago Bridge & Iron Co. NV (“CBI”). Not only was the negative contribution from CBI more than threefold that of the next largest negative contributor, but CBI has the dubious distinction of being among the three largest negative contributors in each of the last two fiscal years. We discussed the CBI position in the September 2017 Letter, the March 2017 Letter, and the letter for the six-month semi-annual period ended September 30, 2016 (“the September 2016 Letter”).

In the September 2017 Letter, we wrote: “While the Westinghouse litigation was indeed resolved in CBI’s favor [which we predicted in the March 2017 Letter and the September 2016 Letter], poor fundamental execution and management turnover nevertheless weighed heavily on the stock during the Semi-Annual Period. We recently had the opportunity to meet with the new CEO and are cautiously optimistic that the worst is behind CBI…While we have refrained from adding to our position in CBI, we intend to maintain our valuation discipline in regard to the timing of our exit.”

In December 2017, CBI and McDermott International, Inc. (“McDermott”) announced that McDermott would acquire CBI in an all-stock transaction, pursuant to which each share of CBI would be exchanged for approximately 2.47 shares of McDermott. Although the share exchange ratio implied little premium to where CBI stock was trading at the time, we view this transaction favorably as the combined company (i) is likely to be much stronger financially than CBI was on its own and (ii) will be led by McDermott’s management team, including CEO David Dickson, whom we have had the opportunity to meet and who was very successful in turning around McDermott after he became CEO in late calendar 2013. Consistent with our message in the September 2017 Letter, we have continued to refrain from adding to our position in CBI, which was 1.5% of net assets as of the end of the Fiscal Year, but we intend to maintain our valuation discipline in regard to the timing of our exit and we believe that McDermott stock is trading meaningfully below its intrinsic value. The transaction with CBI is expected to close in May 2018. We look forward to updating you in future letters.

CenturyLink, Inc.
 
The next largest negative contributor to investment performance during the Fiscal Year was CenturyLink, Inc. (“CenturyLink”), which we discussed in the September 2017 Letter. CenturyLink completed the acquisition of Level 3 Communications, Inc. (“Level 3”) in early November 2017. Much of CenturyLink’s underperformance occurred in the
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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
months leading up to the completion of the Level 3 acquisition as well as in the month or so after that. The primary factors contributing to CenturyLink’s underperformance during that time included: (i) worsening sentiment regarding the so-called “legacy wireline” sector; (ii) delays in closing the Level 3 acquisition; (iii) concerns about the combined company’s ability to cover its dividend obligations through free cash flow generation; and (iv) interest rate pressures.

Despite having a different business mix and a much stronger balance sheet, CenturyLink historically was often compared to “legacy wireline” companies such as Windstream Holdings, Inc. (“Windstream”) and Frontier Communications Corp. (“Frontier”). During the Fiscal Year, Windstream and Frontier generated total returns of -73.2% and -73.4%, respectively. Notwithstanding the fact that CenturyLink was fundamentally differentiated from Windstream and Frontier, the severely negative performance of the latter two companies adversely affected sentiment throughout the sector. (Since completing the Level 3 acquisition, CenturyLink is now even further differentiated from these other two companies.)

Separately, one of the principal anticipated benefits of the Level 3 acquisition is the considerable accretion to free cash flow per share, based on the realization of synergies and Level 3’s more favorable revenue growth characteristics. Our confidence in the company’s free cash flow outlook was strengthened after we met in December 2017 with Jeff Storey and Sunit Patel, who were the CEO and CFO, respectively, of Level 3 and who are now running CenturyLink. Shortly after that meeting, several CenturyLink insiders acquired stock in the open market, signaling confidence on behalf of the Board of Directors and the management team in the company’s prospects. When CenturyLink reported earnings in February 2018, management introduced calendar 2018 financial guidance, which further underscored the company’s ability to more than cover its dividend.

Between late November 2017 and the end of the Fiscal Year, CenturyLink generated a total return of +24.4% vs. +2.2% for the S&P 500 Index. Even after this period of relative outperformance, CenturyLink remains materially undervalued, in our view. As of the end of the Fiscal Year, CenturyLink’s share price was $16.43, which corresponded to a dividend yield of more than 13%. By comparison, the yield on the 10-year U.S. Treasury as of the end of the Fiscal Year was 2.74%. We believe that the “spread” between CenturyLink’s dividend yield and Treasury yields will meaningfully compress as Storey and Patel successfully integrate the two companies, achieve synergies, and drive free cash flow per share growth—and that such spread compression is likely to more than offset any rise in underlying Treasury yields, resulting in capital appreciation as well as continued income from the substantial dividend.

Schlumberger, Ltd.
 
Schlumberger, Ltd. (“Schlumberger”) was the third largest negative contributor to investment performance during the Fiscal Year. Schlumberger, which is one of the leading global oil services companies, generated a total return of -14.5% during the Fiscal Year, which is markedly inferior to Matador’s +25.7% total return (see above). Much of this return differential can be attributed to the broader underperformance of oil services companies compared to energy exploration and production companies as well as to Schlumberger’s greater exposure to international energy markets, whose recovery has lagged that of the U.S. market. As many international energy markets currently appear to be at or near positive inflection points, we remain bullish on the outlook for Schlumberger. The Partners Fund’s energy portfolio as a whole contributed more than +1% to investment performance during the Fiscal Year.
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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
New & Exited Positions

The table below indicates the eight new positions that were initiated and the seven positions that were exited during the Fiscal Year:

 
New Positions
Exited Positions
 
 
BlackBerry, Ltd.
Boulevard Acquisition Corp. II
 
 
CenturyLink, Inc.
Colony NorthStar, Inc.
 
 
Discovery Communications, Inc., Class C
Devon Energy Corp.
 
 
Enterprise Products Partners LP
Dover Corp.
 
 
Kinder Morgan, Inc.
Fluor Corp.
 
 
Oaktree Capital Group, LLC
Kinder Morgan, Inc.
 
 
RadNet, Inc.
Level 3 Communications, Inc.
 
 
Wabtec Corp.
   
 
BlackBerry, Ltd.; Boulevard Acquisition Corp. II; CenturyLink, Inc.; Colony NorthStar, Inc.; Dover Corp.; Enterprise Products Partners LP; Kinder Morgan, Inc.; Level 3 Communications, Inc.; and Wabtec Corp. were all discussed in the September 2017 Letter (and CenturyLink and Level 3 were also discussed earlier in this letter).

Discovery Communications, Inc.
 
Discovery Communications, Inc. (“Discovery”) owns the popular cable networks the Discovery Channel, TLC, and Animal Planet, among several others. It recently completed the acquisition of Scripps Networks Interactive, Inc. (“Scripps”), whose primary networks include HGTV, the Food Network, and the Travel Channel. The combined company will be the leading owner of non-fiction video programming and will account for approximately 20% of primetime cable viewership in the U.S. In addition to providing critical mass in the U.S. market, the transaction is expected to generate material cost synergies and to create an opportunity to monetize Scripps’s content internationally, where Discovery already has a strong presence but where Scripps does not.

For the last several years, BM&O had followed without investing in Discovery, attracted to its valuable content, strong cash flow characteristics, and compelling valuation. For much of this time, not owning Discovery turned out to be the correct investment decision, as the share price fell from over $40 in calendar 2014 to $15 in late calendar 2017. We finally decided to invest in Discovery towards the end of the Fiscal Year based on the transformative nature of the Scripps transaction, the combined company’s highly attractive valuation, and our belief that the management team—led by CEO David Zaslav—will be able to continue to successfully navigate the quickly evolving landscape of video consumption, which has been characterized by the rise of “over-the-top” streaming services, “cord-cutting,” consumption on mobile devices, and “skinny” bundles.

Oaktree Capital Group, LLC
 
Oaktree Capital Group, LLC (“Oaktree”) is an alternative asset manager with approximately $100 billion in assets under management. BM&O has closely followed the alternative asset management industry over the last several years and Apollo Global Management, LLC (“Apollo”) and The Blackstone Group LP (“Blackstone”) continue to be core holdings of the Partners Fund. We believe that Oaktree, like Apollo and Blackstone, is both significantly undervalued and somewhat
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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
misunderstood by the broader market, with such misunderstanding in part reflecting the industry’s relative youth within public markets. (In 2007, Blackstone was among the first of the major private equity firms to go public; Apollo and Oaktree went public in 2011 and 2012, respectively.) Oaktree is differentiated from Blackstone and Apollo by having a greater relative exposure to credit and distressed debt and something of a “hidden” asset in its 20% stake in DoubleLine Capital LP, which itself has more than $100 billion in assets under management and which is led by Jeffrey Gundlach. We believe that Oaktree’s focus on credit and distressed debt will serve it particularly well during the next down-cycle in capital markets. Given the Partners Fund’s existing investments in Blackstone and Apollo, we have consciously limited the size the Oaktree position, which was 1.4% of net assets as of the end of the Fiscal Year.

RadNet, Inc.
 
RadNet, Inc. (“RadNet”) is the largest owner and operator of fixed-site diagnostic imaging centers in the U.S., with nearly 300 locations. Through acquisitions and joint ventures, RadNet continues to consolidate a large and highly fragmented market, as imaging volumes shift from higher-cost hospital settings to lower-cost non-hospital settings. In addition, over the last few years, RadNet has delevered its balance sheet and successfully grown its capitation business, while reimbursement pressures have eased materially. We believe that the valuation is quite compelling and are encouraged by the fact that insiders own approximately 20% of the company. In an environment in which healthcare costs need to be managed more effectively and managed care and healthcare services companies are increasingly looking to control the provision of care, we further believe that RadNet would make an attractive acquisition candidate (though our underwriting of the investment does not assume that RadNet is acquired). The Partners Fund purchased RadNet at an average price of $9.87 and RadNet’s share price as of the end of the Fiscal Year was $14.40.

Exited Positions
 
In the September 2017 Letter, we discussed the new positions in Enterprise Products Partners LP (“Enterprise”) and Kinder Morgan, Inc. (“Kinder”) and remarked that they “tend to be fundamentally more levered to commodity volumes than to commodity prices. As such, our view is that the underlying cash flows generated by these businesses, unlike those of upstream energy companies, are not especially dependent on the vagaries of commodity prices.” In light of these new energy investments, we elected to exit our position in Devon Energy Corp. (“Devon”) because the stock was both highly dependent on the oil price and generally lacked positive company-specific catalysts compared to our other energy investments. In addition, subsequent to our initial purchases of Enterprise and Kinder, we decided to increase the position size of Enterprise and to exit the Kinder position. While we continue to be bullish on prospects for both companies, we have higher conviction in Enterprise and chose to concentrate our energy portfolio on our very best ideas while managing the total amount of capital allocated to the energy sector. The Partners Fund generated a small gain on its Kinder position and since the Partners Fund exited its Kinder position, Enterprise has considerably outperformed Kinder.

In the September 2017 Letter, we wrote that Fluor Corp.’s “fundamental execution has underperformed our expectations. In response, we have meaningfully reduced our position in Fluor [Corp.], which is now one of the smallest positions in the Partners Fund.” Fluor Corp.’s share price appreciated significantly in the next few months and we took the opportunity to exit the position at what we deemed to be attractive levels.
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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Other Portfolio Observations

As of the end of the Fiscal Year, the Partners Fund held 31 equity positions, with the 10 largest positions representing 50.7% of net assets. This compares to 30 equity positions, with the 10 largest positions representing 50.0% of net assets, as of the beginning of the Fiscal Year.

As of the end of the Fiscal Year, the largest sector exposures were financials (26.4% of net assets), healthcare (18.6%), and technology (14.4%) and cash represented less than 2% of net assets.

As of the end of the Fiscal Year, the Partners Fund had an estimated net capital loss per share of approximately $4.84.

Outlook

In the September 2017 Letter, we discussed how the market environment at the time was “characterized by the S&P 500 Index near its all-time highs [and] volatility near its all-time lows”. These conditions generally remained in place until the final two months of the Fiscal Year. In February and March of 2018, the S&P 500 Index generated a total return of -3.69% and -2.54%, respectively, which were the first negative-return months for the S&P 500 Index since October 2016. Similarly, volatility, after remaining quiescent more or less since the U.S. elections in November 2016, increased sharply in February 2018 and has not returned to its former lower levels.

Some of the main risks currently weighing on sentiment include: (i) policy tightening by the U.S. Federal Reserve, which just underwent a change in leadership, and by other central banks; (ii) strengthening inflationary pressures; (iii) potentially slower global economic growth compared to a few months ago; (iv) an ongoing dispute between the U.S. and China, the two largest national economies in the world, regarding trade imbalances and the threat of punitive and retaliatory tariffs; (v) geopolitical tensions with respect to North Korea, Iran, Syria, and Russia, among others; and (vi) the ongoing U.S. Special Counsel investigation.

As if the foregoing list was not enough to be concerned about, we are fast approaching the 10th year of both the economic expansion and the equity bull market in the U.S. It is a question of when rather than if we will have another economic recession and equity bear market. As long-term fundamental investors, we believe that our core competence is not to predict market or macroeconomic inflection points, but to find and to own high-quality companies that are trading at discounts to their intrinsic value. We thereby strive to preserve your (and our) capital and are focused on outperforming the broader equity market over long periods of time and through various economic cycles.

As the earlier discussion of the Partners Fund’s new investments during the Fiscal Year indicates, we have, over the last 12 months, found a number of new companies that meet our investment criteria and about whose prospects we are quite enthusiastic. Moreover, we believe that the current market environment of somewhat elevated levels of volatility, interest rates, and risk-aversion may well turn out to be more auspicious for our brand of stock-picking than the market environment of the last few years, which has been characterized by a combination of low volatility, depressed interest rates, tight credit spreads, and an equity market that has appreciated at rates far in excess of its long-term averages. Such equity market appreciation, to a large extent, has been disproportionately driven by a cohort of widely owned, mostly technology-related companies (see the earlier discussion of “growth” vs. “value”) and has occurred against a backdrop of rising so-called
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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
“passive” ownership (e.g., index investment strategies). We would surmise some degree of mutual reinforcement between the technology-led bull market and “passive” capital flows, any unwinding of which could be disruptive to financial markets more generally. Knowing that we do not know how any such unwinding would play out exactly, we believe that our brand of stock-picking—looking for high-quality companies that are out of favor and not chasing crowded or “consensus” ideas— should hold up relatively well in potentially more turbulent market conditions.

Thank you for your continued support.
 
Yours sincerely,

-S-Robert C. Beck
-S-Richard C. Fitzgerald
   
Robert C. Beck &
Richard C. Fitzgerald
 
Appendix: Historical Performance

Total returns for the Partners Fund and the S&P 500 Index for the periods ended March 31, 2018, were as follows:

 
Annualized Returns
Returns as of 03/31/18
One Year
Three Years
Five Years
Since 12/01/2009 Reorg*
Ten Years
Beck, Mack & Oliver Partners Fund
+12.77%
+4.62%
+3.22%
+8.32%
+4.34%
S&P 500® Index
+13.99%
+10.78%
+13.31%
+13.33%
+9.49%
 
(Performance data quoted represent past performance and are no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Shares redeemed or exchanged within 60 days of purchase will be charged a 2.00% redemption fee. As stated in the current prospectus, the Partners Fund’s annual operating expense ratio (gross) is 1.81%. However, the Partners Fund’s adviser has agreed to contractually waive its fees and/or reimburse expenses to limit total operating expenses to 1.00% through at least July 31, 2018; otherwise performance shown would have been lower. For the most recent month-end performance, please call (800) 943-6786. Returns greater than one year are annualized.)

*
Excludes performance prior to the Partners Fund’s reorganization from a limited partnership. See important risks and disclosures regarding performance at the bottom of page 9.
 
IMPORTANT RISKS AND DISCLOSURE:
 
There is no assurance that the Partners Fund will achieve its investment objective. An investment in the Partners Fund is subject to risk, including the possible loss of principal amount invested. The risks associated with the Partners Fund include: equity and convertible securities risk, foreign securities risk, management risk, debt securities risk, noninvestment grade
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BECK, MACK & OLIVER PARTNERS FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
securities risk, liquidity risk and non-diversification risk. The Partners Fund may invest in small and mid-sized capitalization companies meaning that these companies carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock.

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. The total return of the S&P 500 Index and of the Partners Fund includes the reinvestment of dividends and income. The total return of the Partners Fund includes operating expenses that reduce returns, while the total return of the S&P 500 Index does not include expenses. The Partners Fund is professionally managed while the S&P 500 Index is unmanaged and is not available for investment. It is not possible to invest directly in an index.

This letter may contain discussions about certain investments both held and not held in the portfolio. All current and future holdings are subject to risk and to change. The views in this report were those of the Partners Fund managers as of March 31, 2018, and may not reflect their views on the date this report is first published or any time thereafter. These views are intended to assist shareholders in understanding their investment in the Partners Fund and do not constitute investment advice.

On December 1, 2009, a limited partnership managed by the adviser reorganized into the Partners Fund. The predecessor limited partnership maintained an investment objective and investment policies that were, in all material respects, equivalent to those of the Partners Fund. The Partners Fund’s performance for the periods before December 1, 2009 is that of the limited partnership and includes the expenses of the limited partnership, which were lower than the Partners Fund’s current expenses, except for 2008 where the expenses of the limited partnership were higher. The performance prior to December 1, 2009 is based on calculations that are different from the standardized method of calculations by the SEC. If the limited partnership’s performance had been readjusted to reflect the estimated expenses of the Partners Fund for its first Fiscal Year, the performance would have been lower. The limited partnership was not registered under the Investment Company Act of 1940 (“1940 Act”) and was not subject to certain investment limitations, diversification requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, which, if applicable, may have adversely affected its performance.
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BECK, MACK & OLIVER PARTNERS FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)

 
The following chart reflects the change in the value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in Beck, Mack & Oliver Partners Fund (the “Fund”) compared with the performance of the benchmark, S&P 500 Index (the “S&P 500”), over the past 10 fiscal years. The S&P 500 is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.
 
Comparison of a $10,000 Investment
 Beck, Mack & Oliver Partners Fund vs. S&P 500 Index
 
(LINE GRAPH)
 
 
Average Annual Total Returns
Periods Ended March 31, 2018
 
 
One Year
 
 
Five Year
 
 
Ten Year
Beck, Mack & Oliver Partners Fund
 
12.77%
 
3.22%
 
4.34%
S&P 500 Index
 
13.99%
 
13.31%
 
9.49%
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratio (gross) is 1.81%. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.00%, through at least July 31, 2018 (the “Expense Cap”). During the period, certain fees were waived and/or expenses reimbursed; otherwise, returns would have been lower. Shares redeemed or exchanged within 60 days of purchase will be charged a 2.00% redemption fee. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (800) 943-6786.
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BECK, MACK & OLIVER PARTNERS FUND
PORTFOLIO PROFILE (Unaudited)

 
PORTFOLIO HOLDINGS
% of Total Investments
 
(BAR CHART)
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BECK, MACK & OLIVER PARTNERS FUND
SCHEDULE OF INVESTMENTS

 
Shares
 
Security Description
 
Value
 
Common Stock - 99.1%
     
Consumer Discretionary - 6.0%
     
40,000
 
Discovery Communications, Inc., Class C (a)
 
$
780,800
 
48,000
 
Liberty Global PLC, Class A (a)
   
1,502,880
 
         
2,283,680
 
Consumer Staples - 3.8%
       
7,000
 
Anheuser-Busch InBev SA/NV, ADR
   
769,580
 
70,000
 
Crimson Wine Group, Ltd. (a)
   
692,300
 
         
1,461,880
 
Energy - 13.7%
       
44,000
 
Enterprise Products Partners LP
   
1,077,120
 
90,000
 
Matador Resources Co. (a)
   
2,691,900
 
90,000
 
San Juan Basin Royalty Trust
   
711,000
 
12,000
 
Schlumberger, Ltd.
   
777,360
 
         
5,257,380
 
Financials - 26.4%
       
70,000
 
Apollo Global Management, LLC
   
2,073,400
 
4,500
 
Credit Acceptance Corp. (a)
   
1,486,845
 
11,500
 
Enstar Group, Ltd. (a)
   
2,417,875
 
16,000
 
JPMorgan Chase & Co.
   
1,759,520
 
14,000
 
Oaktree Capital Group, LLC
   
554,400
 
58,000
 
The Blackstone Group LP
   
1,853,100
 
         
10,145,140
 
Healthcare - 18.6%
       
13,000
 
Abbott Laboratories
   
778,960
 
20,000
 
Gilead Sciences, Inc.
   
1,507,800
 
48,000
 
Grifols SA, ADR
   
1,017,600
 
8,500
 
Laboratory Corp. of America Holdings (a)
   
1,374,875
 
18,000
 
Merck & Co., Inc.
   
980,460
 
40,000
 
RadNet, Inc. (a)
   
576,000
 
4,500
 
Waters Corp. (a)
   
893,925
 
         
7,129,620
 
Industrials - 8.0%
       
24,000
 
Armstrong World Industries, Inc. (a)
   
1,351,200
 
40,000
 
Chicago Bridge & Iron Co. NV
   
576,000
 
14,000
 
Wabtec Corp.
   
1,139,600
 
         
3,066,800
 
Real Estate - 4.2%
       
28,080
 
Homefed Corp. (a)
   
1,607,861
 
Technology - 14.4%
       
2,000
 
Alphabet, Inc., Class C (a)
   
2,063,580
 
75,000
 
BlackBerry, Ltd. (a)
   
862,500
 
21,000
 
Microsoft Corp.
   
1,916,670
 
12,000
 
QUALCOMM, Inc.
   
664,920
 
         
5,507,670
 
Shares
 
Security Description
 
Value
 
Telecommunication Services - 4.0%
     
94,000
 
CenturyLink, Inc.
 
$
1,544,420
 
         
Total Common Stock (Cost $31,072,268)
   
38,004,451
 
 
 
Security Description
 
Exercise Price
 
Exp. Date
 
Value
 
Warrants - 0.1% 
             
75,675
  AgroFresh Solutions, Inc. (a)                   
 
(Cost $171,744)
 
$
11.50
 
02/19/19
   
40,864
 
Investments, at value - 99.2% (Cost $31,244,012)
  $
38,045,315
 
Other Assets & Liabilities, Net- 0.8%
   
322,928
 
Net Assets - 100.0%
 
$
38,368,243
 

ADR
American Depositary Receipt
LLC
Limited Liability Company
LP
Limited Partnership
PLC
Public Limited Company
(a)
Non-income producing security.
 
The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2018.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
 
Valuation Inputs
 
Investments in Securities
 
Level 1 - Quoted Prices
 
$
38,045,315
 
Level 2 - Other Significant Observable Inputs
   
 
Level 3 - Significant Unobservable Inputs
   
 
Total
 
$
38,045,315
 
 
The Level 1 value displayed in this table includes Common Stock and a Warrant. Refer to this Schedule of Investments for a further breakout of each security by industry.
 
The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
See Notes to Financial Statements.
12


BECK, MACK & OLIVER PARTNERS FUND
STATEMENT OF ASSETS AND LIABILITIES

ASSETS
     
Investments, at value (Cost $31,244,012)
 
$
38,045,315
 
Cash
   
594,275
 
Receivables:
       
Fund shares sold
   
479
 
Dividends and interest
   
18,669
 
Prepaid expenses
   
9,682
 
Total Assets
   
38,668,420
 
         
LIABILITIES
       
Payables:
       
Investment securities purchased
   
241,959
 
Fund shares redeemed
   
3,308
 
Accrued Liabilities:
       
Investment adviser fees
   
11,428
 
Trustees’ fees and expenses
   
50
 
Fund services fees
   
15,223
 
Other expenses
   
28,209
 
Total Liabilities
   
300,177
 
         
NET ASSETS
 
$
38,368,243
 
         
COMPONENTS OF NET ASSETS
       
Paid-in capital
 
$
47,195,421
 
Distributions in excess of net investment income
   
(45,738
)
Accumulated net realized loss
   
(15,582,743
)
Net unrealized appreciation
   
6,801,303
 
NET ASSETS
 
$
38,368,243
 
         
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
   
3,317,620
 
         
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE*
 
$
11.56
 

*
Shares redeemed or exchanged within 60 days of purchase are charged a 2.00% redemption fee.
 
See Notes to Financial Statements.
13


BECK, MACK & OLIVER PARTNERS FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2018

INVESTMENT INCOME
     
Dividend income (Net of foreign withholding taxes of $10,128)
 
$
844,853
 
Interest income
   
1,611
 
Total Investment Income
   
846,464
 
         
EXPENSES
       
Investment adviser fees
   
390,568
 
Fund services fees
   
182,759
 
Custodian fees
   
10,046
 
Registration fees
   
20,263
 
Professional fees
   
45,418
 
Trustees' fees and expenses
   
7,184
 
Other expenses
   
31,572
 
Total Expenses
   
687,810
 
Fees waived
   
(297,211
)
Net Expenses
   
390,599
 
         
NET INVESTMENT INCOME
   
455,865
 
         
NET REALIZED AND UNREALIZED GAIN
       
Net realized gain on investments
   
1,268,937
 
Net change in unrealized appreciation (depreciation) on investments
   
2,970,504
 
NET REALIZED AND UNREALIZED GAIN
   
4,239,441
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
4,695,306
 
 
See Notes to Financial Statements.
14


BECK, MACK & OLIVER PARTNERS FUND
STATEMENTS OF CHANGES IN NET ASSETS
 

 
   
For the
Year Ended
March 31, 2018
   
For the
Year Ended
March 31, 2017
 
OPERATIONS
           
Net investment income
 
$
455,865
   
$
285,527
 
Net realized gain
   
1,268,937
     
885,490
 
Net change in unrealized appreciation (depreciation)
   
2,970,504
     
4,051,877
 
Increase in Net Assets Resulting from Operations
   
4,695,306
     
5,222,894
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income
   
(34,294
)
   
(361,274
)
Total Distributions to Shareholders
   
(34,294
)
   
(361,274
)
                 
CAPITAL SHARE TRANSACTIONS
               
Sale of shares
   
2,901,960
     
10,071,093
 
Reinvestment of distributions
   
30,422
     
325,372
 
Redemption of shares
   
(6,994,229
)
   
(12,077,450
)
Redemption fees
   
199
     
1,186
 
Decrease in Net Assets from Capital Share Transactions
   
(4,061,648
)
   
(1,679,799
)
Increase in Net Assets
   
599,364
     
3,181,821
 
                 
NET ASSETS
               
Beginning of Year
   
37,768,879
     
34,587,058
 
End of Year (Including line (a))
 
$
38,368,243
   
$
37,768,879
 
                 
SHARE TRANSACTIONS
               
Sale of shares
   
260,983
     
1,058,015
 
Reinvestment of distributions
   
2,607
     
32,833
 
Redemption of shares
   
(628,561
)
   
(1,261,209
)
Decrease in Shares
   
(364,971
)
   
(170,361
)
                 
(a) Undistributed (distributions in excess of) net investment income
 
$
(45,738
)
 
$
34,262
 
 
See Notes to Financial Statements.
15


BECK, MACK & OLIVER PARTNERS FUND
FINANCIAL HIGHLIGHTS
 


These financial highlights reflect selected data for a share outstanding throughout each year.

   
For the Years Ended March 31,
 
       
2017
   
2016
   
2015
   
2014
 
NET ASSET VALUE, Beginning of Year
 
$
10.26
   
$
8.98
   
$
12.42
   
$
14.82
   
$
13.76
 
INVESTMENT OPERATIONS
                                       
Net investment income (a)
   
0.13
     
0.08
     
0.10
     
0.11
     
0.04
 
Net realized and unrealized gain (loss)
   
1.18
     
1.30
     
(1.57
)
   
(1.70
)
   
1.91
 
Total from Investment Operations
   
1.31
     
1.38
     
(1.47
)
   
(1.59
)
   
1.95
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.01
)
   
(0.10
)
   
(0.07
)
   
(0.09
)
   
(0.03
)
Net realized gain
   
     
     
(1.90
)
   
(0.72
)
   
(0.86
)
Total Distributions to Shareholders
   
(0.01
)
   
(0.10
)
   
(1.97
)
   
(0.81
)
   
(0.89
)
REDEMPTION FEES (a)
   
0.00
(b)
   
0.00
(b)
   
0.00
(b)
   
0.00
(b)
   
0.00
(b)
NET ASSET VALUE, End of Year
 
$
11.56
   
$
10.26
   
$
8.98
   
$
12.42
   
$
14.82
 
TOTAL RETURN
   
12.77
%
   
15.45
%
   
(12.05
)%
   
(10.70
)%
   
14.59
%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000s omitted)
 
$
38,368
   
$
37,769
   
$
34,587
   
$
124,102
   
$
186,315
 
Ratios to Average Net Assets:
                                       
Net investment income
   
1.17
%
   
0.80
%
   
0.87
%
   
0.75
%
   
0.31
%
Net expenses
   
1.00
%
   
1.00
%
   
1.00
%
   
1.00
%
   
1.00
%
Gross expenses (c)
   
1.76
%
   
1.81
%
   
1.44
%
   
1.29
%
   
1.29
%
PORTFOLIO TURNOVER RATE
   
19
%
   
26
%
   
50
%
   
41
%
   
32
%
 

 
(a)
Calculated based on average shares outstanding during each year.
(b)
Less than $0.01 per share.
(c)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
16


BECK, MACK & OLIVER PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018

 
Note 1. Organization

The Beck, Mack & Oliver Partners Fund (the “Fund”) is a non-diversified portfolio of Forum Funds (the “Trust”). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of the Fund’s shares of beneficial interest without par value. The Fund commenced operations on December 1, 2009, after it acquired the net assets of BMO Partners Fund, L.P. (the “Partnership”), in exchange for Fund shares. The Partnership commenced operations in 1991. The Fund seeks long-term capital appreciation consistent with the preservation of capital.

Note 2. Summary of Significant Accounting Policies

The Fund is an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal period. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service. Debt securities may be valued at prices supplied by a fund’s pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics such as rating, interest rate and maturity. Shares of non-exchange traded open-end mutual funds are valued at net asset value (“NAV”). Short-term investments that mature in sixty days or less may be valued at amortized cost.

The Fund values its investments at fair value pursuant to procedures adopted by the Trust’s Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 4, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in the Fund’s registration statement, performs certain functions as they relate to the administration and oversight of the Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.

The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.
17


BECK, MACK & OLIVER PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018

 
Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotes.
 
GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
 
Level 1 - Quoted prices in active markets for identical assets and liabilities.
 
Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities respective local market closes and the close of the U.S. market.

Level 3 - Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).

The aggregate value by input level, as of March 31, 2018, for the Fund’s investments is included at the end of the Fund’s schedule of investments.

Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as possible after determining the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.

Distributions to Shareholders – The Fund declares any dividends from net investment income and pays them annually. Any net capital gains and net foreign currency gains realized by the Fund are distributed at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by the Fund, timing differences and differing characterizations of distributions made by the Fund.

Federal Taxes – The Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of its taxable income to shareholders. In addition, by distributing in each calendar year substantially all of its net investment income and
18


BECK, MACK & OLIVER PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018

 
capital gains, if any, the Fund will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. The Fund files a U.S. federal income and excise tax return as required. The Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of March 31, 2018, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.
 
Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.
 
Redemption Fees – A shareholder who redeems or exchanges shares within 60 days of purchase will incur a redemption fee of 2.00% of the current NAV of shares redeemed or exchanged, subject to certain limitations. The fee is charged for the benefit of the remaining shareholders and will be paid to the Fund to help offset transaction costs. The fee is accounted for as an addition to paid-in capital. The Fund reserves the right to modify the terms of or terminate the fee at any time. There are limited exceptions to the imposition of the redemption fee. Redemption fees incurred for the Fund, if any, are reflected on the Statements of Changes in Net Assets.

Commitments and Contingencies – In the normal course of business, the Fund enters into contracts that provide general indemnifications by the Fund to the counterparty to the contract. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. The Fund has determined that none of these arrangements requires disclosure on the Fund’s balance sheet.

Note 3. Cash – Concentration in Uninsured Account

For cash management purposes, the Fund may concentrate cash with the Fund’s custodian. This typically results in cash balances exceeding the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of March 31, 2018, the Fund had $344,275 at MUFG Union Bank, N.A. that exceeded the FDIC insurance limit.

Note 4. Fees and Expenses

Investment Adviser – Beck, Mack & Oliver LLC (the “Adviser”) is the investment adviser to the Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee, payable monthly, from the Fund at an annual rate of 1.00% of the Fund’s average daily net assets.

Distribution – Foreside Fund Services, LLC serves as the Fund’s distributor (the “Distributor”). The Fund does not have a distribution (12b-1) plan; accordingly, the Distributor does not receive compensation from the Fund for its distribution services. The Adviser compensates the Distributor directly for its services. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) (“Atlantic”) or their affiliates.
19


BECK, MACK & OLIVER PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018

 
Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to the Fund. The fees related to these services are included in Fund services fees within the Statement of Operations. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, the Fund pays Atlantic customary fees for its services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to the Fund, as well as certain additional compliance support functions.

Trustees and Officers – Through December 31, 2017, the Trust paid each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman), and the Audit Committee Chairman and Vice Chairman received an additional $6,000 annually. Effective January 1, 2018, each independent Trustee’s annual retainer is $31,000 ($41,000 for the Chairman), and the Audit Committee Chairman receives an additional $2,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees’ fees attributable to the Fund is disclosed in the Statement of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from the Fund.

Note 5. Expense Reimbursement and Fees Waived

The Adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.00%, through at least July 31, 2018. During the year ended March 31, 2018, fees waived were $297,211.

Note 6. Security Transactions

The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments, during the year ended March 31, 2018 were $7,176,167 and $10,153,158 respectively.

Note 7. Federal Income Tax

As of March 31, 2018, the cost of investments for federal income tax purposes is $30,812,064 and the components of net unrealized appreciation were as follows:

 
Gross Unrealized Appreciation
 
$
9,943,765
   
 
Gross Unrealized Depreciation
   
(2,710,514
)
 
 
Net Unrealized Appreciation
 
$
7,233,251
   
 
Distributions paid during the fiscal years ended as noted were characterized for tax purposes as follows:

     
2018
   
2017
   
 
Ordinary Income
 
$
34,294
   
$
361,274
   
20


BECK, MACK & OLIVER PARTNERS FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018

 
As of March 31, 2018, distributable earnings (accumulated loss) on a tax basis were as follows:

 
Capital and Other Losses
 
$
(16,060,429
)
 
 
Net Unrealized Appreciation
   
7,233,251
   
 
Total
 
$
(8,827,178
)
 
 
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to equity return of capital, partnerships, grantor trusts and wash sales.

The Fund has $5,141,993 of available short-term capital loss carryforwards and $10,918,436 of available long-term capital loss carryforwards that have no expiration date.

On the Statement of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended March 31, 2018. The following reclassification was the result of net operating loss, equity return of capital, real estate investment trusts, grantor trusts and partnership adjustments and has no impact on the net assets of the Fund.
 
 
Distributions in Excess of Net Investment Income
 
$
(501,571
)
 
 
Accumulated Net Realized Loss
   
547,457
   
 
Paid-in-Capital
   
(45,886
)
 

Note 8. Subsequent Events

Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and the Fund has had no such events.
21


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


 
To the Board of Trustees of Forum Funds
and the Shareholders of Beck, Mack & Oliver Partners Fund

Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Beck, Mack & Oliver Partners Fund, a series of shares of beneficial interest in Forum Funds (the “Fund”), including the schedule of investments, as of March 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of March 31, 2018, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
 
BBD, LLP
We have served as the auditor of one or more of the Funds in the Forum Funds since 2009.
Philadelphia, Pennsylvania
May 24, 2018
22


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
Investment Advisory Agreement Approval

At the March 27, 2018 Board meeting, the Board, including the Independent Trustees, considered the approval of the continuance of the investment advisory agreement between the Adviser and the Trust pertaining to the Fund (the “Advisory Agreement”). In preparation for its deliberations, the Board requested and reviewed written responses from the Adviser to a due diligence questionnaire circulated on the Board’s behalf concerning the Adviser’s personnel, operations, financial condition, performance, and services provided by the Adviser. The Board also discussed the materials with Fund counsel and, as necessary, with the Trust’s administrator, Atlantic Fund Services. During its deliberations, the Board received an oral presentation from the Adviser, and was assisted by the advice of Trustee counsel.

At the meeting, the Board reviewed, among other matters: (1) the nature, extent and quality of the services provided to the Fund by the Adviser, including information on the investment performance of the Fund and the Adviser; (2) the costs of the services provided and profitability to the Adviser with respect to its relationship with the Fund; (3) the advisory fee and total expense ratio of the Fund compared to a relevant peer group of funds; (4) the extent to which economies of scale may be realized as the Fund grows and whether the advisory fees enable the Fund’s investors to share in the benefits of economies of scale; and (5) other benefits received by the Adviser from its relationship with the Fund.

Nature, Extent and Quality of Services

Based on written materials received, a presentation from senior representatives of the Adviser, and a discussion with the Adviser about the Adviser’s personnel, operations and financial condition, the Board considered the quality of services provided by the Adviser under the Advisory Agreement. In this regard, the Board considered information regarding the experience, qualifications and professional background of the portfolio managers and other personnel at the Adviser with principal investment responsibility for the Fund’s investments as well as the investment philosophy and decision-making processes of the Adviser and the capability and integrity of the Adviser’s senior management and staff.

The Board considered also the adequacy of the Adviser’s resources and the Adviser’s recent enhancements to its compliance, cyber security and business continuity programs. The Board noted the Adviser’s representation that the firm is in stable financial condition, that the firm is able to meet its expense reimbursement obligations to the Fund, that the firm has the operational capability and the necessary staffing and experience to continue providing high-quality investment advisory services to the Fund. Based on the presentation and the materials provided by the Adviser in connection with the Board’s consideration of the renewal of the Advisory Agreement, the Board concluded that, overall, it was satisfied with the nature, extent, and quality of services provided to the Fund under the Advisory Agreement.

Performance

In connection with a presentation by the Adviser regarding its approach to managing the Fund, the Board reviewed the performance of the Fund compared to its benchmark. The Board observed that the Fund underperformed the S&P 500 Index, the Fund’s primary benchmark index, for all periods reviewed ended December 31, 2017. The Board noted the Adviser’s statement that the Fund’s underperformance relative to the benchmark over the short term was attributable, at least in part, to the Fund’s sector allocation and, in particular, the Fund’s underweight exposure to the technology sector, which had outperformed the overall market in recent years. The Board considered the Adviser’s representation that the Fund’s underperformance over the longer term was largely a result of the Fund’s overexposure to the energy sector during
23


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
the calendar years 2014 and 2015 and noted that the Adviser had since changed its portfolio manager and repositioned the Fund’s energy exposure.
 
The Board also reviewed the Fund’s performance relative to an independent peer group identified by Broadridge Financial Solutions, Inc. (“Broadridge”) as having characteristics similar to those of the Fund. The Board observed that, based on the information provided by Broadridge, the Fund outperformed the median of the Broadridge peers for the one-year period ended December 31, 2017, and underperformed the median of its Broadridge peer group for the three- and five-year periods ended December 31, 2017. With respect to the Fund’s relative underperformance for the three- and five-year periods, the Board considered the Adviser’s assertion that the peer group identified by Broadridge is not the most suitable comparison for the Fund and at the request of the Adviser, reviewed the Fund’s performance compared to a second peer group of funds provided by the Adviser as a more meaningful comparison (“Comparable Fund Peers”). The Board considered the Adviser’s explanation of the Comparable Fund Peers as an appropriate point of comparison for the Fund in evaluating its performance and considered the Fund’s performance relative to the Comparable Fund Peers. In that regard, the Board noted that the Fund outperformed the median of the Comparable Fund Peers for the one-year period ended December 31, 2017, and underperformed the median of the Comparable Fund Peers for the three- and five-year periods ended December 31, 2017. Finally, the Board observed that the Adviser had taken steps that were expected to improve the Fund’s future performance.

Based on the Adviser’s investment style and the foregoing performance information, among other factors, the Board determined that the Fund and its shareholders could expect to benefit from the Adviser’s continued management of the Fund.

Compensation

The Board evaluated the Adviser’s compensation for providing advisory services to the Fund and analyzed comparative information on actual advisory fee rates and actual total expenses of the Fund’s Broadridge peer group. The Board observed that the Adviser’s actual advisory fee rate and actual total expenses were each less than the median of the Broadridge peers and were each less than the median of the Comparable Fund Peers. The Board further noted that the Adviser was currently waiving a significant portion of its advisory fee in an effort to keep the Fund’s expenses at competitive levels. The Board also noted the Adviser’s representation that the advisory fee charged to the Fund was consistent with the fee charged by the Adviser to its smaller separately managed accounts. Based on the foregoing, the Board concluded that the Adviser’s advisory fee rate charged to the Fund was reasonable.

Costs of Services and Profitability

The Board considered information provided by the Adviser regarding its costs of services and its profitability with respect to the Fund. In this regard, the Board considered the Adviser’s resources devoted to the Fund, as well as the Adviser’s discussion of the aggregate costs and profitability of its mutual fund activities. The Board considered also the Adviser’s representation that the Adviser does not conduct a formal, comprehensive cost allocation with respect to its mutual fund activities and separately managed accounts, but that the Adviser believed that the Fund was comparatively less profitable than its separately managed account activities as a result of the low level of the Fund’s assets, costs incurred in connection with regulatory compliance applicable to registered investment companies, and the expense cap currently in place. Based
24


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
on these and other applicable considerations, the Board concluded that the Adviser’s profits attributable to the management of the Fund were reasonable.
 
Economies of Scale

The Board evaluated whether the Fund would benefit from any economies of scale. In this respect, the Board considered the Adviser’s statement that, although the Fund’s shareholders potentially could benefit from economies of scale if the Fund’s assets increased, the consideration of breakpoints was not appropriate at this time because of the Fund’s low asset levels. Based on the foregoing information, the Board concluded that economies of scale were not a material factor in renewing the Advisory Agreement.

Other Benefits

The Board noted the Adviser’s representation that, other than its contractual advisory fees and the soft dollar benefits accrued from Fund brokerage commissions and used to obtain third party research for the benefit of both the Fund and the Adviser’s separately managed accounts, the Adviser does not benefit in a material way from its relationship with the Fund. Based on the foregoing representation, the Board concluded that other benefits received by the Adviser from its relationship with the Fund were not a material factor to consider in approving the continuation of the Advisory Agreement.

Conclusion

The Board did not identify any single factor as being of paramount importance, and different Trustees may have given different weight to different factors. The Board reviewed a memorandum from Fund counsel discussing the legal standards applicable to its consideration of the Advisory Agreement. Based on its review, including consideration of each of the factors referenced above, the Board determined, in the exercise of its reasonable business judgment, that the advisory arrangement, as outlined in the Advisory Agreement, was fair and reasonable in light of the services performed or to be performed, expenses incurred or to be incurred and such other matters as the Board considered relevant.

Shareholder Proxy Vote

At a special meeting of shareholders for all the Funds in the Trust, held on December 8, 2017, shares were voted as follows on the proposals presented to shareholders:

 Matter
 
For
 
Against
 
Abstain
To elect David Tucker to the Board of Trustees of the Trust
 
108,303,928.779
 
1,542,957.994
 
0
To elect Jennifer Brown-Strabley to the Board of Trustees of the Trust
 
108,183,952.495
 
1,662,934.278
 
0
To elect Mark D. Moyer to the Board of Trustees of the Trust.
 
108,142,412.946
 
1,704,473.827
 
0
To elect Jessica Chase to the Board of Trustees of the Trust.
 
107,632,924.803
 
2,213,961.970
 
0
To elect Stacey E. Hong to the Board of Trustees of the Trust.
 
105,777,266.997
 
4,069,619.776
 
0
 
Proxy Voting Information

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling (800) 943-6786 and on the U.S. Securities
25


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
and Exchange Commission’s (“SEC”) website at www.sec.gov. The Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (800) 943-6786 and on the SEC’s website at www.sec.gov.
 
Availability of Quarterly Portfolio Schedules

The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.

Shareholder Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees and exchange fees, and (2) ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund, and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2017 through March 31, 2018.

Actual Expenses – The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.

Hypothetical Example for Comparison Purposes – The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees and exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
26


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
 
   
Beginning Account Value October 1, 2017
   
Ending Account Value March 31, 2018
   
Expenses Paid During Period*
 
Annualized Expense Ratio*
 
Actual
 
$1,000.00
   
$1,041.43
   
$5.09
 
1.00%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,019.95
   
$5.04
 
1.00%
 
 
*
Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182) divided by 365 to reflect the half-year period.
 
Federal Tax Status of Dividends Declared during the Fiscal Year

The Fund designates 100.00% of its income dividend distributed as qualifying for the corporate dividends-received deduction (DRD) and 100.00% for the qualified dividend rate (QDI) as defined in Section 1(h)(11) of the Internal Revenue Code. The Fund also designates 0.45% as qualified interest income exempt from U.S. tax for foreign shareholders (QII).

Trustees and Officers of the Trust

The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. The Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (800) 943-6786.

Name and Year of Birth
Position with the Trust
Length of Time Served
Principal Occupation(s) During Past Five Years
Number of Series in Fund Complex Overseen
By Trustee
Other Directorships Held By Trustee During Past Five Years
Independent Trustees
David Tucker
Born: 1958
Trustee; Chairman of the
Board
Since 2011 and Chairman since 2018
Director, Blue Sky Experience (a charitable endeavor) since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm) 1998-2008.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
 
27


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
 
Name and Year of Birth
Position with the Trust
Length of Time Served
Principal Occupation(s) During Past Five Years
Number of Series in Fund Complex Overseen
By Trustee
Other Directorships Held By Trustee During Past Five Years
Mark D. Moyer
Born: 1959
Trustee
Since 2018
Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy) since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011- 2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008-2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Jennifer Brown-Strabley
Born: 1964
Trustee
Since 2018
Principal, Portland Global Advisors, 1996-2010.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Interested Trustee
Stacey E. Hong(1)
Born: 1966
Trustee
Since 2018
President, Atlantic since 2008.
1
Trustee, Forum Funds II and U.S. Global Investors Funds
Born: 1970
Trustee
Since 2018
Senior Vice President, Atlantic since 2008.
1
None
 
(1)
Stacey E. Hong is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to his affiliation with Atlantic. Jessica Chase is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to her affiliation with Atlantic and her role as President of the Trust.
 
28


BECK, MACK & OLIVER PARTNERS FUND
ADDITIONAL INFORMATION (Unaudited)
 
 
Name and Year of Birth
Position with the Trust
 
Length of Time Served
Principal Occupation(s) During Past 5 Years
Officers
Born: 1970
President; Principal Executive Officer
Since 2015
Senior Vice President, Atlantic since 2008.
Karen Shaw
Born: 1972
Treasurer; Principal Financial Officer
Since 2008
Senior Vice President, Atlantic since 2008.
Zachary Tackett
Born: 1988
Vice President; Secretary and Anti- Money Laundering Compliance Officer
Since 2014
Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010-2013.
Michael J. McKeen
Born: 1971
Vice President
Since 2009
Senior Vice President, Atlantic since 2008.
Timothy Bowden
Born: 1969
Vice President
Since 2009
Manager, Atlantic since 2008.
Geoffrey Ney
Born: 1975
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund
Accountant, Atlantic, 2008–2013.
Todd Proulx
Born: 1978
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund
Accountant, Atlantic, 2008–2013.
Carlyn Edgar
Born: 1963
Vice President
Since 2008
Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016
Dennis Mason
Born: 1967
Chief Compliance Officer
Since 2016
Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011-2013; Senior Analyst, Atlantic, 2008-2011
 
29

 

LMCG FUNDS

 
LMCG GLOBAL MARKET NEUTRAL FUND
 
LMCG GLOBAL MULTICAP FUND
 
LMCG INTERNATIONAL SMALL CAP FUND
 
Annual Report

(LMCG LOGO)
 



LMCG FUNDS


LMCG Global Market Neutral Fund
 
A Message to Our Shareholders (Unaudited)
1
Performance Chart and Analysis (Unaudited)
4
Schedule of Investments
5
Schedule of Securities Sold Short
7
Notes to Schedules of Investments and Securities Sold Short
9
Statement of Assets and Liabilities
11
Statement of Operations
12
Statements of Changes in Net Assets
13
Financial Highlights
14
   
LMCG Global MultiCap Fund
 
A Message to Our Shareholders (Unaudited)
16
Performance Chart and Analysis (Unaudited)
19
Schedule of Investments
20
Statement of Assets and Liabilities
23
Statement of Operations
24
Statements of Changes in Net Assets
25
Financial Highlights
26
   
LMCG International Small Cap Fund
 
A Message to Our Shareholders (Unaudited)
28
Performance Chart and Analysis (Unaudited)
31
Schedule of Investments
32
Statement of Assets and Liabilities
35
Statement of Operations
36
Statements of Changes in Net Assets
37
Financial Highlights
38
   
Notes to Financial Statements
40
Report of Independent Registered Public Accounting Firm
46
Additional Information (Unaudited)
47
 
IMPORTANT INFORMATION
An investment in the LMCG Global Market Neutral Fund, the LMCG Global MultiCap Fund, and the LMCG International Small Cap Fund (the “Funds”) is subject to risk, including the possible loss of principal. Investments in small and/or midsize companies increase the risk of greater price fluctuations. Stock prices may fall or fail to rise over time for several reasons, including general financial market conditions and factors related to a specific issuer or industry. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.

Investing in a market neutral style may involve the use of short sales. There is no guarantee that the use of long and short positions will succeed in limiting the LMCG Global Market Neutral Fund's exposure to stock market movements, capitalization, or other risk factors. Investments involved in long and short selling may cause higher turnover rates. This will likely result in additional tax consequences. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions.

There is no assurance that the Funds will achieve their investment objectives.



LMCG GLOBAL MARKET NEUTRAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

 
Dear Shareholder:
 
The LMCG Global Market Neutral Fund (the “Fund”) Institutional Shares advanced 1.03% over the last twelve months versus a 1.07% gain for the Citigroup 3-Month U.S. T-Bill Index (the “Index”). Since its May 21, 2013 inception, the Institutional Shares has returned an annualized 1.65% versus 0.32% for the Index. The Fund invests primarily in small-mid cap companies in the U.S. and large cap companies internationally. For the year, large cap equities in the U.S. underperformed their international peers with the Russell 1000 Index returning 13.98% while the MSCI EAFE Index posted a 14.80% return. Smaller cap companies in the U.S. (proxied by the Russell 2000 Index), which is where the Fund primarily invests, moderately underperformed large caps with a return of 11.79% for the period.

The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call (877) 591-4667.

The year included a variety of capital market environments – it was primarily a continuation of the extended bull market until February 2018. But the low volatility environment that was evidenced in most of 2017 disappeared in February-March 2018, and investors became nervous about a variety of issues: trade wars, higher inflation, higher interest rates and geo-political conflicts. The February-March period witnessed many global equity indexes moving into corrective phases (declines of 10%). In general, it appeared that headlines (rather than data) were behind the market moves. The economic data continued to be favorable, e.g. unemployment remained low, inflation remained under control and earnings outlooks were favorable for most companies. The stock selection model is fundamentally-based, so it has typically been most effective when fundamentals – not headlines – drive security prices.

The Fund generated mixed results during the 12-month period. The strong third (calendar) quarter return of 2.91% for Institutional Shares offset three quarters of modest negative returns between zero and -1.0%. The global equity market backdrop in the last three quarters of 2017 produced strong equity returns accompanied by very low volatility. Fixed income markets also produced solid investment results in this time period. One of the hallmarks of the Fund is its lack of correlation to either equity or fixed income markets. Therefore, in a strong equity market, the Fund does not benefit from a beta effect. The Fund met its investment objective of delivering capital appreciation independent of equity market conditions for the year – however we were disappointed that the magnitude of the gain was muted by the three negative quarters.

Attribution

In any given period, stock selection factors can work better in one universe versus the other. This year, the results were materially better in the U.S. sleeve of the portfolio. Additionally, the long side of the Fund was much more productive than the short side. The largest country contributor was the Netherlands, which delivered positive results both on the long and short side. The U.S. was the second biggest contributor from a country perspective – but there was a wide dichotomy between longs and shorts – as the longs generated significant returns while the U.S. shorts detracted from performance. The U.S. constitutes approximately 60% of the Fund’s weight. There was wide dispersion in sector results for the 12-month period. Energy, Health Care and Consumer Discretionary were the strongest sectors (net results of long and short positions), while Industrials, Materials and Real Estate lagged (also on a net basis).

Model Efficacy

In the model’s U.S. universe1, market dynamics (which includes earnings revision and price momentum) was the largest contributor to performance over the one-year period, followed by earnings quality. Value was negative for the same period. The pattern was similar in the international universe2although earnings quality was slightly negative.


1
The U.S. universe is primarily stocks in the Russell 2000 Index.
2
The international universe is primarily the MSCI EAFE Index.
 
Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.
 
LMCG FUNDS

1


LMCG GLOBAL MARKET NEUTRAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

 
The graph below shows the difference in performance of our model’s three factors for the one-year period in the U.S. and international investment universes. This data is calculated by subtracting the 5th quintile stock performance for each factor in our U.S. and international universes from the performance of those in their respective 1st quintile. Performance in the Fund’s portfolio varies from the model, since the Fund does not own all of the 1st quintile stocks or short all of the 5th quintile stocks, and the Fund owns stocks below the 1st quintile and shorts stocks above the 5th quintile.

(BAR CHART)
 
Source: LMCG

Outlook

We have been discussing the strength of the long running bull market in recent quarterly commentaries – and the pullback that we were likely to get at some point. That pullback occurred in February and March, as many equity indexes witnessed a 10% decline. Fixed income securities also posted negative returns in the quarter – providing investors with few “safe havens.” Volatility, which had been benign for a long time returned with a vengeance in February, resulting in wild daily market swings. We think a good definition of market volatility is “when buyers and sellers can’t agree on a fair price for an asset” – it certainly seemed to be an apt description for the global equity markets for a good part of February and March.

One feature of a low or non-correlating investment should be resiliency in a declining equity market. But when that declining market is feeding off of headlines rather than fundamentals, the Fund is typically less effective. If the weak equity markets we witnessed in February and March persist in 2018, and that weakness is more based on deteriorating fundamentals such as lower earnings or higher interest rates than anticipated, we believe that the Fund should provide a good risk dampener to an investor’s equity allocation.
 
Sincerely,

-s- Gordon Johnson
-s- Shannon Ericson
Gordon Johnson
Co-Portfolio Manager
LMCG Investments, LLC
Shannon Ericson
Co-Portfolio Manager
LMCG Investments, LLC
 
LMCG FUNDS
2


LMCG GLOBAL MARKET NEUTRAL FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

 
INVESTMENT CONSIDERATIONS

Market Events Risk - Turbulence in the financial markets and reduced liquidity in equity, credit and fixed-income markets may negatively affect issuers, which could adversely affect the Fund.

Market Neutral Style Risk - As a result of the Fund’s use of short selling, the Fund will not participate to the same level as a long only mutual fund in a “bull” market.

Short Selling Risk - The Fund may engage in short sales of securities by borrowing a security and then selling it. The Fund may incur losses from unsuccessful short sales, and due to the nature of short selling, such losses may be theoretically unlimited. Short selling requires segregated account of cash and/or liquid assets with Fund’s custodian which may lead to high levels of cash or liquid assets. A more detailed discussion of the Fund’s risks, including risks that are unique to the Fund, can be found in its prospectus.

Equity Risk - The Fund’s equity holdings may decline in value because of changes in price of a particular holding or a broad stock market decline.

Foreign Investments Risk - Foreign investments may be subject to the same risks as domestic investments and to additional risks which include international trade, currency, political, regulatory and diplomatic risks, which may affect their value.

There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including potential loss of principal.
 
LMCG FUNDS
3


LMCG GLOBAL MARKET NEUTRAL FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)

 
The following chart reflects the change in the value of a hypothetical $100,000 investment in Institutional Shares, including reinvested dividends and distributions, in the LMCG Global Market Neutral Fund (the “Fund”) compared with the performance of the benchmark, Citigroup 3-Month U.S. T-Bill Index, since inception. The Citigroup 3-Month U.S. T-Bill Index measures return equivalents of yield averages that are not marked to market and consists of the last three three-month Treasury bill month-end rates. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.
 
Comparison of Change in Value of a $100,000 Investment
LMCG Global Market Neutral Fund - Institutional Shares vs. Citigroup 3-Month U.S. T-Bill Index
 
(LINE GRAPH)
 
Average Annual Total Returns
Periods Ended March 31, 2018
 
One Year
Since Inception(1)
LMCG Global Market Neutral Fund - Institutional Shares
1.03%
1.65%
LMCG Global Market Neutral Fund - Investor Shares(2)
0.75%
1.48%
Citigroup 3-Month U.S. T-Bill Index
1.07%
0.32%
 
(1)
Institutional Shares commenced operations on May 21, 2013 and Investor Shares commenced operations on December 18, 2014.
(2)
Performance for the since inception period is a blended average annual return, which include the returns of the Institutional Shares prior to the commencement of the Investor Shares.
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Institutional Shares and Investor Shares are 3.77% and 4.39%, respectively. Excluding the effect of expenses attributable to dividend and interest expenses on short sales, the Fund's total annual operating expense ratios for Institutional Shares and Investor Shares would be 2.19% and 2.68%, respectively. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 1.60% and 1.85% of Institutional Shares and Investor Shares, respectively, through at least July 31, 2018 (the “Expense Cap”). The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/ reimbursed. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized.
 
LMCG FUNDS

4


LMCG GLOBAL MARKET NEUTRAL FUND
SCHEDULE OF INVESTMENTS

 
 Shares
 
Security Description
 
Value
 
Long Positions - 95.5%
     
Equity Securities - 90.5% (a)
     
Common Stock - 90.0%
     
Australia - 1.6%
     
13,466
 
Aristocrat Leisure, Ltd.
 
$
251,417
 
9,794
 
Caltex Australia, Ltd.
   
237,907
 
3,293
 
Macquarie Group, Ltd.
   
262,575
 
         
751,899
 
Austria - 0.3%
       
12,279
 
UNIQA Insurance Group AG
   
142,944
 
Belgium - 0.9%
       
8,431
 
bpost SA
   
190,479
 
2,910
 
UCB SA
   
236,986
 
         
427,465
 
Bermuda - 0.5%
       
10,768
 
Marvell Technology Group, Ltd.
   
226,128
 
Denmark - 0.6%
       
4,849
 
H Lundbeck A/S
   
272,351
 
Finland - 1.2%
       
12,308
 
Fortum OYJ
   
264,413
 
16,492
 
Stora Enso OYJ, Class R
   
303,228
 
         
567,641
 
France - 3.5%
       
10,489
 
CNP Assurances
   
264,786
 
2,268
 
Eiffage SA
   
258,305
 
206
 
Hermes International
   
122,107
 
1,842
 
ICADE REIT
   
178,830
 
30,604
 
Natixis SA
   
251,115
 
2,214
 
Renault SA
   
268,664
 
2,556
 
Sanofi
   
205,094
 
10,292
 
Television Francaise 1
   
139,763
 
         
1,688,664
 
Germany - 2.7%
       
2,415
 
BASF SE
   
244,923
 
2,456
 
Bechtle AG
   
199,228
 
2,215
 
Covestro AG (b)
   
218,105
 
7,767
 
Deutsche Lufthansa AG
   
248,292
 
6,672
 
METRO AG
   
118,029
 
2,083
 
Rheinmetall AG
   
295,670
 
         
1,324,247
 
Ireland - 0.9%
       
20,419
 
Grafton Group PLC
   
220,452
 
16,774
 
UDG Healthcare PLC
   
204,337
 
         
424,789
 
Italy - 0.5%
           
11,431
 
Azimut Holding SpA
   
245,714
 
Japan - 7.3%
           
14,000
 
GMO internet, Inc.
   
302,688
 
33,000
 
Hitachi, Ltd.
   
240,359
 
14,800
 
Itoham Yonekyu Holdings, Inc.
   
128,899
 
7,700
 
Megmilk Snow Brand Co., Ltd.
   
209,139
 
46,400
 
Nippon Suisan Kaisha, Ltd.
   
241,642
 
4,900
 
Nippon Telegraph & Telephone Corp.
   
228,600
 
2,900
 
Nitto Denko Corp.
   
219,179
 
8,200
 
NOK Corp.
   
160,127
 
21,400
 
Sanwa Holdings Corp.
   
275,943
 
16,700
 
Sumitomo Corp.
   
279,767
 
4,400
 
Suzuki Motor Corp.
   
238,891
 
4,700
 
Taiheiyo Cement Corp.
   
168,821
 
4,200
 
Terumo Corp.
   
218,450
 
1,300
 
Tokyo Electron, Ltd.
   
240,488
 
3,500
 
Ulvac, Inc.
   
198,009
 
6,100
 
Yamaha Motor Co., Ltd.
   
181,487
 
         
3,532,489
 
 Shares
 
Security Description
 
Value
 
Netherlands - 2.1%
 
2,548
 
BE Semiconductor Industries NV
 
$
261,375
 
3,261
 
EXOR NV
   
232,131
 
2,852
 
Koninklijke DSM NV
   
283,480
 
4,873
 
Wolters Kluwer NV
   
259,170
 
         
1,036,156
 
Norway - 2.1%
       
24,841
 
Orkla ASA
   
267,711
 
10,728
 
Statoil ASA
   
253,910
 
11,574
 
Telenor ASA
   
263,206
 
9,505
 
TGS NOPEC Geophysical Co. ASA
   
233,183
 
         
1,018,010
 
Portugal - 0.4%
       
11,811
 
Jeronimo Martins SGPS SA
   
214,825
 
Puerto Rico - 0.7%
       
7,812
 
Popular, Inc.
   
325,135
 
Singapore - 0.6%
       
27,600
 
Oversea-Chinese Banking Corp., Ltd.
   
271,888
 
Spain - 0.6%
           
6,489
 
Ebro Foods SA
   
165,088
 
2,157
 
Viscofan SA
   
148,953
 
         
314,041
 
Sweden - 2.7%
       
9,610
 
Axfood AB
   
164,502
 
22,346
 
Dometic Group AB (b)
   
204,711
 
2,173
 
Evolution Gaming Group AB (b)
   
119,422
 
9,246
 
Fabege AB
   
200,731
 
20,619
 
Peab AB
   
186,155
 
15,114
 
Swedish Orphan Biovitrum AB (c)
   
270,632
 
8,458
 
Volvo AB, Class B
   
154,819
 
         
1,300,972
 
Switzerland - 3.3%
       
7,452
 
Coca-Cola HBC AG (c)
   
275,774
 
10,453
 
GAM Holding AG (c)
   
176,011
 
6,579
 
Logitech International SA, Class R
   
241,482
 
980
 
Lonza Group AG
   
231,122
 
3,078
 
Novartis AG
   
248,952
 
98
 
SGS SA
   
241,073
 
616
 
Zurich Insurance Group AG
   
203,195
 
         
1,617,609
 
United Kingdom - 4.8%
       
38,094
 
BP PLC
   
256,948
 
10,806
 
easyJet PLC
   
243,588
 
23,772
 
Inchcape PLC
   
230,478
 
10,330
 
Intermediate Capital Group PLC
   
142,679
 
30,278
 
International Consolidated Airlines Group SA
   
262,143
 
48,703
 
Kingfisher PLC
   
199,794
 
4,305
 
Rightmove PLC
   
262,795
 
4,847
 
Schroders PLC
   
217,477
 
5,440
 
Severn Trent PLC
   
140,834
 
11,862
 
SSE PLC
   
212,797
 
21,069
 
Tate & Lyle PLC
   
160,917
 
         
2,330,450
 
United States - 52.7%
       
3,276
 
1st Source Corp.
   
165,831
 
6,941
 
Allison Transmission Holdings, Inc.
   
271,115
 
3,292
 
Amedisys, Inc. (c)
   
198,639
 
2,569
 
American Financial Group, Inc.
   
288,293
 
3,346
 
Arrow Electronics, Inc. (c)
   
257,709
 
5,235
 
Athene Holding, Ltd., Class A (c)
   
250,285
 
3,231
 
BancFirst Corp.
   
171,566
 
8,793
 
Beazer Homes USA, Inc. (c)
   
140,248
 
1,175
 
Bio-Techne Corp.
   
177,472
 
7,446
 
Boise Cascade Co.
   
287,416
 
 
 
See Notes to Financial Statements.
LMCG FUNDS
5


LMCG GLOBAL MARKET NEUTRAL FUND
SCHEDULE OF INVESTMENTS
 
Shares
 
Security Description
 
Value
 
United States - 52.7% (continued)
 
5,088
 
Bruker Corp.
 
$
152,233
 
2,315
 
Burlington Stores, Inc. (c)
   
308,242
 
2,189
 
CACI International, Inc., Class A (c)
   
331,305
 
22,385
 
Caesars Entertainment Corp. (c)
   
251,831
 
6,481
 
Catalent, Inc. (c)
   
266,110
 
6,880
 
Cathay General Bancorp
   
275,062
 
3,301
 
Centene Corp. (c)
   
352,778
 
11,135
 
CNO Financial Group, Inc.
   
241,295
 
12,386
 
Cohu, Inc.
   
282,525
 
7,722
 
Concert Pharmaceuticals, Inc. (c)
   
176,834
 
4,887
 
Covenant Transportation Group, Inc. (c)
   
145,779
 
22,385
 
Crocs, Inc. (c)
   
363,756
 
7,385
 
CVR Energy, Inc.
   
223,175
 
8,734
 
Delek U.S. Holdings, Inc.
   
355,474
 
3,352
 
Dillard's, Inc.
   
269,300
 
3,215
 
DXC Technology Co.
   
323,204
 
2,735
 
EMCOR Group, Inc.
   
213,138
 
4,447
 
Emergent BioSolutions, Inc. (c)
   
234,135
 
3,180
 
Enanta Pharmaceuticals, Inc. (c)
   
257,294
 
4,890
 
Exterran Corp. (c)
   
130,563
 
10,826
 
Ferro Corp. (c)
   
251,380
 
5,513
 
First American Financial Corp.
   
323,503
 
569
 
First Citizens BancShares, Inc., Class A
   
235,134
 
6,331
 
Fortinet, Inc. (c)
   
339,215
 
6,502
 
FTI Consulting, Inc. (c)
   
314,762
 
8,671
 
Gaming and Leisure Properties, Inc. REIT
   
290,218
 
3,356
 
Globus Medical, Inc. (c)
   
167,196
 
566
 
Graham Holdings Co., Class B
   
340,873
 
4,226
 
Green Dot Corp., Class A (c)
   
271,140
 
10,901
 
Harsco Corp. (c)
   
225,106
 
5,870
 
HollyFrontier Corp.
   
286,808
 
6,813
 
Insight Enterprises, Inc. (c)
   
237,978
 
5,421
 
Insperity, Inc.
   
377,031
 
10,531
 
International Game Technology PLC
   
281,494
 
4,118
 
INTL. FCStone, Inc. (c)
   
175,756
 
19,172
 
Invesco Mortgage Capital, Inc. REIT
   
314,037
 
11,952
 
Jabil, Inc.
   
343,381
 
10,373
 
K12, Inc. (c)
   
147,089
 
6,332
 
Kennametal, Inc.
   
254,293
 
3,171
 
Lakeland Financial Corp.
   
146,595
 
6,078
 
La-Z-Boy, Inc., Class Z
   
182,036
 
4,252
 
LHC Group, Inc. (c)
   
261,753
 
2,482
 
Lithia Motors, Inc., Class A
   
249,491
 
13,735
 
Louisiana-Pacific Corp.
   
395,156
 
6,351
 
LPL Financial Holdings, Inc.
   
387,856
 
3,476
 
Magellan Health, Inc. (c)
   
372,280
 
2,446
 
ManpowerGroup, Inc.
   
281,535
 
3,974
 
ManTech International Corp., Class A
   
220,438
 
4,493
 
Marcus & Millichap, Inc. (c)
   
162,018
 
10,499
 
MDU Resources Group, Inc.
   
295,652
 
6,235
 
Medpace Holdings, Inc. (c)
   
217,664
 
5,994
 
Merit Medical Systems, Inc. (c)
   
271,828
 
11,919
 
Meritor, Inc. (c)
   
245,055
 
23,815
 
MGIC Investment Corp. (c)
   
309,595
 
4,488
 
Movado Group, Inc.
   
172,339
 
7,553
 
MTGE Investment Corp. REIT
   
135,199
 
12,160
 
OraSure Technologies, Inc. (c)
   
205,382
 
3,865
 
Owens Corning
   
310,746
 
9,825
 
Owens-Illinois, Inc. (c)
   
212,809
 
8,940
 
PBF Energy, Inc.
   
303,066
 
6,707
 
PennyMac Financial Services, Inc., Class A (c)
   
151,914
 
4,535
 
Penske Automotive Group, Inc.
   
201,037
 
3,608
 
Phibro Animal Health Corp.
   
143,238
 
8,035
 
PNM Resources, Inc.
   
307,339
 
Shares
 
Security Description
 
Value
 
United States - 52.7% (continued)
 
6,561
 
Primoris Services Corp.
 
$
163,894
 
4,724
 
Qualys, Inc. (c)
   
343,671
 
15,137
 
QuinStreet, Inc. (c)
   
193,299
 
13,499
 
Radian Group, Inc.
   
257,021
 
3,033
 
Reliance Steel & Aluminum Co.
   
260,049
 
2,806
 
RH (c)
   
267,356
 
3,537
 
Ryder System, Inc.
   
257,458
 
6,696
 
SkyWest, Inc.
   
364,262
 
5,068
 
Sotheby's (c)
   
260,039
 
5,513
 
SpartanNash Co.
   
94,879
 
6,163
 
SPX FLOW, Inc. (c)
   
303,158
 
17,467
 
SUPERVALU, Inc. (c)
   
266,022
 
2,334
 
SYNNEX Corp.
   
276,346
 
16,738
 
Tailored Brands, Inc.
   
419,454
 
3,269
 
Tech Data Corp. (c)
   
278,290
 
1,248
 
Teleflex, Inc.
   
318,215
 
8,134
 
Teradyne, Inc.
   
371,805
 
6,457
 
Textainer Group Holdings, Ltd. (c)
   
109,446
 
13,086
 
The Bancorp, Inc. (c)
   
141,329
 
5,581
 
The Greenbrier Cos., Inc.
   
280,445
 
6,669
 
Titan Machinery, Inc. (c)
   
157,122
 
4,009
 
T-Mobile US, Inc. (c)
   
244,709
 
6,281
 
Ultra Clean Holdings, Inc. (c)
   
120,909
 
14,495
 
Vishay Intertechnology, Inc.
   
269,607
 
5,655
 
Voya Financial, Inc.
   
285,577
 
3,138
 
Wintrust Financial Corp.
   
270,025
 
2,032
 
Zebra Technologies Corp. (c)
   
282,834
 
         
25,538,243
 
Total Common Stock (Cost $37,232,479)
   
43,571,660
 
 
Shares
 
Security Description
 
Rate
   
Value
 
Preferred Stock - 0.5%
           
Germany - 0.5%
           
1,292
 
Volkswagen AG
               
 
(Cost $168,984)
   
2.06
%
   
257,514
 
Total Equity Securities (Cost $37,401,463)
     
43,829,174
 
 
Shares
 
Security Description
 
Value
 
Money Market Fund - 5.0%
 
2,410,991
 
Dreyfus Treasury Prime Cash Management, Institutional Shares, 1.46% (d)
       
 
(Cost $2,410,991)
   
2,410,991
 
Total Long Positions - 95.5% (Cost $39,812,454)
 
$
46,240,165
 
Total Short Positions - (90.5)% (Proceeds $(46,381,951))
 
$
(43,838,068
)
Other Assets & Liabilities, Net - 95.0%
   
46,021,822
 
Net Assets - 100.0%
 
$
48,423,919
 
 
 
See Notes to Financial Statements.
LMCG FUNDS
6


LMCG GLOBAL MARKET NEUTRAL FUND
SCHEDULE OF SECURITIES SOLD SHORT
 
Shares
   
Security Description
 
Value
 
Short Positions - (90.5)%
     
Common Stock - (90.5)%
     
Belgium - (0.6)%
     
(4,910
)  
Ontex Group NV
 
$
(131,193
)
(876
)  
Sofina SA
   
(148,615
)
           
(279,808
)
Bermuda - (1.2)%
       
(12,791
)  
Golar LNG, Ltd.
   
(349,962
)
(6,263
)  
James River Group Holdings, Ltd.
   
(222,148
)
           
(572,110
)
Denmark - (1.9)%
       
(9,817
)  
Ambu A/S
   
(222,197
)
(134
)  
AP Moller - Maersk A/S, Class A
   
(197,413
)
(2,891
)  
Chr Hansen Holding A/S
   
(250,208
)
(3,983
)  
FLSmidth & Co. A/S
   
(257,523
)
           
(927,341
)
Finland - (0.9)%
       
(8,221
)  
DNA OYJ
   
(178,437
)
(6,217
)  
Huhtamaki OYJ
   
(272,803
)
           
(451,240
)
France - (3.7)%
       
(9,195
)  
Bureau Veritas SA
   
(239,015
)
(23,012
)  
Getlink SE
   
(328,516
)
(206
)  
Hermes International
   
(122,107
)
(3,319
)  
Legrand SA
   
(260,411
)
(2,113
)  
Sartorius Stedim Biotech
   
(190,755
)
(5,743
)  
SPIE SA
   
(127,072
)
(44,327
)  
Technicolor SA
   
(74,953
)
(1,463
)  
Teleperformance
   
(226,877
)
(3,710
)  
Valeo SA
   
(245,417
)
           
(1,815,123
)
Germany - (3.2)%
       
(2,531
)  
Bayerische Motoren Werke AG
   
(275,296
)
(3,914
)  
Carl Zeiss Meditec AG
   
(249,494
)
(13,777
)  
Deutsche Bank AG
   
(192,195
)
(9,133
)  
K+S AG
   
(263,780
)
(378
)  
KWS Saat SE
   
(146,704
)
(5,559
)  
Rocket Internet SE
   
(170,708
)
(3,189
)  
Symrise AG
   
(256,777
)
           
(1,554,954
)
Ireland - (0.7)%
       
(978
)  
COSMO Pharmaceuticals NV
   
(135,227
)
(10,032
)  
Ryanair Holdings PLC
   
(197,831
)
           
(333,058
)
Italy - (1.1)%
       
(4,601
)  
Luxottica Group SpA
   
(285,835
)
(8,166
)  
Salvatore Ferragamo SpA
   
(224,971
)
           
(510,806
)
Japan - (7.5)%        
(7,100
)  
Calbee, Inc.
   
(241,257
)
(4,400
)  
Coca-Cola Bottlers Japan Holdings, Inc.
   
(181,709
)
(6,200
)  
CyberAgent, Inc.
   
(322,143
)
(5,400
)  
Dentsu, Inc.
   
(238,642
)
(2,800
)  
FP Corp.
   
(182,019
)
(44,000
)  
Fujitsu, Ltd.
   
(267,385
)
(13,600
)  
Ibiden Co., Ltd.
   
(201,789
)
(12,000
)  
JGC Corp.
   
(261,271
)
(6,600
)  
Mitsubishi Heavy Industries, Ltd.
   
(254,489
)
(1,800
)  
Murata Manufacturing Co., Ltd.
   
(248,458
)
(7,100
)  
Nippon Paint Holdings Co., Ltd.
   
(261,515
)
(3,800
)  
Nissin Foods Holdings Co., Ltd.
   
(263,646
)
(1,700
)  
Shimano, Inc.
   
(245,321
)
(2,300
)  
Taisho Pharmaceutical Holdings Co., Ltd.
   
(227,394
)
(13,200
)  
Topcon Corp.
   
(258,855
)
           
(3,655,893
)
 Shares
   
Security Description
 
Value
 
Jordan - (0.3)%
 
(10,033
)  
Hikma Pharmaceuticals PLC
 
$
(170,630
)
Luxembourg - (0.6)%
       
(6,570
)  
Ardagh Group SA
   
(122,728
)
(2,434
)  
Millicom International Cellular SA, SDR
   
(166,570
)
           
(289,298
)
Netherlands - (1.4)%
       
(7,156
)  
Altice NV
   
(59,084
)
(12,275
)  
Altice NV, Class A
   
(101,446
)
(6,110
)  
Koninklijke Vopak NV
   
(300,001
)
(9,686
)  
OCI NV
   
(224,121
)
           
(684,652
)
Norway - (1.5)%
       
(10,212
)  
Gjensidige Forsikring ASA
   
(187,822
)
(13,498
)  
Marine Harvest ASA
   
(272,841
)
(5,782
)  
Yara International ASA
   
(247,066
)
           
(707,729
)
Spain - (2.3)%
       
(14,228
)  
Atresmedia Corp. de Medios de Comunicacion SA
   
(135,736
)
(56,443
)  
Distribuidora Internacional de Alimentacion SA
   
(239,908
)
(15,742
)  
Indra Sistemas SA
   
(217,953
)
(16,542
)  
Merlin Properties Socimi SA REIT
   
(253,399
)
(12,802
)  
Red Electrica Corp. SA
   
(264,264
)
(1,467
)  
Zardoya Otis SA
   
(14,781
)
           
(1,126,041
)
Sweden - (2.8)%
       
(13,260
)  
Getinge AB, Class B
   
(151,000
)
(10,398
)  
Hennes & Mauritz AB, Class B
   
(155,337
)
(9,487
)  
Industrivarden AB
   
(221,257
)
(7,952
)  
Kinnevik AB, Class B
   
(287,292
)
(2,257
)  
L E Lundbergforetagen AB, Class B
   
(162,251
)
(15,654
)  
Nibe Industrier AB
   
(148,670
)
(35,790
)  
Telefonaktiebolaget LM Ericsson, Class B
   
(227,909
)
           
(1,353,716
)
Switzerland - (2.0)%
       
(8,914
)  
Aryzta AG
   
(198,537
)
(2,271
)  
Basilea Pharmaceutica AG
   
(157,811
)
(284
)  
dormakaba Holding AG
   
(222,400
)
(9,340
)  
Idorsia, Ltd.
   
(224,690
)
(68,680
)  
Weatherford International PLC
   
(157,277
)
           
(960,715
)
United Kingdom - (7.0)%
       
(20,730
)  
Aggreko PLC
   
(213,603
)
(3,832
)  
Associated British Foods PLC
   
(133,973
)
(8,969
)  
Burford Capital, Ltd.
   
(169,160
)
(5,904
)  
Derwent London PLC REIT
   
(257,001
)
(10,945
)  
Hargreaves Lansdown PLC
   
(251,227
)
(26,057
)  
Inmarsat PLC
   
(132,490
)
(3,280
)  
Metro Bank PLC
   
(161,588
)
(14,062
)  
Pennon Group PLC
   
(127,129
)
(2,607
)  
Reckitt Benckiser Group PLC
   
(220,051
)
(23,232
)  
Rolls-Royce Holdings PLC
   
(284,037
)
(31,962
)  
RSA Insurance Group PLC
   
(282,975
)
(4,513
)  
Shire PLC
   
(224,611
)
(33,588
)  
Sophos Group PLC
   
(204,599
)
(21,716
)  
Standard Chartered PLC
   
(217,646
)
(97,694
)  
Tullow Oil PLC
   
(269,314
)
(22,980
)  
United Utilities Group PLC
   
(230,782
)
           
(3,380,186
)
United States - (51.8)%
       
(21,989
)  
A10 Networks, Inc.
   
(127,976
)
(5,533
)  
Acadia Healthcare Co., Inc.
   
(216,783
)
(12,656
)  
Aceto Corp.
   
(96,186
)
(8,758
)  
Aclaris Therapeutics, Inc.
   
(153,440
)
(9,571
)  
Actua Corp.
   
(11,007
)
 
 
See Notes to Financial Statements.
LMCG FUNDS
7


LMCG GLOBAL MARKET NEUTRAL FUND
SCHEDULE OF SECURITIES SOLD SHORT
 
Shares
   
Security Description
 
Value
 
United States - (51.8)% (continued)
     
(8,493
)  
Actuant Corp.
 
$
(197,462
)
(7,024
)  
Advanced Disposal Services, Inc.
   
(156,495
)
(2,914
)  
Aerie Pharmaceuticals, Inc.
   
(158,084
)
(10,222
)  
Aerojet Rocketdyne Holdings, Inc.
   
(285,909
)
(3,590
)  
Almost Family, Inc.
   
(201,040
)
(4,654
)  
Ambarella, Inc.
   
(227,999
)
(19,691
)  
American Outdoor Brands Corp.
   
(203,211
)
(3,456
)  
Appfolio, Inc.
   
(141,178
)
(8,907
)  
Aqua America, Inc.
   
(303,372
)
(5,726
)  
Audentes Therapeutics, Inc.
   
(172,066
)
(1,272
)  
Avexis, Inc.
   
(157,194
)
(4,742
)  
AZZ, Inc.
   
(207,225
)
(5,663
)  
Bank of the Ozarks
   
(273,353
)
(5,032
)  
Benefitfocus, Inc.
   
(122,781
)
(6,141
)  
BioTelemetry, Inc.
   
(190,678
)
(5,985
)  
Black Knight, Inc.
   
(281,894
)
(8,200
)  
Boyd Gaming Corp.
   
(261,252
)
(6,710
)  
Brown & Brown, Inc.
   
(170,702
)
(57,865
)  
Cerus Corp.
   
(317,100
)
(1,999
)  
Chesapeake Utilities Corp.
   
(140,630
)
(5,365
)  
Chuy's Holdings, Inc.
   
(140,563
)
(2,730
)  
CIRCOR International, Inc.
   
(116,462
)
(5,678
)  
Cohen & Steers, Inc.
   
(230,867
)
(12,261
)  
Coherus Biosciences, Inc.
   
(135,484
)
(4,007
)  
Compass Minerals International, Inc.
   
(241,622
)
(6,917
)  
Core-Mark Holding Co., Inc.
   
(147,055
)
(19,191
)  
Covanta Holding Corp.
   
(278,270
)
(4,120
)  
Cree, Inc.
   
(166,077
)
(12,437
)  
Cross Country Healthcare, Inc.
   
(138,175
)
(2,661
)  
Cubic Corp.
   
(169,240
)
(6,294
)  
Dermira, Inc.
   
(50,289
)
(4,492
)  
DexCom, Inc.
   
(333,127
)
(8,954
)  
Electronics For Imaging, Inc.
   
(244,713
)
(3,164
)  
Ellie Mae, Inc.
   
(290,898
)
(40,101
)  
Endologix, Inc.
   
(169,627
)
(5,542
)  
Ethan Allen Interiors, Inc.
   
(127,189
)
(8,160
)  
Federated Investors, Inc., Class B
   
(272,544
)
(8,006
)  
Fiesta Restaurant Group, Inc.
   
(148,111
)
(5,858
)  
Financial Engines, Inc.
   
(205,030
)
(17,151
)  
Finisar Corp.
   
(271,157
)
(12,129
)  
First Midwest Bancorp, Inc.
   
(298,252
)
(3,970
)  
First Republic Bank/CA
   
(367,662
)
(36,357
)  
Flotek Industries, Inc.
   
(221,778
)
(5,386
)  
Franklin Financial Network, Inc.
   
(175,584
)
(3,772
)  
Genesee & Wyoming, Inc., Class A
   
(267,020
)
(8,389
)  
Granite Point Mortgage Trust, Inc. REIT
   
(138,754
)
(11,335
)  
Greenhill & Co., Inc.
   
(209,698
)
(46,599
)  
Hecla Mining Co.
   
(171,018
)
(2,915
)  
Heska Corp.
   
(230,489
)
(4,927
)  
HNI Corp.
   
(177,815
)
(5,972
)  
HomeStreet, Inc.
   
(171,098
)
(31,416
)  
Infinera Corp.
   
(341,178
)
(7,229
)  
Inphi Corp.
   
(217,593
)
(8,426
)  
Invacare Corp.
   
(146,612
)
(3,172
)  
John B Sanfilippo & Son, Inc.
   
(183,564
)
(10,664
)  
K2M Group Holdings, Inc.
   
(202,083
)
(2,427
)  
Kirby Corp.
   
(186,758
)
(9,710
)  
Knowles Corp.
   
(122,249
)
(10,456
)  
Laureate Education, Inc.
   
(143,770
)
(806
)  
LendingTree, Inc.
   
(264,489
)
(10,814
)  
Liberty Interactive Corp. QVC Group
   
(272,188
)
(1,566
)  
Lindsay Corp.
   
(143,195
)
(7,231
)  
Macquarie Infrastructure Corp.
   
(267,041
)
(1,411
)  
Mesa Laboratories, Inc.
   
(209,449
)
(4,584
)  
Monro, Inc.
   
(245,702
)
(17,509
)  
MRC Global, Inc.
   
(287,848
)
 Shares
   
Security Description
 
Value
 
United States - (51.8)% (continued)
 
(44,513
)  
Nabors Industries, Ltd.
 
$
(311,146
)
(13,562
)  
Nautilus, Inc.
   
(182,409
)
(16,408
)  
NCS Multistage Holdings, Inc.
   
(246,120
)
(631
)  
NewMarket Corp.
   
(253,460
)
(8,287
)  
Northfield Bancorp, Inc.
   
(129,360
)
(18,457
)  
NOW, Inc.
   
(188,631
)
(2,358
)  
NuVasive, Inc.
   
(123,111
)
(46,014
)  
Oclaro, Inc.
   
(439,894
)
(23,081
)  
ORBCOMM, Inc.
   
(216,269
)
(9,818
)  
Oritani Financial Corp.
   
(150,706
)
(3,640
)  
OSI Systems, Inc.
   
(237,583
)
(50,867
)  
Pandora Media, Inc.
   
(255,861
)
(4,525
)  
Papa John's International, Inc.
   
(259,283
)
(8,069
)  
PRA Group, Inc.
   
(306,622
)
(6,405
)  
PROS Holdings, Inc.
   
(211,429
)
(3,815
)  
Prosperity Bancshares, Inc.
   
(277,083
)
(13,425
)  
Rambus, Inc.
   
(180,298
)
(4,478
)  
RLI Corp.
   
(283,860
)
(16,341
)  
SeaWorld Entertainment, Inc.
   
(242,337
)
(6,682
)  
Shutterfly, Inc.
   
(542,913
)
(61,401
)  
Southwestern Energy Co.
   
(265,866
)
(5,796
)  
Spirit Airlines, Inc.
   
(218,973
)
(34,803
)  
Sportsman's Warehouse Holdings, Inc.
   
(141,996
)
(5,095
)  
Stewart Information Services Corp.
   
(223,874
)
(40,596
)  
Sunrun, Inc.
   
(362,522
)
(13,682
)  
Surgery Partners, Inc.
   
(234,646
)
(14,285
)  
Switch, Inc.
   
(227,274
)
(11,018
)  
Tanger Factory Outlet Centers, Inc. REIT
   
(242,396
)
(12,575
)  
Team, Inc.
   
(172,906
)
(3,382
)  
Tempur Sealy International, Inc.
   
(153,171
)
(2,127
)  
Tennant Co.
   
(143,998
)
(18,408
)  
TFS Financial Corp.
   
(270,414
)
(12,086
)  
TG Therapeutics, Inc.
   
(171,621
)
(9,198
)  
The GEO Group, Inc. REIT
   
(188,283
)
(18,608
)  
The KeyW Holding Corp.
   
(146,259
)
(11,620
)  
TimkenSteel Corp.
   
(176,508
)
(3,819
)  
TreeHouse Foods, Inc.
   
(146,153
)
(4,278
)  
U.S. Concrete, Inc.
   
(258,391
)
(2,454
)
Universal Electronics, Inc.
   
(127,731
)
(13,006
)  
Veeco Instruments, Inc.
   
(221,102
)
(4,674
)  
ViaSat, Inc.
   
(307,175
)
(3,649
)  
Wabtec Corp.
   
(297,029
)
(5,371
)  
Williams-Sonoma, Inc.
   
(283,374
)
(26,740
)  
WisdomTree Investments, Inc.
   
(245,206
)
(4,062
)  
WR Berkley Corp.
   
(295,307
)
(13,145
)  
Zoe's Kitchen, Inc.
   
(189,814
)
           
(25,064,768
)
Total Common Stock (Proceeds $(46,381,951))
   
(43,838,068
)
Total Short Positions - (90.5)% (Proceeds $(46,381,951))
 
$
(43,838,068
)
 
 
See Notes to Financial Statements.
LMCG FUNDS
8


LMCG GLOBAL MARKET NEUTRAL FUND
NOTES TO SCHEDULES OF INVESTMENTS AND SECURITIES SOLD SHORT
 
PLC
Public Limited Company
REIT
Real Estate Investment Trust
SDR
Swedish Depositary Receipt
(a)
All or a portion of these securities are held as collateral for securities sold short.
(b)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $542,238 or 1.1% of net assets.
(c)
Non-income producing security.
(d)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.
 
The following is a summary of the inputs used to value the Fund's investments as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.

 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Investments at Value
                       
Common Stock
                       
Australia
 
$
   
$
751,899
   
$
   
$
751,899
 
Austria
   
     
142,944
     
     
142,944
 
Belgium
   
     
427,465
     
     
427,465
 
Bermuda
   
226,128
     
     
     
226,128
 
Denmark
   
     
272,351
     
     
272,351
 
Finland
   
     
567,641
     
     
567,641
 
France
   
     
1,688,664
     
     
1,688,664
 
Germany
   
     
1,324,247
     
     
1,324,247
 
Ireland
   
     
424,789
     
     
424,789
 
Italy
   
     
245,714
     
     
245,714
 
Japan
   
     
3,532,489
     
     
3,532,489
 
Netherlands
   
     
1,036,156
     
     
1,036,156
 
Norway
   
     
1,018,010
     
     
1,018,010
 
Portugal
   
     
214,825
     
     
214,825
 
Puerto Rico
   
325,135
     
     
     
325,135
 
Singapore
   
     
271,888
     
     
271,888
 
Spain
   
     
314,041
     
     
314,041
 
Sweden
   
     
1,300,972
     
     
1,300,972
 
Switzerland
   
     
1,617,609
     
     
1,617,609
 
United Kingdom
   
     
2,330,450
     
     
2,330,450
 
United States
   
25,538,243
     
     
     
25,538,243
 
Preferred Stock
                               
Germany
   
     
257,514
     
     
257,514
 
Money Market Fund
   
     
2,410,991
     
     
2,410,991
 
Investments at Value
 
$
26,089,506
   
$
20,150,659
   
$
   
$
46,240,165
 
 
                               
Securities Sold Short
                               
Common Stock
                               
Belgium
   
     
(279,808
)
   
     
(279,808
)
Bermuda
   
(572,110
)
   
     
     
(572,110
)
Denmark
   
     
(927,341
)
   
     
(927,341
)
Finland
   
     
(451,240
)
   
     
(451,240
)
France
   
     
(1,815,123
)
   
     
(1,815,123
)
Germany
   
     
(1,554,954
)
   
     
(1,554,954
)
Ireland
   
     
(333,058
)
   
     
(333,058
)
Italy
   
     
(510,806
)
   
     
(510,806
)
Japan
   
     
(3,655,893
)
   
     
(3,655,893
)
Jordan
   
     
(170,630
)
   
     
(170,630
)
Luxembourg
   
(122,728
)
   
(166,570
)
   
     
(289,298
)
Netherlands
   
     
(684,652
)
   
     
(684,652
)
Norway
   
     
(707,729
)
   
     
(707,729
)
Spain
   
     
(1,126,041
)
   
     
(1,126,041
)
Sweden
   
     
(1,353,716
)
   
     
(1,353,716
)
Switzerland
   
(157,277
)
   
(803,438
)
   
     
(960,715
)
United Kingdom
   
     
(3,380,186
)
   
     
(3,380,186
)
United States
   
(25,064,768
)
   
     
     
(25,064,768
)
Securities Sold Short
 
$
(25,916,883
)
 
$
(17,921,185
)
 
$
   
$
(43,838,068
)
 
See Notes to Financial Statements.
LMCG FUNDS
9


LMCG GLOBAL MARKET NEUTRAL FUND
NOTES TO SCHEDULES OF INVESTMENTS AND SECURITIES SOLD SHORT
 
The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.

At March 31, 2018, foreign securities representing the following percentage of net assets of the Fund were fair valued by independent pricing services and are classified as using Level 2 inputs within the valuation inputs disclosure on the Fund’s Schedule of Investments:
 
LMCG Global Market Neutral Fund    
Long Securities
 
36.63%
Short Securities
 
(37.01)%
 
PORTFOLIO HOLDINGS (Unaudited)
% of Total Investments
Long
 
Short
Australia
1.6%
 
0.0%
Austria
0.3%
 
0.0%
Belgium
0.9%
 
0.6%
Bermuda
0.5%
 
1.3%
Denmark
0.6%
 
2.1%
Finland
1.2%
 
1.0%
France
3.7%
 
4.1%
Germany
3.5%
 
3.5%
Ireland
0.9%
 
0.8%
Italy
0.5%
 
1.2%
Japan
7.6%
 
8.3%
Jordan
0.0%
 
0.4%
Luxembourg
0.0%
 
0.7%
Netherlands
2.3%
 
1.6%
Norway
2.2%
 
1.6%
Portugal
0.5%
 
0.0%
Puerto Rico
0.7%
 
0.0%
Singapore
0.6%
 
0.0%
Spain
0.7%
 
2.6%
Sweden
2.8%
 
3.1%
Switzerland
3.5%
 
2.2%
United Kingdom
5.0%
 
7.7%
United States
60.4%*
 
 57.2%
 
100.0%
 
100.0%
 
 
 
*
Includes Money Market Fund totaling 5.2%.
 
See Notes to Financial Statements.
LMCG FUNDS
10



LMCG GLOBAL MARKET NEUTRAL FUND
STATEMENT OF ASSETS AND LIABILITIES

 
ASSETS
     
Investments, at value (Cost $39,812,454)
 
$
46,240,165
 
Cash
   
678,437
 
Deposits with broker
   
44,995,382
 
Foreign currency (Cost $375,353)
   
376,010
 
Receivables:
       
Fund shares sold
   
8,124
 
Dividends
   
137,885
 
Prepaid expenses
   
20,942
 
Total Assets
   
92,456,945
 
         
LIABILITIES
       
Securities sold short, at value (Proceeds $46,381,951)
   
43,838,068
 
Payables:
       
Dividends on securities sold short
   
64,741
 
Accrued Liabilities:
       
Investment adviser fees
   
74,259
 
Trustees’ fees and expenses
   
50
 
Fund services fees
   
13,012
 
Professional fees
   
22,183
 
Other expenses
   
20,713
 
Total Liabilities
   
44,033,026
 
         
NET ASSETS
 
$
48,423,919
 
         
COMPONENTS OF NET ASSETS
       
Paid-in capital
 
$
49,076,845
 
Accumulated net investment loss
   
(431,693
)
Accumulated net realized loss
   
(9,196,945
)
Net unrealized appreciation
   
8,975,712
 
NET ASSETS
 
$
48,423,919
 
   
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
 
Institutional Shares
   
4,062,096
 
Investor Shares
   
412,482
 
         
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
       
Institutional Shares (based on net assets of $43,993,544)
 
$
10.83
 
Investor Shares (based on net assets of $4,430,375)
 
$
10.74
 
 
See Notes to Financial Statements.
LMCG FUNDS
11


LMCG GLOBAL MARKET NEUTRAL FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2018

 
INVESTMENT INCOME
     
Dividend income (Net of foreign withholding taxes of $101,403)
 
$
1,039,667
 
Interest income
   
243,199
 
Total Investment Income
   
1,282,866
 
         
EXPENSES
       
Investment adviser fees
   
557,533
 
Fund services fees
   
208,558
 
Transfer agent fees:
       
Institutional Shares
   
24,715
 
Investor Shares
   
2,537
 
Distribution fees:
       
Investor Shares
   
11,114
 
Custodian fees
   
172,971
 
Registration fees:
       
Institutional Shares
   
15,242
 
Investor Shares
   
14,808
 
Professional fees
   
44,926
 
Trustees' fees and expenses
   
8,412
 
Dividend expense on securities sold short
   
1,152,364
 
Other expenses
   
97,525
 
Total Expenses
   
2,310,705
 
Fees waived
   
(255,097
)
Net Expenses
   
2,055,608
 
         
NET INVESTMENT LOSS
   
(772,742
)
         
NET REALIZED AND UNREALIZED GAIN (LOSS)
       
Net realized gain (loss) on:
       
Investments
   
12,060,943
 
Foreign currency transactions
   
13,991
 
Securities sold short
   
(12,822,920
)
Net realized loss
   
(747,986
)
Net change in unrealized appreciation (depreciation) on:
       
Investments
   
(3,429,350
)
Foreign currency translations
   
5,335
 
Securities sold short
   
5,472,712
 
Net change in unrealized appreciation (depreciation)
   
2,048,697
 
NET REALIZED AND UNREALIZED GAIN
   
1,300,711
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
527,969
 
 
See Notes to Financial Statements.
LMCG FUNDS
12


LMCG GLOBAL MARKET NEUTRAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
 


  For the Years Ended March 31,   
       
2017
 
OPERATIONS
           
Net investment loss
 
$
(772,742
)
 
$
(943,434
)
Net realized loss
   
(747,986
)
   
(6,069,877
)
Net change in unrealized appreciation (depreciation)
   
2,048,697
     
3,353,315
 
Increase (Decrease) in Net Assets Resulting from Operations
   
527,969
     
(3,659,996
)
                 
CAPITAL SHARE TRANSACTIONS
               
Sale of shares:
               
Institutional Shares
   
6,853,565
     
27,319,837
 
Investor Shares
   
1,510,944
     
3,158,386
 
Redemption of shares:
               
Institutional Shares
   
(30,780,163
)
   
(63,937,598
)
Investor Shares
   
(2,589,407
)
   
(12,675,187
)
Decrease in Net Assets from Capital Share Transactions
   
(25,005,061
)
   
(46,134,562
)
Decrease in Net Assets
   
(24,477,092
)
   
(49,794,558
)
                 
NET ASSETS
               
Beginning of Year
   
72,901,011
     
122,695,569
 
End of Year (Including line (a))
 
$
48,423,919
   
$
72,901,011
 
                 
SHARE TRANSACTIONS
               
Sale of shares:
               
Institutional Shares
   
630,431
     
2,533,406
 
Investor Shares
   
139,835
     
294,651
 
Redemption of shares:
               
Institutional Shares
   
(2,855,540
)
   
(5,968,588
)
Investor Shares
   
(241,396
)
   
(1,187,375
)
Decrease in Shares
   
(2,326,670
)
   
(4,327,906
)
                 
(a) Accumulated net investment loss
 
$
(431,693
)
 
$
(170,901
)
 
See Notes to Financial Statements.
LMCG FUNDS
13


LMCG GLOBAL MARKET NEUTRAL FUND
FINANCIAL HIGHLIGHTS
 

 
These financial highlights reflect selected data for a share outstanding throughout each period.

   
For the Years Ended March 31,
   
Through
 
   
2018
   
2017
   
2016
   
2015
     
INSTITUTIONAL SHARES
                             
NET ASSET VALUE, Beginning of Period
 
$
10.72
   
$
11.03
   
$
11.07
   
$
10.11
   
$
10.00
 
INVESTMENT OPERATIONS
                                       
Net investment loss (b)
   
(0.15
)
   
(0.12
)
   
(0.17
)
   
(0.16
)
   
(0.11
)
Net realized and unrealized gain (loss)
   
0.26
     
(0.19
)
   
0.13(c
)
   
1.12
     
0.22
 
Total from Investment Operations
   
0.11
     
(0.31
)
   
(0.04
)
   
0.96
     
0.11
 
                                         
REDEMPTION FEES(b)
   
     
     
     
0.00(d
)
   
 
NET ASSET VALUE, End of Period
 
$
10.83
   
$
10.72
   
$
11.03
   
$
11.07
   
$
10.11
 
TOTAL RETURN
   
1.03
%
   
(2.81
)%
   
(0.36
)%
   
9.50
%
   
1.10
%(e)
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Period (000s omitted)
 
$
43,994
   
$
67,421
   
$
107,228
   
$
58,320
   
$
11,401
 
Ratios to Average Net Assets:
                                       
Net investment loss
   
(1.36
)%
   
(1.11
)%
   
(1.53
)%
   
(1.49
)%
   
(1.27
)%(f)
Net expenses including dividend expenses
   
3.67
%
   
3.18
%
   
3.15
%
   
2.91
%
   
2.94
%(f)
Dividend expenses
   
2.07
%
   
1.58
%
   
1.55
%
   
1.31
%
   
1.34
%(f)
Net expenses without dividend expenses
   
1.60
%
   
1.60
%
   
1.60
%
   
1.60
%
   
1.60
%(f)
Gross expenses (g)
   
4.10
%
   
3.76
%
   
3.74
%
   
4.63
%
   
8.73
%(f)
PORTFOLIO TURNOVER RATE
   
81
%
   
95
%
   
124
%
   
104
%
   
62
%(e)
 
(a)
Commencement of operations.
(b)
Calculated based on average shares outstanding during each period.
(c)
Per share amount does not accord with the amount reported in the statement of operations due to the timing of Fund share sales.
(d)
Less than $0.01 per share.
(e)
Not annualized.
(f)
Annualized.
(g)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
LMCG FUNDS

14


LMCG GLOBAL MARKET NEUTRAL FUND
FINANCIAL HIGHLIGHTS
 


These financial highlights reflect selected data for a share outstanding throughout each period.

   
For the Years Ended March 31, 
   
Through
 
   
2018
   
2017
   
2016
     
INVESTOR SHARES
                       
NET ASSET VALUE, Beginning of Period
 
$
10.66
   
$
11.00
   
$
11.07
   
$
10.87
 
INVESTMENT OPERATIONS
                               
Net investment loss (b)
   
(0.18
)
   
(0.15
)
   
(0.20
)
   
(0.05
)
Net realized and unrealized gain (loss)
   
0.26
     
(0.19
)
   
0.13(c
)
   
0.25
 
Total from Investment Operations
   
0.08
     
(0.34
)
   
(0.07
)
   
0.20
 
                                 
NET ASSET VALUE, End of Period
 
$
10.74
   
$
10.66
   
$
11.00
   
$
11.07
 
TOTAL RETURN
   
0.75
%
   
(3.09
)%
   
(0.63
)%
   
1.84
%(d)
                                 
RATIOS/SUPPLEMENTARY DATA
                               
Net Assets at End of Period (000s omitted)
 
$
4,430
   
$
5,480
   
$
15,468
   
$
5,683
 
Ratios to Average Net Assets:
                               
Net investment loss
   
(1.64
)%
   
(1.42
)%
   
(1.81
)%
   
(1.73
)%(e)
Net expenses including dividend expenses
   
3.88
%
   
3.56
%
   
3.38
%
   
3.30
%(e)
Dividend expenses
   
2.03
%
   
1.71
%
   
1.53
%
   
1.45
%(e)
Net expenses without dividend expenses
   
1.85
%
   
1.85
%
   
1.85
%
   
1.85
%(e)
Gross expenses (f)
   
4.71
%
   
4.38
%
   
4.09
%
   
5.73
%(e)
PORTFOLIO TURNOVER RATE
   
81
%
   
95
%
   
124
%
   
104
%(d)
 
(a)
Commencement of operations.
(b)
Calculated based on average shares outstanding during each period.
(c)
Per share amount does not accord with the amount reported in the statement of operations due to the timing of Fund share sales.
(d)
Not annualized.
(e)
Annualized.
(f)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
LMCG FUNDS

15


LMCG GLOBAL MULTICAP FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Dear Shareholder:

For the year ended March 31, 2018, the LMCG Global MultiCap Fund (the “Fund”) Institutional Shares returned 12.22% vs. 15.03% for the MSCI All Country World IMI Index. Market levels and valuations crept higher and higher until a sharp correction in February and again in March 2018 tempered gains. The portfolio had a difficult time keeping up with the rising market as we began to move it into a more defensive position.

The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call (877) 591-4667.

We are striving to maintain a reasonable exposure to future potential gains while providing investors a cushion should markets end their extended run and the economy moderate its current robust growth cycle. More traditional approaches to protecting gains as valuation get extended (for example buying higher yielding shares or consumer staples companies) have become much more sensitive to interest rate surprises. Instead, we hope to add shares of higher quality companies, which tend to have less leverage, in addition to emphasizing more value-oriented investments in the United States and among less speculative foreign markets. The tax cut bill that passed in the United States at the close of 2017 created an opportunity for growth, but the forecast deficits in the future as a result are adding a debt load danger. Economic overheating and rising debts are the main risks we see of the tax cut.

The largest detractors to the portfolio over the 12 months were both our asset allocation to U.S. Small and Mid Size (SMID) stocks as well as our selection among those stocks. The common issue that seems to confound stock pickers and asset allocators alike is the strong price momentum that continues to affect securities prices. Put simply, many industries are pricing in a “winner take all” premium as the largest stocks, particularly in the internet commerce area, continue to post remarkable gains. The year closed amid political clashes between the White House and the head of Amazon as well as a scandal from data breach at Facebook, highlighting the potential limits to growth for some of the winners. While we shifted our bias in the SMID cap asset class from growth to value in January 2018, the Fund still maintains a relatively large exposure. We believe that valuations in SMID as well as in specific areas of Europe and Asia should boost potential returns with lower relative risk.

We managed to offset the lagging returns in the U.S. with strong gains from the Fund’s exposure to emerging markets. While the Fund averaged over 12% of the portfolio invested in these markets, it held a more significant weight throughout most of 2017. We still feel optimistic about valuations and growth prospects of emerging markets, but as we enter an important election period in many key countries, we took profits and reduced the Fund’s position to 10% by the end of the fund’s fiscal year.

Global MultiCap Outlook and Strategy – The Fog of Trade War

Valuation Breathing Room

When prices fall while revenue and earnings rise, good things happen to valuations. That means new buyers are paying less, and the conclusion from many history lessons on markets is that the chance of meeting return goals improves investing at lower valuations.

The U.S. is still historically more expensive than non-U.S. markets by a significant margin after the turmoil of the first quarter. The Fund’s allocation to non-U.S. equities is similar to where it was before the market reversal in February. Increasing trade tensions could potentially change the U.S. premium – a tariff war between the U.S. and China, for instance would harm both these economies.

Trade War – Business Cycle Ending or Foundation for New Growth?

Tariffs tend to harm economic growth in order to protect specific interests. However, few see damage done yet to the real economies, but stock markets are reactive with violent swings to news as we open the second quarter. At this stage, most analysts think tariffs will be short-lived and eliminated by negotiation before real damage is inflicted. Country and currency diversification should help defend the Fund’s portfolio should this outlook turn out to be overly optimistic.
 
LMCG FUNDS
16


LMCG GLOBAL MULTICAP FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
The Long-Term China Investment Question

China is growing in importance for investors, but not necessarily because of the hardball negotiations over trade. The Chinese equity market already dominates the major indexes for emerging markets equity investors. China represents nearly 30% of the MSCI Emerging Markets Index, the foundation of many of the largest passive funds, exchange traded funds, and institutional asset pools in the world. This weighting does not include the mainland Chinese “A” share market, and MSCI has opted for a gradualist approach to adding these shares over time. The A shares market poses many issues for foreign investors which are being addressed as a part of a long running negotiation between the major index publishers and the Chinese stock exchanges. When you add in the trade war threats, Chinese President Xi’s recent elimination of term limits, and Xi’s push for more Communist Party influence in foreign corporation joint ventures, one wonders about the future of shareholder rights.

For long-term investors, we believe the right issue to consider is this – if an industry requires tariff protection to survive within the United States or within China, is that really an area with an attractive investment future? And after nearly 30 years of dislocation of industries from globalization – where we as global investors could benefit from improving productivity wherever it may locate itself – do we need to give up these benefits to relocate these industries? Investors certainly have plenty of issues with China investments now in the wake of the political changes taking place in mainland China, and the disturbing increase in the presence of Communist Party members on boards of directors, let alone the true trade imbalances that do need addressing.

The biggest issue facing the U.S. and China markets may turn out to be the security breach of Facebook and the possibility of regulatory action in its wake. The privacy issues that ‘face’ Facebook are likely to impact Chinese internet giants Tencent and Alibaba as well.

We continue to look for ways to play late-economic-cycle defense. Utilities seemed to be the one place to hide among equities during the market retreats in the first quarter, but we believe that they do not hold the promise of competitive total returns over long investment horizons.

Current Investment Positioning and Outlook

We are actively building a quality bias into the Fund’s large cap U.S. equity portfolio – we see this as our best defense for a true end-of-cycle bear market. We are targeting fundamentally stable names that have the potential to generate healthy free cash flow margins. We believe such firms have a lower probability of cutting their dividend in times of stress.
 
However, the Fund is still fully invested in banks in the U.S. and Europe (U.S. and Canada 5.3%, Europe 5.5%, Rest of World 2%), which we believe helps give us the ability to keep up with a global economy that begins to overheat. We took profits in emerging markets in January reducing the Fund’s position to approximately 10% of the portfolio while boosting active value strategies in U.S. small and mid-cap stocks which have had an extended period of underperformance and should provide good defense with upside potential.

We thank you for your trust and support for the Fund.
 
Sincerely,
 
-s-Jeffrey P. Davis
 
Jeffrey P. Davis
Portfolio Manager
LMCG Investments, LLC
 
LMCG FUNDS
17


LMCG GLOBAL MULTICAP FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
INVESTMENT CONSIDERATIONS

Equity Risk - The Fund’s equity holdings, including common stocks, may decline in value. The value of a security may decline for a number of reasons, which are detailed in the prospectus.

Foreign & Emerging Markets Investing Risks - As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.

Market Events Risk - Turbulence in the financial markets and reduced liquidity in equity, credit and fixed-income markets may negatively affect issuers, which could adversely affect the Fund.

There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential loss of principal.
 
LMCG FUNDS
18


LMCG GLOBAL MULTICAP FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
The following chart reflects the change in the value of a hypothetical $100,000 investment in Institutional Shares, including reinvested dividends and distributions, in the LMCG Global MultiCap Fund (the “Fund”) compared with the performance of the benchmark, MSCI All Country World IMI Index, since inception. The MSCI All Country World IMI Index is a stock market index that is designed to measure the equity market performance of developed and emerging markets. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.
 
Comparison of Change in Value of a $100,000 Investment
LMCG Global MultiCap Fund - Institutional Shares vs. MSCI All Country World IMI Index
 
(BAR CHART)

Average Annual Total Returns
Periods Ended March 31, 2018
 
One Year
Since Inception(1)
LMCG Global MultiCap Fund - Institutional Shares
12.22%
8.42%
LMCG Global MultiCap Fund - Investor Shares(2)
12.20%
8.27%
MSCI All Country World IMI Index(3)
15.03%
8.67%
 
(1)
Institutional Shares commenced operations on September 11, 2013 and Investor Shares commenced operations on March 3, 2015.
(2)
Performance for the since inception period is a blended average annual return, which include the returns of the Institutional Shares prior to the commencement of the Investor Shares.
(3)
MSCI All Country World Investable Market Index, net of foreign withholding taxes (reflects no deduction for fees or expenses).
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Institutional Shares and Investor Shares are 16.90% and 111.78%, respectively. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 0.90% and 1.15% of Insitutional Shares and Investor Shares, respectively, through at least July 31, 2018 (the “Expense Cap”). The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized.
 
LMCG FUNDS
19


LMCG GLOBAL MULTICAP FUND
SCHEDULE OF INVESTMENTS
 
Shares
   
Security Description
 
Value
 
Equity Securities - 94.7%
     
Common Stock - 94.0%
     
Australia - 0.2%
     
213
   
Ansell, Ltd.
 
$
4,170
 
Belgium - 0.4%
       
79
   
Anheuser-Busch InBev SA/NV
   
8,686
 
Canada - 1.7%
       
200
   
Canadian National Railway Co.
   
14,617
 
200
   
Intact Financial Corp.
   
15,029
 
200
   
Maple Leaf Foods, Inc.
   
4,874
 
           
34,520
 
China - 3.2%
       
4,000
   
Agile Group Holdings, Ltd.
   
8,342
 
69
   
Alibaba Group Holding, Ltd., ADR (a)
   
12,664
 
9,000
   
China Construction Bank Corp., Class H
   
9,400
 
6,000
   
CNOOC, Ltd.
   
8,884
 
12,000
   
Industrial & Commercial Bank of China, Ltd., Class H
   
10,458
 
316
   
Tencent Holdings, Ltd.
   
16,963
 
           
66,711
 
Denmark - 0.6%
       
310
   
Danske Bank A/S
   
11,615
 
France - 3.2%
       
424
   
AXA SA
   
11,271
 
173
   
BNP Paribas SA
   
12,830
 
100
   
Sanofi
   
8,024
 
264
   
TOTAL SA
   
15,132
 
190
   
Vinci SA
   
18,714
 
           
65,971
 
Georgia - 0.3%
       
109
   
BGEO Group PLC
   
5,440
 
Germany - 4.3%
       
78
   
Allianz SE
   
17,632
 
138
   
BASF SE
   
13,996
 
104
   
Bayer AG
   
11,724
 
138
   
Daimler AG
   
11,758
 
135
   
SAP SE
   
14,172
 
112
   
Siemens AG
   
14,291
 
283
   
TAG Immobilien AG
   
5,872
 
           
89,445
 
Hong Kong - 0.2%
       
520
   
China Mobile, Ltd.
   
4,766
 
India - 0.3%
       
377
   
Infosys, Ltd., ADR
   
6,729
 
Italy - 1.2%
       
923
   
Enel SpA
   
5,648
 
488
   
Eni SpA
   
8,596
 
2,726
   
Intesa Sanpaolo SpA
   
9,926
 
           
24,170
 
Japan - 4.3%
       
100
   
Azbil Corp.
   
4,710
 
500
   
Honda Motor Co., Ltd.
   
17,308
 
203
   
Hoya Corp.
   
10,254
 
1,800
   
Mitsubishi UFJ Financial Group, Inc.
   
11,962
 
1,100
   
Penta-Ocean Construction Co., Ltd.
   
8,116
 
800
   
Sumitomo Electric Industries, Ltd.
   
12,227
 
1,100
   
Toray Industries, Inc.
   
10,464
 
200
   
Toyota Motor Corp.
   
12,986
 
           
88,027
 
Malaysia - 0.5%
       
2,400
   
Tenaga Nasional Bhd
   
10,043
 
Shares
   
Security Description
 
Value
 
Malta - 0.2%
     
362
   
Kindred Group PLC, SDR
 
$
4,966
 
Mexico - 0.2%
       
1,770
   
Wal-Mart de Mexico SAB de CV
   
4,504
 
Netherlands - 1.9%
       
206
   
AerCap Holdings NV (a)
   
10,448
 
941
   
ING Groep NV
   
15,880
 
200
   
Royal Dutch Shell PLC, ADR, Class B
   
12,762
 
           
39,090
 
Russian Federation - 0.2%
       
700
   
Evraz PLC
   
4,269
 
Singapore - 0.3%
       
3,300
   
Singapore Press Holdings, Ltd.
   
6,367
 
South Africa - 0.7%
       
33
   
Naspers, Ltd., Class N
   
8,076
 
1,666
   
Rand Merchant Investment Holdings, Ltd.
   
5,632
 
           
13,708
 
South Korea - 2.4%
       
122
   
LG Electronics, Inc.
   
12,588
 
27
   
POSCO
   
8,618
 
7
   
Samsung Electronics Co., Ltd.
   
16,355
 
145
   
Shinhan Financial Group Co., Ltd.
   
6,186
 
78
   
SK Hynix, Inc.
   
5,976
 
           
49,723
 
Spain - 0.9%
       
2,825
   
Banco Santander SA
   
18,491
 
Sweden - 0.8%
       
380
   
Investor AB, Class B
   
16,881
 
Switzerland - 1.7%
       
518
   
ABB, Ltd.
   
12,317
 
17
   
Bucher Industries AG
   
7,104
 
202
   
Nestle SA
   
15,966
 
           
35,387
 
Taiwan - 1.5%
       
3,000
   
Nan Ya Plastics Corp.
   
8,495
 
17,000
   
Shin Kong Financial Holding Co., Ltd.
   
6,515
 
2,000
   
Taiwan Semiconductor Manufacturing Co., Ltd.
   
16,940
 
           
31,950
 
Thailand - 0.5%
       
624
   
PTT PCL, NVDR
   
10,990
 
United Kingdom - 4.9%
       
395
   
BHP Billiton PLC
   
7,806
 
2,057
   
BP PLC
   
13,875
 
167
   
British American Tobacco PLC
   
9,654
 
406
   
GlaxoSmithKline PLC
   
7,885
 
1,984
   
HSBC Holdings PLC
   
18,631
 
12,240
   
Lloyds Banking Group PLC
   
11,134
 
503
   
Royal Dutch Shell PLC, Class B
   
16,186
 
47
   
Spirax-Sarco Engineering PLC
   
3,791
 
74
   
Willis Towers Watson PLC
   
11,262
 
           
100,224
 
United States - 57.4%
     
273
   
Abbott Laboratories
   
16,358
 
187
   
AbbVie, Inc.
   
17,700
 
593
   
AES Corp.
   
6,742
 
137
   
Agios Pharmaceuticals, Inc. (a)
   
11,204
 
31
   
Alphabet, Inc., Class A (a)
   
32,151
 
23
   
Amazon.com, Inc. (a)
   
33,289
 
283
   
American Campus Communities, Inc. REIT
   
10,930
 
119
   
Ameriprise Financial, Inc.
   
17,605
 
107
   
Amgen, Inc.
   
18,241
 

See Notes to Financial Statements.
 
LMCG FUNDS

20


LMCG GLOBAL MULTICAP FUND
SCHEDULE OF INVESTMENTS
 
Shares
   
Security Description
   
Value
 
United States - 57.4% (continued)
       
81
   
Anthem, Inc.
   
$
17,796
 
253
   
Apple, Inc.
     
42,448
 
429
   
Applied Materials, Inc.
     
23,857
 
285
   
BankUnited, Inc.
     
11,394
 
223
   
Berry Global Group, Inc. (a)
     
12,223
 
35
   
Biogen, Inc. (a)
     
9,584
 
264
   
BorgWarner, Inc.
     
13,261
 
557
   
Brixmor Property Group, Inc. REIT
     
8,494
 
268
   
Capital One Financial Corp.
     
25,680
 
545
   
Carrizo Oil & Gas, Inc. (a)
     
8,720
 
91
   
Charles River Laboratories International, Inc. (a)
     
9,713
 
74
   
Chevron Corp.
     
8,439
 
97
   
Cimarex Energy Co.
     
9,070
 
335
   
Cisco Systems, Inc.
     
14,368
 
162
   
Clean Harbors, Inc. (a)
     
7,907
 
463
   
Comcast Corp., Class A
     
15,821
 
240
   
CVS Health Corp.
     
14,930
 
120
   
Danaher Corp.
     
11,749
 
636
   
Darling Ingredients, Inc. (a)
     
11,003
 
461
   
Devon Energy Corp.
     
14,655
 
118
   
Dollar General Corp.
     
11,039
 
109
   
DTE Energy Co.
     
11,380
 
105
   
Eagle Materials, Inc.
     
10,820
 
237
   
Envision Healthcare Corp. (a)
     
9,108
 
738
   
FNB Corp.
     
9,926
 
586
   
General Electric Co.
     
7,899
 
139
   
Gilead Sciences, Inc.
     
10,479
 
172
   
Hexcel Corp.
     
11,110
 
253
   
Intel Corp.
     
13,176
 
282
   
ITT, Inc.
     
13,812
 
178
   
j2 Global, Inc.
     
14,048
 
103
   
John Bean Technologies Corp.
     
11,680
 
253
   
JPMorgan Chase & Co.
     
27,822
 
236
   
KAR Auction Services, Inc.
     
12,791
 
243
   
Kennametal, Inc.
     
9,759
 
68
   
Ligand Pharmaceuticals, Inc. (a)
     
11,231
 
150
   
Lincoln National Corp.
     
10,959
 
87
   
LogMeIn, Inc.
     
10,053
 
176
   
Lowe’s Cos., Inc.
     
15,444
 
75
   
M&T Bank Corp.
     
13,827
 
280
   
MACOM Technology Solutions Holdings, Inc. (a)
     
4,648
 
227
   
Merck & Co., Inc.
     
12,365
 
364
   
Micron Technology, Inc. (a)
     
18,979
 
226
   
Microsoft Corp.
     
20,627
 
137
   
Murphy USA, Inc. (a)
     
9,974
 
408
   
Newfield Exploration Co. (a)
     
9,963
 
210
   
Nexstar Media Group, Inc., Class A
     
13,965
 
243
   
PacWest Bancorp
     
12,036
 
258
   
Patterson Cos., Inc.
     
5,735
 
481
   
Pfizer, Inc.
     
17,071
 
198
   
Portland General Electric Co.
     
8,021
 
142
   
PPG Industries, Inc.
     
15,847
 
269
   
Prestige Brands Holdings, Inc. (a)
     
9,071
 
189
   
PTC, Inc. (a)
     
14,744
 
291
   
RealPage, Inc. (a)
     
14,987
 
134
   
Regal Beloit Corp.
     
9,829
 
70
   
Rockwell Automation, Inc.
     
12,194
 
437
   
Sinclair Broadcast Group, Inc., Class A
     
13,678
 
154
   
State Street Corp.
     
15,358
 
112
   
Stericycle, Inc. (a)
     
6,555
 
72
   
SVB Financial Group (a)
     
17,281
 
198
   
Target Corp.
     
13,747
 
201
   
The Allstate Corp.
     
19,055
 
Shares
 
Security Description
 
Value
 
United States - 57.4% (continued)
     
178
 
The Brink’s Co.
 
$
12,700
 
72
 
The Goldman Sachs Group, Inc.
   
18,134
 
211
 
The Hartford Financial Services Group, Inc.
   
10,871
 
380
 
TransUnion (a)
   
21,576
 
190
 
TreeHouse Foods, Inc. (a)
   
7,271
 
323
 
Unum Group
   
15,378
 
60
 
Vail Resorts, Inc.
   
13,302
 
120
 
Valero Energy Corp.
   
11,132
 
121
 
VMware, Inc., Class A (a)
   
14,674
 
171
 
Walgreens Boots Alliance, Inc.
   
11,195
 
182
 
Walmart, Inc.
   
16,193
 
308
 
Wells Fargo & Co.
   
16,142
 
118
 
WR Grace & Co.
   
7,225
 
321
 
Zayo Group Holdings, Inc. (a)
   
10,965
 
         
1,184,183
 
Total Common Stock (Cost $1,592,254)
   
1,941,026
 

Shares
   
Security Description
 
Rate
   
Value
 
Preferred Stock - 0.7%
           
Brazil - 0.7%
           
850
    Itau Unibanco Holding SA          
   
(Cost $4,341)
 
0.02
%
 
13,296
 
Total Equity Securities (Cost $1,596,595)
     
1,954,322
 

Shares
   
Security Description
 
Value
 
Investment Companies - 2.7%
     
188
   
iShares MSCI ACWI ETF
   
13,479
 
150
   
iShares MSCI EAFE ETF
   
10,452
 
104
   
iShares MSCI EAFE Small-Cap ETF
   
6,780
 
385
   
iShares MSCI India ETF
   
13,140
 
304
   
iShares MSCI Turkey ETF
   
12,896
 
Total Investment Companies (Cost $55,042)
   
56,747
 
               
Shares
   
Security Description
 
Value
 
Money Market Fund - 1.9%
       
38,581
    Dreyfus Treasury Prime Cash Management, Institutional Shares, 1.46% (b)        
   
(Cost $38,581)
   
38,581
 
Investments, at value - 99.3% (Cost $1,690,218)
 
$
2,049,650
 
Other Assets & Liabilities, Net - 0.7%
   
14,951
 
Net Assets - 100.0%
 
$
2,064,601
 
 
ADR
American Depositary Receipt
ETF
Exchange Traded Fund
NVDR
Non-Voting Depositary Receipt
PCL
Public Company Limited
PLC
Public Limited Company
REIT
Real Estate Investment Trust
SDR
Swedish Depositary Receipt
(a)
Non-income producing security.
(b)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.

The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
 
See Notes to Financial Statements.
 
LMCG FUNDS
21


LMCG GLOBAL MULTICAP FUND
SCHEDULE OF INVESTMENTS
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Investments at Value
                       
Common Stock
                       
Australia
 
$
   
$
4,170
   
$
   
$
4,170
 
Belgium
   
     
8,686
     
     
8,686
 
Canada
   
34,520
     
     
     
34,520
 
China
   
12,664
     
54,047
     
     
66,711
 
Denmark
   
     
11,615
     
     
11,615
 
France
   
     
65,971
     
     
65,971
 
Georgia
   
     
5,440
     
     
5,440
 
Germany
   
     
89,445
     
     
89,445
 
Hong Kong
   
     
4,766
     
     
4,766
 
India
   
6,729
     
     
     
6,729
 
Italy
   
     
24,170
     
     
24,170
 
Japan
   
     
88,027
     
     
88,027
 
Malaysia
   
     
10,043
     
     
10,043
 
Malta
   
     
4,966
     
     
4,966
 
Mexico
   
4,504
     
     
     
4,504
 
Netherlands
   
23,210
     
15,880
     
     
39,090
 
Russian Federation
   
     
4,269
     
     
4,269
 
Singapore
   
     
6,367
     
     
6,367
 
South Africa
   
     
13,708
     
     
13,708
 
South Korea
   
     
49,723
     
     
49,723
 
Spain
   
     
18,491
     
     
18,491
 
Sweden
   
     
16,881
     
     
16,881
 
Switzerland
   
     
35,387
     
     
35,387
 
Taiwan
   
     
31,950
     
     
31,950
 
Thailand
   
     
10,990
     
     
10,990
 
United Kingdom
   
11,262
     
88,962
     
     
100,224
 
United States
   
1,184,183
     
     
     
1,184,183
 
Preferred Stock
                               
Brazil
   
13,296
     
     
     
13,296
 
Investment Companies
   
56,747
     
     
     
56,747
 
Money Market Fund
   
     
38,581
     
     
38,581
 
Investments at Value
 
$
1,347,115
   
$
702,535
   
$
   
$
2,049,650
 

The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
At March 31, 2018, foreign securities representing the following percentage of net assets of the Fund were fair valued by independent pricing services and are classified as using Level 2 inputs within the valuation inputs disclosure on the Fund’s Schedule of Investments:
 
LMCG Global MultiCap Fund
 
   
Long Securities
32.16%
PORTFOLIO HOLDINGS (Unaudited)
 
% of Total Investments
 
Australia
0.2%
Belgium
0.4%
Brazil
0.6%
Canada
1.7%
China
3.3%
Denmark
0.6%
France
3.2%
Georgia
0.3%
Germany
4.4%
Hong Kong
0.2%
India
0.3%
Italy
1.2%
Japan
4.3%
Malaysia
0.5%
Malta
0.2%
Mexico
0.2%
Netherlands
1.9%
Russian Federation
0.2%
Singapore
0.3%
South Africa
0.7%
South Korea
2.4%
Spain
0.9%
Sweden
0.8%
Switzerland
1.7%
Taiwan
1.6%
Thailand
0.5%
United Kingdom
4.9%
United States*
62.5%
 
100.0%
 
*
Includes Money Market Fund totaling 1.9%.
 
 
See Notes to Financial Statements.
 
LMCG FUNDS
22


LMCG GLOBAL MULTICAP FUND
STATEMENT OF ASSETS AND LIABILITIES
 
ASSETS
     
Investments, at value (Cost $1,690,218)
 
$
2,049,650
 
Cash
   
236
 
Foreign currency (Cost $5,206)
   
5,278
 
Receivables:
       
Dividends
   
3,595
 
From investment adviser
   
22,230
 
Prepaid expenses
   
21,065
 
Total Assets
   
2,102,054
 
LIABILITIES
       
Payables:
       
Foreign capital gains tax payable
   
633
 
Accrued Liabilities:
       
Fund services fees
   
9,152
 
Professional fees
   
19,201
 
Other expenses
   
8,467
 
Total Liabilities
   
37,453
 
NET ASSETS
 
$
2,064,601
 
COMPONENTS OF NET ASSETS
       
Paid-in capital
 
$
1,669,651
 
Distributions in excess of net investment income
   
(8,874
)
Accumulated net realized gain
   
44,943
 
Net unrealized appreciation
   
358,881
 
NET ASSETS
 
$
2,064,601
 
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
       
Institutional Shares
   
157,511
 
Investor Shares
   
4,785
 
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
       
Institutional Shares (based on net assets of $2,003,611)
 
$
12.72
 
Investor Shares (based on net assets of $60,990)
 
$
12.75
 

See Notes to Financial Statements.
 
LMCG FUNDS
23


LMCG GLOBAL MULTICAP FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2018
 
INVESTMENT INCOME
     
Dividend income (Net of foreign withholding taxes of $4,113)
 
$
41,674
 
Total Investment Income
   
41,674
 
EXPENSES
       
Investment adviser fees
   
15,600
 
Fund services fees
   
185,496
 
Transfer agent fees:
       
Institutional Shares
   
2,586
 
Investor Shares
   
2,507
 
Distribution fees:
       
Investor Shares
   
91
 
Custodian fees
   
16,749
 
Registration fees:
       
Institutional Shares
   
14,752
 
Investor Shares
   
15,199
 
Professional fees
   
25,655
 
Trustees’ fees and expenses
   
4,969
 
Pricing fees
   
16,804
 
Other expenses
   
18,919
 
Total Expenses
   
319,327
 
Fees waived and expenses reimbursed
   
(298,359
)
Net Expenses
   
20,968
 
NET INVESTMENT INCOME
   
20,706
 
NET REALIZED AND UNREALIZED GAIN (LOSS)
       
Net realized gain on:
       
Investments (Net of foreign withholding taxes of $28)
   
104,623
 
Foreign currency transactions
   
103
 
Net realized gain
   
104,726
 
Net change in unrealized appreciation (depreciation) on:
       
Investments
   
116,467
 
Deferred foreign capital gains taxes
   
(496
)
Foreign currency translations
   
82
 
Net change in unrealized appreciation (depreciation)
   
116,053
 
NET REALIZED AND UNREALIZED GAIN
   
220,779
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
241,485
 

See Notes to Financial Statements.
 
LMCG FUNDS
24


LMCG GLOBAL MULTICAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
 

 
   
For the Years Ended March 31,
 
       
2017
 
OPERATIONS
           
Net investment income
 
$
20,706
   
$
16,893
 
Net realized gain
   
104,726
     
72,520
 
Net change in unrealized appreciation (depreciation)
   
116,053
     
222,140
 
Increase in Net Assets Resulting from Operations
   
241,485
     
311,553
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income:
               
Institutional Shares
   
(36,084
)
   
(18,893
)
Investor Shares
   
(302
)
   
(440
)
Net realized gain:
               
Institutional Shares
   
(85,141
)
   
(14,248
)
Investor Shares
   
(1,002
)
   
(92
)
Total Distributions to Shareholders
   
(122,529
)
   
(33,673
)
                 
CAPITAL SHARE TRANSACTIONS
               
Sale of shares:
               
Institutional Shares
   
156,797
     
268,003
 
Investor Shares
   
42,924
     
39,350
 
Reinvestment of distributions:
               
Institutional Shares
   
121,225
     
33,141
 
Investor Shares
   
1,304
     
532
 
Redemption of shares:
               
Institutional Shares
   
(250,431
)
   
(532,204
)
Investor Shares
   
(35,627
)
   
(1,498
)
Increase (Decrease) in Net Assets from Capital Share Transactions
   
36,192
     
(192,676
)
Increase in Net Assets
   
155,148
     
85,204
 
                 
NET ASSETS
               
Beginning of Year
   
1,909,453
     
1,824,249
 
End of Year (Including line (a))
 
$
2,064,601
   
$
1,909,453
 
                 
SHARE TRANSACTIONS
               
Sale of shares:
               
Institutional Shares
   
12,333
     
25,015
 
Investor Shares
   
3,246
     
3,470
 
Reinvestment of distributions:
               
Institutional Shares
   
9,289
     
2,936
 
Investor Shares
   
100
     
48
 
Redemption of shares:
               
Institutional Shares
   
(18,892
)
   
(48,560
)
Investor Shares
   
(2,890
)
   
(136
)
Increase (Decrease) in Shares
   
3,186
     
(17,227
)
                 
(a) Distributions in excess of net investment income
 
$
(8,874
)
 
$
(4,090
)

See Notes to Financial Statements.
 
LMCG FUNDS
25


LMCG GLOBAL MULTICAP FUND
FINANCIAL HIGHLIGHTS
 

 
These financial highlights reflect selected data for a share outstanding throughout each period.
 
   
For the Years Ended March 31,
   
September 11,
2013 (a) Through  
 
   
2018
   
2017
   
2016
   
2015
     
INSTITUTIONAL SHARES
                             
NET ASSET VALUE, Beginning of Period
 
$
12.00
   
$
10.35
   
$
11.21
   
$
10.80
   
$
10.00
 
INVESTMENT OPERATIONS
                                       
Net investment income (b)
   
0.13
     
0.10
     
0.11
     
0.10
     
0.02
 
Net realized and unrealized gain (loss)
   
1.35
     
1.76
     
(0.68
)
   
0.49
     
0.86
 
Total from Investment Operations
   
1.48
     
1.86
     
(0.57
)
   
0.59
     
0.88
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.23
)
   
(0.12
)
   
(0.16
)
   
(0.08
)
   
(0.06
)
Net realized gain
   
(0.53
)
   
(0.09
)
   
(0.13
)
   
(0.10
)
   
(0.02
)
Total Distributions to Shareholders
   
(0.76
)
   
(0.21
)
   
(0.29
)
   
(0.18
)
   
(0.08
)
NET ASSET VALUE, End of Period
 
$
12.72
   
$
12.00
   
$
10.35
   
$
11.21
   
$
10.80
 
TOTAL RETURN
   
12.22
%
   
18.11
%
   
(5.11
)%
   
5.57
%
   
8.79
%(c)
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Period (000s omitted)
 
$
2,004
   
$
1,858
   
$
1,814
   
$
1,882
   
$
1,344
 
Ratios to Average Net Assets:
                                       
Net investment income
   
0.99
%
   
0.92
%
   
1.02
%
   
0.95
%
   
0.31
%(d)
Net expenses
   
1.00
%
   
1.20
%
   
1.20
%
   
1.20
%
   
1.20
%(d)
Gross expenses (e)
   
14.39
%
   
17.14
%
   
16.22
%
   
17.65
%
   
24.97
%(d)
PORTFOLIO TURNOVER RATE
   
43
%
   
73
%
   
44
%
   
74
%
   
32
%(c)
 

(a)
Commencement of operations.
(b)
Calculated based on average shares outstanding during each period.
(c)
Not annualized.
(d)
Annualized.
(e)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
 
LMCG FUNDS
26


LMCG GLOBAL MULTICAP FUND
FINANCIAL HIGHLIGHTS
 

 
These financial highlights reflect selected data for a share outstanding throughout each period.
 
   
For the Years Ended March 31,
   
Through
 
   
2018
   
2017
   
2016
     
INVESTOR SHARES
                       
NET ASSET VALUE, Beginning of Period
 
$
11.96
   
$
10.34
   
$
11.21
   
$
11.29
 
INVESTMENT OPERATIONS
                               
Net investment income (b)
   
0.12
     
0.05
     
0.08
     
0.02
 
Net realized and unrealized gain (loss)
   
1.35
     
1.77
     
(0.69
)
   
(0.10
)(c)
Total from Investment Operations
   
1.47
     
1.82
     
(0.61
)
   
(0.08
)
                                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
                               
Net investment income
   
(0.15
)
   
(0.11
)
   
(0.13
)
   
 
Net realized gain
   
(0.53
)
   
(0.09
)
   
(0.13
)
   
 
Total Distributions to Shareholders
   
(0.68
)
   
(0.20
)
   
(0.26
)
   
 
NET ASSET VALUE, End of Period
 
$
12.75
   
$
11.96
   
$
10.34
   
$
11.21
 
TOTAL RETURN
   
12.20
%
   
17.76
%
   
(5.39
)%
   
(0.71
)%(d)
                                 
RATIOS/SUPPLEMENTARY DATA
                               
Net Assets at End of Period (000s omitted)
 
$
61
   
$
52
   
$
10
   
$
10
 
Ratios to Average Net Assets:
                               
Net investment income
   
0.91
%
   
0.48
%
   
0.77
%
   
2.45
%(e)
Net expenses
   
1.25
%
   
1.45
%
   
1.45
%
   
1.45
%(e)
Gross expenses (f)
   
65.97
%
   
110.82
%
   
149.94
%
   
31.89
%(e)
PORTFOLIO TURNOVER RATE
   
43
%
   
73
%
   
44
%
   
74
%(d)
 

(a)
Commencement of operations.
(b)
Calculated based on average shares outstanding during each period.
(c)
Per share amount does not reflect the actual net realized and unrealized gain/(loss) for the period due to the timing of Fund share sales and the amount of per share realized and unrealized gains and losses at such time.
(d)
Not annualized.
(e)
Annualized.
(f)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
 
LMCG FUNDS
27


LMCG INTERNATIONAL SMALL CAP FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Dear Shareholder:

The LMCG International Small Cap Fund (the “Fund”) Institutional Shares gained 21.99% in the 12-month period ending March 31, 2018, trailing the MSCI EAFE Small Cap Index (the “Index”) return of 23.49%. Since inception1, the Institutional Shares have gained 13.52% vs. 11.74% for the Index, both on an annualized basis. Under normal circumstances the Fund invests at least 80% of its assets in the equity securities of small-cap companies. The Fund considers companies small cap which at the time of purchase fall within the range of the Index. At an index level, the performance of international small-cap companies dramatically outperformed their large-cap counterparts, with the MSCI EAFE Index (as a proxy for international large-cap securities) advancing 14.80% in the one-year period.

The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call (877) 591-4667.

The past three years have been challenging for our core active strategy to consistently add value due to a wide divergence between how value and growth styles have been rewarded in the marketplace. While the effect has been stronger among U.S. stocks, international small cap stocks have also been impacted. While political and macro uncertainty has centered on the U.S. as the Trump administration came into power, international small cap stocks have been impacted. The dominant investment style has flipped from growth in 2015 to value in 2016 and then back to growth again for 2017. In international small caps, the magnitude of the spreads for the last two years was not as wide as it was in the U.S., but the change in direction between the growth and value styles was in line with what happened in the U.S. The smaller magnitude of the swings is consistent with our belief that international small caps are less impacted by macro events than international large cap companies or small or large companies in the U.S.
 
So far in 2018, we believe the investment environment can be divided into two distinct periods, the month of January and the remaining two months. In January, developed markets performed quite well, with the MSCI EAFE Small Cap Index returning +5.1%. In February and March, markets pulled back on fears that U.S. interest rates would increase faster than expected to keep inflation in check. President Trump’s plans to increase tariffs on Chinese goods further shook markets. We expected our stock selection factors to work quite differently in the two periods as investors attitude toward risk changed dramatically. Valuation tends to work better in risk-on (January) environments and our more growth-oriented factors such as Estimate Revision and Price Momentum tend to work better in risk-off environments (February and March). We did not see the factors work as we expected and instead they were mixed from month to month. However, the change in risk preference did play out as expected in risk factor performance. For instance, high beta stocks dramatically outperformed low beta stocks in January and then the reverse in February and March. We suspect our stock selection factors did not behave in line with expectations in international small caps as investors paid less attention to corporate fundamentals and more on headlines related to Trump’s trade policy and the possibility of slowing global economic growth. We are disappointed that our approach was not able to add much value over the benchmark for the past few months. However, the diversification of our stock selection factors combined with risk control has allowed us to keep pace with the benchmark in the first three months of 2018 in a very volatile market environment.
 
As of March 31, 2018, the Fund was well-diversified across 23 countries and 10 sectors. The largest country allocations in both the portfolio and the benchmark were Japan (over 25% in each) and the United Kingdom (over 17% in each). The Fund seeks to add value primarily from stock selection – not making significant over- or under-weight decisions versus countries or sectors. We believe that this is an important element of risk control in the portfolio and has historically resulted in the Fund having similar volatility as the benchmark.

Attribution

Looking at performance through a country lens, the positive stock selection in New Zealand, Singapore and Spain contributed the most to performance over the 12-month period. Stocks in Australia, Belgium and Japan were the largest detractors. From a sector perspective, the vast majority of performance came from Materials and Consumer Staples. Technology and Industrials stock selections were the biggest laggards.
 
LMCG FUNDS
28

 

LMCG INTERNATIONAL SMALL CAP FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Model Efficacy
 
Analyzing the investment universe2from a factor perspective, market dynamics (D) (which includes earnings revision and price momentum) was the largest contributor to performance over the one- year period. earnings quality (Q) was slightly negative for the same period. Valuation was the biggest detractor from performance. Most of the 12-month period was a “risk-off” environment, where market dynamics typically responds favorably and valuation is not effective.

The graph shows the difference in payoffs of our model and its three main composite factors for the one-year period in the international small cap universe. This data is calculated by subtracting the 5th quintile stock performance for each factor from the performance of those in the 1st quintile. Payoffs in the Fund’s portfolio vary from the model, since the Fund does not own all of the 1st quintile stocks, and also owns stocks below the 1st quintile.
(BAR CHART)
 
Outlook
 
We are optimistic about international small cap equity market returns in 2018. However, we expect stock market volatility to remain elevated as negotiations on trade tariffs between the U.S. and China continue. So far this year, investors in developed markets have been more focused on macro news events rather than company fundamentals which is a difficult environment for an active strategy such as ours. However, our core approach which combines value and growth characteristics, has been able to keep pace with the Index despite the extreme market gyrations so far in 2018. Our more growth-oriented factors have worked better and have been able to partially offset our value factors which have not worked.
 
We continue to employ a balanced approach with respect to our major stock selection components: valuation, market dynamics and quality. We believe it is important to invest in stocks with good valuations that also have a catalyst such as estimate revision or price momentum. In addition, we continue to pay close attention to risk control to avoid any unwanted biases.

Sincerely,

(-s-Gordon Johnson)
(-s-Shannon Ericson)
Gordon Johnson
Co-Portfolio Manager
LMCG Investments, LLC
Shannon Ericson
Co-Portfolio Manager
LMCG Investments, LLC
 

 
1
Inception 8/26/2010. The Fund has adopted the historical performance of LMCG International Small Cap Collective Fund, a separate collective investment fund of LMCG Collective Trust (the “Predecessor Fund”) managed by LMCG Investments, LLC as the result of a reorganization in which the Fund acquired all of the assets, subject to liabilities, of the Predecessor Fund, effective as of the close of business on April 1, 2016. The returns presented for the Fund prior to this date reflect the performance of the Predecessor Fund. The Predecessor Fund commenced operations on August 26, 2010. The Predecessor Fund was not registered as an investment company under the Investment Company Act of 1940, and therefore the Predecessor Fund was not subject to certain investment limitations, diversification requirements, liquidity requirements, and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code of 1986 which, if applicable, may have adversely affected its performance. The Predecessor Fund had an investment objective and strategies that were, in all material respects, equivalent to those of the Fund.
The Fund’s performance for periods prior to the commencement of operations is that of the Predecessor Fund and is based on calculations that are different from the standardized method of calculations adopted by the Securities and Exchange Commission (the “SEC”). The performance of the Predecessor Fund was calculated net of the Predecessor Fund’s fees and expenses. The performance of the Predecessor Fund is not the performance information of the Fund, and has not been restated to reflect the fees, estimated expenses and fee waivers and/or expense limitations of the Fund. If the performance of the Predecessor Fund had been restated to reflect the applicable fees and expenses of the Fund, the performance may have been higher or lower than the performance shown.
2
The investment universe is those companies in the MSCI EAFE Small Cap Index.
 
LMCG FUNDS
29


LMCG INTERNATIONAL SMALL CAP FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
INVESTMENT CONSIDERATIONS

Equity Risk - The Fund’s equity holdings, including common stocks, may decline in value. The value of a security may decline for a number of reasons, which are detailed in the prospectus.

Foreign & Emerging Markets Investing Risks - As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.
 
Market Events Risk - Turbulence in the financial markets and reduced liquidity in equity, credit and fixed-income markets may negatively affect issuers, which could adversely affect the Fund.

Small Cap Risk - The Fund’s investments in small capitalization companies may be less liquid and their securities’ prices may fluctuate more than those of larger, more established companies.

There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential loss of principal.
 
LMCG FUNDS
30


LMCG INTERNATIONAL SMALL CAP FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
The following chart reflects the change in the value of a hypothetical $100,000 investment in Institutional Shares, including reinvested dividends and distributions, in the LMCG International Small Cap Fund (the “Fund”) compared with the performance of the benchmark, MSCI EAFE Small Cap Index, since inception. The MSCI EAFE Small Cap Index is an equity index which captures small cap representation across Developed Market countries around the world, excluding the United States and Canada. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.
 
Comparison of Change in Value of a $100,000 Investment
LMCG International Small Cap Fund - Institutional Shares vs. MSCI EAFE Small Cap Index

(BAR CHART)

Average Annual Total Returns
Periods Ended March 31, 2018
 
One Year
 
Five Years
Since Inception (08/26/10)
LMCG International Small Cap Fund - Institutional Shares*
21.99%
12.67%
13.52%
LMCG International Small Cap Fund - Investor Shares*
21.74%
12.56%
13.45%
MSCI EAFE Small Cap Index
23.49%
11.10%
11.74%
 
*
Institutional Shares commenced operations on April 1, 2016, and Investor Shares commenced operations on April 18, 2016. Performance for the periods prior to commencement reflects the performance and expenses of a collective investment trust previously managed by the Fund’s Adviser and portfolio management team. This collective investment trust was organized and commenced operations on August 26, 2010.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Institutional Shares and Investor Shares are 8.57% and 60.04%, respectively. However, the Fund’s adviser has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 0.85% and 1.10% of Institutional Shares and Investor Shares, respectively, through at least July 31, 2018 (the “Expense Cap”). The adviser may be reimbursed by the Fund for fees waived and expenses reimbursed by the adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized.
 
LMCG FUNDS
31


LMCG INTERNATIONAL SMALL CAP FUND
SCHEDULE OF INVESTMENTS

 
Shares  
Security Description
 
Value
 
Equity Securities - 95.7%      
Common Stock - 95.0%      
Australia - 7.4%      
 
17,144
 
Ansell, Ltd.
 
$
335,619
 
 
59,412
 
Charter Hall Group REIT
   
262,988
 
 
377,276
 
Cromwell Property Group REIT
   
310,661
 
 
92,327
 
Eclipx Group, Ltd.
   
255,693
 
 
133,163
 
Metcash, Ltd.
   
322,239
 
 
25,305
 
Monadelphous Group, Ltd.
   
298,295
 
 
228,909
 
Nine Entertainment Co. Holdings, Ltd.
   
402,027
 
 
52,909
 
Sandfire Resources NL
   
301,434
 
 
25,665
 
Sims Metal Management, Ltd.
   
288,298
 
 
124,000
 
St Barbara, Ltd.
   
382,467
 
           
3,159,721
 
Austria - 1.6%        
 
10,177
 
AT&S Austria Technologie & Systemtechnik AG
   
276,337
 
 
33,206
 
UNIQA Insurance Group AG
   
386,562
 
           
662,899
 
Belgium - 1.4%        
 
37,849
 
AGFA-Gevaert NV (a)
   
146,586
 
 
9,589
 
bpost SA
   
216,642
 
 
5,893
 
D'ieteren SA/NV
   
238,776
 
           
602,004
 
Canada - 1.2%        
 
10,100
 
Canadian Western Bank
   
259,095
 
 
9,500
 
Maple Leaf Foods, Inc.
   
231,537
 
           
490,632
 
China - 1.0%        
 
270,000
 
Xinyi Glass Holdings, Ltd.
   
410,982
 
Denmark - 3.0%        
 
1,351
 
Rockwool International A/S, Class B
   
402,447
 
 
6,649
 
Royal Unibrew A/S
   
441,420
 
 
9,028
 
Topdanmark A/S (a)
   
426,282
 
           
1,270,149
 
Finland - 0.7%        
 
37,511
 
YIT OYJ
   
314,206
 
France - 2.4%        
 
2,412
 
Ipsen SA
   
374,911
 
 
10,947
 
Metropole Television SA
   
282,036
 
 
5,649
 
Nexity SA (a)
   
361,794
 
           
1,018,741
 
Georgia - 0.8%        
 
6,751
 
BGEO Group PLC
   
336,900
 
Germany - 4.7%        
 
6,555
 
CTS Eventim AG & Co. KGaA
   
307,287
 
 
20,083
 
Deutsche Pfandbriefbank AG (b)
   
316,640
 
 
19,718
 
Kloeckner & Co. SE
   
247,747
 
 
4,974
 
Leoni AG
   
318,191
 
 
8,197
 
Salzgitter AG
   
419,325
 
 
19,414
 
TAG Immobilien AG
   
402,804
 
           
2,011,994
 
Ireland - 0.8%        
 
29,915
 
Grafton Group PLC
   
322,975
 
Italy - 1.5%        
 
89,868
 
Hera SpA
   
329,289
 
 
30,361
 
Societa Cattolica di Assicurazioni SCRL
   
323,287
 
           
652,576
 
Japan - 28.0%        
 
7,400
 
Azbil Corp.
   
348,526
 
 
31,800
 
Citizen Watch Co., Ltd.
   
224,347
 
 
13,500
 
COMSYS Holdings Corp.
   
358,912
 
 
6,100
 
Daiichikosho Co., Ltd.
   
320,837
 
 
8,800
 
DTS Corp.
   
306,310
 
 
Shares  
Security Description
 
Value
 
Japan - 28.0% (continued)      
 
13,500
 
Fancl Corp.
 
$
496,883
 
 
8,100
 
Fuji Soft, Inc.
   
323,059
 
 
14,200
 
Geo Holdings Corp.
   
225,598
 
 
15,500
 
H2O Retailing Corp.
   
287,620
 
 
6,700
 
Hanwa Co., Ltd.
   
278,259
 
 
419
 
Japan Hotel REIT Investment Corp.
   
297,889
 
 
11,500
 
Japan Petroleum Exploration Co., Ltd.
   
261,703
 
 
85,100
 
JVC Kenwood Corp.
   
281,936
 
 
24,300
 
Kanematsu Corp.
   
327,770
 
 
16,200
 
Kohnan Shoji Co., Ltd.
   
390,498
 
 
9,500
 
Matsumotokiyoshi Holdings Co., Ltd.
   
402,510
 
 
6,100
 
Meitec Corp.
   
334,150
 
 
7,400
 
Mitsui Mining & Smelting Co., Ltd.
   
328,117
 
 
31,800
 
NET One Systems Co., Ltd.
   
466,986
 
 
11,400
 
Nihon Kohden Corp.
   
324,894
 
 
50,700
 
Nippon Suisan Kaisha, Ltd.
   
264,035
 
 
9,400
 
Nishio Rent All Co., Ltd.
   
292,607
 
 
12,200
 
Nomura Co., Ltd.
   
261,677
 
 
31,800
 
Onward Holdings Co., Ltd.
   
277,064
 
 
46,600
 
Penta-Ocean Construction Co., Ltd.
   
343,808
 
 
9,500
 
Sankyu, Inc.
   
472,700
 
 
24,300
 
Shikoku Electric Power Co., Inc.
   
292,826
 
 
9,500
 
Ship Healthcare Holdings, Inc.
   
337,456
 
 
26,300
 
Sodick Co., Ltd.
   
345,121
 
 
16,200
 
Star Micronics Co., Ltd.
   
300,690
 
 
6,100
 
Taiyo Holdings Co., Ltd.
   
262,543
 
 
37,800
 
The Hiroshima Bank, Ltd.
   
288,333
 
 
8,800
 
The Nisshin Oillio Group, Ltd.
   
245,493
 
 
8,800
 
Tokyo Seimitsu Co., Ltd.
   
357,068
 
 
8,800
 
TS Tech Co., Ltd.
   
350,815
 
 
10,800
 
Ube Industries, Ltd.
   
316,467
 
 
10,800
 
Unizo Holdings Co., Ltd.
   
265,772
 
           
11,861,279
 
Malaysia - 1.5%        
 
348,000
 
AirAsia Bhd
   
357,724
 
 
612,900
 
Felda Global Ventures Holdings Bhd
   
264,348
 
           
622,072
 
Malta - 0.8%        
 
26,395
 
Kindred Group PLC, SDR
   
362,128
 
Netherlands - 1.6%        
 
9,048
 
ASR Nederland NV
   
386,876
 
 
7,636
 
Philips Lighting NV (b)
   
287,091
 
           
673,967
 
New Zealand - 1.2%        
 
56,470
 
a2 Milk Co., Ltd. (a)
   
510,640
 
Norway - 1.6%        
 
13,001
 
Aker BP ASA
   
352,455
 
 
39,295
 
Storebrand ASA
   
323,144
 
           
675,599
 
Portugal - 1.6%        
 
46,890
 
NOS SGPS SA
   
276,363
 
 
65,196
 
The Navigator Co. SA
   
384,106
 
           
660,469
 
Russian Federation - 0.9%        
 
63,047
 
Evraz PLC
   
384,460
 
Singapore - 2.2%        
 
369,600
 
Mapletree Greater China Commercial Trust
       
REIT    
324,820
 
 
28,400
 
Venture Corp., Ltd.
   
614,203
 
           
939,023
 
 
 
 
See Notes to Financial Statements.
LMCG FUNDS

32


LMCG INTERNATIONAL SMALL CAP FUND
SCHEDULE OF INVESTMENTS

 
Shares  
Security Description
 
Value
 
South Korea - 2.0%      
 
6,920
 
Hyundai Marine & Fire Insurance Co., Ltd.
 
$
256,666
 
 
14,454
 
Meritz Fire & Marine Insurance Co., Ltd.
   
287,941
 
 
9,717
 
WONIK IPS Co., Ltd.
   
302,560
 
           
847,167
 
Spain - 1.3%        
 
70,981
 
Ence Energia y Celulosa SA
   
535,780
 
Sweden - 3.6%        
 
34,274
 
Dometic Group AB (b)
   
313,983
 
 
6,534
 
Holmen AB, Class B
   
355,406
 
 
20,083
 
Mycronic AB
   
257,823
 
 
44,760
 
Resurs Holding AB (b)
   
317,062
 
 
52,472
 
SSAB AB, Class A
   
297,021
 
           
1,541,295
 
Switzerland - 3.6%        
 
838
 
Bucher Industries AG
   
350,167
 
 
290
 
Georg Fischer AG
   
388,273
 
 
12,623
 
Logitech International SA, Class R
   
463,326
 
 
3,859
 
Sunrise Communications Group AG (a)(b)
   
323,749
 
           
1,525,515
 
Taiwan - 1.1%        
 
157,181
 
China Life Insurance Co., Ltd.
   
163,957
 
 
95,000
 
Powertech Technology, Inc.
   
299,484
 
           
463,441
 
United Kingdom - 17.5%        
 
23,570
 
Abcam PLC
   
409,352
 
 
8,724
 
Bellway PLC
   
373,344
 
 
21,218
 
Bovis Homes Group PLC
   
339,009
 
 
21,847
 
CVS Group PLC
   
298,950
 
 
27,691
 
Dart Group PLC
   
323,600
 
 
53,972
 
Electrocomponents PLC
   
454,604
 
 
18,718
 
Greggs PLC
   
323,055
 
 
23,361
 
Halma PLC
   
386,701
 
 
161,720
 
Hansteen Holdings PLC REIT
   
289,757
 
 
144,968
 
Hays PLC
   
383,502
 
 
53,621
 
Howden Joinery Group PLC
   
347,083
 
 
37,727
 
IG Group Holdings PLC
   
422,530
 
 
59,290
 
JD Sports Fashion PLC
   
279,645
 
 
42,390
 
Jupiter Fund Management PLC
   
281,024
 
 
54,371
 
National Express Group PLC
   
294,772
 
 
6,494
 
Rightmove PLC
   
396,421
 
 
5,041
 
Spirax-Sarco Engineering PLC
   
406,650
 
 
100,342
 
Spire Healthcare Group PLC (b)
   
295,786
 
 
45,971
 
SSP Group PLC
   
394,894
 
 
33,855
 
The UNITE Group PLC REIT
   
375,690
 
 
10,021
 
Victrex PLC
   
361,307
 
           
7,437,676
 
Total Common Stock (Cost $36,237,470)    
40,294,290
 
 
Shares
 
Security Description
 
Rate
  Value  
Preferred Stock - 0.7%
           
Germany - 0.7%
           
 
3,196
  Draegerwerk AG & Co. KGaA             
   
(Cost $310,056)
 
0.46%
   
303,773
 
                   
Total Equity Securities (Cost $36,547,526)      
40,598,063
 
 
Shares  
Security Description
  Value  
Investment Company - 1.9%        
 
11,258
 
iShares MSCI EAFE ETF
       
   
(Cost $735,948)
   
784,457
 
Shares  
Security Description
 
Value
 
Money Market Fund - 1.9%      
 
825,356
  Dreyfus Treasury Prime Cash Management, Institutional Shares, 1.46% (c)        
   
(Cost $825,356)
 
$
825,356
 
         
Investments, at value - 99.5% (Cost $38,108,830)  
$
42,207,876
 
Other Assets & Liabilities, Net - 0.5%    
196,607
 
Net Assets - 100.0%  
$
42,404,483
 

ETF
Exchange Traded Fund
PLC
Public Limited Company
REIT
Real Estate Investment Trust
SDR
Swedish Depositary Receipt
(a)
Non-income producing security.
(b)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $1,854,310 or 4.4% of net assets.
(c)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.
 
The following is a summary of the inputs used to value the Fund's investments as of March 31, 2018.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Investments at Value
                       
Common Stock
                       
Australia
 
$
   
$
3,159,721
   
$
   
$
3,159,721
 
Austria
   
     
662,899
     
     
662,899
 
Belgium
   
     
602,004
     
     
602,004
 
Canada
   
490,632
     
     
     
490,632
 
China
   
     
410,982
     
     
410,982
 
Denmark
   
     
1,270,149
     
     
1,270,149
 
Finland
   
     
314,206
     
     
314,206
 
France
   
     
1,018,741
     
     
1,018,741
 
Georgia
   
     
336,900
     
     
336,900
 
Germany
   
     
2,011,994
     
     
2,011,994
 
Ireland
   
     
322,975
     
     
322,975
 
Italy
   
     
652,576
     
     
652,576
 
Japan
   
     
11,861,279
     
     
11,861,279
 
Malaysia
   
     
622,072
     
     
622,072
 
Malta
   
     
362,128
     
     
362,128
 
Netherlands
   
     
673,967
     
     
673,967
 
New Zealand
   
     
510,640
     
     
510,640
 
Norway
   
     
675,599
     
     
675,599
 
Portugal
   
     
660,469
     
     
660,469
 
Russian Federation
   
     
384,460
     
     
384,460
 
Singapore
   
     
939,023
     
     
939,023
 
South Korea
   
     
847,167
     
     
847,167
 
Spain
   
     
535,780
     
     
535,780
 
Sweden
   
     
1,541,295
     
     
1,541,295
 
Switzerland
   
     
1,525,515
     
     
1,525,515
 
Taiwan
   
     
463,441
     
     
463,441
 
United Kingdom
   
     
7,437,676
     
     
7,437,676
 
Preferred Stock
                               
Germany
   
     
303,773
     
     
303,773
 
Investment Company
   
784,457
     
     
     
784,457
 
Money Market Fund
   
     
825,356
     
     
825,356
 
Investments at Value
 
$
1,275,089
   
$
40,932,787
   
$
   
$
42,207,876
 
 
 
See Notes to Financial Statements.
LMCG FUNDS

33


LMCG INTERNATIONAL SMALL CAP FUND
SCHEDULE OF INVESTMENTS

 
The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
At March 31, 2018, foreign securities representing the following percentage of net assets of the Fund were fair valued by independent pricing services and are classified as using Level 2 inputs within the valuation inputs disclosure on the Fund’s Schedule of Investments:
 
LMCG International Small Cap Fund
     
Long Securities
   
94.58
%
 
PORTFOLIO HOLDINGS (Unaudited)
% of Total Investments
     
Australia
   
7.5
%
Austria
   
1.6
%
Belgium
   
1.4
%
Canada
   
1.2
%
China
   
1.0
%
Denmark
   
3.0
%
Finland
   
0.7
%
France
   
2.4
%
Georgia
   
0.8
%
Germany
   
5.5
%
Ireland
   
0.8
%
Italy
   
1.5
%
Japan
   
28.1
%
Malaysia
   
1.5
%
Malta
   
0.9
%
Netherlands
   
1.6
%
New Zealand
   
1.2
%
Norway
   
1.6
%
Portugal
   
1.6
%
Russian Federation
   
0.9
%
Singapore
   
2.2
%
South Korea
   
2.0
%
Spain
   
1.3
%
Sweden
   
3.6
%
Switzerland
   
3.6
%
Taiwan
   
1.1
%
United Kingdom
   
17.6
%
United States**
   
3.8
%
     
100.0
%

Includes Money Market Fund totaling 2.0%.
 
 
See Notes to Financial Statements.
LMCG FUNDS
 
34


LMCG INTERNATIONAL SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
 
ASSETS
     
Investments, at value (Cost $38,108,830)
 
$
42,207,876
 
Cash
   
5,343
 
Receivables:
       
Fund shares sold
   
25,946
 
Dividends
   
197,642
 
Prepaid expenses
   
21,573
 
Total Assets
   
42,458,380
 
LIABILITIES
       
Accrued Liabilities:
       
Investment adviser fees
   
3,668
 
Trustees’ fees and expenses
   
10
 
Fund services fees
   
7,846
 
Professional fees
   
25,401
 
Other expenses
   
16,972
 
Total Liabilities
   
53,897
 
NET ASSETS
 
$
42,404,483
 
COMPONENTS OF NET ASSETS
       
Paid-in capital
 
$
38,363,308
 
Distributions in excess of net investment income
   
(122,250
)
Accumulated net realized gain
   
63,088
 
Net unrealized appreciation
   
4,100,337
 
NET ASSETS
 
$
42,404,483
 
   
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
 
Institutional Shares
   
3,216,678
 
Investor Shares
   
84,150
 
         
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
       
Institutional Shares (based on net assets of $41,325,132)
 
$
12.85
 
Investor Shares (based on net assets of $1,079,351)
 
$
12.83
 
 
See Notes to Financial Statements.
LMCG FUNDS
35


LMCG INTERNATIONAL SMALL CAP FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2018
 
INVESTMENT INCOME
     
Dividend income (Net of foreign withholding taxes of $72,036)
 
$
573,172
 
Total Investment Income
   
573,172
 
EXPENSES
       
Investment adviser fees
   
189,478
 
Fund services fees
   
191,148
 
Transfer agent fees:
       
Institutional Shares
   
3,364
 
Investor Shares
   
2,489
 
Distribution fees:
       
Investor Shares
   
1,659
 
Custodian fees
   
60,379
 
Registration fees:
       
Institutional Shares
   
17,574
 
Investor Shares
   
16,116
 
Professional fees
   
39,664
 
Trustees' fees and expenses
   
6,116
 
Pricing fees
   
27,885
 
Other expenses
   
26,397
 
Total Expenses
   
582,269
 
Fees waived and expenses reimbursed
   
(350,530
)
Net Expenses
   
231,739
 
NET INVESTMENT INCOME
   
341,433
 
NET REALIZED AND UNREALIZED GAIN (LOSS)
       
Net realized gain (loss) on:
       
Investments
   
361,637
 
Foreign currency transactions
   
(13,492
)
Net realized gain
   
348,145
 
Net change in unrealized appreciation (depreciation) on:
       
Investments
   
3,468,557
 
Foreign currency translations
   
1,322
 
Net change in unrealized appreciation (depreciation)
   
3,469,879
 
NET REALIZED AND UNREALIZED GAIN
   
3,818,024
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
4,159,457
 
 
See Notes to Financial Statements.
LMCG FUNDS
36


LMCG INTERNATIONAL SMALL CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
 
   
For the Year
Ended
   
Through
 
OPERATIONS
           
Net investment income
 
$
341,433
   
$
88,806
 
Net realized gain
   
348,145
     
27,824
 
Net change in unrealized appreciation (depreciation)
   
3,469,879
     
445,076
 
Increase in Net Assets Resulting from Operations
   
4,159,457
     
561,706
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income:
               
Institutional Shares
   
(691,739
)
   
(155,074
)
Investor Shares
   
(17,439
)
   
(1,118
)
Total Distributions to Shareholders
   
(709,178
)
   
(156,192
)
                 
CAPITAL SHARE TRANSACTIONS
               
Sale of shares:
               
Institutional Shares (See Note 1)
   
31,800,489
     
5,985,369
 
Investor Shares
   
1,294,315
     
62,205
 
Reinvestment of distributions:
               
Institutional Shares
   
681,057
     
155,074
 
Investor Shares
   
17,439
     
1,118
 
Redemption of shares:
               
Institutional Shares
   
(710,168
)
   
(370,458
)
Investor Shares
   
(343,756
)
   
(23,994
)
Increase in Net Assets from Capital Share Transactions
   
32,739,376
     
5,809,314
 
Increase in Net Assets
   
36,189,655
     
6,214,828
 
                 
NET ASSETS
               
Beginning of Period
   
6,214,828
     
 
End of Period (Including line (a))
 
$
42,404,483
   
$
6,214,828
 
                 
SHARE TRANSACTIONS
               
Sale of shares:
               
Institutional Shares (See Note 1)
   
2,644,469
     
595,908
 
Investor Shares
   
105,505
     
6,066
 
Reinvestment of distributions:
               
Institutional Shares
   
53,166
     
15,776
 
Investor Shares
   
1,363
     
114
 
Redemption of shares:
               
Institutional Shares
   
(56,450
)
   
(36,191
)
Investor Shares
   
(26,640
)
   
(2,258
)
Increase in Shares
   
2,721,413
     
579,415
 
(a) Undistributed (distributions in excess of ) net investment income
 
$
(122,250
)
 
$
9,408
 
 
*
Commencement of operations.
 
See Notes to Financial Statements.
LMCG FUNDS
37


LMCG INTERNATIONAL SMALL CAP FUND
FINANCIAL HIGHLIGHTS
 
These financial highlights reflect selected data for a share outstanding throughout each period.
 
   
For the Year
Ended
   
Through
 
INSTITUTIONAL SHARES
           
NET ASSET VALUE, Beginning of Period
 
$
10.73
   
$
10.00
 
INVESTMENT OPERATIONS
               
Net investment income (b)
   
0.16
     
0.18
 
Net realized and unrealized gain
   
2.20
     
0.85
 
Total from Investment Operations
   
2.36
     
1.03
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income
   
(0.24
)
   
(0.30
)
Total Distributions to Shareholders
   
(0.24
)
   
(0.30
)
NET ASSET VALUE, End of Period
 
$
12.85
   
$
10.73
 
TOTAL RETURN
   
21.99
%
   
10.55
%(c)
                 
RATIOS/SUPPLEMENTARY DATA
               
Net Assets at End of Period (000s omitted)
 
$
41,325
   
$
6,173
 
Ratios to Average Net Assets:
               
Net investment income
   
1.27
%
   
1.78
%(d)
Net expenses
   
0.85
%
   
0.85
%(d)
Gross expenses (e)
   
2.08
%
   
8.57
%(d)
PORTFOLIO TURNOVER RATE
   
83
%
   
112
%(c)
 

 
(a)
Commencement of operations.
(b)
Calculated based on average shares outstanding during each period.
(c)
Not annualized.
(d)
Annualized.
(e)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
LMCG FUNDS
38


LMCG INTERNATIONAL SMALL CAP FUND
FINANCIAL HIGHLIGHTS
 
These financial highlights reflect selected data for a share outstanding throughout each period.
 
   
For the Year Ended
   
Through
 
INVESTOR SHARES
           
NET ASSET VALUE, Beginning of Period
 
$
10.71
   
$
10.09
 
INVESTMENT OPERATIONS
               
Net investment income (b)
   
0.11
     
0.09
 
Net realized and unrealized gain
   
2.22
     
0.82
 
Total from Investment Operations
   
2.33
     
0.91
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income
   
(0.21
)
   
(0.29
)
Total Distributions to Shareholders
   
(0.21
)
   
(0.29
)
NET ASSET VALUE, End of Period
 
$
12.83
   
$
10.71
 
TOTAL RETURN
   
21.74
%
   
9.24
%(c)
                 
RATIOS/SUPPLEMENTARY DATA
               
Net Assets at End of Period (000s omitted)
 
$
1,079
   
$
42
 
Ratios to Average Net Assets:
               
Net investment income
   
0.91
%
   
0.96
%(d)
Net expenses
   
1.10
%
   
1.10
%(d)
Gross expenses (e)
   
5.01
%
   
60.04
%(d)
PORTFOLIO TURNOVER RATE
   
83
%
   
112
%(c)
 

 
(a)
Commencement of operations.
(b)
Calculated based on average shares outstanding during each period.
(c)
Not annualized.
(d)
Annualized.
(e)
Reflects the expense ratio excluding any waivers and/or reimbursements.
 
See Notes to Financial Statements.
LMCG FUNDS
39


LMCG FUNDS
NOTES TO FINANCIAL STATEMENTS
 
Note 1. Organization

LMCG Global Market Neutral Fund, LMCG Global MultiCap Fund, and LMCG International Small Cap Fund (individually, a “Fund” and collectively, the “Funds”) are diversified portfolios of Forum Funds (the “Trust”). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of each Fund’s shares of beneficial interest without par value. Each Fund currently offers two classes of shares: Investor Shares and Institutional Shares. The LMCG Global Market Neutral Fund Investor Shares and Institutional Shares commenced operations on December 18, 2014, and May 21, 2013, respectively. The LMCG Global MultiCap Fund Investor Shares and Institutional Shares commenced operations on March 3, 2015, and September 11, 2013, respectively. The LMCG Global Market Neutral Fund seeks capital appreciation independent of equity market conditions. The LMCG Global MultiCap Fund seeks long-term capital appreciation. The LMCG International Small Cap Fund seeks long-term capital appreciation.

The LMCG International Small Cap Fund Investor Shares and Institutional Shares commenced operations on April 18, 2016, and April 1, 2016, respectively. On April 1, 2016, the LMCG International Small Cap Fund commenced operations through a reorganization of a collective investment trust into the Fund. The collective investment trust was previously managed by the Fund’s Adviser, as defined in Note 3, and portfolio management team. This collective investment trust was organized and commenced operations on August 26, 2010. The collective investment trust had an investment objective and strategies that were, in all material respects, identical to those of the Fund. The net assets and unrealized gain received by the Fund from this tax free reorganization were as follows:

Date of Contribution
Net Assets
   
Shares Issued
 
Cost of Investments Transferred
 
Unrealized Gain on Investments
 
 
$
4,792,193
     
479,219
   
$
4,360,020
   
$
185,382
 
 
In addition to the securities transferred in, as noted above, $246,791 of cash and other receivables, net of liabilities, were also transferred in as part of the reorganization.

Note 2. Summary of Significant Accounting Policies

The Funds are investment companies and follow accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of each Fund:

Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service. Shares of non-exchange traded open-end mutual funds are valued at net asset value (“NAV”). Short-term investments that mature in sixty days or less may be valued at amortized cost.

Each Fund values its investments at fair value pursuant to procedures adopted by the Trust’s Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 3, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in each Fund’s registration statement, performs certain functions as they relate to the administration and oversight of each Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.

The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. Foreign securities’ prices may be fair valued by independent pricing services in consideration of events occurring after the close of overseas markets and prior to the close of the NYSE. To the extent that securities
 
LMCG FUNDS
40


LMCG FUNDS
NOTES TO FINANCIAL STATEMENTS
 
are valued using this service, they will be classified as Level 2 securities in the fair value measurement framework described below. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.
 
Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different NAV than a NAV determined by using market quotes.

GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of each Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities respective local market closes and the close of the U.S. market.

Level 3 - Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments).

The aggregate value by input level, as of March 31, 2018, for each Fund’s investments is included at the end of each Fund’s Schedule of Investments.

Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income and expense are recorded on the ex-dividend date. Foreign dividend income and expense are recorded on the ex-dividend date or as soon as possible after determining the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.

Foreign Currency Translations – Foreign currency amounts are translated into U.S. dollars as follows: (1) assets and liabilities at the rate of exchange at the end of the respective period; and (2) purchases and sales of securities and income and expenses at the rate of exchange prevailing on the dates of such transactions. The portion of the results of operations arising from changes in the exchange rates and the portion due to fluctuations arising from changes in the market prices of securities are not isolated. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Foreign Currency Transactions – Each Fund may enter into transactions to purchase or sell foreign currency contracts and options on foreign currency. Forward currency contracts are agreements to exchange one currency for another at a future date and at a specified price. A fund may use forward currency contracts to facilitate transactions in foreign securities, to manage a fund’s foreign currency exposure and to protect the U.S. dollar value of its underlying portfolio securities against the effect of possible adverse movements in foreign exchange rates. These contracts are intrinsically valued daily based on forward rates, and a fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is recorded as a component of NAV. These instruments involve market risk, credit risk, or both kinds of risks, in excess of the amount recognized in the Statements of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks associated with these transactions, a fund could incur losses up to the entire contract amount, which may exceed the net unrealized value included in its NAV.

Securities Sold Short – The LMCG Global Market Neutral Fund may sell a security short to increase investment returns. The LMCG Global Market Neutral Fund may also sell a security short in anticipation of a decline in the market value of a security. A short sale is a transaction in which the Fund sells a security that it does not own. To complete the transaction, the Fund must borrow the security in
 
LMCG FUNDS
41


LMCG FUNDS
NOTES TO FINANCIAL STATEMENTS
 
order to deliver it to the buyer. The Fund must replace the borrowed security by purchasing it at market price at the time of replacement; the price may be higher or lower than the price at which the Fund sold the security. The Fund incurs a loss from a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund realizes a profit if the price of the security declines between those dates.
 
Until the Fund replaces the borrowed security, the Fund will maintain on its books and records cash and long securities to sufficiently cover its short position on a daily basis. The collateral for the securities sold short includes the Deposits with Broker as shown on the LMCG Global Market Neutral Fund's Statement of Assets and Liabilities and the securities held long as shown on the Schedule of Investments. Dividends and interest paid on securities sold short are recorded as an expense on the LMCG Global Market Neutral Fund's Statement of Operations.

Distributions to Shareholders – Each Fund declares any dividends from net investment income and pays them annually. Any net capital gains and net foreign currency gains realized by the Funds are distributed at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by each Fund, timing differences and differing characterizations of distributions made by each Fund.

Federal Taxes – Each Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of its taxable income to shareholders. In addition, by distributing in each calendar year substantially all of its net investment income and capital gains, if any, the Funds will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. Each Fund files a U.S. federal income and excise tax return as required. Each Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of March 31, 2018, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.

Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.

The Funds' class-specific expenses are charged to the operations of that class of shares. Income and expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on the class’ respective net assets to the total net assets of each Fund.

Commitments and Contingencies – In the normal course of business, each Fund enters into contracts that provide general indemnifications by each Fund to the counterparty to the contract. Each Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against each Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. Each Fund has determined that none of these arrangements requires disclosure on each Fund’s balance sheet.

Note 3. Fees and Expenses

Investment Adviser – LMCG Investments, LLC (the “Adviser”) is the investment adviser to the Funds. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee, payable monthly, at an annual rate of 1.00%, 0.70% and 0.70% of the average daily net assets of LMCG Global Market Neutral Fund, LMCG Global MultiCap Fund, and LMCG International Small Cap Fund, respectively. Prior to August 1, 2017, the Adviser received an advisory fee from the LMCG Global MultiCap Fund at an annual rate of 0.85%.

Distribution – Foreside Fund Services, LLC serves as each Fund’s distributor (the “Distributor”). The Funds have adopted a Distribution Plan (the “Plan”) for Investor Shares in accordance with Rule 12b-1 of the Act. Under the Plan, the Funds pay the Distributor and/or any other entity as authorized by the Board a fee of up to 0.25% of the average daily net assets of Investor Shares. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) (“Atlantic”) or their affiliates.

Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to each Fund. The fees related to these services are included in Fund services fees within the Statements of Operations. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, each Fund pays Atlantic customary fees for its services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to each Fund, as well as certain additional compliance support functions.
 
LMCG FUNDS
42


LMCG FUNDS
NOTES TO FINANCIAL STATEMENTS
 
Trustees and Officers – Through December 31, 2017, the Trust paid each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman), and the Audit Committee Chairman and Vice Chairman received an additional $6,000 annually. Effective January 1, 2018, each independent Trustee’s annual retainer is $31,000 ($41,000 for the Chairman), and the Audit Committee Chairman receives an additional $2,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees’ fees attributable to each Fund is disclosed in the Statement of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from each Fund.

Note 4. Expense Reimbursement and Fees Waived

The Adviser has contractually agreed to waive a portion of its fees and reimburse certain expenses through at least July 31, 2018, to limit total annual operating expenses (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) as follows:

   
Investor Shares
Institutional Shares
 
 
LMCG Global Market Neutral Fund
1.85%
1.60%
 
 
LMCG Global MultiCap Fund*
1.15%
0.90%
 
 
LMCG International Small Cap Fund
1.10%
0.85%
 
 
*
Prior to August 1, 2017, the Adviser had contractually agreed to waive a portion of its fees and reimburse certain expenses of the LMCG Global MultiCap Fund Investor Shares and Institutional Shares to 1.45% and 1.20%, respectively.
 
Other Fund service providers have voluntarily agreed to waive a portion of their fees. The contractual waivers may be changed or eliminated at any time with consent of the Board and voluntary fee waivers and expense reimbursements may be reduced or eliminated at any time. For the year ended March 31, 2018, fees waived and expenses reimbursed were as follows:

   
Investment Adviser
Fees Waived
   
Investment Adviser Expenses Reimbursed
   
Other Waivers
   
Total Fees Waived and
Expenses Reimbursed
 
LMCG Global Market Neutral Fund
 
$
182,838
   
$
   
$
72,259
   
$
255,097
 
LMCG Global MultiCap Fund
   
15,600
     
202,002
     
80,757
     
298,359
 
LMCG International Small Cap Fund
   
189,478
     
54,430
     
106,622
     
350,530
 
 
The Adviser may be reimbursed by each Fund for fees waived and expenses reimbursed by the Adviser pursuant to the Expense Cap if such payment is made within three years of the fee waiver or expense reimbursement, and does not cause the Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement to exceed the lesser of (i) the then-current expense cap, or (ii) the expense cap in place at the time the fees/expenses were waived/reimbursed.

As of March 31, 2018, $1,060,854, $628,560 and $539,241 in the LMCG Global Market Neutral Fund, LMCG Global MultiCap Fund, and LMCG International Small Cap Fund, respectively is subject to recapture by the Adviser. Other Waivers are not eligible for recoupment.

Note 5. Security Transactions

The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments during the year ended March 31, 2018, were as follows:

     
Purchases
   
Sales
   
 
LMCG Global Market Neutral Fund
 
$
42,985,530
   
$
76,668,368
   
 
LMCG Global MultiCap Fund
   
881,707
     
975,205
   
 
LMCG International Small Cap Fund
   
53,767,940
     
22,001,364
   

LMCG FUNDS
43


LMCG FUNDS
NOTES TO FINANCIAL STATEMENTS
 
Note 6. Federal Income Tax

As of March 31, 2018, the cost of federal income tax purposes and the components of net unrealized appreciation (depreciation) were as follows:
 

   
Tax Cost of Investments
   
Gross Unrealized
Appreciation
   
Gross Unrealized
Depreciation
   
Net Unrealized
Appreciation
 
LMCG Global Market Neutral Fund
 
$
(6,149,865
)
 
$
12,637,181
   
$
(4,085,219
)
 
$
8,551,962
 
LMCG Global MultiCap Fund
   
1,714,862
     
430,183
     
(95,395
)
   
334,788
 
LMCG International Small Cap Fund
   
38,718,786
     
4,490,197
     
(1,001,107
)
   
3,489,090
 
 
Distributions paid during the fiscal years/periods ended as noted were characterized for tax purposes as follows:

   
Ordinary Income
   
Long-Term Capital Gain
   
Total
 
LMCG Global Market Neutral Fund
                 
2018
 
$
   
$
   
$
 
2017
   
     
     
 
LMCG Global MultiCap Fund
                       
2018
   
58,948
     
63,581
     
122,529
 
2017
   
19,333
     
14,340
     
33,673
 
LMCG International Small Cap Fund
                       
2018
   
709,178
     
     
709,178
 
2017
   
156,192
     
     
156,192
 
 
As of March 31, 2018, distributable earnings (accumulated loss) on a tax basis were as follows:

   
Undistributed
Ordinary Income
   
Undistributed Long-Term Gain
   
Capital and
Other Losses
   
Unrealized
Appreciation
   
Total
 
LMCG Global Market Neutral Fund
 
$
   
$
   
$
(9,209,006
)
 
$
8,556,080
   
$
(652,926
)
LMCG Global MultiCap Fund
   
20,919
     
39,794
     
     
334,237
     
394,950
 
LMCG International Small Cap Fund
   
483,970
     
66,824
     
     
3,490,381
     
4,041,175
 
 
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statements of Assets and Liabilities are primarily due to differing book to tax treatment of investments in real estate investment trusts (REITs), passive foreign investment holdings (PFICs), straddles, wash sales, reclassification of dividend income to return of capital on corporate securities, and short dividends for the LMCG Global Market Neutral Fund; REITs, PFICs, wash sales and reclassification of dividend income to return of capital on corporate securities for the LMCG Global MultiCap Fund; and PFICs and wash sales for the LMCG International Small Cap Fund.

The LMCG Global Market Neutral Fund has $9,017,557 of available short term capital loss carryforwards that have no expiration date.

For tax purposes, the current year late year ordinary loss was $191,449 for the LMCG Global Market Neutral Fund (realized during the period November 1, 2017 through March 31, 2018). This loss will be recognized for tax purposes on the first business day of the Fund’s next fiscal year, April 1, 2018.

On the Statements of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended March 31, 2018. The following reclassifications were the result of net operating losses, short dividends, currency gain/ loss, PFICs, REITs, and equity return of capital and have no impact on the net assets of each Fund.

   
Undistributed Net Investment Income (Loss)
   
Accumulated Net Realized
Gain (Loss)
   
Paid-in-Capital
 
LMCG Global Market Neutral Fund
 
$
511,950
   
$
(329,887
)
 
$
(182,063
)
LMCG Global MultiCap Fund
   
10,896
     
(10,896
)
   
 
LMCG International Small Cap Fund
   
236,087
     
(236,087
)
   
 
 
Note 7. Risk of Concentration

Because The LMCG International Small Cap Fund’s investments may be concentrated in a particular geographic region or country, the value of The LMCG International Small Cap Fund’s shares may be affected by events that adversely affect that region or country and may fluctuate more than that of a less concentrated fund.
 
LMCG FUNDS
44

 

LMCG FUNDS
NOTES TO FINANCIAL STATEMENTS

 
Note 8. Subsequent Events

Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and each Fund has had no such events.
 
LMCG FUNDS
45


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Trustees of Forum Funds
and the Shareholders of the LMCG Global Market Neutral Fund,
LMCG Global MultiCap Fund, and LMCG International Small Cap Fund
 
Opinion on the Financial Statements
 
We have audited the accompanying statements of assets and liabilities of LMCG Global Market Neutral Fund, LMCG Global MultiCap Fund, and LMCG International Small Cap Fund, each a series of shares of beneficial interest in Forum Funds (the “Funds”), including the schedules of investments, as of March 31, 2018, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years or period in the two-year period then ended and the financial highlights for each of the years or periods in the five-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of March 31, 2018, and the results of their operations for the year then ended, the changes in their net assets for each of the years or period in the two-year period then ended and their financial highlights for each of the years or periods in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Funds' management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risk of material misstatement of those financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and broker. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


BBD, LLP

We have served as the auditor of one or more of the Funds in the Forum Funds since 2009.

Philadelphia, Pennsylvania
May 24, 2018
 
LMCG FUNDS
46


LMCG FUNDS
ADDITIONAL INFORMATION (Unaudited)

 
Investment Advisory Agreement Approval

At the December 8, 2017 Board meeting, the Board, including the Independent Trustees, considered the approval of the continuance of the investment advisory agreement between the Adviser and the Trust as it relates to services provided to the LMCG Global Market Neutral Fund, LMCG Global MultiCap Fund, and LMCG International Small Cap Fund (the “Advisory Agreement”). In preparation for its deliberations, the Board requested and reviewed written responses from the Adviser to a due diligence questionnaire circulated on the Board's behalf concerning the services provided by the Adviser. The Board also discussed the materials with Fund counsel and, as necessary, with the Trust's administrator, Atlantic Fund Services. During its deliberations, the Board received an oral presentation from the Adviser, and was advised by Trustee counsel.

At the meeting, the Board reviewed, among other matters: (1) the nature, extent and quality of the services provided to the Funds by the Adviser, including information on the investment performance of the Funds and Adviser; (2) the costs of the services provided and profitability to the Adviser of its relationship with each of the Funds; (3) the advisory fee and total expense ratio of each of the Funds compared to a relevant peer group of funds; (4) the extent to which economies of scale may be realized as each of the Funds grows and whether each Fund’s advisory fee enables the Funds’ investors to share in the benefits of economies of scale; and (5) other benefits received by the Adviser from its relationship with each of the Funds. In addition, the Board recognized that the evaluation process with respect to the Adviser was an ongoing one and, in this regard, the Board considered information provided by the Adviser at regularly scheduled meetings during the past year.

Nature, Extent and Quality of Services

Based on written materials received, a presentation from senior representatives of the Adviser, and a discussion with the Adviser about the Adviser’s personnel, operations and financial condition, the Board considered the quality of services provided by the Adviser under the Advisory Agreement. In this regard, the Board considered information regarding the experience, qualifications and professional background of the portfolio managers and other personnel at the Adviser with principal responsibility for the Funds, as well as the investment philosophy and decision-making process of those professionals and the capability and integrity of the Adviser’s senior management and staff.

The Board considered also the adequacy of the Adviser’s resources. The Board noted the Adviser’s representations that the firm is in stable financial condition and has the operational capability and the necessary staffing and experience to continue providing high-quality investment advisory services and to meet its financial commitments to each of the Funds. Based on the presentation and the materials provided by the Adviser in connection with the Board’s consideration of the approval of the Advisory Agreement, the Board concluded that, overall, it was satisfied with the nature, extent and quality of services to be provided to the Funds under the Advisory Agreement.

Performance

In connection with a presentation by the Adviser regarding its management of the Funds, the Board reviewed the performance of the Funds compared to their respective benchmarks and compared to independent peer groups of funds identified by Broadridge Financial Solutions, Inc. (“Broadridge”).

The Board observed that the LMCG Global Market Neutral Fund outperformed the Citigroup 3-Month Treasury Bill Index, the LMCG Global Market Neutral Fund’s primary benchmark index, for the one- and three-year periods ended September 30, 2017 and for the period since the LMCG Global Market Neutral Fund’s inception on May 21, 2013. The Board also considered the LMCG Global Market Neutral Fund’s performance relative to its Broadridge peer group, noting that the LMCG Global Market Neutral Fund underperformed the median of its Broadridge peers for the one- and three-year periods ended September 30, 2017. The Board noted the Adviser’s representation that the LMCG Global Market Neutral Fund’s performance was negatively impacted by allocations to countries and sectors that underperformed the overall market during the periods, as well as political risk in the U.S. and abroad that contributed to elevated levels of macro uncertainty and detracted from performance. The Board noted the Adviser’s representation that the LMCG Global Market Neutral Fund was believed to be well-positioned and that the LMCG Global Market Neutral Fund’s core-style, which included a balanced stock selection approach, was intended to outperform over the longer term.

The Board observed that the LMCG International Small Cap Fund underperformed the MSCI EAFE Small Cap Net Total Return Index, the LMCG International Small Cap Fund’s primary benchmark index, for the one-year period ended September 30, 2017. The Board observed that the LMCG International Small Cap Fund outperformed the primary benchmark index for the three- and five-year periods ended September 30, 2017 and for the period since the LMCG International Small Cap Fund’s inception on August 26, 2010, noting
 
LMCG FUNDS

47


LMCG FUNDS
ADDITIONAL INFORMATION (Unaudited)

 
that that the LMCG International Small Cap Fund had commenced operations as a new series of the Trust after reorganizing from a separate collective investment fund on April 1, 2016. The Board also considered the LMCG International Small Cap Fund’s performance relative to its Broadridge peer group, noting that the LMCG International Small Cap Fund underperformed the median of its Broadridge peers for the one-year period ended September 30, 2017. The Board noted the Adviser’s representation that the LMCG International Small Cap Fund’s underperformance over the one-year period relative to the index and peer group could be attributed, in part, to asset allocations to countries and sectors that underperformed the overall market during the period. The Board also noted the Adviser’s representation that it was confident in the LMCG International Small Cap Fund’s strategy and expected the LMCG International Small Cap Fund to outperform in the long-run, as evidenced by the LMCG International Small Cap Fund’s outperformance during the period since inception.
 
The Board observed that the LMCG Global MultiCap Fund outperformed the MSCI ACWI Market Index, the LMCG Global MultiCap Fund’s primary benchmark index, for the one- and three-year periods ended September 30, 2017 and for the period since the LMCG Global MultiCap Fund’s inception on September 11, 2013. The Board also considered the LMCG Global MultiCap Fund’s performance relative to its Broadridge peer group, noting that the LMCG Global MultiCap Fund outperformed the median of its Broadridge peer group for the one- and three-year periods ended September 30, 2017. The Board noted the Adviser’s representation that the LMCG Global MultiCap Fund benefited from its overweight exposures to emerging market countries, as well as financial services companies within the U.S.

Based on the foregoing and other applicable considerations, the Board determined that the performance of each of the Funds was reasonable and that the Funds and their shareholders could benefit from the Adviser’s continued management of the Funds under the Advisory Agreement.

Compensation

The Board evaluated the Adviser’s compensation for providing advisory services to each of the Funds and analyzed comparative information on actual advisory fee rates and actual total expenses of each of the Fund’s relevant Broadridge peer group. The Board noted that the Adviser’s actual advisory fee rate for each of the Funds was below the median of its respective Broadridge peer group. The Board noted that the actual total expenses of the LMCG Global Market Neutral Fund and LMCG Global MultiCap Fund were higher than the median of their respective Broadridge peers and that the actual total expenses of the LMCG International Small Cap Fund were below the median of its Broadridge peers. The Board noted the Adviser’s representation that it had agreed to contractually cap the expenses of each of the Funds to ensure those expenses remained at competitive levels. The Board further noted that the Adviser had recently lowered the expense cap for the LMCG Global Market Neutral Fund. Based on the foregoing and other applicable considerations, the Board concluded that the advisory fee rate charged to each of the Funds were reasonable.

Cost of Services and Profitability

The Board considered information provided by the Adviser regarding the costs of services and its profitability with respect to the Funds in the aggregate. In this regard, the Board considered the Adviser’s resources devoted to the Funds in the aggregate, as well as the Adviser’s discussion of the aggregate costs and profitability of its mutual fund activities. The Board also noted the Adviser’s representation that it continued to subsidize the Funds to ensure that the expenses of the Funds remained at competitive levels. Based on these and other applicable considerations, the Board concluded that the Adviser’s profits attributable to management of each of the Funds were reasonable.

Economies of Scale

The Board considered whether the Funds would benefit from any economies of scale. In this respect, the Board noted the Adviser’s observation that, although each of the Funds could benefit from economies of scale as assets grow, given the current low asset levels associated with each of the Funds, consideration of breakpoints at this time would be premature. Based on the foregoing information, the Board concluded that economies of scale were not a material factor in approving the continuation of the Advisory Agreement.

Other Benefits

The Board noted the Adviser’s representation that it would be receiving a benefit arising from the use of soft dollars resulting from trading for the Funds to acquire research that would benefit the Adviser’s clients generally. The Board concluded that the Adviser’s receipt of other benefits was not a material factor in the Board’s approval of the Advisory Agreement.
 
LMCG FUNDS
48


LMCG FUNDS
ADDITIONAL INFORMATION (Unaudited)

 
Conclusion

The Board did not identify any single factor as being of paramount importance, and different Trustees may have given different weight to different factors. The Board reviewed a memorandum from Fund counsel discussing the legal standards applicable to its consideration of the Advisory Agreement. Based on its review, including consideration of each of the factors referenced above, the Board determined, in the exercise of its reasonable business judgment, that the advisory arrangement, as outlined in the Advisory Agreement, was fair and reasonable in light of the services performed, expenses incurred and such other matters as the Board considered relevant.

Shareholder Proxy Vote

At a special meeting of shareholders for all the Funds in the Trust, held on December 8, 2017, shares were voted as follows on the proposals presented to shareholders:

Matter
For
Against
Abstain
To elect David Tucker
to the Board of Trustees of the Trust.
108,303,928.779
1,542,957.997
0
To elect Jennifer Brown-Strabley
to the Board of Trustees of the Trust.
108,183,952.495
1,662,934.278
0
To elect Mark D. Moyer
to the Board of Trustees of the Trust.
108,142,412.946
1,704,473.827
0
To elect Jessica Chase
to the Board of Trustees of the Trust.
107,632,924.803
2,213,961.970
0
To elect Stacey E. Hong
to the Board of Trustees of the Trust.
105,777,266.997
4,069,619.776
0
 
Proxy Voting Information

A description of the policies and procedures that each Fund uses to determine how to vote proxies relating to securities held in each Fund’s portfolio is available, without charge and upon request, by calling (877) 591-4667 and on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. Each Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (877) 591-4667 and on the SEC’s website at www.sec.gov.

Availability of Quarterly Portfolio Schedules

Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.

Shareholder Expense Example

As a shareholder of the Funds, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2017 through March 31, 2018.

Actual Expenses – The first line under each share class of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
 
LMCG FUNDS
49


LMCG FUNDS
ADDITIONAL INFORMATION (Unaudited)

 
Hypothetical Example for Comparison Purposes – The second line under each share class of the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.

   
Beginning Account Value October 1, 2017
   
Ending Account Value March 31, 2018
   
Expenses Paid During Period*
 
Annualized Expense Ratio*
 
LMCG Global Market Neutral Fund
                     
Institutional Shares
                     
Actual
 
$1,000.00
   
$987.24
   
$7.93
 
1.60%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,016.95
   
$8.05
 
1.60%
 
Investor Shares
                     
Actual
 
$1,000.00
   
$985.32
   
$9.16
 
1.85%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,015.71
   
$9.30
 
1.85%
 
LMCG Global MultiCap Fund
                     
Institutional Shares
                     
Actual
 
$1,000.00
   
$1,034.29
   
$5.38
 
1.06%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,019.65
   
$5.34
 
1.06%
 
Investor Shares
                     
Actual
 
$1,000.00
   
$1,033.87
   
$6.39
 
1.26%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,018.65
   
$6.34
 
1.26%
 
LMCG International Small Cap Fund
                     
Institutional Shares
                     
Actual
 
$1,000.00
   
$1,058.97
   
$4.36
 
0.85%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,020.69
   
$4.28
 
0.85%
 
Investor Shares
                     
Actual
 
$1,000.00
   
$1,058.33
   
$5.64
 
1.10%
 
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,019.45
   
$5.54
 
1.10%
 

*
Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182) divided by 365 to reflect the half-year period.
 
Federal Tax Status of Dividends Declared during the Fiscal Year

For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. LMCG Global MultiCap Fund designates 30.50% of its income dividend distributed as qualifying for the corporate dividends received deduction (DRD), 70.78% for the qualified dividend rate (QDI), and 38.27% as qualified short term capital gain dividends exempt from U.S. tax for foreign shareholders (QSD) as defined in Section 1(h)(11) of the Code. LMCG International Small Cap Fund also designates 35.50% as QDI.

Trustees and Officers of the Trust

The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. Each Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (877) 591-4667.
 
LMCG FUNDS
50


LMCG FUNDS
ADDITIONAL INFORMATION (Unaudited)

 
 
 
 
Name and Year of Birth
 
 
 
Position with the Trust
 
 
Length of Time Served
 
 
Principal Occupation(s) During Past Five Years
Number of Series in Fund Complex Overseen By Trustee
Other Directorships Held By Trustee During Past Five Years
Independent Trustees
David Tucker
Born: 1958
Trustee; Chairman of the
Board
Since 2011 and Chairman since 2018
Director, Blue Sky Experience (a charitable endeavor) since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm) 1998-2008.
3
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Mark D. Moyer
Born: 1959
Trustee
Since 2018
Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy) since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011- 2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008-2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012.
3
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Jennifer Brown-Strabley
Born: 1964
Trustee
Since 2018
Principal, Portland Global Advisors, 1996-2010.
3
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Interested Trustee
Stacey E. Hong(1)
Born: 1966
Trustee
Since 2018
President, Atlantic since 2008.
3
Trustee, Forum Funds II and U.S. Global Investors Funds
Born: 1970
Trustee
Since 2018
Senior Vice President, Atlantic
since 2008.
3
None
 
(1)
Stacey E. Hong is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to his affiliation with Atlantic. Jessica Chase is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to her affiliation with Atlantic and her role as President of the Trust.
 
LMCG FUNDS
51


LMCG FUNDS
ADDITIONAL INFORMATION (Unaudited)

 
 
Name and Year of Birth
Position with the Trust
 
Length of Time Served
Principal Occupation(s)
During Past 5 Years
Officers
Born: 1970
President; Principal Executive Officer
Since 2015
Senior Vice President, Atlantic since 2008.
Born: 1972
Treasurer; Principal Financial Officer
Since 2008
Senior Vice President, Atlantic since 2008.
Zachary Tackett
Born: 1988
Vice President; Secretary and Anti- Money Laundering Compliance Officer
Since 2014
Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010-2013.
Michael J. McKeen
Born: 1971
Vice President
Since 2009
Senior Vice President, Atlantic since 2008.
Timothy Bowden
Born: 1969
Vice President
Since 2009
Manager, Atlantic since 2008.
Geoffrey Ney
Born: 1975
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Todd Proulx
Born: 1978
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Carlyn Edgar
Born: 1963
Vice President
Since 2008
Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016
Dennis Mason
Born: 1967
Chief Compliance Officer
Since 2016
Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011-2013; Senior Analyst, Atlantic, 2008-2011
 
LMCG FUNDS
52

 
(LMCC LOGO)
 
FOR MORE INFORMATION:
P.O. Box 588
Portland, ME 04112
(877) 591-4667 (toll free)

INVESTMENT ADVISER
LMCG Investments, LLC
200 Clarendon Street, 28th Floor
Boston, MA 02116

TRANSFER AGENT
Atlantic Fund Services
P.O. Box 588
Portland, ME 04112
www.atlanticfundservices.com

DISTRIBUTOR
Foreside Fund Services, LLC
Three Canal Plaza, Suite 100
Portland, Maine 04101
www.foreside.com
 
This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus, which includes information regarding the Funds’ risks, objectives, fees and expenses, experience of its management, and other information.

210-ANR-0318


(FRONT COVER PAGE)


A MESSAGE TO OUR SHAREHOLDERS (Unaudited)
 
Dear Shareholder,
 
We present the annual report for the Merk Hard Currency Fund®, and Merk Absolute Return Currency Fund® (individually a “Fund” and collectively the “Funds”) with respect to the period April 1, 2017 through March 31, 2018 (the “Period”).
 
The Merk Hard Currency Fund seeks to profit from a rise in hard currencies relative to the U.S. dollar.
The Adviser will determine currency allocations based on its analysis of monetary policies pursued by central banks and economic environments.

 
As of March 31, 2018
(annualized return)
 
 
1 year
 
5 year
 
10 year
Since inception
5/10/05
Merk Hard Currency Fund Investor Shares (MERKX)
+9.54%
-2.44%
-0.54%
+1.88%
JPMorgan 3-Month Global Cash Index (“reference basket”)
+9.88%
-1.81%
-1.10%
+1.17%
 
The Fund’s performance data represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Please visit www.merkfunds.com for most recent month end performance. The Fund’s expense ratio for the Investor Shares is 1.30%.
The Merk Absolute Return Currency Fund seeks to generate positive absolute returns by investing in securities and instruments that create exposure to currencies.
In seeking to achieve positive absolute returns, the Adviser makes strategic and tactical currency exposure allocations based on quantitative and qualitative analyses. Systematic trading signals are derived from these analyses and may be integrated using market regime analysis. The Adviser uses a proprietary statistical framework to identify dynamics in market regimes that are defined by risk characteristics. Market regime analysis and statistical analysis are utilized to provide a probabilistic-based system for aggregating trading signals received from quantitative and qualitative analyses.
 
 
As of March 31, 2018
(annualized return)
 
 
1 year
 
5 year
Since updates*
6/30/12
Since inception
9/9/09
Merk Absolute Return Currency Fund Investor Shares (MABFX)
+2.35%
+1.09%
+2.38%
-0.06%
Citigroup 3-Month U.S. T-Bill Index (“reference basket”)
+1.07%
+0.31%
+0.28%
+0.22%(1)
 
*
Effective 06/30/2012, risk sentiment & macro models were added to Merk Absolute Return Currency Fund.
 
The Fund’s performance data represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Please visit www.merkfunds.com for most recent month end performance. The Fund’s expense ratio for the Investor Shares is 1.31%.
 

 

1
Note that data is not available for the reference basket on the inception date of the Merk Absolute Return Currency Fund (September 9, 2009). As such, performance for the reference basket is calculated for the time period August 31, 2009 through March 31, 2018, whereas performance for the Fund is calculated for the period since inception through March 31, 2018.
1

Merk Hard Currency Fund
 
In Q2 2017 the U.S. dollar weakened versus all G10 currencies (10 of the most heavily traded currencies in the world) except for the Japanese yen and gold, which were slightly weaker in the period. The euro was the best performer, appreciating 7.27% against the U.S. dollar. Hawkish rhetoric from European Central Bank (ECB) President was a driver of euro strength as the market moved to price in ECB tapering. The Fund closed its short position in the yen.

In Q3 2017 the U.S. dollar was mostly weaker versus G10 currencies. The Fund benefited most from long positions in the euro, the Swedish krona, and the Norwegian krone. The very small position in the New Zealand dollar limited the adverse impact of the decline in that currency versus the U.S. dollar.

In Q4 2017 the U.S. dollar was mixed versus G10 currencies. The best performer was the euro, which appreciated 1.62% vs the U.S. dollar. The Norwegian krone was the worst performer and declined 2.94% versus the U.S. dollar. The Swedish krona was also down. The Fund benefited from the long position in the euro, but the Norwegian krone and Swedish krona positions more than offset the euro gains even as the Fund had trimmed those positions during the quarter.

In Q1 2018 the U.S. dollar was weak versus most G10 currencies. The Japanese yen was the best performer and the Swedish krona the worst performer. The Fund was up 1.85% for the quarter, primarily on the euro and Japanese yen positions. The yen was the second largest position in the fund, behind the euro. During the quarter the Fund slightly reduced the Australian dollar and euro positions, and slightly increased the Canadian dollar position.

We continue to believe the market is under-pricing higher rates that may take place over time in various countries outside the U.S., notably in the Eurozone where the European Central Bank (“ECB”) is likely to end its quantitative easing (“QE”) program after September 2018. Together with the Fed’s balance sheet reduction, we expect financial conditions to further tighten, that is risk premia to increase. This means the recent selloff in so-called risk assets, notably equities and junk bonds, might continue. The combination of higher rates gradually being priced in outside the U.S., as well as possibly lower or stable yields in U.S. Treasuries due to tighter financial conditions, may serve as a catalyst for the U.S. dollar to continue its decline.

Rising trade tensions may also hurt the U.S. dollar. To explain why, consider that the current account balance is defined as savings minus investments. As such, the current account balance is a dependent variable. To give an example, if tariffs are introduced to make it more expensive for Americans to buy goods from China, our analysis suggests it makes it more difficult for China to finance U.S. government budget deficits, possibly leading to a weaker dollar, higher U.S. rates, or both. Indeed, that is exactly what we have seen of late: a weaker U.S. dollar despite higher U.S. rates. Should trade tensions escalate, we may well see further dollar weakness.

In this context, we encourage investors to consider the Merk Hard Currency Fund to potentially profit from a rise in hard currencies versus the U.S. dollar.

Merk Absolute Return Currency Fund
 
Since implementation of strategy enhancements on June 30, 2012 through March 31, 2018, the Merk Absolute Return Currency Fund (here “MABFX” or “the Fund”) had a cumulative return of +14.43% (annualized +2.38%) at an annualized volatility, (the measure of variability of returns on an annualized basis), of 6.46%. Over the past 12 months, ending in March 31, 2018, MABFX had a cumulative performance of 2.35% at an annualized volatility of 4.86%.

In 2017, MABFX posted gains for both Q2 and Q3, driven in part by tactical trading opportunities surrounding the French elections in May, and by strategic long positioning in the Norwegian krone. The Fund added a gain in Q4, positively attributed by profits from tactically trading the Canadian dollar.

In January of 2018, MABFX suffered from general U.S. dollar weakness, as the Fund held key short positions in the Swiss franc and the New Zealand dollar. As the U.S. dollar recovered in February, Fund performance was detracted by strategic long positions in the Canadian dollar and Swedish krona. The Fund posted a 0.34% gain for March, mostly attributable to a long position in the Japanese yen, and closed Q1 with a -2.95% loss.

Quietly, there has been pressure building in U.S. dollar funding, in part due to regulatory changes in money markets, tax repatriation of overseas corporate earnings, and a flood of U.S. T-Bill issuances. Although seemingly structural in nature, the full consequences of this funding pressure have yet to be seen. Higher levels of volatility and wider credit spreads have been historically precursors of late stages in the credit cycle. And while fixed income and currency markets have so far been largely isolated from an increase in implied volatility, we believe it is a matter of time until volatility transfers and the market experiences a more sustainable decompression of risk.
2

We continue to urge investors to prepare for this change in market conditions. The Fund’s systematic foreign exchange strategy seeks to capitalize from risk transitions, and we believe this year’s market environment may create profit opportunities for MABFX, providing investors in the Fund with upside potential and diversification to their portfolios through its uncorrelated returns.

In the dynamics that might ensue in the currency space – we dub them “Currency Wars”, investors may want to consider a combination of the Merk Funds as part of their tool box. If you know of friends who might benefit from the Merk Funds, please ask them to visit merkfunds.com to learn more about the Funds.

Sincerely,

-S-Axel G. Merk
 
Axel G. Merk
President & Chief Investment Officer
 

 
The views in this Report were those of the Fund Manager as of March 31, 2018 and may not reflect the views of the Manager on the date this Report is first published or anytime thereafter. These views are intended to assist shareholders of the Fund in understanding their investments in a Fund and do not constitute investment advice. The Funds’ performances are influenced by changes in exchange rates of currencies to which the Funds may have had exposure to through derivatives. Over time, the Funds seek to generate more gains from securities than derivatives.

Since the Funds are primarily exposed to foreign currencies, changes in currency exchange rates will affect the value of what the respective Fund owns and the price of the Fund’s shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Funds are subject to interest rate risk, which is the risk that debt securities in a Fund’s portfolio will decline in value because of increases in market interest rates. As a non-diversified fund, the Merk Hard Currency Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. The Funds may also invest in derivative securities, which can be volatile and involve various types and degrees of risk.

The Citigroup 3-Month U.S. T-Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3-month Treasury Bill issues. It is not possible to invest directly in an unmanaged index.

The JPMorgan 3-Month Global Cash Index tracks total returns of three-month constant maturity euro-currency deposits. The euro-currency deposits are the only short-term securities consistent across all markets in terms of liquidity, maturity and credit quality. The index is unmanaged and includes reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. JPMorgan does not sponsor, endorse or promote the Merk Hard Currency Fund in connection with any reference to the JPMorgan 3-Month Global Cash Index. JPMorgan makes no representation or warranty, express or implied regarding the advisability of investing in securities generally or in any product particularly or the ability of the JPMorgan 3-Month Global Cash Index to track general bond market performance.
3

MERK HARD CURRENCY FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
 
The following chart reflects the change in the value of a hypothetical $10,000 investment in Investor Shares, including reinvested dividends and distributions, in the Merk Hard Currency Fund (the “Fund”) compared with the performance of the benchmark, JPMorgan 3-Month Global Cash Index, over the past ten fiscal years. The JPMorgan 3-Month Global Cash Index tracks total returns of three-month constant maturity euro-currency deposits. The euro-currency deposits are the only short-term securities consistent across all markets in terms of liquidity, maturity and credit quality. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.

Comparison of Change in Value of a $10,000 Investment
Merk Hard Currency Fund Investor Shares vs. JPMorgan 3-Month Global Cash Index
 
(BAR CHART)
 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Five Year
Ten Year
Merk Hard Currency Fund Investor Shares
9.54%
-2.44%
-0.54%
Merk Hard Currency Fund Institutional Shares*
9.82%
-2.16%
-0.32%
JPMorgan 3-Month Global Cash Index
9.88%
-1.81%
-1.10%

*
For the Institutional Shares, performance for the above ten year period is a blended average annual return which is based on the return of the Investor Shares prior to April 1, 2010, the commencement of operations of the Institutional Shares.
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Investor Shares and Institutional Shares are 1.30% and 1.05%, respectively. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (866) 637-5386 or visit www.merkfunds.com.
4

MERK ABSOLUTE RETURN CURRENCY FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)
 
 
The following chart reflects the change in the value of a hypothetical $10,000 investment in Investor Shares, including reinvested dividends and distributions, in the Merk Absolute Return Currency Fund (the “Fund”) compared with the performance of the benchmark, Citigroup 3-Month U.S. T-Bill Index, since inception. The Citigroup 3-Month U.S. T-Bill Index measures return equivalents of yield averages that are not marked to market and consists of the last three three-month Treasury bill month-end rates. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.

Comparison of Change in Value of a $10,000 Investment
Merk Absolute Return Currency Fund Investor Shares vs. Citigroup 3-Month U.S. T-Bill Index
 
(BAR CHART)
 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Five Year
Since Inception 09/09/09
Merk Absolute Return Currency Fund Investor Shares
2.35%
1.09%
-0.06%
Merk Absolute Return Currency Fund Institutional Shares*
2.74%
1.41%
0.21%
Citigroup 3-Month U.S. T-Bill Index**
1.07%
0.31%
0.22%

*
For the Institutional Shares, performance for the above since inception period is a blended average annual return which is based on the return of the Investor Shares prior to April 1, 2010, the commencement of operations of the Institutional Shares.
**
Since inception return for the Citigroup 3-Month U.S. T-Bill Index is for the period beginning August 31, 2009.
 
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratios (gross) for Investor Shares and Institutional Shares are 1.31% and 1.06%, respectively. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (866) 637-5386 or visit www.merkfunds.com.
5

MERK HARD CURRENCY FUND
SCHEDULE OF INVESTMENTS

Principal
 
Security Description
 
Currency
 
Rate
 
Maturity
   
Value in USD
 
Foreign Bonds - 39.9% (a)
                   
Aerospace/Defense-Equipment - Netherlands - 3.5%
                   
$
3,000,000
 
Airbus Finance BV, EMTN
 
EUR
   
5.500
%
09/25/18
   
$
3,793,086
 
Automotive - Netherlands - 3.4%
                       
 
3,000,000
 
Daimler International Finance BV, EMTN (b)
 
EUR
   
0.000
 
03/15/19
     
3,697,292
 
Financials - Netherlands - 2.0%
                       
 
17,900,000
 
Bank Nederlandse Gemeenten NV, EMTN
 
SEK
   
2.125
 
02/13/19
     
2,183,126
 
Financials - Norway - 3.9%
                       
 
33,000,000
 
SpareBank 1 Boligkreditt AS, EMTN
 
NOK
   
5.950
 
06/18/18
     
4,250,453
 
Financials - Sweden - 1.7%
                       
 
1,450,000
 
Investor AB, EMTN
 
EUR
   
3.250
 
09/17/18
     
1,811,801
 
Non-U.S. Government - Austria - 2.3%
                       
 
2,000,000
 
Republic of Austria Government Bond (c)
 
EUR
   
1.950
 
06/18/19
     
2,536,934
 
Non-U.S. Government Agency - Sweden - 5.5%
                       
 
22,000,000
 
Kommuninvest I Sverige AB, MTN
 
SEK
   
2.250
 
03/12/19
     
2,698,029
 
 
26,900,000
 
Kommuninvest I Sverige AB, Series 1806, MTN
 
SEK
   
1.000
 
06/20/18
     
3,231,408
 
 
                   
5,929,437
 
Regional Authority - Australia - 1.5%
                       
 
2,150,000
 
Treasury Corp. of Victoria
 
AUD
   
5.500
 
11/15/18
     
1,687,698
 
Regional Authority - Canada - 3.4%
                       
 
4,700,000
 
Province of British Columbia Canada
 
CAD
   
5.600
 
06/01/18
     
3,673,541
 
Supranational Bank - Europe - 12.7%
                       
 
3,000,000
 
European Financial Stability Facility, EMTN
 
EUR
   
1.250
 
01/22/19
     
3,743,017
 
 
4,100,000
 
European Investment Bank, EMTN
 
EUR
   
1.000
 
07/13/18
     
5,066,476
 
 
3,500,000
 
European Stability Mechanism, EMTN
 
EUR
   
1.250
 
10/15/18
     
4,348,107
 
 
5,030,000
 
International Bank for Reconstruction & Development, GDIF
 
SEK
   
1.375
 
06/23/19
     
613,924
 
                           
13,771,524
 
Total Foreign Bonds (Cost $40,717,418)
                   
43,334,892
 
Foreign Treasury Securities - 22.3% (a)
                       
Non-U.S. Government - Belgium - 3.4%
                       
 
3,000,000
 
Kingdom of Belgium Treasury Bill, Series 12M (b)
 
EUR
   
0.000
 
04/12/18
     
3,691,918
 
Non-U.S. Government - Canada - 7.7%
                       
 
10,800,000
 
Canadian Treasury Bill (b)
 
CAD
   
1.305 - 1.311
 
09/20/18
     
8,332,602
 
Non-U.S. Government - Ireland - 5.2%
                       
 
4,600,000
 
Republic of Ireland Treasury Bill (b)
 
EUR
   
0.000
 
09/24/18
     
5,667,449
 
Non-U.S. Government - Norway - 6.0%
                       
 
50,840,000
 
Norway Treasury Bill (b)
 
NOK
   
0.555
 
12/19/18
     
6,462,526
 
Total Foreign Treasury Securities (Cost $23,573,303)
                   
24,154,495
 
U.S. Government & Agency Obligations - 18.7%
                       
U.S. Treasury Securities - 18.7%
                       
 
20,300,000
 
U.S. Treasury Bill (d)
                       
     
(Cost $20,259,750)
 
USD
   
1.557 - 1.568
 
05/17/18
     
20,258,470
 
 
Shares
 
Security Description
 
Currency
               
Value in USD
 
Exchange Traded Product - 8.1% (a)                        
  677,800  
VanEck Merk Gold Trust ETF (e)(f)
                   
      (Cost $8,510,046)  
USD
               
8,844,612
 
 

Shares  
Security Description
 
Currency
 
Rate
       
Value in USD
 
Money Market Fund - 0.6%                      
 
626,935
 
Morgan Stanley Institutional Liquidity Funds Treasury Securities Portfolio, Institutional Class (g)
                 
     
(Cost $626,935)
 
USD
   
1.457 
       
626,935
 
                               
Investments, at value - 89.6% (Cost $93,687,452)                  
$
97,219,404
 
Foreign Currencies – 10.0% (Cost $10,820,907)                    
10,899,471
 
Net Unrealized Gain/Loss on Forward Currency Contracts – (0.1)%                
(57,093
)
Other Assets & Liabilities, Net – 0.5%                    
436,140
 
NET ASSETS – 100.0%                  
$
108,497,922
 
 
See Notes to Financial Statements.
6

EMTN
European Medium Term Note
ETF
Exchange Traded Fund
GDIF
Global Debt Issuance Facility
MTN
Medium Term Note
(a)
All or a portion of these securities are segregated to cover outstanding forward currency contract exposure.
(b)
Zero coupon bond. Interest rate presented is yield to maturity.
(c)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $2,536,934 or 2.3% of net assets.
(d)
Rate presented is yield to maturity.
(e)
Affiliate.
(f)
Non-income producing security.
(g)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.
 
Affiliated investments are investments that are managed by the Adviser, and are noted in the Merk Hard Currency Fund’s Schedule of Investments. Transactions during the period with affiliates were as follows:

Exchange Traded Product
                                         
 
VanEck Merk Gold Trust ETF
 
Balance 3/31/2017
   
Gross Additions
   
Gross Reductions
   
Change in Unrealized Depreciation
   
Balance 3/31/2018
   
Realized Loss
   
Investment Income
 
Shares/Principal
   
802,800
     
     
(125,000
)
   
     
677,800
             
Cost
 
$
10,120,259
   
$
   
$
(1,610,213
)
 
$
   
$
8,510,046
   
$
(3,372
)
 
$
 
Value
   
9,898,524
     
     
     
556,301
     
8,844,612
                 
 
At March 31, 2018, the Merk Hard Currency Fund held the following exchange traded futures contract:
 
 
 
 
Type
 
Expiration Date
 
Notional Contract Value
   
Net Unrealized Depreciation
 
11
 
Gold 100 oz. Future
 
06/27/18
 
$
1,460,855
   
$
(825
)
 
As of March 31, 2018, the Merk Hard Currency Fund had the following forward currency contracts outstanding:
 
 
 
Counterparty
 
Contracts to Purchase/(Sell)
 
 
Settlement Date
 
Settlement Value
   
Net Unrealized Appreciation (Depreciation)
 
BNY Brokerage, Inc.
   
2,090,000,000
 
Japanese Yen
 
04/25/18
 
$
19,730,178
   
$
(57,342
)
J.P. Morgan Securities, LLC
   
(243,611
)
Euro
 
04/04/18
   
(300,000
)
   
249
 
                         
$
(57,093
)
 
The following is a summary of the inputs used to value the Fund's investments and other financial instruments and liabilities as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Investments at Value
                       
Foreign Bonds
 
$
   
$
43,334,892
   
$
   
$
43,334,892
 
Foreign Treasury Securities
   
     
24,154,495
     
     
24,154,495
 
U.S. Government & Agency Obligations
   
     
20,258,470
     
     
20,258,470
 
Exchange Traded Product
   
8,844,612
     
     
     
8,844,612
 
Money Market Fund
   
     
626,935
     
     
626,935
 
Investments, at value
 
$
8,844,612
   
$
88,374,792
   
$
   
$
97,219,404
 
Other Financial Instruments*
                               
Forward Currency Contracts
   
     
249
     
     
249
 
Total Other Financial Instruments*
 
$
   
$
249
   
$
   
$
249
 
Total Assets
 
$
8,844,612
   
$
88,375,041
   
$
   
$
97,219,653
 
Liabilities
                               
Other Financial Instruments*
                               
Forward Currency Contracts
 
$
   
$
(57,342
)
 
$
   
$
(57,342
)
Futures
 
$
(825
)
 
$
   
$
   
$
(825
)
Total Other Financial Instruments*
 
$
(825
)
 
$
(57,342
)
 
$
   
$
(58,167
)
Total Liabilities
 
$
(825
)
 
$
(57,342
)
 
$
   
$
(58,167
)
 
*
Other Financial Instruments are derivatives not reflected in the Schedule of Investments, such as forward currency contracts and futures, which are valued at the unrealized appreciation (depreciation) at year end.
 
See Notes to Financial Statements.
7

The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
PORTFOLIO HOLDINGS (Unaudited)
% of Net Assets
     
Foreign Bonds
   
39.9
%
Foreign Treasury Securities
   
22.3
%
U.S. Government & Agency Obligations
   
18.7
%
Exchange Traded Product
   
8.1
%
Money Market Fund
   
0.6
%
Foreign Currencies
   
10.0
%
Net Unrealized Gain/Loss on Forward Currency Contracts
   
(0.1
)%
Other Assets and Liabilities, Net
   
0.5
%
     
100.0
%
 
See Notes to Financial Statements.

8

MERK ABSOLUTE RETURN CURRENCY FUND
SCHEDULE OF INVESTMENTS
 
 
Principal
 
Security Description
 
Currency
 
Rate
 
Maturity
   
Value in USD
 
Foreign Bonds - 62.4% (a)                    
Financials - Norway - 4.6%
                   
$
8,000,000
 
SpareBank 1 Boligkreditt AS, EMTN
 
NOK
   
5.950
%
06/18/18
   
$
1,030,413
 
Non-U.S. Government - Australia - 4.9%
                       
 
1,400,000
 
Australia Government Bond
 
AUD
   
3.250
 
10/21/18
     
1,083,260
 
Non-U.S. Government - New Zealand - 4.5%
                       
 
1,350,000
 
New Zealand Government Bond
 
NZD
   
5.000
 
03/15/19
     
1,005,754
 
Non-U.S. Government Agency - Sweden - 11.9%
                       
 
22,000,000
 
Kommuninvest I Sverige AB, Series 1806, MTN
 
SEK
   
1.000
 
06/20/18
     
2,642,788
 
Regional Authority - Australia - 17.7%
                       
 
1,300,000
 
New South Wales Treasury Corp.
 
AUD
   
3.500
 
03/20/19
     
1,013,389
 
 
1,100,000
 
Queensland Treasury Corp. (b)
 
AUD
   
4.000
 
06/21/19
     
865,020
 
 
1,350,000
 
Treasury Corp. of Victoria
 
AUD
   
5.500
 
11/15/18
     
1,059,717
 
 
1,300,000
 
Western Australian Treasury Corp., Series 18
 
AUD
   
3.750
 
10/23/18
     
1,008,231
 
                           
3,946,357
 
Regional Authority - Canada - 18.8%
                       
 
1,400,000
 
Province of Alberta Canada
 
CAD
   
1.600
 
06/15/18
     
1,087,248
 
 
1,400,000
 
Province of British Columbia Canada
 
CAD
   
5.600
 
06/01/18
     
1,094,246
 
 
1,300,000
 
Province of Manitoba Canada
 
CAD
   
1.850
 
09/05/18
     
1,010,788
 
 
1,300,000
 
Province of Saskatchewan Canada
 
CAD
   
1.950
 
03/01/19
     
1,011,797
 
                           
4,204,079
 
Total Foreign Bonds (Cost $14,063,680)
                   
13,912,651
 
Foreign Treasury Securities - 26.1% (a)
                       
Non-U.S. Government - Belgium - 4.4%
                       
 
800,000
 
Kingdom of Belgium Treasury Bill, Series 12M (c)
 
EUR
   
0.000
 
04/12/18
     
984,511
 
Non-U.S. Government - Canada - 4.5%
                       
 
1,300,000
 
Canadian Treasury Bill (c)
 
CAD
   
1.305
 
09/20/18
     
1,002,999
 
Non-U.S. Government - France - 3.9%
                       
 
700,000
 
France Treasury Bill BTF (c)
 
EUR
   
0.000
 
05/30/18
     
862,097
 
Non-U.S. Government - Norway - 4.4%
                       
 
7,750,000
 
Norway Treasury Bill (c)
 
NOK
   
0.212
 
12/19/18
     
985,141
 
Non-U.S. Government - Sweden - 4.4%
                       
 
8,250,000
 
Sweden Treasury Bill (c)
 
SEK
   
0.000
 
06/20/18
     
989,821
 
Non-U.S. Government - United Kingdom - 4.5%
                       
 
720,000
 
U.K. Treasury Bill (c)
 
GBP
   
0.450
 
08/28/18
     
1,008,109
 
Total Foreign Treasury Securities (Cost $5,634,115)
                   
5,832,678
 
U.S. Government & Agency Obligations - 2.9% (a)
                       
U.S. Treasury Securities - 2.9%
                       
 
650,000
 
U.S. Treasury Bill (d)
               
      (Cost $648,713)   
USD
   
1.556
 
05/17/18
     
648,670
 
 
Shares  
Security Description
 
Currency
 
Rate
       
Value in USD
 
Money Market Fund - 1.6%                    
 
369,213
  Morgan Stanley Institutional Liquidity Funds Treasury Securities Portfolio, Institutional Class (e)                        
   
(Cost $369,213)
 
USD
   
1.457
         
369,213
 
                               
Investments, at value - 93.0% (Cost $20,715,721)                  
$
20,763,212
 
Foreign Currencies – 9.4% (Cost $2,104,946)                    
2,107,647
 
Net Unrealized Gain/Loss on Forward Currency Contracts – 1.2%                    
269,530
 
Other Assets & Liabilities, Net – (3.6)%                    
(823,937
)
NET ASSETS – 100.0%                  
$
22,316,452
 
 
EMTN
European Medium Term Note
MTN
Medium Term Note
(a)
All or a portion of these securities are segregated to cover outstanding forward currency contract exposure.
(b)
Security exempt from registration under Rule 144A under the Securities Act of 1933. At the period end, the value of these securities amounted to $865,020 or 3.9% of net assets.
(c)
Zero coupon bond. Interest rate presented is yield to maturity.
(d)
Rate presented is yield to maturity.
(e)
Dividend yield changes daily to reflect current market conditions. Rate was the quoted yield as of March 31, 2018.
 
See Notes to Financial Statements.

9

As of March 31, 2018, the Merk Absolute Return Currency Fund had the following forward currency contracts outstanding:
 
 
 
Counterparty
 
Contracts to Purchase/(Sell)
 
 
Settlement Date
 
Settlement Value
   
Net Unrealized Appreciation(Depreciation)
 
Barclays Capital, Inc.
   
7,105,000
 
Australian Dollar
 
04/18/18
 
$
5,477,150
   
$
(20,123
)
     
(2,015,000
)
British Pound Sterling
 
04/18/18
   
(2,853,794
)
   
24,584
 
     
(660,000
)
British Pound Sterling
 
04/18/18
   
(924,727
)
   
(1,962
)
     
2,020,000
 
British Pound Sterling
 
04/18/18
   
2,847,069
     
(10,839
)
     
(12,575,000
)
Canadian Dollar
 
04/18/18
   
(9,777,351
)
   
13,394
 
     
10,045,000
 
Canadian Dollar
 
04/18/18
   
7,783,157
     
16,363
 
     
514,550,000
 
Japanese Yen
 
04/18/18
   
4,871,258
     
(30,011
)
     
(28,650,000
)
Norwegian Krone
 
04/18/18
   
(3,720,273
)
   
63,372
 
     
(31,190,000
)
Swedish Krona
 
04/18/18
   
(3,791,607
)
   
51,351
 
     
(20,870,000
)
Swedish Krona
 
04/18/18
   
(2,497,842
)
   
(4,855
)
     
82,955,000
 
Swedish Krona
 
04/18/18
   
10,055,708
     
(107,875
)
     
(3,730,000
)
Swiss Franc
 
04/18/18
   
(3,962,783
)
   
55,341
 
     
970,000
 
Swiss Franc
 
04/18/18
   
1,020,284
     
(4,139
)
BNY Brokerage, Inc.
   
24,240,000
 
Norwegian Krone
 
04/18/18
   
3,151,791
     
(57,784
)
J.P. Morgan Securities, LLC
   
(17,595,000
)
Australian Dollar
 
04/18/18
   
(13,865,823
)
   
351,882
 
     
11,300,000
 
Australian Dollar
 
04/18/18
   
8,784,898
     
(105,867
)
     
(3,880,000
)
British Pound Sterling
 
04/18/18
   
(5,430,264
)
   
(17,546
)
     
1,090,000
 
British Pound Sterling
 
04/18/18
   
1,536,424
     
(5,983
)
     
(8,365,000
)
Canadian Dollar
 
04/18/18
   
(6,517,901
)
   
22,831
 
     
(3,100,000
)
Canadian Dollar
 
04/18/18
   
(2,391,998
)
   
(15,022
)
     
(4,000,000
)
Euro
 
04/18/18
   
(4,946,599
)
   
18,486
 
     
5,680,000
 
Euro
 
04/18/18
   
7,042,098
     
(44,177
)
     
(381,400,000
)
Japanese Yen
 
04/18/18
   
(3,578,443
)
   
(10,035
)
     
(117,200,000
)
Japanese Yen
 
04/18/18
   
(1,104,929
)
   
2,229
 
     
405,950,000
 
Japanese Yen
 
04/18/18
   
3,829,980
     
(10,518
)
     
(1,225,000
)
New Zealand Dollar
 
04/18/18
   
(893,476
)
   
8,206
 
     
5,270,000
 
New Zealand Dollar
 
04/18/18
   
3,779,096
     
29,374
 
     
(38,685,000
)
Norwegian Krone
 
04/18/18
   
(5,005,321
)
   
67,548
 
     
32,270,000
 
Norwegian Krone
 
04/18/18
   
4,176,541
     
(57,581
)
     
(18,600,000
)
Swedish Krona
 
04/18/18
   
(2,273,541
)
   
43,059
 
     
(995,000
)
Swiss Franc
 
04/18/18
   
(1,047,810
)
   
5,477
 
     
3,945,000
 
Swiss Franc
 
04/18/18
   
4,175,275
     
(42,605
)
RBC Capital Markets, LLC
   
(7,110,000
)
Australian Dollar
 
04/18/18
   
(5,522,021
)
   
61,145
 
     
(1,370,000
)
Australian Dollar
 
04/18/18
   
(1,051,330
)
   
(907
)
     
(2,205,000
)
British Pound Sterling
 
04/18/18
   
(3,110,640
)
   
14,656
 
     
(485,000
)
British Pound Sterling
 
04/18/18
   
(678,498
)
   
(2,478
)
     
(2,770,000
)
Canadian Dollar
 
04/18/18
   
(2,134,422
)
   
(16,366
)
     
(6,895,000
)
Euro
 
04/18/18
   
(8,538,263
)
   
43,427
 
     
(2,385,000
)
Euro
 
04/18/18
   
(2,937,156
)
   
(1,231
)
     
1,810,000
 
Euro
 
04/18/18
   
2,226,461
     
3,510
 
     
4,320,000
 
Euro
 
04/18/18
   
5,351,280
     
(28,918
)
     
(535,900,000
)
Japanese Yen
 
04/18/18
   
(5,077,243
)
   
35,121
 
     
321,550,000
 
Japanese Yen
 
04/18/18
   
3,046,066
     
(20,698
)
     
(15,195,000
)
New Zealand Dollar
 
04/18/18
   
(11,081,407
)
   
100,438
 
     
(5,150,000
)
New Zealand Dollar
 
04/18/18
   
(3,706,779
)
   
(14,971
)
     
10,750,000
 
New Zealand Dollar
 
04/18/18
   
7,804,279
     
(35,578
)
     
(13,440,000
)
Norwegian Krone
 
04/18/18
   
(1,737,101
)
   
21,613
 
     
(5,110,000
)
Norwegian Krone
 
04/18/18
   
(651,955
)
   
(288
)
     
10,600,000
 
Norwegian Krone
 
04/18/18
   
1,348,498
     
4,491
 
     
62,060,000
 
Norwegian Krone
 
04/18/18
   
8,048,154
     
(126,784
)
     
(71,340,000
)
Swedish Krona
 
04/18/18
   
(8,692,227
)
   
137,247
 
     
(3,010,000
)
Swedish Krona
 
04/18/18
   
(360,895
)
   
(59
)
     
12,400,000
 
Swedish Krona
 
04/18/18
   
1,518,453
     
(31,465
)
     
(1,225,000
)
Swiss Franc
 
04/18/18
   
(1,294,785
)
   
11,510
 
     
5,945,000
 
Swiss Franc
 
04/18/18
   
6,280,696
     
(52,883
)
Societe Generale Securities
   
(8,505,000
)
Australian Dollar
 
04/18/18
   
(6,529,338
)
   
(2,976
)
     
(250,000
)
British Pound Sterling
 
04/18/18
   
(351,136
)
   
117
 
     
3,530,000
 
Euro
 
04/18/18
   
4,349,183
     
(124
)
     
60,450,000
 
Japanese Yen
 
04/18/18
   
568,037
     
719
 
     
8,510,000
 
Swedish Krona
 
04/18/18
   
1,043,438
     
(22,932
)
     
(1,670,000
)
Swiss Franc
 
04/18/18
   
(1,763,321
)
   
13,877
 
     
(810,000
)
Swiss Franc
 
04/18/18
   
(847,081
)
   
(1,452
)
     
6,780,000
 
Swiss Franc
 
04/18/18
   
7,186,371
     
(83,836
)
 
See Notes to Financial Statements.
10

 
 
Counterparty
 
Contracts to Purchase/(Sell)
 
Settlement Date
 
Settlement Value
   
Net Unrealized Appreciation(Depreciation)
 
State Street Brokerage
   
(1,430,000
)
British Pound Sterling
04/18/18
 
$
(2,033,184
)
 
$
25,357
 
     
4,985,000
 
British Pound Sterling
04/18/18
   
7,046,321
     
(47,010
)
     
1,475,000
 
Canadian Dollar
04/18/18
   
1,150,008
     
(4,732
)
     
3,870,000
 
Canadian Dollar
04/18/18
   
2,975,399
     
29,493
 
     
2,775,000
 
Euro
04/18/18
   
3,441,194
     
(22,316
)
     
(367,700,000
)
Japanese Yen
04/18/18
   
(3,476,624
)
   
17,046
 
     
84,850,000
 
Japanese Yen
04/18/18
   
798,696
     
(367
)
     
194,000,000
 
Japanese Yen
04/18/18
   
1,824,550
     
737
 
     
5,540,000
 
New Zealand Dollar
04/18/18
   
4,026,869
     
(23,277
)
     
(57,040,000
)
Norwegian Krone
04/18/18
   
(7,370,884
)
   
90,269
 
     
12,190,000
 
Swedish Krona
04/18/18
   
1,488,785
     
(26,980
)
     
1,160,000
 
Swiss Franc
04/18/18
   
1,214,373
     
810
 
                       
$
269,530
 
 
The following is a summary of the inputs used to value the Fund's investments and other financial instruments and liabilities as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Investments at Value
                       
Foreign Bonds
 
$
   
$
13,912,651
   
$
   
$
13,912,651
 
Foreign Treasury Securities
   
     
5,832,678
     
     
5,832,678
 
U.S. Government & Agency Obligations
   
     
648,670
     
     
648,670
 
Money Market Fund
   
     
369,213
     
     
369,213
 
Total Investments at Value
 
$
   
$
20,763,212
   
$
   
$
20,763,212
 
Other Financial Instruments*
                               
Forward Currency Contracts
   
     
1,385,077
     
     
1,385,077
 
Total Assets
 
$
   
$
22,148,289
   
$
   
$
22,148,289
 
Liabilities
                               
Other Financial Instruments*
                               
Forward Currency Contracts
 
$
   
$
(1,115,547
)
 
$
   
$
(1,115,547
)
Total Liabilities
 
$
   
$
(1,115,547
)
 
$
   
$
(1,115,547
)
 
*
Other Financial Instruments are derivatives not reflected in the Schedule of Investments, such as forward currency contracts, which are valued at the unrealized appreciation (depreciation) at year end.
 
The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
PORTFOLIO HOLDINGS (Unaudited)
% of Net Assets
     
Foreign Bonds
   
62.4
%
Foreign Treasury Securities
   
26.1
%
U.S. Government & Agency Obligations
   
2.9
%
Money Market Fund
   
1.6
%
Foreign Currencies
   
9.4
%
Net Unrealized Gain/Loss on Forward Currency Contracts
   
1.2
%
Other Assets and Liabilities, Net
   
(3.6
)%
     
100.0
%
 
See Notes to Financial Statements.
11

STATEMENTS OF ASSETS AND LIABILITIES
 
   
MERK HARD CURRENCY FUND
   
MERK ABSOLUTE RETURN CURRENCY FUND
 
ASSETS
           
Investments, at value (Cost $85,177,406 and $20,715,721, respectively)
 
$
88,374,792
   
$
20,763,212
 
Investments in affiliates, at value (Cost $8,510,046 and $0, respectively)
   
8,844,612
     
 
Deposits with brokers
   
34,100
     
 
Foreign currency (Cost $10,820,907 and $2,104,946, respectively)
   
10,899,471
     
2,107,647
 
Receivables:
               
Fund shares sold
   
54,779
     
 
Dividends and interest
   
583,008
     
163,017
 
Unrealized gain on forward currency contracts
   
249
     
1,385,077
 
Total Assets
   
108,791,011
     
24,418,953
 
                 
LIABILITIES
               
Unrealized loss on forward currency contracts
   
57,342
     
1,115,547
 
Payables:
               
Investment securities purchased
   
     
862,106
 
Fund shares redeemed
   
124,897
     
106,903
 
Variation margin
   
2,970
     
 
Accrued Liabilities:
               
Investment adviser fees
   
84,792
     
14,963
 
Distribution fees
   
18,432
     
2,026
 
Other expenses
   
4,656
     
956
 
Total Liabilities
   
293,089
     
2,102,501
 
                 
NET ASSETS
 
$
108,497,922
   
$
22,316,452
 
                 
COMPONENTS OF NET ASSETS
               
Paid-in capital
 
$
113,609,095
   
$
22,154,800
 
Undistributed (Distributions in excess of) net investment income
   
927,956
     
(155,195
)
Accumulated net realized loss
   
(9,599,024
)
   
(1,752
)
Net unrealized appreciation
   
3,559,895
     
318,599
 
NET ASSETS
 
$
108,497,922
   
$
22,316,452
 
                 
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
               
Investor Shares
   
8,537,078
     
1,066,884
 
Institutional Shares
   
2,223,002
     
1,431,477
 
                 
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
               
Investor Shares (based on net assets of $85,874,023 and $9,467,176, respectively)
 
$
10.06
   
$
8.87
 
Institutional Shares (based on net assets of $22,623,899 and $12,849,276, respectively)
 
$
10.18
   
$
8.98
 
 
See Notes to Financial Statements.
12

STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 2018

   
MERK HARD CURRENCY FUND
   
MERK ABSOLUTE RETURN CURRENCY FUND
 
INVESTMENT INCOME
           
Dividend income
 
$
4,286
   
$
3,946
 
Interest income (Net of foreign withholding taxes of $2,193 and $7,442, respectively)
   
1,596,104
     
693,138
 
Net amortization expense
   
(1,534,663
)
   
(542,162
)
Total Investment Income
   
65,727
     
154,922
 
                 
EXPENSES
               
Investment adviser fees
   
1,116,559
     
267,767
 
Non 12b-1 shareholder servicing fees:
               
Investor Shares
   
45,387
     
5,793
 
Institutional Shares
   
10,441
     
7,598
 
Distribution fees:
               
Investor Shares
   
226,929
     
28,961
 
Total Expenses
   
1,399,316
     
310,119
 
Fees waived
   
(37,752
)
   
 
Net Expenses
   
1,361,564
     
310,119
 
                 
NET INVESTMENT LOSS
   
(1,295,837
)
   
(155,197
)
                 
NET REALIZED AND UNREALIZED GAIN (LOSS)
               
Net realized gain (loss) on:
               
Investments in unaffiliated issuers
   
4,074,451
     
697,395
 
Investments in affiliated issuers
   
(3,372
)
   
 
Foreign currency transactions
   
1,311,738
     
(661,727
)
Futures
   
54,764
     
 
Net realized gain
   
5,437,581
     
35,668
 
Net change in unrealized appreciation on:
               
Investments in unaffiliated issuers
   
5,246,783
     
762,110
 
Investments in affiliated issuers
   
556,301
     
 
Foreign currency translations
   
153,067
     
278,763
 
Futures
   
990
     
 
Net change in unrealized appreciation
   
5,957,141
     
1,040,873
 
NET REALIZED AND UNREALIZED GAIN
   
11,394,722
     
1,076,541
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
10,098,885
   
$
921,344
 
 
See Notes to Financial Statements.
13

STATEMENTS OF CHANGES IN NET ASSETS
 
   
MERK HARD CURRENCY FUND
   
MERK ABSOLUTE RETURN CURRENCY FUND
 
   
For the Year
Ended
   
For the Year
Ended
   
For the Year
Ended
   
For the Year
Ended
 
OPERATIONS
                       
Net investment loss
 
$
(1,295,837
)
 
$
(1,474,529
)
 
$
(155,197
)
 
$
(234,555
)
Net realized gain (loss)
   
5,437,581
     
(1,832,420
)
   
35,668
     
1,689,455
 
Net change in unrealized appreciation (depreciation)
   
5,957,141
     
(3,825,160
)
   
1,040,873
     
(522,090
)
Increase (Decrease) in Net Assets Resulting from Operations
   
10,098,885
     
(7,132,109
)
   
921,344
     
932,810
 
                                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
                               
Net investment income:
                               
Investor Shares
   
(798,276
)
   
     
(312,354
)
   
(407,188
)
Institutional Shares
   
(268,198
)
   
     
(561,042
)
   
(313,854
)
Total Distributions to Shareholders
   
(1,066,474
)
   
     
(873,396
)
   
(721,042
)
                                 
CAPITAL SHARE TRANSACTIONS
                               
Sale of shares:
                               
Investor Shares
   
9,667,721
     
22,251,875
     
2,405,840
     
9,963,058
 
Institutional Shares
   
7,075,522
     
17,004,065
     
10,411,059
     
3,475,835
 
Reinvestment of distributions:
                               
Investor Shares
   
775,401
     
     
304,990
     
400,417
 
Institutional Shares
   
251,596
     
     
542,481
     
304,150
 
Redemption of shares:
                               
Investor Shares
   
(24,380,386
)
   
(29,345,801
)
   
(13,408,974
)
   
(10,870,540
)
Institutional Shares
   
(4,099,844
)
   
(16,314,892
)
   
(11,690,797
)
   
(1,860,402
)
Increase (Decrease) in Net Assets from Capital Share Transactions
   
(10,709,990
)
   
(6,404,753
)
   
(11,435,401
)
   
1,412,518
 
Increase (Decrease) in Net Assets
   
(1,677,579
)
   
(13,536,862
)
   
(11,387,453
)
   
1,624,286
 
                                 
NET ASSETS
                               
Beginning of Year
   
110,175,501
     
123,712,363
     
33,703,905
     
32,079,619
 
End of Year (Including line (a))
 
$
108,497,922
   
$
110,175,501
   
$
22,316,452
   
$
33,703,905
 
                                 
SHARE TRANSACTIONS
                               
Sale of shares:
                               
Investor Shares
   
971,718
     
2,303,794
     
265,775
     
1,092,991
 
Institutional Shares
   
708,760
     
1,736,272
     
1,147,134
     
375,492
 
Reinvestment of distributions:
                               
Investor Shares
   
77,231
     
     
34,169
     
44,689
 
Institutional Shares
   
24,763
     
     
60,107
     
33,571
 
Redemption of shares:
                               
Investor Shares
   
(2,471,052
)
   
(3,089,052
)
   
(1,492,219
)
   
(1,189,319
)
Institutional Shares
   
(409,886
)
   
(1,684,981
)
   
(1,273,398
)
   
(202,365
)
Increase (Decrease) in Shares
   
(1,098,466
)
   
(733,967
)
   
(1,258,432
)
   
155,059
 
                                 
(a) Undistributed (Distributions in excess of) net investment income
 
$
927,956
   
$
(2,055,021
)
 
$
(155,195
)
 
$
837,409
 
 
See Notes to Financial Statements.

14

FINANCIAL HIGHLIGHTS
 
These financial highlights reflect selected data for a share outstanding throughout each year.
 
   
For the Years Ended March 31,
 
MERK HARD CURRENCY FUND
 
2018
   
2017
   
2016
   
2015
   
2014
 
INVESTOR SHARES
                             
NET ASSET VALUE, Beginning of Year
 
$
9.27
   
$
9.81
   
$
9.49
   
$
11.58
   
$
11.91
 
INVESTMENT OPERATIONS
                                       
Net investment loss (a)
   
(0.12
)
   
(0.12
)
   
(0.10
)
   
(0.07
)
   
(0.09
)
Net realized and unrealized gain (loss)
   
1.00
     
(0.42
)
   
0.42
     
(1.94
)
   
0.09
(b)
Total from Investment Operations
   
0.88
     
(0.54
)
   
0.32
     
(2.01
)
   
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.09
)
   
     
     
(0.08
)
   
(0.21
)
Net realized gain
   
     
     
     
     
(0.12
)
Total Distributions to Shareholders
   
(0.09
)
   
     
     
(0.08
)
   
(0.33
)
NET ASSET VALUE, End of Year
 
$
10.06
   
$
9.27
   
$
9.81
   
$
9.49
   
$
11.58
 
TOTAL RETURN
   
9.54
%
   
(5.50
)%
   
3.37
%
   
(17.47
)%
   
0.08
%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000's omitted)
 
$
85,874
   
$
92,355
   
$
105,417
   
$
126,449
   
$
253,432
 
Ratios to Average Net Assets:
                                       
Net investment loss
   
(1.21
)%
   
(1.27
)%
   
(1.06
)%
   
(0.66
)%
   
(0.76
)%
Net expenses
   
1.27
%
   
1.24
%
   
1.23
%
   
1.24
%
   
1.30
%
Gross expenses
   
1.30
%(c)
   
1.30
%(c)
   
1.30
%(c)
   
1.30
%(c)
   
1.30
%
PORTFOLIO TURNOVER RATE (d)
   
35
%
   
81
%
   
85
%
   
116
%
   
45
%
                                         
INSTITUTIONAL SHARES
                                       
NET ASSET VALUE, Beginning of Year
 
$
9.38
   
$
9.90
   
$
9.55
   
$
11.62
   
$
11.95
 
INVESTMENT OPERATIONS
                                       
Net investment loss (a)
   
(0.10
)
   
(0.10
)
   
(0.08
)
   
(0.05
)
   
(0.06
)
Net realized and unrealized gain (loss)
   
1.02
     
(0.42
)
   
0.43
     
(1.93
)
   
0.10
(b)
Total from Investment Operations
   
0.92
     
(0.52
)
   
0.35
     
(1.98
)
   
0.04
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.12
)
   
     
     
(0.09
)
   
(0.25
)
Net realized gain
   
     
     
     
     
(0.12
)
Total Distributions to Shareholders
   
(0.12
)
   
     
     
(0.09
)
   
(0.37
)
NET ASSET VALUE, End of Year
 
$
10.18
   
$
9.38
   
$
9.90
   
$
9.55
   
$
11.62
 
TOTAL RETURN
   
9.82
%
   
(5.25
)%
   
3.66
%
   
(17.18
)%
   
0.38
%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000's omitted)
 
$
22,624
   
$
17,821
   
$
18,296
   
$
29,027
   
$
56,273
 
Ratios to Average Net Assets:
                                       
Net investment loss
   
(0.95
)%
   
(1.02
)%
   
(0.81
)%
   
(0.41
)%
   
(0.52
)%
Net expenses
   
1.02
%
   
0.99
%
   
0.98
%
   
0.99
%
   
1.05
%
Gross expenses
   
1.05
%(c)
   
1.05
%(c)
   
1.05
%(c)
   
1.05
%(c)
   
1.05
%
PORTFOLIO TURNOVER RATE (d)
   
35
%
   
81
%
   
85
%
   
116
%
   
45
%
 

(a)
Calculated based on average shares outstanding during each year.
(b)
The net realized and unrealized gain (loss) per share does not correlate to the aggregate of the net realized and unrealized loss in the Statement of Operations primarily due to the timing of the sales and repurchases of the Fund's shares in relation to fluctuating market values for the Fund's portfolio.
(c)
Reflects the expense ratio excluding any waivers and/or reimbursements.
(d)
The portfolio turnover rate is calculated without regard to any securities whose maturities or expiration dates at the time of acquisition were one year or less.
 
See Notes to Financial Statements.

15

FINANCIAL HIGHLIGHTS
 
These financial highlights reflect selected data for a share outstanding throughout each year.
 
   
For the Years Ended March 31,
 
MERK ABSOLUTE RETURN CURRENCY FUND
 
2018
   
2017
   
2016
   
2015
   
2014
 
INVESTOR SHARES
                             
NET ASSET VALUE, Beginning of Year
 
$
8.93
   
$
8.87
   
$
8.72
   
$
9.53
   
$
9.18
 
INVESTMENT OPERATIONS
                                       
Net investment loss (a)
   
(0.06
)
   
(0.07
)
   
(0.05
)
   
(0.05
)
   
(0.05
)
Net realized and unrealized gain (loss)
   
0.27
     
0.31
     
0.20
     
(0.57
)
   
0.57
 
Total from Investment Operations
   
0.21
     
0.24
     
0.15
     
(0.62
)
   
0.52
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.27
)
   
(0.18
)
   
     
(0.19
)
   
(0.17
)
Total Distributions to Shareholders
   
(0.27
)
   
(0.18
)
   
     
(0.19
)
   
(0.17
)
NET ASSET VALUE, End of Year
 
$
8.87
   
$
8.93
   
$
8.87
   
$
8.72
   
$
9.53
 
TOTAL RETURN
   
2.35
%
   
2.74
%
   
1.72
%
   
(6.59
)%
   
5.68
%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000's omitted)
 
$
9,467
   
$
20,178
   
$
20,497
   
$
24,113
   
$
23,016
 
Ratios to Average Net Assets:
                                       
Net investment loss
   
(0.70
)%
   
(0.73
)%
   
(0.59
)%
   
(0.53
)%
   
(0.53
)%
Net expenses
   
1.30
%
   
1.30
%
   
1.30
%
   
1.30
%
   
1.30
%
Gross expenses
   
1.30
%
   
1.30
%
   
1.30
%
   
1.30
%
   
1.30
%
PORTFOLIO TURNOVER RATE (b)
   
97
%
   
71
%
   
59
%
   
58
%
   
0
%
                                         
INSTITUTIONAL SHARES
                                       
NET ASSET VALUE, Beginning of Year
 
$
9.03
   
$
8.97
   
$
8.80
   
$
9.58
   
$
9.22
 
INVESTMENT OPERATIONS
                                       
Net investment loss (a)
   
(0.04
)
   
(0.04
)
   
(0.03
)
   
(0.02
)
   
(0.03
)
Net realized and unrealized gain (loss)
   
0.29
     
0.31
     
0.20
     
(0.56
)
   
0.58
 
Total from Investment Operations
   
0.25
     
0.27
     
0.17
     
(0.58
)
   
0.55
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.30
)
   
(0.21
)
   
     
(0.20
)
   
(0.19
)
Total Distributions to Shareholders
   
(0.30
)
   
(0.21
)
   
     
(0.20
)
   
(0.19
)
NET ASSET VALUE, End of Year
 
$
8.98
   
$
9.03
   
$
8.97
   
$
8.80
   
$
9.58
 
TOTAL RETURN
   
2.74
%
   
3.02
%
   
1.93
%
   
(6.18
)%
   
5.94
%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000's omitted)
 
$
12,849
   
$
13,526
   
$
11,583
   
$
17,829
   
$
12,077
 
Ratios to Average Net Assets:
                                       
Net investment loss
   
(0.49
)%
   
(0.48
)%
   
(0.34
)%
   
(0.27
)%
   
(0.28
)%
Net expenses
   
1.05
%
   
1.05
%
   
1.05
%
   
1.05
%
   
1.05
%
Gross expenses
   
1.05
%
   
1.05
%
   
1.05
%
   
1.05
%
   
1.05
%
PORTFOLIO TURNOVER RATE (b)
   
97
%
   
71
%
   
59
%
   
58
%
   
0
%
 

(a)
Calculated based on average shares outstanding during each year.
(b)
The portfolio turnover rate is calculated without regard to any securities whose maturities or expiration dates at the time of acquisition were one year or less.
 
See Notes to Financial Statements.
16

NOTES TO FINANCIAL STATEMENTS
 
Note 1. Organization

The Merk Hard Currency Fund and the Merk Absolute Return Currency Fund (individually, a “Fund” and collectively, the “Funds”) are a non-diversified portfolio and a diversified portfolio of Forum Funds (the “Trust”), respectively. The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of each Fund’s shares of beneficial interest without par value. Each Fund currently offers two classes of shares: Investor Shares and Institutional Shares. The Merk Hard Currency Fund seeks to profit from a rise in hard currencies relative to the U.S. dollar. The Merk Absolute Return Currency Fund seeks to generate positive absolute returns by investing in securities and instruments that create exposure to currencies. The Merk Hard Currency Fund Investor Shares and Institutional Shares commenced operations on May 10, 2005 and April 1, 2010, respectively. The Merk Absolute Return Currency Fund Investor Shares and Institutional Shares commenced operations on September 9, 2009 and April 1, 2010, respectively.

Note 2. Summary of Significant Accounting Policies

The Funds are investment companies and follow accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of each Fund:

Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service. Debt securities may be valued at prices supplied by a fund’s pricing agent based on broker or dealer supplied valuations or matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics such as rating, interest rate and maturity. Futures contracts are valued at the day’s settlement price on the exchange where the contract is traded. Forward currency contracts are generally valued based on interpolation of forward curve data points obtained from major banking institutions that deal in foreign currencies and currency dealers. Shares of non-exchange traded open-end mutual funds are valued at net asset value (“NAV”). Short-term investments that mature in sixty days or less may be valued at amortized cost.

Each Fund values its investments at fair value pursuant to procedures adopted by the Trust's Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 3, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in each Fund’s registration statement, performs certain functions as they relate to the administration and oversight of each Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.

The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.

Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different Net Asset Value (“NAV”) than a NAV determined by using market quotes.

GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of each Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 - Quoted prices in active markets for identical assets and liabilities.
17

Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities respective local market closes and the close of the U.S. market.

Level 3 - Significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments).

The aggregate value by input level, as of March 31, 2018, for each Fund’s investments is included at the end of each Fund’s Schedule of Investments.

Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.

Foreign Currency Translations – Foreign currency amounts are translated into U.S. dollars as follows: (1) assets and liabilities at the rate of exchange at the end of the respective period; and (2) purchases and sales of securities and income and expenses at the rate of exchange prevailing on the dates of such transactions. The portion of the results of operations arising from changes in the exchange rates and the portion due to fluctuations arising from changes in the market prices of securities are not isolated. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Foreign Currency Transactions – Each Fund may enter into transactions to purchase or sell foreign currency contracts and options on foreign currency. Forward currency contracts are agreements to exchange one currency for another at a future date and at a specified price. A fund may use forward currency contracts to facilitate transactions in foreign securities, to manage a fund’s foreign currency exposure and to protect the U.S. dollar value of its underlying portfolio securities against the effect of possible adverse movements in foreign exchange rates. These contracts are intrinsically valued daily based on forward rates, and a fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is recorded as a component of NAV. These instruments involve market risk, credit risk, or both kinds of risks, in excess of the amount recognized in the Statements of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates. Due to the risks associated with these transactions, a fund could incur losses up to the entire contract amount, which may exceed the net unrealized value included in its NAV.

The values of each individual forward currency contract outstanding as of March 31, 2018, are disclosed in each Fund’s Schedule of Investments.

Futures ContractsEach Fund may purchase futures contracts to gain exposure to market changes, which may be more efficient or cost effective than actually buying the securities. A futures contract is an agreement between parties to buy or sell a security at a set price on a future date. Upon entering into such a contract, a fund is required to pledge to the broker an amount of cash, U.S. Government obligations or other high-quality debt securities equal to the minimum “initial margin” requirements of the exchange on which the futures contract is traded. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin” and are recorded by the fund as unrealized gains or losses. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and value at the time it was closed. Risks of entering into futures contracts include the possibility that there may be an illiquid market and that a change in the value of the contract may not correlate with changes in the value of the underlying securities.

Distributions to Shareholders – Distributions to shareholders of net investment income, if any, are declared and paid quarterly. Distributions to shareholders of net capital gains and foreign currency gains, if any, are declared and paid at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by each Fund, timing differences and differing characterizations of distributions made by each Fund.
18

Federal Taxes – Each Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of their taxable income to shareholders. In addition, by distributing in each calendar year substantially all of their net investment income and capital gains, if any, the Funds will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. Each Fund files a U.S. federal income and excise tax return as required. Each Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of March 31, 2018, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.

Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.

Each Fund's class-specific expenses are charged to the operations of that class of shares. Income and expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on the class’ respective net assets to the total net assets of each Fund.

Commitments and Contingencies – In the normal course of business, each Fund enters into contracts that provide general indemnifications by each Fund to the counterparty to the contract. Each Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against each Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. Each Fund has determined that none of these arrangements requires disclosure on each Fund’s balance sheet.

Note 3. Fees and Expenses

Investment Adviser – Merk Investments LLC (the “Adviser”) is the investment adviser to each Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee from the Funds at an annual rate of 1.00% of each Fund’s average daily net assets.

Under the terms of the Investment Advisory Agreement for the Funds the Adviser is obligated to pay all expenses of each Fund except Board-approved administrative service fees, borrowing costs, taxes, brokerage costs, commissions, and extraordinary and non-recurring expenses and expenses that the Funds are authorized to pay under Rule 12b-1.

Distribution – Foreside Fund Services, LLC serves as each Fund’s distributor (the “Distributor”). The Funds have adopted a Distribution Plan (the “Plan”) for Investor Shares in accordance with Rule 12b-1 of the Act. Under the Plan, the Funds pay the Distributor and/or any other entity as authorized by the Board a fee of up to 0.25% of the average daily net assets of Investor Shares. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) (“Atlantic”) or their affiliates.

Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to each Fund. The fees related to these services are included in Fund services fees within the Statements of Operations. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to each Fund, as well as certain additional compliance support functions.

Trustees and Officers – Through December 31, 2017, the Trust paid each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman), and the Audit Committee Chairman and Vice Chairman received an additional $6,000 annually. Effective January 1, 2018, each independent Trustee's annual retainer is $31,000 ($41,000 for the Chairman), and the Audit Committee Chairman receives an additional $2,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from the Fund. Pursuant to the terms of the investment advisory agreement, the Trustees' fees attributable to each Fund are paid by the Adviser.

Note 4. Fees Waived

During this period, Merk Hard Currency Fund invested in VanEck Merk Gold Trust, an exchange traded product sponsored by the Adviser. As of March 31, 2018, Merk Hard Currency Fund owned approximately 6.1% of VanEck Merk Gold Trust. The Adviser has agreed to waive fees in an amount equal to the fee it receives from VanEck Merk Gold Trust based on Merk Hard Currency Fund’s investment in VanEck Merk Gold Trust (NYSE:OUNZ). For the year ended March 31, 2018, the Adviser waived fees of $37,752 for Merk Hard Currency Fund.
19

Note 5. Security Transactions

The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments during the year ended March 31, 2018, were as follows:

     
Purchases
   
Sales
   
 
Merk Hard Currency Fund
 
$
17,045,686
   
$
28,438,381
   
 
Merk Absolute Return Currency Fund
   
6,004,253
     
8,944,965
   
 
Note 6. Summary of Derivative Activity

The volume of open derivative positions may vary on a daily basis as each Fund transacts derivative contracts in order to achieve the exposure desired by the Adviser. The notional value of activity for the year ended March 31, 2018 for any derivative type that was held during the year is as follows:
 
     
Merk Hard Currency Fund
   
Merk Absolute Return Currency
Fund
   
 
Forward Currency Contracts
 
$
331,778,212
   
$
6,632,625,238
   
 
Futures
   
14,236,586
     
   
 
The Merk Hard Currency Fund’s use of derivatives during the year ended March 31, 2018, was limited to futures and forward currency contracts. The Merk Absolute Return Currency Fund’s use of derivatives during the year ended March 31, 2018, was limited to forward currency contracts.

Following is a summary of the effect of derivatives on the Statements of Assets and Liabilities for each Fund as of March 31, 2018:

 
Merk Hard Currency Fund
                   
 
 
Location:
 
Commodity
   
Currency
   
Total
   
 
Asset derivatives:
               
 
Unrealized gain on forward currency contracts
 
$
   
$
249
   
$
249
   
 
Liability derivatives:
                         
 
Unrealized loss on forward currency contracts
 
$
   
$
(57,342
)
 
$
(57,342
)
 
 
Payable - variation margin
 
$
(2,970
)
 
$
   
$
(2,970
)
 
 
 
Merk Absolute Return Currency Fund
             
 
 
Location:
 
Currency
   
Total
   
 
Asset derivatives:
         
 
Unrealized gain on forward currency contracts
 
$
1,385,077
   
$
1,385,077
   
 
Liability derivatives:
                 
 
Unrealized loss on forward currency contracts
 
$
(1,115,547
)
 
$
(1,115,547
)
 
 
Realized and unrealized gains and losses on derivatives contracts during the year ended March 31, 2018, by each Fund are recorded in the following locations on the Statements of Operations:

 
Merk Hard Currency Fund
                   
 
 
Location:
 
Commodity
   
Currency
   
Total
   
 
Net realized gain on:
               
 
Futures
 
$
54,764
   
$
   
$
54,764
   
 
Foreign currency transactions
   
     
974,396
     
974,396
   
 
Total net realized gain
 
$
54,764
   
$
974,396
     
1,029,160
   
                             
 
Net change in unrealized appreciation on:
                         
 
Futures
   
990
     
     
990
   
 
Foreign currency translations
   
     
37,601
     
37,601
   
 
Total net change in unrealized appreciation
 
$
990
   
$
37,601
   
$
38,591
   
 
 
Merk Absolute Return Currency Fund
             
 
 
Location:
 
Currency
   
Total
   
 
Net realized loss on:
         
 
Foreign currency transactions
 
$
(851,071
)
 
$
(851,071
)
 
 
Total net realized loss
 
$
(851,071
)
   
(851,071
)
 
                     
 
Net change in unrealized appreciation on:
                 
 
Foreign currency translations
   
309,010
     
309,010
   
 
Total net change in unrealized appreciation
 
$
309,010
   
$
309,010
   
 
20

Asset (Liability) amounts shown in the table below represent amounts for derivative related investments for each Fund at March 31, 2018. These amounts may be collateralized by cash or financial instruments.
 
   
Gross Asset (Liability) as Presented in the Statements
of Assets and Liabilities
   
Financial Instruments
(Received) Pledged*
   
Cash Collateral
(Received) Pledged*
   
Net Amount
   
Merk Hard Currency Fund
   
Assets:
   
Over-the-counter derivatives**
 
$
249
   
$
   
$
   
$
249
   
Liabilities:
   
Over-the-counter derivatives**
   
(60,312
)
   
60,312
     
     
   
Merk Absolute Return Currency Fund
   
Assets:
   
Over-the-counter derivatives**
 
$
1,385,077
   
$
   
$
   
$
1,385,077
   
Liabilities:
   
Over-the-counter derivatives**
   
(1,115,547
)
   
1,115,547
     
     
   
 
*
The actual financial instruments and cash collateral (received) pledged may be in excess of the amounts shown in the table. The table only reflects collateral amounts up to the amount of the financial instrument disclosed on the Statements of Assets and Liabilities.
**
Over-the-counter derivatives may consist of forward currency contracts and futures contracts. The amounts disclosed above represent the exposure to one or more counterparties. For further detail on individual derivative contracts and the corresponding unrealized appreciation (depreciation), see the Schedule of Investments.
 
Note 7. Federal Income Tax

As of March 31, 2018, the cost for federal income tax and the components of net unrealized appreciation (depreciation) were as follows:

     
Tax Cost of Investments
   
Gross Unrealized Appreciation
   
Gross Unrealized Depreciation
   
Net Unrealized Appreciation
   
 
Merk Hard Currency Fund
 
$
94,602,720
   
$
2,905,110
   
$
(288,426
)
 
$
2,616,684
   
 
Merk Absolute Return Currency Fund
 
$
20,715,721
   
$
321,485
   
$
(273,994
)
 
$
47,491
   
 
Distributions paid during the fiscal year ended as noted were characterized for tax purposes as follows:

       
Ordinary Income
   
 
Merk Hard Currency Fund
2018
 
$
1,066,474
   
 
 
2017    
-
   
 
Merk Absolute Return Currency Fund
2018
   
873,396
   
 
 
2017    
721,042
   
 
As of March 31, 2018, distributable earnings (accumulated loss) on a tax basis were as follows:

     
Undistributed Ordinary Income
   
Capital and
Other Losses
   
Unrealized
Appreciation
   
Total
   
 
Merk Hard Currency Fund
 
$
870,863
   
$
(8,684,581
)
 
$
2,702,545
   
$
(5,111,173
)
 
 
Merk Absolute Return Currency Fund
   
114,335
     
(1,752
)
   
49,069
     
161,652
   
 
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statements of Assets and Liabilities are primarily due to grantor trust adjustments, futures contracts, forward contracts and wash sales.

For tax purposes, the current year post-October loss was $75,846 and $85 for the Merk Hard Currency Fund and Merk Absolute Return Currency Fund, respectively, (realized during the period November 1, 2017 through March 31, 2018). These losses were recognized for tax purposes on the first business day of the Fund’s current fiscal year, April 1, 2018.

As of March 31, 2018, the Funds had the following available short term and long term capital loss carry forwards that have no expiration date:

     
Short Term
   
Long Term
   
 
Merk Hard Currency Fund
 
$
489,538
   
$
8,119,197
   
 
Merk Absolute Return Currency Fund
   
1,667
     
   
 
21

For the year ended March 31, 2018, each Fund recorded the following reclassifications to the accounts listed below. The reclassifications were primarily as a result of grantor trusts and currency gain/loss reclassifications.
 
     
Undistributed Net
Investment Income
   
Accumulated Net Realized
Loss
   
 
Merk Hard Currency Fund
 
$
5,345,288
   
$
(5,345,288
)
 
 
Merk Absolute Return Currency Fund
   
35,989
     
(35,989
)
 
 
Note 8. Underlying Investments in Other Pooled Investment Vehicles

The Merk Hard Currency Fund currently invests a portion of its assets in the VanEck Merk Gold Trust. The Merk Hard Currency Fund may eliminate its investments at any time if the Adviser determines that it is in the best interest of the Fund and its shareholders.

The performance of the Merk Hard Currency Fund may be directly affected by the performance of the VanEck Merk Gold Trust. The financial statements of the VanEck Merk Gold Trust, including the schedule of investments, can be found at the Merk Funds website www.merkfunds.com, or the Securities and Exchange Commission’s website www.sec.govand should be read in conjunction with the Merk Hard Currency Fund’s financial statements. As of March 31, 2018 the percentage of the Merk Hard Currency Fund’s net assets invested in the VanEck Merk Gold Trust was 8.1%.

Note 9. Subsequent Events

Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and each Fund has had no such events.
22

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
To the Board of Trustees of Forum Funds and
the Shareholders of Merk Hard Currency Fund and
Merk Absolute Return Currency Fund
 
Opinion on the Financial Statements
 
We have audited the accompanying statements of assets and liabilities of Merk Hard Currency Fund and Merk Absolute Return Currency Fund, each a series of shares of beneficial interest in Forum Funds (the “Funds”), including the schedules of investments, as of March 31, 2018, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of March 31, 2018, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended and their financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Funds' management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risk of material misstatement of those financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
-s- BBD, LLP
 
BBD, LLP
 
We have served as the auditor of one or more of the Funds in the Forum Funds since 2009.
 
Philadelphia, Pennsylvania
23

ADDITIONAL INFORMATION (Unaudited)
 
Shareholder Proxy Vote
 
At a special meeting of shareholders for all the Funds in the Trust, held on December 8, 2017, shares were voted as follows on the proposals presented to shareholders:

Matter
For
Against
Abstain
To elect David Tucker
to the Board of Trustees of the Trust.
108,303,928.779
1,542,957.994
0
To elect Jennifer Brown-Strabley
to the Board of Trustees of the Trust.
108,183,952.495
1,662,934.278
0
To elect Mark D. Moyer
to the Board of Trustees of the Trust.
108,142,412.946
1,704,473.827
0
To elect Jessica Chase
to the Board of Trustees of the Trust.
107,632,924.803
2,213,961.970
0
To elect Stacey E. Hong
to the Board of Trustees of the Trust.
105,777,266.997
4,069,619.776
0
 
Proxy Voting Information
 
A description of the policies and procedures that each Fund uses to determine how to vote proxies relating to securities held in each Fund’s portfolio is available, without charge and upon request, by calling (866) 637-5386 and on the U.S. Securities and Exchange Commission’s website at www.sec.gov. Each Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (866) 637-5386 and on the SEC’s website at www.sec.gov.

Availability of Quarterly Portfolio Schedules
 
Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
 
Shareholder Expense Example
 
As a shareholder of the Funds, you incur ongoing costs, including management fees, distribution and/or service (12b-1) fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
 
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2017 through March 31, 2018.
 
Actual Expenses – The first line under each share class of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
 
Hypothetical Example for Comparison Purposes – The second line under each share class of the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in each Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

24

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
 
 
Beginning Account Value October 1, 2017
Ending Account Value March 31, 2018
Expenses Paid During Period*
Annualized Expense Ratio*
Merk Hard Currency Fund
       
Investor Shares
       
Actual
$1,000.00
$1,011.39
$6.52
1.30%
Hypothetical (5% return before expenses)
$1,000.00
$1,018.45
$6.54
1.30%
Institutional Shares
       
Actual
$1,000.00
$1,012.93
$5.32
1.06%
Hypothetical (5% return before expenses)
$1,000.00
$1,019.65
$5.34
1.06%
Merk Absolute Return Currency Fund
       
Investor Shares
       
Actual
$1,000.00
$977.98
$6.41
1.30%
Hypothetical (5% return before expenses)
$1,000.00
$1,018.45
$6.54
1.30%
Institutional Shares
       
Actual
$1,000.00
$980.20
$5.18
1.05%
Hypothetical (5% return before expenses)
$1,000.00
$1,019.70
$5.29
1.05%

*
Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182) divided by 365 to reflect the half-year period.
 
Federal Tax Status of Dividends Declared during the Fiscal Year
 
For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. The Merk Hard Currency Fund designates 3.72% and Merk Absolute Return Currency Fund designates 0.29% as qualified interest income exempt from U.S. tax for foreign shareholders (QII).
 
Trustees and Officers of the Trust
 
The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. Each Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (866) 637-5386.
25

Name and Year of Birth
Position with the Trust
Length of Time Served
Principal Occupation(s) During Past Five Years
Number of Series in Fund Complex Overseen
By Trustee
Other Directorships Held By Trustee During Past Five Years
Independent Trustees
David Tucker
Born: 1958
Trustee; Chairman of the Board
Since 2011 and Chairman since 2018
Director, Blue Sky Experience (a charitable endeavor) since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm) 1998-2008.
2
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Mark D. Moyer
Born: 1959
Trustee
Since 2018
Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy) since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011-2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008-2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012.
2
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Jennifer Brown-Strabley
Born: 1964
Trustee
Since 2018
Principal, Portland Global Advisors, 1996-2010.
2
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Interested Trustee
Stacey E. Hong(1)
Born: 1966
Trustee
Since 2018
President, Atlantic since 2008.
2
Trustee, Forum Funds II and U.S. Global Investors Funds
Born: 1970
Trustee
Since 2018
Senior Vice President, Atlantic since 2008.
2
None
 
(1)
Stacey E. Hong is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to his affiliation with Atlantic. Jessica Chase is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to her affiliation with Atlantic and her role as President of the Trust.
26

 
Name and Year of Birth
Position with the Trust
 
Length of Time Served
Principal Occupation(s)
During Past 5 Years
Officers
Born: 1970
President; Principal Executive Officer
Since 2015
Senior Vice President, Atlantic since 2008.
Born: 1972
Treasurer; Principal Financial Officer
Since 2008
Senior Vice President, Atlantic since 2008.
Zachary Tackett
Born: 1988
Vice President; Secretary and Anti-Money Laundering Compliance Officer
Since 2014
Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010- 2013.
Michael J. McKeen
Born: 1971
Vice President
Since 2009
Senior Vice President, Atlantic since 2008.
Timothy Bowden
Born: 1969
Vice President
Since 2009
Manager, Atlantic since 2008.
Geoffrey Ney
Born: 1975
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Todd Proulx
Born: 1978
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Carlyn Edgar
Born: 1963
Vice President
Since 2008
Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016
Dennis Mason
Born: 1967
Chief Compliance Officer
Since 2016
Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011-
2013; Senior Analyst, Atlantic, 2008-2011

27

 
 
 
[INTENTIONALLY LEFT BLANK]
 
 
 
28

 
 
 
[INTENTIONALLY LEFT BLANK]
 
 
 
29

(BACK COVER)

(COVER PAGE)


PAYSON TOTAL RETURN FUND

A Message to Our Shareholders (Unaudited)
1
Performance Chart and Analysis (Unaudited)
3
Schedule of Investments
4
Statement of Assets and Liabilities
6
Statement of Operations
7
Statements of Changes in Net Assets
8
Financial Highlights
9
Notes to Financial Statements
10
Report of Independent Registered Public Accounting Firm
15
Additional Information (Unaudited)
17
 
IMPORTANT INFORMATION

An investment in the Fund is subject to risk, including the possible loss of principal. Other Fund risks include equity risk, convertible securities risk, debt securities risk, exchange-traded funds risk, interest rate risk, credit risk, inflation indexed security risk, government securities risk, value investment risk, mortgage-related and other asset-backed securities risk, and foreign investments risk. Foreign investing involves certain risks and increased volatility not associated with investing solely in the U.S., including currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments. Mortgage-related and other asset-backed securities risks include extension risk and prepayment risk. In addition, the Fund invests in midcap companies, which pose greater risks than those associated with larger, more established companies. There is no assurance that the Fund will achieve its investment objective.


PAYSON TOTAL RETURN FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

Dear Payson Total Return Fund Shareholder,

The managers of the Payson Total Return Fund (the “Fund”) are pleased to report that the Fund produced a total return of 15.39% for the fiscal year ending March 31, 2018. These results compare favorably to the total return of the S&P 500 (the “Index”) for the same period which produced total returns of 13.99%. These favorable results came about by a disciplined security selection process focusing on companies that are sustaining above averages margins while deploying capital to the benefit of the shareholder. This strategy leads the Fund to be concentrated in certain sectors while underweight others, relative to the Index.

While the US equity markets experienced some price erosion the last two months of the fiscal year, generally stock prices rose through this time period. The combination of low interest rates, low inflation, strong employment results, the passing of favorable tax legislation and continued reduction in regulations all contributed to a continuation of higher corporate earnings this past fiscal year. In addition, foreign economies also experienced positive momentum which in turn helped US companies doing business overseas.

Turning to specific factors that contributed to the Fund’s success this past year, the managers chose to overweight certain companies relative to the weight of the company within the index based on their comparatively superior profit margin and valuation characteristics. At the same time the managers avoided certain sectors they deemed to detract from the portfolio characteristics. The managers of the Fund find that many companies in the Technology sector, for example, exhibit these positive attributes. As the US economy benefits from and becomes increasingly dependent on the productivity improvements that technology can deliver, the sector has become a larger component of the S&P 500. Conversely, low and cyclical margin, capital intensive, highly leveraged sectors such as Energy, Basic Materials and Telecommunications are experiencing declining market capitalization and are shrinking within the Index. These sectors, as such, have a relatively small presence, if any, in the Fund.

The health care sector, where the managers found a number of opportunities that fit their strategy, underperformed the overall Index. More specifically, the pharmaceutical and biotech industries failed to generate the operating results as anticipated over the course of the year. These disappointing results led to relatively poor stock price performance. In addition, uncertainty surrounding the possible imposition of drug price controls by the government have also cast a cloud over the future profitability of the sector. Although the managers continue to find opportunities in this sector generally, they have gradually reduced exposure in this area.

The top five contributors to the Fund’s performance this past year based on their total returns relative to the Index include Amazon Inc. (+63.26%), Mastercard Inc. (+56.81%), Intel Corp. (+48.38%), Visa Inc. (+35.53%) and Accenture (+30.63%). The lowest five contributors in the Fund this past year were Celgene Corp. (-34.08%), Enbridge Inc. (-21.42%), Mylan N.V. (-18.47%), Twenty-First Century Fox Inc. Cl B (-15.74%), Merck & Co. Inc. (-11.51%). Of these five holdings, as of March 31, 2018, the fund continued to hold Merck and Twenty First Century Fox.

The managers of the Fund believe the positive economic backdrop described above has staying power both in the US and overseas and as such they see room for further corporate earnings improvement. Although rising
1


PAYSON TOTAL RETURN FUND
A MESSAGE TO OUR SHAREHOLDERS (Unaudited)

interest rates have the potential to pose a headwind to the economy and potentially competition, in terms of return, to stocks, the managers do not yet believe we have reached the point that would warrant a change in allocation. In their view, the recent market volatility, brought about in some respect by the rise in interest rates, presents an opportunity to add to equity positions at more favorable valuations while maintaining the strategic discipline of finding companies that meet the manager’s strict characteristic thresholds described above.
2


PAYSON TOTAL RETURN FUND
PERFORMANCE CHART AND ANALYSIS (Unaudited)

The following chart reflects the change in the value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in Payson Total Return Fund (the “Fund”) compared with the performance of the benchmark, S&P 500 Index (the “S&P 500”), over the past ten fiscal years. The S&P 500 is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. The total return of the index includes the reinvestment of dividends and income. The total return of the Fund includes operating expenses that reduce returns, while the total return of the index does not include expenses. The Fund is professionally managed, while the index is unmanaged and is not available for investment.

Comparison of Change in Value of a $10,000 Investment
Payson Total Return Fund vs. S&P 500 Index

(LINE GRAPH)

 
Average Annual Total Returns
Periods Ended March 31, 2018
One Year
Five Year
Ten Year
 
 
Payson Total Return Fund
15.39%
10.61%
8.43%
 
 
S&P 500 Index
13.99%
13.31%
9.49%
 

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than original cost. As stated in the Fund’s prospectus, the annual operating expense ratio (gross) is 0.98%. The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Returns greater than one year are annualized. For the most recent month-end performance, please call (800) 805-8258.
3


PAYSON TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS
 
Shares
   
Security Description
   
Value
 
Common Stock - 98.9%
       
Consumer Discretionary - 16.9%
       
 
2,560
   
Amazon.com, Inc. (a)
   
$
3,705,190
 
 
26,957
   
Aptiv PLC
     
2,290,536
 
 
1,322
   
Booking Holdings, Inc. (a)
     
2,750,276
 
 
7,837
   
McDonald’s Corp.
     
1,225,550
 
 
200
   
NVR, Inc. (a)
     
560,000
 
 
10,431
   
The Home Depot, Inc.
     
1,859,221
 
 
28,148
   
The TJX Cos., Inc.
     
2,295,751
 
 
12,680
   
Thor Industries, Inc.
     
1,460,356
 
               
16,146,880
 
Consumer Staples - 1.6%
         
 
27,515
   
Unilever PLC, ADR
     
1,528,733
 
Energy - 2.9%
         
 
34,262
   
Enbridge, Inc.
     
1,078,225
 
 
17,255
   
Phillips 66
     
1,655,100
 
               
2,733,325
 
Financial - 17.4%
         
 
62,376
   
Aflac, Inc.
     
2,729,574
 
 
24,040
   
American Express Co.
     
2,242,451
 
 
10,616
   
Berkshire Hathaway, Inc., Class B (a)
     
2,117,680
 
 
21,251
   
JPMorgan Chase & Co.
     
2,336,972
 
 
20,995
   
Mastercard, Inc., Class A
     
3,677,484
 
 
29,100
   
Visa, Inc., Class A
     
3,480,942
 
               
16,585,103
 
Health Care - 16.0%
         
 
15,807
   
Amgen, Inc.
     
2,694,778
 
 
26,621
   
Danaher Corp.
     
2,606,462
 
 
26,530
   
Gilead Sciences, Inc.
     
2,000,097
 
 
30,335
   
Johnson & Johnson
     
3,887,430
 
 
28,845
   
Merck & Co., Inc.
     
1,571,187
 
 
71,337
   
Pfizer, Inc.
     
2,531,750
 
               
15,291,704
 
Industrials - 8.1%
         
 
17,870
   
CSX Corp.
     
995,538
 
 
38,775
   
Fortive Corp.
     
3,005,838
 
 
4,227
   
General Dynamics Corp.
     
933,744
 
 
72,630
   
General Electric Co.
     
979,053
 
 
14,500
   
United Technologies Corp.
     
1,824,390
 
               
7,738,563
 
Technology - 36.0%
         
 
17,804
   
Accenture PLC, Class A
     
2,732,914
 
 
4,425
   
Alphabet, Inc., Class A (a)
     
4,589,345
 
 
19,027
   
Apple, Inc.
     
3,192,350
 
Shares
   
Security Description
   
Value
 
Technology - 36.0% (continued)
       
 
52,533
   
Applied Materials, Inc.
   
$
2,921,360
 
 
67,903
   
Cisco Systems, Inc.
     
2,912,360
 
 
3,270
   
Facebook, Inc., Class A (a)
     
522,513
 
 
14,270
   
IBM
     
2,189,446
 
 
88,808
   
Intel Corp.
     
4,625,121
 
 
29,660
   
Microsoft Corp.
     
2,707,068
 
 
46,035
   
QUALCOMM, Inc.
     
2,550,799
 
 
28,015
   
Skyworks Solutions, Inc.
     
2,808,784
 
 
32,000
   
Worldpay, Inc., Class A (a)
     
2,631,680
 
               
34,383,740
 
Total Common Stock (Cost $65,197,275)
     
94,408,048
 
Investments, at value - 98.9% (Cost $65,197,275)
   
$
94,408,048
 
Other Assets & Liabilities, Net - 1.1%
     
1,081,027
 
Net Assets - 100.0%
   
$
95,489,075
 
 
ADR
American Depositary Receipt
PLC
Public Limited Company
(a)
Non-income producing security.

The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2018.

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the table below, please refer to the Security Valuation section in Note 2 of the accompanying Notes to Financial Statements.
 
Valuation Inputs
 
Investments in Securities
 
Level 1 - Quoted Prices
 
$
94,408,048
 
Level 2 - Other Significant Observable Inputs
   
 
Level 3 - Significant Unobservable Inputs
   
 
Total
 
$
94,408,048
 

The Level 1 value displayed in this table is Common Stock. Refer to this Schedule of Investments for a further breakout of each security by industry.

The Fund utilizes the end of period methodology when determining transfers. There were no transfers among Level 1, Level 2 and Level 3 for the year ended March 31, 2018.
 
See Notes to Financial Statements.

4


PAYSON TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS
 
PORTFOLIO HOLDINGS (Unaudited)
     
% of Total Investments
     
Consumer Discretionary
   
17.1
%
Consumer Staples
   
1.6
%
Energy
   
2.9
%
Financial
   
17.6
%
Health Care
   
16.2
%
Industrials
   
8.2
%
Technology
   
36.4
%
     
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Financial Statements.
5


PAYSON TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES

 
ASSETS
     
Investments, at value (Cost $65,197,275)
 
$
94,408,048
 
Cash
   
1,500,597
 
Receivables:
       
Fund shares sold
   
210,201
 
Dividends and interest
   
31,712
 
Prepaid expenses
   
8,826
 
Total Assets
   
96,159,384
 
         
LIABILITIES
       
Payables:
       
Investment securities purchased
   
523,003
 
Fund shares redeemed
   
259
 
Distributions payable
   
52,561
 
Accrued Liabilities:
       
Investment adviser fees
   
49,326
 
Trustees’ fees and expenses
   
50
 
Fund services fees
   
14,855
 
Other expenses
   
30,255
 
Total Liabilities
   
670,309
 
         
NET ASSETS
 
$
95,489,075
 
         
COMPONENTS OF NET ASSETS
       
Paid-in capital
 
$
67,090,679
 
Distributions in excess of net investment income
   
(3,254
)
Accumulated net realized loss
   
(809,123
)
Net unrealized appreciation
   
29,210,773
 
NET ASSETS
 
$
95,489,075
 
         
SHARES OF BENEFICIAL INTEREST AT NO PAR VALUE (UNLIMITED SHARES AUTHORIZED)
   
5,375,471
 
         
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
 
$
17.76
 

See Notes to Financial Statements.
6


PAYSON TOTAL RETURN FUND
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2018

 
INVESTMENT INCOME
     
Dividend income (Net of foreign withholding taxes of $7,772)
 
$
1,512,760
 
Interest income
   
10,098
 
Total Investment Income
   
1,522,858
 
         
EXPENSES
       
Investment adviser fees
   
520,190
 
Fund services fees
   
178,184
 
Custodian fees
   
9,745
 
Registration fees
   
20,431
 
Professional fees
   
43,345
 
Trustees’ fees and expenses
   
9,851
 
Other expenses
   
34,020
 
Total Expenses
   
815,766
 
         
NET INVESTMENT INCOME
   
707,092
 
         
NET REALIZED AND UNREALIZED GAIN
       
Net realized gain on investments
   
2,832,668
 
Net change in unrealized appreciation (depreciation) on investments
   
8,633,351
 
NET REALIZED AND UNREALIZED GAIN
   
11,466,019
 
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
 
$
12,173,111
 

See Notes to Financial Statements.
7


PAYSON TOTAL RETURN FUND
STATEMENTS OF CHANGES IN NET ASSETS
 

 
   
For the Year
Ended
March 31, 2018
   
For the Year
Ended
 
OPERATIONS
           
Net investment income
 
$
707,092
   
$
841,700
 
Net realized gain
   
2,832,668
     
2,414,460
 
Net change in unrealized appreciation (depreciation)
   
8,633,351
     
9,078,816
 
Increase in Net Assets Resulting from Operations
   
12,173,111
     
12,334,976
 
                 
DISTRIBUTIONS TO SHAREHOLDERS FROM
               
Net investment income
   
(612,740
)
   
(1,076,603
)
Net realized gain
   
(3,736,941
)
   
 
Total Distributions to Shareholders
   
(4,349,681
)
   
(1,076,603
)
                 
CAPITAL SHARE TRANSACTIONS
               
Sale of shares
   
13,283,006
     
5,194,635
 
Reinvestment of distributions
   
3,943,748
     
465,432
 
Redemption of shares
   
(8,449,442
)
   
(12,543,894
)
Increase (Decrease) in Net Assets from Capital Share Transactions
   
8,777,312
     
(6,883,827
)
Increase in Net Assets
   
16,600,742
     
4,374,546
 
                 
NET ASSETS
               
Beginning of Year
   
78,888,333
     
74,513,787
 
End of Year (Including line (a))
 
$
95,489,075
   
$
78,888,333
 
                 
SHARE TRANSACTIONS
               
Sale of shares
   
747,377
     
347,371
 
Reinvestment of distributions
   
223,983
     
31,121
 
Redemption of shares
   
(483,769
)
   
(835,902
)
Increase (Decrease) in Shares
   
487,591
     
(457,410
)
                 
(a) Distributions in excess of net investment income
 
$
(3,254
)
 
$
(44
)

See Notes to Financial Statements.
8


PAYSON TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
 


These financial highlights reflect selected data for a share outstanding throughout each year.
 
   
For the Years Ended March 31, 
 
       
2017
   
2016
   
2015
   
2014
 
NET ASSET VALUE, Beginning of Year
 
$
16.14
   
$
13.94
   
$
15.21
   
$
15.22
   
$
13.89
 
INVESTMENT OPERATIONS
                                       
Net investment income (a)
   
0.14
     
0.16
     
0.16
     
0.16
     
0.42
 
Net realized and unrealized gain (loss)
   
2.33
     
2.25
     
(0.76
)
   
0.77
     
2.23
 
Total from Investment Operations
   
2.47
     
2.41
     
(0.60
)
   
0.93
     
2.65
 
                                         
DISTRIBUTIONS TO SHAREHOLDERS FROM
                                       
Net investment income
   
(0.12
)
   
(0.21
)
   
(0.16
)
   
(0.16
)
   
(0.41
)
Net realized gain
   
(0.73
)
   
     
(0.51
)
   
(0.78
)
   
(0.91
)
Total Distributions to Shareholders
   
(0.85
)
   
(0.21
)
   
(0.67
)
   
(0.94
)
   
(1.32
)
NET ASSET VALUE, End of Year
 
$
17.76
   
$
16.14
   
$
13.94
   
$
15.21
   
$
15.22
 
TOTAL RETURN
   
15.39
%
   
17.41
%
   
(3.94
)%
   
6.32
%
   
19.62
%
                                         
RATIOS/SUPPLEMENTARY DATA
                                       
Net Assets at End of Year (000s omitted)
 
$
95,489
   
$
78,888
   
$
74,514
   
$
76,875
   
$
71,035
 
Ratios to Average Net Assets:
                                       
Net investment income
   
0.82
%
   
1.10
%
   
1.11
%
   
1.05
%
   
2.84
%
Net expenses
   
0.94
%
   
0.98
%
   
0.97
%
   
0.97
%
   
1.01
%
Gross expenses
   
0.94
%
   
0.98
%
   
0.97
%
   
0.97
%
   
1.01
%
PORTFOLIO TURNOVER RATE
   
38
%
   
30
%
   
55
%
   
41
%
   
47
%
 

(a)
Calculated based on average shares outstanding during each year.
 
See Notes to Financial Statements.
9


PAYSON TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
 
Note 1. Organization

The Payson Total Return Fund (the “Fund”) is a diversified portfolio of Forum Funds (the “Trust”). The Trust is a Delaware statutory trust that is registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the “Act”). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of the Fund’s shares of beneficial interest without par value. The Fund commenced operations on November 25, 1991. The Fund seeks a combination of high current income and capital appreciation.

Note 2. Summary of Significant Accounting Policies

The Fund is an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of increases and decreases in net assets from operations during the fiscal year. Actual amounts could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation – Securities are valued at market prices using the last quoted trade or official closing price from the principal exchange where the security is traded, as provided by independent pricing services on each Fund business day. In the absence of a last trade, securities are valued at the mean of the last bid and ask price provided by the pricing service.

The Fund values its investments at fair value pursuant to procedures adopted by the Trust’s Board of Trustees (the “Board”) if (1) market quotations are not readily available or (2) the Adviser, as defined in Note 4, believes that the values available are unreliable. The Trust’s Valuation Committee, as defined in the Fund’s registration statement, performs certain functions as they relate to the administration and oversight of the Fund’s valuation procedures. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such investments and considers a number of factors, including valuation methodologies and significant unobservable inputs, when arriving at fair value.

The Valuation Committee may work with the Adviser to provide valuation inputs. In determining fair valuations, inputs may include market-based analytics that may consider related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant investment information. Adviser inputs may include an income-based approach in which the anticipated future cash flows of the investment are discounted in determining fair value. Discounts may also be applied based on the nature or duration of any restrictions on the disposition of the investments. The Valuation Committee performs regular reviews of valuation methodologies, key inputs and assumptions, disposition analysis and market activity.
10


PAYSON TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
 
Fair valuation is based on subjective factors and, as a result, the fair value price of an investment may differ from the security’s market price and may not be the price at which the asset may be sold. Fair valuation could result in a different net asset value (“NAV”) than a NAV determined by using market quotes.

GAAP has a three-tier fair value hierarchy. The basis of the tiers is dependent upon the various “inputs” used to determine the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Prices determined using significant other observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Short-term securities with maturities of sixty days or less are valued at amortized cost, which approximates market value, and are categorized as Level 2 in the hierarchy. Municipal securities, long-term U.S. government obligations and corporate debt securities are valued in accordance with the evaluated price supplied by the pricing service and generally categorized as Level 2 in the hierarchy. Other securities that are categorized as Level 2 in the hierarchy include, but are not limited to, warrants that do not trade on an exchange, securities valued at the mean between the last reported bid and ask quotation and international equity securities valued by an independent third party with adjustments for changes in value between the time of the securities respective local market closes and the close of the U.S. market.

Level 3 - Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).

The aggregate value by input level, as of March 31, 2018, for the Fund’s investments is included at the end of the Fund’s Schedule of Investments.

Security Transactions, Investment Income and Realized Gain and Loss – Investment transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date. Non-cash dividend income is recorded at the fair market value of the securities received. Foreign dividend income is recorded on the ex-dividend date or as soon as possible after determining the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Interest income is recorded on an accrual basis. Premium is amortized and discount is accreted using the effective interest method. Identified cost of investments sold is used to determine the gain and loss for both financial statement and federal income tax purposes.

Distributions to Shareholders – Distributions to shareholders of net investment income, if any, are declared and paid quarterly. Distributions to shareholders of net capital gains and net foreign currency gains, if any, are declared and paid at least annually. Distributions to shareholders are recorded on the ex-dividend date. Distributions are based on amounts calculated in accordance with applicable federal income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments of income and gain on various investment securities held by the Fund, timing differences and differing characterizations of distributions made by the Fund.
11


PAYSON TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018

 
Federal Taxes – The Fund intends to continue to qualify each year as a regulated investment company under Subchapter M of Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended (“Code”), and to distribute all of its taxable income to shareholders. In addition, by distributing in each calendar year substantially all of its net investment income and capital gains, if any, the Fund will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. The Fund files a U.S. federal income and excise tax return as required. The Fund’s federal income tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. As of March 31, 2018, there are no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure.

Income and Expense Allocation – The Trust accounts separately for the assets, liabilities and operations of each of its investment portfolios. Expenses that are directly attributable to more than one investment portfolio are allocated among the respective investment portfolios in an equitable manner.

Commitments and Contingencies – In the normal course of business, the Fund enters into contracts that provide general indemnifications by the Fund to the counterparty to the contract. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. The Fund has determined that none of these arrangements requires disclosure on the Fund’s balance sheet.

Note 3. Cash – Concentration in Uninsured Account

For cash management purposes, the Fund may concentrate cash with the Fund’s custodian. This typically results in cash balances exceeding the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of March 31, 2018, the Fund had $1,250,597 at MUFG Union Bank, N.A. that exceeded the FDIC insurance limit.

Note 4. Fees and Expenses

Investment Adviser – H.M. Payson & Co. (the “Adviser”) is the investment adviser to the Fund. Pursuant to an investment advisory agreement, the Adviser receives an advisory fee, payable monthly, from the Fund at an annual rate of 0.60% of the Fund’s average daily net assets.

Distribution – Foreside Fund Services, LLC serves as the Fund’s distributor (the “Distributor”). The Fund does not have a distribution (12b-1) plan; accordingly, the Distributor does not receive compensation from the Fund for its distribution services. The Adviser compensates the Distributor directly for its services. The Distributor is not affiliated with the Adviser or Atlantic Fund Administration, LLC (d/b/a Atlantic Fund Services) (“Atlantic”) or their affiliates.

Other Service Providers – Atlantic provides fund accounting, fund administration, compliance and transfer agency services to the Fund. The fees related to these services are included in Fund services fees within the Statement of Operations. Atlantic also provides certain shareholder report production and EDGAR conversion and filing services. Pursuant to an Atlantic services agreement, the Fund pays Atlantic customary fees for its
12


PAYSON TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018
 
services. Atlantic provides a Principal Executive Officer, a Principal Financial Officer, a Chief Compliance Officer and an Anti-Money Laundering Officer to the Fund, as well as certain additional compliance support functions.
 
Trustees and Officers – Through December 31, 2017, the Trust paid each independent Trustee an annual retainer fee of $50,000 for service to the Trust ($66,000 for the Chairman), and the Audit Committee Chairman and Vice Chairman received an additional $6,000 annually. Effective January 1, 2018, each independent Trustee’s annual retainer is $31,000 ($41,000 for the Chairman), and the Audit Committee Chairman receives an additional $2,000 annually. The Trustees and Chairman may receive additional fees for special Board meetings. Each Trustee is also reimbursed for all reasonable out-of-pocket expenses incurred in connection with his duties as a Trustee, including travel and related expenses incurred in attending Board meetings. The amount of Trustees’ fees attributable to the Fund is disclosed in the Statement of Operations. Certain officers of the Trust are also officers or employees of the above named service providers, and during their terms of office received no compensation from the Fund.

Note 5. Security Transactions

The cost of purchases and proceeds from sales of investment securities (including maturities), other than short-term investments, during the year ended March 31, 2018 were $36,234,128 and $31,653,905, respectively.

Note 6. Federal Income Tax

As of March 31, 2018, the cost of investments for federal income tax purposes is $65,099,787 and the components of net unrealized appreciation were as follows:
 
 
Gross Unrealized Appreciation
 
$
30,053,286
   
 
Gross Unrealized Depreciation
   
(745,025
)
 
 
Net Unrealized Appreciation
 
$
29,308,261
   
 
Distributions paid during the fiscal years ended as noted were characterized for tax purposes as follows:
 
     
2018
   
2017
   
 
Ordinary Income
 
$
911,875
   
$
1,115,355
   
  Long-Term Capital Gain    
3,487,584
         
     
$
4,399,459
   
$
1,115,355
   
 
As of March 31, 2018, distributable earnings (accumulated loss) on a tax basis were as follows:
 
 
Undistributed Ordinary Income
 
$
49,307
   
 
Capital and Other Losses
   
(906,611
)
 
 
Net Unrealized Appreciation
   
29,308,261
   
 
Other Temporary Differences
   
(52,561
)
 
 
Total
 
$
28,398,396
   
13


PAYSON TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2018
 
The difference between components of distributable earnings on a tax basis and the amounts reflected in the Statement of Assets and Liabilities are primarily due to wash sales, treatment of distributions payable and equity return of capital.

On the Statement of Assets and Liabilities, as a result of permanent book to tax differences, certain amounts have been reclassified for the year ended March 31, 2018. The following reclassification was the result of equity return of capital and has no impact on the net assets of the Fund.
 
 
Distributions in Excess of Net Investment Income
 
$
(97,562
)
 
 
Accumulated Net Realized Gain (Loss)
   
97,562
   
 
For tax purposes, the current year post-October loss was $906,611 for the Payson Total Return Fund (realized during the period November 1, 2017 through March 31, 2018). This loss will be recognized for tax purposes on the first business day of the Fund’s next fiscal year, April 1, 2018.

Note 7. Subsequent Events

Subsequent events occurring after the date of this report through the date these financial statements were issued have been evaluated for potential impact, and the Fund has had no such events.
14


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
To the Board of Trustees of Forum Funds
and the Shareholders of Payson Total Return Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Payson Total Return Fund, a series of shares of beneficial interest in Forum Funds (the “Fund”), including the schedule of investments, as of March 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of March 31, 2018, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and its financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
15


 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2018 by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
 
We have served as the auditor of one or more of the Funds in Forum Funds since 2009.

Philadelphia, Pennsylvania
16


PAYSON TOTAL RETURN FUND
ADDITIONAL INFORMATION (Unaudited)

 
Shareholder Proxy Vote
 
At a special meeting of shareholders for all the Funds in the Trust, held on December 8, 2017, shares were voted as follows on the proposals presented to shareholders:
 
Matter  For  Against Abstain 
To elect David Tucker to the Board of Trustees of the Trust
108,303,928.779
1,542,957.994
0
 To elect Jennifer Brown-Strabley to the Board of Trustees of the Trust 108,183,952.495
1,662,934.278
0
To elect Mark D. Moyer to the Board of Trustees of the Trust.
108,142,412.946
1,704,473.827
0
To elect Jessica Chase to the Board of Trustees of the Trust.
107,632,924.803
2,213,961.970
0
To elect Stacey E. Hong to the Board of Trustees of the Trust.
105,777,266.997
4,069,619.776
0
 
Proxy Voting Information
 
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling (800) 805-8258 and on the SEC website at www.sec.gov. The Fund’s proxy voting record for the most recent twelve-month period ended June 30 is available, without charge and upon request, by calling (800) 805-8258 and on the SEC’s website at www.sec.gov.
 
Availability of Quarterly Portfolio Schedules
 
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These filings are available, without charge and upon request on the SEC’s website at www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
 
Shareholder Expense Example
 
As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
 
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from October 1, 2017 through March 31, 2018.
 
Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during the period.
17


PAYSON TOTAL RETURN FUND
ADDITIONAL INFORMATION (Unaudited)
MARCH 31, 2018

 
Hypothetical Example for Comparison Purposes - The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
 
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
 
   
Beginning Account Value October 1, 2017
   
Ending Account Value March 31, 2018
   
Expenses Paid During
Period*
   
Annualized Expense
Ratio*
 
Actual   $1,000.00     $1,067.11    
$4.74
    0.92%  
Hypothetical (5% return before expenses)
 
$1,000.00
   
$1,020.34
   
$ 4.63
   
0.92%
 
 
*
Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182) divided by 365 to reflect the half-year period.
 
Federal Tax Status of Dividends Declared during the Fiscal Year
 
For federal income tax purposes, dividends from short-term capital gains are classified as ordinary income. The Fund designates 100.00% of its income dividend distributed as qualifying for the corporate dividends received deduction (DRD) and 100.00% for the qualified dividend rate (QDI) as defined in Section 1(h)(11) of the Code. The Fund also designates 27.34% as short-term capital gain dividends exempt from U.S. tax for foreign shareholders (QSD). The Fund also designates 0.53% as qualified interest income exempt from U.S. tax for foreign shareholders (Qll).
 
Trustees and Officers of the Trust
 
The Board is responsible for oversight of the management of the Trust’s business affairs and of the exercise of all the Trust’s powers except those reserved for the shareholders. The following table provides information about each Trustee and certain officers of the Trust. Each Trustee and officer holds office until the person resigns, is removed, or is replaced. Unless otherwise noted, the persons have held their principal occupations for more than five years. The address for all Trustees and officers is Three Canal Plaza, Suite 600, Portland, Maine 04101. The Fund’s Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling (800) 805-8258.
18


PAYSON TOTAL RETURN FUND
ADDITIONAL INFORMATION (Unaudited)

 
Name and Year of Birth
Position with the Trust
Length of Time
Served
Principal Occupation(s) During
Past Five Years
Number of Series in Fund
Complex Overseen
By Trustee
Other Directorships
Held By Trustee During Past Five Years
Independent Trustees
David Tucker
Born: 1958
Trustee; Chairman of the Board
Since 2011 and Chairman since 2018
Director, Blue Sky Experience (a charitable endeavor) since 2008; Senior Vice President & General Counsel, American Century Companies (an investment management firm) 1998-2008.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Mark D. Moyer
Born: 1959
Trustee
Since 2018
Chief Financial Officer, Freedom House (a NGO advocating political freedom and democracy) since 2017; independent consultant providing interim CFO services, principally to non-profit organizations, 2011-2017; Chief Financial Officer, Institute of International Education (a NGO administering international educational exchange programs), 2008-2011; Chief Financial Officer and Chief Restructuring Officer, Ziff Davis Media Inc. (an integrated media company), 2005-2008; Adjunct Professor of Accounting, Fairfield University from 2009-2012.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Jennifer Brown-Strabley
Born: 1964
Trustee
Since 2018
Principal, Portland Global Advisors, 1996-2010.
1
Trustee, Forum Funds II, Forum ETF Trust and U.S. Global Investors Funds
Interested Trustee
Stacey E. Hong(1)
Born: 1966
Trustee
Since 2018
President, Atlantic since 2008.
1
Trustee, Forum Funds II and U.S. Global Investors
Funds
 
19


PAYSON TOTAL RETURN FUND
ADDITIONAL INFORMATION (Unaudited)

 
Name and Year of Birth
Position with the Trust
Length of Time Served
Principal Occupation(s) During
Past Five Years
Number of Series in Fund
Complex Overseen
By Trustee
Other Directorships
Held By Trustee During Past Five Years
Born: 1970
Trustee
Since 2018
Senior Vice President, Atlantic since 2008.
1
None
 
(1)
Stacey E. Hong is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to his affiliation with Atlantic. Jessica Chase is currently treated as an interested person of the Trust, as defined in the 1940 Act, due to her affiliation with Atlantic and her role as President of the Trust.
 
Name and Year of Birth
Position with the Trust
Length of Time Served
Principal Occupation(s) During Past 5 Years
Officers
   
Born: 1970
President; Principal Executive Officer
Since 2015
Senior Vice President, Atlantic since 2008.
Born: 1972
Treasurer; Principal Financial Officer
Since 2008
Senior Vice President, Atlantic since 2008.
Zachary Tackett
Born: 1988
Vice President; Secretary and Anti-Money Laundering Compliance Officer
Since 2014
Counsel, Atlantic since 2014; Intern Associate, Coakley & Hyde, PLLC, 2010-2013.
Michael J. McKeen
Born: 1971
Vice President
Since 2009
Senior Vice President, Atlantic since 2008.
Timothy Bowden
Born: 1969
Vice President
Since 2009
Manager, Atlantic since 2008.
Geoffrey Ney
Born: 1975
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Todd Proulx
Born: 1978
Vice President
Since 2013
Manager, Atlantic since 2013; Senior Fund Accountant, Atlantic, 2008–2013.
Carlyn Edgar
Born: 1963
Vice President
Since 2008
Senior Vice President, Atlantic since 2008; Chief Compliance Officer, 2008-2016
Dennis Mason
Born: 1967
Chief Compliance Officer
Since 2016
Fund Compliance Officer, Atlantic since 2013; Senior Specialist, Atlantic, 2011-2013; Senior Analyst, Atlantic, 2008-2011
 
20

 

 
ITEM 2. CODE OF ETHICS.
(a)
As of the end of the period covered by this report, Forum Funds (the "Registrant") has adopted a code of ethics, which applies to its Principal Executive Officer and Principal Financial Officer (the "Code of Ethics").

(c)
There have been no amendments to the Registrant's Code of Ethics during the period covered by this report.

(d)
There have been no waivers to the Registrant's Code of Ethics during the period covered by this report.

(e)
Not applicable.

(f) (1)  A copy of the Code of Ethics is being filed under Item 12(a) hereto.
 
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that no member of the Audit Committee is an "audit committee financial expert" as that term is defined under applicable regulatory guidelines.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees - The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant for the audit of the Registrant's annual financial statements, or services that are normally provided by the principal accountant in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $190,200 in 2017 and $191,300 in 2018.

(b) Audit-Related Fees – The aggregate fees billed in the Reporting Periods for assurance and related services rendered by the principal accountant that were reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $0 in 2017 and $0 in 2018.

(c) Tax Fees - The aggregate fees billed in the Reporting Periods for professional services rendered by the principal accountant to the Registrant for tax compliance, tax advice and tax planning were $37,000 in 2017 and $37,500 in 2018. These services consisted of review or preparation of U.S. federal, state, local and excise tax returns.

(d) All Other Fees - The aggregate fees billed in the Reporting Periods for products and services provided by the principal accountant to the Registrant, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2017 and $0 in 2018.

(e) (1) The Audit Committee reviews and approves in advance all audit and "permissible non-audit services" (as that term is defined by the rules and regulations of the Securities and Exchange Commission) to be rendered to a series of the Registrant (each, a "Series"). In addition, the Audit Committee reviews and approves in advance all "permissible non-audit services" to be provided to an investment adviser (not including any sub-adviser) of a Series, or an affiliate of such investment adviser, that is controlling, controlled by or under common control with the investment adviser and provides on-going services to the Registrant ("Affiliate"), by the Series' principal accountant if the engagement relates directly to the operations and financial reporting of the Series. The Audit Committee considers whether fees paid by a Series' investment adviser or an Affiliate to the Series' principal accountant for audit and permissible non-audit services are consistent with the principal accountant's independence.

(e) (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not applicable

(g) The aggregate non-audit fees billed by the principal accountant for services rendered to the Registrant for the Reporting Periods were $0 in 2017 and $0 in 2018. There were no fees billed in either of the Reporting Periods for non-audit services rendered by the principal accountant to the Registrant's investment adviser or any Affiliate.

(h) During the Reporting Period, the Registrant's principal accountant provided no non-audit services to the investment advisers or any entity controlling, controlled by or under common control with the investment advisers to the series of the Registrant to which this report relates.
 
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.

ITEM 6. INVESTMENTS.

(a)
Included as part of report to shareholders under Item 1.

(b)
Not applicable.
 
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
 
ITEM 8.  PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
 
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
 
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant does not accept nominees to the board of trustees from shareholders.
 
ITEM 11. CONTROLS AND PROCEDURES
(a) The Registrant's Principal Executive Officer and Principal Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) are effective, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as of a date within 90 days of the filing date of this report.
 (b) There were no changes in the Registrant's internal control over financial reporting (as defined in
Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
 
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.

ITEM 13. EXHIBITS.

(a)(1)  Not applicable.

(a)(2) Certifications pursuant to Rule 30a-2(a) of the Act, and Section 302 of the Sarbanes-Oxley Act of 2002. (Exhibits filed herewith)

(a)(3)  Not applicable.

(b)      Certifications pursuant to Rule 30a-2(b) of the Act, and Section 906 of the Sarbanes-Oxley Act of 2002. (Exhibit filed herewith)
 

 





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant Forum Funds

By:
 
 
Jessica Chase, Principal Executive Officer
 
     
Date:
 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


By:
 
 
Jessica Chase, Principal Executive Officer
 
     
Date:
 

By:
 
 
Karen Shaw, Principal Financial Officer
 
     
Date:
 




 

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
8/1/19
12/15/18
9/30/18
7/31/18
Filed on / Effective on:6/4/18
5/30/18NSAR-B
5/29/18N-CSRS
5/24/18N-Q,  NSAR-A
4/1/18
For Period End:3/31/18N-CSRS,  N-Q,  NSAR-A,  NSAR-B
3/27/18
2/2/18497
1/1/18
12/31/1724F-2NT,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
12/8/17
11/1/17485BPOS,  497,  497J,  N-Q
10/1/17
9/30/1724F-2NT,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
9/29/17497,  DEF 14A
8/14/17485BPOS
8/1/17485BPOS,  497J
4/1/17485BPOS
3/31/1724F-2NT,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
9/30/1624F-2NT,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
6/30/1624F-2NT,  40-17G,  497,  N-CSR,  N-CSRS,  N-PX,  N-Q,  NSAR-A,  NSAR-B
4/18/16
4/1/16485BPOS,  497J
12/30/15485BPOS,  497
3/31/1524F-2NT,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
3/3/15
12/18/14497
8/1/14485BPOS,  497,  497J
3/31/1424F-2NT,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
9/11/13CORRESP,  N-Q
5/21/13
6/30/1224F-2NT,  N-CSR,  N-CSRS,  N-PX,  N-Q,  NSAR-A,  NSAR-B
8/26/10485APOS,  N-Q
4/1/10485BPOS,  497
12/1/09N-CSR
9/9/09485BPOS
8/31/09N-PX,  N-Q
6/24/09497
7/11/05
5/10/05
12/8/93
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