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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)
525 Bigham Knoll, Suite 100 Jacksonville, Oregon 97530
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(Address of principal executive offices) (Zip code)
Erich M. Patten
Cutler Investment Counsel, LLC 525 Bigham Knoll Jacksonville, Oregon 97530
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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, 2009
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Date of reporting period: December 31, 2008
---------------------------
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 OMITTED] CUTLER
TRUST
SEMI-ANNUAL REPORT
DECEMBER 31, 2008
(UNAUDITED)
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CUTLER EQUITY FUND
TABLE OF CONTENTS
================================================================================
Page
Letter to Shareholders.................................................. 3
Performance Information................................................. 4
Portfolio Information................................................... 5
Schedule of Investments................................................. 6
Statement of Assets and Liabilities .................................... 9
Statement of Operations................................................. 10
Statements of Changes in Net Assets..................................... 11
Financial Highlights.................................................... 12
Notes to Financial Statements........................................... 13
About Your Fund's Expenses.............................................. 17
Additional Information.................................................. 19
2
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CUTLER EQUITY FUND
LETTER TO SHAREHOLDERS
================================================================================
To The Cutler Trust Shareholders:
Please find enclosed the contents of the Cutler Equity Fund's (the "Fund")
semi-annual report dated December 31st, 2008. While 2008 was the worst year for
the S&P 500 since 1937, the Fund outperformed by 8.33% net of all fees and
expenses. In the current challenging environment, the stocks with the strongest
performance were generally companies with strong balance sheets, consistent
earnings, and dividend payments. These characteristics are important components
of Cutler's process during both good times and bad.
We believe that the Fund continues to be well-positioned going forward. In a
period of modest equity returns, dividends will be an increasingly important
portion of total return. Over the past year, the portfolio has been positioned
to benefit from three investment themes:
1) POTENTIAL INFLATION. In the U.S. alone, the government has been
creating money at an unprecedented rate. The estimated deficit of
2009, not accounting for the current stimulus proposal, has reached
a post-WWII record of 8.3% of GDP ($1.2 trillion). The target
Federal Funds rate has been set at 0%. Overseas, central bankers are
taking similar approaches, as the Bank of England recently targeted
the lowest interest rates since 1694. While these policies are
appropriate given the current deflationary environment, we continue
to believe that "there is no free lunch." The creation of money will
ultimately have consequences and we have added positions which we
believe should benefit from rising prices.
2) INFRASTRUCTURE EXPANSION. The Fund holds an overweight in Materials
and Industrials, both for inflation protection, and also due to a
potential increase in government spending. If the economic stimulus
ultimately is focused on infrastructure development, the portfolio
should be in a position to benefit from government outlays.
3) CHANGING RISK PREMIUMS. We believe that the risk profile of
investors has shifted during the current market uncertainty. In this
regard, we believe that large capitalization and dividend paying
companies will continue to benefit from premium valuations. This
should continue to benefit the Fund's strategy as economic
uncertainty continues into 2009.
We continue to believe that dividends are the most important indicator of equity
value, and continue to manage the portfolio in adherence to this fundamental
philosophy. In times of economic uncertainty, the transparency of dividends
contributes to lower portfolio volatility, the benefits of which are clearly
evident in the current investing environment.
Thank you for your continued support.
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
3
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CUTLER EQUITY FUND
PERFORMANCE INFORMATION
December 31, 2008 (Unaudited)
================================================================================
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN
CUTLER EQUITY FUND AND THE S&P 500 TOTAL RETURN INDEX
[LINE GRAPH OMITTED]
S&P 500
CUTLER EQUITY FUND TOTAL RETURN INDEX
------------------ ------------------
DATE VALUE DATE VALUE
---- ------- ---- -------
12/31/98 $10,000 12/31/98 $10,000
03/31/99 10,061 03/31/99 10,498
06/30/99 11,305 06/30/99 11,238
09/30/99 10,249 09/30/99 10,536
12/31/99 10,328 12/31/99 12,104
03/31/00 10,435 03/31/00 12,382
06/30/00 10,259 06/30/00 12,053
09/30/00 10,475 09/30/00 11,936
12/31/00 11,223 12/31/00 11,002
03/31/01 10,797 03/31/01 9,698
06/30/01 11,179 06/30/01 10,265
09/30/01 10,079 09/30/01 8,759
12/31/01 10,865 12/31/01 9,694
03/31/02 11,083 03/31/02 9,721
06/30/02 9,607 06/30/02 8,419
09/30/02 7,517 09/30/02 6,964
12/31/02 8,410 12/31/02 7,552
03/31/03 7,917 03/31/03 7,314
06/30/03 9,151 06/30/03 8,440
09/30/03 9,166 09/30/03 8,663
12/31/03 10,485 12/31/03 9,718
03/31/04 10,461 03/31/04 9,883
06/30/04 10,559 06/30/04 10,053
09/30/04 10,642 09/30/04 9,865
12/31/04 11,255 12/31/04 10,775
03/31/05 11,191 03/31/05 10,544
06/30/05 11,168 06/30/05 10,688
09/30/05 11,581 09/30/05 11,074
12/31/05 11,644 12/31/05 11,305
03/31/06 12,008 03/31/06 11,781
06/30/06 12,158 06/30/06 11,612
09/30/06 12,850 09/30/06 12,270
12/31/06 13,662 12/31/06 13,091
03/31/07 13,756 03/31/07 13,175
06/30/07 14,540 06/30/07 14,001
09/30/07 14,847 09/30/07 14,286
12/31/07 14,365 12/31/07 13,810
03/31/08 13,565 03/31/08 12,505
06/30/08 12,922 06/30/08 12,164
09/30/08 12,599 09/30/08 11,146
12/31/08 10,247 12/31/08 8,700
Past performance is not predictive of future performance.
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AVERAGE ANNUAL TOTAL RETURNS(a)
(FOR PERIODS ENDED DECEMBER 31, 2008)
1 Year 5 Years 10 Years
------ ------- --------
Cutler Equity Fund -28.67% -0.46% 0.24%
S&P 500 Total Return Index -37.00% -2.19% -1.38%
(a) Returns shown do not reflect the deduction of taxes a shareholder
would pay on Fund distributions or the redemption of Fund shares.
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The Cutler Equity Fund (the "Fund") is managed pursuant to an equity income
strategy. The investment manager and Trustees believe the S&P 500 Total Return
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.
4
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CUTLER EQUITY FUND
PORTFOLIO INFORMATION
December 31, 2008 (Unaudited)
================================================================================
SECTOR ALLOCATION (% OF NET ASSETS)
[PIE CHART OMITTED]
Consumer Discretionary 5.7%
Consumer Staples 13.7%
Energy 14.3%
Financials 11.9%
Health Care 8.6%
Industrials 12.1%
Information Technology 8.7%
Materials 10.9%
Telecommunication Services 6.4%
Utilities 6.8%
Other 0.9%
5
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CUTLER EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2008 (Unaudited)
================================================================================
COMMON STOCKS -- 99.1% SHARES VALUE
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CONSUMER DISCRETIONARY -- 5.7%
MEDIA -- 1.8%
McGraw-Hill Cos., Inc. (The) ................. 22,060 $ 511,571
------------
MULTILINE RETAIL -- 1.5%
Nordstrom, Inc. .............................. 30,530 406,354
------------
SPECIALTY RETAIL -- 2.4%
Home Depot, Inc. (The) ....................... 29,280 674,026
------------
CONSUMER STAPLES -- 13.7%
BEVERAGES -- 3.8%
PepsiCo, Inc. ................................ 19,430 1,064,181
------------
FOOD & STAPLES RETAILING -- 2.9%
Sysco Corp. .................................. 36,520 837,769
------------
FOOD PRODUCTS -- 3.6%
Archer-Daniels-Midland Co. ................... 34,960 1,007,897
------------
HOUSEHOLD PRODUCTS -- 3.4%
Kimberly-Clark Corp. ......................... 18,190 959,340
------------
ENERGY -- 14.3%
ENERGY EQUIPMENT & SERVICES -- 2.6%
Halliburton Co. .............................. 40,570 737,562
------------
OIL, GAS & CONSUMABLE FUELS -- 11.7%
Chevron Corp. ................................ 16,540 1,223,464
ConocoPhillips ............................... 16,180 838,124
Exxon Mobil Corp. ............................ 15,565 1,242,554
------------
3,304,142
------------
FINANCIALS -- 11.9%
COMMERCIAL BANKS -- 6.8%
U.S. Bancorp ................................. 35,510 888,105
Wells Fargo & Co. ............................ 35,100 1,034,748
------------
1,922,853
------------
6
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CUTLER EQUITY FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
COMMON STOCKS -- 99.1% (CONTINUED) SHARES VALUE
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FINANCIALS -- 11.9% (CONTINUED)
CONSUMER FINANCE -- 2.1%
American Express Co. ......................... 32,465 $ 602,226
------------
DIVERSIFIED FINANCIAL SERVICES -- 3.0%
JPMorgan Chase & Co. ......................... 26,500 835,545
------------
HEALTH CARE -- 8.6%
HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0%
Becton, Dickinson & Co. ...................... 8,150 557,379
------------
PHARMACEUTICALS -- 6.6%
Johnson & Johnson ............................ 17,200 1,029,076
Pfizer, Inc. ................................. 47,220 836,266
------------
1,865,342
------------
INDUSTRIALS -- 12.1%
AEROSPACE & DEFENSE -- 3.8%
United Technologies Corp. .................... 19,800 1,061,280
------------
ELECTRICAL EQUIPMENT -- 2.8%
Emerson Electric Co. ......................... 21,800 798,098
------------
INDUSTRIAL CONGLOMERATES -- 2.5%
General Electric Co. ......................... 42,610 690,282
------------
MACHINERY -- 3.0%
Caterpillar, Inc. ............................ 18,890 843,816
------------
INFORMATION TECHNOLOGY -- 8.7%
COMPUTERS & PERIPHERALS -- 3.7%
International Business Machines Corp. ........ 12,500 1,052,000
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.0%
Intel Corp. .................................. 44,530 652,810
Texas Instruments, Inc. ...................... 48,450 751,944
------------
1,404,754
------------
7
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CUTLER EQUITY FUND
SCHEDULE OF INVESTMENTS (Continued)
================================================================================
COMMON STOCKS -- 99.1% (CONTINUED) SHARES VALUE
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MATERIALS -- 10.9%
CHEMICALS -- 1.3%
E.I. Du Pont de Nemours & Co. ................ 14,500 $ 366,850
------------
CONSTRUCTION MATERIALS -- 4.4%
Vulcan Materials Co. ......................... 17,820 1,239,916
------------
METALS & MINING -- 5.2%
Alcoa, Inc. .................................. 47,670 536,764
Nucor Corp. .................................. 20,325 939,015
------------
1,475,779
------------
TELECOMMUNICATION SERVICES -- 6.4%
DIVERSIFIED TELECOMMUNICATION SERVICES -- 6.4%
AT&T, Inc. ................................... 32,770 933,945
Verizon Communications, Inc. ................. 25,450 862,755
------------
1,796,700
------------
UTILITIES -- 6.8%
GAS UTILITIES -- 2.9%
National Fuel Gas Co. ........................ 26,290 823,666
------------
MULTI-UTILITIES -- 3.9%
Consolidated Edison, Inc. .................... 28,000 1,090,040
------------
TOTAL COMMON STOCKS (Cost $29,824,773) ........... $ 27,929,368
------------
================================================================================
MONEY MARKET FUNDS -- 0.4% SHARES VALUE
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Fidelity Institutional Money Market Portfolio -
Select Class, 2.02% (a) (Cost $117,772) ........ 117,772 $ 117,772
------------
TOTAL INVESTMENTS AT VALUE -- 99.5% (Cost $29,942,545) $ 28,047,140
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.5% ..... 132,949
------------
TOTAL NET ASSETS -- 100.0% ........................ $ 28,180,089
============
(a) Variable rate security. The rate shown is the 7-day effective yield as of
December 31, 2008.
See accompanying notes to financial statements.
8
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CUTLER EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2008 (Unaudited)
======================================================================================
ASSETS
Investments in securities:
At acquisition cost .............................................. $ 29,942,545
============
At value (Note 2) ................................................ $ 28,047,140
Dividends receivable ............................................. 82,494
Receivable for investment securities sold ........................ 362,386
Receivable for capital shares sold ............................... 78,984
Other assets ..................................................... 15,955
------------
Total assets .......................................................... 28,586,959
------------
LIABILITIES
Dividends payable ................................................ 4,591
Payable for investment securities purchased ...................... 364,874
Payable for capital shares redeemed .............................. 11,600
Payable to Adviser (Note 3) ...................................... 5,792
Payable to administrator (Note 3) ................................ 6,000
Other accrued expenses and liabilities ........................... 14,013
------------
Total liabilities ..................................................... 406,870
------------
NET ASSETS ............................................................ $ 28,180,089
============
NET ASSETS CONSIST OF:
Paid-in capital .................................................. $ 43,854,628
Distributions in excess of net investment income ................. (3,387)
Accumulated net realized losses from security transactions ....... (13,775,747)
Net unrealized depreciation on investments ....................... (1,895,405)
------------
NET ASSETS ............................................................ $ 28,180,089
============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) .............................. 3,331,867
============
Net asset value, offering price and redemption price per share (Note 2) $ 8.46
============
See accompanying notes to financial statements.
9
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CUTLER EQUITY FUND
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 2008 (Unaudited)
=====================================================================================
INVESTMENT INCOME
Dividend income ................................................. $ 593,082
------------
EXPENSES
Investment advisory fees (Note 3) ............................... 118,921
Administration fees (Note 3) .................................... 36,000
Trustees' fees and expenses ..................................... 20,504
Professional fees ............................................... 18,185
Insurance expense ............................................... 7,700
Registration fees ............................................... 7,448
Custody and bank service fees ................................... 6,236
Printing of shareholder reports ................................. 4,245
Postage and supplies ............................................ 3,562
Shareholder services fees (Note 3) .............................. 1,956
Other expenses .................................................. 9,564
------------
Total expenses ....................................................... 234,321
Fees voluntarily waived by the Adviser (Note 3) ................. (11,728)
------------
Net expenses ......................................................... 222,593
------------
NET INVESTMENT INCOME ................................................ 370,489
------------
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS
Net realized losses from investments ............................ (631,965)
Net change in unrealized appreciation/depreciation on investments (7,017,564)
------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS .................... (7,649,529)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS ........................... $ (7,279,040)
============
See accompanying notes to financial statements.
10
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CUTLER EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
=======================================================================================
Six Months
Ended Year
December 31, 2008 Ended
(Unaudited) June 30, 2008
- ---------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income ............................. $ 370,489 $ 568,303
Net realized gains (losses) from investments ...... (631,965) 1,502,137
Net change in unrealized appreciation/depreciation
on investments ................................ (7,017,564) (6,448,599)
------------ ------------
Net decrease in net assets from operations ............ (7,279,040) (4,378,159)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........................ (374,841) (571,357)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ......................... 3,852,630 3,782,936
Net asset value of shares issued in reinvestment
of distributions to shareholders ............. 363,464 546,735
Payments for shares redeemed ...................... (2,930,748) (5,343,431)
------------ ------------
Net increase (decrease) from capital share transactions 1,285,346 (1,013,760)
------------ ------------
TOTAL DECREASE IN NET ASSETS .......................... (6,368,535) (5,963,276)
NET ASSETS
Beginning of period ................................... 34,548,624 40,511,900
------------ ------------
End of period ......................................... $ 28,180,089 $ 34,548,624
============ ============
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS
IN EXCESS OF) NET INVESTMENT INCOME ............... $ (3,387) $ 965
============ ============
CAPITAL SHARE ACTIVITY
Sold .................................................. 423,466 315,266
Reinvested ............................................ 39,388 47,040
Redeemed .............................................. (330,680) (446,161)
------------ ------------
Net increase (decrease) in shares outstanding ......... 132,174 (83,855)
Shares outstanding at beginning of period ............. 3,199,693 3,283,548
------------ ------------
Shares outstanding at end of period ................... 3,331,867 3,199,693
============ ============
See accompanying notes to financial statements.
11
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CUTLER EQUITY FUND
FINANCIAL HIGHLIGHTS
===============================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED
DEC. 31 YEARS ENDED JUNE 30,
2008 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .. $ 10.80 $ 12.34 $ 10.46 $ 9.75 $ 9.38 $ 8.29
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ................. 0.11 0.18 0.16 0.15 0.17 0.18
Net realized and unrealized gains
(losses) on investments ............ (2.34) (1.54) 1.88 0.71 0.37 1.09
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (2.23) (1.36) 2.04 0.86 0.54 1.27
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ................. (0.11) (0.18) (0.16) (0.15) (0.17) (0.18)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value at end of period ........ $ 8.46 $ 10.80 $ 12.34 $ 10.46 $ 9.75 $ 9.38
========== ========== ========== ========== ========== ==========
Total return (a) ........................ (20.70%)(b) (11.13%) 19.59% 8.86% 5.77% 15.39%
========== ========== ========== ========== ========== ==========
Net assets at end of period (000's) ..... $ 28,186 $ 34,549 $ 40,512 $ 38,083 $ 40,107 $ 41,233
========== ========== ========== ========== ========== ==========
Ratios/supplementary data:
Ratio of net expenses
to average net assets (d). ............ 1.40%(c) 1.31% 1.30% 1.26% 1.30% 1.25%
Ratio of net investment income
to average net assets ................. 2.33%(c) 1.48% 1.36% 1.44% 1.77% 1.95%
Portfolio turnover rate ................. 12%(b) 13% 10% 21% 14% 14%
(a) 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.
(b) Not annualized.
(c) Annualized.
(d) Absent fee waivers by the Fund's investment adviser, the ratio of gross
expenses to average net assets would have been 1.48%(c) for the six months
ended December 31, 2008 and 1.43% and 1.43% for the years ended June 30,
2005 and 2004, respectively.
See accompanying notes to financial statements.
12
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2008 (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 -- Portfolio securities are valued as of the close of
business of the regular session of the principal exchange where the
security is traded. 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.
The Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards No. 157 "Fair Value Measurements" establishes a
single authoritative definition of fair value, sets out a framework for
measuring fair value and requires additional disclosures about fair value
measurements.
13
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
Various inputs are used in determining the value of the Fund's
investments. These inputs are summarized in the three broad levels listed
below:
o Level 1 - quoted prices in active markets for identical securities
o Level 2 - other significant observable inputs
o Level 3 - significant unobservable inputs
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
As of December 31, 2008, all of the inputs used to value the Fund's
investments were Level 1.
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.
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, 2008 and June 30, 2008 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.
14
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
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, 2008:
Tax cost of portfolio investments ........................ $ 29,990,457
============
Gross unrealized appreciation ............................ $ 3,759,109
Gross unrealized depreciation ............................ (5,702,426)
------------
Net unrealized depreciation .............................. (1,943,317)
Accumulated ordinary income .............................. 1,204
Capital loss carryforward ................................ (13,095,870)
Other temporary differences due to timing of
cash distributions .................................... (4,591)
Other losses ............................................. (631,965)
------------
Accumulated deficit ...................................... $(15,674,539)
============
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.
As of June 30, 2008, the Fund had capital loss carryforwards of
$13,095,870, of which $4,320,968 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.
FASB's Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in
Income Taxes" 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 are required to be recorded as a tax benefit or expense in the
current year. Based on management's analysis, the application of FIN 48
does not have a material impact on these financial statements. The statute
of limitations on the Fund's tax returns remains open for the years ended
June 30, 2006 through June 30, 2008.
15
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CUTLER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
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 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.
For the six months ended December 31, 2008, the Adviser voluntarily
undertook to limit the total operating expenses of the Fund to 1.40% of
average daily net assets. Accordingly, the Adviser voluntarily waived
$11,728 of the Fund's investment advisory fees, during the six months
ended December 31, 2008.
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 and account maintenance services.
4. SECURITIES TRANSACTIONS
The cost of purchases and proceeds from sales of investment securities,
other than short-term investments, amounted to $4,992,592 and $3,731,577,
respectively, during the six months ended December 31, 2008.
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.
16
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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, 2008) and held for the entire period (December 31, 2008).
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 loads.
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.
17
- --------------------------------------------------------------------------------
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, 2008 December 31, 2008 During Period*
------------ ------------------ --------------
Based on Actual Fund Return ... $1,000.00 $ 793.00 $ 6.33
Based on Hypothetical 5% Return
(before expenses) .......... $1,000.00 $1,018.15 $ 7.12
* Expenses are equal to the Fund's annualized expense ratio of 1.40%
for the period, multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period).
18
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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 Commission ("SEC")
website at 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 the Fund's portfolio holdings 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 may 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 Audit Committee and Board of Trustees of the Trust.
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.
19
CUTLER INVESTMENT COUNSEL, LLC
INVESTMENT MANAGEMENT
INVESTMENT ADVISER TO THE TRUST
525 Bigham Knoll
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 17, 2009
-----------------------------
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 17, 2009
-----------------------------
By (Signature and Title)* /s/ Matthew C. Patten
--------------------------------------------------
Matthew C. Patten, Treasurer
Date February 17, 2009
-----------------------------
* Print the name and title of each signing officer under his or her signature.