497 1 x497-1105.txt THE CUTLER TRUST - 497 THE [GRAPHIC OMITTED] CUTLER TRUST CUTLER EQUITY FUND THE FUND SEEKS CURRENT INCOME AND LONG-TERM CAPITAL APPRECIATION. THE CUTLER EQUITY FUND IS A NO-LOAD FUND. SHARES OF THE FUND ARE OFFERED TO INVESTORS WITHOUT ANY SALES CHARGES. PROSPECTUS NOVEMBER 1, 2005 THE CUTLER TRUST INVESTMENT ADVISER P.O. Box 46707 Cutler Investment Counsel, LLC Cincinnati, Ohio 45246-0707 3555 Lear Way (888) CUTLER4 Medford, Oregon 97504 (888) 288-5374 (541) 770-9000 (800) 228-8537 WEB SITE: www.cutler.com The Securities and Exchange Commission has not approved or disapproved the Fund's shares or determined whether this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. -------------------------------------------------------------------------------- TABLE OF CONTENTS ================================================================================ Page Risk/Return Summary ..................................................... 3 Investment Goal ....................................................... 3 Principal Investment Strategies ....................................... 3 Principal Risks of Investing in the Fund .............................. 4 Who May Want to Invest in the Fund .................................... 5 Performance ............................................................. 6 Fee Tables .............................................................. 8 Management .............................................................. 9 Your Account ............................................................ 11 How to Contact the Fund ............................................... 11 General Information ................................................... 11 Buying Shares ......................................................... 13 Investment Procedures ................................................. 15 Selling Shares ........................................................ 16 Abusive Trading Practices ............................................. 19 Other Information ....................................................... 20 Distributions ......................................................... 20 Taxes ................................................................. 20 Organization .......................................................... 21 Financial Highlights .................................................... 22 Customer Privacy Policy ................................................. 23 For More Information ............................................ back cover 2 -------------------------------------------------------------------------------- RISK/RETURN SUMMARY ================================================================================ INVESTMENT GOAL The investment goal of the Cutler Equity Fund (the "Fund"), as managed by its investment adviser, Cutler Investment Counsel, LLC (the "Adviser"), is current income and long-term capital appreciation. PRINCIPAL INVESTMENT STRATEGIES In seeking to meet its investment objective, the Fund expects that under normal conditions at least 80% of its assets will be invested in a diversified portfolio of common stocks according to the Adviser's investment style. For purposes of this policy, "assets" shall mean net assets plus the amount of any borrowings for investment purposes. The Fund will provide the Fund's shareholders with at least 60 days prior notice of any change by the Board of Trustees in this investment policy. The Adviser chooses investments in common stocks based on its judgment of fundamental value, which emphasizes stocks that the Adviser judges to have favorable dividend yields and growth prospects relative to comparable companies. Factors deemed particularly relevant in determining fundamental value include: o earnings o dividend and market price histories o balance sheet characteristics o perceived management skills Changes in economic and political outlooks, as well as corporate developments affecting individual companies, can influence specific security prices. The Adviser chooses investments in stocks of companies that have a market value of at least $1 billion and, in the Adviser's opinion, have institutional ownership that is sufficiently broad to provide adequate liquidity suitable to the Fund's holdings. The Adviser uses both "top-down" and "bottom-up" approaches, and investment selections are made using a rigorous fundamental approach. Top-down research involves the study of economic trends in the domestic and global economy, such as the fluctuation in interest or unemployment rates. These factors help to identify industries and sectors with the potential to outperform as a result of major economic developments. Bottom-up research involves detailed analysis of specific companies. Important factors include industry characteristics, profitability, growth dynamics, industry positioning, strength of management, valuation and expected return for the foreseeable future. Particular attention is paid to a company's ability to pay or increase its current dividend. 3 -------------------------------------------------------------------------------- The Adviser will sell securities for any one of three possible reasons: o When another company is found by the Adviser to have a higher current dividend yield or better potential for capital appreciation and dividend growth o If the industry moves in an unforeseen direction that negatively impacts the positioning of a particular investment or if the company's strategy, execution or industry positioning itself deteriorates. The Adviser develops specific views on how industries are likely to evolve and how individual companies will participate in industry growth and change o If the Adviser feels a company's management is not acting in a forthright manner TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic, or other conditions, the Fund may assume a temporary defensive position and invest without limit in cash or prime cash equivalents. As a result, the Fund may be unable to achieve its investment objective. PRINCIPAL RISKS OF INVESTING IN THE FUND There is no assurance that the Fund will achieve its investment objective. The 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 the Fund may be worth more or less than its original value. The Fund, by itself, does not provide a complete investment program. All investments made by the Fund have some risk. Among other things, the market value of any security in which the Fund may invest is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measures of the issuer's worth. The Fund may be an appropriate investment 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 Fund holds. 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 the Fund could fall out of favor with the market. It is not the Fund's intent to engage in active and frequent trading of its portfolio securities based upon price movements alone. This type of trading could increase the amount of capital gains realized by the Fund and total securities transactions costs. The Fund may hold cash or cash equivalents such as high quality, short-term money market instruments pending investment to retain flexibility in meeting redemptions and paying expenses. 4 -------------------------------------------------------------------------------- In summary, you could lose money on your investment in the Fund, or the Fund could underperform other investments, if any of the following occurs: o The stock market goes down o The stock market undervalues the stocks in the Fund's portfolio o The Adviser's judgment as to the value of a stock proves to be mistaken WHO MAY WANT TO INVEST IN THE FUND You may want to purchase shares of the Fund if: o You seek current income and long-term increases in current income o You are willing to tolerate significant changes in the value of your investment o You are pursuing a long-term goal of capital appreciation o You are willing to accept higher short-term risk The Fund 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 stability of principal o You are pursuing a short-term goal or investing emergency reserves 5 -------------------------------------------------------------------------------- PERFORMANCE ================================================================================ The bar chart and performance table shown below provide some indication of the risks and variability of investing in the Fund by showing the changes in the Fund's performance from year to year for the last ten calendar years, and by showing how the Fund's average annual total returns compare with those of a broad measure of market performance. How the Fund has performed in the past (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. [GRAPHIC OMITTED] 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 33.20% 16.89% 33.25% 17.97% 3.28% 8.66% -3.19% -22.60% 24.67% 7.34% The Fund's 2005 year-to-date total return through September 30, 2005 is 2.90%. During the periods shown in the bar chart, the highest quarterly return was 16.27% during the quarter ended June 30, 1997 and the lowest quarterly return was -21.75% during the quarter ended September 30, 2002. The impact of taxes is not reflected in the bar chart; if reflected, returns would be less than those shown. 6 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2004 The table below shows how the Fund's average annual total returns compare with those of the Standard & Poor's 500 Index and the Russell 1000 Value Index. The table also presents the impact of taxes on the Fund's returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- CUTLER EQUITY FUND Return Before Taxes 7.34% 1.73% 10.66% Return After Taxes on Distributions 6.67% 1.24% 8.31% Return After Taxes on Distributions and Sale of Fund Shares 4.75% 1.22% 8.48% -------------------------------------------------------------------------------- STANDARD & POOR'S 500 INDEX (reflects no deduction for fees, expenses or taxes) 10.88% -2.30% 12.07% -------------------------------------------------------------------------------- RUSSELL 1000 VALUE INDEX (reflects no deduction for fees, expenses or taxes) 14.05% 5.07% 11.92% -------------------------------------------------------------------------------- The Fund is managed pursuant to an equity income strategy. The Adviser and the Trustees believe the S&P 500 Index is the most appropriate index for the Fund due to its focus on large capitalization securities, broad index membership, and the representation of multiple security types that are used in the management of the Fund. Previously, the Russell 1000 Value Index was used as the Fund's primary benchmark. The Russell 1000 Value Index is an appropriate benchmark for mutual funds with a true value mandate. Relative value is one determinant used in the management of the Fund; however, current income is an investment objective of the Fund, making the Russell 1000 Value Index not the most appropriate benchmark for the Fund. 7 -------------------------------------------------------------------------------- FEE TABLES ================================================================================ The following tables describe the fees and expenses that you will pay if you buy and hold shares of the Fund. SHAREHOLDER FEES (fees paid directly from your investment) Sales Charge (Load) Imposed on Purchases .............................. None Deferred Sales Charge (Load) .......................................... None Sales Charge (Load) Imposed on Reinvested Distributions ............... None Redemption Fee ........................................................ None ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from Fund assets) Management Fees ....................................................... 0.75% Shareholder Servicing Fees ............................................ 0.00%(2) Other Expenses ........................................................ 0.68% ----- Total Annual Fund Operating Expenses .................................. 1.43%(3) ====== (1) Based on amounts incurred during the Fund's last fiscal year ended June 30, 2005 stated as a percentage of average net assets. (2) The Fund may incur shareholder servicing fees in an amount not exceeding 0.25% per annum. (3) The Adviser currently intends to waive fees and/or reimburse the Fund's expenses to the extent necessary to limit the Fund's Total Annual Fund Operating Expenses to 1.35% per annum. This voluntary waiver may be reduced or eliminated at any time. EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- $ 146 $ 452 $ 782 $ 1,713 8 -------------------------------------------------------------------------------- MANAGEMENT ================================================================================ The business of the Fund is managed under the direction of the Board of Trustees (the "Board") of The Cutler Trust. The Board formulates the general policies of the Fund and meets periodically to review the Fund's performance, monitor investment activities and practices and discuss other matters affecting the Fund. Additional information regarding the Board, as well as the executive officers of The Cutler Trust, may be found in the Statement of Additional Information (the "SAI"). THE ADVISER Cutler Investment Counsel, LLC (the "Adviser"), 3555 Lear Way, Medford, Oregon 97504, currently serves as investment adviser to the Fund. Prior to October, 2003, the Fund's investment adviser was Cutler & Company, LLC (subsequently known as Table Rock Asset Management, LLC), an affiliate of the Adviser. The Adviser makes investment decisions for the Fund subject to the general oversight of the Board. The Adviser receives an advisory fee at an annual rate of .75% of the average daily net assets of the Fund. The Adviser and its affiliated companies have provided investment management services since 1977. As of September 30, 2005, the Adviser had approximately $141 million of assets under management. PORTFOLIO MANAGERS The portfolio managers of the Fund are responsible for the day-to-day investment policy, portfolio management and investment research for the Fund. Matthew Patten is responsible for the macro-economic analysis of the Fund, reviewing sector allocations and industry weightings within the portfolio. Erich Patten analyzes which specific securities should be purchased or sold by the Fund and then reviews these specific securities with Matthew Patten to determine if they are consistent with his macro-economic analysis of the Fund. While Erich Patten executes the timing of all purchase and sell orders, no securities are bought or sold by Erich Patten without the concurrence of Matthew Patten. The business experience and educational backgrounds of Matthew and Erich Patten are described below. The Statement of Additional Information provides additional information about the portfolio managers' compensation, other accounts managed by the portfolio managers and their ownership of shares of the Fund. MR. MATTHEW C. PATTEN, Co-Portfolio Manager for the Fund, received his B.S. degree from Boston College in Economics and Environmental Geo-Science. He was awarded his MBA from the University of Chicago. He has been a Member, Investment Committee Member, Portfolio Manager and President of the Adviser 9 -------------------------------------------------------------------------------- since 2003. Mr. Patten has been a Director of The First America Asia Fund I, LP, a private equity fund and an affiliate of the Adviser, since 1999; he has been President, Portfolio Manager and Member of Cutler Venture Partners, LLC, a private equity firm and affiliate of the Adviser, since 2004. Mr. Patten has also served as Chief Operating Officer and Portfolio Manager of Cutler Asia, LLC, a private equity firm affiliated with the Adviser, since 2000 and was Vice President - Investment of Cutler Asia from 1998 until 2000. Mr. Patten was Portfolio Manager of Table Rock Asset Management, LLC from 2000 to 2004 and Investment Committee Member of the firm from 2002 to 2004. MR. ERICH M. PATTEN, Co-Portfolio Manager for the Fund, received his B.S. in Economics, Wharton School, University of Pennsylvania. He received his Masters degree in Public Policy from the Harris School, University of Chicago. For the five years prior to joining the Adviser (1998 - 2003), Mr. Patten worked as an Investment Performance Specialist providing in-house review of investment management clients from time to time for Ashland Partners, LLP, a firm specializing in performance measurement and compliance consistent with the Association of Investment Management and Research Performance Presentation Standards. During this period he also worked as an Intern, U.S. Environmental Protection Agency in 2002; a Clerk with Sidley Austin Brown and Wood (a law firm) in 2001; and an Analyst for Extra Energy EV Germany (a non-profit organization) in 2000. Mr. Patten has been a Member, Investment Committee Member, Portfolio Manager and Corporate Secretary of the Adviser since 2003. Mr. Patten has been a Member of Cutler Venture Partners, LLC, a private equity firm affiliated with the Adviser, since 2003. He was also an Investment Committee Member and Portfolio Manager of Table Rock Asset Management, LLC from 2003 until 2004. OTHER SERVICE PROVIDERS Ultimus Fund Solutions, LLC, ("Ultimus"), provides certain administration, portfolio accounting, and transfer agent and shareholder services to the Fund. US Bank, N.A. provides custody services to the Fund. Ultimus Fund Distributors, LLC, the principal underwriter of the Fund, acts as the Fund's representative in connection with the offering of Fund shares. The Fund may be offered by other broker-dealers as well. The distributor is affiliated with Ultimus but is not affiliated with the Adviser and its affiliated companies. SHAREHOLDER SERVICES PLAN The Trust has adopted a Shareholder Services Plan permitting the Trust to compensate broker-dealers and financial institutions for providing distribution or shareholder services. The maximum amount that may be incurred under the Shareholder Services Plan is .25% per annum of the Fund's average daily net assets. 10 -------------------------------------------------------------------------------- FUND EXPENSES The Adviser may waive all or any portion of its fees, which are accrued daily and paid monthly. Any waiver would have the effect of increasing the Fund's 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 c/o Ultimus Fund Solutions, LLC P.O. Box 46707 Cincinnati, Ohio 45246-0707 OVERNIGHT ADDRESS: The Cutler Trust c/o Ultimus Fund Solutions, LLC 225 Pictoria Drive, Suite 450 Cincinnati, Ohio 45246 TELEPHONE US TOLL-FREE AT: (888) CUTLER4 (888) 288-5374 WIRE INVESTMENTS (OR ACH PAYMENTS) TO: US Bank ABA #042000013 For Credit to: Cutler Equity Fund Account #130107147717 For further Credit to: [Shareholder's name and account #] GENERAL INFORMATION You pay no sales charge to purchase or sell (redeem) shares of the Fund. The Fund purchases or sells shares at the net asset value per share, or NAV, next calculated after the transfer agent receives your request in proper form. If the Fund's transfer agent (the "Transfer Agent") receives your purchase request in proper form on a business day prior to 4:00 p.m., Eastern time, your transaction will be priced at that day's NAV. If the Transfer Agent receives your purchase request after 4:00 p.m., your transaction will be priced at the next business day's NAV. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. The Fund does not issue share certificates. 11 -------------------------------------------------------------------------------- You will receive quarterly 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 Fund, through the Adviser or Transfer Agent, may temporarily suspend the offering of shares during unusual market conditions or discontinue any shareholder service or privilege. WHEN AND HOW NAV IS DETERMINED The 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 the NAV is calculated may be changed in case of an emergency or if the New York Stock Exchange closes early. The 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 total number of shares outstanding. To the extent any assets of the Fund are invested in other open-end management investment companies that are registered under the Investment Company Act of 1940, the Fund's net asset value with respect to those assets is calculated based upon the net asset values of the registered open-end management investment companies in which it invests, and the prospectuses for these companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing. The Fund values securities for which market quotations are readily available at current market value. The Fund values securities at fair value pursuant to procedures adopted by the Board if (1) market quotations are insufficient or not readily available or (2) the Adviser believes that the prices or values available are unreliable due to, among other things, the occurrence of events after the close of the securities markets on which the Fund's securities primarily trade but before the time as of which the Fund calculates its NAV (for example, if the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Fund's NAV calculation). When fair value pricing is employed, the prices of the securities used by the Fund to calculate its NAV may differ from quoted or published prices of the same securities. 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 Fund. Banks, brokers, retirement plans and financial advisers may charge transaction fees and may set different minimum investments or limitations on buying or selling shares. The Adviser may 12 -------------------------------------------------------------------------------- compensate certain financial institutions or broker-dealers in connection with the sale or expected sale of Fund shares. Consult a representative of your financial institution or retirement plan for further information. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification are part of the Fund's overall obligation to deter money laundering under Federal law. When you open an account, the Fund will ask for your name, address, date of birth, and other information that will allow the Fund to identify you. The Fund may also ask to see your driver's license or other identifying documents. The Fund has adopted an Anti-Money Laundering Compliance Program designed to prevent the Fund from being used for money laundering or the financing of terrorist activities. In this regard, the Fund reserves the right, to the extent permitted by law, to (i) refuse, cancel or rescind any purchase order, (ii) freeze any account and/or suspend account services or (iii) involuntarily close your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, at the sole discretion of Fund management, they are deemed to be in the best interest of the Fund or in cases when the Fund is requested or compelled to do so by governmental or law enforcement authority. Closed accounts will be valued at the close of the New York Stock Exchange on the day the account is closed, and redemption proceeds may be worth more or less than the original investment. If your account is closed at the request of governmental or law enforcement authority, you may not receive proceeds of the redemption if the Fund is required to withhold such proceeds and in some circumstances, the law may not permit the Fund to inform the shareholder that it has taken the actions described above. BUYING SHARES HOW TO MAKE PAYMENTS All investments must be made by check, ACH, or bank wire. All checks must be payable in U.S. dollars and drawn on a U.S. financial institution. The Fund does not accept cash, drafts, "starter" checks, traveler checks, credit card checks, post-dated checks, or money orders. CHECKS The check must be made payable on its face to the "Cutler Equity Fund." No other method of check payment is acceptable. ACH Refers to the "Automated Clearing House" System maintained by the Federal Reserve Bank, which allows banks to process checks, transfer funds and perform other tasks. BANK WIRES Instruct your financial institution with whom you have an account to make a Federal Funds wire payment to the Fund. Your financial institution may charge you a fee for this service. 13 -------------------------------------------------------------------------------- MINIMUM INVESTMENTS The Fund accepts payments in the following minimum amounts: Minimum Initial Minimum Additional Investment Investment -------------------------------------------------------------------------------- Standard Account $ 25,000 None Traditional and Roth IRA Accounts $ 2,000 None Accounts with Systematic Investment Plans $ 25,000 $ 100 The Adviser may, at its discretion, waive the above investment minimums.
ACCOUNT REQUIREMENTS =================================================================================================================================== TYPE OF ACCOUNT REQUIREMENTS =================================================================================================================================== INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT o Instructions must be signed by all persons exactly as their names appear on the account ACCOUNTS Individual accounts are owned by one person, as are sole proprietorship accounts. Joint accounts have two or more owners (tenants) ----------------------------------------------------------------------------------------------------------------------------------- GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a These custodial accounts provide a way to give money to a child custodial account under the UGMA or the UTMA and obtain tax benefits o The custodian must sign instructions in a manner indicating custodial capacity ----------------------------------------------------------------------------------------------------------------------------------- BUSINESS ENTITIES o Submit a secretary's (or similar) certificate covering incumbency and authority ----------------------------------------------------------------------------------------------------------------------------------- TRUSTS o The trust must be established before an account can be opened o Provide the first and signature pages from the trust document identifying the trustees -----------------------------------------------------------------------------------------------------------------------------------
14 -------------------------------------------------------------------------------- INVESTMENT PROCEDURES ================================================================================ HOW TO OPEN AN ACCOUNT ================================================================================ BY CHECK o Call or write us for an account application o Complete the application (and other required documents) o Mail us your application (and other required documents) and a check -------------------------------------------------------------------------------- BY WIRE o Call or write us for an account application o Complete the application (and other required documents) o Call us to fax the completed application (and other required documents) and we will assign you an account number o Mail us your application (and other required documents) o Instruct your financial institution to wire your money to us -------------------------------------------------------------------------------- ================================================================================ HOW TO ADD TO YOUR ACCOUNT ================================================================================ BY CHECK o Fill out an investment slip from a confirmation or write us a letter o Write your account number on your check o Mail us the slip (or your letter) and a check -------------------------------------------------------------------------------- BY WIRE o Call to notify us of your incoming wire o Instruct your financial institution to wire your money to us -------------------------------------------------------------------------------- BY SYSTEMATIC INVESTMENT o Complete the Systematic Investment section of the application o Attach a voided check to your application o Mail us the completed application and the voided check o We will electronically debit the purchase amount from the financial institution account identified in your account application -------------------------------------------------------------------------------- SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund once or twice a month on specified dates. These payments are taken from your account at your designated financial institution by Automated Clearing House ("ACH") payment. Systematic investments must be for at least $100. LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase request, particularly requests that could adversely affect the Fund or its operations. This includes those from any individual or group who, in the Fund's view, are likely to engage in excessive trading as described in "Abusive Trading Practices" below. CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full value subject to collection. If the Fund does not receive your payment for shares 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 the Fund or the Transfer Agent, and the Fund may redeem other shares you own in the account (or another identically registered account that you maintain with the Transfer Agent) as reimbursement. The Fund and its agents have the right to reject or cancel any purchase or redemption due to nonpayment. 15 -------------------------------------------------------------------------------- SELLING SHARES The Fund processes redemption orders promptly. Under normal circumstances, the Fund will send redemption proceeds within seven days after receipt by the Transfer Agent of a redemption request in proper form. Under unusual circumstances, as provided by the rules of the Securities and Exchange Commission, the Fund may suspend the right of redemption or delay payment of redemption proceeds for more than seven days. A requested wire of redemption proceeds normally will be sent on the business day following the redemption request. However, when shares are purchased by check or through ACH, the proceeds from the redemption of those shares may not be paid until the purchase check or ACH transfer has been converted to Federal funds, which could take up to 15 calendar days. HOW 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 redemptions are only available if your redemption is for $10,000 or more and you did not decline wire redemption privileges on your account application o Call us with your request (unless you declined telephone redemption privileges on your account application) (See "By Telephone") or o Mail us your request (See "By Mail") -------------------------------------------------------------------------------- SYSTEMATICALLY o Complete the systematic withdrawal section of the application o Attach a voided check to your application o Mail us your completed application o Redemption proceeds will be electronically credited to your account at the financial institution identified on your account application -------------------------------------------------------------------------------- BY TELEPHONE o Call us with your request (unless you declined telephone authorization privileges on your account application) o Provide the following information: o Your account number o Exact name(s) in which the account is registered o Additional forms of identification o Redemption proceeds will be: o Mailed to you or o Wired to you (unless you declined wire redemption privileges on your account application) (See "By Wire") -------------------------------------------------------------------------------- THROUGH BROKER OR FINANCIAL INSTITUTIONS o Contact your broker or financial institution o Request must be in proper form o Third party may charge you additional transaction/redemption fees -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 16 -------------------------------------------------------------------------------- REDEMPTIONS BY MAIL You may redeem shares by mailing a written request to The Cutler Trust, c/o Ultimus Fund Solutions, LLC, P.O. Box 46707, Cincinnati, Ohio 45246-0707. Written requests must state the shareholder's name, the name of the Fund, the account number and the shares or dollar amount to be redeemed and be signed exactly as the shares are registered and may require a signature guarantee as discussed below. WIRE REDEMPTION PRIVILEGES You may redeem Fund shares by wire unless you declined wire redemption privileges on your account application. The minimum amount you may redeem by wire is $10,000. TELEPHONE REDEMPTION PRIVILEGES You may redeem Fund shares having a value of $25,000 or less by telephone unless you declined telephone redemption privileges on your account application. You will be responsible for any unauthorized telephone order as long as the Transfer Agent takes reasonable measures to verify that the order is genuine. Telephone redemptions may be requested only if the proceeds are to be sent to the shareholder of record and mailed to the address on record with the Fund. Upon request, redemption proceeds of $100 or more may be transferred by ACH, and proceeds of $10,000 or more may be transferred by wire, in either case to the account stated on the account application. Shareholders will be charged a fee of $15 by the Fund's custodian for outgoing wires. Telephone redemption privileges and account designations may be changed by sending the Transfer Agent a written request with all signatures guaranteed as described below. The Transfer Agent requires personal identification before accepting any redemption request by telephone, and telephone redemption instructions may be recorded. If reasonable procedures are followed by the Transfer Agent, neither the Transfer Agent nor the Fund will be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming shares by telephone. If such a case should occur, redemption by mail should be considered. SYSTEMATIC WITHDRAWALS If you own shares of the Fund with an aggregate value of at least $10,000, you may request a specified amount of money from your account once a month or once a quarter on a specified date. These payments are sent from your account to a designated bank account by ACH payment. Systematic withdrawals must be for at least $100. 17 -------------------------------------------------------------------------------- THROUGH YOUR BROKER OR FINANCIAL INSTITUTION You may also redeem shares through a brokerage firm or financial institution that has been authorized to accept orders on behalf of the Fund at the NAV next determined after your order is received by such organization in proper form. NAV is normally determined at 4:00 p.m., Eastern time. Your brokerage firm or financial institution may require a redemption request to be received at an earlier time during the day in order for your redemption to be effective as of the day the order is received. These organizations may be authorized to designate other intermediaries to act in this capacity. Such an organization may charge you transaction fees on redemptions of Fund shares and may impose other charges or restrictions or account options that differ from those applicable to shareholders who redeem shares directly through the Transfer Agent. SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud, signatures on certain requests must have a "signature guarantee." A signature guarantee verifies the authenticity of your signature. The Transfer Agent will accept signatures guaranteed by a financial institution whose deposits are insured by the FDIC; a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; or any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Transfer Agent will not accept signature guarantees by a notary public. The Transfer Agent has adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and its Transfer Agent reserve the right to amend these standards at any time without notice. Redemption requests by corporate and fiduciary shareholders must be accompanied by appropriate documentation establishing the authority of the person seeking to act on behalf of the account. Forms of resolutions and other documentation to assist in compliance with the Transfer Agent's procedures may be obtained by calling the Transfer Agent. The Transfer Agent will need written instructions signed by all registered owners, with a signature guarantee for each owner, for any of the following: o Written requests to redeem shares having a value of more than $25,000 within any 30-day period o Changes to a shareholder's record name o Redemptions from an account for which the address or account registration has changed within the last 30 days o Sending redemption and distribution proceeds to any person, address, brokerage firm or bank account not on record 18 -------------------------------------------------------------------------------- o Sending redemption and distribution proceeds to an account with a different registration (name or ownership) from your account o Adding or changing ACH or wire instructions, telephone redemption options, or any other election in connection with your account The Transfer Agent reserves the right to require signature guarantees on all redemptions. MINIMUM ACCOUNT BALANCE If the value of your Fund account falls below $10,000 (not including IRAs), the Fund may ask you to increase your balance. If the account value is still below $10,000 after 60 days, the Fund may close your account and send you the proceeds. The Fund will not close your account if it falls below $10,000 solely as a result of a reduction in your account's market value. REDEMPTION IN KIND The Fund reserves the right to pay redemption proceeds in portfolio securities rather than cash. These redemptions "in kind" usually occur if the amount to be redeemed is large enough to affect Fund operations (for example, if it represents more than 1% of the Fund's assets). LOST ACCOUNTS The Transfer Agent will consider your account lost if correspondence to your address of record is returned as undeliverable on more than two consecutive occasions, unless the Transfer Agent determines your new address. When an account is lost, all distributions on the account will be reinvested in additional Fund shares. In addition, the amount of any outstanding checks (unpaid for six months or more) or checks that have been returned to the Transfer Agent will be reinvested at the then-current NAV and the checks will be canceled. However, checks will not be reinvested into accounts with a zero balance. RETIREMENT ACCOUNTS The Fund offers 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 for which the contribution is made. ABUSIVE TRADING PRACTICES The Fund has been designed as a long-term investment and not as a frequent or short-term trading ("market timing") option. The Fund discourages frequent purchases and redemptions. Accordingly, the Board of Trustees has adopted policies and procedures in an effort to detect and prevent market timing in the Fund. The Fund, through its service providers, monitors shareholder trading activity to ensure it complies with the Fund's policies. The Fund prepares reports 19 -------------------------------------------------------------------------------- illustrating purchase and redemption activity to detect market timing activity. These actions, in the Board's opinion, should help reduce the risk of abusive trading in the Fund. In addition, the Fund also reserves the right to reject any purchase request that it believes to be market timing or potentially disruptive in nature. The Fund may also modify any terms or conditions of purchase of shares or withdraw all or any part of the offering made by this Prospectus. The Fund believes that market timing activity is not in the best interest of shareholders. Market timing can be disruptive to the portfolio management process and may adversely impact the ability of the Adviser to implement the Fund's investment strategies. In addition to being disruptive, the risks to the Fund presented by market timing are higher expenses through increased trading and transaction costs; forced and unplanned portfolio turnover; large asset swings that decrease a Fund's ability to maximize investment return; and potentially diluting the value of the Fund's shares. These risks can have an adverse affect on the Fund's performance. The Fund relies on intermediaries to help enforce its market timing policies. For example, intermediaries must determine when frequent redemptions occur. The Fund reserves the right to reject an order placed from an omnibus account. Although the Fund has taken these steps to discourage frequent purchases and redemptions of shares, the Fund cannot guarantee that such trading will not occur. OTHER INFORMATION ================================================================================ DISTRIBUTIONS The Fund declares distributions from net investment income and pays those distributions quarterly. Any capital gain realized by the 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 in additional shares. Shares become entitled to receive distributions on the day after the shares are issued. TAXES The Fund intends to operate in a manner such that it will not be liable for Federal income or excise taxes. You will generally be taxed on the Fund's distributions, regardless of whether you reinvest them or receive them in cash. The Fund's distributions of net investment income (including short-term capital gains) are taxable to you as 20 -------------------------------------------------------------------------------- ordinary income. A portion of the dividends paid by the Fund may be eligible for the dividends-received deduction for corporate shareholders. The Fund's distributions of long-term capital gains are taxable to you as long-term capital gains, regardless of how long you have held your shares. Distributions may also be subject to certain state and local taxes. A portion of the Fund's distributions may be treated as "qualified dividend income," taxable to individuals at a maximum Federal income tax rate of 15%. A distribution is treated as qualified dividend income to the extent that the Fund receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that holding period and other requirements are met. Distributions of capital gain and the Fund's distributions of net investment income reduce the net asset value of the 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 of Fund shares is a taxable transaction for Federal income tax purposes. You will recognize a gain or loss on such transaction equal to the difference, if any, between the amount of your net sales proceeds and your tax basis in the Fund shares. Such gain or loss will be capital gain or loss if you held your Fund shares as capital assets. Any capital gain or loss will be treated as long-term capital gain or loss if you held your Fund shares for more than one year at the time of the sale. The Fund may be required to withhold U.S. Federal income tax at the required Federal backup withholding rate on all taxable distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number, to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your Federal income tax liability. The Fund will mail you reports containing information about the income tax status of distributions paid during the year after December 31 of each year. For further information about the tax effects of investing in the Fund, including state and local tax matters, please see the SAI and consult your tax adviser. ORGANIZATION The Cutler Trust is a Delaware statutory trust registered with the U.S. Securities and Exchange Commission as an open-end management investment company, or mutual fund. The Fund is the only series of The Cutler Trust. It is not intended that meetings of shareholders be held except when required by Federal or Delaware law. Shareholders of the Fund are entitled to vote at shareholders' meetings for such things as approval of an advisory agreement. 21 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS ================================================================================ The financial highlights table is intended to help you understand the Fund's financial performance for the past 5 years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming the reinvestment of all dividends and distributions). This information has been audited by Deloitte & Touche LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available without charge upon request.
Per Share Data for a Share Outstanding Throughout Each Year ----------------------------------------------------------------------------------------------------------------------- YEARS ENDED JUNE 30, -------------------------------------------------------------------------- 2005 2004 2003 2002 2001 -------------------------------------------------------------------------- Net asset value at beginning of year ...... $ 9.38 $ 8.29 $ 8.85 $ 10.38 $ 9.78 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income ................... 0.17 0.18 0.13 0.08 0.08 Net realized and unrealized gains (losses) on investments ............... 0.37 1.09 (0.56)(a) (1.53) 0.79 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... 0.54 1.27 (0.43) (1.45) 0.87 ---------- ---------- ---------- ---------- ---------- Less distributions from: Net investment income ................... (0.17) (0.18) (0.13) (0.08) (0.08) Net realized gains ...................... -- -- -- -- (0.19) ---------- ---------- ---------- ---------- ---------- Total distributions ....................... (0.17) (0.18) (0.13) (0.08) (0.27) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year ............ $ 9.75 $ 9.38 $ 8.29 $ 8.85 $ 10.38 ========== ========== ========== ========== ========== Total return (b) .......................... 5.77% 15.39% (4.75%) (14.07%) 8.97% ========== ========== ========== ========== ========== Net assets at the end of year (000's) ..... $ 40,107 $ 41,233 $ 41,250 $ 22,963 $ 25,744 ========== ========== ========== ========== ========== Ratios/supplementary data: Ratio of net expenses to average net assets 1.30% 1.25% 1.25% 1.25% 1.25% Ratio of gross expenses to average net assets (c) .................. 1.43% 1.43% 1.79% 1.50% 1.45% Ratio of net investment income to average net assets ................... 1.77% 1.95% 1.65% 0.76% 0.56% Portfolio turnover rate ................... 14% 14% 61% 46% 60%
(a) Per share amount does not reflect the actual net realized and unrealized gain/loss for the period because of the timing of sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time. (b) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) The ratio of gross expenses to average net assets reflects the expense ratio excluding any waivers and/or expense reimbursements by the Adviser. 22 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CUSTOMER PRIVACY POLICY ================================================================================ Protecting your privacy is at the core of our business. You trust us with your financial and other personal information; we in turn are committed to respect your privacy and safeguard that information. By adhering to the practices described below we affirm our continuing commitment to protecting your privacy. COLLECTION AND USE OF SHAREHOLDER INFORMATION The Cutler Trust and its distributor ("we", "our" or "us") collect only relevant information about Fund shareholders ("you" or "your") that the law allows or requires us to have in order to conduct our business and properly service you. We collect financial and other personal information about you from the following sources: o Information you provide on applications or other forms o Information derived from your transactions with us, our affiliates or others KEEPING INFORMATION SECURE We maintain physical, electronic and procedural safeguards and procedures to protect your financial and other personal information, and we continually assess new technology with the aim of adding these safeguards to those we have in place. LIMITING EMPLOYEE ACCESS TO INFORMATION We limit access to personally identifiable information to only those employees with a business reason to know such information. We train all employees to respect customer privacy and to recognize the importance of confidentiality. Those who violate our privacy pledge are subject to disciplinary action. ACCURACY OF INFORMATION We strive to keep our records of your information accurate, and we take immediate steps to correct errors. If there are any inaccuracies in your statements or in any other communications from us, please contact us or contact your investment professional. USE OF PERSONAL AND FINANCIAL INFORMATION BY US AND THIRD PARTIES Any information about you may be shared with our affiliates and with third parties who provide services for your account. This includes: o Information you provide on applications or other forms (for example, your name, address, social security number, and birthdate) o Information derived from your transactions with us, our affiliates or others (for example, transaction amount, account balance and account number) Affiliates of the distributor that receive this information include the companies that provide transfer agent, technology and administrative services. The investment adviser is an affiliate of The Cutler Trust. We make disclosures to non-affiliated third parties only to the extent permitted by law. These affiliated and non-affiliated companies may also receive information about former customers. MAINTAINING CUSTOMER PRIVACY IN BUSINESS RELATIONSHIPS We do not share customer information with anyone who does not agree to keep such information confidential. If you believe we have shared your information inappropriately, please contact us or your investment professional. This is our policy as of November 1, 2005. This privacy policy applies to individuals, and we reserve the right to change any or all of the principles, along with related provisions, at any time. IF YOU HAVE ANY QUESTIONS ABOUT THE CONFIDENTIALITY OF YOUR CUSTOMER INFORMATION, PLEASE CALL 1-888-288-5374 TO TALK TO A SHAREHOLDER SERVICES REPRESENTATIVE. -------------------------------------------------------------------------------- 23 FOR MORE INFORMATION -------------------------------------------------------------------------------- ANNUAL/SEMI-ANNUAL REPORTS Additional information about the Cutler Equity Fund's investments is available in the Fund's annual and semi-annual reports to shareholders. In the Fund's annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides more detailed information about the Fund and is incorporated by reference into, and is legally part of, this Prospectus. A description of the Fund's policies and procedures with respect to the disclosure of its portfolio holdings is available in the SAI. CONTACTING THE FUND You can get free copies of the Fund's annual/semi-annual reports and SAI, request other information or make inquiries about the Fund by contacting your broker, or by calling or writing the Fund at: Ultimus Fund Solutions, LLC P.O. Box 46707 Cincinnati, Ohio 45246-0707 (888) CUTLER4 (888) 288-5374 SECURITIES AND EXCHANGE COMMISSION INFORMATION You can also review the Fund's annual/semi-annual reports, SAI and other information about the Fund at the Public Reference Room of the Securities and Exchange Commission ("SEC"). The scheduled hours of operation of the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. You can get copies of this information, for a fee, by e-mailing or by writing to: Public Reference Room Securities and Exchange Commission Washington, D.C. 20549-0102 E-mail address: publicinfo@sec.gov Fund information, including copies of the annual/semi-annual reports and SAI, are available on the SEC's Web site at www.sec.gov. The Fund's Prospectus, SAI and annual/semi-annual reports are also available on the Fund's website at www.cutler.com Investment Company Act File No. 811-07242 ========================================= STATEMENT OF ADDITIONAL INFORMATION ========================================= November 1, 2005 C U T L E R FUND INFORMATION: The Cutler Trust CUTLER EQUITY FUND c/o Ultimus Fund Solutions, LLC 225 Pictoria Drive, Suite 450 Cincinnati, Ohio 45246 (888) CUTLER4 http://www.cutler.com INVESTMENT ADVISER: Cutler Investment Counsel, LLC 3555 Lear Way Medford, Oregon 97504 (541) 770-9000 (800) 228-8537 ACCOUNT INFORMATION AND SHAREHOLDER SERVICES: The Cutler Trust c/o Ultimus Fund Solutions, LLC 225 Pictoria Drive, Suite 450 Cincinnati, Ohio 45246 Toll free (888) CUTLER4 This Statement of Additional Information, or SAI, supplements the Prospectus dated November 1, 2005, as may be amended from time to time, offering shares of Cutler Equity Fund, the sole series of The Cutler Trust (the "Trust"). This SAI is not a prospectus and should only be read in conjunction with the Prospectus. The Prospectus may be obtained by an investor without charge by contacting Ultimus Fund Solutions, LLC at the address or telephone number listed above. Financial statements for the Fund for the fiscal year ended June 30, 2005 are included in the Annual Report to shareholders and are incorporated into this SAI by reference. Copies of the Annual Report may be obtained, without charge, upon request by contacting Ultimus Fund Solutions, LLC at the address or telephone number listed above. ================================================================================ TABLE OF CONTENTS ================================================================================ Glossary .................................................................. 2 Investment Policies and Risks ............................................. 3 Investment Limitations .................................................... 5 Management ................................................................ 7 Portfolio Transactions .................................................... 14 Policy Regarding Selective Disclosure of Portfolio Holdings ............... 16 Additional Purchase and Redemption Information ............................ 17 Taxation .................................................................. 19 Other Matters ............................................................. 23 Appendix A: Description of Securities Ratings ............................. A-1 Appendix B: Proxy Voting Policies and Procedures ......................... B-1 1 ================================================================================ GLOSSARY ================================================================================ "Administrator" means Ultimus Fund Solutions, LLC, the Trust's administrator. "Adviser" means Cutler Investment Counsel, LLC, the Fund's investment adviser. "Board" means the Board of Trustees of the Trust. "Code" means the Internal Revenue Code of 1986, as amended, the rules promulgated therewith, IRS interpretations and any private letter ruling or similar ruling upon which the Fund may rely. "Custodian" means US Bank, N.A, the Trust's custodian. "Distributor" means Ultimus Fund Distributors, LLC, the Trust's distributor. "Fitch" means Fitch Ratings. "Fund" means Cutler Equity Fund. "Independent Trustee" means a Trustee that is not an interested person of the Trust as that term is defined in Section 2(a)(19) of the 1940 Act. "IRS" means Internal Revenue Service. "Moody's" means Moody's Investors Service, Inc. "NAV" means net asset value. "NRSRO" means a nationally recognized statistical rating organization. "SAI" means Statement of Additional Information. "SEC" means the U.S. Securities and Exchange Commission. "S&P" means Standard & Poor's Corporation. "Transfer Agent" means Ultimus Fund Solutions, LLC. "Trust" means The Cutler Trust. "1933 Act" means the Securities Act of 1933, as amended. "1940 Act" means the Investment Company Act of 1940, as amended, rules promulgated thereunder, and interpretations of and exemptive letters related thereto, upon which the Fund may rely. 2 ================================================================================ INVESTMENT POLICIES AND RISKS ================================================================================ The following discussion supplements the disclosure in the Prospectus about the Fund's investment techniques, strategies and risks. The Fund is designed for investment of that portion of an investor's assets that can appropriately bear the special risks associated with certain types of investments (e.g., investments in equity securities). Under normal Conditions, at least 80% of the Fund's net assets will be invested in a diversified portfolio of common stocks judged by the Adviser to have favorable value to price characteristics. SECURITY RATINGS INFORMATION The Fund may invest a portion of its assets in fixed income securities. The Fund's investments in fixed income securities are subject to credit risks relating to the financial condition of the issuers of the securities that the Fund holds. The Fund will invest primarily in "investment grade" securities. "Investment grade" means rated in the top four long-term rating categories or top two short-term rating categories by an NRSRO, or unrated and determined by the Adviser to be of comparable quality. The lowest long-term ratings that are investment grade for corporate bonds, including convertible bonds, are "Baa" in the case of Moody's and "BBB" in the case of S&P and Fitch; for preferred stocks 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. The Fund may retain a security 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 a security whose rating has been lowered below the lowest permissible rating category) if the Adviser determines that retaining such security is in the best interests of the Fund. Because a downgrade often results in a reduction in the market price of the security, the sale of a downgraded security may result in a loss. Moody's, S&P, Fitch 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 Fund 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 issuer of securities ceases to be rated or if its rating is reduced after it is purchased by the Fund (neither event requiring the sale of such security by the Fund), the Adviser will determine whether the Fund should continue to hold the obligation. To the extent that the ratings given by a NRSRO may change as a result of changes in such organizations or their rating systems, the Adviser will attempt to substitute comparable ratings. Credit ratings attempt to evaluate the safety of principal and interest payments and do not evaluate the risks of fluctuations in market value. Also, rating agencies may fail to make timely changes in credit ratings. An issuer's current financial condition may be better or worse than a rating indicates. TEMPORARY DEFENSIVE POSITION The Fund may assume a temporary defensive position and may invest without limit in commercial paper and other money market instruments that are of prime quality. When the Fund assumes a temporary defensive position it may not achieve its investment objective. 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 the Fund may invest include short-term U.S. Government securities, interest-bearing savings deposits and certificates of deposit of domestic commercial banks and money market mutual funds. The Fund may only invest in money market mutual funds to the extent permitted by the 1940 Act. The money market instruments in which the Fund 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. 3 CONVERTIBLE SECURITIES The Fund may invest in convertible securities. 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 the 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. Investment in convertible securities generally entails less risk than investment in an 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. The value of a convertible security is a function of its "investment value" and its "conversion value." The investment value of a convertible security is determined by comparing its yield with the yields of other securities of comparable maturity and quality that do not have a conversion privilege. The conversion value is the security's worth, at market value, if converted into the underlying common stock. The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may affect the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value and generally the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. In addition, a convertible security generally will sell at a premium over its conversion value determined by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security. FOREIGN ISSUERS The Fund may invest in securities of foreign issuers. The Trust considers "foreign issuers" to be those issuers whose securities are traded only on foreign markets. Investments in the securities of foreign issuers may involve risks in addition to those normally associated with investments in the securities of U.S. issuers. All foreign investments are subject to risks of: (1) foreign political and economic instability; (2) adverse movements in foreign exchange rates; (3) the imposition or tightening of exchange controls or other limitations on repatriation of foreign capital; and (4) changes in foreign governmental attitudes towards private investment, including potential nationalization, increased taxation or confiscation of the Fund's assets. In addition, dividends payable on foreign securities may be subject to foreign withholding taxes, thereby reducing the income available for distribution to you. Some foreign brokerage commissions and custody fees are higher than those in the United States. Foreign accounting, auditing and financial reporting standards differ from those in the United States and therefore, less information may be available about foreign companies than is available about comparable U.S. companies. Foreign securities also may trade less frequently and with lower volume and may exhibit greater price volatility than domestic securities. Changes in foreign exchange rates will affect the U.S. dollar value of all foreign currency-denominated securities held by the Fund. Exchange rates are influenced generally by the forces of supply and demand in the foreign currency markets and by numerous other political and economic events occurring outside the United States, many of which may be difficult, if not impossible, to predict. 4 Income from foreign securities will be received and realized in foreign currencies and the Fund is required to compute and distribute income in U.S. dollars. Accordingly, a decline in the value of a particular foreign currency against the U.S. dollar after the Fund's income has been earned and computed in U.S. dollars may require the Fund to liquidate portfolio securities to acquire sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate declines between the time the Fund incurs expenses in U.S. dollars and the time such expenses are paid, the Fund may be required to liquidate additional foreign securities to purchase the U.S. dollars required to meet such expenses. BANK DEBT INSTRUMENTS Bank debt instruments in which the Fund may invest consist of certificates of deposit, bankers' acceptances and time deposits issued by national banks and state banks, trust companies and mutual savings banks, or by banks or institutions the accounts of which are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. Certificates of deposit are negotiable certificates evidencing the indebtedness of a commercial bank to repay funds deposited with it for a definite period of time (usually from fourteen days to one year) at a stated or variable interest rate. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft which has been drawn on it by a customer, which instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. These bank debt instruments are generally not insured by the Federal Deposit Insurance Corporation or any other government agency, except that certificates of deposit may be insured for up to $100,000. The profitability of the banking industry depends largely upon the availability and cost of funds for the purpose of financing lending operations under prevailing money market conditions. New government regulations, a downturn in general economic conditions or exposure to credit losses arising from possible financial difficulties of borrowers may impact the value of bank debt instruments. INVESTMENT COMPANY SECURITIES The Fund reserves the right to invest up to 10% of its total assets, calculated at the time of purchase, in the securities of other investment companies, but may neither invest more than 5% of its total assets in the securities of any one investment company nor acquire more than 3% of the voting securities of any other investment company. The Fund will indirectly bear its proportionate share of any management fees and other expenses paid by investment companies in which it invests in addition to the management fees and other expenses paid by the Fund. Although the Fund does not expect to do so in the foreseeable future, the Fund is authorized to invest substantially all of its assets in a single open-end investment company or series thereof that has substantially the same investment objective, policies and fundamental restrictions as the Fund. ================================================================================ INVESTMENT LIMITATIONS ================================================================================ 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 value of the Fund's assets or a change in status of a security or purchases and redemptions of Fund shares, will not be considered a violation of the limitation. A fundamental policy of the Fund cannot be changed without the affirmative vote of the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or represented at a shareholders meeting at which the holders of more than 50% of the outstanding shares of the Fund are present or represented. The Board may change a non-fundamental policy of the Fund without shareholder approval. FUNDAMENTAL LIMITATIONS The Fund's investment objective is considered fundamental. In addition, the Fund has adopted the following investment limitations, which are fundamental policies of the Fund. The Fund may not: 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. 5 CONCENTRATION Purchase a security other than a U.S. Government Security if, immediately after the purchase, more than 25% of the value of the Fund's total assets would be invested in the securities of issuers having their principal business activities in the same industry. 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. 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. PURCHASES AND SALES OF COMMODITIES AND OPTIONS; BORROWING; MARGIN PURCHASES AND SHORT SALES 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. ISSUANCE OF SENIOR SECURITIES Issue senior securities except as appropriate to evidence indebtedness that the Fund may be permitted to incur, and provided that the Fund may issue shares of additional series or classes that the Board may establish. REPURCHASE AGREEMENTS, MAKING LOANS Enter into repurchase agreements, lend securities or otherwise make loans; except through the purchase of debt securities that may be purchased by the Fund. NON-FUNDAMENTAL LIMITATIONS The Fund has adopted the following non-fundamental investment limitations that may be changed by the Board without shareholder approval. The Fund may not: o 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. o 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. o 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. o Under normal conditions, invest less than 80% of its net assets, plus the amount of any borrowings for investment purposes, in a diversified portfolio of common stocks. 6 ================================================================================ MANAGEMENT ================================================================================ TRUSTEES AND OFFICERS 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 the Fund's service providers. The Trustees' management of the Trust also includes a periodic review of the service providers' agreements and fees charged to the Fund. The names of the Trustees and officers of the Trust, each person's position with the Trust and length of time served, address, age and principal occupation(s) during the past five years are set forth below. For each Trustee, information concerning the number of portfolios overseen by the Trustee and other directorships/trusteeships held by the Trustee have also been included. Interested and Independent Trustees have been segregated.
---------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN FUND OTHER NAME, POSITION LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS DATE OF BIRTH AND WITH THE TIME DURING THE PAST FIVE OVERSEEN HELD ADDRESS TRUST SERVED(1) YEARS BY TRUSTEE BY TRUSTEE ---------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Kenneth R. Cutler(2)(3) Chairman October Investment Committee 1 None Born: March 1920 and 1992 - Member and Portfolio 3555 Lear Way Trustee Present Manager of Cutler Medford, OR 97504 Investment Counsel, LLC from 2003 to July 2005; Investment Committee Member and Portfolio Manager Emeritus since July 2005; Investment Committee Member and Portfolio Manager of Table Rock Asset Management, LLC ("Table Rock") (a registered investment adviser) from 1977 until 2004. INDEPENDENT TRUSTEES Robert B. Watts, Jr. Trustee March Counsel, Northhaven 1 None Born: December 1930 1996 - Associates since 1985 1710 Lake Village Dr. Present Medford, OR 97504 Robert E. Clarke Trustee May Retired 1 None Born: May 1922 2002 - One Skyline Drive Present Apt. 3407 Medford, OR 97504 7 ---------------------------------------------------------------------------------------------------------------------- NAME, POSITION LENGTH OF PRINCIPAL OCCUPATION(S) DATE OF BIRTH AND WITH THE TIME DURING THE PAST FIVE ADDRESS TRUST SERVED(1) YEARS ---------------------------------------------------------------------------------------------------------------------- OFFICERS Erich M. Patten(3) President March Investment Committee Member, Portfolio Manager and Corporate Born: October 1977 2004 - Secretary of Cutler Investment Counsel, LLC since 2003; Member 3555 Lear Way Present of Cutler Venture Partners, LLC (private equity firm) since 2003; Medford, OR 97504 Investment Committee Member and Portfolio Manager of Table Rock (a registered investment adviser) from 2003 until 2004; Intern with the U.S. Environmental Protection Agency in 2002; Clerk with Sidley Austin Brown and Wood (a law firm) in 2001; Analyst with Extra Energy EV Germany (a non-profit organization) in 2000; Investment Performance Specialist with Ashland Partners, LLP from 1998 until 2003. Brooke C. Ashland(3) Vice June Investment Committee Member and Chief Executive Officer of Cutler Born: December 1951 President and 2002 - Investment Counsel, LLC since 2003; Portfolio Manager, Member and 3555 Lear Way Chief Compliance Present Chief Executive Officer of Cutler Venture Partners, LLC (a Medford, OR 97504 Officer private equity firm) since 2003; Chief Executive Officer of Centricity, LLC (an investment adviser) since 2003; General Partner of The First America Asia Fund I, LP (a private equity fund) since 1999; Chief Operating Officer, Chief Executive Officer and Portfolio Manager of Cutler Asia, LLC (a private equity firm) since 1998; Chief Executive Officer and/or Chairman of the Board of Managers for Table Rock (a registered investment adviser) from 1995 to 2004; Chief Executive Officer and President of Trustee Investment Services, Inc. (a Trustee education firm) since 1991; President of Big Bear Timber, LLC (farming) since 1989. Carol S. Fischer Vice President, 1996 - Member and Chief Operating Officer of Cutler Investment Counsel, Born: December 1955 Asst. Secretary, Present LLC since 2003; Member and Chief Operating Officer of Table Rock 3555 Lear Way and Asst. (a registered investment adviser) from 1994 to 2004; Secretary of Medford, OR 97504 Treasurer P.S.&S., Inc. (a sales company) since 1990. Matthew C. Patten(3) Treasurer March President, Investment Committee Member and Portfolio Manager of Born: December 1975 2004 - Cutler Investment Counsel, LLC since 2003; Portfolio Manager, 3555 Lear Way Present Member and President of Cutler Venture Partners, LLC (a private Medford, OR 97504 equity firm) since 2003; Investment Committee Member of Table Rock (a registered investment adviser) from 2002 until 2004; Portfolio Manager - Private Equity and Public Equity of Table Rock from 2000 until 2004; Chief Operating Officer and Portfolio Manager of Cutler Asia, LLC (a private equity firm) since 2000; Vice President - Investment of Cutler Asia, LLC from 1998 to 2000; Director of The First America Asia Fund I, LP (a private equity fund) since 1999. 8 John F. Splain Secretary March Managing Director, Ultimus Fund Solutions, LLC and Ultimus Born: September 1956 2005 - Fund Distributors, LLC since 1999. 225 Pictoria Drive Present Cincinnati, Ohio 45246 Robert G. Dorsey Vice President March Managing Director of Ultimus Fund Solutions, LLC and Ultimus Born: April 1957 2005 - Fund Distributors, LLC 225 Pictoria Drive Present Cincinnati, Ohio 45246 (1) Each Trustee holds office until he or she resigns or is removed. Officers are elected annually. (2) Kenneth R. Cutler is an Interested Trustee because of the position he holds with the Adviser. (3) Kenneth R. Cutler is the father of Brooke C. Ashland and grandfather of Erich M. Patten and Matthew C. Patten. TRUSTEE OWNERSHIP OF FUND SHARES ---------------------------------------------------------------------------------------------------------------------- AGGREGATE DOLLAR RANGE OF OWNERSHIP AS OF DECEMBER 31, DOLLAR RANGE OF BENEFICIAL 2004 IN ALL FUNDS OVERSEEN BY OWNERSHIP IN THE FUND TRUSTEE IN THE SAME FAMILY OF TRUSTEE AS OF DECEMBER 31, 2004 INVESTMENT COMPANIES ---------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES ---------------------------------------------------------------------------------------------------------------------- Kenneth R. Cutler Over $100,000 Over $100,000 ---------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ---------------------------------------------------------------------------------------------------------------------- Robert B. Watts, Jr. None None ---------------------------------------------------------------------------------------------------------------------- Robert E. Clarke None None ----------------------------------------------------------------------------------------------------------------------
OWNERSHIP OF SECURITIES OF THE ADVISER AND RELATED COMPANIES As of December 31, 2004, no Independent Trustee or any of his immediate family members owned beneficially or of record securities of the Fund's investment adviser, its principal underwriter, or any person (other than a registered investment company) directly or indirectly, controlling, controlled by or under common control with the Fund's investment adviser or principal underwriter. INFORMATION CONCERNING TRUST COMMITTEES AUDIT COMMITTEE. The Trust's Audit Committee consists of Messrs. Robert B. Watts and Robert E. Clarke, constituting all of the Trust's Independent Trustees. The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Trust. It also selects the Trust's independent public accountants, reviews the methods, scope, and result of the audits and audit fees charged, and reviews the Trust's internal accounting procedures and controls. During the fiscal year ended June 30, 2005, the Audit Committee met twice. NOMINATING COMMITTEE. The Trust's Nominating Committee, which meets when necessary, consists of Messrs. Robert B. Watts and Robert E. Clarke, constituting all of the Trust's Independent Trustees. The Nominating Committee is charged with the duty of nominating all Independent Trustees and committee members, and presenting these nominations to the Board. The Nominating Committee does not currently consider shareholder nominations. During the fiscal year ended June 30, 2005, the Nominating Committee did not meet. VALUATION COMMITTEE. The Trust's Valuation Committee consists of (1) all trustees of the Trust; (2) any two officers of the Trust; and (3) a senior representative of the Adviser. A quorum for a Committee meeting shall be three Committee members, at least one of whom shall be a Trustee. The Valuation Committee reviews and provides advice regarding the Trust's policies and procedures for determining net asset value per share of the Trust's series. The Valuation Committee also produces fair value determinations for securities maintained in the portfolios of the Trust's series consistent with valuation procedures approved by the Board. The Valuation Committee meets when necessary. During the fiscal year ended June 30, 2005, the Valuation Committee did not meet. 9 COMPENSATION OF TRUSTEES AND OFFICERS Each Independent Trustee of the Trust is paid an annual retainer fee of $10,000 for his service to the Trust. The fee is paid monthly in equal payments. The Trustees are also reimbursed for travel and related expenses incurred in attending Board meetings. Mr. Cutler receives no compensation (other than reimbursement for travel and related expenses) for his service as a Trustee of the Trust. No officer or employee of the Trust is compensated by the Trust but officers are reimbursed for travel and related expenses incurred in attending Board meetings. The following table sets forth the fees paid to each Trustee by the Trust and the Fund Complex for the fiscal year ended June 30, 2005.
-------------------------------------------------------------------------------------------------------------- TOTAL COMPENSATION COMPENSATION FROM FROM TRUST AND TRUSTEE TRUST BENEFITS RETIREMENT FUND COMPLEX -------------------------------------------------------------------------------------------------------------- Kenneth R. Cutler $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------------------------------- Robert B. Watts, Jr. 10,000 0 0 10,000 -------------------------------------------------------------------------------------------------------------- Robert E. Clarke 10,000 0 0 10,000 -------------------------------------------------------------------------------------------------------------- J. Michael Gaffney(1) 10,000 0 0 10,000 --------------------------------------------------------------------------------------------------------------
(1) Mr. Gaffney resigned as Trustee effective June 29, 2005. INVESTMENT ADVISER SERVICES OF ADVISER The Adviser serves as investment adviser to the Fund pursuant to an investment advisory agreement (the "Advisory Agreement") with the Trust. Under the Advisory Agreement, the Adviser furnishes at its own expense all services, facilities and personnel necessary in connection with managing the Fund's investments and effecting portfolio transactions for the Fund. OWNERSHIP OF ADVISER/AFFILIATIONS Brooke C. Ashland, Vice President of the Trust, has a majority ownership interest in the Adviser and is therefore deemed to control the Adviser. Brooke C. Ashland, Carol S. Fischer, Erich M. Patten and Matthew C. Patten together own 100% of the Adviser. The Adviser is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended. The Trustees or officers of the Trust who are employed by the Adviser (or affiliates of the Adviser) are Kenneth R. Cutler, Brooke C. Ashland, Matthew C. Patten, Erich M. Patten, and Carol S. Fischer. The titles for each as they relate to the Trust, the Adviser and affiliates of the Adviser are located in the table in Section 3 under "Management." FEES The Adviser's fee is calculated as a percentage of the Fund's average net assets. The fee, which is accrued daily by the Fund and is paid monthly, is equal to 0.75% per annum of the average daily net assets of the Fund. In addition to receiving its advisory fee from the Fund, the Adviser may also act and be compensated as investment manager for its clients with respect to assets that are invested in the Fund. If an investor in the Fund also has a separately managed account with the Adviser with assets invested in the Fund, 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 the client. Prior to November 1, 2004, the Adviser was contractually obligated to waive a portion of its fees so as to limit the Fund's Total Annual Fund Operating Expenses to 1.25% of the Fund's total assets. Since January 1, 2005, the Adviser has voluntarily waived fees and/or reimburse the Fund's expenses to the extent necessary to limit the Fund's Total Annual Fund Operating Expenses to 1.35%. This voluntary waiver may be reduced or eliminated at any time. The following table shows for each of the past three fiscal years the dollar amount of advisory fees accrued by the Fund, the amount of fees waived by the Adviser, and the actual fees received by the Adviser. The table includes amounts received by the Adviser's former affiliate and the predecessor adviser to the Fund, Cutler & Company, LLC, prior to October, 2003. 10 Advisory Fees Advisory Fees Advisory Fees Accrued Waived Received ------- ------ -------- Year Ended June 30, 2005 $303,748 $ 55,009 $ 248,739 Year Ended June 30, 2004 $321,049 $ 75,361 $ 245,688 Year Ended June 30, 2003 $170,006 $ 122,122 $ 47,884 OTHER PROVISIONS OF THE ADVISORY AGREEMENT The Advisory Agreement must be renewed and 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 Advisory Agreement is terminable without penalty by the Fund on 60 days' written notice when authorized either by vote of the holders of a majority of the Fund's securities or by a vote of a majority of the Board on 60 days' written notice to the Adviser, or by the Adviser on 60 days' written notice to the Fund. Under the Advisory 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 Fund. The Advisory 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. ADVISORY AGREEMENT APPROVAL At a meeting held on September 20, 2004, the Board of Trustees, including the Independent Trustees, approved renewal of the Advisory Agreement. As part of their review of the Agreement, the Trustees received and discussed certain information, including information regarding the advisory services performed, qualifications of staffing, and Fund performance. The Trustees met with representatives from the Adviser's senior management, as well as the senior investment professionals, to discuss this information and the Adviser's intentions with regard to the management of the Fund. The Independent Trustees also met separately with Fund counsel. The Trustees reviewed the quality of the services provided to the Fund by the Adviser, including information prepared by the administrator as to the Fund's performance relative to an appropriate benchmark as well as compared to the Fund's appropriate peer group. For the period ended June 30, 2004, the Fund underperformed against the Lipper Equity Income Funds Index and the Russell 1000 Value Index over the one-year and five-year periods but outperformed the Lipper Equity Income Funds Index over the ten-year period. The Trustees also considered the investment process and style of the Fund, noting that the Adviser had been consistent and conservative in its portfolio management and that all of the Fund's holdings have a strong dividend history, which is a mandate of the Adviser's investment style. The Trustees noted that the portfolio turnover rate had been 14% for the previous two-years, reducing the transaction costs incurred by shareholders. The Trustees also considered the fact that the Adviser has a personal relationship with most of the Fund's shareholders, the shareholders of the Fund are generally conservative in nature and the fact that the Fund is designed for those investors who are focused on long-term gains. The Trustees determined that the Fund's performance appropriately reflected the goals of its shareholders. The Trustees also reviewed the investment management fees payable to the Adviser and comparative information prepared by the administrator utilizing data provided by Lipper Inc. and Yahoo Finance on investment management fees paid and expenses incurred by similarly situated funds. The Trustees noted that the Fund's contractual expense cap of 1.25% was well below the average for Large Cap Value funds, as reported by Yahoo Finance, but higher than the mean for Lipper Equity Income Funds reporting 12b-1 fees of .25% or less. Also, the contractual advisory fee of .75% was higher than the mean for such Lipper Equity Income Funds, but with the contractual expense cap, the actual advisory fee paid to the Adviser for the year ended June 30, 2005 was only .436%, well below the mean of actual advisory fees for such similarly situated funds. In voting to renew and approve the Advisory Agreement, the Trustees compared the fees payable by the Fund in relation to those paid by similarly situated funds and determined that the actual advisory fees paid compared favorably to the average. In this regard, the Trustees also considered the term and magnitude of the contractual expense limitation agreement then in effect for the Fund, noting that it had significantly reduced the fees and expenses that would have otherwise been payable by the Fund, causing the Fund's advisory fees and operating expenses to be below average compared to those of certain peer groups. The Trustees considered the quality of the services performed for the Fund by the Adviser, and discussed the historical relative performance of the Fund. The Trustees also considered the compliance structure and systems established by the Adviser, and steps that were expected to be taken to maintain and/or enhance such structure and systems. The Trustees noted that there had been no violations of the Adviser's Code of Ethics nor improper market timing trades in the prior year. 11 Based upon its review, the Board determined that the advisory fees proposed to be payable to the Adviser were reasonable and fair and concluded that it was in the best interest of the Fund and its shareholders for the Board to renew the Advisory Agreement for the Fund. In arriving at its decision to approve the renewal of the Agreement, the Board did not assign relative weights to the factors discussed above or deem any one or group of them to be controlling in and of themselves. PORTFOLIO MANAGERS OTHER ACCOUNTS MANAGED Erich M. Patten and Matthew C. Patten, the Fund's Portfolio Managers, are also responsible for the day-to-day management of other accounts. Other Accounts Managed (as of June 30, 2005)
---------------------------------------------------------------------------------------------------------------------- Number of Accounts Total Assets Total Total Managed with of Accounts Number of Assets of Advisory Fee with Name of Accounts Accounts Based on Advisory Portfolio Manager Type of Accounts Managed Managed Performance Fee Based on ------------------ ---------------- ------- ------- ----------- Performance ----------- ---------------------------------------------------------------------------------------------------------------------- Matthew C. Patten Registered Investment Companies: 0 $ 0 0 $ 0 Other Pooled Investment Vehicles: 1 $28,280,000 1 $28,280,000 Other Accounts: 44 $84,288,187 0 $ 0 ---------------------------------------------------------------------------------------------------------------------- Erich M. Patten Registered Investment Companies: 0 $ 0 0 $ 0 Other Pooled Investment Vehicles: 0 $ 0 0 $ 0 Other Accounts: 44 $84,288,187 0 $ 0 ----------------------------------------------------------------------------------------------------------------------
POTENTIAL CONFLICTS OF INTEREST The Adviser does not believe there are any material conflicts of interest in connection with the Portfolio Managers' management of the Fund's investments and the investments of other accounts listed above. However, potential conflicts of interest may arise where the Fund and other accounts managed by the Portfolio Managers follow the same investment strategy and the Adviser is purchasing the same securities for the Fund and its other clients or where a Portfolio Manager is trading personally in the same securities. In the event that more than one account managed by the Adviser is trading the same security, the Adviser has adopted policies and procedures designed to allocate trades on a pro rata basis across all accounts managed by the Adviser. These policies are designed to ensure equitable treatment of all accounts and to protect the Fund from disparate treatment due to any conflicts of interest. In addition, procedures are in place to monitor personal trading by the Portfolio Managers to ensure that the interests of the Adviser's clients come first. COMPENSATION Matthew C. Patten and Erich M. Patten are compensated by the Adviser in the form of both fixed and variable compensation for work conducted on behalf of the Fund and other clients of the Adviser or its affiliates. In addition to a fixed base salary, each is eligible for a performance bonus if the gross pre-tax performance of the accounts managed by the Adviser, including the Fund, outperform the S&P 500 Index. All compensation is payable in cash, however the Portfolio Managers have the option of converting their performance bonus into equity ownership in the Adviser in lieu of receiving cash. OWNERSHIP OF FUND SHARES The following table indicates the dollar value of shares of the Fund beneficially owned by the Portfolio Managers as of June 30, 2005. 12 ---------------------------------------------------------------- Name of Dollar Value of Fund Shares Beneficially Portfolio Manager Owned ---------------------------------------------------------------- Erich M. Patten $10,001 - $50,000 ---------------------------------------------------------------- Matthew C. Patten None ---------------------------------------------------------------- DISTRIBUTOR DISTRIBUTION SERVICES The distributor of the shares of the Fund is Ultimus Fund Distributors, LLC (the "Distributor"), located at 225 Pictoria Drive, Suite 450, Cincinnati, Ohio 45246. The Distributor is a subsidiary of the Administrator, and Robert G. Dorsey, Mark J. Seger and John F. Splain are each an officer of the Trust and a Managing Director of the Distributor. The Distributor serves as principal underwriter for the Trust pursuant to a Distribution Agreement. Shares of the Fund are sold on a continuous basis by the Distributor. The Distributor has agreed to use its best efforts to solicit orders for the sale of Fund shares, but it is not obliged to sell any particular amount of shares. OTHER PROVISIONS OF DISTRIBUTION AGREEMENT The Distribution Agreement provides that, unless sooner terminated, it will continue in effect from year to year so long as such continuance is approved. The 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 Distribution Agreement or interested persons of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreement is terminable without penalty by the Fund with respect to the Fund on 60 days' written notice when authorized either by vote of a majority of the Fund's outstanding shareholders or by a vote of a majority of the Board, or by the Distributor on 60 days' written notice to the Fund. OTHER SERVICE PROVIDERS TO THE FUND ADMINISTRATOR, ACCOUNTANT AND TRANSFER AGENT Effective April 18, 2005, the Fund retains Ultimus Fund Solutions, LLC (the "Administrator"), located at 225 Pictoria Drive, Suite 450, Cincinnati, Ohio 45246, to provide the Fund with administrative, pricing, accounting, dividend disbursing, shareholder servicing and transfer agent services. The Administrator maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Fund's shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions. The Administrator also provides accounting and pricing services to the Fund and supplies non-investment related statistical and research data, internal regulatory compliance services and executive and administrative services. The Administrator supervises the preparation of tax returns, reports to shareholders of the Fund, reports to and filings with the SEC and state securities commissions, and materials for meetings of the Board of Trustees. For the performance of these services, the Fund pays the Administrator a fee at the annual rate of 0.15% of the average value of the Fund's daily net assets up to $500 million, 0.125% of such assets from $500 million to $1 billion, and 0.10% of such assets in access of $1 billion, subject to a minimum monthly fee of $6,000. In addition, the Fund pays out-of-pocket expenses, including but not limited to, postage, envelopes, checks, drafts, forms, reports, record storage, communication lines and all cists of external pricing services. For the fiscal year ended June 30, 2005, the Fund paid fees to the Administrator of $20,000. Prior to April 18, 2005, the Fund's administrator, account and transfer agent was Citigroup Global Transaction Services, located at Two Portland Square, Portland, Maine 04101. The following table shows the dollar amount of administration fees and accounting fees paid by the Fund to Citigroup Global Transaction Services for each of the past three fiscal years. Administration Fees Accounting Fees ------------------- --------------- Fiscal Year Ended June 30, 2005 $38,009 $39,011 Fiscal Year Ended June 30, 2004 $46,081 $52,438 Fiscal Year Ended June 30, 2003 $33,749 $49,552 13 CUSTODIAN The custodian is US Bank, N.A. (the "Custodian"), located at 425 Walnut Street, Cincinnati, Ohio 45202. The Custodian, pursuant to an agreement with the Trust safeguards and controls the Fund's cash and securities, determines income and collects interest on Fund investments. The Custodian may employ subcustodians to provide custody of the Fund's assets. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP, 111 South Wacker Drive, Chicago, Illinois 60606, an independent registered public accounting firm, has been selected as auditor for the Fund. Deloitte & Touche LLP audits the annual financial statements of the Fund, reviews certain regulatory filings of the Fund and prepares the Fund's tax returns. ================================================================================ PORTFOLIO TRANSACTIONS ================================================================================ 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 Fund purchases or to whom the Fund sells 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. COMMISSIONS PAID The following table shows the aggregate brokerage commissions paid by the Fund during each of the past three fiscal years. Year Ended June 30, 2005 $17,774 Year Ended June 30, 2004 $22,703 Year Ended June 30, 2003 $57,593 The aggregate commissions paid by the Fund during the fiscal year ended June 30, 2003 were higher than the aggregate commissions paid during fiscal years 2005 and 2004 because higher market volatility during such year caused the Fund to have a higher portfolio turnover rate. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES Subject to any applicable policies adopted by the Trust, the Adviser places orders for the purchase and sale of securities with brokers and dealers selected by and in the discretion of the Adviser. The Fund does not have 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 Fund rather than by any formula. The Adviser seeks "best execution" for all portfolio transactions. This means that the Adviser seeks the most favorable price and execution available. The Adviser's primary consideration in placing trades for the Fund is prompt execution of orders in an effective manner and at the most favorable price available. 14 CHOOSING BROKER-DEALERS The Fund 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 takes into account factors such as size of the order, difficulty of execution, efficiency of the executing broker's facilities (including the research services described below) and any risk assumed by the executing broker. OBTAINING RESEARCH FROM BROKERS The Adviser may give consideration to research services furnished by brokers to the Adviser for its use and may cause the Fund to pay these brokers a higher 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 Fund, and not all research services may be used by the Adviser in connection with the Fund. The Adviser's fees are not reduced by reason of the Adviser's receipt of research services. Subject to applicable regulations and the Adviser's fiduciary duties, the Adviser 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 follows a limited number of securities, most of the commission dollars spent for industry and stock research directly benefit the Adviser's 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. 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 that is deemed equitable to the accounts involved. Clients are typically allocated securities with prices averaged on a per-share or per-bond basis. TRANSACTIONS THROUGH AFFILIATES The Adviser does not effect brokerage transactions through affiliates of the Adviser (or affiliates of those persons). The Board has not adopted procedures to allow such transactions. OTHER ACCOUNTS OF THE ADVISER Investment decisions for the Fund are made independently from those for any other account or investment company that is or may in the future become managed by the Adviser 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 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 Fund 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. 15 PORTFOLIO TURNOVER The frequency of portfolio transactions of the Fund (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 Fund expects normal turnover in the range of 25-50%, 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 the 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 Fund's commission costs are usually done at rates far under those in the retail market. The Fund's portfolio turnover rates for the fiscal years ended June 30, 2005, 2004 and 2003 were 14%, 14% and 61%, respectively. SECURITIES OF REGULAR BROKER-DEALERS From time to time the Fund 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 Fund's last fiscal year; (2) engaged in the largest amount of principal transactions for portfolio transactions of the Fund during the Fund's last fiscal year; or (3) sold the largest amount of the Fund's shares during the Fund's last fiscal year. ================================================================================ POLICY REGARDING THE SELECTIVE DISCLOSURE OF PORTFOLIO HOLDINGS ================================================================================ The Board of Trustees of the Trust has adopted the Policy Regarding the Selective Disclosure of Portfolio Holdings set forth below to govern the circumstances under which disclosure regarding portfolio securities held by the Fund, and disclosure of purchases and sales of such securities, may be made to shareholders of the Fund or other persons. The Board of Trustees has delegated to the Trust's Chief Compliance Officer the responsibility for ongoing monitoring and supervision of the policy to ensure compliance. The Board provides ongoing oversight of compliance with the policy and as part of this oversight function, the Trustees receive from the Trust's Chief Compliance Officer reports on any violations of or exceptions to this policy at least quarterly. In addition, the Trustees receive an annual assessment of the adequacy and effect of the policy with respect to the Fund, any changes thereto, and an annual review of the operations of the policy. Although no material conflicts of interest are believed to exist that could disadvantage the Fund or its shareholders, various safeguards have been implemented to protect the Fund and its shareholders from conflicts of interest, including: the adoption of Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act designed to prevent fraudulent, deceptive or manipulative acts by officers and employees of the Trust, its investment adviser and its principal underwriter in connection with their personal securities transactions; the adoption by the Fund's investment adviser and principal underwriter of insider trading policies and procedures designed to prevent their employees' misuse of material non-public information; and the adoption by the Trust of a Code of Ethics for principal officers of the Trust that requires such officers to avoid conflicts of interest and to report to the Chief Compliance Officer any affiliations or other relationships that could potentially create a conflict of interest with the Fund. o Public disclosure regarding the portfolio securities held by the Fund is made quarterly in the Annual Report and Semi-Annual Report to shareholders and in quarterly holdings reports on Form N-Q ("Official Reports"). Except for such Official Reports and as otherwise expressly permitted herein, shareholders and other persons may not be provided with information regarding portfolio securities held, purchased or sold by the Fund. o Information regarding portfolio securities, and other information regarding the investment activities of the Fund, may be disclosed to rating and ranking organizations for use in connection with their rating or ranking of the Fund, but only if such disclosure has been approved by the Chief Compliance Officer of the Trust. o This policy relating to disclosure of the Fund's holdings of portfolio securities does not prohibit: (i) disclosure of information to the Fund's investment adviser or to other service providers, including but not limited to, the Trust's administrator, distributor, custodian, legal counsel and auditors, or to brokers and dealers through whom the Fund purchases and sells portfolio securities; and (ii) disclosure of holdings of, 16 or transactions in, portfolio securities by the Fund that is made on the same basis to all shareholders of the Fund. o The Chief Compliance Officer may approve other arrangements, not described herein, under which information relating to portfolio securities held by the Fund, or purchased or sold by the Fund (other than information contained in Official Reports), is disclosed to any shareholder or other person. The Chief Compliance Officer shall approve such an arrangement only if she concludes (based on a consideration of the information to be disclosed, the timing of the disclosure, the intended use of the information and other relevant factors) that the arrangement is reasonably necessary to aid in conducting the ongoing business of the Fund and is unlikely to affect adversely the Fund or any shareholder of the Fund. The Chief Compliance Officer shall inform the Board of Trustees of any such arrangements that are approved, and the rationale supporting approval, at the next regular quarterly meeting of the Board of Trustees following such approval. The Chief Compliance Officer shall also inform the Board at least quarterly of any violations of this policy. o Neither the Adviser nor the Trust (nor any affiliated person, employee, officer, trustee or director of the Adviser or the Trust) may receive any direct or indirect compensation in consideration of the disclosure of information relating to portfolio securities held, purchased or sold by the Fund. Below is a table that lists each service provider receiving non-public portfolio information along with information regarding the frequency of access, lag time for disclosure of portfolio information, and limitations on use (including a prohibition on trading on non-public information) of portfolio information.
--------------------------------------------------------------------------------------------------------- TYPE OF SERVICE FREQUENCY OF ACCESS TO RESTRICTIONS ON USE LAG TIME PROVIDER PORTFOLIO INFORMATION --------------------------------------------------------------------------------------------------------- Adviser Daily Contractual and Ethical None --------------------------------------------------------------------------------------------------------- Administrator and Daily Contractual and Ethical None Distributor --------------------------------------------------------------------------------------------------------- Custodian Daily Contractual and Ethical None --------------------------------------------------------------------------------------------------------- Auditor During annual audit, or as Ethical At least 30 days needed --------------------------------------------------------------------------------------------------------- Legal counsel Regulatory filings, board Ethical As needed meetings, and if a legal issue regarding the portfolio requires counsel's review --------------------------------------------------------------------------------------------------------- Printers Twice a year - printing of No formal restrictions in At least 30 days semi-annual and annual place. reports --------------------------------------------------------------------------------------------------------- Broker/dealers through Daily access to the relevant Contractual and Ethical None which Fund purchases purchase and/or sale - no and sells portfolio broker/dealer has access to securities the Fund's entire portfolio --------------------------------------------------------------------------------------------------------- Independent Rating or Monthly No formal restrictions At least 30 days Ranking Agencies: Morningstar Inc., Lipper Inc., Bloomberg L.P. and Standard & Poor's, Inc. ---------------------------------------------------------------------------------------------------------
The Board of Trustees has determined that the Fund and its shareholders are adequately protected by the restrictions on use in those instances listed above, including those where contractual obligations between the Fund and the party do not exist. There can be no assurance, however, that the Fund's Policy Regarding the Selective Disclosure of Portfolio Holdings will prevent the misuse of such information by firms or individuals that receive such information. 17 ================================================================================ ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ================================================================================ GENERAL INFORMATION You may effect purchases or redemptions or request any shareholder privilege in person at the Transfer Agent's offices located at 225 Pictoria Drive, Suite 450, Cincinnati, Ohio 45246. The Fund accepts orders for the purchase or redemption of shares on any weekday except days when the New York Stock Exchange is closed. The Fund may not be available for sale in the state in which you reside. Please check with your investment professional to determine the Fund's availability. ADDITIONAL PURCHASE INFORMATION Shares of the Fund are sold on a continuous basis by the Distributor at the next calculated NAV per share, without any sales charge. Accordingly, the offering price per share is the same as the NAV. The Fund reserves the right to refuse any purchase request in excess of 1% of the Fund's total assets. The Fund also reserves the right to refuse any purchase request, particularly requests that could adversely affect the Fund or its operations. This includes those from any individual or group who, in the Fund's view, is likely to engage in excessive trading and as described in the Prospectus. Fund shares are normally issued for cash only. In the Adviser's discretion, however, the Fund may accept portfolio securities that meet the investment objective and policies of the Fund as payment for Fund shares. The Fund will only accept securities that: (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). IRAS All contributions into an IRA through the automatic investing plan are treated as IRA contributions made during the year the investment is received. 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. 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 Fund. 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 Fund directly. When you purchase the Fund's 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 Fund is not responsible for the failure of any financial institution to carry out its obligations. Investors purchasing shares of the Fund 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. ADDITIONAL REDEMPTION INFORMATION The Fund may redeem shares involuntarily to reimburse the Fund for any loss sustained by reason of the failure of a shareholder to make full payment for shares purchased by the shareholder or to collect any charge relating to transactions effected for the benefit of a shareholder which is applicable to the Fund's shares as provided in the Prospectus. 18 SUSPENSION OF RIGHT OF REDEMPTION The right of redemption may not be suspended, except for any period during which: (1) the New York Stock Exchange, Inc. is closed (other than customary weekend and holiday closings) or during which the SEC determines that trading thereon is restricted; (2) an emergency (as determined by the SEC) exists as a result of which disposal by the Fund of its securities is not reasonably practicable or as a result of which it is not reasonably practicable for the Fund to fairly determine the value of its net assets; or (3) the SEC by order has permitted a suspension for the protection of the shareholders of the Fund. REDEMPTION IN KIND Redemption proceeds normally are paid in cash. Payments may be made wholly or partly in portfolio securities, however, if the Fund's management determines conditions exist which would make payment in cash detrimental to the best interests of the Fund. 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. In addition, the shareholder will bear the risk of any market fluctuation in the price of a security from the time of valuation by the Fund to the time of transfer to the shareholder. Accordingly, the redeeming shareholder, when selling a security received in kind, may receive cash equal to a lesser or greater amount than the total value of the portfolio securities received in redemption of Fund shares. The Fund will endeavor to transfer the security to the shareholder as quickly as practicable, subject to the shareholder's timely provision of information pertaining to the custodial account to which such securities will be transferred. The shareholder will bear all costs associated with the in-kind distribution of portfolio securities. The Fund has 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 Fund's total net assets, whichever is less, during any 90-day period. In the opinion of the Fund's 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. In connection with a redemption in kind, the shareholder has the option to receive in cash the lesser of $250,000 or 1% of the Fund's total net assets. The shareholder may waive this right. NAV DETERMINATION The price of the Fund's shares on any given day is its NAV per share. NAV is calculated for the Fund on each day that the New York Stock Exchange is open for trading. In determining the Fund's NAV per share, securities for which market quotations are readily available are valued at current market value using the last reported sales price provided by independent pricing services as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time). If no sale price is reported, the mean of the last bid and ask price is used. Non-exchange traded securities for which over-the-counter quotations are available are generally valued at the mean between the closing bid and asked prices. Money market instruments that mature within sixty days or less may be valued at amortized cost unless the Fund's Adviser believes another valuation is more appropriate. Investments in other open-ended regulated investment companies are valued at net asset value. The Fund values securities at fair value pursuant to procedures adopted by the Board of Trustees if (1) market quotations are insufficient or not readily available or (2) the Adviser believes that the prices or values available are unreliable due to, among other things, the occurrence of events after the close of the securities markets on which the Fund's securities primarily trade but before the time as of which the Fund calculates its net asset value. DISTRIBUTIONS Unless a shareholder has elected to receive distributions in cash, distributions of net investment income will be reinvested at the Fund's NAV per share as of the last day of the period with respect to which the distribution is paid. Distributions of capital gain will be reinvested at the NAV per share of the Fund on the payment date for the distribution. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a month and paid by the Fund during January of the following calendar year. ================================================================================ 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 Fund qualifies as a regulated investment company (as discussed below). Such information is only a summary of certain key Federal income tax considerations affecting the Fund and its shareholders that are not described in the Prospectus. No attempt has been made to present a complete explanation 19 of the Federal tax treatment of the Fund of the tax implications for 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 Fund and its shareholders. Any of these changes or court decisions may have a retroactive effect. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISER AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM. QUALIFICATION AS A REGULATED INVESTMENT COMPANY The Fund intends 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 Fund. The tax year-end of the Fund is June 30 (the same as the Fund's fiscal year end). MEANING OF QUALIFICATION As a regulated investment company, the Fund generally will not be subject to Federal income tax on the portion of its investment company taxable income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses, and the excess of short-term capital gains over long-term capital losses) and net capital gain (i.e., the excess of long-term capital gains over short-term capital losses) that it distributes to shareholders. In order to qualify as a regulated investment company the Fund must satisfy the following requirements: o The Fund must distribute at least 90% of its investment company taxable income for the tax year. (Certain distributions made by the Fund after the close of its tax year are considered distributions attributable to the previous tax year for purposes of satisfying this requirement.) o The Fund must derive at least 90% of its gross income each year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities, or other income (including gains from options and futures contracts) derived from its business of investing in securities. o The Fund must satisfy the following asset diversification test at the close of each quarter of the Fund's tax year: (1) at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of the issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of the issuer); and (2) no more than 25% of the value of the Fund's total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. FAILURE TO QUALIFY If for any tax year the Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for dividends to shareholders, and the dividends will be taxable to the shareholders as ordinary income to the extent of the Fund's current and accumulated earnings and profits. A portion of these distributions generally may be eligible for the dividends-received deduction in the case of corporate shareholders. Failure to qualify as a regulated investment company would thus have a negative impact on the Fund's income and performance. It is possible that the Fund will not qualify as a regulated investment company in any given tax year. FUND DISTRIBUTIONS The Fund anticipates distributing substantially all of its investment company taxable income for each tax year. These distributions are taxable to shareholders as ordinary income. A portion of these distributions may qualify for the 70% dividends-received deduction for corporate shareholders. A portion of the Fund's distributions may be treated as "qualified dividend income," taxable to individuals at a maximum Federal tax rate of 15% (5% for individuals in lower tax brackets). A distribution is treated as qualified dividend income to the extent that the Fund receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that certain holding period and other requirements are met. To the extent the 20 Fund's distributions are attributable to other sources, such as interest or capital gains, the distributions generally are not treated as qualified dividend income. The Fund anticipates distributing substantially all of its net capital gain for each tax year. These distributions generally are made only once a year, usually in December, but the Fund may make additional distributions of net capital gain at any time during the year. These distributions are taxable to shareholders as long-term capital gain, regardless of how long a shareholder has held shares. The Fund 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 utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders. As of June 30, 2005, the Fund had capital loss carryforwards of $16,890,239, of which $1,053,106 expires June 30, 2009, $7,402,392 expires June 30, 2010, $5,747,725 expires June 30, 2011 and $2,687,016 expires June 30, 2012. Distributions by the Fund 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 Fund will be treated in the manner described above regardless of whether the distribution is paid in cash or reinvested in additional shares of the 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 Fund. 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. 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 Fund 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 Fund) 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. CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities are treated as ordinary income or ordinary loss. Similarly, gains or losses from the disposition of foreign currencies, from the disposition of debt securities denominated in a foreign currency, or from the disposition of a forward contract denominated in a foreign currency which are attributable to fluctuations in the value of the foreign currency between the date of acquisition of the asset and the date of disposition also are treated as ordinary income or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, increase or decrease the amount of the Fund's investment company taxable income available to be distributed to its shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gain. If the Fund owns shares in a foreign corporation that constitutes a "passive foreign investment company" (a "PFIC") for Federal income tax purposes and the Fund does not elect to treat the foreign corporation as a "qualified electing fund" within the meaning of the Code, the Fund may be subject to U.S. Federal income taxation on a portion of any "excess distribution" it receives from the PFIC or any gain it derives from the disposition of such shares, even if such income is distributed as a taxable dividend by the Fund to its shareholders. The Fund may also be subject to additional interest charges in respect of deferred taxes arising from such distributions or gains. Any tax paid by the Fund as a result of its ownership of shares in a PFIC will not give rise to any deduction or credit to the Fund or to any shareholder. A PFIC means any foreign corporation if, for the taxable year involved, either (1) it derives at least 75% of its gross income from "passive income" (including, but not limited to, interest, dividends, royalties, rents and annuities) or (2) on average, at least 50% of the value (or adjusted tax basis, if elected) of the assets held by the corporation produce "passive income." The Fund could elect to "mark-to market" stock in a PFIC. Under such an election, the Fund would include in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the Fund's adjusted basis in the PFIC stock. The Fund would be allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value 21 of the PFIC stock as of the close of the taxable year, but only to the extent of any net mark-to-market gains included by the Fund for prior taxable years. The Fund's adjusted basis in the PFIC stock would be adjusted to reflect the amounts included in, or deducted from, income under this election. Amounts included in income pursuant to this election, as well as gain realized on the sale or other disposition of the PFIC stock, would be treated as ordinary income. The deductible portion of any mark-to-market loss, as well as loss realized on the sale or other disposition of the PFIC stock to the extent that such loss does not exceed the net mark-to-market gains previously included by the Fund, would be treated as ordinary loss. The Fund generally would not be subject to the deferred tax and interest charge provisions discussed above with respect to PFIC stock for which a mark-to-market election has been made. If the Fund purchases shares in a PFIC and the Fund does elect to treat the foreign corporation as a "qualified electing fund" under the Code, the Fund may be required to include in its income each year a portion of the ordinary income and net capital gains of the foreign corporation, even if this income is not distributed to the Fund. Any such income would be subject to the 90% distribution requirement described above and the calendar year distribution requirement described below. 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. The balance of the Fund's income must be distributed during the next calendar year. The Fund will be treated as having distributed any amount on which it is subject to income tax for any tax year ending in a calendar year. For purposes of calculating the excise tax, the Fund: (1) reduces its 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 in determining the amount of ordinary taxable income for the current calendar year. The Fund will include foreign currency gains and losses incurred after October 31 in determining ordinary taxable income for the succeeding calendar year. The Fund intends to make sufficient distributions of ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. Investors should note, however, that the Fund might in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. SALE OR REDEMPTION OF SHARES In general, a shareholder will recognize gain or loss on the sale or redemption of shares of the Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of the Fund 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 Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. Any capital loss arising from the sale or redemption of shares held for six months or less, however, is treated as a long-term capital loss to the extent of the amount of capital gain distributions received on such shares. For this purpose, the special holding period rules of Code Section 246(c)(3) and (4) generally will apply in determining the holding period of shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income. BACKUP WITHHOLDING TAX The Fund will be required in certain cases to withhold and remit to the U.S. Treasury 28% of distributions and the proceeds of redemptions of shares paid to any shareholder: (1) who has failed to provide its 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 Fund that it is not subject to backup withholding or that it is a corporation or other "exempt recipient." 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 Fund is "effectively connected" with a U.S. trade or business carried on by the foreign shareholder. If the income from the Fund 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 22 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 Fund, capital gain distributions from the Fund and amounts retained by the Fund that are designated as undistributed capital gain. If the income from the Fund 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 Fund will be subject to U.S. Federal income tax at the rates applicable to U.S. citizens or U.S. corporations. A foreign corporate shareholder would also be subject to a branch profits tax. In the case of a non-corporate foreign shareholder, the Fund may be required to withhold U.S. Federal income tax at a rate of 30% on distributions that are otherwise exempt from withholding (or taxable at a reduced treaty rate), unless the shareholder furnishes the Fund 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 Fund can differ from the rules for U.S. Federal income taxation described above. These foreign rules are not discussed herein. Foreign shareholders are urged to consult their own tax advisers as to the consequences of foreign tax rules with respect to an investment in the Fund, distributions from the Fund, the applicability of foreign taxes and related matters. 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 Fund 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 Fund, distributions from the Fund, the applicability of state and local taxes and related matters. ================================================================================ OTHER MATTERS ================================================================================ GENERAL GENERAL INFORMATION The 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. The 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 series. Prior to November 1, 2005, the name of the Fund was "Cutler Value Fund." The Trust has an unlimited number of authorized shares of beneficial interest. The Board may, without shareholder approval, divide the authorized shares into an unlimited number of separate series and may divide series into classes of shares; the costs of doing so will be borne by the Trust. The Trust will continue indefinitely until terminated. SHAREHOLDER VOTING AND OTHER RIGHTS Each share of the Fund has equal dividend, distribution, liquidation and voting rights, and fractional shares have those rights proportionately. Delaware law does not require the Fund 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 Fund. All shares, when issued in accordance with the terms of this offering, will be fully paid and nonassessable. A shareholder in the 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 the 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. 23 CERTAIN REORGANIZATION TRANSACTIONS The Fund may be terminated upon the sale of its assets to, or merger with, another open-end, management investment company or series thereof, or upon liquidation and distribution of its assets. Generally such terminations must be approved by the vote of the holders of a majority of the outstanding shares of the Fund. However, the Trustees may, without prior shareholder approval, change the form of organization of the Fund by merger, consolidation or incorporation. CODES OF ETHICS The Trust, the Adviser and the principal underwriter have adopted Codes of Ethics pursuant to Rule 17j-1 under the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Fund. PROXY VOTING POLICIES The Trust and the Adviser have adopted Proxy Voting Policies and Procedures that describe how the Fund intends to vote proxies relating to portfolio securities. The Proxy Voting Policies and Procedures of the Trust and the Adviser are attached to this Statement of Additional Information as Appendix B. Information regarding how the Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 is available without charge upon request by calling (888) CUTLER4, or on the SEC's website at http://www.sec.gov. OWNERSHIP OF FUND SHARES As of August 31, 2005, the officers and Trustees of the Trust as a group owned of record or beneficially less than 1% of the shares of the Fund. Also as of that date, no shareholders of record owned 5% or more of the shares of the Fund. LIMITATIONS ON LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS Delaware law provides that Fund shareholders are entitled to the same limitations of personal liability extended to stockholders of private corporations for profit. The Fund believes that the securities regulators of some States, however, have in the past 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 permitted by applicable laws. However, any Trustee or officer will not be protected against liability to the Fund or its 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. REGISTRATION STATEMENT This SAI and the Prospectus do not contain all the information included in the Trust's 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. or obtained on the SEC's website at http://www.sec.gov. 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. FINANCIAL STATEMENTS The financial statements of the Fund for the year ended June 30, 2005 included in the Annual Report to shareholders of the Fund, which have been audited by Deloitte & Touche LLP, are incorporated herein by reference. 24 ================================================================================ APPENDIX A: DSRIPTION OF SECURITIES RATINGS ================================================================================ CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS) MOODY'S INVESTORS SERVICE, INC. Aaa Bondsthat 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 Ca Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. NOTE Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. A-1 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 FITCH RATINGS 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. 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, High default risk. Default is a real possibility. Capacity for meeting C 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, Default. Securities are not meeting current obligations and are D 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 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. A-3 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. 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. A-4 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, Preferred stock rated BB, B, and CCC is regarded, on balance, as CCC 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 SHORT TERM RATINGS 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. A-6 C A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. FITCH RATINGS F1 Obligations assigned this rating have the highest capacity for timely repayment under Fitch Ratings' 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 `F1' 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 ================================================================================ APPENDIX B: PROXY VOTING POLICIES AND PROCEDURES ================================================================================ CUTLER INVESTMENT COUNSEL, LLC PROXY VOTING POLICIES & PROCEDURES SEC Rule 206(4)-6 (the "Rule") requires each investment adviser that votes proxies for its clients to have Proxy Voting Policies and Procedures. The Department of Labor requires that an investment adviser vote proxies for ERISA plan securities, unless the voting right has been expressly reserved to the plan trustees or other plan fiduciary. Cutler Investment Counsel, LLC ("Cutler") votes proxies for all of our clients unless the client relieves us of that responsibility in writing. Accordingly, we advise the custodian to forward all proxies to us. We retain final authority and fiduciary responsibility for proxy voting. The Rule requires that we describe how we address material conflicts between our interests and those of our clients with respect to proxy voting. Cutler votes securities based on a pre-determined policy assuming the decision involves little or no discretion. We recognize, however, that under certain circumstances we may have a conflict of interest in voting proxies on behalf of a fund or other client. A "conflict of interest," means any circumstance when Cutler, a fund advised by us, the principal underwriter of the fund, or one or more of their affiliates (including officers, directors and employees) knowingly does business with, receives compensation from, or sits on the board of, a particular issuer or closely affiliated entity, and, therefore, may appear to have a conflict of interest between its own interests and the interests of fund shareholders in how proxies of that issuer are voted. In the event of such a conflict of interest, we will vote proxies relating to such issuers in accordance with the following procedures: (i) ROUTINE MATTERS CONSISTENT WITH POLICIES. Cutler may vote proxies for routine matters in accordance with these Policies. (ii) IMMATERIAL CONFLICTS. Cutler may vote proxies in accordance with these Policies if it is determined that the conflict of interest is not material. A conflict of interest will be considered material to the extent that it is determined that such conflict has the potential to influence Cutler's decision-making in voting a proxy. Materiality determinations will be based upon an assessment of the particular facts and circumstances. (iii) MATERIAL CONFLICTS AND NON-ROUTINE MATTERS. If, with respect to any proxy to be voted on behalf of a series (a "Fund") of The Cutler Trust (the "Trust"), Cutler believes that (A) it has a material conflict and (B) that the issue to be voted upon is non-routine or is not covered by these Policies, then -- Cutler shall contact the proxy administrator for review and determination. In the event that the proxy administrator determines that he/she has a conflict of interest, the proxy administrator shall submit the matter for determination to a member of the Board of Trustees of the Trust (the "Board") who is not an "interested person" of the Trust, as defined in the Investment Company Act of 1940, as amended. In making a determination, the proxy administrator or the Board member will consider the best interests of Fund shareholders and may consider the recommendations of independent third parties that evaluate proxy proposals. If, with respect to any proxy to be voted on behalf of any other clients, Cutler believes that (A) it has a material conflict and (B) that the issue to be voted upon is non-routine or is not covered by these policies, then we would suggest the client engage a third party to vote their proxies. The Rule also requires us to disclose information to our clients about our procedures and policies, and how the client may obtain information on how we voted their proxies. This disclosure is in our ADV. We will send to our clients upon verbal or written request a copy of our policies and procedures or any request on how we voted their proxies. B-1 The proxy materials voted by us are logged by the operations department proxy administrator when received. The proxy statement is distributed to an appropriate investment manager, who reviews the proxy, and marks the appropriate vote according to our policies. Any comments by the investment manager are noted on the proxy material. Any unusual or controversial issues are discussed with the Investment Committee. A permanent record of all votes is retained. The proxy administrator reconciles on a regular basis proxies received against holdings on the record date of client accounts to ensure that all shares held on the record date are voted. The proxy administrator is responsible for overseeing the proxy voting process to ensure that proxies are voted in accordance to the guidelines provided in these Proxy Voting Policies and Procedures. The proxy administrator also will, from to time, periodically review these Policies and industry trends in comparable proxy voting policies and procedures. The proxy administrator may recommend, as appropriate, revisions to update these Policies. As described further below, after an initial review, we will generally vote with management on routine matters related to the operation of the company and not expected to have a significant economic impact on the company or shareholders. We review and analyze on a case-by-case basis, non-routine proposals that are more likely to affect the structure and operation of the issuer and to have a greater impact on the value of the investment. We review and consider corporate governance issues related to proxy matters and generally support proposals that foster good corporate governance practices. Regarding special interest issues we may consider the following factors when developing a position: (i) the long-term benefit to shareholders of promoting corporate accountability and responsibility on social issues; (ii) management's responsibility with respect to special interest issues; (iii) any economic costs and restrictions on management; and (iv) the responsibility to vote proxies for the greatest long-term shareholder value. Since the quality and depth of management is a primary factor considered when investing in an issuer, the recommendation of the issuer's management on any issue will be given substantial weight. However, the position of the issuer's management will not be supported in any situation where it is determined not to be in the best interests of the Fund's shareholders. a) ROUTINE MATTERS (i) ELECTION OF DIRECTORS. Proxies should be voted for a management-proposed slate of directors unless there is a contested election of directors or there are other compelling corporate governance reasons for withholding votes for such directors. Management proposals to limit director liability consistent with state laws and director indemnification provisions should be supported because it is important for companies to be able to attract qualified candidates. (ii) APPOINTMENT OF AUDITORS. Management recommendations will generally be supported. (iii) CHANGES IN STATE OF INCORPORATION OR CAPITAL STRUCTURE. Management recommendations about reincorporation should be supported unless the new jurisdiction in which the issuer is reincorporating has laws that would materially dilute the rights of shareholders of the issuer. Proposals to increase authorized common stock should be examined on a case-by-case basis. If the new shares will be used to implement a poison pill or another form of anti-takeover device, or if the issuance of new shares could excessively dilute the value of outstanding shares upon issuance, then such proposals should be evaluated to determine whether they are in the best interest of the Fund's shareholders. b) NON-ROUTINE MATTERS (i) CORPORATE RESTRUCTURINGS, MERGERS AND ACQUISITIONS. These proposals should be examined on a case-by-case basis because they are an extension of an investment decision. B-2 (ii) PROPOSALS AFFECTING SHAREHOLDER RIGHTS. Proposals that seek to limit shareholder rights, such as the creation of dual classes of stock, generally should not be supported. (iii) ANTI-TAKEOVER ISSUES. Measures that impede takeovers or entrench management will be evaluated on a case-by-case basis taking into account the rights of shareholders and the potential effect on the value of the company. (iv) EXECUTIVE COMPENSATION. Although management recommendations should be given substantial weight, proposals relating to executive compensation plans, including stock option plans, should be examined on a case-by-case basis to ensure that the long-term interests of management and shareholders are properly aligned. (v) SOCIAL AND POLITICAL ISSUES. These types of proposals should generally not be supported if they are not supported by management unless they would have a readily- determinable, positive financial effect on shareholder value and would not be burdensome or impose unnecessary or excessive costs on the issuer. Proxy ballots sometimes contain a proposal granting the board authority to "transact such other business as may properly come before the meeting." We may consider the following factors when developing a position on this issue: (i) the board is limited to what actions it may legally take with such authority; and (ii) our responsibility to consider actions before supporting them. There are many other issues that may be on a company's proxy. Whatever those issues are, we act prudently, solely in the interest of the client. Furthermore, to act prudently in the voting of proxies we must consider those factors which would affect the value of the investment. As stated in SEC books and records Rule 204-2 we retain the following: o Copy of proxy voting policies and procedures o A copy of each proxy voting statement received regarding client securities. o A record of each vote cast on behalf of a client o A copy of any document created by Cutler that was material to making a decision how to vote proxies for a client or that memorializes the basis for that decision o A copy of each written client request for voting information and a copy of any written response to a client request. Two years of the above records are kept in the office of the Adviser. Five years are kept either in the office or off site at a storage unit. B-3 CUTLER VALUE FUND -------------------------------------------------------------------------------- THE [GRAPHIC OMITTED] CUTLER TRUST ANNUAL REPORT JUNE 30, 2005 -------------------------------------------------------------------------------- CUTLER VALUE FUND TABLE OF CONTENTS June 30, 2005 ================================================================================ Page Letter to Shareholders ................................................... 3 Management Discussion of Fund Performance ................................ 4 Performance Information (Unaudited) ...................................... 6 Schedule of Investments .................................................. 8 Statement of Assets and Liabilities ...................................... 10 Statement of Operations .................................................. 11 Statements of Changes in Net Assets ...................................... 12 Financial Highlights ..................................................... 13 Notes to Financial Statements ............................................ 14 Report of Independent Registered Public Accounting Firm .................. 18 About Your Fund's Expenses (Unaudited) ................................... 19 Trustees and Officers of the Trust (Unaudited) ........................... 21 Additional Information (Unaudited) ....................................... 23 2 -------------------------------------------------------------------------------- CUTLER VALUE FUND LETTER TO SHAREHOLDERS ================================================================================ To The Cutler Trust Shareholders: We are pleased to include with this letter the annual report for the Cutler Value Fund (the "Fund") through June 30th, 2005. At Cutler, we are very satisfied with the results from this past year and are optimistic about our Equity Income strategy in the current market environment. This has been an exciting year for Cutler, as we have increased our presence and operating abilities in the retail investment market. Recent markets have fluctuated on economic data. During the Spring, weak data led to a slight decline, while the early Summer months have seen a rally due to strong earnings reports. We believe that large-cap stocks are a sound long-term investment option and dividends will be a growing component of total shareholder return. The Fund's holdings at year-end continue to consist of blue-chip, high quality dividend paying securities that have been the hallmark of Ken Cutler's investment philosophy for over 30 years. Each stock held in the past year has paid a dividend for at least 10 years without a reduction*. In the past year, 25 companies raised their dividend rate while held in the Fund's portfolio, and no companies decreased their dividend while held. On a management note, Ken Cutler, who has served for several years as the Sr. Portfolio Manager, has transitioned to a role as Portfolio Manager Emeritus. Erich Patten and Matthew Patten are now acting as the primary Fund managers, after several years of serving as Co-Managers alongside Mr. Cutler. Mr. Cutler will remain active on the Investment Committee, as well as continuing in his role of Chairman of The Cutler Trust. We would also like to take this opportunity to clarify that Cutler & Company, LLC (the prior adviser to the Fund, subsequently known as Table Rock Asset Management, LLC) and Cutler Investment Counsel, LLC are separate legal entities, and that Cutler Investment Counsel has served as the Fund's investment adviser since October of 2003. The enclosed report highlights the composition of the Fund's holdings. If you have any questions regarding your holdings, performance, or any items pertaining to your investments, please feel free to contact our office. We appreciate your continued support, and wish you a healthy and prosperous year. Sincerely, /s/ Kenneth R. Cutler /s/ Erich M. Patten Kenneth R. Cutler Erich M. Patten Chairman of the Board Portfolio Manager The Cutler Trust Cutler Investment Counsel, LLC The views in this report were those of the Fund's investment adviser as of June 30, 2005 and may not reflect their views on the date this report is first published or anytime thereafter. These views are intended to assist shareholders in understanding their investment in the Fund and does not constitute investment advice. * Exelon Corporation was formed from a merger of PECO Energy and Commonwealth Edison in 1999, and thus does not have a 10 year dividend history. However, the underlying companies do have a sufficient dividend history. 3 -------------------------------------------------------------------------------- CUTLER VALUE FUND MANAGEMENT DISCUSSION OF FUND PERFORMANCE ================================================================================ 1) HOW DID THE FUND PERFORM LAST YEAR? The Fund had a one-year total return of 5.77% for the year ended June 30, 2005. The Fund's five- and ten-year average annual returns as of June 30 were 1.71% and 8.93%, respectively. (PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. FOR THE MOST RECENT MONTH END PERFORMANCE, PLEASE CALL 1-888-288-5374 OR VISIT THE FUND'S WEBSITE AT WWW.CUTLER.COM.) 2) WHAT WERE THE MOST SIGNIFICANT MARKET FACTORS AFFECTING THE FUND'S PERFORMANCE DURING THE PAST YEAR? Market factors included: 1) Positive overall equity markets 2) Substantial gains in the price of oil 3) Rising interest rates 4) Earnings growth of underlying companies 3) WHY DID THE FUND UNDERPERFORM RELATIVE TO THE BENCHMARK? Cutler Investment Counsel, LLC believes that the most appropriate benchmark for the Fund is the S&P 500 Index. The Fund was modestly lower than the total return from the S&P 500, which had a return of 6.32%. This would imply that the reason for underperformance was due to Fund expenses, which are currently capped at 1.35%. 4) WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND? Management maintained a dividend income focused strategy, owning companies that have a strong history of continuous dividend payments and a minimum yield of 1.25% at the time of purchase. In addition, management attempted to reduce turnover to keep costs to shareholders low. Finally, management attempted to own only companies whose management maintained sound corporate governance and a high degree of ethics. 5) WHAT WERE THE PRIMARY STRATEGIC FACTORS THAT GUIDED YOUR MANAGEMENT OF THE FUND? The primary strategic factor guiding our management style was our belief that companies paying income in the form of dividends provide greater shareholder returns over time than companies that do not pay dividends. 4 -------------------------------------------------------------------------------- CUTLER VALUE FUND MANAGEMENT DISCUSSION OF FUND PERFORMANCE (Continued) ================================================================================ 6) WHAT WERE SOME OF THE KEY TRENDS IN EACH OF THE REGIONS/SIGNIFICANT INDUSTRIES THE FUND INVESTS IN? The Fund does not have a regional focus, however, all of our holdings are companies domiciled in the Unites States and traded on domestic stock exchanges. The trends in the United States equity markets were generally positive this past year. While the rising price of oil has been a key trend impacting many of the companies held in the Fund, we believe that the holdings are diversified enough to spread these cost pressures across the portfolio. In addition, companies may be negatively impacted by the continuous rising interest rates. 7) WHICH SECURITIES HELPED THE FUND'S PERFORMANCE? Five holdings substantively contributing to positive performance were: 1) ConocoPhillips 2) Exelon Corp. 3) Caterpillar, Inc. 4) Consolidated Edison, Inc. 5) Exxon Mobil Corp. 8) DID ANY SECURITIES HURT THE FUND'S PERFORMANCE? Five holdings which hampered performance were: 1) Merck & Co., Inc. 2) General Motors Corp. 3) Alcoa, Inc. 4) Pfizer, Inc. 5) 3M Co. BEFORE INVESTING YOU SHOULD CAREFULLY CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. THIS AND OTHER INFORMATION IS IN THE PROSPECTUS, A COPY OF WHICH MAY BE OBTAINED BY CALLING 1-888-288-5374. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. The views in this report were those of Cutler Investment Counsel, LLC, as of June 30, 2005 and may not reflect the firm's views on the date this report is first published or anytime thereafter. These views are intended to assist shareholders in understanding their investment in the Fund and does not constitute investment advice. 5
----------------------------------------------------------------------------------- CUTLER VALUE FUND PERFORMANCE INFORMATION June 30, 2005 (Unaudited) =================================================================================== COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN CUTLER VALUE FUND, S&P 500 INDEX AND RUSSELL 1000 VALUE INDEX [GRAPHIC OMITTED] Cutler Value Fund Russell 1000 Value Index S&P 500 Index ----------------- ------------------------ ------------------- 06/30/95 $ 10,000 06/30/95 $ 10,000 06/30/95 $ 10,000 09/30/95 10,690 09/30/95 10,636 09/30/95 10,795 12/31/95 11,460 12/31/95 11,464 12/31/95 11,445 03/31/96 11,918 03/31/96 12,210 03/31/96 12,059 06/30/96 12,301 06/30/96 12,622 06/30/96 12,600 09/30/96 12,642 09/30/96 12,502 09/30/96 12,990 12/31/96 13,395 12/31/96 14,481 12/31/96 12,990 03/31/97 13,879 03/31/97 15,209 03/31/97 14,450 06/30/97 16,137 06/30/97 16,132 06/30/97 16,972 09/30/97 16,938 09/30/97 17,445 09/30/97 18,243 12/31/97 17,848 12/31/97 18,778 12/31/97 18,767 03/31/98 20,025 03/31/98 20,335 03/31/98 21,385 06/30/98 20,155 06/30/98 21,401 06/30/98 22,091 09/30/98 18,245 09/30/98 18,124 09/30/98 19,894 12/31/98 21,055 12/31/98 21,610 12/31/98 24,131 03/31/99 21,184 03/31/99 22,207 03/31/99 25,333 06/30/99 23,803 06/30/99 24,510 06/30/99 27,118 09/30/99 21,580 09/30/99 23,575 09/30/99 25,425 12/31/99 21,747 12/31/99 23,873 12/31/99 29,208 03/31/00 21,972 03/31/00 21,481 03/31/00 29,878 06/30/00 21,600 06/30/00 24,073 06/30/00 29,084 09/30/00 22,055 09/30/00 24,554 09/30/00 28,802 12/31/00 23,630 12/31/00 24,446 12/31/00 26,549 03/31/01 22,732 03/31/01 25,052 03/31/01 23,401 06/30/01 23,538 06/30/01 25,922 06/30/01 24,771 09/30/01 21,222 09/30/01 24,280 09/30/01 21,135 12/31/01 22,877 12/31/01 23,677 12/31/01 23,393 03/31/02 23,335 03/31/02 24,087 03/31/02 23,458 06/30/02 20,227 06/30/02 24,484 06/30/02 20,315 09/30/02 15,828 09/30/02 21,091 09/30/02 16,805 12/31/02 17,707 12/31/02 21,402 12/31/02 18,223 03/31/03 16,670 03/31/03 19,445 03/31/03 17,649 06/30/03 19,267 06/30/03 22,559 06/30/03 20,366 09/30/03 19,298 09/30/03 23,544 09/30/03 20,905 12/31/03 22,075 12/31/03 25,076 12/31/03 23,451 03/31/04 22,025 03/31/04 27,670 03/31/04 23,848 06/30/04 22,232 06/30/04 27,031 06/30/04 24,258 09/30/04 22,406 09/30/04 27,447 09/30/04 23,805 12/31/04 23,697 12/31/04 30,296 12/31/04 26,002 03/31/05 23,563 03/31/05 30,324 03/31/05 25,444 06/30/05 23,515 06/30/05 30,830 06/30/05 25,792
Past performance is not predictive of future performance. -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS(a) (FOR PERIODS ENDED JUNE 30, 2005) 1 Year 5 Years 10 Years ------ ------- -------- Cutler Value Fund 5.77% 1.71% 8.93% S&P 500 Index 6.32% -2.37% 9.94% Russell 1000 Value Index 14.05% 5.07% 11.92% (a) Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. -------------------------------------------------------------------------------- The Cutler Value Fund is managed pursuant to an equity income strategy. The investment manager and Trustees believe the S&P 500 Index is the most appropriate benchmark for the Fund due to its focus on large capitalization securities, broad index membership, and the representation of multiple security types that are used in the management of the Fund. Previously, the Russell 1000 Value Index was used as the Fund's primary benchmark. The Russell 1000 Value Index is an appropriate benchmark for mutual funds with a true value mandate. Relative value is one determinant used in the management of the Fund; however, current income is the primary strategy of the Fund, making the Russell 1000 Value Index not the most appropriate benchmark for the Fund. 6 -------------------------------------------------------------------------------- CUTLER VALUE FUND PERFORMANCE INFORMATION (Continued) ================================================================================ ASSET ALLOCATION JUNE 30, 2005 (UNAUDITED) Consumer Discretionary - 2.9% Cunsumer Staples - 12.0% Energy - 11.0% Financials - 15.8% Health Care - 12.6% [GRAPHIC OMITTED] Industrials - 17.5% Information Technology - 3.3% Materials - 5.3% Telecommunication Services - 3.2% Utilities - 14.0% Other - 2.4% 7 -------------------------------------------------------------------------------- CUTLER VALUE FUND SCHEDULE OF INVESTMENTS June 30, 2005 ================================================================================ SHARES COMMON STOCKS -- 97.6% VALUE -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 2.9% 26,200 McGraw-Hill Companies, Inc. (The) .................. $ 1,159,350 ----------- CONSUMER STAPLES -- 12.0% 48,150 ConAgra Foods, Inc. ................................ 1,115,154 22,350 Kimberly-Clark Corp. ............................... 1,398,887 20,900 Procter & Gamble Co. (The) ......................... 1,102,475 32,600 Sysco Corp. ........................................ 1,179,794 ----------- 4,796,310 ----------- ENERGY -- 11.0% 23,200 ChevronTexaco Corp. ................................ 1,297,344 30,100 ConocoPhillips ..................................... 1,730,449 24,060 Exxon Mobil Corp. .................................. 1,382,728 ----------- 4,410,521 ----------- FINANCIALS -- 15.8% 26,850 Citigroup, Inc. .................................... 1,241,275 32,950 JPMorgan Chase & Co. ............................... 1,163,794 29,950 Lincoln National Corp. ............................. 1,405,254 46,300 U.S. Bancorp ....................................... 1,351,960 19,250 Wells Fargo & Co. .................................. 1,185,415 ----------- 6,347,698 ----------- HEALTH CARE -- 12.6% 56,550 Bristol-Myers Squibb Co. ........................... 1,412,619 19,100 Johnson & Johnson .................................. 1,241,500 38,050 Merck & Co., Inc. .................................. 1,171,940 45,000 Pfizer, Inc. ....................................... 1,241,100 ----------- 5,067,159 ----------- INDUSTRIALS -- 17.5% 15,050 3M Co. ............................................. 1,088,115 12,750 Caterpillar, Inc. .................................. 1,215,203 18,950 Emerson Electric Co. ............................... 1,186,838 33,150 General Electric Co. ............................... 1,148,648 26,700 Pitney Bowes, Inc. ................................. 1,162,785 23,700 United Technologies Corp. .......................... 1,216,995 ----------- 7,018,584 ----------- INFORMATION TECHNOLOGY -- 3.3% 56,300 Hewlett-Packard Co. ................................ 1,323,613 ----------- MATERIALS -- 5.3% 39,650 Alcoa, Inc. ........................................ 1,036,054 24,900 Dow Chemical Co. (The) ............................. 1,108,797 ----------- 2,144,851 ----------- 8 -------------------------------------------------------------------------------- CUTLER VALUE FUND SCHEDULE OF INVESTMENTS (Continued) ================================================================================ SHARES COMMON STOCKS -- 97.6% (CONTINUED) VALUE -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 3.2% 54,000 SBC Communications, Inc. ........................... $ 1,282,500 ----------- UTILITIES -- 14.0% 27,900 Consolidated Edison, Inc. .......................... 1,306,836 28,150 Exelon Corp. ....................................... 1,444,940 56,650 National Fuel Gas Co. .............................. 1,637,751 27,900 Peoples Energy Corp. ............................... 1,212,534 ----------- 5,602,061 ----------- TOTAL COMMON STOCKS (Cost $34,549,779).............. $39,152,647 ----------- ================================================================================ SHARES MONEY MARKET FUNDS -- 2.3% VALUE -------------------------------------------------------------------------------- 935,913 First American Prime Obligation Fund - Class Y (Cost $935,913)..................................... $ 935,913 ----------- TOTAL INVESTMENTS AT VALUE -- 99.9% (Cost $35,485,692).................................. $40,088,560 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% ...... 18,847 ----------- NET ASSETS -- 100.0% ............................... $40,107,407 =========== See accompanying notes to financial statements. 9 -------------------------------------------------------------------------------- CUTLER VALUE FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 ================================================================================ ASSETS Investments in securities: At acquisition cost ........................................... $ 35,485,692 ============ At value ...................................................... $ 40,088,560 Capital shares sold ........................................... 811 Dividends receivable .......................................... 112,921 Other assets .................................................. 5,365 ------------ Total assets .................................................... 40,207,657 ------------ LIABILITIES Dividends payable ............................................. 11,192 Payable for capital shares redeemed ........................... 19,755 Accrued liabilities: Investment advisory fees (Note 3) ........................... 44,758 Administration fees (Note 3) ................................ 6,000 Other accrued expenses ...................................... 18,545 ------------ Total liabilities ............................................... 100,250 ------------ NET ASSETS ...................................................... $ 40,107,407 ============ NET ASSETS CONSIST OF: Paid-in capital ............................................... $ 52,633,922 Undistributed net investment income ........................... 5,990 Accumulated net realized losses from security transactions .... (17,135,373) Net unrealized appreciation on investments .................... 4,602,868 ------------ NET ASSETS ...................................................... $ 40,107,407 ============ Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) ........................... 4,114,115 ============ Net asset value, offering price and redemption price per share (Note 2) ...................................................... $ 9.75 ============ See accompanying notes to financial statements. 10 -------------------------------------------------------------------------------- CUTLER VALUE FUND STATEMENT OF OPERATIONS For the Year Ended June 30, 2005 ================================================================================ INVESTMENT INCOME Dividend income ............................................... $ 1,241,572 Interest income ............................................... 848 ------------ Total investment income ......................................... 1,242,420 ------------ EXPENSES Investment advisory fees (Note 3) ............................. 303,748 Professional fees ............................................. 65,484 Administration fees (Note 3) .................................. 58,009 Fund accounting fees .......................................... 39,011 Trustees' fees and expenses ................................... 29,755 Transfer agent fees ........................................... 20,447 Insurance expense ............................................. 19,786 Postage and supplies .......................................... 14,718 Registration fees ............................................. 13,339 Custody fees .................................................. 11,853 Printing of shareholder reports ............................... 4,641 Other expenses ................................................ 297 ------------ Total expenses .................................................. 581,088 Less fees waived by the Adviser (Note 3) ...................... (55,009) ------------ Net expenses .................................................... 526,079 ------------ NET INVESTMENT INCOME ........................................... 716,341 ------------ REALIZED AND UNREALIZED GAINS ON INVESTMENTS Net realized gains from investments ........................... 1,355,939 Net change in unrealized appreciation/depreciation on investments ................................................. 249,688 ------------ NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ................ 1,605,627 ------------ INCREASE IN NET ASSETS FROM OPERATIONS .......................... $ 2,321,968 ============ See accompanying notes to financial statements. 11 --------------------------------------------------------------------------------
CUTLER VALUE FUND STATEMENTS OF CHANGES IN NET ASSETS ==================================================================================================== Year Year Ended Ended June 30, 2005 June 30, 2004 ----------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ............................................. $ 716,341 $ 832,365 Net realized gains from investments ............................... 1,355,939 265,567 Net change in unrealized appreciation/depreciation of investments . 249,688 4,958,134 ------------ ------------ Net increase in net assets from operations .......................... 2,321,968 6,056,066 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income ........................................ (706,876) (832,370) ------------ ------------ CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ......................................... 3,303,293 3,554,537 Net asset value of shares issued in reinvestment of distributions to shareholders ................................ 670,761 785,984 Payments for shares redeemed ...................................... (6,714,508) (9,581,659) ------------ ------------ Net decrease from capital share transactions ........................ (2,740,454) (5,241,138) ------------ ------------ Total decrease in net assets ........................................ (1,125,362) (17,442) NET ASSETS Beginning of year ................................................... 41,232,769 41,250,211 ------------ ------------ End of year ......................................................... $ 40,107,407 $ 41,232,769 ============ ============ UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME ............................................ $ 5,990 $ (3,475) ============ ============ CAPITAL SHARE ACTIVITY Sold ................................................................ 352,139 395,144 Reinvested .......................................................... 69,080 86,699 Redeemed ............................................................ (703,539) (1,062,632) ------------ ------------ Net decrease in shares outstanding .................................. (282,320) (580,789) Shares outstanding at beginning of year ............................. 4,396,435 4,977,224 ------------ ------------ Shares outstanding at end of year ................................... 4,114,115 4,396,435 ============ ============
See accompanying notes to financial statements. 12
------------------------------------------------------------------------------------------------------------------------- CUTLER VALUE FUND FINANCIAL HIGHLIGHTS ========================================================================================================================= Per Share Data for a Share Outstanding Throughout Each Year ------------------------------------------------------------------------------------------------------------------------- YEARS ENDED JUNE 30, --------------------------------------------------------------------------- 2005 2004 2003 2002 2001 --------------------------------------------------------------------------- Net asset value at beginning of year ........ $ 9.38 $ 8.29 $ 8.85 $ 10.38 $ 9.78 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income ..................... 0.17 0.18 0.13 0.08 0.08 Net realized and unrealized gains (losses) on investments .................. 0.37 1.09 (0.56)(a) (1.53) 0.79 ---------- ---------- ---------- ---------- ---------- Total from investment operations ............ 0.54 1.27 (0.43) (1.45) 0.87 ---------- ---------- ---------- ---------- ---------- Less distributions from: Net investment income ..................... (0.17) (0.18) (0.13) (0.08) (0.08) Net realized gains ........................ -- -- -- -- (0.19) ---------- ---------- ---------- ---------- ---------- Total distributions ......................... (0.17) (0.18) (0.13) (0.08) (0.27) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year .............. $ 9.75 $ 9.38 $ 8.29 $ 8.85 $ 10.38 ========== ========== ========== ========== ========== Total return (b) ............................ 5.77% 15.39% (4.75%) (14.07%) 8.97% ========== ========== ========== ========== ========== Net assets at the end of year (000's) ....... $ 40,107 $ 41,233 $ 41,250 $ 22,963 $ 25,744 ========== ========== ========== ========== ========== Ratios/supplementary data: Ratio of net expenses to average net assets . 1.30% 1.25% 1.25% 1.25% 1.25% Ratio of gross expenses to average net assets(c) ..................... 1.43% 1.43% 1.79% 1.50% 1.45% Ratio of net investment income to average net assets ..................... 1.77% 1.95% 1.65% 0.76% 0.56% Portfolio turnover rate ..................... 14% 14% 61% 46% 60%
(a) Per share amount does not reflect the actual net realized and unrealized gain/loss for the period because of the timing of sales of the Fund shares and the amount of per share realized and unrealized gains and losses at such time (Note 1). (b) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) The ratio of gross expenses to average net assets reflects the expense ratio excluding any waivers and/or expense reimbursements by the Adviser. See accompanying notes to financial statements. 13 -------------------------------------------------------------------------------- CUTLER VALUE FUND NOTES TO FINANCIAL STATEMENTS June 30, 2005 ================================================================================ 1. ORGANIZATION The Cutler Value Fund (the "Fund") is a diversified series of The Cutler Trust (the "Trust"). The Trust is a Delaware statutory trust that is registered as an open-ended management investment company under the Investment Company Act of 1940. The Fund is the only series of the Trust. Under its Trust Instrument, the Trust is authorized to issue an unlimited number of Fund shares of beneficial interest without par value. The Fund commenced operations on October 2, 1992. On April 15, 2003, the Board of Trustees approved the reorganization of Cutler Core Fund (the "Core Fund") with and into the Fund pursuant to an Agreement and Plan of Reorganization executed by the Trust on behalf of each series. On April 17, 2003, the Core Fund exchanged its assets and liabilities for shares of the Fund. Immediately prior to its reorganization with and into the Fund, the Core Fund's net assets were $20,681,496. Each shareholder of the Core Fund received .9227 shares of the Fund. The acquisition of net assets and unrealized gain/loss from this transaction was as follows: CONTRIBUTING DATE OF SHARES UNREALIZED ENTITY CONTRIBUTION NET ASSETS ISSUED GAIN ---------- ------------ ---------- ---------- ---------- Cutler Core Fund April 17, 2003 $20,681,496 2,744,243 $2,508,485 The Fund seeks current income and long-term capital appreciation. 2. SIGNIFICANT ACCOUNTING POLICIES The following summarizes the significant accounting policies of the Fund: SECURITIES VALUATION -- Exchange traded securities for which market quotations are readily available are valued using the last reported sales price provided by independent pricing services as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time), on each Fund business day. In the absence of a sale, such securities are valued at the mean of the last bid and asked price. Non-exchange traded securities for which over-the-counter quotations are available are generally valued at the mean between the closing bid and asked prices. Money market instruments that mature in sixty days or less may be valued at amortized cost unless the Fund's Adviser believes another valuation is more appropriate. Investments in other open-ended regulated investment companies are valued at net asset value. The Fund values securities at fair value pursuant to procedures adopted by the Board of Trustees if (1) market quotations are insufficient or not readily available or (2) the Adviser believes that the prices or values available are unreliable due to, among other things, the occurrence of events after the close of the securities markets on which the Fund's securities primarily trade but before the time as of which the Fund calculates its net asset value. 14 -------------------------------------------------------------------------------- CUTLER VALUE FUND NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ SHARE VALUATION -- The net asset value per share of the Fund is calculated daily by dividing the total value of the Fund's assets, less liabilities, by the number of shares outstanding. The offering price and redemption price per share of the Fund is equal to the net asset value per share. ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. SECURITY TRANSACTIONS, INVESTMENT INCOME AND REALIZED GAINS AND LOSSES -- Investment transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date. Interest income is recorded as earned. Gains and losses on securities sold are determined on a specific identification basis. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders of net investment income, if any, are declared and paid quarterly. Capital gain distributions, if any, are distributed to shareholders annually. Distributions are based on amounts calculated in accordance with applicable Federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are due primarily to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterizations of distributions made by the Fund. The tax character of distributions paid for the years ended June 30, 2005 and 2004 was ordinary income. FEDERAL TAXES -- The Fund intends to comply with the special provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. As provided therein, in any fiscal year in which the Fund so qualifies and distributes at least 90% of its taxable net income, the Fund (but not the shareholders) will be relieved of federal income tax on income distributed. Accordingly, no provision for income taxes has been made. In order to avoid imposition of the excise tax applicable to regulated investment companies, it is also the Fund's intention to declare and pay as dividends in each calendar year at least 98% of its investment income (earned during the calendar year) and 98% of its net realized gains (earned during the twelve months ended October 31) plus undistributed amounts from prior years. The following information is computed on a tax basis for each item as of June 30, 2005: Cost of portfolio investments .............................. $ 35,730,826 ============ Gross unrealized appreciation .............................. $ 7,303,299 Gross unrealized depreciation .............................. (2,945,565) ------------ Net unrealized appreciation ................................ 4,357,734 Undistributed ordinary income .............................. 5,990 Capital loss carryforward .................................. (16,890,239) ------------ Accumulated deficit ........................................ $(12,526,515) ============ 15 -------------------------------------------------------------------------------- CUTLER VALUE FUND NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ The difference between the federal income tax cost of portfolio investments and the financial statement cost is due to certain timing differences in the recognition of capital gains or losses under income tax regulations and accounting principles generally accepted in the United States of America. These "book/tax" differences are temporary in nature and are primarily due to losses deferred due to wash sales. During the year ended June 30, 2005, the Fund utilized $1,029,378 of capital loss carryforwards to offset current year realized gains. As of June 30, 2005, the Fund had capital loss carryforwards of $16,890,239, of which $1,053,106 expires June 30, 2009, $7,402,392 expires June 30, 2010, $5,747,725 expires June 30, 2011 and $2,687,016 expires June 30, 2012. These capital loss carryforwards may be utilized in future years to offset net realized capital gains, if any, prior to distributing such gains to shareholders. 3. TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISER -- Cutler Investment Counsel, LLC (the "Adviser") is the investment adviser to the Fund. Pursuant to an Investment Advisory Agreement, the Fund pays a fee, which is accrued daily and paid monthly, to the Adviser at an annual rate of 0.75% of the Fund's average daily net assets. Effective January 1, 2005, the Adviser intends to voluntarily waive its advisory fees and reimburse Fund operating expenses to the extent necessary to limit the Fund's ordinary operating expenses to 1.35% of its average daily net assets. This voluntary waiver may be reduced or eliminated at any time. From November 1, 2004 through December 31, 2004, the Adviser voluntarily waived its advisory fees to limit the Fund's ordinary operating expenses to 1.25% of its average daily net assets. Prior to November 1, 2004, the Adviser was contractually obligated to waive a portion of its fee so as to limit the Fund's ordinary operating expenses to 1.25% of its average net assets. As a result, during the year ended June 30, 2005, the Adviser waived $55,009 of its advisory fees. ADMINISTRATION AND OTHER SERVICES -- Effective April 18, 2005, under the terms of a Mutual Fund Services Agreement between the Trust and Ultimus Fund Solutions, LLC ("Ultimus"), Ultimus provides administrative, pricing, accounting, dividend disbursing, shareholder servicing and transfer agent services for the Fund. For these services, Ultimus receives a monthly fee from the Fund at an annual rate of 0.15% on its average daily net assets up to $500 million; 0.125% on the next $500 million of such net assets; and 0.10% on such net assets in excess of $1 billion, subject to a minimum monthly fee of $6,000. In addition, the Fund pays out-of-pocket expenses including, but not limited to, postage, supplies and costs of pricing the Fund's portfolio securities. Certain officers of the Trust are also officers of Ultimus, or of Ultimus Fund Distributors, LLC, the principal underwriter of the Fund's shares and an affiliate of Ultimus. Accordingly, during the year ended June 30, 2005, Ultimus received $20,000 for these services. Prior to April 18, 2005, Citigroup Global Transaction Services, through its various affiliates, provided these services. 16 -------------------------------------------------------------------------------- CUTLER VALUE FUND NOTES TO FINANCIAL STATEMENTS (Continued) ================================================================================ SHAREHOLDER SERVICE PLAN -- The Fund may pay shareholder servicing fees not to exceed an annual rate of 0.25% of the Fund's average daily net assets. These fees may be paid to various financial institutions that provide shareholder services. 4. SECURITIES TRANSACTIONS The cost of purchases and proceeds from sales of investment securities, other than short-term investments, amounted to $5,615,524 and $8,711,981, respectively, for the year ended June 30, 2005. 5. CONTINGENCIES AND COMMITMENTS The Fund indemnifies the Trust's officers and trustees for certain liabilities that might arise from their performance of their duties to the Fund. Additionally, in the normal course of business the Fund enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 17 -------------------------------------------------------------------------------- CUTLER VALUE FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ================================================================================ To the Shareholders and Board of Trustees of the Cutler Value Fund of the Cutler Trust: We have audited the accompanying statement of assets and liabilities of the Cutler Value Fund (the "Fund"), a series of the Cutler Trust, including the schedule of investments, as of June 30, 2005, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2005, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Cutler Value Fund as of June 30, 2005, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois August 26, 2005 18 -------------------------------------------------------------------------------- CUTLER VALUE FUND ABOUT YOUR FUND'S EXPENSES (Unaudited) ================================================================================ We believe it is important for you to understand the impact of costs on your investment. All mutual funds have operating expenses. As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. These ongoing costs, which are deducted from the Fund's gross income, directly reduce the investment return of the Fund. A fund's expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples below are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The table below illustrates the Fund's costs in two ways: ACTUAL FUND RETURN - This section helps you to estimate the actual expenses that you paid over the period. The "Ending Account Value" shown is derived from the Fund's actual return, and the third column shows the dollar amount of operating expenses that would have been paid by an investor who started with $1,000 in the Fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for the Fund under the heading "Expenses Paid During Period." HYPOTHETICAL 5% RETURN - This section is intended to help you compare the Fund's costs with those of other mutual funds. It assumes that the Fund had an annual return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Fund's actual return, the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess the Fund's costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. Note that expenses shown in the table are meant to highlight and help you compare ongoing costs only. The Fund does not charge transaction fees, such as purchase or redemption fees, nor does it carry a "sales load." The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions. 19 -------------------------------------------------------------------------------- CUTLER VALUE FUND ABOUT YOUR FUND'S EXPENSES (Unaudited) (Continued) ================================================================================ More information about the Fund's expenses, including annual expense ratios since inception, can be found in this report. For additional information on operating expenses and other shareholder costs, please refer to the Fund's prospectus. Beginning Ending Account Value Account Value Expenses Paid January 1, 2005 June 30, 2005 During Period* --------------- ------------- ------------- Based on Actual Fund Return $ 1,000.00 $ 992.40 $ 6.67 Based on Hypothetical 5% Return (before expenses) $ 1,000.00 $ 1,018.10 $ 6.76 * Expenses are equal to the Fund's annualized expense ratio of 1.35% for the period, multiplied by the average account value over the period, multipled by 181/365 (to reflect the one-half year period). 20 -------------------------------------------------------------------------------- CUTLER VALUE FUND TRUSTEES AND OFFICERS OF THE TRUST (Unaudited) ================================================================================ The Board of Trustees is responsible for managing the Trust's business affairs and exercising all the Trust's powers except those reserved for shareholders. The following tables give information about each Board member and the senior officers of the Fund. Each Trustee holds office until the person resigns, is removed, or replaced. Officers are elected for an annual term. Unless otherwise noted, the Trustees and Officers have held their principal occupations for more than five years. The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge and upon request, by calling 1-888-CUTLER4.
NUMBER OF PORTFOLIOS IN OTHER NAME, POSITION LENGTH FUND COMPLEX DIRECTORSHIPS DATE OF BIRTH WITH THE OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY AND ADDRESS TRUST SERVED DURING PAST 5 YEARS TRUSTEE TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Kenneth R. Cutler (1) Trustee and Since 1992 Investment Committee Member and Portfolio 1 None Born: March 1920 Chairman Manager of Cutler Investment Counsel, LLC 3555 Lear Way from 2003 to 2005; Investment Committee Medford, OR 97504 Member and Portfolio Manager Emeritus since July 2005; Investment Committee Member and Portfolio Manager of Table Rock Asset Management LLC ("Table Rock") (a registered investment adviser) from 1977 until 2004. ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Robert B. Watts, Jr. Trustee Since 1996 Counsel, Northhaven Associates since 1985 1 None Born: December 1930 1710 Lake Village Drive Medford, OR 97504 ------------------------------------------------------------------------------------------------------------------------------------ Robert E. Clarke Trustee Since 2002 Retired 1 None Born: May 1922 One Skyline Drive Apt. 3407 Medford, OR 97504 ------------------------------------------------------------------------------------------------------------------------------------ (1) Kenneth R. Cutler is an "Interested Person," as defined by the 1940 Act, because he is an affiliated person of the Adviser. ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS ------------------------------------------------------------------------------------------------------------------------------------ Erich M. Patten President Since 2004 Investment Committee Member, Portfolio Born: October 1977 Manager and Corporate Secretary of Cutler 3555 Lear Way Investment Counsel, LLC since 2003; Member Medford, OR 97504-9759 of Cutler Venture Partners, LLC (private equity firm) since 2003; Investment Committee Member and Portfolio Manager of Table Rock (a registered investment adviser) from 2003 until 2004; Intern with the U.S. Environmental Protection Agency in 2002; Clerk with Sidley Austin Brown and Wood (a law firm) in 2001; Analyst with Extra Energy EV, Germany (a non-profit organization) in 2000; Investment Performance Specialist with Ashland Partners, LLP from 1998 until 2003. ------------------------------------------------------------------------------------------------------------------------------------ 21 ------------------------------------------------------------------------------------------------------------------------------------ CUTLER VALUE FUND TRUSTEES AND OFFICERS OF THE TRUST (Unaudited) (Continued) ==================================================================================================================================== NAME, POSITION LENGTH DATE OF BIRTH WITH THE OF TIME PRINCIPAL OCCUPATION(S) AND ADDRESS TRUST SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------------ Brooke C. Ashland Vice President/ Since 2002 Investment Committee Member and Chief Executive Officer of Cutler Born: December 1951 Chief Compliance Investment Counsel, LLC since 2003; Portfolio Manager, Member and 3555 Lear Way Officer Chief Executive Officer of Cutler Venture Partners, LLC (a private Medford, OR 97504 equity firm) since 2003; Chief Executive Officer of Centricity, LLC (an investment adviser) since 2003; General Partner of The First America Asia Fund I, LP (a private equity fund) since 1999; Chief Operating Officer, Chief Executive Officer and Portfolio Manager of Cutler Asia, LLC (a private equity firm) since 1998; Chief Executive Officer and/or Chairman of the Board of Managers for Table Rock (a registered investment adviser) from 1995 to 2004; Chief Executive Officer and President of Trustee Investment Services, Inc. (a Trustee education firm) since 1991; President of Big Bear Timber, LLC (farming) since 1989. ------------------------------------------------------------------------------------------------------------------------------------ Carol S. Fischer Vice President/ Since 1996 Member and Chief Operating Officer of Cutler Investment Counsel, Born: December 1955 Asst. Secretary/ LLC since 2003; Member and Chief Operating Officer of Table Rock 3555 Lear Way Asst. Treasurer (a registered investment adviser) from 1994 to 2004; Secretary of Medford, OR 97504 P.S.&S., Inc. (a sales company) since 1990. ------------------------------------------------------------------------------------------------------------------------------------ Matthew C. Patten Treasurer Since 2004 President, Investment Committee Member and Portfolio Manager of Born: December 1975 Cutler Investment Counsel, LLC since 2003; Portfolio Manager, 3555 Lear Way Member and President of Cutler Venture Partners, LLC (a private Medford, OR 97504 equity firm) since 2003; Investment Committee Member of Table Rock (a registered investment adviser) from 2002 until 2004; Portfolio Manager - Private Equity and Public Equity of Table Rock from 2000 until 2004; Chief Operating Officer and Portfolio Manager of Cutler Asia, LLC (a private equity firm) since 2000; Vice President - Investment of Cutler Asia, LLC from 1998 to 2000; Director of The First America Asia Fund I, L.P. (a private equity fund) since 1999. ------------------------------------------------------------------------------------------------------------------------------------ Robert G. Dorsey Vice President Since 2005 Managing Director of Ultimus Fund Solutions, LLC and Ultimus Fund Born: April 1957 Distributors, LLC 225 Pictoria Drive Suite 450 Cincinnati, OH 45246 ------------------------------------------------------------------------------------------------------------------------------------ John F. Splain Secretary Since 2005 Managing Director of Ultimus Fund Solutions, LLC and Ultimus Fund Born: September 1956 Distributors, LLC 225 Pictoria Drive Suite 450 Cincinnati, OH 45246 ------------------------------------------------------------------------------------------------------------------------------------
22 -------------------------------------------------------------------------------- CUTLER VALUE FUND ADDITIONAL INFORMATION (Unaudited) ================================================================================ FEDERAL TAX INFORMATION For the fiscal year ended June 30, 2005, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund intends to designate up to a maximum amount of $706,876 as taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2005 Form 1099-DIV. PROXY VOTING INFORMATION A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge upon request, by calling 1-800-228-8537 or on the Securities and Exchange Commissions's (SEC) website http://www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is also available without charge upon request by calling 1-800-228-8537 or on the SEC's website at http://www.sec.gov. FORM N-Q INFORMATION The Trust files a complete listing of portfolio holdings for the Fund with the SEC as of the first and third quarters of each fiscal year on Form N-Q. The filings are available upon request, by calling 1-800-228-8537. Furthermore, you are able to obtain a copy of the filings on the SEC's website at http://www.sec.gov. The Trust's Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. 23 CUTLER INVESTMENT COUNSEL, LLC Investment Management INVESTMENT ADVISER TO THE TRUST 3555 Lear Way, Medford, OR 97504 (800)228-8537 o(541)770-9000 Fax:(541)779-0006 info@cutler.com