Dear SMT Fund Shareholder,
The performance of the SMT Fund relative to market indices for the period ending
May 31, 2000 was as follows:
<TABLE>
<S> <C> <C> <C> <C>
CALENDAR SINCE INCEPTION
QUARTER YEAR-TO-DATE ONE YEAR (ANNUALIZED)
(3/01/00-5/31/00) (1/1/00-5/31/00) (5/31/99-5/31/00) (6/5/98-5/31/00)
----------------- ---------------- ----------------- ----------------
The SMT Fund -10.77% -7.05% -7.34% 23.37% (11.12%)
S&P 500 4.29% -2.82% 10.47% 33.70% (15.70%)
Dow Jones Industrial Avg. 3.89% -8.48% -0.35% 18.62% (8.95%)
NASDAQ -27.59% -16.43% 40.58% 92.15% (38.80%)
</TABLE>
The differential in performance between the SMT Fund and the above indices was
primarily due to being mostly out of the market during the last quarter of 1999,
during which time the markets appreciated significantly.
As I discussed in the 1999 year end letter, the component of the timing system
that kept the fund in cash during that period was based on traditional valuation
measures, such as price earnings ratios, breadth, and volatility. Historically
these measures have been reliable for determining limits to extreme market
valuations. In today's economic and market environment these indicators have
been proven less reliable hence the removal of this component of the system at
the end of 1999.
The SMT Fund invested primarily in NASDAQ stocks during the past year. Apart
from the fourth quarter of 1999, for which the above changes were made, we are
very pleased with fund performance. This was highlighted during the last (March,
April, May) quarter when the SMT Fund avoided significant declines experienced
by the NASDAQ.
SMT FUND S&P 500 DJIA NASDAQ
-------- ------- ---- ------
31-Mar-2000 -0.47% 9.8% 7.8% -2.59%
30-Apr-2000 -2.51% -3.0% -1.7% -15.52%
31-May-2000 -6.60% -2.1% -2.0% -11.89%
There were two major themes in the financial markets during this reporting
period:
o Significant volatility during the last six months - many technology stocks
that soared during 1999 came crashing back to earth in early 2000.
o Investors increasingly focused on corporate profits of old economy stocks,
and many companies that failed to deliver profits to their shareholders
were punished.
SMT has just completed an extensive strategic planning process. This process has
clearly defined company objectives to most effectively serve our clients and
shareholders. The resultant changes focused on improving technology,
organizational structure, and client relations.
Technologically, we have contracted with a Denver based inter-net firm to build
a site through which we can more effectively communicate fund information. This
will be an extensive project that will be finished sometime before the end of
2000. Internally, our market data now comes directly from New York over a T-1
providing extremely accurate and timely data.
Over the past year SMT has added three new names to its team. Ken Eiseler
started in December of 1999 as Senior Equities Analyst. Jerri Kindlinger
replaced Tina Partlo when she retired from the position of office manager in
April. Chris Allard is the newest person, having started in June. Chris has many
responsibilities, but is primarily coordinating efforts to enhance information
distribution, sales development and shareholder contact.
U.S. and foreign markets may remain volatile for some time because of rising
interest rates and because of difficulties the markets have had in valuing
high-growth technology companies. While the Fed traditionally refrains from
raising interest rates during presidential elections, it has made clear its
intention to continue raising rates as necessary to ensure that inflation
remains in check. Technology and telecommunications companies in the United
States and elsewhere are producing innovative new products and infrastructure
that could result in many years of above average growth. While further Fed rate
hikes could put pressure on more traditional sectors of the economy, many
industry leading technology companies have little debt, making them somewhat
immune to the effects of rising interest rates. The SMT Fund will continue to
invest in market-leading sectors with the potential to appreciate.
As always the objective of everyone at SMT is to provide our shareholders with
the utmost in integrity and service. We look forward to many years of continued
partnership.
Very Truly Yours,
Craig M. Pauly
President
<PAGE>
[OBJECT OMITTED]
Growth of a $10,000 Investment (graph)
--------------------------------------
The SMT Fund $ 12,337
The S&P 500 $ 13,370
--------------------------------------------------------------------------------
Average Annual Total Return
For the Period Ending
5/31/00
Since Inception 11.12%
(6/5/98)
One Year -7.34%
Past performance does not predict future performance. The value of your shares
may fluctuate and be worth more or less than their original cost at the time of
redemption.
--------------------------------------------------------------------------------
<PAGE>
SMT FUND
SCHEDULE OF INVESTMENTS
As of May 31, 2000
Number Market
of Shares Value
Holding Company Depositary Receipts - 48.23%
============================================
Biotech Holders Trust Depository 17,000 $ 2,218,500
Internet Holders Trust Depository 21,000 2,235,188
----------
Total Holding Company
---------------------
(Cost $4,455,016) 4,453,688
----------
Long -Term Unit Investment Trust - 51.24%
=========================================
NASDAQ 100 Trust Unit Service 1 57,000 4,731,000
----------
Total Long-Term Unit Investment Trust
-------------------------------------
(Cost $4,633,445) 4,731,000
----------
Money Market - 0.10%
====================
Firstar Bank Treasury Fund 9,436 $ 9,436
-------
5.35%
Total Money Market
------------------
(Cost $9,436) 9,436
-------
Total Investments - 99.57%
--------------------------
(Cost $9,097,897) 9,194,124
Other Assets and Liabilities, Net - 0.43% 39,566
=========================================
Net Assets - 100%
---------------- $ 9,233,690
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMT FUND
STATEMENT OF ASSETS AND LIABILITIES
As of May 31, 2000
ASSETS
Investments, at value (cost $ 9,097,897) ................ $ 9,194,124
Receivable interest...................................... 25,772
Receivable other ........................................ 70,392
Deferred organization costs.............................. 26,029
---------
Total assets ............................................ 9,316,317
LIABILITIES
Accrued management fees.................................. 13,816
Accrued other fees....................................... 4,019
Payable to custodian..................................... 64,792
------
Total liabilities ....................................... 82,627
NET ASSETS ................................................... $ 9,233,690
===========
Net assets consist of:
Paid-in capital ......................................... 12,197,118
Net unrealized appreciation in value of investments .... 96,227
Accumulated undistributed net realized gain on investments (3,059,655)
-----------
Net assets .............................................. $ 9,233,690
==========
Shares of capital stock
outstanding (no par value,
unlimited shares authorized)............................. 1,591,953
Net asset value, offering
and redemption price per share .......................... $ 5.80
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMT FUND
STATEMENT OF OPERATIONS
For the year ended May 31, 2000
INVESTMENT INCOME
Income:
Interest ................................................ $ 352,665
Dividends ............................................... 28,372
-------
Total investment income ............................ 381,037
---------
Expenses:
Management fees expense.................................. 688,893
Trustee fee expense ..................................... 7,502
Organization expense..................................... 9,183
Miscellaneous expense.................................... 1,019
-----------
Total expenses........................................... 706,597
-----------
NET INVESTMENT INCOME (LOSS).................................. (325,560)
-----------
REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments.................. (574,477)
Change in unrealized appreciation of investments ........ 38,081
-------------
Net realized and unrealized gain (loss) on investments (536,396)
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ (861,956)
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMT FUND
STATEMENT OF CHANGES IN NET ASSETS For the Year ended May 31, 2000
<TABLE>
<S> <C> <C>
Year Year
Ended Ended
May 31, May 31,
2000 1999
---- ----
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)............................. $ (325,560) $ (211,439)
Net change in unrealized appreciation of investments ... 38,081 58,146
Net realized gain (loss) on investments ................. (574,477) 2,961,344
--------- ---------
Increase (decrease) in net assets resulting from operations (861,956) 2,808,051
--------- --------
Dividends and distributions to shareholders from:
Net realized gains ...................................... (3,929,604) (979,918)
--------- ---------
Total decrease in net assets resulting from distributions..... (3,929,604) (979,918)
Capital share transactions:
Proceeds from shares sold ............................... 9,063,507 15,962,586
Dividend reinvested ..................................... 3,929,604 979,918
Cost of shares redeemed...................... (15,497,851) (2,240,647)
------------ -----------
Increase (decrease) in net assets resulting from capital share
transactions ........................................... (2,504,740) 14,701,857
---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS....................... (7,296,300) 16,529,990
NET ASSETS:
Beginning of period ..................................... 16,529,990 -----
End of period (including accumulated undistributed net
investment income $0 and $0 respectively) ......... $ 9,233,690 $ 16,529,990
========= ============
Shares of capital stock of the Fund sold and redeemed:
Shares sold ............................................. 1,218,559 1,451,269
Shares reinvested............................................. 609,415 87,885
Shares redeemed.......................................... (1,585,640) (189,535)
----------- ----------
NET INCREASE IN NUMBER
OF SHARES OUTSTANDING ................................... 242,334 1,349,619
=========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SMT FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C>
Year Year
Ended Ended
May 31, May 31,
2000 1999(a)
----- -------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning ................................... $ 12.25 $ 10.00
Income from investment
Operations:
Net investment income ................................... (0.21) (0.22)
Net realized and unrealized
gain (loss) on investments.......................... (0.08) 3.44
----- ----
Total from investment income ............................ (0.29) 3.22
Less distributions:
Dividends from realized gains .......................... (6.16) (0.97)
Dividend from net investment income...................... 0.00 0.00
---- ----
Total distribution .......................................... (6.16) (0.97)
Net asset value at end of period ............................. $ 5.80 $ 12.25
===== =====
TOTAL RETURN ................................................. (7.34)% 33.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period................................ $ 9,233,690 $ 16,529,990
Ratio of expenses to average net assets ...................... 4.99% 4.99% (b)
Ratio of net investment income to average net assets ......... (2.30%) (1.94%) (b)
Portfolio turnover ........................................... 23,116.67% 10,710.86%
(a) For the period June 5, 1998 (commencement of operations) to May 31, 1999.
(b) Annualized.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 - General
The SMT Fund (the "Fund") was organized as a series of Securities Management &
Timing Funds, an Ohio business trust (the"Trust") on February 20, 1998. The SMT
Fund is a diversified, open-end mutual fund whose investment objective is to
provide a "higher total return over the long term than the total return of the
United States equity markets." Prior to July 20, 1999 the investment objective
was to provide long term capital appreciation. The Fund seeks to achieve its
objective by following a market timing strategy which is based on a proprietary
investment model developed by Securities Management & Timing, Inc., the Fund's
adviser. The Fund attempts to be "in the market" (invested in a broad range of
common stocks) when the market is rising and "out of the market" (invested in
money market instruments) when the market is declining.
The Adviser's market timing strategy uses a proprietary, computer-driven
technical model that generates buy and sell signals. When the technical
indicators in the model generate a buy signal, the Fund will substantially
invest in a broad range of high quality stocks selected by the Adviser. When the
indicator generates a sell signal, the stocks will be sold and the proceeds
invested in money market instruments.
Note 2 - Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements.
A) Security Valuations
Securities which are traded on any exchange or on the NASDAQ over-the-counter
market are valued at the last quoted sale price. Lacking a last sale price, a
security is valued at its last bid price except when, in the Adviser's opinion,
the last bid price does not accurately reflect the current value of the
security. All other securities for which over-the-counter market quotations are
readily available are valued at their last bid price. When market quotations are
not readily available, when the Adviser determines the last bid price does not
accurately reflect the current value or when restricted securities are being
valued, such securities are valued as determined in good faith by the Adviser,
subject to review of the Board of Trustees of the Trust.
B) Securities Transactions and Related Income
Securities transactions are recorded on a trade date. Realized gains and losses
from securities transactions are recorded on the identified cost basis. Interest
income is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date.
C) Dividends and Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income as
dividends to its shareholders on an annual basis, and intends to distribute its
net long-term capital gains and its short-term capital gains at least once a
year. However, to the extent that net realized gains of the Fund could be
reduced by any capital loss carry-overs, such gains will not be distributed.
D) Federal Income Taxes
It is the policy of the Fund to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders.
E) Expenses
Organizational costs represent costs incurred in connection with the
organization and the initial public offering of the Fund. Organizational costs
are deferred and will be amortized on a straight-line basis over five years. In
the event that the original shareholder (or any subsequent transferee) redeems
any of its original capital (seed capital) prior to these organizational costs
being fully amortized, the redemption proceeds will be reduced by a pro-rata
portion of any then unamortized organizational costs. At May 31, 2000, the
unamortized balance was $ 26,029.
F) Estimates
Preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Note 3 - Agreements and Other Transactions with Affiliates
The Fund retains Securities Management & Timing, Inc., (the "Adviser") to manage
the Fund's investments. The Fund is authorized to pay the Adviser a fee equal to
an annual average rate of 4.95% of its average daily net assets, minus the
amount by which the Fund's total expenses (including organizational expenses,
but excluding brokerage, taxes, interest and extraordinary expenses) exceeds
4.99%. The Adviser pays all of the operating expenses of the Fund except
brokerage, taxes, interest, fees and expenses on non-interested persons trustees
and extraordinary expenses. For the year ended May 31, 2000 the Adviser earned $
688,893. The officers of the Adviser are also officers, directors, and
shareholders of the Fund.
Note 4- Securities Transactions
The cost of securities for federal income tax purposes was $9,097,897 at May 31,
2000.
For the year ended May 31, 2000, purchases and sales proceeds from investment
securities, excluding short-term investments were as follows:
Purchases Sales
The SMT Fund $ 833,372,764 $ 839,504,180
Note 5- Unrealized Appreciation (Depreciation)
For the year ended May 31, 2000, the composition of unrealized appreciation (the
excess of value over tax cost) and depreciation (the excess of tax cost over
value) was as follows:
<TABLE>
<S> <C> <C> <C> <C>
Net Appreciation
Fund Appreciation Depreciation (Depreciation)
------------ ------------ ------------ --------------
SMT Fund $ 114,046 $ (17,819) $ 96,227
</TABLE>
Note 6- Reclassification of Capital Accounts
In accordance with AICPA Statement of Position 93-2, the components of nets
assets of the Fund have been reclassified to the extent that the net investment
loss of ($325,560) sustained during the period ended May 31, 2000, which
represents a permanent difference for income tax purposes, has been reclassified
as a decrease in accumulated undistributed net realized gain on investments.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees
The SMT Fund
We have audited the accompanying statement of assets and liabilities of the SMT
Fund, including the schedule of portfolio investments, as of May 31, 2000, and
the related statement of operations, the statement of changes in net assets, and
financial highlights for the periods indicated. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments and cash held as of May 31, 2000
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SMT Fund as of May 31, 2000, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated in conformity
with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
June 21, 2000
