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Expires: April 30, 2008
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07242
---------------------------------------------
The Cutler Trust
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(Exact name of registrant as specified in charter)
3555 Lear Way Medford, Oregon 97504
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(Address of principal executive offices) (Zip code)
Erich M. Patten
Cutler Investment Counsel, LLC 3555 Lear Way Medford, Oregon 97504
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(Name and address of agent for service)
Registrant's telephone number, including area code: (541) 770-9000
---------------------------
Date of fiscal year end: June 30, 2008
-------------------------------------------
Date of reporting period: December 31, 2007
-------------------------------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
CUTLER EQUITY FUND
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THE
[LOGO] CUTLER
TRUST
SEMI-ANNUAL REPORT
DECEMBER 31, 2007
(UNAUDITED)
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CUTLER EQUITY FUND
TABLE OF CONTENTS
December 31, 2007 (Unaudited)
================================================================================
Page
Letter to Shareholders..................................................... 3
Portfolio Information...................................................... 4
Schedule of Investments.................................................... 5
Statement of Assets and Liabilities........................................ 7
Statement of Operations.................................................... 8
Statements of Changes in Net Assets........................................ 9
Financial Highlights....................................................... 10
Notes to Financial Statements.............................................. 11
About Your Fund's Expenses................................................. 15
Additional Information..................................................... 17
2
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CUTLER EQUITY FUND
LETTER TO SHAREHOLDERS
================================================================================
February 12, 2008
To The Cutler Trust Shareholders:
The enclosed materials constitute the semi-annual report for the Cutler Equity
Fund for the six months ended December 31, 2007. At Cutler, we are pleased with
the Fund's outperformance during these past two quarters, and despite the recent
uncertainty in the markets, are optimistic about the future direction of
equities.
During this past year, dividend paying, large capitalization securities
performed well. Market volatility has reinforced the importance of relative
valuations, earnings stability, and current income -- all tenets of the Cutler
Equity Fund investment process. As long-term shareholders are aware, the
companies held in the Cutler Equity Fund have not cut their dividend rate for
the previous 10-years. We believe this focus on current income will continue to
create value for long-term investors and should leave investors well-positioned
if the much-discussed recession becomes deeper than anticipated.
Today, the economic outlook is less transparent than in the recent past.
Sub-prime losses, persistent commodity inflation, and political uncertainty all
cloud the economic forecasts. Despite these unknowns, equities contain value on
a fundamental basis. While real estate and fixed income appear expensive, the
S&P 500 is trading in-line with historical price-to-earnings ratio averages.
This implies relative value for equities and is the primary reason for our
optimism of this asset class. Investing in companies with earnings stability,
proven management, and current income remains a prudent strategy to participate
in today's equity markets.
The enclosed report highlights the composition of the Fund's holdings. If you
have any questions, please feel free to contact our office. As the Fund's
Investment Adviser, we appreciate your continued support, and wish you a healthy
and prosperous new year.
Sincerely,
/s/ Matthew C. Patten /s/ Erich M. Patten
Matthew C. Patten Erich M. Patten
Chairman Portfolio Manager
The Cutler Trust Cutler Investment Counsel, LLC
The views in this report were those of the Cutler Trust's investment adviser as
of December 31, 2007 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 do not constitute
investment advice.
3
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CUTLER EQUITY FUND
PORTFOLIO INFORMATION
December 31, 2007 (Unaudited)
================================================================================
[PIE CHART]
SECTOR ALLOCATION (% OF NET ASSETS)
Consumer Discretionary 7.2%
Consumer Staples 17.5%
Energy 12.2%
Financials 13.3%
Health Care 6.0%
Industrials 15.1%
Information Technology 6.5%
Materials 8.2%
Telecommunication Services 6.4%
Utilities 7.1%
Other 0.5%
4
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CUTLER EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2007 (Unaudited)
================================================================================
SHARES COMMON STOCKS -- 99.5% VALUE
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CONSUMER DISCRETIONARY -- 7.2%
29,280 Home Depot, Inc. (The) ......................... $ 788,803
22,060 McGraw-Hill Cos., Inc. (The) ................... 966,449
28,930 Nordstrom, Inc. ................................ 1,062,599
------------
2,817,851
------------
CONSUMER STAPLES -- 17.5%
35,010 Archer-Daniels-Midland Co. ..................... 1,625,514
18,190 Kimberly-Clark Corp. ........................... 1,261,295
19,430 PepsiCo, Inc. .................................. 1,474,737
17,780 Procter & Gamble Co. (The) ..................... 1,305,408
36,520 Sysco Corp. .................................... 1,139,789
------------
6,806,743
------------
ENERGY -- 12.2%
16,540 Chevron Corp. .................................. 1,543,678
17,950 ConocoPhillips ................................. 1,584,985
17,160 Exxon Mobil Corp. .............................. 1,607,720
------------
4,736,383
------------
FINANCIALS -- 13.3%
22,340 Citigroup, Inc. ................................ 657,690
25,800 JPMorgan Chase & Co. ........................... 1,126,170
20,750 Lincoln National Corp. ......................... 1,208,065
34,860 U.S. Bancorp ................................... 1,106,456
35,100 Wells Fargo & Co. .............................. 1,059,669
------------
5,158,050
------------
HEALTH CARE -- 6.0%
19,100 Johnson & Johnson .............................. 1,273,970
47,220 Pfizer, Inc. ................................... 1,073,311
------------
2,347,281
------------
INDUSTRIALS -- 15.1%
18,240 Caterpillar, Inc. .............................. 1,323,494
23,000 Emerson Electric Co. ........................... 1,303,180
24,650 General Electric Co. ........................... 913,776
21,550 Pitney Bowes, Inc. ............................. 819,762
19,800 United Technologies Corp. ...................... 1,515,492
------------
5,875,704
------------
INFORMATION TECHNOLOGY -- 6.5%
43,530 Intel Corp. .................................... 1,160,510
12,500 International Business Machines Corp. .......... 1,351,250
------------
2,511,760
------------
5
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CUTLER EQUITY FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
SHARES COMMON STOCKS -- 99.5% (CONTINUED) VALUE
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MATERIALS -- 8.2%
32,520 Alcoa, Inc. .................................... $ 1,188,606
24,240 Dow Chemical Co. (The) ......................... 955,541
14,390 Weyerhaeuser Co. ............................... 1,061,119
------------
3,205,266
------------
TELECOMMUNICATIONS SERVICES -- 6.4%
32,770 AT&T, Inc. ..................................... 1,361,921
25,450 Verizon Communications, Inc. ................... 1,111,910
------------
2,473,831
------------
UTILITIES -- 7.1%
16,850 Exelon Corp. ................................... 1,375,634
29,780 National Fuel Gas Co. .......................... 1,390,130
------------
2,765,764
------------
TOTAL COMMON STOCKS (Cost $28,469,340).......... $ 38,698,633
------------
================================================================================
SHARES MONEY MARKET FUNDS -- 0.6% VALUE
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228,374 Fidelity Institutional Money Market Portfolio -
Select Class (Cost $228,374).................... $ 228,374
------------
TOTAL INVESTMENTS AT VALUE -- 100.1%
(Cost $28,697,714).............................. $ 38,927,007
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%). (47,061)
------------
NET ASSETS -- 100.0%............................ $ 38,879,946
============
See accompanying notes to financial statements.
3
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CUTLER EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2007 (Unaudited)
================================================================================
ASSETS
Investments in securities:
At acquisition cost ..................................... $ 28,697,714
============
At value ................................................ $ 38,927,007
Dividends receivable ....................................... 60,070
Receivable for capital shares sold ......................... 25,306
Other assets ............................................... 20,343
------------
Total assets .................................................. 39,032,726
------------
LIABILITIES
Dividends payable .......................................... 5,974
Payable for capital shares redeemed ........................ 101,828
Accrued liabilities:
Investment advisory fees (Note 3) ....................... 24,953
Administration fees (Note 3) ............................ 6,000
Other accrued expenses and liabilities .................. 14,025
------------
Total liabilities ............................................. 152,780
------------
NET ASSETS .................................................... $ 38,879,946
============
NET ASSETS CONSIST OF:
Paid-in capital ............................................ $ 42,683,015
Accumulated undistributed net investment income ............ 3,950
Accumulated net realized losses from security transactions . (14,036,312)
Net unrealized appreciation on investments ................. 10,229,293
------------
NET ASSETS .................................................... $ 38,879,946
============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) ........................ 3,209,566
============
Net asset value, offering price and redemption price
per share (Note 2) ......................................... $ 12.11
============
See accompanying notes to financial statements.
7
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CUTLER EQUITY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2007 (Unaudited)
================================================================================
INVESTMENT INCOME
Dividend income ............................................ $ 524,947
------------
EXPENSES
Investment advisory fees (Note 3) .......................... 149,916
Administration fees (Note 3) ............................... 36,000
Professional fees .......................................... 18,883
Trustees' fees and expenses ................................ 18,565
Insurance expense .......................................... 7,987
Registration fees .......................................... 6,454
Custody fees ............................................... 5,385
Postage and supplies ....................................... 5,066
Printing of shareholder reports ............................ 2,798
Other expenses ............................................. 7,226
------------
Total expenses ................................................ 258,280
------------
NET INVESTMENT INCOME ......................................... 266,667
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from investments ........................ 609,616
Net change in unrealized appreciation/
depreciation on investments ............................. (1,341,465)
------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS ............. (731,849)
------------
DECREASE IN NET ASSETS FROM OPERATIONS ........................ $ (465,182)
============
See accompanying notes to financial statements.
8
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CUTLER EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
=====================================================================================================
Six Months
Ended Year
December 31, 2007 Ended
(Unaudited) June 30, 2007
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FROM OPERATIONS
Net investment income ........................................... $ 266,667 $ 546,435
Net realized gains from investments ............................. 609,616 2,662,323
Net change in unrealized appreciation/depreciation of investments (1,341,465) 3,965,088
------------ ------------
Net increase (decrease) in net assets from operations .............. (465,182) 7,173,846
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ...................................... (266,736) (547,696)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ....................................... 2,223,296 804,972
Net asset value of shares issued in reinvestment
of distributions to shareholders ............................. 255,157 525,004
Payments for shares redeemed .................................... (3,378,489) (5,526,984)
------------ ------------
Net decrease from capital share transactions ....................... (900,036) (4,197,008)
------------ ------------
Total increase (decrease) in net assets ............................ (1,631,954) 2,429,142
NET ASSETS
Beginning of period ................................................ 40,511,900 38,082,758
------------ ------------
End of period ...................................................... $ 38,879,946 $ 40,511,900
============ ============
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME ........................................... $ 3,950 $ 4,019
============ ============
CAPITAL SHARE ACTIVITY
Sold ............................................................... 178,721 68,340
Reinvested ......................................................... 20,705 44,997
Redeemed ........................................................... (273,408) (470,570)
------------ ------------
Net decrease in shares outstanding ................................. (73,982) (357,233)
Shares outstanding at beginning of period .......................... 3,283,548 3,640,781
------------ ------------
Shares outstanding at end of period ................................ 3,209,566 3,283,548
============ ============
See accompanying notes to financial statements.
9
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CUTLER EQUITY FUND
FINANCIAL HIGHLIGHTS
================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED JUNE 30,
DEC. 31, 2007 ------------------------------------------------------------------
(UNAUDITED) 2007 2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .... $ 12.34 $ 10.46 $ 9.75 $ 9.38 $ 8.29 $ 8.85
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income .................. 0.08 0.16 0.15 0.17 0.18 0.13
Net realized and unrealized gains
(losses) on investments ............. (0.23) 1.88 0.71 0.37 1.09 (0.56)(a)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .......... (0.15) 2.04 0.86 0.54 1.27 (0.43)
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income .................. (0.08) (0.16) (0.15) (0.17) (0.18) (0.13)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at end of period .......... $ 12.11 $ 12.34 $ 10.46 $ 9.75 $ 9.38 $ 8.29
========== ========== ========== ========== ========== ==========
Total return (b) .......................... (1.20%)(c) 19.59% 8.86% 5.77% 15.39% (4.75%)
========== ========== ========== ========== ========== ==========
Net assets at the end of period (000's) ... $ 38,880 $ 40,512 $ 38,083 $ 40,107 $ 41,233 $ 41,250
========== ========== ========== ========== ========== ==========
Ratios/supplementary data:
Ratio of net expenses to average net assets 1.29%(d) 1.30% 1.26% 1.30% 1.25% 1.25%
Ratio of gross expenses to
average net assets (e) ................. 1.29%(d) 1.30% 1.26% 1.43% 1.43% 1.79%
Ratio of net investment income
to average net assets .................. 1.33%(d) 1.36% 1.44% 1.77% 1.95% 1.65%
Portfolio turnover rate ................... 6%(c) 10% 21% 14% 14% 61%
(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 periods 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) Not annualized.
(d) Annualized.
(e) The ratio of gross expenses to average net assets reflects the expense
ratio excluding any waivers and/or expense reimbursements by the Fund's
investment adviser.
See accompanying notes to financial statements.
10
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 (Unaudited)
================================================================================
1. ORGANIZATION
The Cutler Equity 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-end 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.
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. Securities which are quoted by
NASDAQ are valued at the NASDAQ Official Closing 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 investment adviser believes another
valuation is more appropriate.
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 Fund's investment 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.
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 of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
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.
11
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
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. Dividends and distributions are recorded on the ex-dividend date.
The tax character of distributions paid during the periods ended December
31, 2007 and June 30, 2007 was ordinary income.
FEDERAL INCOME 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
December 31, 2007:
Tax cost of portfolio investments ....................... $ 28,762,227
============
Gross unrealized appreciation ........................... $ 11,870,982
Gross unrealized depreciation ........................... (1,706,202)
------------
Net unrealized appreciation ............................. 10,164,780
Undistributed ordinary income ........................... 9,924
Capital loss carryforward ............................... (14,581,415)
Other gains ............................................. 609,616
Other temporary differences due to timing
of cash distributions................................. (5,974)
------------
Accumulated deficit ..................................... $ (3,803,069)
============
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.
12
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
On July 13, 2006, the Financial Accounting Standards Board ("FASB")
released Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in
Income Taxes." FIN 48 provides guidance for how uncertain tax positions
should be recognized, measured, presented and disclosed in the financial
statements. FIN 48 requires the evaluation of tax positions taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable
tax authority. Tax positions not deemed to meet the more-likely-than-not
threshold would be recorded as a tax benefit or expense in the current
year. The Fund incorporated FIN 48 with this Semi-Annual report. Based on
management's analysis, the adoption of FIN 48 does not have a material
impact on the financial statements. The statute of limitations on the
Fund's tax returns remains open for the years ended June 30, 2005 through
June 30, 2007. Additionally, management does not anticipate FIN 48 having
a material impact on the financial statements for the year ended June 30,
2008.
As of June 30, 2007, the Fund had capital loss carryforwards of
$14,581,415, of which $5,806,513 expires June 30, 2010, $5,747,725 expires
June 30, 2011, $2,687,016 expires June 30, 2012 and $340,161 expires June
30, 2014. These capital loss carryforwards may be utilized in the current
and 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 to the Adviser a fee, which is accrued daily and
paid monthly, at an annual rate of 0.75% of the Fund's average daily net
assets.
Certain officers of the Trust are also officers of the Adviser.
ADMINISTRATION AND OTHER SERVICES -- 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% of the Fund's average daily net assets up to
$500 million; 0.125% on the next $500 million of such assets; and 0.10% on
such 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.
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. No such fees were incurred during the six
months ended December 31, 2007.
13
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of investment securities,
other than short-term investments, amounted to $2,299,411 and $2,505,449,
respectively, for the six months ended December 31, 2007.
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.
6. ACCOUNTING PRONOUNCEMENT
In September 2006, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition
of fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies
to fair value measurements already required or permitted by existing
standards. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of SFAS No. 157 relate to the definition
of fair value, the methods used to measure fair value, and the expanded
disclosures about fair value measurements. As of December 31, 2007, the
Fund does not believe the adoption of SFAS No. 157 will impact the amounts
reported in the financial statements, however, additional disclosures may
be required about the inputs used to develop the measurements and the
effect of certain of the measurements reported on the statement of changes
in net assets for a fiscal period.
14
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CUTLER EQUITY FUND
ABOUT YOUR FUND'S EXPENSES (Unaudited)
================================================================================
We believe it is important for you to understand the impact of costs on
your investment. 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 mutual fund's ongoing costs 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
(July 1, 2007) and held for the entire period (December 31, 2007).
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 impose any 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.
15
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CUTLER EQUITY FUND
ABOUT YOUR FUND'S EXPENSES (Unaudited) (Continued)
================================================================================
More information about the Fund's expenses, including annual expense
ratios over the past five years, 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
July 1, 2007 December 31, 2007 During Period*
------------ ----------------- --------------
Based on Actual Fund Return $ 1,000.00 $ 988.00 $ 6.46
Based on Hypothetical 5%
Return (before expenses) $ 1,000.00 $ 1,018.70 $ 6.56
* Expenses are equal to the Fund's annualized expense ratio of 1.29% for the
period, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
16
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CUTLER EQUITY FUND
ADDITIONAL INFORMATION (Unaudited)
================================================================================
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 without charge, 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.
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On December 18, 2007, Deloitte & Touche ("D&T") was replaced as
independent registered public accounting firm of the Fund, and Briggs,
Bunting & Dougherty, LLP was selected as the Fund's new independent
registered public accounting firm. The Fund's selection of Briggs, Bunting
& Dougherty, LLP as its independent registered public accounting firm was
approved by the Fund's Audit Committee and by the Fund's Board of
Trustees.
D&T's reports on the Fund's financial statements for the fiscal years
ended June 30, 2007 and 2006 did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. During such fiscal
years, and through the date of D&T's replacement, there were no
disagreements between the Fund and D&T on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedures, which disagreements, if not resolved to the satisfaction of
D&T, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports on the financial statements
for such years.
17
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19
CUTLER INVESTMENT COUNSEL, LLC
INVESTMENT MANAGEMENT
INVESTMENT ADVISER TO THE TRUST
525 East E St.
Jacksonville, OR 97530
(800)228-8537 o(541)770-9000
Fax:(541)779-0006
info@cutler.com
ITEM 2. CODE OF ETHICS.
Not required
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable [schedule filed with Item 1]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not required
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-
2(b)): Attached hereto
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Cutler Trust
-------------------------------------------------------------------
By (Signature and Title)* /s/ Erich M. Patten
-----------------------------------------------------
Erich M. Patten, President
Date February 21, 2008
------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Erich M. Patten
-----------------------------------------------------
Erich M. Patten, President
Date February 21, 2008
------------------------------------
By (Signature and Title)* /s/ Matthew C. Patten
-----------------------------------------------------
Matthew C. Patten, Treasurer
Date February 21, 2008
------------------------------------
* Print the name and title of each signing officer under his or her signature.