N-30D 1 cu03-052.txt CUTLER SEMI-ANNUAL REPORT
THE CUTLER TRUST TABLE OF CONTENTS DECEMBER 31, 2002 PAGE ---- Chairman's Letter to the Shareholders.... 1 Cutler Core Fund Portfolio............... 3 Cutler Value Fund Portfolio.............. 7 CUTLER CORE FUND Statements of Assets and Liabilities..... 10 Statements of Operations................. 11 CUTLER VALUE FUND Statements of Changes in Net Assets...... 12 Financial Highlights (Per Share Data).... 13 Notes to Financial Statements............ 15 Distributor Forum Fund Services, LLC CUTLER & COMPANY, LLC SEMI-ANNUAL REPORT INVESTMENT MANAGEMENT ------------------ INVESTMENT ADVISER TO THE TRUST DECEMBER 31, 2002 3555 Lear Way, Medford, OR 97504 (800) 228-8537 - (541) 770-9000 Fax: (541) 779-0006 info@cutler.com
------------------------------------------------------ This report is submitted for the general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective prospectus, which includes information regarding the Funds' objectives and policies, risks, management experience, and other information. ------------------------------------------------------ SEMI-ANNUAL REPORT DECEMBER 31, 2002 CUTLER CORE FUND Cutler & Company, LLC Forum Shareholder Services, LLC CUTLER VALUE FUND 3555 Lear Way Two Portland Square Medford, Oregon 97504 Portland, Maine 04101
To The Cutler Trust Shareholders: We are pleased to present this semi-annual report and our thoughts on important events during the six months ended December 31, 2002. First, we must note a couple of milestones: Cutler & Company celebrated its 25th anniversary during November, and The Cutler Trust celebrated its 10th anniversary in December. In the financial industry, these are signal accomplishments, and we give credit to our long-serving and efficient staff, and the much appreciated loyalty of our clients. Over the years we have both expanded some operations and closed some operations that did not harmonize with the whole. Last year, we consisted of four divisions -- our traditional investment management business; our mutual funds; Cutler-Asia, a private equity division; and an Institutional division, doing business internationally, but principally in the eastern states. This last division increasingly became difficult to manage and harmonize. During the last quarter, we sold this division to a Boston firm. We now feel more comfortable with our traditional business, operating under the traditional values we always have stressed. As part of this realignment process, we will be asking you to approve a merger of our two mutual funds, the Cutler Core Fund and the Cutler Value Fund. Proxy material will be mailed to you shortly, outlining the advantage of this action and advising you of a special meeting of shareholders. We urge you to review this material and return the proxy as soon as possible. Both the American and International economies continue to reflect nervous stability and growth that is not as uniform as some desire. We are pleased that the President's Administration has recognized the need for fiscal stimulus and economic reform. Much is being made of the possible deficit created by the Administration's proposed tax cuts, but we have just emerged from a very large retirement of federal debt. Our three worst depressions followed zealous debt-reduction periods leading us to believe that long-term moderation and planning will require less politics and more understanding of capital flows. We are hopeful that the economy will accelerate following adoption of the sensible proposals that were put forward at the end of 2002. On behalf of everyone at Cutler & Company, and The Cutler Trust, we thank you for your continued support. /s/ Kenneth R. Cutler /s/ Brooke R. Ashland Kenneth R. Cutler Brooke R. Ashland Chairman Chief Executive Officer The Cutler Trust Cutler & Company, LLC
THE VIEWS IN THIS REPORT WERE THOSE OF THE CUTLER FUNDS' INVESTMENT ADVISER AS OF DECEMBER 31, 2002 AND MAY NOT REFLECT THE ADVISER'S VIEWS ON THE DATE THIS REPORT IS FIRST PUBLISHED OR ANYTIME THEREAFTER. THESE VIEWS ARE INTENDED TO ASSIST SHAREHOLDERS IN UNDERSTANDING THEIR INVESTMENT IN THE FUND(S) AND DO NOT CONSTITUTE INVESTMENT ADVICE. (02/03). 1 This Page Intentionally Left Blank 2 THE CUTLER TRUST CUTLER CORE FUND SCHEDULE OF INVESTMENTS (unaudited) DECEMBER 31, 2002
SHARES SECURITY DESCRIPTION VALUE COMMON STOCK -- 99.9% AGRICULTURE -- 2.4% 12,350 Philip Morris Cos., Inc. $ 500,546 ----------- BANKS -- 16.4% 22,200 Bank of New York Co., Inc. 531,912 27,750 Citigroup, Inc. 976,523 15,050 FleetBoston Financial Corp. 365,715 21,800 J.P. Morgan Chase & Co. 523,200 6,100 Mellon Financial Corp. 159,271 25,600 U.S. Bancorp 543,232 7,700 Wells Fargo & Co. 360,899 ----------- 3,460,752 ----------- BUSINESS SERVICES -- 2.4% 9,800 Microsoft Corp.+ 506,660 ----------- CHEMICALS -- 0.7% 3,700 E.I. du Pont de Nemours & Co. 156,880 ----------- COMMUNICATION EQUIPMENT -- 1.6% 38,350 Motorola, Inc. 331,728 ----------- DRUGS & PHARMACEUTICALS -- 12.3% 32,850 Bristol-Myers Squibb Co. 760,478 16,800 Merck & Co., Inc. 951,048 14,650 Pfizer, Inc. 447,851 11,650 Wyeth 435,710 ----------- 2,595,087 ----------- ELECTRIC, GAS & UTILITY COMPANIES -- 3.1% 4,550 Duke Energy Corp. 88,907 10,900 Exelon Corp. 575,193 ----------- 664,100 -----------
See Notes to Financial Statements. 3 THE CUTLER TRUST CUTLER CORE FUND SCHEDULE OF INVESTMENTS (unaudited) (continued) DECEMBER 31, 2002 --------------------------------------------------------------------------------
SHARES SECURITY DESCRIPTION VALUE ELECTRIC MACHINERY -- 3.9% 18,250 General Electric Co. $ 444,388 25,500 Texas Instruments, Inc. 382,755 ----------- 827,143 ----------- ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT -- 0.5% 6,600 Intel Corp. 102,762 ----------- FOOD & SOFT DRINKS -- 3.0% 13,450 General Mills, Inc. 631,478 ----------- FOREST PRODUCTS -- 1.5% 6,600 Weyerhaeuser Co. 324,786 ----------- GENERAL MERCHANDISE STORES -- 3.6% 9,000 Federated Department Stores, Inc.+ 454,590 10,550 Wal-Mart Stores, Inc. 303,418 ----------- 758,008 ----------- GROCERY STORES -- 2.8% 10,600 Kroger Co.+ 163,770 18,250 Safeway, Inc.+ 426,320 ----------- 590,090 ----------- INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT -- 8.6% 46,650 Apple Computer, Inc.+ 668,495 3,550 Caterpillar, Inc. 162,306 16,600 Hewlett-Packard Co. 288,176 8,850 IBM Corp. 685,875 ----------- 1,804,852 ----------- INSTRUMENTS & RELATED PRODUCTS -- 1.6% 13,900 Honeywell International, Inc. 333,600 -----------
See Notes to Financial Statements. 4 THE CUTLER TRUST CUTLER CORE FUND SCHEDULE OF INVESTMENTS (unaudited) (continued) DECEMBER 31, 2002 --------------------------------------------------------------------------------
SHARES SECURITY DESCRIPTION VALUE MEDIA -- 3.4% 16,700 AOL Time Warner, Inc.+ $ 218,770 30,150 Walt Disney Co. 491,747 ----------- 710,517 ----------- MEDICAL PRODUCTS -- 2.0% 8,000 Johnson & Johnson 429,680 ----------- MISCELLANEOUS RETAIL -- 1.5% 10,850 Costco Wholesale Corp.+ 304,451 ----------- OIL & GAS EXTRACTION -- 3.2% 5,400 Burlington Resources, Inc. 230,310 19,200 Transocean, Inc. 445,440 ----------- 675,750 ----------- PETROLEUM PRODUCTS -- 5.2% 8,350 ConocoPhillips 404,057 11,560 Exxon Mobil Corp. 403,906 9,800 Unocal Corp. 299,684 ----------- 1,107,647 ----------- PRIMARY METAL INDUSTRIES -- 1.3% 12,250 Alcoa, Inc. 279,055 ----------- PRINTING & PUBLISHING -- 1.7% 5,800 Knight-Ridder, Inc. 366,850 ----------- PROPERTY & CASUALTY INSURANCE -- 2.8% 10,300 American International Group, Inc. 595,855 ----------- SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES -- 1.6% 8,550 Morgan Stanley 341,316 -----------
See Notes to Financial Statements. 5 THE CUTLER TRUST CUTLER CORE FUND SCHEDULE OF INVESTMENTS (unaudited) (concluded) DECEMBER 31, 2002 --------------------------------------------------------------------------------
SHARES SECURITY DESCRIPTION VALUE TRANSPORTATION -- 3.9% 10,600 General Motors Corp. $ 390,716 7,250 Union Pacific Corp. 434,058 ----------- 824,774 ----------- VOICE & DATA TRANSMISSION -- 8.9% 141,250 AT&T Wireless Services, Inc.+ 798,061 20,950 SBC Communications, Inc. 567,955 13,300 Verizon Communications, Inc. 515,374 ----------- 1,881,390 ----------- TOTAL COMMON STOCK (COST $26,676,806) 21,105,757 ----------- SHORT-TERM HOLDING -- 0.0% 6,209.. Daily Assets Cash Fund (Cost $6,209) 6,209 ----------- TOTAL INVESTMENTS IN SECURITIES -- 99.9% (COST $26,683,015) $21,111,966 Other Assets and Liabilities, Net -- 0.1% 10,278 ----------- TOTAL NET ASSETS -- 100.0% $21,122,244 ===========
------------------------------ +Non-income producing securities. See Notes to Financial Statements. 6 THE CUTLER TRUST CUTLER VALUE FUND SCHEDULE OF INVESTMENTS (unaudited) DECEMBER 31, 2002 --------------------------------------------------------------------------------
SHARES SECURITY DESCRIPTION VALUE COMMON STOCK -- 100.1% AGRICULTURE -- 2.9% 13,000 Philip Morris Cos., Inc. $ 526,890 ----------- BANKS -- 21.1% 16,250 Bank of New York Co., Inc. 389,350 22,750 Citigroup, Inc. 800,573 19,824 FleetBoston Financial Corp. 481,723 31,450 J.P. Morgan Chase & Co. 754,800 8,850 Mellon Financial Corp. 231,074 28,850 U.S. Bancorp 612,197 10,850 Wells Fargo & Co. 508,540 ----------- 3,778,257 ----------- CHEMICALS -- 1.2% 5,200 E.I. du Pont de Nemours & Co. 220,480 ----------- COMMUNICATION EQUIPMENT -- 1.4% 29,200 Motorola, Inc. 252,580 ----------- DRUGS & PHARMACEUTICALS -- 8.7% 26,150 Bristol-Myers Squibb Co. 605,373 9,600 Merck & Co., Inc. 543,456 11,000 Wyeth 411,400 ----------- 1,560,229 ----------- ELECTRIC, GAS & UTILITY COMPANIES -- 3.1% 6,600 Duke Energy Corp. 128,964 8,100 Exelon Corp. 427,437 ----------- 556,401 ----------- FOOD & SOFT DRINKS -- 2.6% 9,900 General Mills, Inc. 464,805 ----------- FOREST PRODUCTS -- 2.6% 9,400 Weyerhaeuser Co. 462,574 -----------
See Notes to Financial Statements. 7 THE CUTLER TRUST CUTLER VALUE FUND SCHEDULE OF INVESTMENTS (unaudited) (continued) DECEMBER 31, 2002 --------------------------------------------------------------------------------
SHARES SECURITY DESCRIPTION VALUE GENERAL MERCHANDISE STORES -- 2.8% 17,200 Federated Department Stores, Inc.+ $ 494,672 ----------- GROCERY STORES -- 5.3% 26,750 Kroger Co.+ 413,288 23,100 Safeway, Inc.+ 539,616 ----------- 952,904 ----------- INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT -- 11.3% 47,100 Apple Computer, Inc.+ 674,943 4,950 Caterpillar, Inc. 226,314 44,200 Hewlett-Packard Co. 767,312 4,600 IBM Corp. 356,500 ----------- 2,025,069 ----------- INSTRUMENTS & RELATED PRODUCTS -- 1.1% 8,450 Honeywell International, Inc. 202,800 ----------- MEDIA -- 2.4% 25,850 Walt Disney Co. 421,614 ----------- OIL & GAS EXTRACTION -- 3.4% 7,200 Burlington Resources, Inc. 307,080 12,600 Transocean, Inc. 292,320 ----------- 599,400 ----------- PETROLEUM PRODUCTS -- 6.8% 8,500 ConocoPhillips 411,315 10,700 Exxon Mobil Corp. 373,858 14,400 Unocal Corp. 440,352 ----------- 1,225,525 ----------- PRIMARY METAL INDUSTRIES -- 2.2% 17,700 Alcoa, Inc. 403,206 -----------
See Notes to Financial Statements. 8 THE CUTLER TRUST CUTLER VALUE FUND SCHEDULE OF INVESTMENTS (unaudited) (concluded) DECEMBER 31, 2002 --------------------------------------------------------------------------------
SHARES SECURITY DESCRIPTION VALUE PRINTING & PUBLISHING -- 1.4% 3,900 Knight-Ridder, Inc. $ 246,675 ----------- PROPERTY & CASUALTY INSURANCE -- 3.2% 9,900 American International Group, Inc. 572,715 ----------- SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES -- 1.6% 7,100 Morgan Stanley 283,432 ----------- TRANSPORTATION -- 3.5% 7,650 General Motors Corp. 281,979 5,800 Union Pacific Corp. 347,246 ----------- 629,225 ----------- VOICE & DATA TRANSMISSION -- 11.5% 115,300 AT&T Wireless Services, Inc.+ 651,445 24,800 SBC Communications, Inc. 672,328 19,250 Verizon Communications, Inc. 745,937 ----------- 2,069,710 ----------- TOTAL COMMON STOCK (COST $22,216,004) 17,949,163 ----------- SHORT-TERM HOLDING -- 0.3% 48,379 Daily Assets Government Obligations Fund (Cost $48,379) 48,379 ----------- TOTAL INVESTMENTS IN SECURITIES -- 100.4% (COST $22,264,383) $17,997,542 Other Assets and Liabilities, Net -- (0.4%) (65,504) ----------- TOTAL NET ASSETS -- 100.0% $17,932,038 ===========
------------------------------ +Non-income producing securities. See Notes to Financial Statements. 9 THE CUTLER TRUST STATEMENTS OF ASSETS & LIABILITIES (unaudited) DECEMBER 31, 2002 --------------------------------------------------------------------------------
CUTLER CUTLER CORE VALUE FUND FUND ------------ ----------- ASSETS Total investments, at value (Note 2) (Cost $26,683,015 and $22,264,383, respectively) $ 21,111,966 $17,997,542 Receivables: Investment securities sold 101,339 -- Interest and dividends 55,754 43,697 Prepaid expenses 950 12,922 ------------ ----------- Total Assets 21,270,009 18,054,161 ------------ ----------- LIABILITIES Payables: Fund shares redeemed 7,711 -- Dividends 74,008 68,005 Accrued Liabilities: Investment advisory fees (Note 3) 9,093 2,851 Administration fees (Note 3) 3,333 3,333 Transfer agency fees (Note 3) 3,503 3,101 Custodian fees (Note 3) 2,570 1,702 Other related parties (Note 3) 1,547 1,579 Other 46,000 41,552 ------------ ----------- Total Liabilities 147,765 122,123 ------------ ----------- NET ASSETS $ 21,122,244 $17,932,038 ============ =========== COMPONENTS OF NET ASSETS Paid-in capital $ 38,225,630 $23,632,929 Undistributed net investment income 6,767 795 Accumulated net realized loss on investments (11,539,104) (1,434,845) Net unrealized depreciation on investments (5,571,049) (4,266,841) ------------ ----------- NET ASSETS $ 21,122,244 $17,932,038 ============ =========== NET ASSET VALUE, Offering and Redemption Price per share: Based on net assets of $21,122,244 and 3,023,183 shares outstanding and net assets of $17,932,038 and 2,332,939 shares outstanding, respectively. $6.99 $7.69
See Notes to Financial Statements. 10 THE CUTLER TRUST STATEMENTS OF OPERATIONS (unaudited) FOR THE SIX MONTHS ENDED DECEMBER 31, 2002 --------------------------------------------------------------------------------
CUTLER CUTLER CORE VALUE FUND FUND ----------- ----------- INVESTMENT INCOME Dividend income $ 317,290 $ 257,081 Interest income 761 1,709 ----------- ----------- Total Investment Income 318,051 258,790 ----------- ----------- EXPENSES Investment advisory fees (Note 3) 108,307 73,324 Administration fees (Note 3) 16,592 13,316 Transfer agency fees (Note 3) 10,991 9,890 Custody fees (Note 3) 5,596 3,944 Accounting fees (Note 3) 22,500 23,500 Legal fees 12,443 7,475 Audit fees 8,714 8,236 Trustees fees and expenses 9,401 6,356 Other 27,128 20,363 ----------- ----------- Total Expenses 221,672 166,404 Fees waived by Adviser (Note 4) (40,830) (43,945) ----------- ----------- Net Expenses 180,842 122,459 ----------- ----------- NET INVESTMENT INCOME 137,209 136,331 ----------- ----------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss from investments (3,714,782) (34,538) Net change in unrealized depreciation of investments (731,754) (3,103,515) ----------- ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (4,446,536) (3,138,053) ----------- ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(4,309,327) $(3,001,722) =========== ===========
See Notes to Financial Statements. 11 THE CUTLER TRUST STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
CUTLER CORE CUTLER VALUE FUND FUND --------------------------------- --------------------------------- Six Months Ended Year Six Months Ended Year December 31, 2002 Ended December 31, 2002 Ended (unaudited) June 30, 2002 (unaudited) June 30, 2002 ----------------- ------------- ----------------- ------------- OPERATIONS Net investment income $ 137,209 $ 92,387 $ 136,331 $ 182,424 Net realized loss from investments (3,714,782) (7,349,767) (34,538) (843,805) Net change in unrealized appreciation (depreciation) of investments (731,754) (2,837,880) (3,103,515) (2,831,104) ------------ ------------ ----------- ----------- Net decrease in net assets resulting from operations (4,309,327) (10,095,260) (3,001,722) (3,492,485) ------------ ------------ ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income (129,027) (97,124) (131,331) (185,416) Net realized capital gain from investments -- (76,544) -- -- ------------ ------------ ----------- ----------- Total distributions to shareholders (129,027) (173,668) (131,331) (185,416) ------------ ------------ ----------- ----------- CAPITAL SHARE TRANSACTIONS Sale of shares 1,542,674 2,937,119 1,871,550 3,964,821 Reinvestment of distributions 51,809 167,619 57,212 167,202 Redemption of shares (11,646,554) (12,503,467) (3,826,580) (3,234,737) ------------ ------------ ----------- ----------- Net increase (decrease) from capital share transactions (10,052,071) (9,398,729) (1,897,818) 897,286 ------------ ------------ ----------- ----------- Net decrease in net assets (14,490,425) (19,667,657) (5,030,871) (2,780,615) ------------ ------------ ----------- ----------- NET ASSETS Beginning of Period 35,612,669 55,280,326 22,962,909 25,743,524 ------------ ------------ ----------- ----------- End of Period (A) $ 21,122,244 $ 35,612,669 $17,932,038 $22,962,909 ============ ============ =========== =========== SHARE ACTIVITY Sale of shares 212,618 320,830 240,274 419,920 Reinvestment of distributions 8,120 18,582 8,291 17,428 Redemption of shares (1,632,030) (1,382,788) (510,741) (323,035) ------------ ------------ ----------- ----------- Net increase (decrease) in shares (1,411,292) (1,043,376) (262,176) 114,313 ============ ============ =========== =========== (A) Accumulated undistributed (distributions in excess of) net investment income $ 6,767 $ (1,415) $ 795 $ (4,205) ============ ============ =========== ===========
See Notes to Financial Statements. 12 THE CUTLER TRUST FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected per share data and ratios for a share outstanding throughout each period.
CUTLER CORE FUND --------------------------------------------------------------------- July 1, to December 31, (unaudited) Year Ended June 30, ------------ ----------------------------------------------------- 2002 2002 2001 2000 1999 1998 Net Asset Value, Beginning of Period $ 8.03 $ 10.09 $ 15.99 $ 15.71 $ 17.60 $ 16.06 -------- -------- -------- ------- ------- ------- Investment Operations Net investment income 0.04 0.02 0.05 0.08 0.12 0.19 Net realized and unrealized gain (loss) on investments (1.04) (2.05) (2.16) 1.24 2.06 3.05 -------- -------- -------- ------- ------- ------- Total from Investment Operations (1.00) (2.03) (2.11) 1.32 2.18 3.24 -------- -------- -------- ------- ------- ------- Distributions From Net investment income (0.04) (0.02) (0.05) (0.08) (0.12) (0.19) Net realized loss on investments -- (0.01) (3.74) (0.96) (3.95) (1.51) -------- -------- -------- ------- ------- ------- Total Distributions (0.04) (0.03) (3.79) (1.04) (4.07) (1.70) -------- -------- -------- ------- ------- ------- Net Asset Value, End of Period $ 6.99 $ 8.03 $ 10.09 $ 15.99 $ 15.71 $ 17.60 ======== ======== ======== ======= ======= ======= Total Return (12.46%) (20.12%) (14.44%) 8.61% 15.48% 21.60% Ratios/Supplementary Data Net assets at the end of year (in thousands) $ 21,122 $ 35,613 $ 55,280 $70,095 $74,499 $77,482 Ratios to Average Net Assets Expenses including reimbursement/waiver of fees 1.25%(a) 1.25% 1.20% 1.11% 1.07% 1.10% Expenses excluding reimbursement/waiver of fees 1.53%(a) 1.29% 1.20% 1.11% 1.07% 1.10% Net investment income 0.95%(a) 0.19% 0.40% 0.51% 0.76% 1.14% Portfolio Turnover Rate 24% 46% 93% 79% 59% 119%
------------------------------ (a) Annualized. See Notes to Financial Statements. 13 THE CUTLER TRUST FINANCIAL HIGHLIGHTS (concluded) -------------------------------------------------------------------------------- Selected per share data and ratios for a share outstanding throughout each period.
CUTLER VALUE FUND -------------------------------------------------------------------- July 1, to December 31, (unaudited) Year Ended June 30, ------------ ---------------------------------------------------- 2002 2002 2001 2000 1999 1998 Net Asset Value, Beginning of Period $ 8.85 $ 10.38 $ 9.78 $ 18.93 $ 21.02 $ 18.33 -------- -------- ------- ------- ------- ------- Investment Operations Net investment income 0.05 0.08 0.08 0.12 0.14 0.13 Net realized and unrealized gain (loss) on investments (1.16) (1.53) 0.79 (1.97) 2.73 4.19 -------- -------- ------- ------- ------- ------- Total from Investment Operations (1.11) (1.45) 0.87 (1.85) 2.87 4.32 -------- -------- ------- ------- ------- ------- Distributions From Net investment income (0.05) (0.08) (0.08) (0.12) (0.14) (0.13) In excess of net investment income -- -- -- -- --(b) -- Net realized loss on investments -- -- (0.19) (7.18) (4.82) (1.50) -------- -------- ------- ------- ------- ------- Total Distributions (0.05) (0.08) (0.27) (7.30) (4.96) (1.63) -------- -------- ------- ------- ------- ------- Net Asset Value, End of Period $ 7.69 $ 8.85 $ 10.38 $ 9.78 $ 18.93 $ 21.02 ======== ======== ======= ======= ======= ======= Total Return (12.46%) (14.07%) 8.97% (9.25%) 18.10% 24.90% Ratios/Supplementary Data Net assets at the end of year (in thousands) $ 17,932 $ 22,963 $25,744 $27,615 $40,125 $41,085 Ratios to Average Net Assets Expenses including reimbursement/ waiver of fees 1.25%(a) 1.25% 1.25% 1.25% 1.20% 1.24% Expenses excluding reimbursement/ waiver of fees 1.70%(a) 1.50% 1.45% 1.28% 1.20% 1.24% Net investment income 1.39%(a) 0.76% 0.56% 1.01% 0.80% 0.65% Portfolio Turnover Rate 27% 46% 60% 66% 110% 50%
------------------------------ (a) Annualized. (b) Amount rounds to less than $0.01. See Notes to Financial Statements. 14 THE CUTLER TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) -------------------------------------------------------------------------------- NOTE 1. ORGANIZATION The Cutler Trust (the "Trust") was organized on October 2, 1992, as an open-end management investment company under the Investment Company Act of 1940. The Trust currently has two diversified investment portfolios: Cutler Core Fund and Cutler Value Fund (individually, a "Fund" and, collectively, the "Funds"). Under its Trust Instrument, the Trust is authorized to issue an unlimited number of each Fund's shares of beneficial interest without par value. The Funds 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, 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 Funds: SECURITY VALUATION -- On each Fund business day, the Trust generally determines the net asset value per share of the Fund as of the close of the regular trading day on the New York Stock Exchange. Securities, other than short-term securities, held by the Fund, and for which market quotations are readily available, are valued using the last reported sales price provided by independent pricing services. If no sales price is reported, the mean of the last bid and ask price is used. In the absence of readily available market quotations, securities are valued at fair value as determined by the Trust's Board of Trustees. Securities that mature in sixty days or less are valued at amortized cost. Investments in other open-end investment companies are valued at net asset value. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Dividend income is recorded on the ex-dividend date. Interest income is recorded as earned. Security transactions are recorded on a trade date basis. Realized gain and loss on investments sold is recorded on the basis of identified cost. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment income, if any, are declared and paid quarterly on the Funds. 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 Funds, timing differences and differing characterizations of distributions made by the Funds. FEDERAL TAXES -- The Funds intend to qualify each year as regulated investment companies and distribute all their taxable income. In addition, by distributing in each calendar year substantially all their net investment income, capital gain and certain other amounts, if any, the Funds will not be subject to a federal excise tax. Therefore, no federal income or excise tax provision is required. 15 THE CUTLER TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) -------------------------------------------------------------------------------- EXPENSE ALLOCATION -- The Trust accounts separately for the assets, liabilities and operations of each Fund. Expenses that are directly attributable to more than one Fund are allocated among the respective Funds based on average net assets. NOTE 3. INVESTMENT ADVISORY AND OTHER SERVICES The investment adviser to the Funds is Cutler & Company, LLC ("Adviser"). Pursuant to an Investment Advisory Agreement, the Adviser receives an advisory fee from each Fund at an annual rate of 0.75% of each Fund's average daily net assets. Forum Administrative Services, LLC ("FAdS") serves as each Fund's administrator for which it receives compensation at an annual rate of 0.10% of each Fund's average daily net assets (with a minimum fee of $3,333 per month, per Fund commencing November 1, 2002). Pursuant to the Shareholder Service Plan, certain service providers receive fees, not to exceed 0.25% per year of the average daily net assets they hold in each Fund. FAdS pays these fees and the Fund reimburses FAdS. Forum Shareholder Services, LLC, an affiliate of FAdS, serves as each Fund's transfer agent and dividend disbursing agent, for which it receives a fee of $1,500 per month, per Fund (prior to November 1, 2002, the base fee was $1,000 per month, per Fund), plus certain other fees and expenses. Forum Accounting Services, LLC, an affiliate of FAdS, serves as the fund accountant for each Fund, for which it receives a fee of $4,000 per month, per Fund (prior to November 1, 2002, the base fee was $3,000 per month, per Fund), subject to adjustments for the number and type of portfolio transactions, plus certain other fees and expenses. Forum Fund Services, LLC ("FFS"), a registered broker-dealer, a member of the National Association of Securities Dealers, Inc., and an affiliate of FAdS, acts as the distributor for each Fund. FFS receives no compensation for its services. Forum Trust, LLC ("Forum Trust"), an affiliate of FAdS serves as each Fund's custodian and may employ subcustodians to provide custody of a Fund's domestic assets. For its services, Forum Trust is entitled to receive compensation at an annual rate of 0.01% of each Fund's average daily net assets (this fee decreases if the Fund assets exceed $1 billion), plus $3,600 per year account maintenance fees for each Fund, plus certain other fees and expenses. NOTE 4. WAIVER OF FEES The Adviser has contractually agreed through October 31, 2003 to waive a portion of its fees and reimburse certain expenses if total expenses of each Fund exceed 1.25% of average net assets. The Adviser contractually waived fees of $40,830 for the Cutler Core Fund and $43,945 for the Cutler Value Fund for the six months ended December 31, 2002. 16 THE CUTLER TRUST NOTES TO FINANCIAL STATEMENTS (unaudited) (concluded) -------------------------------------------------------------------------------- NOTE 5. SECURITIES TRANSACTIONS The cost of securities purchased and the proceeds from sales of securities (excluding short-term securities) for the six months ended December 31, 2002, were as follows:
COST OF PURCHASES PROCEEDS FROM SALES ----------------- ------------------- Cutler Core Fund........................ $6,808,290 $16,270,454 Cutler Value Fund....................... 5,185,969 5,380,009
The cost basis of investment securities owned, the aggregate gross unrealized appreciation and the aggregate gross unrealized depreciation for the six months ended December 31, 2002, were as follows:
UNREALIZED UNREALIZED NET COST BASIS APPRECIATION DEPRECIATION DEPRECIATION ----------- ------------ ------------ ------------ Cutler Core Fund............. $26,683,015 $610,741 $(6,181,790) $(5,571,049) Cutler Value Fund............ 22,264,383 638,798 (4,905,639) (4,266,841)
17