As filed with the Securities and Exchange Commission on March 8, 2004
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 811-7242
CUTLER TRUST
Two Portland Square
Portland, Maine 04101
207-879-1900
John Y. Keffer, President
Two Portland Square
Portland, Maine 04101
207-879-1900
Date of fiscal year end: JUNE 30, 2003
Date of reporting period: JULY 1, 2003 THROUGH DECEMBER 31, 2003
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.
SEMI-ANNUAL REPORT DECEMBER 31, 2003
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CUTLER VALUE FUND Cutler Investment Counsel, LLC Forum Shareholder Services, LLC
3555 Lear Way Two Portland Square
Medford, Oregon 97504 Portland, Maine 04101
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To The Cutler Trust Shareholders:
The enclosed materials constitute the semi-annual report for the Cutler Value
Fund through December 31, 2003. At Cutler, we are very pleased with the results
from these past two quarters and are optimistic about the future direction of
the market.
The fourth quarter marked a shift in the momentum of the market, as large-cap
stocks began to outperform small- and mid-cap companies. To the extent large-cap
stocks continue to gain favor over other asset classes, we believe the Fund is
well-positioned to participate in this potential trend. In addition, taxation of
dividend income has been reduced which leads us to believe that a renewed
emphasis on income will favor our strategy going forward.
The Fund's holdings at year-end consist of blue-chip, high quality dividend
payers that have been a hallmark of Cutler's investment strategy. Each stock
currently held by the Fund (but not necessarily held by the Fund for the
duration of the period) has paid a dividend for at least 10 years without a
reduction. Interestingly, while all of the Fund's holdings have raised their
dividends in this 10-year period, 16 have raised them at least 10 times and
another six, at least nine times. During the fourth quarter alone, eight
companies in the Fund announced dividend increases.*
The enclosed report highlights the composition of the Fund's holdings. If you
have any questions, please feel free to contact our office. We appreciate your
continued support, and wish you a healthy and prosperous new 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
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. EXELON CORPORATION WAS
FORMED FROM A MERGER INVOLVING PECO ENERGY, AND THUS DOES NOT HAVE A 10-YEAR
DIVIDEND HISTORY.
THE VIEWS IN THIS REPORT WERE THOSE OF THE CUTLER TRUST'S INVESTMENT ADVISOR AS
OF DECEMBER 31, 2003 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. (02/04)
1
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CUTLER VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
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SHARES SECURITY DESCRIPTION VALUE
COMMON STOCK - 99.8%
CONSUMER DISCRETIONARY - 4.3%
35,500 General Motors Corp. $ 1,895,700
-----------------
CONSUMER STAPLES - 11.4%
52,900 ConAgra Foods, Inc. 1,396,031
23,350 General Mills, Inc. 1,057,755
23,650 Kimberly-Clark Corp. 1,397,478
12,250 Procter & Gamble Co. 1,223,530
-----------------
5,074,794
-----------------
ENERGY - 10.9%
15,700 ChevronTexaco Corp. 1,356,323
22,850 ConocoPhillips 1,498,274
32,360 Exxon Mobil Corp. 1,326,760
14,250 Kerr-McGee Corp. 662,483
-----------------
4,843,840
-----------------
FINANCIALS - 18.1%
41,000 Bank of New York Co., Inc. 1,357,920
32,950 Citigroup, Inc. 1,599,393
37,400 J.P. Morgan Chase & Co. 1,373,702
27,250 Lincoln National Corp. 1,100,083
53,000 U.S. Bancorp 1,578,340
18,550 Wells Fargo & Co. 1,092,410
-----------------
8,101,848
-----------------
HEALTH CARE - 8.6%
56,550 Bristol-Myers Squibb Co. 1,617,330
4,000 Johnson & Johnson 206,640
24,700 Merck & Co., Inc. 1,141,140
25,050 Pfizer, Inc. 885,017
-----------------
3,850,127
-----------------
See Notes to Financial Statements. 2
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CUTLER VALUE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
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SHARES SECURITY DESCRIPTION VALUE
INDUSTRIALS - 16.4%
16,500 3M Co. $ 1,402,995
19,950 Caterpillar, Inc. 1,656,249
18,950 Emerson Electric Co. 1,227,012
41,600 General Electric Co. 1,288,768
20,000 Pitney Bowes, Inc. 812,400
9,700 United Technologies Corp. 919,269
-----------------
7,306,693
-----------------
INFORMATION TECHNOLOGY - 2.9%
56,300 Hewlett-Packard Co. 1,293,211
-----------------
MATERIALS - 12.6%
39,650 Alcoa, Inc. 1,506,700
34,000 Dow Chemical Co. 1,413,380
28,100 E.I. du Pont de Nemours & Co. 1,289,509
22,000 Weyerhaeuser Co. 1,408,000
-----------------
5,617,589
-----------------
TELECOMMUNICATION SERVICES - 3.2%
54,000 SBC Communications, Inc. 1,407,780
-----------------
UTILITIES - 11.4%
27,900 Consolidated Edison, Inc. 1,199,979
21,100 Exelon Corp. 1,400,196
66,400 National Fuel Gas Co. 1,622,816
20,950 Peoples Energy Corp. 880,738
-----------------
5,103,729
-----------------
TOTAL COMMON STOCK (COST $39,644,449) 44,495,311
-----------------
SHORT-TERM HOLDINGS - 0.6%
268,753 Monarch Daily Assets Cash Fund (Cost $268,753) 268,753
-----------------
TOTAL INVESTMENTS IN SECURITIES - 100.4%
(COST $39,913,202) $ 44,764,064
Other Assets and Liabilities, Net (-0.4%) (189,019)
-----------------
TOTAL NET ASSETS - 100.0% $ 44,575,045
=================
See Notes to Financial Statements. 3
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CUTLER VALUE FUND
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 2003
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ASSETS
Total investments, at value (Cost $39,913,202) $ 44,764,064
Interest and dividends receivable 105,660
Prepaid expenses 8,758
----------------------
Total Assets 44,878,482
----------------------
LIABILITIES
Dividends payable 230,028
Accrued Liabilities:
Payables to related parties 22,505
Trustees' fees and expenses 7,121
Other accrued expenses 43,783
----------------------
Total Liabilities 303,437
----------------------
NET ASSETS $ 44,575,045
======================
COMPONENTS OF NET ASSETS
Paid-in capital $ 58,557,129
Accumulated undistributed (distributions in excess of) net investment income (3,184)
Accumulated net realized gain (loss) on investments (18,829,762)
Net unrealized appreciation (depreciation) on investments 4,850,862
----------------------
NET ASSETS $ 44,575,045
======================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Based on net assets of $44,575,045 and 4,740,887 shares outstanding $9.40
======================
See Notes to Financial Statements. 4
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CUTLER VALUE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2003
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INVESTMENT INCOME
Dividend income $ 706,025
----------------------
Total Investment Income 706,025
----------------------
EXPENSES
Investment advisory fees 158,175
Administration fees 22,705
Transfer agency fees 14,500
Shareholder servicing fees 689
Custody fees 3,512
Accounting fees 26,123
Professional fees 30,715
Trustees' fees and expenses 13,966
Registration fees 7,261
Miscellaneous expenses 18,345
----------------------
Total Expenses 295,991
Fees waived (32,358)
----------------------
Net Expenses 263,633
----------------------
NET INVESTMENT INCOME (LOSS) 442,392
----------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) from investments (72,883)
Net change in unrealized appreciation (depreciation) on investments 5,455,816
----------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 5,382,933
----------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 5,825,325
======================
See Notes to Financial Statements. 5
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CUTLER VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
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July 1, 2003 Year
to Ended
December 31, 2003 June 30, 2003
---------------------- ----------------
OPERATIONS
Net investment income (loss) $ 442,392 $ 373,858
Net realized gain (loss) from investments (72,883) (2,856,341)
Net change in unrealized appreciation (depreciation) on investments 5,455,816 3,066,857
---------------------- ----------------
Increase (decrease) in net assets from operations 5,825,325 584,374
---------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (442,106) (376,639)
---------------------- ---------------
CAPITAL SHARE TRANSACTIONS
Sale of shares 1,860,512 3,121,017
Transactions due to reorganization - 20,681,496
Reinvestment of distributions 199,057 347,681
Redemption of shares (4,117,954) (6,070,627)
---------------------- ----------------
Increase (decrease) from capital share transactions (2,058,385) 18,079,567
---------------------- ----------------
Increase (decrease) in net assets 3,324,834 18,287,302
---------------------- ----------------
NET ASSETS
Beginning of Period 41,250,211 22,962,909
---------------------- ----------------
End of Period (a) $ 44,575,045 $ 41,250,211
====================== ================
SHARE ACTIVITY
Sale of shares 213,977 394,437
Transactions due to reorganization - 2,744,243
Reinvestment of distributions 24,099 45,394
Redemption of shares (474,413) (801,965)
---------------------- ----------------
Increase (decrease) in shares (236,337) 2,382,109
====================== ================
(a) Accumulated undistributed (distributions in excess of)
net investment income $ (3,184) $ (3,470)
---------------------- ----------------
See Notes to Financial Statements. 6
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CUTLER VALUE FUND
FINANCIAL HIGHLIGHTS
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These financial highlights reflect July 1, 2003
selected data for a share outstanding to Year Ended June 30,
throughout each period December 31, ----------------------------------------------------------------
2003 2003 2002 2001 2000 1999
-------------- ------------ ----------- --------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.29 $ 8.85 $ 10.38 $ 9.78 $ 18.93 $ 21.02
-------------- ------------ ----------- --------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income (loss) 0.09 0.13 0.08 0.08 0.12 0.14
Net realized and unrealized gain (loss)
on investments 1.11 (0.56)(a) (1.53) 0.79 (1.97) 2.73
-------------- ------------ ----------- --------- ---------- ----------
Total from Investment Operations 1.20 (0.43) 1.45 0.87 (1.85) 2.87
-------------- ------------ ----------- --------- ---------- ----------
Distributions From
Net investment income (0.09) (0.13) (0.08) (0.08) (0.12) (0.14)
In excess of net investment income - - - - - - (b)
Net realized gain on investments - - - (0.19) (7.18) (4.82)
-------------- ------------ ----------- --------- ---------- ----------
Total Distributions (0.09) (0.13) (0.08) (0.27) (7.30) (4.96)
-------------- ------------ ----------- --------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.40 $ 8.29 $ 8.85 $ 10.38 $ 9.78 $ 18.93
============== ============ =========== ========= ========== ==========
TOTAL RETURN 14.58% (4.75%) (14.07%) 8.97% (9.25%) 18.10%
RATIO/SUPPLEMENTARY DATA
Net Assets at end of period (in thousands) $44,575 $41,250 $22,963 $25,744 $ 27,615 $40,125
Ratios to Average Net Assets
Net expenses 1.25% (c) 1.25% 1.25% 1.25% 1.25% 1.20%
Gross expenses (d) 1.40% (c) 1.79% 1.50% 1.45% 1.28% 1.20%
Net investment income (loss) 2.10% (c) 1.65% 0.76% 0.56% 1.01% 0.80%
PORTFOLIO TURNOVER RATE 14% 61% 46% 60% 66% 110%
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(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.
See Note 1.
(b) Amounts round to less than $0.01 per share.
(c) Annualized.
(d) The ratio of gross expenses to average net assets reflects the expense ratio excluding any waivers and/or
reimbursements.
See Notes to Financial Statements. 7
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CUTLER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
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NOTE 1. ORGANIZATION
The Cutler Trust was organized on October 2, 1992, as an open-end
management investment company under the Investment Company Act of 1940. On
February 3, 2003, the Board approved the tax-free reorganization of the
Cutler Core Fund (the "Core Fund") into the Cutler Value Fund (the "Fund")
pursuant to an Agreement and Plan of Reorganization between the two funds.
The reorganization of the funds was approved by shareholders of the Core
Fund on April 15, 2003. On April 17, 2003 the Core Fund contributed all of
its assets and liabilities to the Fund for ownership in the Fund. The Core
Fund then distributed to its shareholders of record all shares of the Fund
received by the Core Fund. The acquisition of net assets and unrealized
gain/loss from this transaction was as follows:
CONTRIBUTING ENTITY DATE OF CONTRIBUTION NET ASSETS SHARES ISSUED UNREALIZED LOSS
------------------- -------------------- ---------- ------------- ---------------
Cutler Core Fund April 17, 2003 $20,681,496 2,744,243 $2,508,485*
*Included in Net Assets.
The investment objective of the Fund is current income and long-term
capital appreciation. Under its Trust Instrument, the Fund is authorized to
issue an unlimited number of shares of beneficial interest without par
value. The Fund commenced operations on December 30, 1992.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of increase and decrease in net assets from operations during the
fiscal period. Actual results could differ from those estimates.
The following summarizes the significant accounting policies of the Fund:
SECURITY 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 price. Money market instruments that
mature in 60 days or less may be valued at amortized cost unless the Fund's
investment adviser believes another valuation is more appropriate.
8
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CUTLER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
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Securities (including restricted securities) for which market quotations
are insufficient or not readily available, or in the judgment of the Fund's
investment adviser, the prices or values available do not represent the
fair value of the instrument, are valued in good faith, at the direction of
the Trust's Board of Trustees. Investments in other open-ended regulated
investment companies are valued at net asset value.
SECURITY TRANSACTIONS, INVESTMENT INCOME, AND REALIZED GAIN AND LOSS -
Security transactions are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded as earned.
Identified cost of investments sold is used to determine realized gain and
loss for both financial statement and federal income tax purposes.
DISTRIBUTIONS TO SHAREHOLDERS - Dividends from 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 generally accepted accounting
principles. These differences are due primarily to differing treatments of
income and gain on various investment securities held by the Fund, timing
differences and differing characterizations of distributions made by the
Fund.
FEDERAL TAXES - The Fund intends to qualify each year as a registered
investment company and distribute all its taxable income. In addition, by
distributing in each calendar year substantially all its net investment
income, capital gain and certain other amounts, if any, the Fund will not
be subject to a federal excise tax. Therefore, no federal income or excise
tax provision is required.
NOTE 3. ADVISORY FEES, SERVICING FEES AND OTHER TRANSACTIONS WITH RELATED
PARTIES
INVESTMENT ADVISER - Cutler Investment Counsel, LLC (the "Adviser") serves
as the Fund's investment adviser. The Adviser manages the Fund's portfolio
of assets. The Adviser receives a fee at an annual rate of 0.75% of the
Fund's average daily net assets.
ADMINISTRATION AND OTHER SERVICES - Citigroup Global Transaction Services,
through its various affiliates (collectively "Citigroup"), provides certain
administration, portfolio accounting and transfer agency services to the
Fund.
SHAREHOLDER SERVICE AGENT - The Fund pays a shareholder servicing fee at an
annual rate of 0.25% of the Fund's average daily net assets. These fees are
paid to various financial institutions that provide shareholder services.
9
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CUTLER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
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DISTRIBUTION - Forum Fund Services, LLC is the Fund's distributor (the
"Distributor"). The Distributor is not affiliated with the Adviser or with
Citigroup or its affiliated companies. The Distributor receives no
compensation from the Fund for its distribution services.
NOTE 4. WAIVER OF FEES
The Adviser has contractually agreed to waive a portion of its fees and
reimburse certain expenses, if total expenses exceed 1.25% of average net
assets, through October 31, 2004. The Adviser contractually waived fees of
$32,358 for the six months ended December 31, 2003.
NOTE 5. SECURITIES TRANSACTIONS
The cost of purchases and the proceeds from sales of investments securities
(including maturities), other than short-term investments, were $5,729,100
and $7,447,319, respectively, for the six months ended December 31, 2003.
The cost basis of investment securities owned as of December 31, 2003, was
$39,913,202, and the net unrealized appreciation of investment securities
was $4,850,862. The aggregate gross unrealized appreciation for all
securities in which there was an excess of market value over cost was
$6,431,980, and the aggregate gross unrealized depreciation for all
securities in which there was an excess of cost over market value was
$1,581,118.
NOTE 6. 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 and upon request, by calling (888)
288-5374. This information is also available from the EDGAR database on the
SEC's Web site at http://www.sec.gov.
10
THE CUTLER TRUST
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TABLE OF CONTENTS
DECEMBER 31, 2003
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PAGE
Chairman's Letter to the Shareholders.............1
Schedule of Investments...........................2
Statement of Assets and Liabilities...............4 CUTLER VALUE FUND
Statement of Operations...........................5
Statements of Changes in Net Assets...............6
Financial Highlights (Per Share Data).............7
Notes to Financial Statements.....................8
Distributor
Forum Fund Services, LLC
CUTLER INVESTMENT COUNSEL, LLC
INVESTMENT MANAGEMENT
INVESTMENT ADVISER TO THE TRUST SEMI-ANNUAL REPORT
------------------
3555 Lear Way, Medford, OR 97504
(800) 228-8537 o (541) 770-9000 DECEMBER 31, 2003
Fax: (541) 779-0006
info@cutler.com (UNAUDITED)
- ---------------------------------------------
This report is submitted for the general
information of the shareholders of the
Fund. It is not authorized for distribution
to prospective investors in the Fund unless
preceded or accompanied by an effective
prospectus, which includes information
regarding the Fund's objectives and policies,
risks, management experience, and other
information.
- ---------------------------------------------
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Act) are effective in design and operation and are sufficient to form
the basis of the certifications required by Rule 30a-(2) under the Act, based on
their evaluation of these disclosure controls and procedures within 90 days of
the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act), or the internal control
over financial reporting of its service providers during the last fiscal half
year (the registrant's second half year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) (1) Not applicable.
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
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 /S/ STACEY E. HONG, TREASURER
------------------------------
STACEY E. HONG, TREASURER
DATE MARCH 5, 2004
------------------------------
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 /S/ JOHN Y. KEFFER, PRESIDENT
-------------------------------
JOHN Y. KEFFER, PRESIDENT
DATE MARCH 5, 2004
-------------------------------
BY /S/ STACEY E. HONG, TREASURER
-------------------------------
STACEY E. HONG, TREASURER
DATE MARCH 5, 2004
-------------------------------