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OMB APPROVAL
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OMB Number:3235-0307
Expires:May 31, 2000
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As filed with the Securities and Exchange Commission on August 31, 1999
File Nos. 33-52850 and 811-7242
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 9
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 11
THE CUTLER TRUST
Two Portland Square
Portland, Maine 04101
(207) 879-1900
D. Blaine Riggle, Esquire
Two Portland Square
Portland, Maine 04101
Copies to:
Joseph R. Fleming, Esquire
Dechert Price & Rhoads
Ten Post Office Square-South
Boston, MA 02109
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It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485, paragraph (b)
on _________________ pursuant to Rule 485, paragraph (b)
/X/ 60 days after filing pursuant to Rule 485, paragraph (a)(1)
on _________________ pursuant to Rule 485, paragraph (a)(1)
75 days after filing pursuant to Rule 485, paragraph (a)(2)
on _________________ pursuant to Rule 485, paragraph (a)(2)
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Cutler Equity Income Fund and Cutler Value
Fund.
<PAGE>
LOGO
THE CUTLER TRUST
Prospectus
October XX, 1999
CUTLER EQUITY INCOME FUND
CUTLER VALUE FUND
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.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY........................................... XX
PERFORMANCE................................................... XX
FEE TABLES.................................................... XX
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS................... XX
MANAGEMENT.................................................... XX
YOUR ACCOUNT.................................................. XX
How to Contact the Fund XX
General Information XX
Buying Shares XX
Selling Shares XX
Exchange Privileges XX
Retirement Accounts XX
OTHER INFORMATION............................................. XX
FINANCIAL HIGHLIGHTS.......................................... XX
<PAGE>
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.
CUTLER EQUITY INCOME FUND
PRINCIPAL INVESTMENT STRATEGY In seeking to meet its investment goal, the Fund
invests in stocks that it considers undervalued with respect to their growth
prospects relative to the general market.
CUTLER VALUE FUND
PRINCIPAL INVESTMENT STRATEGY In seeking to meet its investment goal, the Fund
uses a "value investing" style by investing in the equity securities of
companies that the Fund believes are under-priced relative to comparable
securities determined by price/earnings ratios, cash flows or other measures.
[Margin callout: CONCEPTS TO UNDERSTAND
Value Investing means to invest in stocks whose market valuations are
low relative to their historic valuations and/or comparable companies
Price/Earnings Ratio means the ratio of a company's current market
capitalization divided by the previous 12 months' earnings per share]
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
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 Fund's
portfolio
o The 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
2
<PAGE>
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 return of the Funds for each full
calendar year shares of the Funds have operated.
Cutler Equity Income Fund
[EDGAR representation of bar chart]
Year Average Annual
Total Return
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 XX.XX%
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
- -7.75% (for the quarter ended September 30, 1998).
3
<PAGE>
Cutler Value Fund
[EDGAR representation of bar chart]
Year Average Annual
Total Return
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 XX.XX%.
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.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------- ----------- ----------- -----------------------------
Year(s) 1 Year 5 Years Since Inception (12/30/92)
- -------
- ------------------------------------- ----------- ----------- -----------------------------
- ------------------------------------- ----------- ----------- -----------------------------
Cutler Equity Income Fund 21.47% 20.11% 17.45%
- ------------------------------------- ----------- ----------- -----------------------------
- ------------------------------------- ----------- ----------- -----------------------------
Cutler Value Fund 17.97% 19.78% 17.16%
- ------------------------------------- ----------- ----------- -----------------------------
- ------------------------------------- ----------- ----------- -----------------------------
S&P 500 Index(1) 28.58% 24.03% 21.59%
- ------------------------------------- ----------- ----------- -----------------------------
</TABLE>
(1) The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely
recognized, unmanaged index of common stock. The index figures assume
reinvestment of all dividends paid by stocks included in the index.
4
<PAGE>
FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in the Funds.
<TABLE>
<S> <C>
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Shareholder Fees (fees paid directly from your investment)
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Maximum Sales Charge (Load) Imposed on Purchases None
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Maximum Deferred Sales Charge (Load) None
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Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
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Redemption Fee None
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Exchange Fee None
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Annual Fund Operating Expenses(1)
(expenses that are deducted from Fund assets)
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Cutler Equity Income Fund
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Advisory Fees 0.75%
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Distribution (12b-1) Fees None
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Other Expenses 0.32%
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Total Annual Fund Operating Expenses 1.07%
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Cutler Value Fund
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Advisory Fees 0.75%
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Distribution (12b-1) Fees None
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Other Expenses 0.45%
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Total Annual Fund Operating Expenses 1.20%
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</TABLE>
(1) Based on amounts incurred during the Funds' 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 the Funds to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in the Funds, a 5% annual return, the
Funds' 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
$109 $340 $590 $1,305
5
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
CUTLER EQUITY INCOME FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek current income and long-term
capital appreciation.
INVESTMENT STRATEGIES
In seeking to meet its investment goal, 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".
To be on the Approved List, each company (or its predecessor) must have:
(1) paid dividends continuously for at least 20 years, without any
reduction in the rate;
(2) commercial paper rated Prime-1 and senior debt rated at least A or
determined to be of similar quality by the Adviser;
(3) annual sales, assets and market value of at least $1 billion;
(4) wide ownership among major institutional investors and very liquid
markets; and
(5) been listed on the New York Stock Exchange.
Under normal conditions, the Fund will invest at least 65% of its total assets
in the income producing equity securities in the Approved List.
CUTLER VALUE FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income and long-term capital
appreciation.
INVESTMENT STRATEGIES
In seeking to meet its objective, the Fund expects that for most periods a
substantial portion, if not all, of its assets will be invested according to the
Adviser's "Value" style in a diversified portfolio of common stocks judged by
the Adviser to have favorable value to price characteristics relative to their
historic valuations and/or comparable companies. The Adviser chooses investments
in equity securities based on its judgment of fundamental value. 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, influence specific security prices.
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 macro economic trends in the domestic and global
economy. 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.
6
<PAGE>
The Adviser will sell securities for any one of three potential reasons. First,
active price targets are maintained on all portfolio holdings. A stock is sold
when it exceeds the Adviser's price target. Second, a stock may be sold when a
similar company is found by the Adviser to have better potential for price
appreciation. Third, the Adviser develops specific views on how industries are
likely to evolve and how individual companies will participate in industry
growth and change. 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 will sell the stock.
INVESTMENT RISKS
There is no assurance that any 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 measure of the issuer's worth. Certain investments and investment
techniques, however, have additional risks, such as the potential use of
leverage by certain Funds through borrowings, securities lending, and other
investment techniques.
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, the 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 the 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 money
market instruments, pending investment and to retain flexibility in meeting
redemptions and paying expenses. In addition, in order to respond to adverse
market, economic or other conditions, the Funds may assume a temporary defensive
position and invest without limit in these instruments. As a result, the Funds
may be unable to achieve their investment objectives.
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.
7
<PAGE>
MANAGEMENT
The business of the Funds is managed under the direction of the Board of
Trustees (the "Board") of The Cutler Trust (the "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, (the "Adviser")
serves as investment adviser to the Funds. Subject to the general control of the
Board, the Adviser makes investment decisions for the Funds. For its services,
the Adviser receives an advisory fee at an annual rate of 0.75% of the average
daily net assets of the Funds.
As of September 30, 1999, the Adviser had over $XX billion of 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 background are as follows:
Kenneth R. Cutler, the Co-Portfolio Manager for the Cutler Equity Income Fund,
entered the investment business in 1945. From 1953 to 1962 he was the principal
operating and investment officer of two mutual funds. Mr. Cutler has been with
the Adviser since he founded it in 1977. Mr. Cutler is the Vice President of the
Trust and Chairman of the Board.
John A. Nyheim, the Co-Portfolio Manager for the 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.
Robert W. Lamberti, CFA, the Portfolio Manager for the Cutler Value Fund,
received his B.S. from Purdue Univesity and M.B.A. in Finance from Temple
University in 1995. From 1993 to 1995, Mr. Lamberti 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.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies 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 $XX 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
8
<PAGE>
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.
YOUR ACCOUNT
HOW TO CONTACT THE FUND
Write to us at:
The Cutler Trust
P.O. Box 446
Portland, ME 04112
Telephone us Toll-Free at:
(888) CUTLER4
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account #01-465-547
The Cutler Trust: (Name of Fund)
(Your Name)
(Your Account Number)
(Your Social Security number or tax identification number)
GENERAL INFORMATION
You pay no sales charge to purchase or sell (redeem) shares of the Funds. The
Funds purchase or sell shares at the net asset value per share, or NAV, next
calculated after the Transfer Agent receives your request in proper form. For
instance, if the Transfer Agent receives your purchase request in proper form
prior to 4 p.m., your transaction will be priced at that day's NAV. If the
Transfer Agent receives your purchase request after 4 p.m., your transaction
will be priced at the next day's NAV. The Funds will not accept orders that
request a particular day or price for the transaction or any other special
conditions.
The Funds do not issue share certificates.
You will receive monthly statements and a confirmation of each transaction. You
should verify the accuracy of all transactions in your account as soon as you
receive your confirmation.
The Funds may temporarily suspend (during unusual market conditions) or
discontinue any service or privilege.
9
<PAGE>
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.
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 or Uniform Gift to Minors Act 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).
ACH PAYMENT Instruct your financial institution to make an ACH
(automated clearinghouse) payment to us. These payments typically take
two days. Your financial institution may charge you a fee for this
service.
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:
<TABLE>
<S> <C> <C>
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Minimum Initial Minimum Additional
Investment Investment
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Standard Minimums $25,000 None
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Traditional and Roth IRA Accounts $2,000 None
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Automatic Investment Plans $25,000 $100
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Exchange Privileges $2,500 None
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</TABLE>
The Adviser or the Funds' administrator may, at their discretion, waive the
above investment minimums.
10
<PAGE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
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TYPE OF ACCOUNT REQUIREMENTS
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INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Joint accounts can have two or more owners
Individual accounts are owned by one person, as are sole (tenants)
proprietorship accounts. o Instructions must be signed by all persons
required to sign (you choose who must sign)
exactly as their names appear on the account
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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 account under the Uniform Gift to Minors Act or the
money to achild and obtain tax benefits. You can Uniform Transfers to Minors Act
give up to $10,000 a year per child without
paying Federal gift tax. o The trustee must sign instructions in a
manner indicating trustee capacity
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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
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
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
BY WIRE o Write your account number on your check
o Call or write us for an account application
o Complete the application
o Call us and you will be assigned an account number BY WIRE
o Mail us your application o Call to notify us of your incoming wire
o Instruct your bank to wire your money to us o Instruct your bank to wire your money to us
BY ACH PAYMENT
o Call or write us for an account application
o Complete the application BY AUTOMATIC INVESTMENT
o Call us and you will be assigned an account number o Call or write us for an "Automatic Investment"
o Mail us your application form
o Make an ACH payment o Complete the form
o Attach a voided check to your form
o Mail us the form and the voided check
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
11
<PAGE>
AUTOMATIC 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. Automatic 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.
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.
12
<PAGE>
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TO SELL SHARES FROM YOUR ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 elected wire redemption privileges and
o Your request is for $10,000 or more
o Call us with your request (if you have elected 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 elected 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 elected wire redemption privileges -
See "By Wire")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form and the voided check
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTION PRIVILEGES You may only request your shares by telephone if
you elect telephone redemption privileges on your account application or a
separate form. 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 only request your shares by wire if you elect
wire redemption privileges on your account application or a separate form. The
minimum amount you may request by wire is $10,000. If you wish to make your wire
request by telephone, you must also elect telephone redemption privileges.
AUTOMATIC REDEMPTION If you own shares of the Fund with an aggregated 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. Automatic requests
must be for at least $100.
13
<PAGE>
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Funds against fraud,
signatures on certain requests must have a "signature guarantee." For requests
made in writing a signature guarantee is required for any of the following:
o Any written redemption
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 proceeds to
any person, address, brokerage firm or bank account not on recor
o Sending proceeds to an account with a different registration (name or
ownership) from yours
o Changes to automatic investment or redemption, distribution, telephone
requests or exchange option or any other election in connection with
your account
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.
SMALL ACCOUNTS If the value of your account falls below $10,000 (not including
IRAs), the Funds may ask you to increase your balance. If the account value is
still below $10,000 after 60 days, the Funds may close your account and send you
the proceeds. The Funds 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 make redemptions "in kind" --
payment of redemption proceeds in portfolio securities rather than cash -- if
the amount requested 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.
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 the 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 Exchanges may be made 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.
14
<PAGE>
- --------------------------------------------------------------------------------
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 Telephone exchanges are only available if you have elected telephone
redemption/exchange 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 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 in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
in which the contribution is made.
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
Each Fund operates in a manner such that it will not be liable for Federal
income or excise tax.
Distributions of net investment income or short-term capital gain are taxable to
you as ordinary income. 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.
15
<PAGE>
The Funds will mail reports containing information about the Funds'
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 that is registered with the SEC 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.
16
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand each Fund's financial
performance for the past five years. Total return in the table represents the
rate an investor would have earned (or lost) on an investment in the Funds
(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
(a) Calculated using the weighted average number of shares outstanding.
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% 1.00%
Expenses (gross) (b) 1.20% 1.24% 1.25% 1.13% 1.23%
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) Reflects expense ratio in the absence of expense reimbursement and fee
waivers.
17
<PAGE>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
Annual/Semi-Annual Reports
Additional information about the Funds' investments is available in the
Funds' annual and 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:
The Cutler Trust
Two Portland Square
Portland, Maine 04101
(888) CUTLER4
(207) XXX-XXXX
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 or calling the following:
The Cutler Trust
P.O. Box 446
Portland, ME 04112
(888) CUTLER4
(207) XXX-XXXX
Web Site:
http://www.cutler.com
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009
Telephone: 800-SEC-0330
Free copies are available from the Commission's Internet website at
http://www.sec.gov.
Investment Company Act File No. 811-7242.
18
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October XX, 1999
THE CUTLER TRUST
FUND INFORMATION:
The Cutler Trust
P.O. Box 446
Portland, ME 04112
(888) CUTLER4
(207) XXX-XXXX
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 XX, 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 a
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>
TABLE OF CONTENTS
Page
1. Investment Policies.................................................. X
2. Investment Limitations............................................... X
3. Performance Data and Advertising..................................... X
4. Management........................................................... X
5. Portfolio Transactions............................................... X
6. Additional Purchase and Redemption Information....................... X
7. Taxation............................................................. X
8. Other Matters........................................................ X
9. Appendix A - Description of Securities Ratings....................... A-1
10. Appendix B - Miscellaneous Tables.................................... B-1
11. Appendix C - Performance Data........................................ C-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.
"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.
"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.
<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 funds 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 primarily
invest 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, 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 sale of such security by a Fund
- - except in certain cases with respect to the Funds), 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, Investment 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
The Funds 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
U.S. Government Securities, time deposits, bankers acceptances and certificates
of deposit of depository institutions (such as banks), corporate notes and
short-term bonds and money market mutual funds. The Funds may only invest in
money market mutual funds to the extent permitted by the 1940 Act.
2
<PAGE>
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.
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
3
<PAGE>
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
D. ILLIQUID AND RESTRICTED SECURITIES
The Funds may not invest in illiquid securities.
1. In General
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include
repurchase agreements not entitling the holder to payment of principal within
seven days, purchased over-the-counter options, securities which are not readily
marketable and restricted securities. Restricted securities, except as otherwise
determined by the Adviser, are securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act.
2. Risks
Certain risks are associated with holding illiquid and restricted securities.
For instance, limitations on resale may have an adverse effect on the
marketability of a security and a Fund might also have to register a restricted
security in order to dispose of it, resulting in expense and delay. A Fund might
not be able to dispose of restricted or illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time. Any security, including securities determined
by the Adviser to be liquid, can become illiquid.
3. Determining Liquidity
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
E. WARRANTS
The Funds may invest in warrants, which entitle the holder to buy equity
securities at a specific price for a specific period of time.
1. Risks
Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the securities that may be purchased nor do they represent any
rights in the assets of the issuing company. Investments in warrants involve
certain additional risks, including the possible lack of a liquid market for the
4
<PAGE>
resale of the warrants, potential price fluctuations as a result of speculation
or other factors and failure of the price of the underlying security to reach a
level at which the warrant can be prudently exercised (in which case the warrant
may expire without being exercised, resulting in the loss of the Funds' entire
investment therein).
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
shares will not be considered a violation of the limitation.
A fundamental policy of the Funds cannot be changed without the affirmative vote
of the lesser of: (1) 50% of the outstanding shares of the Funds; or (2) 67% of
the shares of the Funds present or represented at a shareholders meeting at
which the holders of more than 50% of the outstanding shares of the Funds are
present or represented. The Board may change a nonfundamental policy of the
Funds be without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are
fundamental policies of the Funds. The Funds may not:
1. Issuance of Senior Securities
Issue senior securities except as appropriate to evidence indebtedness that the
Funds may be permitted to incur, and provided that the Funds may issue shares of
series or classes that the Board may establish.
2. Concentration
Purchase a security other than a U.S. Government Security if, immediately after
the purchase, more than 25% of the value of a Fund's total assets would be
invested in the securities of issuers having their principal business activities
in the same industry.
3. 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.
4. 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.
5. 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
<PAGE>
6. Purchases and Sales of Commodities
Purchase or sell physical commodities or contracts relating to physical
commodities; borrow money; 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.
7. 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.
8. Foreign Securities
The Cutler Equity Income Fund may not invest in the securities of foreign
issuers or purchase securities through a foreign market. The Cutler Value Fund
may invest in the securities of foreign issuers.
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.
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.
6
<PAGE>
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.
The Funds' performance may be quoted in terms of yield or total return. The
Funds' yield is a way of showing the rate of income the Funds earn on their
investments as a percentage of the Funds' share price. To calculate standardized
yield, each Fund takes the income it earned from its investments for a 30-day
period (net of expenses), divides it by the average number of shares entitled to
receive dividends, and expresses the result as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period.
A listing of certain performance data as of or June 30, 1999 is contained in
Appendix C -- Performance Data.
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 the Funds' 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 Funds' 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' yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Funds may differ from the rate of
distribution of income from the Funds over the same period or the rate of income
reported in the Funds' financial statements.
Although published yield information is useful to investors in reviewing the
Funds' performance, investors should be aware that the Funds' yield fluctuates
from day to day and that the Funds' yield for any given period is 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 yield to those shareholders.
The yields of the Funds are not fixed or guaranteed, and an investment in the
Funds is 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' yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
7
<PAGE>
Yield quotations are based on amounts invested in the Funds 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 charge 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 return shows their overall change 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, the Funds: (1) determine the growth or decline in value of a
hypothetical historical investment in the Funds over a stated period; and (2)
calculate 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.
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.
8
<PAGE>
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
B. OTHER MATTERS
The Funds may also include various information in its 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' investment 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 the Funds over a
given number of years, 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:
9
<PAGE>
<TABLE>
<S> <C> <C> <C>
Systematic Share Shares
Period Investment Price 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 Average Total
Invested $600 Price $15.17 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.
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, date of birth 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 Date of Birth Position(s) Principal Occupation(s) During the Past Five
With Funds Years
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 Co-Portfolio Manager of the Cutler
503 Airport Road Chairman Equity 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
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<PAGE>
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
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 ( a fleet credit card company)
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
12
<PAGE>
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.
Trustees that are affiliated with the Adviser receive no compensation for their
services or reimbursement for their associated expenses. No officer of the Trust
is compensated by the Trust.
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>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total
Compensation from as Part of Fund Benefits upon Compensation from
Name, Position Fund Expenses Retirement Fund
- ------------------------------------- ------------------- ------------------- -------------------- -------------------
Dr. Hatton S. Yoder, Jr. $10,833 $0 $0 $10,833
Robert B. Watts, Jr. $10,833 $0 $0 $10,833
</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
The Adviser is 100% owned by Kenneth R. Cutler and Brooke C. Ashland and
therefore controlled by Kenneth R. Cutler and Brooke C. Ashland. The Adviser is
registered as an investment adviser with the SEC under the 1940 Act.
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.
13
<PAGE>
3. Fees
The Adviser's fee is calculated as a percentage of the applicable Funds' 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 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 payable by the Funds
to the Adviser, the amount of the fee waived by the Adviser and the actual fee
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 notice to the Adviser, or by the Adviser on 60 days' written
notice to the Funds.
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 and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC. John Y. Keffer controls Forum Financial Group, LLC.
14
<PAGE>
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 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 October31, 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.
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 payable by the Funds
to FAdS, the amount of the fee waived by FAdS and the actual fee received by
FAdS.
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.
15
<PAGE>
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 payable by the Funds
to FAcS, the amount of the fee waived by FAcS and the actual fee received by
FAcS.
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 the Funds 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 payable by the Funds to the
Transfer Agent, the amount of the fee waived by the Transfer Agent and the
actual fee received by the Transfer Agent.
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.
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 04109-4603.
16
<PAGE>
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.
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 executing transactions 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
17
<PAGE>
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.
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. Counterparty Risk
The Adviser of the Funds monitors the creditworthiness of counterparties to the
Funds' transactions and intends to enter into a transaction only when it
believes that the counterparty presents minimal and appropriate credit risks.
18
<PAGE>
4. 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.
5. 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
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.
6. 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 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 ($)(000's omitted)
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.
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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. That information 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.
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
The Fund may redeem shares involuntarily to reimburse the Funds 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
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<PAGE>
transactions effected for the benefit of a shareholder which is applicable to
the Funds' 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 Securities and Exchange
Commission 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 its 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 the
Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Funds' 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
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
Distributions of net investment income will be reinvested at the Funds' 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.
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 the Funds
qualify 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.
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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, the Funds will not be subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of long-term capital gains over long-term capital
losses) that it distributes to shareholders. In order to qualify as a regulated
investment company the Funds must satisfy the following requirements:
o The Funds must distribute at least 90% of its investment company
taxable income (i.e., net investment income and capital gain net
income) for the tax year. (Certain distributions made by the Funds
after the close of their tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Funds must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing.
o The Funds must satisfy the following asset diversification test at the
close of each quarter of the Funds' tax year: (1) at least 50% of the
value of the Funds' 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 Funds have
not invested more than 5% of the value of the Funds' total assets in
securities of the issuer and as to which the Funds do not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Funds' 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 Funds control and
which are engaged in the same or similar trades or businesses.
2. Failure to Qualify
If for any tax year the Funds do 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
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Funds' 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 the Funds' income and performance. It is possible that the Funds will
not qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
The Funds anticipate distributing substantially all of the net investment income
for each tax year. These distributions are taxable to shareholders as ordinary
income. These distributions may qualify for the 70% dividends-received deduction
for corporate shareholders.
The Funds anticipate distributing substantially all of the 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
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<PAGE>
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.
B. 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
the Funds change 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) excludes 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.
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The Funds intend to make sufficient distributions of its 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.
C. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Funds 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 noncorporate taxpayer, $3,000 of
ordinary income.
D. 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."
E. 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
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
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<PAGE>
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.
F. 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.
8. OTHER MATTERS
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.
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
The Funds 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 Funds. The Trustees may, without prior shareholder approval, change the form
of organization of the Funds by merger, consolidation or incorporation.
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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.
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
<TABLE>
<S> <C>
Percentage of
Shareholder Shares Owned
Cutler Equity Income Fund
Enterprise Trust & Investment Co. TTEE 10.88%
FBO Big Creek Lumber Profit Sharing
3654 Highway 1
Davenport, CA 95014
Cutler Value Fund
Lorraine Y. Perrin Testamentary Trust 6.53%
500 Eastgate Lane
Santa Barbara, CA 93108
</TABLE>
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.
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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.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. Moody's Investors Service
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.
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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.
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.
A-2
<PAGE>
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
more variable in periods of A- greater economic stress.
BBB+ Below-average protection factors but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according
BB- to 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 met
B when due. Financial protection factors will fluctuate widely according to
B- 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 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.
A-3
<PAGE>
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%.
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.
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.
A-4
<PAGE>
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 Prime
Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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.
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.
A-6
<PAGE>
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.
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>
B-3
APPENDIX B - MISCELLANEOUS TABLES
Table 1 - Investment Advisory Fees
The following Table shows the dollar amount of fees paid to the Adviser.
<TABLE>
<S> <C>
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 FAdSs.
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>
B-2
<PAGE>
Table 5 - Commissions
The following table shows the aggregate brokerage commissions with respect to
the Funds.
Aggregate Commission
Paid
Year Ended June 30, 1999
Year Ended June 30, 1998
Year Ended June 30, 1997
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-3
<PAGE>
APPENDIX C - PERFORMANCE DATA
Table 1 - Total Returns
The average annual total return of the Fund for the period ended June 30, 1999,
was as follows
TOTAL RETURNS
Cutler Equity Income Fund
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Calendar Year
One Month Three Months to Date One Year Three Years Five Years Ten Years Since Inception
(2.92) (0.56) (1.10) 11.84 21.94 20.66 - 16.06
Cutler Value Fund
Calendar Year
One Month Three Months to Date One Year Three Years Five Years Ten Years Since Inception
(1.67) 9.97 8.60 17.04 23.17 22.32 - 17.49
</TABLE>
C-1
<PAGE>
Part C
Other Information
Item 23. Exhibits
(a) Trust Instrument of Registrant dated October 2, 1992 (see Note 1).
(b) By-Laws of Registrant dated October 2, 1992 (see Note 1).
(c) None.
(d) Investment Advisory Agreement between Registrant and Cutler & Company,
LLC dated December 31, 1992, and restated May 1, 1996 (see Note 2).
(e) Distribution Agreement between Registrant and Forum Financial Services,
Inc. dated December 31, 1992, and restated September 11, 1996 (see Note
2).
(f) None.
(g) Custodian Agreement between Registrant and Forum Trust, LLC dated as
of April 20, 1999 (filed herewith).
(h)(1) Management Agreement between Registrant and Forum Administrative
Services, LLC dated September 11, 1996 (see Note 2).
(2) Transfer Agency and Services Agreement between Registrant and Forum
Shareholder Services, LLC dated September 28, 1998 (see Note 2).
(3) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC dated October 1, 1997 (see Note 2).
(4) Shareholder Service Plan adopted by Registrant dated January 3, 1996
as amended November 25, 1997 (see Note 2).
(5) Shareholder Service Agreement between Forum Administrative Services,
LLC and Bidwell & Co. dated December 17, 1997 (see Note 2).
(i) Opinion of counsel (see Note 1).
(j) Opinion of independent auditor (to be filed by amendment).
(k) None.
(l) Investment Representation letter (see Note 1).
(m) None.
(n) Financial Data Schedules (to be filed by amendment).
(o) None.
Other Exhibits
Power of attorney, Kenneth R. Cutler, Trustee (filed herewith).
Power of attorney, Brooke Ashland, Trustee (filed herewith).
Power of attorney, Hatten S. Yoder, Jr., Trustee (filed herewith).
Power of attorney, Robert B. Watts, Jr., Trustee (filed herewith).
- ---------------
Notes:
1. Exhibit incorporated by reference as filed in Post-Effective Amendment
No. 4 via EDGAR on March 8, 1996, accession number
0000912057-96-004156.
2. Exhibit incorporated by reference as filed in Post-Effective Amendment
No. 8 via EDGAR on October 29, 1999, accession number
0001004402-98-000574.
C-1
<PAGE>
Item 24. Persons Controlled by Or Under Common Control with Registrant
None
Item 25. Indemnification
The general effect of Section 10.02 of the Registrant's Trust
Instrument is to indemnify existing or former trustees and officers of
the Trust to the fullest extent permitted by law against liability and
expenses. There is no indemnification if, among other things, any such
person is adjudicated liable to the Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. This
description is modified in its entirety by the provisions of Section
10.02 of the Registrant's Trust Instrument.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
The description of Cutler & Company, LLC under the caption "Management
of the Trust" in both the Prospectus and the Statement of Additional
Information, constituting Parts A and B, respectively, of this
Registration Statement, is incorporated by reference herein.
The following are the managing members of Cutler & Company, LLC,
including their business connections that are of a substantial nature.
The address of Cutler & Company, LLC is 503 Airport Road, Medford,
Oregon 97504.
<TABLE>
<S> <C> <C>
------------------------------------- ---------------------------------- -----------------------------------
Name Title Business Connection
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
Brooke Cutler Ashland Chief Executive Officer and Cutler & Company, LLC
Manager
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
Geoffrey W. Cutler Senior Portfolio Manager, Cutler & Company, LLC
Investment Committee Member and
Manager
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
Stephen F. Brennan Director of Marketing and Manager Cutler & Company, LLC
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
William G. Gossard Director of Fixed Income, Cutler & Company, LLC
Investment Committee Member and
Manager
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
Carol Fischer Chief Operating Officer Cutler & Company, LLC
------------------------------------- ---------------------------------- -----------------------------------
</TABLE>
C-2
<PAGE>
Item 27. Principal Underwriters
(a) Forum Financial Services, Inc., Registrant's underwriter, and its affiliate,
Forum Fund Services, LLC, serve as underwriter for the following investment
companies registered under the Investment Company Act of 1940, as amended:
Forum Funds Norwest Advantage Funds
Memorial Funds Norwest Select Funds
Monarch Funds Sound Shore Fund, Inc.
(b) The following directors and officers of Forum Financial Services, Inc.
hold the following positions with Registrant. Their business address
is two Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
------------------------------------- ---------------------------------- -----------------------------------
Name Position with Underwriter Position with Registrantme
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
John Y. Keffer President President and Trustee
------------------------------------- ---------------------------------- -----------------------------------
------------------------------------- ---------------------------------- -----------------------------------
Sara M. Morris Treasurer Treasurer
------------------------------------- ---------------------------------- -----------------------------------
</TABLE>
(c) Not Applicable.
Item 28. Location of Accounts and Records
Accounts and records required to be maintained by Section 31(a) of the
1940 Act and the Rules thereunder, are maintained at the offices of
Forum Administrative Services, LLC, Two Portland Square, Portland,
Maine 04101, and Forum Shareholder Services, LLC, Two Portland Square,
Portland, Maine 04101. Accounts and records required to be maintained
under Rule 31a-1(b)(1) with respect to journals of receipts and
deliveries of securities and receipts and disbursements of cash are
maintained at the offices of the Registrant's custodian. Accounts and
records required to be maintained under Rule 31a-1(b)(5), (6) and (9)
are maintained at the offices of the Registrant's adviser, as listed in
Item 26 hereof.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
None.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
post-effective amendment number 9 to Registrant's registration statement to be
signed on its behalf by the undersigned, duly authorized in the City of
Portland, State of Maine on August 31, 1999.
The Cutler Trust
By: /s/ John Y. Keffer
John Y. Keffer, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on August
31, 1999.
(a) Principal Executive Officer
/s/ John Y. Keffer
John Y. Keffer, President
(b) Principal Financial Officer
/s/ Sara M. Morris
Sara M. Morris, Treasurer
(c) All of the Trustees
/s/ John Y. Keffer
John Y. Keffer, Trustee
Brooke R. Ashland*, Trustee
Kenneth R. Cutler*, Trustee
Hatten S. Yoder, Jr.*, Trustee
Robert B. Watts, Jr.*, Trustee
By: /s/ David I. Goldstein
David I. Goldstein, Attorney in fact*
* Pursuant to powers of attorney filed as Other Exhibits (a), (b), (c)
and (d) to this Registration Statement.
C-4
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
Exhibit (g) Custodian Agreement C-6
Other (a) Power or Attorney, Kenneth R. Cutler, Trustee C-29
Other (b) Power or Attorney, Brooke Ashland, Trustee C-30
Other (c) Power or Attorney, Hatten S. Yoder, Jr., Trustee C-31
Other (d) Power or Attorney, Robert B. Watts, Jr., Trustee C-32
C-5
<PAGE>
Exhibit (g)
CUSTODIAN AGREEMENT
AGREEMENT dated as of April 20, 1999 between Forum Trust, LLC (the
"Custodian"), a limited liability company organized under the laws of the State
of Maine doing business as a nondepository trust company, and The Cutler Trust,
a business trust organized under the laws of the State of Delaware (the
"Customer").
WHEREAS, the Customer is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended ("1940 Act") and
may offer one or more series of shares, each of which shall represent an
interest in a separate portfolio of Securities and Cash (each as hereinafter
defined) (all such existing and additional series now or hereafter listed on
Exhibit A being hereafter referred to individually as a "Portfolio," and
collectively, as the "Portfolios"); and
WHEREAS, Custodian has entered into a certain Master Subcustodian
Agreement with Bankers Trust Company ("Bankers Trust") dated as of April 20,
1999 (the "Master Subcustodian Agreement") under which Bankers Trust provides
certain sub-custody services on behalf of the Portfolios to Custodian; and
WHEREAS, Customer wishes to retain Custodian to provide certain
custodial services to Customer for the benefit of the Portfolios, and Custodian
is willing to provide such services;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. Customer, on behalf of each Portfolio,
hereby employs Custodian as custodian of all assets of each Portfolio that are
delivered to and accepted by Custodian or any Subcustodian (as that term is
defined in Section 4) (the "Property") pursuant to the terms and conditions set
forth herein. For purposes of this Agreement, "delivery" of Property shall
include the acquisition by Customer of a security entitlement (as that term is
defined in the New York Uniform Commercial Code ("UCC")). Without limitation,
such Property shall include stocks and other equity interests of every type,
evidences of indebtedness, other instruments representing same or rights or
obligations to receive, purchase, deliver or sell same and other non-cash
investment property of a Portfolio ("Securities") and cash from any source and
in any currency ("Cash"), provided that Custodian shall have the right, in its
sole discretion, to refuse to accept as Property any property of a Portfolio
that Custodian considers not to be appropriate or in proper form for deposit for
any reason. Custodian shall not be responsible for any property of a Portfolio
held or received by Customer or others and not delivered to Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions (as hereinafter defined in Section 15),
Customer shall direct Custodian to (a) settle Securities transactions and
maintain Cash in the country or other jurisdiction in which the principal
trading market for such Securities is located, where such Securities are to be
presented for payment or where such Securities are acquired and (b) maintain
Cash and cash equivalents in such countries in amounts reasonably necessary to
C-6
<PAGE>
effect Customer's transactions in such Securities. Instructions to settle
Securities transactions in any country shall be deemed to authorize the holding
of such Securities and Cash in that country.
3. Custody Account. Custodian agrees to establish and maintain one or
more custody accounts on its books each in the name of Customer on behalf of a
Portfolio (each, an "Account") for any and all Property from time to time
received and accepted by Custodian or any Subcustodian for the account of such
Portfolio. Upon delivery by Customer to Custodian of any acceptable Property
belonging to a Portfolio, Customer shall, by Instructions, specifically indicate
in which Portfolio such Property belongs or if such Property belongs to more
than one Portfolio, shall allocate such Property to the appropriate Portfolios,
and Custodian shall allocate such Property to the Accounts in accordance with
the Instructions. Customer, on behalf of each Portfolio, acknowledges (i) its
responsibility as a principal for all of its obligations to Custodian arising
under or in connection with this Agreement, notwithstanding, that it may be
acting on behalf of other persons, and (ii) warrants its authority to deposit in
the appropriate Account any Property received therefor by Custodian or a
Subcustodian and to give, and authorize others to give, instructions relative
thereto. Custodian may deliver securities of the same class in place of those
deposited in the Account.
Custodian shall hold, keep safe and protect as custodian for each
Account all Property in such Account and, to the extent such Property
constitutes "financial assets" as defined in the UCC, shall maintain those
financial assets in such Account as security entitlements in favor of the
Portfolio in whose name the Account is maintained. All transactions, including,
but not limited to, foreign exchange transactions, involving the Property shall
be executed or settled solely in accordance with Instructions (which shall
specifically reference the Account for which such transaction is being settled),
except that until Custodian receives Instructions to the contrary, Custodian
will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account that are
called, redeemed or retired or otherwise become payable and
all coupons and other income items that call for payment upon
presentation to the extent that Custodian or Subcustodian is
actually aware of such opportunities and hold the cash
received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
an Account, endeavor to receive Instructions, provided that if
such Instructions are not received in time for Custodian to
take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for an Account and such rights
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entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for Custodian to take timely action
or if actual notice of such actions was received too late to
seek Instructions, sell in the discretion of Custodian (which
sale Customer hereby authorizes Custodian to make) such rights
entitlement or fractional interest and credit the Account with
the net proceeds of such sale;
(e) execute in Customer's name for an Account, whenever Custodian
deems it appropriate, such ownership and other certificates as
may be required to obtain the payment of income from the
Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies,
Custodian shall notify Customer of the amount of the
shortfall and Customer may, or may cause the Portfolio to,
at its option, deposit additional Cash in such Account or
take steps to have sufficient Cash available. Customer, on
behalf of the Portfolios agrees, when and if requested by
Custodian and required in connection with the payment of any
such taxes, to cooperate with Custodian in furnishing
information, executing documents or otherwise;
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of Custodian or any
Subcustodian; and
(h) in the event of any loss of Securities or Cash, use its best
efforts to ascertain the circumstances relating to such loss
and promptly report the same to Customer.
Custodian shall provide cash management services to Customer as
referenced in the "Instructions Regarding Cash Management Services", dated April
20, 1999, and as may be amended from time to time.
4. Subcustodians and Securities Systems. Customer authorizes and
instructs Custodian to maintain the Property in each Account directly in one of
its United States ("U.S.") branches or indirectly through custody accounts that
have been established by Custodian with the following other securities
intermediaries: (a) another U.S. bank or trust company (including Bankers Trust
pursuant to the Master Subcustodian Agreement) or branch thereof located in the
U.S. that is itself qualified under the 1940 Act, to act as custodian, or a
non-U.S. branch of Custodian or of any U.S. Subcustodian, or a U.S. securities
depository or clearing agency or system in which Custodian or a U.S.
Subcustodian participates (individually, a "U.S. Securities System") or (b) one
of Custodian's majority-owned non-U.S. subsidiaries, a majority-owned subsidiary
of a U.S. Subcustodian or a non-U.S. bank or trust company, acting as custodian
(individually, a "non-U.S. Subcustodian"; U.S. Subcustodians and non-U.S.
Subcustodians, collectively, "Subcustodians"), or a non-U.S. depository or
clearing agency or system in which Custodian or any Subcustodian participates
(individually, a "non-U.S. Securities System"; U.S. Securities System and
non-U.S. Securities System, collectively, "Securities System"), provided that in
each case in which a U.S. Subcustodian or U.S. Securities System is employed,
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Custodian shall notify Customer of the appointment of such U.S. Subcustodian or
U.S. Securities System; provided further that in each case in which a non-U.S.
Subcustodian or non-U.S. Securities System is employed, (a) such Subcustodian or
Securities System either is (i) a "qualified U.S. bank" as defined by Rule 17f-5
under the 1940 Act ("Rule 17f-5") or (ii) an "eligible foreign custodian" within
the meaning of Rule 17f-5 or such Subcustodian or Securities System is the
subject of an order granted by the U.S. Securities and Exchange Commission
("SEC") exempting such agent or the subcustody arrangements thereto from all or
part of the provisions of Rule 17f-5, and (b) the identity of the non-U.S.
Subcustodian and the agreement between Custodian and such non-U.S. Subcustodian
has been approved by Instructions; it being understood that Custodian shall have
no liability or responsibility for determining whether the approval of any
Subcustodian or Securities System by Instructions is proper under the 1940 Act
or any rule or regulation thereunder. Exhibit D attached hereto lists all
Subcustodians and Securities Systems that have been approved by Instructions.
Notwithstanding Section 20 hereof or any other provision hereof to the contrary,
Exhibit D may be amended solely by the delivery to Custodian of Instructions
pursuant to Section 15 hereof.
Upon receipt of Instructions from Customer, Custodian agrees to cease
the employment of any Subcustodian or Securities System with respect to
Customer, and if desirable and practicable, appoint a replacement Subcustodian
or securities system in accordance with the provisions of this Section. In
addition, Custodian may, at any time in its discretion, upon written
notification to Customer, terminate the employment of any Subcustodian or
Securities System.
Custodian shall deliver to Customer annually a certificate stating: (a)
the identity of each non-U.S. Subcustodian and non-U.S. Securities System then
acting on behalf of Custodian and the name and address of the governmental
agency or other regulatory authority that supervises or regulates such non-U.S
Subcustodian and non-U.S. Securities System; (b) the countries in which each
non-U.S. Subcustodian or non-U.S. Securities System is located; and (c) if
requested by Customer's Board of Trustees or if the Board of Trustees
responsible for any Portfolio directly approves its foreign custody
arrangements, such other information relating to such non-U.S. Subcustodians and
non-U.S. Securities Systems as may reasonably be requested by Customer to ensure
compliance with Rule 17f-5. If requested by the Customer's Board of Trustees or
if the Board of Trustees directly approves its foreign custody arrangements,
Custodian also shall furnish annually to Custodian information concerning such
non-U.S. Subcustodians and non-U.S. Securities Systems similar in kind and scope
as that furnished to Customer in connection with the initial approval of this
Agreement. Custodian agrees to promptly notify Customer if, in the normal course
of its custodial activities, Custodian learns of a material adverse change in
the financial condition of a non-U.S. Subcustodian or a non-U.S. Securities
System suffers a material loss of Property, or Custodian has reason to believe
that any non-U.S. Subcustodian or non-U.S. Securities System has ceased to be a
qualified U.S. bank or an eligible foreign custodian each within the meaning of
Rule 17f-5 or has ceased to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account that is
maintained by Custodian through a Subcustodian employed pursuant to Section 4:
(a) Custodian will identify on its books as belonging to Customer
on behalf of a Portfolio, any Property maintained through such
Subcustodian.
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(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of Custodian.
(d) Any agreement Custodian shall enter into with a non-U.S.
Subcustodian with respect to maintaining Property shall
require that (i) the Account will be adequately indemnified
or its losses adequately insured; (ii) the Property so
maintained is not subject to any right, charge, security
interest, lien or claim of any kind in favor of such
Subcustodian or its creditors except a claim for payment in
accordance with such agreement for its safe custody or
administration; (iii) beneficial ownership of Securities be
freely transferable without the payment of money or value
other than for safe custody or administration; (iv) adequate
records will be maintained identifying the Property
maintained pursuant to such Agreement as belonging to
Customer or as being held by Custodian, on behalf of
Customer or all its customers; (v) to the extent permitted
by applicable law, officers of or auditors employed by, or
other representatives of or designated by, Custodian,
including the independent public accountants of or
designated by, Customer be given access to the books and
records of such Subcustodian relating to Property or
confirmation of the contents of those records; and (vi)
Custodian on behalf of Customer will receive periodic
reports with respect to the safekeeping of the Property,
including but not limited to notification of any transfer of
Property into or out of an Account.
6. Use of Securities System. With respect to Property in the Account(s)
that is maintained by Custodian or any Subcustodian through a Securities System
employed pursuant to Section 4:
(a) Custodian shall, and the Subcustodian will be required by its
agreement with Custodian to, identify on its books such
Property as being maintained for the account of Custodian or
Subcustodian for its customers.
(b) Any Property maintained through a Securities System for the
account of Custodian or a Subcustodian will be subject only to
the instructions of Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of Custodian
or Subcustodian, as the case may be, unless precluded by
applicable law, rule, or regulation.
(d) Custodian shall provide Customer with any report obtained by
Custodian or Subcustodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. Custodian may at any time or times in its sole discretion
appoint (or remove), as its agent to carry out such of the provisions of this
Agreement as Custodian may from time to time direct any other U.S. bank or trust
company which is itself qualified under the 1940 Act to act as custodian,
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including Bankers Trust; provided, however, that the appointment of any agent
shall not relieve Custodian of its responsibilities or liabilities hereunder.
Custodian shall provide reasonable notice to Customer of the appointment or
removal of any agent.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property, whether maintained directly by
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on Custodian's books as belonging
to the appropriate Account and not to the Custodian. Custodian shall keep
accurate and detailed accounts of all investments, receipts, disbursements and
other transactions for each Account. All accounts, books and records of
Custodian relating thereto shall be open to inspection and audit at all
reasonable times during normal business hours by any person designated by
Customer. All such accounts shall be maintained and preserved in the form
reasonably requested by Customer. Custodian will supply to Customer from time to
time, as mutually agreed upon, a statement in respect to any Property in an
Account maintained by Custodian or by a Subcustodian. In the absence of the
filing in writing with Custodian by Customer of exceptions or objections to any
such statement within sixty (60) days of the mailing thereof, Customer shall be
deemed to have approved such statement and in such case or upon written approval
of Customer of any such statement, such statement shall be presumed to be for
all purposes correct with respect to all information set forth therein.
(b) Custodian shall take all reasonable action as Customer may request
to obtain from year to year favorable opinions from Customer's independent
certified public accountants with respect to Custodian's activities hereunder in
connection with the preparation of Customer's registration statement on Form
N-1A and Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of Customer, Custodian shall deliver, and shall
cause the Subcustodians to deliver, to Customer a written report prepared by
Custodian's independent certified public accountants with respect to the
services provided by Custodian under this Agreement, including, without
limitation, Custodian's accounting system, internal accounting control and
procedures for safeguarding Cash and Securities, including Cash and Securities
deposited and/or maintained in a securities system or with a Subcustodian. Such
report shall be of sufficient scope and in sufficient detail as may reasonably
be required by Customer and as may reasonably be obtained by Custodian.
(d) Customer may elect to participate in any of the electronic on-line
service and communications systems offered by Custodian or a Subcustodian that
can provide Customer, on a daily basis, with the ability to view on-line or to
print in hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values of Securities in an Account, Customer hereby acknowledges that
Custodian or such Subcustodian now obtains and may in the future obtain
information on such values from outside sources that Custodian or such
Subcustodian considers to be reliable, and Customer agrees that Custodian and
such Subcustodian (i) does not verify or represent or warrant either the
reliability of such service nor the accuracy or completeness of any such
information furnished or obtained by or through such service and (ii) shall be
subject to the standard of care set forth in Section 16 of this Agreement in
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selecting and utilizing such service or furnishing any information derived
therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account that
are maintained by Custodian or any Subcustodian may be held directly by such
entity in the name of Customer or in bearer form or maintained, on behalf of a
Portfolio, in Custodian's or Subcustodian's name or in the name of Custodian's
or Subcustodian's nominee. Securities that are maintained through a Subcustodian
or which are eligible for deposit in a Securities System as provided above may
be maintained with the Subcustodian or the Securities System in an account for
Custodian's or Subcustodian's customers, unless prohibited by law, rule, or
regulation. Custodian or Subcustodian, as the case may be, may combine
certificates representing Securities held in an Account with certificates of the
same issue held by Custodian or Subcustodian as fiduciary or as a custodian. In
the event that any Securities in the name of Custodian or its nominee or held by
a Subcustodian and registered in the name of such Subcustodian or its nominee
are called for partial redemption by the issuer of such Security, Custodian may,
subject to the rules or regulations pertaining to allocation of any Securities
System in which such Securities have been deposited, allot, or cause to be
allotted, the called portion of the respective beneficial holders of such class
of security in any manner Custodian deems to be fair and equitable. Securities
maintained with a Securities System shall be maintained subject to the rules of
that Securities System governing the rights and obligations among the Securities
System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications pertaining to any of the Securities in any Account,
Custodian shall perform such services and only such services as are (i) set
forth in Section 3 of this Agreement, (ii) described in the applicable Service
Standards (the "Proxy Service"), and (iii) as may otherwise be agreed upon
between Custodian and Customer. The liability and responsibility of Custodian in
connection with the Proxy Service referred to in (ii) of the immediately
preceding sentence and in connection with any additional services which
Custodian and Customer may agree upon as provided in (iii) of the immediately
preceding sentence shall be as set forth in the description of the Proxy Service
and as may be agreed upon by Custodian and Customer in connection with the
furnishing of any such additional service and shall not be affected by any other
term of this Agreement. Neither Custodian nor its nominees or agents shall vote
upon or in respect of any of the Securities in an Account, execute any form of
proxy to vote thereon, or give any consent or take any action (except as
provided in Section 3) with respect thereto except upon the receipt of
Instructions.
11. Segregated Account. To assist Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, Custodian
shall, upon receipt of Instructions, establish and maintain a segregated account
or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by Custodian or a Subcustodian upon receipt by Custodian of
Instructions that include all information required by Custodian. Settlement and
payment for Securities received for an Account and delivery of Securities out of
such Account may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering Securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such Securities from such purchaser
or dealer, as such practices and procedures may be modified or supplemented in
accordance with the standard operating procedures of Custodian in effect from
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time to time for that jurisdiction or market. Custodian shall not be liable for
any loss which results from effecting transactions in accordance with the
customary or established securities trading or securities processing practices
and procedures in the applicable jurisdiction or market.
Custodian or a Subcustodian may settle purchases and sales against, or
credit income to, an Account, and Custodian may, at its sole option upon written
notice to Customer, reverse such credits or debits to the appropriate Account in
the event that the transaction does not settle, or the income is not received in
a timely manner, and Customer agrees to hold Custodian harmless from any losses
that may result therefrom. With respect to the activities of Bankers Trust as
Subcustodian under the Master Subcustodian Agreement, such credits and
reversals, if any, shall be on a contractual basis, as outlined in the Bankers
Trust Service Standards, as described below and provided to Customer by
Custodian.
The applicable Service Standards mean the Global Guide, the Policies
and Standards Manual, and any other documents issued by the Custodian, Bankers
Trust and other Subcustodians from time to time specifying the procedures for
communicating with a customer, the terms of any additional services to be
provided to a customer, and such other matters as may be agreed between the
parties time to time. Copies of the current Service Standards have been
delivered to Customer.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, Custodian or
a Subcustodian shall not be required to comply with any Instructions to settle
the purchase of any securities for the Account unless there are sufficient
immediately available funds in the relevant currency in the Account; provided
that, if, after all expenses, debits and withdrawals of Cash in the relevant
currency ("Debits") applicable to the Account have been made and if after all
Conditional Credits, as defined below, applicable to the Account have become
final entries as set forth in (c) below, the amount of immediately available
funds of the relevant currency in such Account is at least equal to the
aggregate purchase price of all securities for which Custodian has received
Instructions to settle on that date ("Settlement Date"), Custodian, upon
settlement, shall credit the Securities to the Account by making a final entry
on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable to
the Account have been made, the amount of immediately available funds in a given
currency in such Account are less than the aggregate purchase price in such
currency of all securities for which Custodian has received Instructions to
settle on any Settlement Date, Custodian, upon settlement, may credit the
securities to the Account by making a conditional entry on its books and records
("Conditional Credit"), pending receipt of sufficient immediately available
funds in the relevant currency in the Account.
(c) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds in the relevant currency at least equal to the
aggregate purchase price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are deposited into the Account,
Custodian shall make the Conditional Credit a final entry on its books and
records. In such case, Customer shall be liable to Custodian only for late
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charges at a rate that Custodian customarily charges for similar extensions of
credit.
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not deposited in the Account, or (ii) any Proceeding (as
defined below) shall occur, Custodian may sell such of the Securities subject to
the Conditional Credit as it selects in its sole discretion and shall apply the
net proceeds of such sale to cover such Debit, including related late charges,
and any remaining proceeds shall be credited to the Account. If such proceeds
are insufficient to satisfy such Debit in full, Customer shall continue to be
liable to Custodian for any shortfall. Custodian shall make the Conditional
Credit a final entry on its books as to the Securities not required to be sold
to satisfy such Debit. Pending payment in full by Customer of the purchase price
for Securities subject to a Conditional Credit, and Custodian's making a
Conditional Credit a final entry on its books, and, unless consented to by
Custodian, Customer shall have no right to give further Instructions in respect
of Securities subject to a Conditional Credit. Custodian shall have the sole
discretion to determine which Securities shall be deemed to have been paid for
by Customer out of funds available in the Account. Any such Conditional Credit
may be reversed (and any corresponding Debit shall be canceled) by Custodian
unless and until Custodian makes a final entry on its books crediting such
Securities to the Account. The term "Proceeding" shall mean any insolvency,
bankruptcy, receivership, reorganization or similar proceeding relating to
Customer, whether voluntary or involuntary.
(e) Customer agrees that it will not use the Account to facilitate the
purchase of securities without sufficient funds in the Account (which funds
shall not include the expected proceeds of the sale of the purchased
securities).
14. Permitted Transactions. Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance with Section 15 (but subject to Section 3) and only for the purposes
listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or
otherwise become payable.
(c) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or
readjustment.
(d) Upon conversion of Securities pursuant to their terms into
other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
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(g) In connection with any borrowings by Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed or in order to satisfy requirements for additional or
substitute collateral.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect
any restrictions applicable to Customer.
(i) For the purpose of redeeming shares of the capital stock of
Customer against delivery of the shares to be redeemed to
Custodian, a Subcustodian or Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of Customer
against delivery of the shares to be redeemed to Custodian, a
Subcustodian or Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among Customer, on behalf of a Portfolio, the
Portfolio's investment adviser and a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to
compliance with the rules of The Options Clearing Corporation,
the Commodities Futures Trading Commission or of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by Customer.
(l) For release of Securities to designated brokers under
covered call options, provided, however, that such
Securities shall be released only upon payment to Custodian
of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of
the option, or at expiration, Custodian will receive the
Securities previously deposited from broker. Custodian will
act strictly in accordance with Instructions in the delivery
of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which
are not returned promptly when due other than to make proper
request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from
Securities related transactions.
(n) Upon the termination of this Agreement as set forth in
Section 21.
(o) For other proper purposes.
Customer agrees that Custodian and any Subcustodian shall have no
obligation to verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from
Customer in respect of any of Custodian's duties hereunder that have been
received by Custodian at its address set forth in Section 22 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as Customer shall
have from time to time authorized in writing to give the particular class of
Instructions in question and whose name and (if applicable) signature and office
address have been filed with Custodian; or (ii) which have been transmitted
electronically through an electronic on-line service and communications system
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offered by Custodian or other electronic instruction system acceptable to
Custodian; or (iii) a telephonic or oral communication by one or more persons as
Customer shall have from time to time authorized to give the particular class of
Instructions in question and whose name has been filed with Custodian; or (iv)
upon receipt of such other form of instructions as Customer may from time to
time authorize in writing and which Custodian has agreed in writing to accept.
Instructions in the form of oral communications shall be confirmed by Customer
by tested telex or writing in the manner set forth in clause (i) above, but the
lack of such confirmation shall in no way affect any action taken by Custodian
in reliance upon such oral instructions prior to Custodian's receipt of such
confirmation. Instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing instructions.
Custodian shall have the right to assume in the absence of notice to
the contrary from Customer that any person whose name is on file with Custodian
pursuant to this Section has been authorized by Customer to give the
Instructions in question and that such authorization has not been revoked.
Custodian may act upon and conclusively rely on, without any liability to
Customer or any other person or entity for any losses resulting therefrom, any
Instructions reasonably believed by it to be furnished by the proper person or
persons as provided above.
16. Standard of Care. Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to Custodian that are not contrary to the provisions of this
Agreement. Custodian will use reasonable care and diligence with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care and diligence,
Custodian shall not be responsible for the title, validity or genuineness of any
Property or other property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in acting
upon, and may conclusively rely on, without liability for any loss resulting
therefrom, any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed or furnished by the
proper party or parties, including, without limitation, Instructions, and shall
be indemnified by Customer for any losses, damages, costs and expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by Custodian and arising out of action taken or omitted with reasonable
care by Custodian hereunder or under any Instructions. Custodian shall be liable
to Customer for any act or omission to act of any Subcustodian to the same
extent as if Custodian committed such act itself. With respect to a Securities
System, Custodian shall only be responsible or liable for losses arising from
employment of such Securities System caused by Custodian's own failure to
exercise reasonable care; provided that in the event of any such loss, Custodian
shall take all reasonable steps to enforce such claims as it may have against
the Securities System to protect the interests of the Customer.
In the event of any loss to Customer by reason of the failure of
Custodian or a Subcustodian to utilize reasonable care, Custodian shall be
liable to Customer to the extent of Customer's actual damages at the time such
loss was discovered (including, without limitation, reasonable fees and expenses
of counsel) without reference to any special conditions or circumstances. In no
event shall Custodian be liable for any consequential or special damages.
Custodian shall be entitled to rely, and may act, on advice of counsel
(who may be counsel for Custodian or Customer) on all matters and shall be
without liability for any action reasonably taken or omitted in good faith
pursuant to such advice, provided that with respect to the performance of any
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action or omission of any action upon such advice, the Custodian shall be
required to conform to the standard of care set forth in this Section 16.
In the event Customer subscribes to an electronic on-line service and
communications system offered by Custodian, Customer shall be fully responsible
for the security of its connecting terminal, access thereto and the proper and
authorized use thereof and the initiation and application of continuing
effective safeguards with respect thereto and agrees to defend and indemnify
Custodian and hold Custodian harmless from and against any and all losses,
damages, costs and expenses (including the fees and expenses of counsel)
incurred by Custodian as a result of any improper or unauthorized use of such
terminal by Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of Customer.
Subject to the exercise of reasonable care, Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
Custodian or by a Subcustodian of any payment, redemption or other transaction
regarding Securities in each Account in respect of which Custodian has agreed to
take action as provided in Section 3 hereof. Custodian shall not be liable for
any loss resulting from, or caused by, or resulting from acts of governmental
authorities (whether de jure or de facto), including, without limitation,
nationalization, expropriation, and the imposition of currency restrictions;
devaluations of or fluctuations in the value of currencies; changes in laws and
regulations applicable to the banking or securities industry; market conditions
that prevent the orderly execution of securities transactions or affect the
value of Property; acts of war, terrorism, insurrection or revolution; strikes
or work stoppages; the inability of a local clearing and settlement system to
settle transactions for reasons beyond the control of Custodian; hurricane,
cyclone, earthquake, volcanic eruption, nuclear fusion, fission or
radioactivity, or other acts of God.
Custodian shall have no liability in respect of any loss, damage or
expense suffered by Customer, insofar as such loss, damage or expense arises
from the performance of Custodian's duties hereunder by reason of Custodian's
reliance upon records that were maintained for Customer by entities other than
Custodian prior to Custodian's employment under this Agreement.
If Custodian does not exercise reasonable care, Custodian shall
indemnify Customer for any losses, damages, costs and expenses (including,
without limitation, the fees and expenses of counsel) incurred by Customer and
arising out of action taken or omitted without reasonable care by Custodian
hereunder or under any Instructions.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. Neither Custodian nor any Subcustodians shall be liable to Customer
or a Portfolio and Customer agrees to indemnify Custodian, all Subcustodians and
their nominees, for any loss, damage or expense suffered or incurred by
Custodian, any Subcustodian or their nominees arising out of any violation of
any investment restriction or other restriction or limitation applicable to
Customer or any Portfolio pursuant to any contract or any law or regulation.
18. Fees and Expenses. Customer agrees to pay to Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) reasonable legal fees as described
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herein and/or deemed necessary in the judgment of Custodian to keep safe or
protect the Property in the Account. The initial fee schedule is attached hereto
as Exhibit B. Such fees will not be abated by, nor shall Custodian be required
to account for, any profits or commissions received by Custodian in connection
with its provision of custody services under this agreement. Customer hereby
agrees to hold Custodian harmless from any liability or loss resulting from any
taxes or other governmental charges, and any expense related thereto, which may
be imposed, or assessed with respect to any Property in an Account and also
agree to hold Custodian, its Subcustodians, and their respective nominees
harmless from any liability as a record holder of Property in such Account.
Custodian is authorized to charge the applicable Account for such items, and
Custodian shall have a lien on the Property in the applicable Account for any
amount payable to Custodian under this Agreement, including but not limited to
amounts payable pursuant to Section 13 and pursuant to indemnities granted by
Customer under this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account,
Custodian shall perform such services with respect thereto as are described in
the applicable Service Standards and shall in connection therewith be subject to
the standard of care set forth in such Service Standards. Such standard of care
shall not be affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto
(except that Exhibit D may be amended as provided in Section 4 hereof and
Exhibit B may be amended as provided for therein). In addition, any amendment to
Sections 8(c), 8(d), 16, 17, 24, 27 and 28 of this Agreement shall require the
written consent of Bankers Trust. No waiver of any provision hereto shall be
deemed a continuing waiver unless it is so designated. No failure or delay on
the part of either party in exercising any power or right under this Agreement
operates as a waiver, nor does any single or partial exercise of any power or
right preclude any other or further exercise thereof or the exercise of any
other power or right.
21. Termination.
(a) This Agreement may be terminated by Customer or Custodian by ninety
(90) days' written notice to the other; provided that notice by Customer shall
specify the names of the persons to whom Custodian shall deliver the Securities
in each Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by Custodian, Customer shall, within ninety (90) days
following the giving of such notice, deliver to Custodian a written notice
specifying the names of the persons to whom Custodian shall deliver the
Securities in each Account and to whom the Cash in such Account shall be paid.
In either case, Custodian will deliver such Property to the persons so
specified, after deducting therefrom any amounts that Custodian determines to be
owed to it hereunder. In addition, Custodian may in its discretion withhold from
such delivery such Property as may be necessary to settle transactions pending
at the time of such delivery. Customer grants to Custodian a lien and right of
setoff against the Account and all Property held therein from time to time in
the full amount of the foregoing obligations. If within ninety (90) days
following the giving of a notice of termination by Custodian, Custodian does not
receive the aforementioned written notice specifying the names of the persons to
whom Custodian shall deliver the Securities in each Account and to whom the Cash
in such Account shall be paid, Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing business in the
State of New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to Custodian, provided that from and after the
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ninetieth day Custodian's obligations shall be limited to safekeeping.
(b) This Agreement may be terminated by Customer or Custodian as to one
or more Portfolios (but less than all of the Portfolios) by delivery of an
amended Exhibit A deleting such Portfolios, in which case termination as to such
deleted Portfolios shall take effect ninety (90) days after the date of such
delivery, or such earlier time as mutually agreed. The execution and delivery of
an amended Exhibit A that deletes one or more Portfolios shall constitute a
termination of this Agreement only with respect to such deleted Portfolio(s),
shall be governed by Section 21(a) as to the identification of a successor
custodian and the delivery of Cash and Securities of the Portfolio(s) so deleted
to such successor custodian, and shall not affect the obligations of Custodian
and Customer hereunder with respect to the other Portfolios set forth in Exhibit
A, as amended from time to time.
(c) Sections 16,17, 18, 27 and 30 shall survive the termination of this
Agreement as to one or more or all Portfolios.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Several Obligations of the Portfolios. With respect to any
obligations of Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though Customer
had separately contracted with Custodian by separate written instrument with
respect to each Portfolio and its related Accounts.
24. Security for Payment. To secure payment of all obligations due
hereunder, Customer hereby grants to Custodian a continuing security interest in
and right of setoff against each Account and all Property held therein from time
to time in the full amount of such obligations; provided that, if there is more
than one Account and the obligations secured pursuant to this Section can be
allocated to a specific Account or the Portfolio related to such Account, such
security interest and right of setoff will be limited to Property held for that
Account only and its related Portfolio. Should Customer fail to pay promptly any
amounts owed hereunder, Custodian shall be entitled to use available Cash in the
Account or applicable Account, as the case may be, and to dispose of Securities
in the Account or such applicable Account as is necessary. In any such case and
without limiting the foregoing, Custodian shall be entitled to take such other
actions or exercise such other options, powers and rights as Custodian now or
hereafter has as a secured creditor under the UCC or any other applicable law,
including, without limitation, granting to any Subcustodian a security interest
in such Accounts on terms similar to those set forth in this Section 24.
25. Representations and Warranties.
(a) Customer hereby represents and warrants to Custodian that:
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(i) the employment of Custodian and the allocation of
fees, expenses and other charges to any Account as
herein provided, is not prohibited by law or any
governing documents or contracts to which it is
subject;
(ii) the terms of this Agreement do not violate any
obligation by which Customer is bound, whether
arising by contract, operation of law or otherwise;
(iii) this Agreement has been duly authorized by
appropriate action and when executed and delivered
will be binding upon Customer and each Portfolio in
accordance with its terms; and
(iv) it will deliver to Custodian a duly executed
Secretary's Certificate in the form of Exhibit C
hereto or such other evidence of such authorization
as Custodian may reasonably require, whether by way
of a certified resolution or otherwise.
(b) Custodian hereby represents and warrants to Customer that:
(i) the terms of this Agreement do not violate any
obligation by which Custodian is bound, whether
arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by
appropriate action and when executed and delivered
will be binding upon Custodian in accordance with its
terms;
(iii) it will deliver to Customer such evidence of such
authorization as Customer may reasonably require,
whether by way of a certified resolution or
otherwise;
(iv) it is qualified as a custodian under Section 26(a) of
the 1940 Act and that it will remain so qualified or
upon ceasing to be so qualified shall promptly notify
Customer in writing; and
(v) it is taking steps (a) believed by it in good faith to
be reasonably designed to address the risk that
critical computer systems and equipment containing the
embedded microchips that it uses relating to its
operations (the "Systems") may be unable to process
properly and calculate date-related information and
data from and after January 1, 2000 (the "Year 2000
Problem"), and (b) to obtain assurances deemed
reasonable by Custodian that its material service
providers, including each Subcustodian, Securities
System, agent or other financial institution employed
by Custodian to provide services to Customer under this
Agreement, are taking reasonable steps to address the
Year 2000 Problem. Custodian reasonably expects that
the effects of the Year 2000 Problem should not result
in a material adverse effect on the business, financial
condition or ability to timely perform any of its
material obligations under this Agreement (a "Material
Adverse Effect"). In addition, Custodian agrees to
notify Customer promptly if it has reason to believe
that a Material Adverse Effect is likely to result from
a Year 2000 Problem with respect to Custodian or its
material service providers.
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26. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of Customer and
Custodian.
27. Third-Party Beneficiary. Customer hereby acknowledges and agrees
that with respect to the Accounts:
(a) Custodian is authorized to appoint Bankers Trust as a master
Subcustodian pursuant to the Master Subcustodian Agreement.
(b) As an inducement to Bankers Trust to act as a master Subcustodian,
Customer authorizes the Custodian to bind the Customer to those terms
of the Master Subcustodian Agreement, including Section 23 thereof,
which will obligate the Customer to pay obligations of each Portfolio
for Property custodied pursuant to the Master Subcustodian Agreement.
(c) Bankers Trust may rely, as fully as if it were a party hereto and
named as "Custodian" herein, on the representations, warranties,
covenants and indemnities of Customer set forth in Sections 8(d), 16,
17, 24 and 28 of this Agreement.
28. Representative Capacity and Binding Obligation. A copy of the
Declaration of Trust of Customer is on file with the Secretary of State of the
State of Delaware (and a copy of the Trust Instrument of Customer is on file
with Customer's secretary). Notice is hereby given that this Agreement is not
executed on behalf of the Trustees of Customer as individuals, and the
obligations of this Agreement are not binding upon any of the Trustees, officers
or shareholders of Customer individually but are binding only upon the assets
and property of the Portfolios.
Custodian agrees that no shareholder, trustee or officer of Customer
may be held personally liable or responsible for any obligations of Customer
arising out of this Agreement.
29. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and Custodian
and Customer each irrevocably submits to the non-exclusive jurisdiction of any
such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in such a court
and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of Custodian, Customer, or
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any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
32. Entire Agreement. This Agreement together with its Exhibits,
contains the entire agreement between the parties relating to the subject matter
hereof and supersedes any oral statements and prior writings with respect
thereto.
33. Headings. The headings of the sections hereof are included for
convenience of reference only and do not form a part of this Agreement.
34. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
FORUM TRUST, LLC
By:/s/ John Y. Keffer
Name: John Y. Keffer
Title: President
THE CUTLER TRUST
By:/s/ Stephen J Barrett
Name: Stephen J. Barrett
Title: Vice President
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CUSTODIAN AGREEMENT
EXHIBIT A
LIST OF PORTFOLIOS
Cutler Approved List Equity Fund
Cutler Equity Income Fund
FORUM TRUST, LLC
By:/s/ John Y. Keffer
Name: John Y. Keffer
Title: President
THE CUTLER TRUST
By:/s/ Stephen J. Barrett
Name: Stephen J. Barrett
Title: Vice President
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CUSTODIAN AGREEMENT
EXHIBIT B
FEE SCHEDULE
This Exhibit B shall be amended upon delivery by Custodian of a new Exhibit B to
Customer and acceptance thereof by Customer and shall be effective as of the
date of acceptance by Customer or a date agreed upon between Custodian and
Customer.
1. Account Maintenance Fees
Domestic Custody Accounts $3,600 per account per year
2. Domestic Custody Fees
a. Safekeeping Charges
Assets Annual
Under Custody Asset Fee
$0 - $1 Billion 1 Basis Point
$1 - $2 Billion 0.75 Basis Points
$2 - $6 Billion 0.50 Basis Points
$6 Billion + 0.25 Basis Points
b. Transaction Charges
Cost Per
Transaction Type Transaction
---------------- -----------
DTC $12
Federal Book Entry $10
PTC $10
Physicals $25
Maturities (Depository) $10
Maturities (Physical) $25
P&I Payments (Book Entry) $3
P&I Payments (Physical) $10
Fed Wires (from Custody account) $8
SHE (Shares Held Elsewhere) Trades $25
Forum Money Market Funds $3
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3. Notes
The standard custody service includes: (i) asset safekeeping, (ii)
trade settlement, (iii) income collection, (iv) corporate action
processing (including proxy voting) and (v) tax reclaims (where
applicable.)
Accounts utilize actual settlement and are subject to the guidelines
indicated in the Bankers Trust Policies and Standards manual.
Out-of-pocket expenses are borne by Customer. Out-of-pocket expenses
include, but are not limited to, postage and legal fees. These charges
are passed on at cost.
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CUSTODIAN AGREEMENT
EXHIBIT C
FORM OF SECRETARY'S CERTIFICATE
I, [Name], hereby certify that I am the Secretary of The Cutler Trust,
a business trust organized under the laws of the State of Delaware (the
"Company"), and as such I am duly authorized to, and do hereby, certify that:
1. Organizational Documents. The Company's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of Delaware, the Company continues to be in existence and is in good
standing, and no action has been taken to repeal such organizational documents,
the same being in full force and effect on the date hereof.
2. Bylaws. The Company's Bylaws have been duly adopted and no action
has been taken to repeal such Bylaws, the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of the
Company, which resolutions (i) have not in any way been revoked or rescinded,
(ii) have been in full force and effect since their adoption, to and including
the date hereof, and are now in full force and effect, and (iii) are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein, including, without limitation, confirming that the
Company is duly authorized to enter into a certain custody agreement with Forum
Trust, LLC (the "Agreement"), and that certain designated officers, including
those identified in paragraph 4 of this Certificate, are authorized to execute
said Agreement on behalf of the Company, in conformity with the requirements of
the Company's organizational documents, Bylaws, and other pertinent documents to
which the Company may be bound.
4. Incumbency. The following named individuals are duly elected (or
appointed), qualified, and acting officers of the Company holding those offices
set forth opposite their respective names as of the date hereof, each having
full authority, acting individually, to bind the Company, as a legal matter,
with respect to all matters pertaining to the Agreement, and to execute and
deliver said Agreement on behalf of the Company, and the signatures set forth
opposite the respective names and titles of said officers are their true,
authentic signatures:
Name Title Signature
[Name] [Position]
[Name] [Position]
[Name] [Position]
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IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of
_______, 19__.
The Cutler Trust
By:
Name:
Title: Secretary
I, [Name of Confirming Officer], [Title] of the Company, hereby certify
that on this ___ day of ________, 19__, [Name of Secretary] is the duly elected
Secretary of the Company and that the signature above is his genuine signature.
The Cutler Trust
By:
Name:
Title:
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CUSTODIAN AGREEMENT
EXHIBIT D
APPROVED SUBCUSTODIANS AND SECURITIES SYSTEMS
Bankers Trust Company
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Other (a)
THE CUTLER TRUST
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that KENNETH R. CUTLER constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of The Cutler Trust and to file the same with the Securities
and Exchange Commission, granting unto the said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Kenneth R. Cutler
Kenneth R. Cutler
Dated: October 13, 1998
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Other (b)
THE CUTLER TRUST
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that BROOKE ASHLAND constitutes and
appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for her and in her name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of The Cutler Trust and to file the same with the Securities
and Exchange Commission, granting unto the said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Brooke Ashland
Brooke Ashland
Dated: October 13, 1998
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Other (c)
THE CUTLER TRUST
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that HATTEN S. YODER, JR. constitutes
and appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of The Cutler Trust and to file the same with the Securities
and Exchange Commission, granting unto the said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Hatten S. Yoder, Jr.
Hatten S. Yoder, Jr.
Dated: November 6, 1998
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Other (d)
THE CUTLER TRUST
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that ROBERT B. WATTS, JR. constitutes
and appoints David I. Goldstein and D. Blaine Riggle, and each of them, as true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form N1-A and any or all
amendments thereto of The Cutler Trust and to file the same with the Securities
and Exchange Commission, granting unto the said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
/s/ Robert B. Watts, Jr.
Robert B. Watts, Jr.
Dated: November 10, 1998
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