Forester Discovery Fund
(INTLX)
ANNUAL REPORT MARCH 31, 2020
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website www.forestervalue.com and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by following the instructions included with paper Fund documents that have been mailed to you.
This report is submitted for the general information of shareholders of The Forester Funds. It is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus for the Funds, which contains more information concerning the Funds' investment policies, as well as fees and expenses and other pertinent information. Read the Prospectus carefully before you invest or send money. THE FORESTER DISCOVERY FUND
MANAGERS COMMENTARY MARCH 31, 2020 (UNAUDITED)
Dear Fellow Shareholder:
The Fiscal year of 2020 was a great year! The Forester Discovery Fund returned -5.70%. Although returns were negative the fund was able to outperform its Morningstar Foreign Large Value Category by 15.04% and the MSCI ACWI Ex USA Value Index by 17.97%. Our cash allocation, put protection and stock selection all contributed positively to our returns versus the MSCI ACWI Ex USA Value Index. We believe the fund performed as it was designed and offered downside protection and preserved capital during a very volatile fiscal year.
The equity performance of the fund for the fiscal year was -18.69% versus the MSCI ACWI EX USA Value Index at -23.67%. The fund’s lower beta stock selection and preference for dividend stocks played a significant role in our outperformance. We believe having high dividend yielding stocks with growth potential significantly protects on the downside. From a sector weighting perspective our underweight to financials, overweight to healthcare and our stock outperformance in materials contributed significantly to the outperformance.
In examining our country exposure, we were hurt by our holdings in the U.K., Germany, France, which underperformed and made up 70% of our equity holdings. Our lack of exposure to Japan and China were also a drag on performance. The Forester Discovery Fund is based in USD and the DXY Currency Index appreciated versus most of the major currencies across the world, which was a drag on performance. Bottom stock up selection and a preference for dividend stocks played a key role in beating our index by around 489 basis points during the fiscal year.
The first quarter of 2020 was a monumental quarter for the fund. As we were worried about the risks in the international markets before 2020, we were positioned defensively and took advantage of the major sell off in the first quarter of 2020 due to the COVID-19 virus. The Forester Discovery Fund returned -7.05%, and outperformed the MSCI ACWI Ex USA Value Index by an amazing 21.5%. Once again, our cash and put protection played a significant role in our outperformance.
The equity performance for the fund was also outstanding at -24.55% versus -28.55% for the MSCI ACWI Ex USA Value Index. We attribute the performance to having a solid dividend yield for the portfolio at around 5% and low beta stocks with significant upside that we believe offer value. Our healthcare allocation and our material and utility stock selection led the outperformance. In our country exposure, our underweight position to China and Japan were a drag on performance. The USD also appreciated during this time against the major currencies and had a negative impact on our performance.
The Discovery Fund continues to use put options and cash to hedge our long exposure. We still believe a defensive position is warranted. Below we explain why.
1 THE FORESTER DISCOVERY FUND
MANAGERS COMMENTARY (CONTINUED) MARCH 31, 2020 (UNAUDITED)
COVID-19 Virus
The COVID-19 Virus is a strand of coronavirus. It started in China sometime at the end of 2019 and has since spread to most parts of the world rather quickly. OECD countries have accounted for 64% of the 5.6 million cases and 80% of the 350 thousand deaths since May 26, 2020. The death rate for the OECD countries is 7.93% versus the total world rate of 6.25%. The United States has the most cases in the world at 1.7 million and the most deaths at 100 thousand. In the United States the death rate is 5.84%, which is lower than the OECD and world average. The Eurozone countries have been hit hard with 966 thousand cases and more than 115 thousand deaths. The Eurozone death rate is at around 12% which is the highest region in the world by far. Total deaths in Europe make up 33% of the world’s total. BRIC (Brazil, Russia, India and China) only represent 18% of total cases and 11% of total deaths. This is surprising since the countries represent 40% of the global population. The death rate is stated at 3.76% for the BRIC countries. We are very skeptical on the China data and will further elaborate on our views later in the report.
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MANAGERS COMMENTARY (CONTINUED) MARCH 31, 2020 (UNAUDITED)
COVID-19 vs. Past Pandemics
The COVID-19 virus is certainty something we have not seen in a long time if ever. As far as devastation goes the only thing that compares since 1900 is the Spanish Flu. This epidemic infected 1/3 of the world with 20 to 50 million dying. However, back then health services and technology were only a fraction of what they are today. Who knows what the impact would have been if the Spanish Flu happened in modern times. Amazingly, developed economies globally did not shut down during the Spanish Flu as it was during World War I.
SARS (Severe Acute Respiratory Syndrome) has some similarities compared with COVID-19. The disease started in China in 2002 and is believed to come from bats. It is a strain of coronavirus, which impacts the respiratory system. Like COVID-19 there was a delay in reporting the virus to the outside world. The virus was very deadly with a 10% death rate but the virus was contained and mainly just impacted parts of Asia. To this day there has been no vaccine for SARS and the vaccine mysteriously disappeared after 8 months of first appearing.
H1N1is a type of a flu and is most similar to the Spanish FLU of 1918. The virus infected 60 million people but only caused 12,469 deaths.
MERS (Middle East Respiratory System) has similarities with COVID as it is a strain of coronavirus that emerged in 2012. The disease started in the Middle East and is believed to be started by bats and camels. Human to human transfer to the virus is rare but has happened with severely ill people. The last known case of MERS was in 2018 and there still has not been an approved vaccine but several virus tests have been going on in 2020. Out of the known coronavirus strains MERS seems to be the deadliest with a 34% death rate.
Ebola occurred mainly in West Africa in 2014. It is also came from bats or from birds or animals that have bitten fruit that have come in contact with bats. The disease is very hard to contract and can only be transferred through human liquids. There was an approved vaccine in 2019.
As we mentioned above COVID-19 is similar to the other Coronaviruses such as SARS and MERS. This is true with one important distinction. Unlike SARS and MERS COVID-19 is much more contagious. The strain of Corona can be spread without symptoms, which means you can spread the disease without knowing you are sick. The other previous viruses were only spread human to human by the extremely sick.
INFECTED DEATHS DEATH RATE SPANISH FLU (1918) 500,000,000 35,000,000 7.00% SARS (2002) 8,096 774 9.56% H1N1 (2009) 60,000,000 12,469 .02% MERS (2012) 2,519 866 34.38% EBOLA (2014) 26,646 11,323 42.49% COVID-19 (2020) 5,614,458 350,928 6.25% *As of 5/26/20 3 THE FORESTER DISCOVERY FUND
MANAGERS COMMENTARY (CONTINUED) MARCH 31, 2020 (UNAUDITED)
WORLD GDP IMPACT
Due to the highly contagious impact of COVID-19 countries started locking down their economy and required their residents to stay at home. This is the first time in modern history this has happened on a global scale. As of May 26, 2020 1/3 of the world is still is some form of lock down. With businesses not open and consumers not spending money, this has impacted future GDP growth. Many estimates for 2020 GDP growth have been revised down. Recently, China pulled their 2020 target and we believe it’s possible for China to have negative GDP in 2020, which would further hurt world GDP growth.
OECD countries make up over 50% of world GDP growth and account for 64% of the COVID-19 cases and 80% of the deaths. Currently forecasts are for a 3% world contraction in 2020, which would be lower than 2009. Euro Zone is expected to decline - 7.6% and the UK -7.8%. The US is expected to decline -5.7%. Asia is expected to be a little better with Japan down -4.7% and China at +1.5%. However, we believe the China number is suspect and could be negative in 2020.
World GDP Growth 1980-2022E 7.00 G 6.00 D 5.00 P 4.00 3.00 G 2.00 R 1.00 O 0.00 W -1.00 T -0.07 -2.00 H -3.00 -3.02
-4.00
Dec-80 Dec-81 Dec-82 Dec-83 Dec-84 Dec-85 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Dec-19 Dec-21E 4 THE FORESTER DISCOVERY FUND
MANAGERS COMMENTARY (CONTINUED) MARCH 31, 2020 (UNAUDITED)
2020 could be the steepest recession since World War 2. However, this time it happened deliberately by shutting down the global economy due to the pandemic. While we don’t think this is the black plague where 50% of Europe’s population was killed, we do think that there could be a second wave of the virus and a 3 % decline in GDP may be optimistic. We could be talking about a recovery taking several years. The University of Cambridge estimated that this could be a $3.3 trillion dollar hit to the world economy if it’s a 2-3 quarter event. However, they estimate that if a vaccine is not found, which it has not been found for the other coronaviruses such as SARS and MERS this could be an $83 trillion event if it lasts multiple years. No central bank in the world can back that type of number and it would put the world back in a great depression.
From an unemployment point of view, it is estimated that 1.6 billion people across the world could be impacted from COVID-19. Many of the people in the service industry, which makes up a majority of the economy in the world, will be impacted. Some of these jobs may never return because of social distancing or changes in consumer habits.
Other worse case scenarios include a collapse of emerging market currencies due to a flight of safety to the USD. We believe this would put further stress on undeveloped countries and potentially make GDP forecasts worse.
WORLD GDP 1870 TO 2020
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MANAGERS COMMENTARY (CONTINUED) MARCH 31, 2020 (UNAUDITED)
GLOBAL CENTRAL STIMULUS
It has been posted that there have been over $10 trillion USD committed by the central banks to fight the economic impact of the COVID-19 virus. More stimulus is expected to come to prevent the global economy from going into another Great Depression. The central banks are there to provide liquidity in the short term to keep businesses and markets from closing. There will be more stimulus by central banks than the financial crisis in 2008.
The question is with interest rates so low, how effective will the stimulus be and with global debt so high how much extra stimulus will central banks be able to provide? Central banks are not fighting a crisis caused by economic events this time but a crisis caused by a virus. All the stimulus in the world will not work if a vaccine is not found and if the virus keeps on spreading.
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MANAGERS COMMENTARY (CONTINUED) MARCH 31, 2020 (UNAUDITED)
STOCK PERFORMANCE
As mentioned above, the fund’s equities had a great fiscal year, returning -18.69% vs - 23.67% for the Russell 1000 Value Index. The drivers were Newmont (+38.97%) and Essity (15.00%) on the upside and Equinor (-55.84%), and Suncor (-65.80%) on the downside.
We originally owned Goldcorp but it was acquired by the American company Newmont. We believe Newmont’s acquisition of Goldcorp will be a long term game changer for the company. Newmont benefited from gold rising around 30% during the fiscal year. Gold is currently close to the all time highs it reached back in 2011. It is not ironic this was the last time the world was in such a quantitative easing environment. We believe that with negative global real interest rates gold will continue to do well. Additionally, we feel it is important to have exposure to a safe haven asset such as gold during this time of uncertainty.
Essity is a consumer staple company offering products across Europe. It specializes in paper personal care items such as tissue, paper towels and toilet paper. The company had strong returns as people were stock piling essential items for the COVID-19 virus. The stock has performed very well for us over the years and provides downside protection in our current times.
Equinor and Suncor were both down significantly due to the price of oil. The commodity experienced a sharp sell off because of the COVID-19 virus and the stock sold off with the commodity. We sold our position in the stock as we reduced our energy exposure.
As always, we will continue to buy stocks that we believe have exceptional appreciation potential. In addition, at times we believe market risks are high, we will protect the portfolio using put options and cash. We believe that if we are patient, this should lead to outsized investment returns over the longer term.
Thank you for investing with us.
Sincerely,
Thomas H. Forester, President
Jason McRae, Co Portfolio Manager-Forester Discovery Fund
7 THE FORESTER DISCOVERY FUND
PERFORMANCE ILLUSTRATION MARCH 31, 2020 (UNAUDITED)
AVERAGE ANNUALIZED TOTAL RETURNS PERIOD ENDED MARCH 31, 2020 (UNAUDITED)
SINCE FUND/INDEX 1-YEAR 5-YEAR 10-YEAR INCEPTION VALUE Forester Discovery Fund -5.70% -1.82% 0.26% 2.53% $ 16,698 MSCI ACWI Ex USA Index -15.59% -0.65% 2.05% 3.11% $ 18,756 MSCI ACWI Ex USA Value Index -23.68% -3.50% 0.10% N/A $ 17,941
* The chart assumes an initial gross investment of $10,000 made on 9/10/99 (inception).
Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. All returns reflect reinvested dividends but do not reflect the impact of taxes.
The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the US.
The MSCI ACWI ex USA Value Index captures large and mid cap securities exhibiting overall value style characteristics across 22 Developed and 26 Emerging Markets countries*. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield.
PERFORMANCE IS HISTORICAL AND DOES NOT GUARANTEE FUTURE RESULTS. AN INVESTMENT IN A MUTUAL FUND CONTAINS RISKS WHICH ARE DISCUSSED IN THE PROSPECTUS. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. 8 THE FORESTER DISCOVERY FUND
PORTFOLIO ILLUSTRATION MARCH 31, 2020 (UNAUDITED)
The following chart gives a visual breakdown of the Fund by the industry sectors the underlying securities represent as a percentage of the portfolio investments.
Sectors are categorized using Global Industry Classification Standard (GICS).
Excludes written options.
9 THE FORESTER DISCOVERY FUND
SCHEDULE OF INVESTMENTS MARCH 31, 2020
Shares Value
COMMON STOCKS - 51.40%
Communication Services - 3.44% 2,830 Deutsche Telekom AG ADR $ 36,620 4,450 KT Corp. ADR 34,621 71,241 Consumer Discretionary - 2.40% 1,220 Michelin (CGDE) ADR 21,594 2,150 Volkswagen AG ADR 28,165 49,759 Consumer Staples - 9.19% 325 Diageo Plc. ADR 41,314 3,010 Essity AB ADR 93,220 1,110 Unilever Plc. ADR 56,133 190,667 Energy - 3.36% 1,910 BP Plc. ADR 46,585 620 Total SA ADR 23,089 69,674 Financials - 8.46% 2,060 AXA Group ADR 35,617 1,220 HSBC Holdings PLC ADR 34,172 1,780 Prudential PLC ADR 44,108 970 Swiss RE AG ADR 18,420 1,020 The Toronto-Dominion Bank NY (Canada) 43,238 175,555 Health Care - 6.64% 1,720 GlaxoSmithKline PLC ADR 65,171 1,660 Sanofi ADR 72,575 137,746 Industrials - 4.14% 1,850 BAE Systems PLC ADR 47,268 920 Siemens AG ADR 38,640 85,908 Information Technology - 2.61% 490 SAP SE ADR 54,145
Materials - 6.34% 5,040 Amcor Ltd. ADR (Australia) 40,925 2,000 Newmont Goldcorp Corp. 90,560 131,485
The accompanying notes are an integral part of these financial statements. 10 THE FORESTER DISCOVERY FUND
SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2020
Shares Value
Utilities - 4.82% 4,760 Red Electrica Corp. SA ADR $ 43,078 2,200 RWE AG ADR 56,958 100,036
TOTAL FOR COMMON STOCKS (Cost $1,020,635) - 51.40% 1,066,216
PUT OPTIONS PURCHASED (Premiums Paid $46,075) - 1.76% 36,400
Par Value Value
U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 39.04% 110,000 U.S. Government Treasury Bill, 0.00%, 05/07/2020 109,993 700,000 U.S. Government Treasury Bill, 0.00%, 06/25/2020 699,890 TOTAL FOR U.S GOVERNMENT AGENCIES & OBLIGATIONS (Cost $809,837) - 39.04% 809,883
TOTAL INVESTMENTS (Cost $1,876,547) - 92.20% 1,912,499
TOTAL FOR WRITTEN PUT OPTIONS (Premiums Received $10,925) - (0.32)% (6,600)
OTHER ASSETS IN EXCESS OF LIABILITIES, NET - 8.12% 168,423
NET ASSETS - 100.00% $ 2,074,322
ADR- American Depositary Receipt ** Variable rate security; the coupon rate shown represents the yield at March 31, 2020. The accompanying notes are an integral part of these financial statements. 11 THE FORESTER DISCOVERY FUND
SCHEDULE OF PUT OPTIONS PURCHASED MARCH 31, 2020
Notional Exercise Underlying Security Counterparty Contracts + Amount ** Price Expiration Value
PUT OPTIONS * - 1.76%
iShares MSCI EAFE Interactive ETF Put Brokers 200 $1,000,000 $ 50 5/15/2020 $ 36,400
Total Put Options (Premiums Paid $46,075) - 1.76% $ 36,400
* Non-income producing security during the period. **The notional amount is calculated by multiplying outstanding contracts by the exercise price at March 31, 2020. + Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. The accompanying notes are an integral part of these financial statements. 12 THE FORESTER DISCOVERY FUND
SCHEDULE OF WRITTEN PUT OPTIONS MARCH 31, 2020
Notional Exercise Underlying Security Counterparty Contracts + Amount** Price Expiration Value
PUT OPTIONS - (0.32)% *
iShares MSCI EAFE Interactive ETF Put Brokers (200) $(800,000) $ 40.00 5/15/2020 $ (6,600)
Total Put Options (Premiums Received $10,925) - (0.32)% $ (6,600)
* Non-income producing securities during the period. **The notional amount is calculated by multiplying outstanding contracts by the exercise price at March 31, 2020. + Each option contract allows the holder of the option to purchase or sell 100 shares of the underlying security. The accompanying notes are an integral part of these financial statements. 13 THE FORESTER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2020
Assets: Investments in Securities, at Value (Cost $1,876,547) $ 1,912,499 Cash 98,336 Deposit with Broker for Options Written 70,385 Receivables: Shareholder Subscriptions 500 Dividends and Interest 8,479 Total Assets 2,090,199
Liabilities Covered Call Options Written at Value (Premiums received $10,925) 6,600 Payables: Shareholder Redemptions 6,595 Due to Advisor 2,026 Administrative Fees 656 Total Liabilities 15,877
Net Assets $ 2,074,322
Net Assets Consist of: Paid In Capital $ 2,141,367 Distributable Deficit (67,045) Net Assets, for 176,691 Shares Outstanding (with par value of $0.0001 per share) $ 2,074,322
Net Asset Value Per Share $ 11.74
The accompanying notes are an integral part of these financial statements. 14 THE FORESTER DISCOVERY FUND
STATEMENT OF OPERATIONS For the year ended March 31, 2020
Investment Income: Dividends (net of $8,816 of foreign tax withheld) $ 66,545 Money Fund Dividends 11,090 Interest 1,430 Total Investment Income 79,065
Expenses: Advisory Fees 25,773 Administration Fees 9,020 Total Expenses 34,793
Net Investment Income 44,272
Realized and Unrealized Gain on Investments: Realized Gain: Investments 284,058 Options Written - 284,058
Change in Unrealized Appreciation (Depreciation) on: Investments (470,434) Options Written 4,325 (466,109)
Net Realized and Unrealized Loss on Investments (182,051)
Net Decrease in Net Assets Resulting from Operations $ (137,779)
The accompanying notes are an integral part of these financial statements. 15 THE FORESTER DISCOVERY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended 3/31/2020 3/31/2019 Increase (Decrease) in Net Assets From Operations: Net Investment Income $ 44,272 $ 62,188 Net Realized Gain (Loss) on Investments and Options 284,058 (51,706) Unrealized Depreciation on Investments and Options (466,109) (278,067) Net Decrease in Net Assets Resulting from Operations (137,779) (267,585)
Distributions to Shareholders: Distributions (48,391) (61,395) Total Distributions Paid to Shareholders (48,391) (61,395)
Capital Share Transactions (711,899) (1,140,643)
Total Decrease (898,069) (1,469,623)
Net Assets: Beginning of Year 2,972,391 4,442,014
End of Year $ 2,074,322 $2,972,391
The accompanying notes are an integral part of these financial statements. 16 THE FORESTER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout the year:
Years Ended 3/31/2020 3/31/2019 3/31/2018 3/31/2017 3/31/2016
Net Asset Value, at Beginning of Year $ 12.69 $ 13.88 $ 13.57 $ 13.63 $ 13.67
Income From Investment Operations: Net Investment Income * 0.22 0.22 0.18 0.09 0.03 Net Gain (Loss) on Securities (Realized and Unrealized) (0.93) (1.18) 0.32 (0.07) (0.03) Total from Investment Operations (0.71) (0.96) 0.50 0.02 0.00
Distributions: Net Investment Income (0.24) (0.23) (0.19) (0.08) (0.04) Realized Gains - - - - - Total from Distributions (0.24) (0.23) (0.19) (0.08) (0.04)
Net Asset Value, at End of Year $ 11.74 $ 12.69 $ 13.88 $ 13.57 $ 13.63
Total Return ** (5.70)% (6.86)% 3.67% 0.19% (0.03)%
Ratios/Supplemental Data: Net Assets at End of Year (Thousands) $ 2,074 $ 2,972 $ 4,442 $ 5,188 $ 7,443 Ratio of Expenses to Average Net Assets 1.35% 1.35% 1.35% 1.35% 1.35% Ratio of Net Investment Income to Average Net Assets 1.72% 1.66% 1.30% 0.69% 0.23% Portfolio Turnover 17.44% 9.43% 1.56% 12.63% 10.22%
* Per share net investment income has been determined on the basis of average shares outstanding during the period. ** Assumes reinvestment of dividends. The accompanying notes are an integral part of these financial statements. 17 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2020
(1) ORGANIZATION Forester Funds, Inc. (the "Company") is an open-end diversified investment company currently offering two series of shares: The Forester Value Fund and The Forester Discovery Fund. The Company was incorporated as a Maryland corporation on April 7, 1999. The accompanying financial statements are those of the Forester Discovery Fund (the "Fund"). The Fund commenced operations on September 10, 1999. Forester Capital Management, Ltd. (the “Advisor”) serves as the Fund’s investment advisor.
The objective of the Fund is to seek long-term growth of capital.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund is an investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies.
Security Valuation All investments in securities are recorded at their estimated fair value, as described in Note 3.
Federal Income Taxes The Fund makes no provision for federal income or excise tax. The Fund intends to qualify each year as “regulated investment company” (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended, by complying with the requirements applicable to RICs and by distributing substantially all of their taxable income. The Fund also intends to distribute sufficient net investment income and net capital gains, if any, so that it will not be subject to excise tax on undistributed income and gains. If the required amount of net investment income or gains is not distributed, the Fund could incur a tax expense. Therefore, no federal income tax or excise provision is required.
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained, assuming examination by tax authorities. Management has analyzed the Fund’s tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2017-2019) or expected to be taken in the Fund’s 2020 tax returns. The Fund identifies its major tax jurisdiction as U.S. Federal and the State of Illinois, however the Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended March 31, 2020, the Fund did not incur any interest or penalties.
18 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020
Security Transactions, Investment Income and Distributions To Shareholders As is common in the industry, security transactions are accounted for on the trade date (the date the securities are purchased or sold). Interest income is recorded on the accrual basis. Bond premiums and discounts are amortized in accordance with Federal income tax regulations. Dividend income and distributions to shareholders are recorded on the ex-dividend date.
Withholding taxes on foreign dividends have been provided for in accordance with the company's understanding of the applicable country's tax rules and rates.
Options The Fund may invest in put and call 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 fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. 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 or currency in determining if the Fund has a realized 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.
The Fund may utilize call and put options to attempt to protect against possible changes in the market value of securities held in or to be purchased for the Fund's portfolio and to generate income or gain for the Fund. The ability of the Fund to successfully utilize options will depend on the Advisor's ability to predict pertinent market movements, which cannot be assured. The Fund will comply with applicable regulatory requirements when implementing these techniques and instruments.
Use of Estimates In Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and assumptions.
Subsequent Events Management has evaluated the impact of all subsequent events on the Fund through the issuance of these financial statements and has noted no such events requiring disclosure.
19 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020
(3) SECURITIES VALUATIONS
Processes and Structure The Fund’s Board of Directors has adopted guidelines for valuing securities including in circumstances in which market quotes are not readily available and has delegated to the Adviser the responsibility for determining fair value prices, subject to review by the Board of Directors.
Hierarchy of Fair Value Inputs The Fund utilizes various methods to measure the fair value of most of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The three levels of inputs are as follows:
• Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access.
• Level 2. Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments in active markets, interest rates, yield curves, implied volatilities, credit spreads, and market collaborated inputs.
• Level 3. Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing assumptions that a market participant would use in valuing the asset or liability at the measurement date, and that would be based on the best information available, which may include the company’s own data.
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair Value Measurements A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows:
20 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020
Equity securities (common stocks) - Securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded, and valuation adjustments are not applied, they are categorized in level 1 of the fair value hierarchy. Certain foreign securities may be fair valued using a pricing service that considers the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, Exchange Traded Funds, and the movement of the certain indexes of securities based on a statistical analysis of the historical relationship and that are categorized in level 2. Preferred stock and other equities traded on inactive markets or valued by reference to similar instruments are also categorized in level 2.
Short term investments - Short term investments are valued using amortized cost, which approximates fair value. These securities will be categorized in level 1 of the fair value hierarchy.
U.S. government obligations - U.S. government obligations are normally valued using a model that incorporates market observable data, such as reported sales of similar securities, broker quotes, yields, bids, offers, and reference data. Certain securities are valued principally using dealer quotations. U.S. government obligations are categorized in level 1 or level 2 of the fair value hierarchy, depending on the inputs used and market activity levels for specific securities. US Treasury Bills are included in level 1 of the fair value hierarchy.
Derivative instruments (put and call options) - Options are valued at the last sales prices on the valuation date if the last sales price is between the closing bid and asked prices. Otherwise, options are valued at the closing bid price. These securities will be categorized in level 2 of the fair value hierarchy if valued at other than closing price.
The following table summarizes the inputs used to value the Fund’s assets and liabilities measured at fair value as of March 31, 2020:
Financial Instruments—Assets Categories Level 1 Level 2 Level 3 Fair Value
Common Stocks * $ 972,996 $ 93,220 $ - $ 1,066,216 Put Option Purchased 36,400 - - 36,400 U.S. Government Agencies & Obligations 809,883 - - 809,883 $ 1,819,279 $ 93,220 $ - $ 1,912,499
Financial Instruments—Liabilities Level 1 Level 2 Level 3 Fair Value
Put Options Written $ (6,600) $ - $ - $ (6,600) $ (6,600) $ - $ - $ (6,600) 21 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020
The Fund did not hold any level 3 assets during the year ended March 31, 2020. There were no significant transfers into or out of level 1 or level 2 during the period. It is the Fund's policy to recognize transfers into and out of level 1 and level 2 at the end of the reporting period.
* Industry classifications of these categories are detailed in the Fund’s Schedule of Investments.
(4) TRANSACTIONS WITH AFFILIATES Investment Advisory Agreement – The Advisor provided the Fund with investment management services under an Investment Advisory Agreement. Under the Advisory Agreement, the Advisor, at its own expense and without reimbursement from the Fund, furnishes office space and all necessary office facilities, equipment and executive personnel for managing the investments of the Fund, and pays the salaries and fees of all officers and directors of the Fund (except the fees paid to directors who are not interested persons of the Advisor). As compensation for its services, the Advisor was entitled to a monthly fee at the annual rate of 1.00% based upon the average daily net assets of the Fund. For the year ended March 31, 2020, the Advisor earned $25,773 for Advisory services. The Fund owed the Advisor $2,026 for advisory fees at March 31, 2020.
Administrative Agreement For the year ended March 31, 2020, Forester Capital Management, Ltd. provided the Fund with administrative services. As an administrator, the Advisor oversees the fund accountant and transfer agent. For this service the Advisor receives a monthly fee at the annual rate of 0.35% based upon the average daily net assets of the Fund. For the year ended March 31, 2020, the Advisor earned $9,020 for administrative services. The Fund owed the Advisor $656 for administration fees at March 31, 2020.
Distribution Agreement and Plan The Fund has adopted a Distribution Plan pursuant to which the Fund may pay broker- dealers for distributing shares of the Fund. This expense is limited to 0.25% of the Fund's average net assets. The Fund has not implemented the 12b-1 Plan and does not foresee doing so in the coming year. The Board adopted the Plan so that, if and when necessary, the Fund would have available sufficient resources to pay third parties who provide eligible services to the Fund.
Related Party Thomas Forester is the control person of the Advisor and also serves as a director and officer of the Company. Mr. Forester receives benefits from the Advisor resulting from management fees and administration fees paid to the Advisor by the Fund.
(5) INVESTMENT TRANSACTIONS For the year ended March 31, 2020, purchases and sales of securities, other than short- term investments, options and U.S. Government Securities, aggregated $321,343 and $1,103,884, respectively; purchases and sales of options aggregated $874,916 and $1,096,574, respectively; purchases and sales of options written aggregated $0 and 22 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020
$10,925, respectively; purchases and sales of U.S. Government Securities aggregated $1,138,166 and $330,000, respectively.
(6) DERIVATIVES TRANSACTIONS The Fund considers the average quarter-end notional amounts during the year, categorized by primary underlying risk, to be representative of its derivative activities during the year ended March 31, 2020.
Average notional value of:
Put Options Purchased $ 1,418,750 Put Options Written $ (200,000)
The Fund has adopted amendments to authoritative guidance on disclosures about derivative instruments and hedging activities which require that the Fund disclose: a) how and why an entity uses derivative instruments; and b) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.
As of March 31, 2020, the Statement of Assets and Liabilities included the following financial derivative instrument fair values:
Equity Index Assets Contracts Put Options Purchased $ 36,400 Total Assets $ 36,400
Liabilities Put Options Written $ (6,600) Total Liabilities $ (6,600)
For the year ended March 31, 2020, financial derivative instruments had the following effect on the Statement of Operations:
Equity Index Net change in unrealized appreciation on: Contracts Total Put Options Purchased $ (4,350) $ (4,350) Put Options Written $ 4,325 $ 4,325
Equity Index Net realized gain on: Contracts Total Put Options Purchased $ 248,908 $ 248,908 Put Options Written $ - $ -
23 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020
The selling of written call options may tend to reduce the volatility of the Fund because the premiums received from selling the options will reduce any losses on the underlying securities, but only by the amount of the premiums. However, selling the options may also limit the Fund’s gain on the underlying securities. Written call options expose the Fund to minimal counterparty risk since they are exchange-traded and the exchange’s clearing house guarantees the options against default.
The Fund engages in option transactions involving individual securities and stock indexes. An option involves either: (a) the right or the obligation to buy or sell a specific instrument at a specific price until the expiration date of the option; or (b) the right to receive payments or the obligation to make payments representing the difference between the closing price of a stock index and the exercise price of the option expressed in dollars times a specified multiple until the expiration date of the option. The Fund may purchase and write options. Options are sold (written) on securities and stock indexes. The purchaser of an option on a security pays the seller (the writer) a premium for the right granted but is not obligated to buy or sell the underlying security. The purchaser of an option on a stock index pays the seller a premium for the right granted, and in return the seller of such an option is obligated to make the payment. A writer of an option may terminate the obligation prior to expiration of the option by making an offsetting purchase of an identical option. Options are traded on organized exchanges and in the over-the-counter market. To cover the potential obligations involved in writing options, a Fund will either: (a) own the underlying security, or in the case of an option on a market index, will hold a portfolio of stocks substantially replicating the movement of the index; or (b) the Fund will segregate with the custodian high grade liquid assets sufficient to purchase the underlying security or equal to the market value of the stock index option, marked to market daily.
The purchase of options limits a Fund's potential loss to the amount of the premium paid and can afford the Fund the opportunity to profit from favorable movements in the price of an underlying security to a greater extent than if transactions were effected in the security directly. However, the purchase of an option could result in the Fund losing a greater percentage of its investment than if the transaction were effected directly. When a Fund writes a call option, it will receive a premium, but it will give up the opportunity to profit from a price increase in the underlying security above the exercise price as long as its obligation as a writer continues, and it will retain the risk of loss should the price of the security decline. When a Fund writes a put option, it will assume the risk that the price of the underlying security or instrument will fall below the exercise price, in which case a Fund may be required to purchase the security or instrument at a higher price than the market price of the security or instrument. In addition, there can be no assurance that the Fund can affect a closing transaction on a particular option it has written. Further, the total premium paid for any option may be lost if a Fund does not exercise the option.
The Fund engages in option transactions involving securities and stock indices in order to gain exposure to particular securities or markets, in connection with hedging transactions, or to try to enhance returns. Options require additional skills and techniques beyond normal portfolio management. The Fund’s use of options involves risk that such 24 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020 instruments may not work as intended due to unanticipated developments, especially in abnormal market conditions, or if the adviser makes an error in judgment, or other causes. The use of options may magnify the increase or decrease in the performance of the Fund, and may also subject the Fund to higher price volatility.
The premiums paid for the options represent the cost of the investment and the options are valued daily at their closing price. The Fund recognizes a realized gain or loss when the option is sold or expired. Option holdings within the Fund, which may include put options and call options, are subject to loss of value with the passage of time, and may experience a total loss of value upon expiration. With options, there is minimal counterparty risk to the Fund since they are exchange traded.
(7) CAPITAL SHARE TRANSACTIONS: As of March 31, 2020, there were 5,000,000,000 shares of capital stock for the Fund with a par value of $0.0001 authorized. The total paid in capital totaled $2,141,367. Transactions in capital stock were as follows:
Year Ended Year Ended March 31, 2020 March 31, 2019 Shares Amount Shares Amount Shares sold 7,292 $ 86,966 8,566 $ 116,410 Shares issued in reinvestment of dividends 3,674 46,218 4,791 59,317 Shares redeemed (68,502) (845,083) (99,233) (1,316,370) Net decrease (57,536) $(711,899) (85,876) $(1,140,643)
(8) TAX MATTERS Income and long-term capital gain distributions are determined in accordance with Federal income tax regulations, which may differ from accounting principles generally accepted in the United States. The Fund’s tax basis capital gains and losses and undistributed ordinary income are determined only at the end of each fiscal year.
As of March 31, 2020 the Fund's most recent fiscal year-end, components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income $ 3,554 Post October capital loss (95,353) Net Unrealized Appreciation 36,608 Capital loss carryforwards: Indefinite - short term (11,854) Total Distributable Earnings $ 67,045
Under current tax law, net capital losses realized after October 31st and net ordinary losses incurred after December 31st may be deferred and treated as occurring on the first day of the following year. The Fund’s carryforward losses, post-October losses and post-December losses are determined only at the end of each fiscal year. The capital loss carry forward will be used to offset any capital gains realized by the Fund in future years through the 25 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020 expiration date. The Fund will not make distributions from capital gains while a capital loss carry forward remains.
The Fund utilized $288,800 of its capital loss carry forward during the fiscal year ended March 31, 2020.
As of March 31, 2020, the tax basis components of unrealized appreciation (depreciation) and cost of investment securities inclusive of derivative contracts were as follows:
Gross unrealized appreciation on investments $ 174,280 Gross unrealized depreciation on investments (137,672) Net unrealized appreciation on investments $ 36,608
Tax cost of investments, including short-term investments (a) $ 1,869,291
(a) The difference between book cost and tax cost of investments represents disallowed wash sales for tax purposes.
The tax character of distributions paid during the years ended March 31, 2020, and 2019 are as follows:
March 31, 2020 March 31, 2019 Ordinary income $ 48,391 $ 61,395
(9) COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund may enter into contracts that may contain a variety of representations and warranties and provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Funds and, therefore, cannot be estimated; however, management considers the risk of loss from such claims to be remote.
(10) CONTROL OWNERSHIP The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the fund, under Section 2(a)(9) of the Investment Company Act of 1940, as amended. As of March 31, 2020, Charles Schwab & Co., Inc. and National Financial Service Corp., on behalf of others, each owned approximately 32% and 28%, respectively, of the Fund.
(11) MARKET RISK Overall market risks may also affect the value of the Fund. Factors such as domestic economic growth and market conditions, interest rate levels and political events affect the securities markets. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions and depressions, or other events could have a significant impact on the Fund and its investments and could result in increased premiums or discounts to the Fund’s net asset value, and may impair market liquidity, thereby increasing liquidity risk. The Fund could lose money over short 26 THE FORESTER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2020 periods due to short-term market movements and over longer periods during more prolonged market downturns. During a general market downturn, multiple asset classes may be negatively affected. Changes in market conditions and interest rates can have the same impact on all types of securities and instruments.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Forester Discovery Fund, a Series of the Forester Funds, Inc.
Opinion on the Financial Statements We have audited the accompanying statement of assets and liabilities of the Forester Discovery Fund, Inc., (the "Fund"), a series of the Forester Funds, Inc., including the schedule of investments, and schedules of put options purchased and written put options, as of March 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the related notes (collectively referred to as the “financial statements”) and the financial highlights for each of the five years in the period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Forester Discovery Fund, Inc. as of March 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We 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 laws 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 audit to obtain reasonable assurance about whether the financial statements and financial highlights 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 and financial highlights, 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 and financial highlights. Our procedures included confirmation of securities and cash owned as of March 31, 2020, by correspondence with the custodian. 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 and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Fund’s auditor since 2005 Abington, Pennsylvania May 28, 2020 28 THE FORESTER DISCOVERY FUND
EXPENSE ILLUSTRATION MARCH 31, 2020 (UNAUDITED)
Expense Example
As a shareholder of the Forester Discovery Fund, you incur ongoing costs which typically consist of 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, October 1, 2019 through March 31, 2020.
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 this 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 this Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning Ending Expenses Paid Account Value Account Value During the Period* October 1, 2019 through October 1, 2019 March 31, 2020 March 31, 2020
Actual $1,000.00 $966.60 $6.64 Hypothetical (5% Annual Return before expenses) $1,000.00 $1,018.25 $6.81
* Expenses are equal to the Fund's annualized expense ratio of 1.35%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).
29 THE FORESTER DISCOVERY FUND
DIRECTORS & OFFICERS MARCH 31, 2020 (UNAUDITED)
The following table provides information regarding each Director who is not an “interested person” of the Company, as defined in the Investment Company Act of 1940.
Term of Number Name, Address, Age Position(s) Office and Principal Occupation of Held with Length of During Past Five Years and Portfolios the Fund Time Current Directorships Overseen Served
Michael B. Kelley Indefinite; Mr. Kelley has been a National 100 Field Dr., Ste. 330 Director Since 2 Account Executive for Concept Lake Forest, IL 60045 Inception Amenities since March, 2009. Age: 59
Stanley Simpson Stanley Simpson has been a Indefinite; 100 Field Dr., Ste. 330 commodities trader on the Chicago Director Since March 2 Lake Forest, IL 60045 Mercantile Exchange for more than 2007 Age: 61 five years.
Barry Meyer Barry Meyer has been President of Indefinite; 100 Field Dr., Ste. 330 Arcspec, a distributor of Director Since March 2 Lake Forest, IL 60045 commercial construction materials 2007 Age: 60 for more than five years.
The following table provides information regarding each Director who is an “interested person” of the Company, as defined in the Investment Company Act of 1940, and each officer of the Trust.
Term of Name, Address, Age Position(s) Office and Number of Principal Occupation Held with Length of Portfolios During Past Five Years and the Fund Time Overseen Current Directorships Served
Mr. Forester has been the Director; Indefinite; President of the Advisor since 1 Thomas H. Forester President; Since 2 2/99, Officer and Portfolio 100 Field Dr., Ste. 330 Treasurer Inception Manager with Dreman Value Lake Forest, IL 60045 Advisors from 5/97 - 1/99. Age: 60
1 Mr. Forester is a director who is an "interested person" of the Fund by virtue of being an officer of the Fund. Mr. Forester is also an officer of the investment manager.
Each Director, except Mr. Forester, is paid a total fee of $1,250 annually by the Advisor. The fee has not been paid in the fiscal year ended March 31, 2020. 30 THE FORESTER DISCOVERY FUND
ADDITIONAL INFORMATION MARCH 31, 2020 (UNAUDITED)
Portfolio Holdings – The Fund files a complete schedule of investments with the SEC for the first and third quarter of each fiscal year on Form N-PORT. The Fund’s first and third fiscal quarters end on June 30 and December 31. The Form N-PORT filing must be made within 60 days of the end of the quarter. The Fund’s Forms N-PORT are available on the SEC’s website at http://sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room). You may also obtain copies by calling the Fund at 1-800-388-0365, free of charge.
Proxy Voting - A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies during the 12-month period ended June 30, are available without charge upon request by (1) calling the Fund at 1-800-388-0365 and (2) from Fund documents filed with the Securities and Exchange Commission ("SEC") on the SEC's website at www.sec.gov. A review of how the Fund voted on company proxies can be obtained at our transfer agent’s website, www.mutualss.com.
Additional Information - The Fund's Statement of Additional Information ("SAI") includes additional information about the trustees and is available, without charge, upon request. You may call toll-free 1-800-388-0365 to request a copy of the SAI or to make shareholder inquiries.
Advisory Agreement Renewal – At a board meeting held on March 30, 2020 of the Board of Directors, including a majority of the independent Directors, determined whether to renew the Advisory Agreement. The 1940 Act requires that the Board request and evaluate, and that the Advisor provide, such information as may be reasonably necessary to evaluate the terms of the Advisory Agreement.
A discussion was held about approving the continuation of the investment management agreements, the Board considered:
• the nature, extent and quality of the services provided by the Adviser
• the investment performance of the Funds
• the costs of the services to be provided and profits to be realized by the Adviser and its affiliates from the relationship with the Funds
• the extent to which economies of scale would be realized as the mutual fund grows and whether fee levels reflect these economies of scale for the benefit of mutual fund investors
• the expense ratios of the Funds
31 THE FORESTER DISCOVERY FUND
ADDITIONAL INFORMATION (CONTINUED) MARCH 31, 2020 (UNAUDITED)
In considering the nature, extent and quality of the services provided by the Adviser, the Board considered an oral presentation by the Adviser describing the portfolio management, shareholder communication, and regulatory compliance services provided by the Adviser to the Funds. The Directors concluded that the Adviser was providing essential services to the Funds.
The Directors compared the performance of the Funds to benchmark indices over various periods of time and concluded that the performance of the Funds warranted the continuation of the advisory agreements. The Directors noted that in addition to the absolute performance of the Funds, they also noted that the Funds adhered to their investment style.
In concluding that the advisory fees payable by the Forester Discovery Fund were reasonable, the Directors reviewed reports comparing the expense ratios and advisory fees paid by the Forester Discovery Fund to those paid by other comparable mutual funds and concluded that the advisory fees paid by the Forester Discovery Fund and the expense ratios of the Forester Discovery Fund were in the range of comparable mutual funds 1.35% Discovery Fund expense ratio (1.14% new) versus an average of 1.13% for 346 funds in Morningstar Foreign Large Value Category and 2.11% for 223 funds in the Long/Short Fund Category).
After discussion, the advisory agreement was renewed for another year.
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