PROSPECTUS
OCTOBER 31, 1999
[LOGO]
CUTLER EQUITY INCOME FUND
THE FUNDS SEEK CUTLER VALUE FUND
CURRENT INCOME AND
LONG-TERM CAPITAL
APPRECIATION
SHARES OF THE FUNDS
ARE OFFERED TO
INVESTORS WITHOUT
ANY SALES CHARGE OR
RULE 12B-1
(DISTRIBUTION) FEES.
The Securities and
Exchange
Commission has not
approved or
disapproved any
Fund's shares or
determined whether
this prospectus is
accurate or complete.
Any representation to
the contrary is a
criminal offense.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 3
FEE TABLES 5
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS 6
MANAGEMENT 9
YOUR ACCOUNT 11
HOW TO CONTACT THE FUND 11
GENERAL INFORMATION 11
BUYING SHARES 12
SELLING SHARES 15
EXCHANGE PRIVILEGES 17
RETIREMENT ACCOUNTS 17
OTHER INFORMATION 18
FINANCIAL HIGHLIGHTS 19
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RISK/RETURN SUMMARY
INVESTMENT GOAL The investment goal of both
Funds, as managed by their investment adviser,
Cutler & Company, LLC (the "Adviser"), is current
income and long-term capital appreciation.
CONCEPTS TO
UNDERSTAND
CUTLER EQUITY INCOME FUND
VALUE INVESTING means
to invest in stocks Principal Investment Strategy In seeking to meet
whose market its investment goal, the Fund invests in income-
valuations are low producing stocks of U.S. companies, with annual
relative to their historic sales, assets and market value of at least $1
valuations and/or billion, that the Fund believes are undervalued
comparable companies with respect to the stock's growth prospects
relative to the general market.
PRICE/EARNINGS RATIO
means the ratio of a CUTLER VALUE FUND
company's current
market price divided PRINCIPAL INVESTMENT STRATEGY In seeking to meet
by the previous 12 its investment goal, the Fund uses a "value
months' earnings per investing" style by investing primarily in the
share stocks of U.S. companies, with annual sales,
assets and market value of at least $1 billion,
CASH FLOW means the that the Fund believes are under-priced relative
measurement of cash to comparable securities determined by price/
gained or lost during earnings ratios, cash flows or other measures.
an accounting period
adjusted for any PRINCIPAL RISKS OF INVESTING IN THE FUNDS
previous non-cash
transactions You could lose money on your investment in the
Funds, or the Funds could under-perform other
investments, if any of the following occurs:
o The stock market goes down
o The stock market continues to undervalue the
stocks in the Funds' portfolios
o The Adviser's judgment as to the value of a
stock proves to be wrong
An investment in the Funds is not a deposit of a bank and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
WHO MAY WANT TO INVEST IN THE FUNDS
You may want to purchase shares of the Funds if:
o You are willing to tolerate significant changes in the
value of your investment
o You are pursuing a long-term goal
o You are willing to accept higher short-term risk for
potential long-term returns
The Funds may NOT be appropriate for you if:
o You want an investment that pursues market trends or
focuses only on particular sectors or industries
o You need regular income or stability of principal
o You are pursuing a short-term goal or investing
emergency reserves
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PERFORMANCE
The following charts illustrate the variability of the Funds' returns. These
charts and the following tables provide some indication of the risks of
investing in the Funds by showing changes in the Funds' performance from year to
year and how the Funds' returns compare to a broad measure of market
performance. PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES
NOT NECESSARILY INDICATE FUTURE RESULTS.
The following charts show the annual total returns of the Funds for each full
calendar year the Funds have operated.
CUTLER EQUITY INCOME FUND
Cutler Equity Income Fund
[EDGAR representation of Bar Chart]
1993 6.15%
1994 -2.89%
1995 34.42%
1996 18.28%
1997 33.35%
1998 21.48%
The calendar year-to-date return as of September 30, 1999 was 0.13%
During the periods shown in the chart, the highest quarterly return was 17.84%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -7.76% (for the quarter ended September 30, 1998).
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CUTLER VALUE FUND
[EDGAR representation of Bar Chart]
1993 5.94%
1994 0.81%
1995 33.20%
1996 16.89%
1997 33.25%
1998 17.97%
The calendar year-to-date return as of September 30, 1999 was 2.49%.
During the periods shown in the chart, the highest quarterly return was 16.27%
(for the quarter ended June 30, 1997) and the lowest quarterly return was -9.48%
(for the quarter ended September 30, 1998).
The following table compares the Funds' average annual total returns as of
December 31, 1998 to the S&P 500 Index.
CUTLER EQUITY CUTLER S&P 500
YEAR(S) INCOME FUND VALUE FUND INDEX
................................................................................
1 Year 21.48% 17.97% 28.58%
5 Years 20.11% 19.78% 24.03%
Since Inception (12/30/92) 17.45% 17.16% 21.59%
The S&P 500(R) Index is the Standard & Poor's 500 Composite Stock Price Index, a
widely recognized, unmanaged index of common stock. The index figures assume
reinvestment of all dividends paid by stocks included in the index.
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FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in the Funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
CUTLER EQUITY INCOME FUND
Advisory Fees 0.75%
Other Expenses 0.32%
Total Annual Fund Operating Expenses 1.07%
CUTLER VALUE FUND
Advisory Fees 0.75%
Other Expenses 0.45%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.20%
(1) Based on amounts incurred during the Funds' last fiscal year as stated as a
percentage of net assets.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in each Fund to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in each Fund, a 5% annual return, the
Fund's operating expenses remain the same as stated in the table above,
reinvestment of all distributions and redemption at the end of each period.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
................................................................................
CUTLER EQUITY INCOME FUND $109 $340 $590 $1,305
CUTLER VALUE FUND $123 $382 $662 $1,459
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
CUTLER EQUITY INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income and long-term capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES
In seeking to meet its investment objective, the Fund invests in stocks that it
considers undervalued with respect to their growth prospects relative to the
general market. In order to facilitate this selection process, the Adviser has
created its "Approved List" of New York Stock Exchange-listed companies. To be
on the Approved List, each company (or its predecessor) must:
(1) have paid dividends continuously for at least the last 20 years,
without any reduction in the rate;
(2) have commercial paper rated Prime-1 and senior debt rated at least A
or determined to be of similar quality by the Adviser;
(3) have annual sales, assets and market value of at least $1 billion; and
(4) in the Adviser's opinion, have wide ownership among major
institutional investors and very liquid markets.
Under normal conditions, the Fund will invest substantially all (at least 65%)
of its total assets in the income-producing stocks in the Approved List. The
Fund will hold approximately 20 to 30 of the stocks on the Approved List.
CUTLER VALUE FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income and long-term capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES
In seeking to meet its investment objective, the Fund expects that for most
periods substantially all of its total assets will be invested according to the
Adviser's "value investing" style in a diversified portfolio of stocks judged by
the Adviser to have favorable value to price characteristics relative to their
historic valuations and/or comparable companies.
Factors deemed particularly relevant in determining fundamental value include
price/earnings ratios, earnings and price histories, balance sheet
characteristics and perceived management skills. Changes in economic and
political outlooks, as well as individual corporate developments, can influence
specific security prices. The Adviser chooses investments in stocks of companies
that have annual sales, assets and market value of at least $1 billion and in
the Adviser's opinion, have wide ownership among major institutional investors
and very liquid markets.
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INVESTMENT POLICIES FOR BOTH FUNDS
The Adviser uses "top down" and "bottom up" approaches and investment selections
are made using a rigorous fundamental approach. Top down research involves the
study of economic trends in the domestic and global economy, such as the
fluctuation in interest or unemployment rates. These factors help to identify
industries and sectors with the potential to outperform as a result of major
economic developments. Bottom up research involves detailed analysis of specific
companies. Important factors include industry characteristics, profitability,
growth dynamics, industry positioning, strength of management, valuation, and
expected return on a three to five year holding period.
The Adviser will sell securities for any one of three possible reasons. A stock
may be sold:
o when it exceeds the Adviser's price target. Active price targets are
maintained on all portfolio holdings.
o when a similar company is found by the Adviser to have better
potential for price appreciation.
o if the industry moves in an unforeseen direction which negatively
impacts the positioning of a particular investment or if the company
itself develops a deterioration in their strategy, execution, or
industry positioning. The Adviser develops specific views on how
industries are likely to evolve and how individual companies will
participate in industry growth and change.
TEMPORARY DEFENSIVE MEASURES
In addition, in order to respond to adverse market, economic or other
conditions, a Fund may assume a temporary defensive position and invest without
limit in cash or prime cash equivalents. As a result of taking a temporary
defensive position, a Fund may not achieve its investment objective.
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PRINCIPAL INVESTMENT RISKS
There is no assurance that either Fund will achieve its investment objective,
and a Fund's net asset value and total return will fluctuate based upon changes
in the value of its portfolio securities. Upon redemption, an investment in a
Fund may be worth more or less than its original value. No Fund, by itself,
provides a complete investment program.
All investments made by the Funds have some risk. Among other things, the market
value of any security in which the Funds may invest is based upon the market's
perception of value and not necessarily the book value of an issuer or other
objective measures of the issuer's worth.
The Funds may be appropriate investments if you are seeking long-term growth in
your investment, and are willing to tolerate significant fluctuations in the
value of your investment in response to changes in the market value of the
stocks the Funds hold. This type of market movement may affect the price of the
securities of a single issuer, a segment of the domestic stock market, or the
entire market. The investment style for either or both Funds could fall out of
favor with the market. For the most part, the Adviser's Approved List is
comprised of larger companies. Therefore, if smaller companies outperformed
larger companies, Cutler Equity Income Fund could under-perform broader equity
indexes. Likewise, if "value" stocks decrease in value, there could be a
corresponding drop in the net asset value of Cutler Value Fund.
It is not the Funds' intent, nor has it been their practice, to engage in active
and frequent trading of its securities. This type of trading could increase the
amount of capital gains realized by the Funds and total securities transactions
costs. The Funds may hold cash or cash equivalents such as high quality,
short-term money market instruments pending investment and to retain flexibility
in meeting redemptions and paying expenses.
YEAR 2000
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The Adviser and the Funds' administrator are
addressing this Year 2000 issue and its possible impact on their systems. The
Funds' other service providers have informed the Funds that they are taking
similar measures. The Year 2000 issue, if not corrected, could adversely affect
the services provided to the Funds or the companies in which the Funds invest
and, therefore, could lower the value of your shares.
8
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MANAGEMENT
The business of the Funds is managed under the direction of the Board of
Trustees (the "Board") of The Cutler Trust. The Board formulates the general
policies of the Funds and meets periodically to review the Funds' performance,
monitor investment activities and practices, and discuss other matters affecting
the Funds. Additional information regarding the Board, as well as executive
officers, may be found in the Statement of Additional Information ("SAI").
THE ADVISER
Cutler & Company, LLC, 503 Airport Road, Medford, Oregon 97504 serves as
investment adviser to the Funds. The Adviser makes investment decisions for the
Funds subject to the general control of the Board. The Adviser received an
advisory fee at an annual rate of 0.75% of the average daily net assets of the
Funds during its most recent fiscal year.
The Adviser (and its predecessors-in-interest) has provided investment
management services since 1977. As of September 30, 1999, the Adviser had over
$1.6 billion in assets under management.
PORTFOLIO MANAGERS
The portfolio managers of the Funds are responsible for the day-to-day
investment policy, portfolio management and investment research for the Funds.
Their business experience and educational backgrounds are as follows:
JOHN A. NYHEIM, the Co-Portfolio Manager for Cutler Equity Income Fund, received
his B.A. from U.C. Berkeley and his M.A. in Economics from Yale University. From
1969 to 1993, Mr. Nyheim was a partner and portfolio manager for Wellington
Investment Advisors. In 1994, he formed Nyheim & Associates, an investment firm.
He has been a senior portfolio manager with the Adviser since 1996.
MICHAEL A. KIJESKY, CFA, the Co-Portfolio Manager for Cutler Equity Income Fund,
received his B.S. and M.B.A. in Finance from Lehigh University in 1997. From
1992 to 1996, he was a Chemical Engineer for the Rohm and Haas Company. From
1996 to 1998, Mr. Kijesky was a Financial Analyst in the Industrial Gases and
Chemical Division at Air Products and Chemicals, Inc. Mr. Kijesky joined the
Adviser as a Senior Equity Analyst in June 1998.
ROBERT W. LAMBERTI, CFA, the Portfolio Manager for Cutler Value Fund, received
his B.S. from Purdue University and M.B.A. in Finance from Temple University in
1995. From 1993 to 1995, he was an Economic Analyst and Treasury Analyst for the
Rohm and Haas Company. From 1995 to 1997, Mr. Lamberti was a Senior Financial
Analyst in the Emulsion Polymers Division at Air Products and Chemicals, Inc.
From 1997 to April 1998, he was a Senior Analyst at Valuation Research
Corporation. Mr. Lamberti joined the Adviser as an assistant Portfolio Manager
in April 1998.
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OTHER SERVICE PROVIDERS
The Forum Financial Group of companies ("Forum") provide various services to the
Funds. As of September 30, 1999, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $73 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Funds' shares. The distributor acts as the agent of the
Funds in connection with the offering of shares of the Funds. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of shares of the Funds.
Forum Shareholder Services, LLC (the "Transfer Agent") is the Funds' transfer
agent.
FUNDS EXPENSES
The Funds pay for all of their expenses. The Adviser or other service providers
may voluntarily waive all or any portion of their fees. Any waiver would have
the effect of increasing the Funds' performance for the period during which the
waiver was in effect.
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YOUR ACCOUNT
HOW TO CONTACT THE GENERAL INFORMATION
FUND
You pay no sales charge to purchase or sell
WRITE TO US AT: (redeem) shares of the Funds. The Funds purchase
The Cutler Trust or sell shares at the net asset value per share,
P.O. Box 446 or NAV, next calculated after the Transfer Agent
Portland, ME 04112 receives your request in proper form. For
instance, if the Transfer Agent receives your
TELEPHONE US TOLL- purchase request in proper form prior to 4 p.m.,
FREE AT: your transaction will be priced at that day's NAV.
(888) CUTLER4 If the Transfer Agent receives your purchase
(888) 228-5374 request after 4 p.m., your transaction will be
priced at the next business day's NAV. The Funds
WIRE INVESTMENTS (OR will not accept orders that request a particular
ACH PAYMENTS) TO US day or price for the transaction or any other
AT: special conditions.
Bankers Trust Company
New York, New York The Funds do not issue share certificates.
ABA #021001033
FOR CREDIT TO: You will receive monthly statements and a
Forum Shareholder confirmation of each transaction. You should
Services, LLC verify the accuracy of all transactions in your
Account #01-465-547 account as soon as you receive your confirmation.
The Cutler Trust:
(Name of Fund) The Funds may temporarily suspend (during
(Your Name) unusual market conditions) or discontinue any
(Your Account Number) service or privilege.
WHEN AND HOW NAV IS DETERMINED Each Fund calculates its NAV
as of the close of the New York Stock Exchange (normally
4:00 p.m., eastern time) on each weekday except days when
the New York Stock Exchange is closed. The time at which NAV
is calculated may be changed in case of an emergency or if
the New York Stock Exchange closes early. Each Fund's NAV is
determined by taking the market value of all securities
owned by the Fund (plus all other assets such as cash),
subtracting all liabilities and then dividing the result
(net assets) by the number of shares outstanding. Each Fund
values securities for which market quotations are readily
available at current market value. If market quotations are
not readily available, then securities are valued at fair
value, as determined by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a
broker or other financial institution, the policies and fees
charged by that institution may be different than those of
the Funds. Banks, brokers, retirement plans and financial
advisers may charge transaction fees and may set different
minimum investments or limitations on buying or selling
shares. Consult a representative of your financial
institution or retirement plan for further information.
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BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, Uniform Gift to Minors Act ("UGMA") or Uniform
Transfers to Minors Act ("UTMA") accounts, the check must be made
payable to "The Cutler Trust" or to one or more owners of the account
and endorsed to "The Cutler Trust." For all other accounts, the check
must be made payable on its face to "The Cutler Trust". No other method
of check payment is acceptable (for instance, you may not pay by
travelers' check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows the
purchase of additional shares through an electronic transfer of money
from a checking or savings account. When an additional purchase is made
by telephone, the Transfer Agent will automatically debit your
pre-designated bank account for the desired amount. You may call (888)
CUTLER4 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
MINIMUM INVESTMENTS The Funds accept payments in the following minimum amounts:
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
Standard Account $25,000 None
Traditional and Roth IRA Accounts $2,000 None
Systematic Investment Plans $25,000 $100
Exchange Privileges $2,500 None
The Adviser or the Funds' administrator may, at its discretion, waive the above
investment minimums.
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ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT REQUIREMENTS
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INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons required
Individual accounts are owned by one person, as are to sign (you choose who must sign) exactly as their
sole proprietorship accounts. names appear on the account
Joint accounts can have two or more owners (tenants)
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GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a custodial
These custodial accounts provide a way to give money account under the UGMA or the UTMA
to a child and obtain tax benefits. You can give up o The trustee must sign instructions in a manner
to $10,000 a year per child without paying Federal gift indicating trustee capacity
tax.
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BUSINESS ENTITIES o For entities with officers, provide an original
or certified copy of a resolution that identifies
the authorized signers for the account
o For entities with partners or other interested
parties, provide a certified partnership agreement
or organizational document, or certified pages from
the partnership agreement or organizational
document, that identify the partners or interested
parties
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TRUSTS o The trust must be established before an account can
be opened
o Provide a certification for trust, or the pages
from the trust document that identify the trustees
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INVESTMENT PROCEDURES
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TO OPEN AN ACCOUNT TO ADD TO YOUR ACCOUNT
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BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
o Complete the application confirmation statement or
o Mail us your application and a check o Write a letter to us
o Mail us the slip (or your letter) and a check
o Write your account number on your check
BY WIRE BY WIRE
o Call or write us for an account application o Call to notify us of your incoming wire
o Complete the application o Instruct your bank to wire your money to us
o Call us and you will be assigned an account number
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application o Complete Systematic Investment section of the
o Complete the application application
o Call us and you will be assigned an account number o Attach a voided check to your application
o Mail us your application o Mail us the completed application and the
o Make an ACH payment voided check
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SYSTEMATIC INVESTMENTS You may invest a specified amount of money in a Fund once
or twice a month on specified dates. These payments are taken from your bank
account by ACH payment. Systematic investments must be for at least $100.
LIMITATIONS ON PURCHASES The Funds reserve the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Funds or their operations. This includes those from any individual or group
who, in the Funds' view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Funds within a calendar year).
CANCELED OR FAILED PAYMENTS The Funds accept checks and ACH transfers at full
value subject to collection. If your payment for shares is not received or you
pay with a check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or expenses incurred by a Fund
or the Transfer Agent, and the Fund may redeem other shares you own in the
account as reimbursement. The Funds and their agents have the right to reject or
cancel any purchase, exchange, or redemption due to nonpayment.
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SELLING SHARES
The Funds process redemption orders promptly. You will generally receive
redemption proceeds within a week. Delays may occur in cases of very large
redemptions, excessive trading or during unusual market conditions. If a Fund
has not yet collected payment for the shares you are selling, however, it may
delay sending redemption proceeds for up to 15 calendar days.
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TO SELL SHARES FROM YOUR ACCOUNT
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BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send your proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if:
o You have not declined redemption privileges on your account
application AND
o Your request is for $10,000 or more
o Call us with your request (if you have not declined telephone
redemption privileges) (See "By Telephone") OR
o Mail us your request (See "By Mail")
BY TELEPHONE
o Telephone requests are only available if you have not declined
telephone redemption privileges
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional forms of identification
o Your proceeds will be:
o Mailed to you OR
o Wired to you(if you have not declined wire redemption privileges)
(See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your completed application
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TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount you may redeem by wire is $10,000. If you wish to make your wire request
by telephone, you must also have telephone redemption privileges.
SYSTEMATIC REDEMPTION If you own shares of the Fund with an aggregate value of
at least $10,000, you may request a specified amount of money from your account
once a month or once a quarter on a specified date. These payments are sent from
your account to a designated bank account by ACH payment. Systematic requests
must be for at least $100.
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SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Funds against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
For requests made in writing a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name or address
o Redemption from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different
registration (name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution,
telephone redemption or exchange option or any other election in
connection with your account
SMALL ACCOUNTS If the value of your Fund account falls below $10,000 (not
including IRAs), the Fund may ask you to increase your balance. If the account
value is still below $10,000 after 60 days, the Fund may close your account and
send you the proceeds. The Fund will not close your account if it falls below
these amounts solely as a result of a reduction in your account's market value.
REDEMPTION IN KIND The Funds reserve the right to pay redemption proceeds in
portfolio securities rather than cash. These redemptions "in kind" usually occur
if the amount to be redeemed is large enough to affect Fund operations (for
example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional shares of the
Funds. In addition, the amount of any outstanding (unpaid for six months or
more) checks for distributions that have been returned to the Transfer Agent
will be reinvested and the checks will be canceled.
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EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of the other Fund, also known as an
exchange, by telephone or in writing. You may exchange Fund shares for Investors
Bond Fund or Daily Assets Government Fund (series of Forum Funds). The minimum
amount that is required to open an account in the Fund through an exchange with
another fund is $2,500. Because exchanges are treated as a sale and purchase,
they may have tax consequences. There is no charge for the exchange privilege or
limitation as to frequency of exchanges.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
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HOW TO EXCHANGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of the funds out of and into which you are exchanging
o The dollar amount or number of shares you want to exchange
o If opening a new account, complete an account application if you
are requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
- --------------------------------------------------------------------------------
RETIREMENT ACCOUNTS
The Funds offer IRA accounts, including traditional and Roth IRAs. Fund shares
may also be an appropriate investment for other retirement plans. Before
investing IRA or other retirement plan assets in Fund shares, you should consult
your tax adviser. Whenever making an investment with IRA assets, be sure to
indicate the year for which the contribution is made.
17
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
Each Fund distributes its net investment income quarterly. Any net capital gain
realized by a Fund will be distributed at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Distributions of net investment income or short-term capital gain are taxable to
you as ordinary income. A portion of the dividends paid by a Fund may be
eligible for the dividends-received deduction for corporate shareholders.
Distributions of long-term capital gain are taxable to you as long-term capital
gain, regardless of how long you have held your shares. Distributions may also
be subject to state and local taxes.
All distributions reduce the net asset value of a Fund's shares by the amount of
the distribution. If you purchase shares prior to these distributions, you are
taxed on the distribution even though the distribution represents a return of
your investment. The sale or exchange of Fund shares is a taxable transaction
for Federal income tax purposes.
Each Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to you if you fail to provide the Fund with
your correct taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against your U.S. federal income tax liability.
The Funds will mail reports containing information about a Fund's distributions
during the year to you after December 31 of each year. Consult your tax adviser
about the Federal, state and local tax consequences in your particular
circumstances.
ORGANIZATION
The Cutler Trust is a Delaware business trust registered with the U.S.
Securities and Exchange Commission as an open-end, management investment company
(a "mutual fund"). The Funds are the only two series of The Cutler Trust. It is
not intended that meetings of shareholders be held except when required by
Federal or Delaware law and all shareholders of each Fund are entitled to vote
at shareholders' meetings unless a matter is determined to affect only a
specific Fund (such as approval of an advisory agreement for a Fund). From time
to time, large shareholders may control a Fund.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand each Fund's financial
performance for the past five years. Certain information reflects financial
results for a single share of a Fund. Total return in the tables represents the
rate an investor would have earned (or lost) on an investment in the applicable
Fund (assuming the reinvestment of all distributions). This information has been
audited by Deloitte & Touche LLP. The Funds' financial statements and the
auditor's report are included in the Annual Report, which is available upon
request, without charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended
CUTLER EQUITY INCOME FUND June 30,
1999 1998 1997 1996 1995
------------- ----------- ------------ ------------ ------------
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $17.60 $16.06 $12.95 $10.96 $9.56
Income From Investment Operations
Net investment income 0.12 0.19 0.24 0.35 0.36(a)
Net gain (loss) on securities
(realized and unrealized) 2.06 3.05 4.30 2.13 1.40
Total From Investment Operations 2.18 3.24 4.54 2.48 1.76
Less Distributions
From net investment income (0.12) (0.19) (0.24) (0.35) (0.34)
From capital gain (3.95) (1.51) (1.19) (0.14) (0.02)
Total Distributions (4.07) (1.70) (1.43) (0.49) (0.36)
Ending Net Asset Value $15.71 $17.60 $16.06 $12.95 $10.96
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses 1.07% 1.10% 1.17% 0.98% 0.97%
Net investment income 0.76% 1.14% 1.67% 2.81% 3.49%
Total Return 15.48% 21.60% 37.65% 22.93% 18.63%
Portfolio Turnover Rate 58.94% 118.59% 23.22% 57.08% 43.37%
Net Assets at End of Period (in thousands) $74,499 $77,482 $62,523 $46,285 $41,470
</TABLE>
(a) Calculated using the weighted average number of shares outstanding.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended
CUTLER VALUE FUND June 30,
1999 1998 1997 1996 1995
-------------- ------------ ------------ ------------ -----------
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $21.02 $18.33 $14.18 $11.71 $9.78
Income From Investment Operations
Net investment income 0.14 0.13 0.18 0.21 0.24(a)
Net gain (loss) on securities
(realized and unrealized) 2.73 4.19 4.20 2.47 1.92
Total From Investment Operations 2.87 4.32 4.38 2.68 2.16
Less Distributions
From net investment income (0.14) (0.13) (0.18) (0.21) (0.23)
From capital gain (4.82) (1.50) (0.05) 0.00 0.00
Total Distributions (4.96) (1.63) (0.23) (0.21) (0.23)
Ending Net Asset Value $18.93 $21.02 $18.33 $14.18 $11.71
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses 1.20% 1.24% 1.25% 1.05%(b) 1.00%(b)
Net investment income 0.80% 0.65% 1.15% 1.65% 2.20%
Total Return 18.10% 24.90% 31.18% 23.01% 22.33%
Portfolio Turnover Rate 110.02% 49.61% 3.86% 8.97% 23.42%
Net Assets at End of Period (in thousands) $40,125 $41,085 $35,277 $30,248 $21,890
</TABLE>
(a) Calculated using the weighted average number of shares outstanding.
(b) In the absence of expense reimbursements and fee waivers, the ratios would
have been 1.13% in 1996 and 1.23% in 1995.
19
<PAGE>
NOTES
20
<PAGE>
NOTES
21
<PAGE>
<TABLE>
<S> <C>
For More Information THE
CUTLER
The following documents are available free upon request: TRUST
Cutler Equity Income Fund Annual/Semi-Annual Reports Cutler
Value Fund Additional information about the Funds' Cutler Equity Income Fund
investments is available in the Funds' annual and Cutler Value Fund
semi-annual reports to shareholders. In the Funds' annual
report, you will find a discussion of the market conditions
and investment strategies that significantly affected the
Funds' performance during its last fiscal year.
Statement of Additional Information ("SAI") The SAI provides
more detailed information about the Funds and is
incorporated by reference into this Prospectus.
You can get free copies of both reports and the SAI, request
other information and discuss your questions about the Funds
by contacting your broker or the Funds at:
Forum Shareholder Services, LLC
P. O. Box 446
Portland, Maine 04112
(888) CUTLER4
(888) 288-5374
You can also review the Funds' reports and SAIs at the
Public Reference Room of the Securities and Exchange
Commission. You can get copies, for a fee, by writing to the
following:
Public Reference Room
Securities and Exchange Commission The Cutler Trust
Washington, D.C. 20549-6009 P.O. Box 446
E-mail address: [email protected] Portland, ME 04112
(888)CUTLER4
Information on the hours of operation of the Public (888)288-5374
Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. Free copies of the reports and SAIs are Web Site:
available from the Commission's Internet website at http://www.cutler.com
http://www.sec.gov.
Investment Company Act File No. 811-7242.
</TABLE>
22
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
[LOGO]
OCTOBER 31, 1999
FUND INFORMATION: CUTLER EQUITY INCOME FUND
The Cutler Trust CUTLER VALUE FUND
P.O. Box 446
Portland, ME 04112
(888) CUTLER4
http://www.cutler.com
INVESTMENT ADVISER:
Cutler & Company, LLC
503 Airport Road
Medford, Oregon 97504
(541) 770-9000
(800) 228-8537
ACCOUNT INFORMATION
AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLCSM
Two Portland Square
Portland, Maine 04101
Toll free (888) CUTLER4
This Statement of Additional Information, or SAI, supplements the
Prospectus dated October 31, 1999, as may be amended from time to time, offering
shares of the Cutler Equity Income Fund and the Cutler Value Fund (each a "Fund"
and collectively the "Funds"), two portfolios of The Cutler Trust (the "Trust").
This SAI is not a prospectus and should only be read in conjunction with the
prospectus. The Prospectus may be obtained by an investor without charge by
contacting the Trust's Shareholder Servicing Agent at the address listed above.
Financial Statements for the Funds for the year ended June 30, 1999
included in the Annual Report to shareholders, are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting shareholder services at the address or telephone number
listed above.
<PAGE>
<PAGE>
TABLE OF CONTENTS
1. INVESTMENT POLICIES AND RISKS 3
2. INVESTMENT LIMITATIONS 5
3. PERFORMANCE DATA AND ADVERTISING 7
4. MANAGEMENT 11
5. PORTFOLIO TRANSACTIONS 17
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 20
7. TAXATION 22
8. OTHER MATTERS 26
APPENDIX A DESCRIPTION OF SECURITIES RATINGS A-1
APPENDIX B MISCELLANEOUS TABLES B-1
APPENDIX C PERFORMANCE DATA C-1
1
<PAGE>
GLOSSARY
"Adviser" means Cutler & Company, LLC
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means Forum Trust, LLC, custodian of the Funds' assets.
"FAdS" means Forum Administrative Services, LLC, administrator of the
Funds.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, fund accountant of the Funds.
"FFS" means Forum Fund Services, LLC, distributor of the Funds' shares.
"Funds" means the Cutler Equity Income Fund and the Cutler Value Fund
"Moody's" means Moody's Investors Service, Inc.
"NAV" means net asset value.
"NRSRO" means a nationally recognized statistical rating organization.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's Corporation.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer agent
and distribution disbursing agent of the Funds.
"Trust" means The Cutler Trust.
"U.S. Government Securities" means obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
"U.S. Treasury Securities" means obligations issued or guaranteed by the
U.S. Treasury.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
2
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The following discussion supplements the disclosure in the Prospectus
about the Funds' investment techniques, strategies and risks. The Funds are
designed for investment of that portion of an investor's assets that can
appropriately bear the special risks associated with certain types of
investments (e.g., investments in equity securities). The Funds expect that for
most periods, a substantial portion, if not all, of their assets will be
invested in diversified portfolios of common stocks judged by the Adviser to
have favorable value to price characteristics.
A. SECURITY RATINGS INFORMATION
The Funds may invest in fixed income securities. The Funds' investments in fixed
income securities are subject to credit risk relating to the financial condition
of the issuers of the securities that each Fund holds. The Funds will invest
primarily in "investment grade" securities. "Investment grade" means rated in
the top four long-term rating categories or top two short-term rating categories
by an NRSRO, or unrated and determined by the Adviser to be of comparable
quality. The lowest long-term ratings that are investment grade for corporate
bonds, including convertible bonds, are "Baa" in the case of Moody's and "BBB"
in the case of S&P and Fitch; for preferred stock are "Baa" in the case of
Moody's and "BBB" in the case of S&P and Fitch; and for short-term debt,
including commercial paper, are Prime-2 (P-2) in the case of Moody's, "A-2" in
the case of S&P and "F-2" in the case of Fitch.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, the sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund (neither event requiring the sale of such security by a
Fund), the Adviser will determine whether the Fund should continue to hold the
obligation. To the extent that the ratings given by a NRSRO may change as a
result of changes in such organizations or their rating systems, the Adviser
will attempt to substitute comparable ratings. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings. An issuer's current financial condition may be
better or worse than a rating indicates.
B. TEMPORARY DEFENSIVE POSITION
Each Fund may assume a temporary defensive position and may invest without limit
in commercial paper and other money market instruments that are of prime
quality. Prime quality instruments are those instruments that are rated in one
of the two highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a Fund may invest include
short-term U.S. Government Securities ,interest-bearing savings deposits and
certificates of deposit of domestic commercial banks and money market mutual
funds. The Funds may only invest in money market mutual funds to the extent
permitted by the 1940 Act.
The money market instruments in which the Funds may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
3
<PAGE>
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
C. CONVERTIBLE SECURITIES
The Funds may invest in convertible securities.
1. IN GENERAL
Convertible securities, which include convertible debt, convertible preferred
stock and other securities exchangeable under certain circumstances for shares
of common stock, are fixed income securities or preferred stock which generally
may be converted at a stated price within a specific amount of time into a
specified number of shares of common stock. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities or preferred equity in
that they ordinarily provide a stream of income with generally higher yields
than do those of common stocks of the same or similar issuers. These securities
are usually senior to common stock in a company's capital structure, but usually
are subordinated to non-convertible debt securities.
Convertible securities have unique investment characteristics in that they
generally have higher yields than common stocks, but lower yields than
comparable non-convertible securities. Convertible securities are less subject
to fluctuation in value than the underlying stock since they have fixed income
characteristics; and they provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
2. RISKS
Investment in convertible securities generally entails less risk than investment
in the issuer's common stock. The extent to which such risk is reduced, however,
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
3. VALUE OF CONVERTIBLE SECURITIES
The value of a convertible security is a function of its "investment value" and
its "conversion value". The investment value of a convertible security is
determined by comparing its yield with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege. The
conversion value is the security's worth, at market value, if converted into the
underlying common stock. The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may affect the convertible
security's investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. In addition, a convertible security
generally will sell at a premium over its conversion value determined by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
4
<PAGE>
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Funds: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Funds may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Funds may rely.
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 Funds'
assets, the change in status of a security or purchases and redemptions of Fund
shares will not be considered a violation of the limitation.
A fundamental policy of a Fund cannot be changed without the affirmative vote of
the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 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. The Board may change a nonfundamental policy of the Funds without
shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund's investment objective is considered fundamental. In addition, each
Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. Each Fund may not:
1. DIVERSIFICATION
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. CONCENTRATION
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. UNDERWRITING ACTIVITIES
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. PURCHASES AND SALES OF REAL ESTATE
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. PURCHASES AND SALES OF COMMODITIES AND OPTIONS; BORROWING; FOREIGN
SECURITIES AND MARKETS; MARGIN PURCHASES AND SHORT SALES
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 (applicable to Cutler Equity Income
Fund only); 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.
5
<PAGE>
6. ISSUANCE OF SENIOR SECURITIES
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 ("Board") may establish.
7. REPURCHASE AGREEMENTS, MAKING LOANS
Enter into repurchase agreements, lend securities or otherwise make loans;
except through the purchase of debt securities that may be purchased by the
Funds.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each Fund may not:
1. 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.
2. 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.
3. 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.
4. 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.
6
<PAGE>
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
The Funds may compare any of their performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., IBC Financial Data, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment
companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including,
but not limited to, the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of the Funds but rather are standards by
which the Funds' Adviser and shareholders may compare the performance of the
Funds to an unmanaged composite of securities with similar, but not identical,
characteristics as the Funds.
The Funds may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
The Funds' performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Funds' performance may be quoted in terms of yield or total return.
1. SEC YIELD
Standardized SEC yields for the Funds used in advertising are computed by
dividing a Fund's interest income (in accordance with specific standardized
rules) for a given 30 day or one month period, net of expenses, by the average
number of shares entitled to receive income 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 accordance
with specific standardized rules) in order to arrive at an annual percentage
rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining the Funds' yields 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 of income from the Fund over the same period or the rate of income
reported in the Funds' financial statements.
7
<PAGE>
Although published yield information is useful to investors in reviewing the
Funds' performance, investors should be aware that the Funds' yields fluctuate
from day to day and that the Funds' yields for any given period are not an
indication or representation by the Funds of future yields or rates of return on
the Funds' shares. Financial intermediaries may charge their customers that
invest in the Funds fees in connection with that investment. This will have the
effect of reducing the Funds' after-fee yields to those shareholders.
The yields of the Funds are not fixed or guaranteed, and investments in the
Funds are not insured or guaranteed. Accordingly, yield information should not
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 the Funds' yields information
directly to similar information regarding investment alternatives which are
insured or guaranteed.
Yield quotations are based on amounts invested in a Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges. The Funds
impose no sales charges.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
2. TOTAL RETURN CALCULATIONS
The Funds' total returns show their overall changes in value, including changes
in share price and assuming all of the Funds' distributions are reinvested.
Average Annual Total Return. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns, a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in the Fund over a stated period; and (2) calculates 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. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
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 the Funds.
8
<PAGE>
Average annual total return is calculated according to the following formula:
P(1+T) n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
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
Because average annual returns tend to smooth out variations in the Funds'
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Funds may quote unaveraged or cumulative total returns, which
reflect the Funds' performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period.
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
A listing of certain performance data as of June 30, 1999 is contained in
Appendix C -- Performance Data.
C. OTHER MATTERS
The Funds may also include various information in their advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of the Funds' portfolio managers and
the portfolio management staff of the Funds' Adviser, summaries of the views of
the portfolio managers with respect to the financial markets, or descriptions of
the nature of the Adviser's and its staff's management techniques; (7) the
results of a hypothetical investment in a Fund over a given number of years,
9
<PAGE>
including the amount that the investment would be at the end of the period; (8)
the effects of earning Federally and, if applicable, state tax-exempt income
from the Funds or investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan; (9) the net asset value, net
assets or number of shareholders of the Funds as of one or more dates; and (10)
a comparison of the Funds' operations to the operations of other funds or
similar investment products, such as a comparison of the nature and scope of
regulation of the products and the products' weighted average maturity,
liquidity, investment policies, and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Funds' performance.
The Funds may advertise information regarding the effects of automatic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at period intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund, the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
PERIOD SYSTEMATIC INVESTMENT SHARE PRICE SHARES PURCHASED
............ ................................. .................................. ..................................
............ ................................. .................................. ..................................
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
............ ................................. .................................. ..................................
............ ................................. .................................. ..................................
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements, the Funds may provide "shareholder's
letters" which serve to provide shareholders or investors an introduction into
the Funds or any of the Funds' service provider's policies or business
practices. For instance, advertisements may provide for a message from the
Adviser that it has for more than twenty years been committed to quality
products and outstanding service to assist its customers in meeting their
financial goals and setting forth the reasons that the Adviser believes that it
has been successful as a portfolio manager.
10
<PAGE>
4. MANAGEMENT
A. TRUSTEES AND OFFICERS
TRUSTEES AND OFFICERS OF THE TRUST. The business and affairs of the Trust are
managed under the direction of the Board in compliance with the laws of the
state of Delaware. Among its duties, the Board generally meets and reviews on a
quarterly basis the acts of all of the Funds' service providers. This management
also includes a periodic review of the service providers' agreements and fees
charged to the Funds. The names of the Trustees and officers of the Trust, their
position with the Trust, address, age and principal occupations during the past
five years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk.
<TABLE>
<S> <C> <C>
NAME, ADDRESS AND POSITION(S) PRINCIPAL OCCUPATION(S)
DATE OF BIRTH WITH FUNDS DURING THE PAST FIVEYEARS
..................................................................................................................
Brooke C. Ashland* Trustee Chief Executive Officer and Manager, Cutler &
503 Airport Road Company, LLC
Medford, Oregon 97504
Born: December 1951
..................................................................................................................
Kenneth R. Cutler* Trustee Former Portfolio Manager of the Cutler Equity
503 Airport Road Chairman Income Fund, Investment Committee Member,
Medford, Oregon 97504 Vice President Cutler & Company, LLC
Born: March 1920
..................................................................................................................
John Y. Keffer* Trustee President and Director, Forum Fund Services,
Two Portland Square President LLC for more than five years
Portland, Maine 04101 Director and sole shareholder (directly and
Born: July 1942 indirectly) Forum Financial Group LLC, which
owns (directly or indirectly) Forum Administrative
Services, LLC, Forum Shareholder Services, LLC
and Forum Investment Advisers, LLC
Officer, Director or Trustee, various funds managed
and distributed by Forum Fund Service, LLC and
Forum Administrative Services, LLC
...................................................................................................................
Dr. Hatten S. Yoder, Jr. Trustee Director Emeritus, Geophysical Laboratory,
6709 Melody Lane Carnegie Institution of Washington
Bethesda, MD 20817-3152 Consultant, Los Alamos National Laboratory
Born: March 1921
...................................................................................................................
Robert B. Watts, Jr. Trustee Counsel, Northhaven Associates
2230 Brownsboro Highway
Eagle Point, Oregon 97524
Born: December 1930
...................................................................................................................
Carol S. Fischer Vice President Chief Operating Officer, Cutler & Company, LLC
503 Airport Road Asst Secretary
Medford, Oregon 97504 Asst Treasurer
Born: December 1955
...................................................................................................................
Stephen J. Barrett Vice President Manager of Client Services, Forum Financial
Two Portland Square Group, LLC since 1996
Portland, Maine 04101 Senior Product Manager, Fidelity Investments,
Born: November 1968 1994 - 1996
Officer, various funds managed and distributed
by Forum Administrative Services, LLC and Forum
Fund Services, LLC
11
<PAGE>
NAME, ADDRESS AND POSITION(S) PRINCIPAL OCCUPATION(S)
DATE OF BIRTH WITH FUNDS DURING THE PAST FIVEYEARS
...................................................................................................................
Sara M. Morris Treasurer Managing Director, Forum Fund Services, LLC
Two Portland Square Treasurer and CFO, Forum Financial Group LLC
Portland, Maine 04101 since 1994
Born: September 1963 Officer, various funds managed and distributed
by Forum Fund Services, LLC and Forum
Administrative Services, LLC
...................................................................................................................
D. Blaine Riggle Secretary 1/98 - Present. Counsel, Forum Financial
Two Portland Square Group, LLC
Portland, Maine 04101 3/97 - 1/98. Associate Counsel, Wright Express
Born: November 1966 Corporation
1994 - 3/97.
Associate at the law firm of Friedman, Babcock &
Gaythwaite
Officer, various funds managed and
distributed by Forum Fund Services, LLC and Forum
Administrative Services, LLC
...................................................................................................................
Dawn Taylor Assistant Treasurer 10/97 - Present. Tax Manager, Forum Financial
Two Portland Square Group, LLC
Portland, Maine 04101 1/97 - 10/97. Senior Tax Accountant, Purdy,
Born: May 1964 Bingham & Burrell, LLC
9/94 - 10/97. Senior Fund Accountant, Forum
Financial Group, LLC
Officer, various funds managed and distributed
by Forum Fund Services, LLC and Forum
Administrative Services, LLC
...................................................................................................................
Marcella A. Cote Assistant Secretary 6/98 - Present. Senior Fund Specialist, Forum
Two Portland Square Administrative Services, LLC
Portland, Maine 04101 1/97 - 12/97. Budget Analyst, Maine Department
Born: January 1947 of Human Services
1991 - 1997. Project Assistant, Maine
Inter-departmental Committee on Transition
Officer, various funds managed and distributed
by Forum Fund Services, LLC and Forum
Administrative Services, LLC
</TABLE>
B. COMPENSATION OF DIRECTORS AND OFFICERS
Each Trustee receives monthly fees of $833.33.
Trustees are also reimbursed for travel and related expenses incurred in
attending meetings of the Board.
Messrs. Cutler and Keffer and Ms. Ashland receive no compensation for their
services or reimbursement for their associated expenses. No officer of the Trust
is compensated by the Trust.
12
<PAGE>
The following table sets forth the fees paid to each Trustee by the Trust for
the fiscal year ended June 30, 1999.
<TABLE>
<S> <C> <C> <C> <C>
ESTIMATED
AGGREGATE PENSION OR RETIREMENT ANNUAL TOTAL
COMPENSATION FROM BENEFITS ACCRUED AS PART OF BENEFITS UPON COMPENSATION
NAME, POSITION TRUST TRUST EXPENSES RETIREMENT FROM TRUST
............................. ................... ............................. .................. ...................
............................. ................... ............................. .................. ...................
Dr. Hatton S. Yoder, Jr.,
Trustee $10,000 $0 $0 $10,000
............................. ................... ............................. .................. ...................
............................. ................... ............................. .................. ...................
Robert B. Watts, Jr.,
Trustee $10,000 $0 $0 $10,000
............................. ................... ............................. .................. ...................
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the Funds pursuant to an investment
advisory agreement with the Trust. Under that agreement, the Adviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing the Funds' investments and effecting portfolio
transactions for the Funds.
2. OWNERSHIP OF ADVISER/AFFILIATIONS
Trustee Brooke C. Ashland has a majority ownership interest in the Adviser and
is therefore deemed to control the Adviser. The Adviser is registered as an
investment adviser with the SEC under the Investment Advisors Act of 1940, as
amended.
The Trustees or officers of the Funds that are employed by the Adviser (or
affiliates of the Adviser) are Kenneth R. Cutler, Brooke
C. Ashland and Carol S. Fischer.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Funds and is paid monthly, equal to
0.75% per annum based on average daily net assets of the applicable Fund for the
previous month.
In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets that are invested in the Funds. If an investor in the Funds also has a
separately managed account with the Adviser with assets invested in the Funds,
the Adviser will credit an amount equal to all or a portion of the fees received
by the Adviser against any investment management fee received from a client.
Table 1 in Appendix B shows the dollar amount of the fees from the Funds for the
last three fiscal years received by the Adviser.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement must be 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.
The Adviser's agreement is terminable without penalty by the Funds with respect
to the Funds on 60 days' written notice when authorized either by vote of the
holders of a majority of the Funds' securities or by a vote of a majority of the
Board on 60 days' written notice to the Adviser, or by the Adviser on 60 days'
written notice to the Funds.
13
<PAGE>
Under its agreement, the Adviser is not liable for any mistake of judgment,
except for lack of good faith in the performance of its duties to the Funds. The
agreement does not protect the Adviser against any liability by reason of
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.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of the
Funds, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS, the Transfer Agent, and the Custodian are each controlled
indirectly by Forum Financial Group, LLC. John Y. Keffer controls Forum
Financial Group, LLC.
Under its agreement with the Trust, FFS acts as the agent of the Funds in
connection with the offering of shares of the Funds. FFS continually distributes
shares of the Funds on a best efforts basis. FFS has no obligation to sell any
specific quantity of the Funds' shares.
FFS receives no compensation for its distribution services. Shares are sold with
no sales commission; accordingly, FFS receives no sales commissions. FFS may
enter into arrangements with various financial institutions through which
investors may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Funds. Prior to October 31,
1999, Forum Financial Services, Inc. served as the distributor of the Funds'
shares.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be 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.
FFS's agreement is terminable without penalty by the Funds with respect to the
Funds on 60 days' written notice when authorized either by vote of a majority of
the Funds' outstanding shareholders or by a vote of a majority of the Board, or
by FFS on 60 days' written notice to the Funds.
Under its agreement, FFS is not liable for any error of judgment or mistake of
law or for any act or omission in the performance of its duties to the Funds.
The agreement does not protect FFS against any liability by reason of 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.
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Funds against any and all
claims and expenses in any way related to FFS's actions (or failures to act)
that are consistent with FFS's contractual standard of care. This means that as
long as FFS satisfies its contractual duties, the Funds are responsible for the
costs of: (1) defending FFS against claims that FFS breached a duty it owed to
the Funds; and (2) paying judgments against FFS. The Funds are not required to
indemnify FFS if the Funds do not receive written notice of and reasonable
opportunity to defend against a claim against FFS in the Funds' own name or in
the name of FFS.
14
<PAGE>
E. OTHER SERVICE PROVIDERS TO THE FUNDS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust, FAdS is responsible
for the supervision of the overall management of the Funds, providing the Funds
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Funds.
For its services, FAdS receives a fee from the Funds equal to 0.10% of the
average daily net assets of the Funds. The fees are accrued daily by the Funds
and are paid monthly for services performed under the agreement during the prior
calendar month.
Table 2 in Appendix B shows the dollar amount of the fees paid by the Funds to
FAdS for the Funds' last three fiscal years.
FAdS's agreement is terminable without penalty by the Board or by FAdS on 60
days' written notice. Under the agreement, FAdS is not liable for any act or
omission in the performance of its duties to the Funds. The agreement does not
protect FAdS from any liability by reason of willful misconduct, bad faith or
gross negligence in the performance of its obligations and duties under the
agreement.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to the Funds. These services include calculating the NAV per
share of the Funds and preparing the Funds' financial statements and tax
returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$36,000, subject to adjustments for the number and type of portfolio
transactions. The fees are paid monthly for services performed during the prior
calendar month.
Table 3 in Appendix B shows the dollar amount of the fees paid by the Funds to
FAcS for the Funds' last three fiscal years.
FAcS's agreement is terminable without penalty by the Board or by FAcS on 60
days' written notice. Under the agreement, FAcS is not liable for any act or
omission in the performance of its duties to the Funds. The agreement does not
protect FAcS from any liability by reason of willful misconduct, bad faith or
gross negligence in the performance of its obligations and duties under the
agreement.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust, the Transfer Agent maintains an account for each shareholder of
record of the Funds and is responsible for processing purchase and redemption
requests and paying distributions to shareholders of record. The Transfer Agent
is located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, the Transfer Agent receives a fee from each Fund 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. Such fees shall be paid
monthly for services performed during the prior calendar month. Table 4 in
Appendix B shows the dollar amount of the fees paid by the Funds to the Transfer
Agent for the Funds' last three fiscal years.
The Transfer Agent's agreement is terminable without penalty by the Board or by
the Transfer Agent on 60 days' written notice. Under the agreement, the Transfer
Agent is liable only for loss or damage due to errors caused by bad faith,
negligence or willful misconduct in the performance of its obligations and
duties under the agreement.
15
<PAGE>
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Funds' cash and securities, determines income and
collects interest on Funds' investments. The Custodian may employ subcustodians.
The Custodian is located at Two Portland Square, Portland, Maine 04101. The
Custodian has hired Bankers Trust Company, 130 Liberty Street, New York, New
York, 10006, to serve as subcustodian for the Funds.
For its services, the Custodian receives a fee from the Funds at an annual rate
as follows: (1) 0.01% for the first $1 billion in Fund assets; (2) 0.0075% for
Fund assets between $1-$2 billion; (3) 0.005% for Fund assets between $2-$6
billion; and (4) .0025% for Fund assets greater than $6 billion. The Custodian
receives account maintenance fees of $3,600 per account per year. The Custodian
is also paid certain transaction fees. These fees are accrued daily by the Funds
and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Legal matters in connection with the issuance of shares of the Funds are passed
upon by Dechert Price & Rhoads, Ten Post Office Square - South, Boston,
Massachusetts 02109-4603.
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, 14th Floor, Boston, Massachusetts
02116-5022, independent auditors, have been selected as auditors for the Funds.
The auditors audit the annual financial statements of the Funds and provide the
Funds with an audit opinion. The auditors also review certain regulatory filings
of the Funds as well as prepare the Funds' tax returns.
16
<PAGE>
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the
Funds purchase or to whom the Funds sell is acting on its own behalf (and not as
the agent of some other party such as its customers). These securities normally
are purchased directly from the issuer or from an underwriter or market maker
for the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected; (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
the Funds. The data presented are for the past three fiscal years.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser of the Funds places orders for the purchase and sale of securities
with brokers and dealers selected by and in the discretion of the Adviser. No
Fund has any obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Allocations of transactions to brokers and
dealers and the frequency of transactions are determined by the Adviser in its
best judgment and in a manner deemed to be in the best interest of the Funds
rather than by any formula.
The Adviser of the Funds seeks "best execution" for all portfolio transactions.
This means that the Adviser seeks the most favorable price and execution
available. The Adviser's primary consideration in placing trades for the Funds
is prompt execution of orders in an effective manner and at the most favorable
price available.
1. CHOOSING BROKER-DEALERS
The Funds may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser of the Funds takes into
account factors such as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the research services described
below) and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute portfolio transactions for the Funds; and (2) take
into account payments made by brokers effecting transactions for the Funds
(these payments may be made to the Funds or to other persons on behalf of the
Funds for services provided to the Funds for which those other persons would be
obligated to pay.
17
<PAGE>
2. OBTAINING RESEARCH FROM BROKERS
The Adviser of the Funds may give consideration to research services furnished
by brokers to the Adviser for its use and may cause the Funds to pay these
brokers a higher amount of commission than may be charged by other brokers. This
research is designed to augment the Adviser's own internal research and
investment strategy capabilities. This research may be used by the Adviser in
connection with services to clients other than the Funds, and not all research
services may be used by the Adviser in connection with the Funds. The Adviser's
fees are not reduced by reason of the Adviser's receipt of research services.
The Adviser of the Funds has full brokerage discretion. It evaluates the range
of quality of a broker's services in placing trades including securing best
price, confidentiality, clearance and settlement capabilities, promptness of
execution and the financial stability of the broker-dealer. Under certain
circumstances, the value of research provided by a broker-dealer may be a factor
in the selection of a broker. This research would include reports that are
common in the industry. Typically, the research will be used to service all of
the Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems and
formal databases.
Occasionally, the Adviser may place an order with a broker and pay a slightly
higher commission than another broker might charge. If this is done it will be
because of the Adviser's need for specific research, for specific expertise a
firm may have in a particular type of transaction (due to factors such as size
or difficulty), or for speed/efficiency in execution. Since most of the
Adviser's brokerage commissions for research are for economic research on
specific companies or industries, and since the Adviser is involved with a
limited number of securities, most of the commission dollars spent for industry
and stock research directly benefit the clients.
There are occasions on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner which is deemed equitable to the accounts involved. Clients are typically
allocated securities with prices averaged on a per-share or per-bond basis.
In some cases, the client may direct the Adviser to use a broker or dealer of
the client's choice. If the client directs the Adviser to use a particular
broker, the Adviser may not be authorized to negotiate commissions and may be
unable to obtain volume discounts or best execution. In these cases, there could
be some disparity in commission charges among these clients.
3. TRANSACTIONS THROUGH AFFILIATES
The Adviser of the Funds may not effect brokerage transactions through
affiliates of the Adviser (or affiliates of those persons). The Board has not
adopted respective procedures.
4. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Funds are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser of the Funds or its affiliates. Investment decisions are the
product of many factors, including basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security. In that
event, each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which, in
the respective Adviser's opinion, is equitable to each and in accordance with
the amount being purchased or sold by each. There may be circumstances when
18
<PAGE>
purchases or sales of a portfolio security for one client could have an adverse
effect on another client that has a position in that security. In addition, when
purchases or sales of the same security for the Funds and other client accounts
managed by the Adviser occurs contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
5. PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Funds (the portfolio turnover
rate) will vary from year to year depending on many factors. Portfolio turnover
rate is reported in the Prospectus. From time to time the Fund may engage in
active short-term trading to take advantage of price movements affecting
individual issues, groups of issues or markets. The Funds expects normal
turnover in the range of 50-75%, although there can be periods of greater or
lesser action based upon market and corporate earnings activity. An annual
portfolio turnover rate of 100% would occur if all of the securities in a Fund
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses. The Funds' commission costs are usually done
at rates far under those in the retail market.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the Funds may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers means the 10 brokers or dealers that:
(1) received the greatest amount of brokerage commissions during the Funds' last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Funds during the Funds' last fiscal year; or (3)
sold the largest amount of the Funds' shares during the Funds' last fiscal year.
Following is a list of the regular brokers and dealers of the Funds whose
securities (or the securities of the parent company) were acquired or held
during the past fiscal year and the aggregate value of the Funds' holdings of
those securities as of the Funds' most recent fiscal year.
Regular Broker or Dealer Value of Securities Held
..................................... ..........................................
..................................... ..........................................
Cutler Equity Income Fund
Merrill Lynch & Co., Inc. $479,625
Cutler Value Fund
Merrill Lynch & Co., Inc. $1,598,750
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6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
Shareholders may effect purchases or redemptions or request any shareholder
privilege in person at the Transfer Agent's offices located at Two Portland
Square, Portland, Maine 04101.
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of the Funds are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share. Historical
information relating to each Fund's NAV per share is contained in the Funds'
financial statements (specifically in the statements of assets and liabilities).
The Funds reserve the right to refuse any purchase request in excess of 1% of
the Funds' total assets.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Funds may accept portfolio securities that meet the investment
objective and policies of the Funds as payment for Fund shares. The Funds will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
1. IRAs
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAs/UTMAs
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in the Funds directly. When you purchase the Funds'
shares through a financial institution, you may or may not be the shareholder of
record and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
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<PAGE>
Investors purchasing shares of the Funds through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the 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.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the SEC determines that trading
thereon is restricted; (2) an emergency (as determined by the SEC) exists as a
result of which disposal by the Funds of their securities is not reasonably
practicable or as a result of which it is not reasonably practicable for the
Funds fairly to determine the value of their net assets; or (3) the SEC may by
order permit for the protection of the shareholders of the Funds.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of the
Funds. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Funds have filed an election with the SEC pursuant to which a 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 the opinion of the
Funds' management, however, the amount of a redemption request would have to be
significantly greater than $250,000 or 1% of total net assets before a
redemption wholly or partly in portfolio securities would be made.
D. NAV DETERMINATION
The price of a Fund's shares on any given day is its NAV per share. NAV is
calculated for each Fund on each day that the New York Stock Exchange is open
for trading. Currently, the Exchange is closed on weekends and New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. In determining
the Funds' NAV per share, securities for which market quotations are readily
available are valued at current market value using the last reported sales
price. If no sale price is reported, the average of the last bid and ask price
is used. If no average price is available, the last bid price is used. If market
quotations are not readily available, then securities are valued at fair value
as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Unless a shareholder has elected to receive distributions in cash, distributions
of net investment income will be reinvested at the applicable Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by a Fund in October, November or December with
a record date in such a month and paid by the Fund during January of the
following calendar year.
21
<PAGE>
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Funds and their shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Funds intend for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of the Funds.
The tax year-end of the Funds is December 31.
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses, and the
exces of short-term capital gains over long-term capital losses) and net capital
gain (i.e., the excess of long-term capital gains over short-term capital
losses) that it distributes to shareholders. In order to qualify as a regulated
investment company each Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year. (Certain distributions made by a Fund
after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
22
<PAGE>
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
A portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. A portion of these distributions are taxable
to shareholders as ordinary income. These distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in December, but the Funds may make additional distributions of net capital gain
at any time during the year. These distributions are taxable to shareholders as
long-term capital gain, regardless of how long a shareholder has held shares.
The Funds may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Funds' financial statements. Any
such losses may not be carried back.
Distributions by the Funds that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce the shareholder's tax basis in the shares and are treated
as gain from the sale of the shares to the extent the shareholder's basis would
be reduced below zero.
All distributions by the Funds will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Funds (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
A shareholder may purchase shares whose net asset value at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of the Funds. Distributions of these
amounts are taxable to the shareholder in the manner described above, although
the distribution economically constitutes a return of capital to the
shareholder.
Shareholders purchasing shares of the Funds just prior to the ex-dividend date
of a distribution will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
If a shareholder holds shares for six months or less and redeems shares at a
loss after receiving a capital gain distribution, the loss will be treated as a
long-term capital loss to the extent of the distribution.
Ordinarily, shareholders are required to take distributions by the Funds into
account in the year in which they are made. A distribution declared in October,
November or December of any year and payable to shareholders of record on a
specified date in those months, however, is deemed to be received by the
shareholders (and made by the Funds) on December 31 of that calendar year if the
distribution is actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) to them during the year.
23
<PAGE>
C. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. If
a Fund changes its tax year-end to November 30 or December 31, it may elect to
use that date instead of the October 31 date in making this calculation. The
balance of the Funds' income must be distributed during the next calendar year.
The Funds will be treated as having distributed any amount on which they are
subject to income tax for any tax year ending in a calendar year.
For purposes of calculating the excise tax, the Funds: (1) reduce their capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year and (2) exclude foreign currency gains and
losses incurred after October 31 of any year (or November 30 or December 31 if
it has made the election described above) in determining the amount of ordinary
taxable income for the current calendar year. The Funds will include foreign
currency gains and losses incurred after October 31 in determining ordinary
taxable income for the succeeding calendar year.
The Funds intend to make sufficient distributions of ordinary taxable income and
capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Funds
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
D. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Funds within 30 days before or after the sale or
redemption (a so called "wash sale"). In general, any gain or loss arising from
the sale or redemption of shares of the Funds will be considered capital gain or
loss and will be long-term capital gain or loss if the shares were held for
longer than one year. Any capital loss arising from the sale or redemption of
shares held for six months or less, however, is treated as a long-term capital
loss to the extent of the amount of capital gain distributions received on such
shares. For this purpose, the special holding period rules of Code Section
246(c) (3) and (4) generally will apply in determining the holding period of
shares. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income.
E. WITHHOLDING TAX
The Funds will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Funds that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
F. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from the Funds is "effectively
connected" with a U.S.
trade or business carried on by the foreign shareholder.
If the income from the Funds is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
24
<PAGE>
on gain realized on the sale of shares of the Funds, capital gain distributions
from the Funds and amounts retained by the Funds that are designated as
undistributed capital gain.
If the income from the Funds is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions, and any gain realized upon the sale
of shares of the Funds will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Funds may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Funds with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from the Funds
can differ from the rules for U.S. federal income taxation described above.
These foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in the Funds, distributions from the Funds, the
applicability of foreign taxes and related matters.
G. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from the Funds can differ from the rules for U.S.
federal income taxation described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in the
Funds, distributions from the Funds, the applicability of state and local taxes
and related matters.
25
<PAGE>
8. OTHER MATTERS
A. GENERAL
1. GENERAL INFORMATION
The Cutler Trust was organized as a business trust under the laws of the State
of Delaware on October 2, 1992. The Trust has operated under that name and as an
investment company since that date.
o The Cutler Trust is registered as an open-end, management investment
company under the 1940 Act. The Trust is diversified as that term is
defined by the 1940 Act. The Trust offers shares of beneficial
interest in its two series. Cutler Value Fund was formerly known as
Cutler Approved List Equity Fund.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust will continue indefinitely until terminated.
2. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of the Funds has equal dividend, distribution, liquidation and voting
rights, and fractional shares have those rights proportionately. Delaware law
does not require the Funds to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by federal or state law. There are no conversion or preemptive rights
in connection with shares of the Funds.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in a Fund is entitled to the shareholder's pro rata share of all
distributions arising from the Fund's assets and, upon redeeming shares, will
receive the portion of the Fund's net assets represented by the redeemed shares.
Shareholders representing 25% or more of a Fund's outstanding shares may, as set
forth in the Trust Instrument, call meetings of the Fund for any purpose related
to the Fund, including, in the case of a meeting of the Fund, the purpose of
voting on removal of one or more Trustees.
3. CERTAIN REORGANIZATION TRANSACTIONS
A Fund 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 Fund. The
Trustees may, without prior shareholder approval, change the form of
organization of the Funds by merger, consolidation or incorporation.
B. FUND OWNERSHIP
As of June 30, 1999, the percentage of shares owned by all officers and Trustees
of the Trust as a group was less than 1% of the shares of the Funds.
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Funds. These shareholders and any shareholder known by the
Funds to own beneficially 5% or more of a class of shares of the Funds are
listed in Table 6 in Appendix B.
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<PAGE>
From time to time, certain shareholders may own a large percentage of the shares
of the Funds. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of June 30, 1999, the
following persons beneficially owned 25% or more of the shares of the Funds and
may be deemed to control the Funds. For each person listed that is a company,
the jurisdiction under the laws of which the company is organized (if
applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
SHAREHOLDER PERCENTAGE OF SHARES OWNED
............................. ..................................................
............................. ..................................................
CUTLER EQUITY INCOME FUND
NONE 0
............................. ..................................................
............................. ..................................................
CUTLER VALUE FUND
NONE 0
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' AND OFFICERS' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Funds believe that the securities
regulators of some states, however, have indicated that they and the courts in
their state may decline to apply Delaware law on this point.
The By-laws of the Trust provide that the Trustees and officers shall be
indemnified to the fullest extent consistent with applicable laws. However, any
Trustee or officer will not be protected against liability to the Funds or their
shareholders 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.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Funds' registration statement filed with the SEC under the 1933 Act with respect
to the securities offered hereby. The registration statement, including the
exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, and reference is made to the copy of such contract or other
documents filed as exhibits to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of the Funds for the year ended June 30, 1999 included
in the Annual Report to shareholders of the Funds are incorporated herein by
reference. These financial statements only include the schedule of investments,
statement of assets and liabilities, statement of operations, statement of
changes in net assets, financial highlights, notes and independent auditors'
report.
27
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APPENDIX A DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this
class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds that are rated Ca represent
obligations that are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
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2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment
on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet
its financial commitment on the obligation.
Note Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations
will likely have some quality and protective characteristics, large
uncertainties or major exposures to adverse conditions may outweigh
these.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
that could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity
to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category
is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during
such grace period. The D rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
A-2
<PAGE>
Note Plus (+) or minus (-). The ratings from AA to CCC may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The `r' symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns that are not addressed in the credit
rating. Examples include: obligations linked or indexed to
equities, currencies, or commodities; obligations exposed to severe
prepayment risk-such as interest-only or principal-only mortgage
securities; and obligations with unusually risky interest terms,
such as inverse floaters.
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but may
AA vary slightly from time to time because of economic conditions.
A+,A, Protection factors are average but adequate. However, risk factors are
A- more variable in periods of greater economic stress.
BBB+ Below-average protection factors but still considered sufficient for
BBB- prudent investment. Considerable BBB variability in risk during economic
cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according to
BB- industry conditions. Overall quality may move up or down frequently within
this category.
B+ Below investment grade and possessing risk that obligations will not be
B met when due. Financial protection factors will fluctuate widely according
B- to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category
or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This
capacity is highly unlikely to be adversely affected by foreseeable
events.
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A-3
<PAGE>
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than
is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to be
met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and
economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal
imminent default.
DDD, DD,D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% -90%
of such outstandings and`D' the lowest recovery potential, i.e. below
50%.
B. PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
aaa An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of
preferred stocks.
aa An issue that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well
maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat
greater then in the "aaa" and "aa" classification, earnings and
asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.
Ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
B An issue that is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and
maintenance of other terms of the issue over any long period of
time may be small.
A-4
<PAGE>
caa An issue that is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue that is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in
the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for
issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category
than for issues in the A category.
BB, B, CCC Preferred stock rated BB, B, and CCC is regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest. While such issues
will likely have some quality and protective characteristics, large
uncertainties or major risk exposures to adverse conditions
outweigh these.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is
currently paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular type of obligation as
a matter of policy.
Note Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
A-5
<PAGE>
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound,
may be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Not Issuers rated Not Prime do not fall within any of the Prime
Prime rating categories.
2. STANDARD & POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories.
However, the obligor's capacity to meet its financial commitment
on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of
the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
A-6
<PAGE>
C A short-term obligation rated C is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation.
D A short-term obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for
timely repayment under Fitch IBCA's national rating scale for that
country, relative to other obligations in the same country. This
rating is automatically assigned to all obligations issued or
guaranteed by the sovereign state. Where issues possess a
particularly strong credit feature, a "+" is added to the assigned
rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the
relative degree of risk is slightly higher than for issues
classified as `A1' and capacity for timely repayment may be
susceptible to adverse change sin business, economic, or financial
conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is
more susceptible to adverse changes in business, economic, or
financial conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is
uncertain relative to other obligors in the same country. The
capacity for timely repayment is susceptible to adverse changes in
business, economic, or financial conditions.
C Obligations for which there is a high risk of default to other
obligors in the same country or which are in default.
A-7
<PAGE>
APPENDIX B MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees paid to the Adviser.
ADVISORY FEE PAID
............................................. .......................
CUTLER EQUITY INCOME FUND
Year Ended June 30, 1999 $560,854
Year Ended June 30, 1998 520,630
Year Ended June 30, 1997 385,655
CUTLER VALUE FUND
Year Ended June 30, 1999 $285,783
Year Ended June 30, 1998 279,760
Year Ended June 30, 1997 230,877
TABLE 2 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees paid to FAdS.
ADMINISTRATION FEE
PAID
............................................. .......................
CUTLER EQUITY INCOMEFUND
Year Ended June 30, 1999 $74,781
Year Ended June 30, 1998 69,417
Year Ended June 30, 1997 51,421
CUTLER VALUE FUND
Year Ended June 30, 1999 $38,104
Year Ended June 30, 1998 37,301
Year Ended June 30, 1997 30,783
TABLE 3 - ACCOUNTING FEES
The following Table shows the dollar amount of fees paid to FAcS.
ACCOUNTING FEE PAID
............................................. .......................
CUTLER EQUITY INCOME FUND
Year Ended June 30, 1999 $38,000
Year Ended June 30, 1998 39,000
Year Ended June 30, 1997 37,000
CUTLER VALUE FUND
Year Ended June 30, 1999 $40,000
Year Ended June 30, 1998 39,000
Year Ended June 30, 1997 44,000
B-1
<PAGE>
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees paid to
the Transfer Agent.
TRANSFER AGENCY FEE
PAID
............................................. .......................
CUTLER EQUITY INCOME FUND
Year Ended June 30, 1999 $17,138
Year Ended June 30, 1998 16,912
Year Ended June 30, 1997 15,479
CUTLER VALUE FUND
Year Ended June 30, 1999 $15,272
Year Ended June 30, 1998 14,938
Year Ended June 30, 1997 14,317
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
the Funds.
AGGREGATE COMMISSION
PAID
.............................................. ......................
CUTLER EQUITY INCOME FUND
Year Ended June 30, 1999 $ 79,706
Year Ended June 30, 1998 124,242
Year Ended June 30, 1997 25,417
CUTLER VALUE FUND
Year Ended June 30, 1999 $86,708
Year Ended June 30, 1998 38,272
Year Ended June 30, 1997 9,110
TABLE 6 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of the Funds as of June 30, 1999.
NAME AND ADDRESS SHARES % OF FUND
............................................. .............. ..............
............................................. .............. ..............
CUTLER EQUITY INCOME FUND
Enterprise Trust & Investment Co TTEE 515,972.701 10.88%
For Big Creek Lumber Profit Sharing
Ms. Ellen McCrary
3654 Highway 1
Davenport, CA 95017
CUTLER VALUE FUND
Lorraine Y. Perrin Testamentary Trust 138,480.422 6.53%
Attn Jack Perrin
500 Eastgate Lane
Santa Barbara, CA 93108
B-2
<PAGE>
APPENDIX C PERFORMANCE DATA
TABLE 1 - TOTAL RETURNs
The average annual total returns of the Fund for the periods ended June 30,
1999, were as follows:
TOTAL RETURNS
CUTLER EQUITY INCOME FUND
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION
11.84% 20.66% - 16.06%
CUTLER VALUE FUND
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION
17.04% 22.32% - 17.49%
