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THE CUTLER TRUST
CUTLER EQUITY INCOME FUND
CUTLER APPROVED LIST EQUITY FUND
CUTLER GOVERNMENT SECURITIES FUND
Account Information and
Shareholder Servicing: Distribution:
Forum Financial Corp. Forum Financial Services, Inc.
P.O. Box 446 Two Portland Square
Portland, Maine 04112 Portland, Maine 04101
(207) 879-0001 (800) 237-3113
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STATEMENT OF ADDITIONAL INFORMATION
September 15, 1996
This Statement of Additional Information supplements the Prospectus offering
shares of the Cutler Equity Income Fund, the Cutler Approved List Equity Fund
and the Cutler Government Securities Fund (each a "Fund" and collectively the
"Funds"), three portfolios of The Cutler Trust (the "Trust"), and should be read
only in conjunction with the applicable Prospectus, a copy of which may be
obtained by an investor without charge by contacting the Trust's Shareholder
Servicing Agent at the address listed above.
TABLE OF CONTENTS
Page
1. Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . 3
3. Management of the Trust . . . . . . . . . . . . . . . . . . . . . . 4
Cutler & Company
Manager and Distributor
Transfer Agent
Custodian and Auditor
Expenses
4. Determination of Net Asset Value. . . . . . . . . . . . . . . . . . 8
5. Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . 8
6. Additional Purchase and Redemption Information. . . . . . . . . . .10
Exchanges Between Funds
Additional Redemption Matters
7. Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
8. The Trust and its Shareholders. . . . . . . . . . . . . . . . . . .11
9. Performance Data. . . . . . . . . . . . . . . . . . . . . . . . . .12
Yield Calculations
Total Return Calculations
10. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .14
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
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1. INVESTMENT POLICIES
Except for cash balances, the Cutler Equity Income Fund and the Cutler Approved
List Equity Fund (the "Equity Funds") invest in securities on the Cutler &
Company Approved List (the "Approved List"). Each Fund may invest in shares of
other investment companies to the extent permitted under the 1940 Act. A Fund
will bear its pro rata portion of another mutual fund's expenses.
As a fundamental policy of each Fund, no portfolio transactions may be executed
with Cutler & Company or any of its affiliates. See "Portfolio Transactions."
THE CUTLER GOVERNMENT SECURITIES FUND
At times, some of the mortgage-related U.S. Government Securities in which the
Cutler Government Securities Fund may invest may have higher-than-market
interest rates, and will therefore be purchased at a premium above their par
value. Unscheduled prepayments on these securities, which are made at par, will
cause the Fund to suffer a loss equal to the unamortized premium, if any.
Although the rate adjustment feature of adjustable rate mortgage-related
securities that the Fund may purchase may act as a buffer to reduce sharp
changes in the value of these securities, they are still subject to changes in
value based on changes in market interest rates or changes in the issuer's
creditworthiness. Because the interest rate is reset only periodically, changes
in the interest rate on adjustable rate mortgage-related securities may lag
behind changes in prevailing market interest rates. During periods of declining
interest rates, income to the Fund derived from adjustable rate mortgages that
are not prepaid will decrease as the coupon rate resets along with the decline
in interest rates, in contrast to the income on fixed-rate mortgages which will
remain constant.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's adjustable rate mortgage-related investments may
lag behind changes in market interest rates. This lag may result in a slightly
lower value until the coupons reset to market rates. Some adjustable rate
mortgage-related securities may have "caps" that limit the maximum amount by
which the interest rate paid by a borrower may change at each reset date or over
the life of the loan, and fluctuation in interest rates above these levels could
cause these securities to "cap out" and to behave more like fixed-rate
securities.
Since the inception of the mortgage-related, pass-through security in 1970, the
market for these securities has expanded considerably. The size of the primary
issuance market and active participation in the secondary market by securities
dealers and many types of investors make government and government-related
pass-through pools highly liquid. The Government National Mortgage Association
("GNMA") issues GNMA Certificates that represent an interest in one mortgage or
a pool of mortgages that are insured by the Federal Housing Administration or
the Farmers Home Administration or are guaranteed by the Veterans
Administration. Residential mortgage loans are pooled also by the Federal Home
Loan Mortgage Corporation ("FHLMC"), which issues participation certificates
("PCs") which represent interests in mortgages from FHLMC's national portfolio.
In addition, the Federal National Mortgage Association ("FNMA") purchases
residential mortgages from a list of approved institutions and issues
pass-through securities.
In addition, the Fund may invest in Collateralized Mortgage Obligations (CMOs),
mortgage-related securities that are typically structured with a number of
classes or series that have different maturities and are generally retired in
sequence. Each class of bonds receives periodic interest payments according to
the coupon rate on the bonds. All monthly principal payments and any
prepayments from the collateral pool, however, are paid first to the "Class 1"
bondholders. The principal payments are such that the Class 1 bonds will be
completely repaid no later than, for example, five years after the offering
date. Thereafter, all
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payments of principal are allocated to the next most senior class of bonds until
that class of bonds has been fully repaid. Although full payoff of each class
of bonds is contractually required by a certain date, any or all classes of
bonds may be paid off sooner than expected because of an acceleration in
prepayments of the obligations comprising the collateral pool.
2. INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations. These
limitations, along with any investment policies deemed to be fundamental, cannot
be changed without the affirmative vote of the lesser of (i) more than 50% of
the outstanding shares of the Fund or (ii) 67% of the shares of the Fund present
or represented at a shareholders meeting at which the holders of more than 50%
of the outstanding shares of the Fund are present or represented. Each Fund may
not:
(1) With respect to 75% of its assets, purchase a security other than an
obligation issued or guaranteed as to principal and interest by the
United States Government, its agencies or instrumentalities ("U.S.
Government Securities") if, as a result, more than 5% of the Fund's
total assets would be invested in the securities of a single issuer.
(2) Purchase a security other than a U.S. Government Security if,
immediately after the purchase, more than 25% of the value of the
Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry.
(3) Underwrite securities of other issuers, except to the extent that the
Fund may be considered to be acting as an underwriter in connection
with the disposition of portfolio securities.
(4) Purchase or sell real estate or any interest therein, except that the
Fund may invest in debt obligations secured by real estate or
interests therein or issued by companies that invest in real estate or
interests therein.
(5) Purchase or sell physical commodities or contracts relating to
physical commodities; borrow money; invest in the securities of
foreign issuers or purchase securities through a foreign market;
purchase or write options or invest in futures contracts; or purchase
securities on margin or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and
sales of portfolio securities.
(6) Issue senior securities except as appropriate to evidence indebtedness
that the Fund may be permitted to incur, and provided that the Fund
may issue shares of series or classes that the Board of Trustees (the
"Board") may establish.
(7) Enter into repurchase agreements, lend securities or otherwise make
loans; except through the purchase of debt securities that may be
purchased by the Fund.
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each Fund may not:
(a) Invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted continuous
operations for less than three years, including the operations of
predecessors (unless guaranteed as to principal and interest by an
issuer in whose securities the Fund could invest) if, as a result,
more than 5% of the value of the Fund's total assets would be so
invested.
(b) Invest in or hold securities of any issuer other than the Fund if, to
the Fund's knowledge, those Trustees and officers of the Trust or the
Fund's investment adviser, individually owning beneficially more than
1/2 of 1% of the securities of the issuer, in the aggregate own more
than 5% of the issuer's securities.
(c) Invest in oil, gas or other mineral exploration or development
programs, or leases, or in real estate limited partnerships; provided
that the Fund may invest in securities issued by companies engaged in
such activities.
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(d) Acquire securities that are not readily marketable ("illiquid") or are
subject to restrictions on the sale of such securities to the public
without registration under the Securities Act of 1933.
Except as required by the 1940 Act, if a percentage restriction on investment or
utilization of assets is adhered to at the time an investment is made, a later
change in percentage resulting from a change in the market values of the Fund's
assets, the change in status of a security or purchases and redemptions of
shares will not be considered a violation of the limitation.
3. MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust and their principal occupations during
the past five years are set forth below.
* BROOKE R. ASHLAND, age 45, Trustee.
Ms. Ashland is currently Chief Executive Officer and Manager of Cutler &
Company, LLC. Prior thereto she was President, Trustee Investment
Services, Inc. (financial services marketing firm) 1990-1994. Ms. Ashland
has been associated with Cutler & Company, Inc. since 1977 in various
capacities such as Assistant to the Chairman, CFO and Secretary. Her
address is 503 Airport Road, Medford, Oregon 97504.
* KENNETH R. CUTLER, age 76, Trustee, Chairman of the Board and Vice President.
Principal Portfolio Manager of the Equity Funds and Investment Committee
Member, Cutler & Company, LLC (registered investment adviser). His address
is 503 Airport Road, Medford, Oregon 97504.
* JOHN Y. KEFFER, age 54, Trustee and President.
President and Director, Forum Financial Services, Inc. (registered
broker-dealer), Forum Financial Corp. (registered transfer agent) and Forum
Advisors, Inc. (registered investment adviser). Mr. Keffer is also a
director and/or officer of various registered investment companies for
which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square, Portland, Maine
04101.
DR. HATTEN S. YODER, JR., age 75, Trustee.
Director Emeritus, Geophysical Laboratory, Carnegie Institution of
Washington and consultant to the Los Alamos National Laboratory. Dr. Yoder
has been a director of the Geophysical Laboratory and consultant to the Los
Alamos National Laboratory since 1971. His address is 6709 Melody Lane,
Bethesda, Maryland 20817.
ROBERT B. WATTS, JR., age 65, Trustee.
Counsel, Northhaven Associates (private legal practice) since 1990. His
address is 2230 Brownsboro Highway Eagle Point, Oregon 97524.
CAROL FISCHER, age 40, Vice President, Assistant Secretary and Assistant
Treasurer.
Chief Operating Officer of Cutler & Company, LLC (registered investment
adviser). Prior thereto, Ms. Fischer was associated with Cutler & Company,
Inc., in various capacities. Her address is 503 Airport Road, Medford,
Oregon 97504.
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MAX BERUEFFY, age 44, Vice President and Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since May 1994. Prior to that, Mr. Berueffy was a member of the staff of
the U.S. Securities and Exchange Commission. Mr. Berueffy is also an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.
DAVID I. GOLDSTEIN, age 35, Assistant Secretary.
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also an officer of various
registered investment companies for which Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
TRACI E. BLOCK, age 40, Assistant Secretary.
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1995. Prior thereto, Ms. Block was a legal assistant with
the law firm of Pierce, Atwood in Portland, Maine. Ms. Block is also an
officer of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. Her address is Two Portland Square, Portland, Maine 04101.
MICHAEL D. MARTINS, age 30, Treasurer.
Director of Fund Accounting, Forum Financial Corp. Prior to that, Mr.
Martins was a Manager of Deloitte & Touche, LLP. Mr. Martins is also an
officer of various registered investment companies for which Forum
Financial Corp. serves as fund accountant and/or transfer agent. His
address is Two Portland Square, Portland, Maine 04101.
LYNN Y. KELLEY, age 29, Assistant Treasurer.
Fund Accounting Manager, Forum Financial Corp., with which she has been
associated since December 1993. Prior to that, Ms. Kelley was Senior-in-
Charge in Fund Accounting with Investors Bank and Trust Company. Her
address is Two Portland Square, Portland, Maine 04101.
* John Y. Keffer, Brooke R. Ashland and Kenneth R. Cutler are interested persons
of the Trust as that term is defined in the 1940 Act. Kenneth R. Cutler is
Brooke R. Ashland's father.
For the fiscal year ended June 30, 1996, the aggregate compensation paid to the
Trustees of the Trust by the funds is as follows: Dr. Hatten S. Yoder, Jr.,
$10,000; Mr. Robert B. Watts, $2,500, Jr. Messrs. Cutler and Keffer received no
compensation for their services as Trustee for the past year and no officer of
the Trust is compensated by the Trust. Non interested Trustees are reimbursed
for travel and related expenses incurred in attending meetings of the Board.
CUTLER & COMPANY
Under an Investment Advisory Agreement with the Trust (the "Agreement"), Cutler
& Company furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund.
The Agreement provides for an initial term of twelve months from its effective
date with respect to a Fund and for its continuance in effect for successive
twelve-month periods thereafter, provided the Agreement is
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specifically approved at least annually by the Board or by vote of the
shareholders, and in either case, by a majority of the Trustees who are not
parties to the Agreement or interested persons of any such party at a meeting
called for the purpose of voting on the Agreement. The Agreement is terminable
without penalty by the Trust with respect to a Fund on 60 days' written notice
when authorized either by vote of the Fund's shareholders or by a vote of a
majority of the Board, or by Cutler & Company on 60 days' written notice, and
will automatically terminate in the event of its assignment. The Agreement also
provides that, with respect to each Fund, Cutler & Company shall not be liable
for any error of judgment or mistake of law or for any act or omission in the
performance of its duties to the Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under the Agreement.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreements between Cutler & Company and the Trust with respect to each
Fund, the amount of fee that was waived by Cutler & Company, if any, and the
actual fee received by Cutler & Company. The data are for the past three fiscal
years.
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
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CUTLER EQUITY INCOME FUND
Year Ended June 30, 1996 244,542 0 244,542
Year Ended June 30, 1995 163,051 0 163,051
Year Ended June 30, 1994 54,007 30,495 23,512
CUTLER APPROVED LIST EQUITY FUND
Year Ended June 30, 1996 147,509 4,351 143,158
Year Ended June 30, 1995 83,557 15,411 68,146
Year Ended June 30, 1994 38,186 38,186 0
CUTLER GOVERNMENT SECURITIES FUND
Year Ended June 30, 1996 16,509 16,509 0
Year Ended June 30, 1995 14,952 14,952 0
Year Ended June 30, 1994 10,134 10,134 0
MANAGER AND DISTRIBUTOR
Forum Administrative Services, LLC ("Forum") supervises the overall management
of the Trust (which includes, among other responsibilities, monitoring of
performance and billing of the transfer agent and custodian and arranging for
maintenance of books and records of the Trust), and provides the Trust with
general office facilities pursuant to a Management Agreement with the Trust.
The Management Agreement provides for an initial term of twelve months from its
effective date with respect to a Fund and for its automatic renewal each year
thereafter for an additional term of one year.
The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to any Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' written notice. The
Management Agreement also provides that Forum shall not be liable for any error
of judgment or mistake of law or for any act or omission in the administration
or management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's duties or by reason of reckless
disregard of its obligations and duties under the Management Agreement.
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At the request of the Board, Forum provides persons satisfactory to the Board to
serve as officers of the Trust. Those officers, as well as certain other
employees and Trustees of the Trust, may be directors, officers or employees of
Forum, Cutler & Company or their affiliates.
The following table shows the dollar amount of fees payable under the Management
Agreements between Forum and the Trust with respect to each Fund, the amount of
fee that was waived by Forum, if any, and the actual fee received by Forum. The
data are for the past three fiscal years.
Management Management Management
Fee Fee Fee
Payable Waived Retained
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CUTLER EQUITY INCOME FUND
Year Ended June 30, 1996 45,027 0 45,027
Year Ended June 30, 1995 32,610 0 32,610
Year Ended June 30, 1994 10,802 3,098 7,704
CUTLER APPROVED LIST EQUITY FUND
Year Ended June 30, 1996 26,997 0 26,997
Year Ended June 30, 1995 16,711 7,613 9,098
Year Ended June 30, 1994 7,637 4,794 2,843
CUTLER GOVERNMENT SECURITIES FUND
Year Ended June 30, 1996 6,604 6,604 0
Year Ended June 30, 1995 5,981 5,981 0
Year Ended June 30, 1994 4,054 4,054 0
Forum Financial Services, Inc. ("FFSI") is the Trust's distributor and acts as
the agent of the Trust in connection with the offering of shares of the Funds
pursuant to a separate Distribution Agreement. The Distribution Agreement
provides for an initial term of twelve months from its effective date and for
its continuance in effect for successive twelve-month periods thereafter,
provided the agreement is specifically approved at least annually by the Board
or by vote of the shareholders, and in either case, by a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
of any such party at a meeting called for the purpose of voting on the
Distribution Agreement. All subscriptions for Shares obtained by Forum are
directed to the Trust for acceptance and are not binding on the Trust until
accepted by it. FFSI receives no compensation or reimbursement of expenses for
the distribution services provided pursuant to the Distribution Agreement.
The Distribution Agreement provides that FFSI shall not be liable for any error
of judgment or mistake of law or for any act or omission in the administration
or management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of FFSI's duties or by reason of reckless
disregard of its obligations and duties under the Distribution Agreement. The
Distribution Agreement also provides for certain indemnification of FFSI.
The Distribution Agreement is terminable with respect to a Fund without penalty
by the Trust on 60 days' written notice when authorized either by vote of the
Fund's shareholders or by a vote of a majority of the Board, or by FFSI on 60
days' written notice, and will automatically terminate in the event of its
assignment.
TRANSFER AGENT
Forum Financial Corp. ("FFC") acts as transfer agent, dividend disbursing agent
and fund accountant for the Trust pursuant to a Transfer Agency and Fund
Accounting Agreement. The Transfer Agency and Fund Accounting Agreement
provides for an initial term of twelve months from its effective date with
respect to
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a Fund and for its automatic renewal for successive one-year periods thereafter.
Cutler & Company may act as a sub transfer agent or processing agent. For its
services, FFC is paid a transfer agent fee at an annual rate of $12,000 per year
plus certain account charges and is reimbursed for certain expenses incurred on
behalf of the Funds. FFC is paid an additional fee for its portfolio accounting
services of $36,000 per year for each Fund, subject to adjustments for the
number and type of portfolio transactions.
The following table shows the dollar amount of fees payable under the Transfer
Agency and Fund Accounting Agreements between Forum and the Trust with respect
to each Fund, the amount of fee that was waived by Forum, if any, and the actual
fee received by Forum. The data are for the past three fiscal years.
Transfer Transfer Transfer
Agent Agent Agent
and and and
Accounting Accounting Accounting
Fee Fee Fee
Payable Waived Retained
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CUTLER EQUITY INCOME FUND
Year Ended June 30, 1996 54,422 0 54,422
Year Ended June 30, 1995 50,716 0 50,716
Year Ended June 30, 1994 49,706 13,754 35,952
CUTLER APPROVED LIST EQUITY FUND
Year Ended June 30, 1996 63,471 12,000 51,471
Year Ended June 30, 1995 60,989 0 60,989
Year Ended June 30, 1994 48,471 15,682 32,789
CUTLER GOVERNMENT SECURITIES FUND
Year Ended June 30, 1996 51,118 9,334 41,784
Year Ended June 30, 1995 48,465 12,465 36,000
Year Ended June 30, 1994 49,294 33,162 16,132
CUSTODIAN AND AUDITOR
Pursuant to a Custodian Agreement with the Trust, The First National Bank of
Boston, 100 Federal Street, Boston, Massachusetts 02106, acts as the custodian
of the Trust's assets. The custodian's responsibilities include safeguarding
and controlling the Funds' cash and securities, determining income and
collecting interest on the Funds' investments.
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-
1438, independent auditors, has been chosen by the Board to act as auditor for
the Trust.
EXPENSES
Each Fund's expenses comprise Trust expenses attributable to the Fund that are
allocated to the Fund, and those not attributable to a particular Fund that are
allocated among all Funds in proportion to their average net assets. Cutler &
Company voluntarily agreed to waive its fees or reimburse each Fund to the
extent a Fund's total expenses exceed the amounts indicated in the Prospectus
until December 31, 1997. This voluntary limit may be discontinued at any time
after that date. Any waivers or reimbursements have the effect of increasing
the Funds' yield and may not be recouped at a later date. Cutler & Company also
has agreed to reimburse the Trust for certain of each Fund's operating expenses
(exclusive of interest, taxes, brokerage fees and organization and extraordinary
expenses, all to the extent permitted by applicable state law or regulation)
which in any year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale. Forum believes that currently the most
restrictive expense limitation imposed by any state is 2-1/2% of the first $30
million of each Fund's average net assets, 2% of the next $70 million of its
average net assets and 1-1/2% of its average net assets in excess of $100
million. For the purpose of this
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obligation to reimburse expenses, each Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made monthly.
Subject to any fee waiver or expense reimbursement arrangements, the Trust pays
all of its expenses, including: interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of shares; premiums of
insurance for the Trust, its Trustees and officers and fidelity bond premiums;
applicable fees, interest charges and expenses of third parties, including
Cutler & Company, Forum, FFC, the Trust's custodian and shareholder servicing
agents; fees of pricing, interest, dividend, credit and other reporting
services; costs of membership in trade associations; telecommunications
expenses; funds transmission expenses; auditing, legal and compliance expenses;
costs of forming the Trust and maintaining its existence; costs of preparing and
printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; expenses of
meetings of shareholders and proxy solicitations therefor; costs of maintaining
books and accounts and preparing tax returns; costs of reproduction, stationery
and supplies; fees and expenses of the Trust's Trustees; compensation of the
Trust's officers and employees who are not officers of Cutler & Company, Forum
or their respective affiliates; costs of other personnel who may be employees of
Cutler & Company, Forum or their respective affiliates performing services for
the Trust; costs of Trustee meetings; Securities and Exchange Commission
registration fees and related expenses; and state or foreign securities laws
registration fees and related expenses.
4. DETERMINATION OF NET ASSET VALUE
The Trust does not determine net asset value on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. Purchases and redemptions are effected as of
the next determined net asset value following the receipt of any purchase or
redemption order.
In determining the approximate market value of portfolio investments, the Funds
may employ outside organizations, which may use a matrix or formula method that
takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried at their face value.
5. PORTFOLIO TRANSACTIONS
The Equity Funds will effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and the frequency of
transactions are determined by Cutler & Company in its best judgment and in a
manner deemed to be in the best interest of shareholders of the Funds rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Funds.
Purchases and sales of portfolio securities for the Cutler Government Securities
Fund usually are principal transactions. These purchases are made directly from
the issuer or from a market maker for the securities. There usually are no
brokerage commissions paid for such purchases. Purchases from dealers serving
as market makers include the spread between the bid and asked prices. No
portfolio transactions are executed with Cutler & Company or any of its
affiliates.
Any Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commission, including certain dealer spreads, paid
in connection with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Adviser may also take into account
payments made by brokers effecting transactions for the
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Fund (i) to the Fund or (ii) to other persons on behalf of the Fund for services
provided to it for which it would be obligated to pay.
Consistent with section 28(e) of the Securities and Exchange Act, the exercise
of the Adviser's fiduciary duties under its Investment Advisory agreement with
the Trust, and any other applicable law, the Adviser may allocate brokerage on
behalf of the Trust to brokers who provide research services and may cause the
Fund to pay these brokers a higher amount of commission than may be charged by
other brokers. Such research and analysis may be used by the Adviser in
connection with services to clients other than the Fund, and the Adviser's fee
is not reduced by reason of the Adviser's receipt of the research services.
Investment decisions for each Fund will be made independently from those for any
other account (including another Fund) that is or may in the future become
managed by Cutler & Company or its affiliates. When a Fund and other accounts
managed by Cutler & Company are contemporaneously engaged in the purchase or
sale of the same security, however, the transactions may be averaged as to price
and allocated equitably to each account. In some cases, this policy might
adversely affect the price paid or received by a Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for a Fund and for other accounts managed by Cutler & Company
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
The following table shows the aggregate brokerage commissions with respect to
each Fund. The data are for the past three fiscal years or shorter period if
the Fund has been in operation for a shorter period.
Aggregate
Commissions
Paid
----
CUTLER EQUITY INCOME FUND
Year Ended June 30, 1996 50,146
Year Ended June 30, 1995 42,374
Year Ended June 30, 1994 22,010
CUTLER APPROVED LIST EQUITY FUND
Year Ended June 30, 1996 10,983
Year Ended June 30, 1995 19,824
Year Ended June 30, 1994 15,452
CUTLER GOVERNMENT SECURITIES FUND
Year Ended June 30, 1996 0
Year Ended June 30, 1995 0
Year Ended June 30, 1994 0
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value without any sales charge. Shareholders may effect purchases or
redemptions or request any shareholder privilege in person at FFC's offices
located at Two Portland Square, Portland, Maine 04101.
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EXCHANGES BETWEEN FUNDS
Shareholders of a Fund may exchange their shares for shares of any other Fund or
for shares of the Daily Assets Treasury Fund, a money market fund managed by
Forum and a separate series of Forum Funds. Exchange transactions will be
made on the basis of relative net asset value per share at the time of the
exchange transaction. For Federal tax purposes, exchange transactions are
treated as sales on which a purchaser will realize a capital gain or loss
depending on whether the value of the shares redeemed is more or less than his
basis in such shares at the time of the transaction.
Proceeds of an exchange transaction may be invested only in another Fund account
for which the share registration is the same as the account from which the
exchange is made. The terms of the exchange privilege are subject to change,
and the privilege may be terminated by any Fund or the Trust. However, the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without 60
days' notice to shareholders, to the extent required by applicable regulation.
ADDITIONAL REDEMPTION MATTERS
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partly in portfolio securities if the Board of Trustees
determines economic conditions exist which would make payment in cash
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partly in portfolio securities, brokerage costs may be
incurred by the shareholder in converting the securities to cash. The Trust
has filed an election with the Securities and Exchange Commission pursuant to
which each Fund may only effect a redemption in portfolio securities if the
particular shareholder is redeeming more than $250,000 or 1% of the Fund's total
net assets, whichever is less, during any 90-day period.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily to reimburse
each Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
Shareholders' rights of redemption may not be suspended, except (i) for any
period during which the New York Stock Exchange, Inc. is closed (other than
customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, (ii) for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by a Fund of its securities is
not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(iii) for such other period as the Securities and Exchange Commission may by
order permit for the protection of the shareholders of the Fund.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, each Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that (i) are not restricted as to transfer either by law
or liquidity of market and (ii) have a value which is readily ascertainable (and
not established only by valuation procedures).
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7. TAXATION
Qualification as a regulated investment company under the Internal Revenue Code
of 1986 does not involve governmental supervision of management or investment
practices or policies. Investors should consult their own counsel for a
complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by the Funds. Investors should consult their own counsel for further details
and for the application of state and local tax laws to the investor's particular
situation.
In order to qualify for treatment as a regulated investment company under the
Internal Revenue Code, each Fund must distribute to its shareholders for each
taxable year at least 90% of its net investment income (which includes
dividends, interest and the excess of net short-term capital gain over net
long-term capital losses) and must meet several additional requirements. Among
these requirements are the following: (1) each Fund must derive at least 90% of
its gross income each taxable year from dividends, interest, gains from the sale
or other disposition of securities and certain other income; (2) each Fund must
derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities held for less than three months; (3) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
Securities, securities of other regulated investment companies and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets or
10% of the outstanding voting securities of the issuer; and (4) at the close of
each quarter of the Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
Securities or securities of other regulated investment companies) of any one
issuer.
8. THE TRUST AND ITS SHAREHOLDERS
The Trust is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
courts of some states, however, may decline to apply Delaware law on this point.
The Trust Instrument contains an express disclaimer of shareholder liability for
the debts, liabilities, obligations and expenses of the Trust and requires that
a disclaimer be given in each contract entered into or executed by the Trust or
the Trustees. The Trust Instrument provides for indemnification out of each
series' property of any shareholder or former shareholder held personally liable
for the obligations of the series. The Trust Instrument also provides that each
series shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which Delaware law does not
apply, no contractual limitation of liability was in effect, and the portfolio
is unable to meet its obligations. The Trust believes that, in view of the
above, the risk of personal liability to shareholders is remote.
The Trust Instrument further provides that the Trustees shall not be liable to
any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Each series' capital consists of shares of beneficial interest. Shares are
fully paid and nonassessable, except as set forth above with respect to Trustee
and shareholder liability. Shareholders representing 10% or more of the Trust
or a series may, as set forth in the Trust Instrument, call meetings of the
Trust or series for any purpose related to the Trust or series, as the case may
be, including, in the case of a meeting of the entire
<PAGE>
Trust, the purpose of voting on removal of one or more Trustees. The Trust or
any series may be terminated upon the sale of its assets to, or merger with,
another open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations must be
approved by the vote of the holders of a majority of the outstanding shares of
the Trust or the series; however, the Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. If not so terminated or reorganized, the Trust and its series
will continue indefinitely. Under the Trust, the Trustees may, without
shareholder vote, cause the Trust to merge or consolidate into one or more
trusts, partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end management
investment company that will succeed to or assume the Trust's registration
statement.
Although each Fund is offering only its own shares, it is possible that a Fund
might become liable for any misstatement in the Prospectus of another Fund. The
Board has considered this factor in approving the use of a single combined
Prospectus.
As of August 31, 1996, the officers and directors of the Trust owned as a group
less than 1% of the outstanding shares of the Fund. Also as of that date, the
following persons owned of record 5% or more of the outstanding shares of the
Fund:
CUTLER EQUITY INCOME FUND
ENTERPRISE TRUST & INVESTMENT CO. TTEE THE KARL KIRCHGESSNER FOUNDATION
FBO BIG CREEK LUMBER PROFIT SHARING 1278 Glenneyre, Suite 311
3654 Highway 1 Laguna Beach, CA 92651
Davenport, CA 95014 8.45%
9.77%
CUTLER APPROVED LIST EQUITY FUND
THE KARL KIRCHGESSNER FOUNDATION HAROLD E. GRAY - IRA ACCOUNT
1278 Glenneyre, Suite 311 810 Whitney.
Laguna Beach, CA 92651 Visalia, CA 93277
35.26% 5.17%
CUTLER GOVERNMENT SECURITIES FUND
MICHELETTI, INC. THE KARL KIRCHGESSNER FOUNDATION STEEL STRUCTURES, INC.
MPP & P/S PLAN 1278 Glenneyre, Suite 311 MPP & P/S PLAN
P.O. Box 26620 Laguna Beach, CA 92651 P.O. Box 1170
San Jose, CA 95159 12.01% Madera, CA 93659
16.17% 10.82%
9. PERFORMANCE DATA
Each Fund may quote performance in various ways. All performance information
supplied by a Fund in advertising is historical and is not intended to indicate
future returns. A Fund's net asset value, yield and total return fluctuate in
response to market conditions and other factors, and the value of Fund shares
when redeemed may be more or less than their original cost.
<PAGE>
In performance advertising a Fund may compare any of its performance information
with data published by independent evaluators such as Lipper Analytical
Services, Inc., CDA/Wiesenberger or other companies that track the investment
performance of investment companies ("Fund Tracking Companies"). A Fund may
also compare any of its performance information with the performance of
recognized stock, bond and other indexes, including but not limited to the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, U.S. Treasury bonds, bills or notes, the Salomon Brothers Bond Index,
the Shearson Lehman Bond Index, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. A Fund may refer to general
market performances over past time periods such as those published by Ibbotson
Associates. A Fund may also refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of a Fund and comparative mutual fund
data and ratings reported in independent periodicals, such as newspapers and
financial magazines.
For the 30 day period ended June 30, 1996, the annualized yield of the Cutler
Government Securities Fund was 6.75%. For the one year period ended June 30,
1996, the average annual total returns of the Cutler Equity Income Fund, Cutler
Approved List Equity Fund and Cutler Government Securities Fund were 22.93%,
23.01%, and 2.60%, respectively. Since commencement of operations on December
30, 1992, the average annual total returns of the Cutler Equity Income Fund,
Cutler Approved List Equity Fund and Cutler Government Securities Fund were
11.08%, 12.56%, and 4.35%, respectively.
YIELD CALCULATIONS
Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30 days or one-month period, net of expenses, if
any, by the average number of shares entitled to receive distributions during
the period, dividing this figure by the Fund's net asset value per share at the
end of the period and annualizing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Capital gain and loss generally
are excluded from these calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. The yields of the Funds are not fixed or
guaranteed, and an investment in the Funds is not insured or guaranteed.
Accordingly, yield information may not necessarily be used to compare shares of
the Funds with investment alternatives which, like money market instruments or
bank accounts, may provide a fixed rate of interest. Also, it may not be
appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives that are insured or guaranteed.
TOTAL RETURN CALCULATIONS
Each Fund may advertise its total return. Total returns quoted in advertising
reflect all aspects of a Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net asset
value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. Whereas
average annual returns are a
<PAGE>
convenient means of comparing investment alternatives, investors should realize
that the performance is not constant over time but changes from year to year,
and that average annual returns represent averaged figures as opposed to the
actual year-to-year performance of a Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
n
P(1+T) = ERV, where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the beginning
of the applicable period).
In addition to average annual returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return.
Period total return is calculated according to the following formula:
PT = (ERV/P-1), where:
PT = period total return.
The other definitions are the same as in average annual total return above.
10. FINANCIAL STATEMENTS
The financial statements of the Trust for its fiscal year ended June 30, 1996
(which include statements of assets and liabilities, statements of operations,
statements of changes in net assets, notes to financial statements, financial
highlights, statements of investments and the auditors' report thereon) are
included in the Annual Report to Shareholders of the Trust delivered along with
this Statement of Additional Information, and are incorporated herein by
reference.
