________________________________________________________________________________
SCM STRATEGIC GROWTH FUND
________________________________________________________________________________
a series of the SCM Investment Trust
Annual Report 1999
FOR THE PERIOD ENDED MAY 31,
INVESTMENT ADVISOR
Shanklin Capital Management, Inc.
1420 Osborne Street
Suite B16
Humboldt, TN 38343
1-901-784-4444
SCM STRATEGIC GROWTH FUND
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-525-3863
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SCM FUNDS (logo)
Dear Fellow Shareholders:
We are pleased to provide you with this inaugural annual report for the SCM
Strategic Growth Fund for the fiscal year ending May 31, 1999. Over this period,
your Fund produced a total return of 3.76%, compared to the 13.95% return of its
benchmark, the Russell 3000, and to the 8.19% return of its peer group index,
the Lipper Flexible Portfolio Fund Index. The underperformance relative to the
comparative indexes can be traced to the Fund's first four months of operation,
July thru October 1998. At that time, investors went through a severe panic,
fearing that serious economic problems in some of the world's emerging markets
would spill over into the U.S. and cause a recession. Risk avoidance motivated
most market participants in the extreme. Investors seemed determined to sell all
securities in which they had significant profits and all securities that
appeared to have above-average risk.
It was also during this time the Fund had the least amount of assets and
accordingly the fewest number of holdings (ranging from 3 to 22 companies). This
"focused" portfolio therefore had the potential over the short-term to deviate
meaningfully from that of broader market indexes such as the Russell 3000 and
the Lipper Flexible Portfolio Fund Index. Soon after this period of
underperformance, net money flows into the Fund substantially increased --
consequently, in conjunction with the broad market "bottom". This new money
allowed for the selective purchase of many great stocks at "bargain basement
prices". Within a few months, the portfolio consisted of forty to fifty
companies and a complement of U.S Treasury Notes and money market instruments.
From October 31, 1998 until May 31, 1999, the SCM Strategic Growth Fund has
returned 27.00%. In comparison, we humbly note the Russell 3000 and the Lipper
Flexible Portfolio Fund Indexes have returned 19.65% and 11.25%, respectively.
Portfolio and Market Thoughts
- -----------------------------
Though we had a few disappointments during the first fiscal year, having
positions in some of the market's top performers compensated for the negative
effects of our disappointing stocks. Fortunately, several Fund holdings have
appreciated by more than 100% since their acquisition. We have enjoyed an
affirming outcome from several big winners, each typically built on a pattern of
earnings surprises and positive earnings revisions. Examples of such winners for
the Fund include Charles Schwab & Co. and Net.B@nk in the financial sector;
technology darlings Cisco Systems, RealNetworks, and MCI Worldcom; and delivery
giant FDX Corporation.
Not all of our investments fared well in the fiscal year. We recognize that
investors dislike negative surprises and we plan to work harder in the upcoming
year to notice changes in the fundamental business trends of the companies we
own -- changes that forecast negative outcomes going forward. While we fully
expect a few negative surprises, we will strive to better anticipate them, and
take appropriate action when need be.
Clearly, investors favored large-cap growth stocks above all others in the
fiscal year. Determining factors seemed to be sustainable, above-average rates
of growth in a challenging growth environment and trading liquidity that allowed
investors to react quickly. In addition to the strong business fundamentals
evidenced by our large-cap companies, we think these two factors also
contributed to the Fund's performance over the course of the year. Nonetheless,
we continue to believe that reasonably-priced high quality, strong growth
companies of all sizes consistently represent the most promising investment
opportunities.
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As we enter the new fiscal year, the equity markets remain generally bullish.
While we do not expect a major sustained downdraft in equity markets in the
presence of a modestly low interest rate environment, a stable U.S. economy, and
a seemingly accommodating Federal Reserve, we also do not expect the recent
euphoria to last all year. One feature we do expect the equity markets to have
in common with last year is volatility. The degree of short-term volatility
correlates directly with valuation levels. With valuations at historically high
levels, we do not expect many dull moments. While extreme volatility can make
for a harrowing existence, it also creates numerous opportunities. We hope to
continue taking advantage of these opportunities to strengthen the Fund for the
long-term.
Of course, we make all our investments with a view toward the long-term. In our
opinion, top quality companies share several characteristics that contribute to
sustained, above-average growth rates: superior technologies or services, strong
balance sheets, clear business models and management teams with the ability to
execute their strategies. We believe investors will continue to seek out
companies with these characteristics.
Year 2000 Computer Issue
- ------------------------
Many computer systems in use today may not be able to recognize any date after
December 31, 1999. If these systems are not fixed by that date, it is possible
that they could generate erroneous information or fail altogether. SCM Funds has
committed to make sure its own major computer systems will continue to function
on and after January 1, 2000. Of course, SCM Funds cannot fix systems that are
beyond its control. If SCM Funds own systems, or the systems of third parties
upon which it relies, do not perform properly after December 31, 1999, the Fund
could be adversely affected.
In addition, the markets for, or values of, securities in which the Fund invests
may possibly be hurt by computer failures affecting portfolio investments or
trading of securities beginning January 1, 2000. For example, improperly
functioning computer systems could result in securities trade settlement
problems and liquidity issues, production issues for individual companies and
overall economic uncertainties. Individual issuers may incur increased costs in
making their own systems Year 2000 compliant. The combination of market
uncertainty and increased costs means that there is a possibility that Year 2000
computer issues may adversely affect the Fund's investments. At this time, it is
generally believed that foreign issuers, particularly those in emerging and
other markets, may be more vulnerable to Year 2000 problems than companies in
the U.S.
We believe that both our successes and our failures strengthen our resolve and
improve our ability to face the challenges ahead. We know it was not an easy
year to "stay the course" and we deeply value those that did. We believe that
those that have stayed with us will ultimately be rewarded with acceptable
long-term investment performance. Thank you for your continued confidence in the
SCM Strategic Growth Fund.
Sincerely,
/s/ Dan Shanklin /s/ Tim Shanklin
Dan Shanklin Tim Shanklin
Chairman Portfolio Manager
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SCM STRATEGIC GROWTH FUND
Performance Update - $10,000 Investment
For the period from June 29, 1998 (Commencement of Operations)
to May 31, 1999
--------------------------------------------------------------
Lipper Flexible
SCM Strategic Russell Portfolio
Period Ended Growth Fund 3000 Index Fund Index
--------------------------------------------------------------
6/29/98 $10,000 $10,000 $10,000
7/31/98 9,490 9,790 9,902
8/31/98 7,770 8,287 8,930
9/30/98 8,170 8,848 9,285
10/31/98 8,170 9,524 9,725
11/30/98 8,700 10,108 10,125
12/31/98 9,444 10,747 10,531
1/31/99 9,925 11,114 10,734
2/28/99 9,504 10,720 10,438
3/31/99 9,835 11,112 10,698
4/30/99 10,917 11,621 11,012
5/31/99 10,376 11,395 10,819
This graph depicts the performance of the SCM Strategic Growth Fund versus the
Russell 3000 Index and the Lipper Flexible Portfolio Fund Index. It is important
to note that the SCM Strategic Growth Fund is a professionally managed mutual
fund while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Cumulative Total Return
- -----------------------
Since Commencement
of Operations
- -----------------------
3.76%
- -----------------------
The graph assumes an initial $10,000 investment at June 29, 1998. All dividends
and distributions are reinvested.
At May 31, 1999, the SCM Strategic Growth Fund would have grown to $10,376 -
total investment return of 3.76% since June 29, 1998.
At May 31, 1999, a similar investment in the Russell 3000 Index would have grown
to $11,395 - total investment return of 13.95%; and the Lipper Flexible
Portfolio Fund Index would have grown to $10,819 - total investment return of
8.19%, since June 29, 1998.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
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Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 81.57%
Auto Parts - Original Equipment - 2.78%
Detroit Diesel Corporation ............................................. 5,340 $ 132,499
Johnson Controls, Inc. ................................................. 1,700 107,206
----------
239,705
----------
Auto & Trucks - 1.37%
DaimlerChrysler AG ..................................................... 1,350 118,041
----------
Beverages - 1.44%
The Coca-Cola Company .................................................. 1,810 123,985
----------
Building Materials - 1.85%
Comfort Systems USA, Inc. .............................................. 10,100 159,075
----------
Commercial Services - 5.05%
Central Parking Corporation ............................................ 3,700 120,250
(a)Concord EFS, Inc. ...................................................... 6,000 203,250
(a)NOVA Corporation ....................................................... 5,000 111,250
----------
434,750
----------
Computers - 1.22%
(a)Dell Computer Corporation .............................................. 3,050 105,034
----------
Computer Software & Services - 11.63%
(a)Acxiom Corporation ..................................................... 5,225 141,075
(a)America Online ......................................................... 1,125 134,437
(a)Cisco Systems, Inc. .................................................... 1,400 152,425
(a)Infoseek Corporation ................................................... 2,750 115,156
(a)Microsoft Corporation .................................................. 1,700 137,169
(a)Network Solutions, Inc. ................................................ 2,150 136,794
(a)RealNetworks, Inc. ..................................................... 2,600 184,275
----------
1,001,331
----------
Electrical Equipment - 1.60%
Emerson Electric Co. ................................................... 2,150 137,331
----------
Electronics - 4.03%
(a)Nichols Research Corporation ........................................... 6,880 139,320
(a)SCI Systems, Inc. ...................................................... 5,000 207,500
----------
346,820
----------
Electronics - Semiconductor - 1.26%
Intel Corporation ...................................................... 2,000 108,125
----------
(Continued)
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Entertainment - 1.58%
Time Warner, Inc. ...................................................... 2,000 $ 136,125
----------
Financial Services - 1.39%
Fannie Mae ............................................................. 1,765 119,910
----------
Financial - Banks, Comercial - 1.44%
First Tennessee National Corporation ................................... 3,000 123,563
----------
Financial - Savings/Loans/Thrifts - 4.01%
(a)Net.B@nk, Inc. ......................................................... 8,100 345,262
----------
Financial - Securities Brokers - 3.13%
The Charles Schwab Corporation ......................................... 2,550 269,662
----------
Lodging - 2.98%
(a)Fairfield Communities, Inc. ............................................ 10,800 171,450
(a)Promus Hotel Corporation ............................................... 3,400 85,000
----------
256,450
----------
Machine - Construction & Mining - 1.70%
Ingersoll-Rand Company ................................................. 2,300 146,481
----------
Manufactured Housing - 1.43%
Clayton Homes, Inc. .................................................... 10,767 123,148
----------
Medical Supplies - 3.47%
Medtronic, Inc. ........................................................ 1,651 117,221
(a)Renal Care Group, Inc. ................................................. 6,550 181,762
----------
298,983
----------
Medical - Biotechnology - 1.07%
Schering-Plough Corporation ............................................ 2,050 91,866
----------
Miscellaneous - Manufacturing - 1.28%
(a)Denali Incorporated .................................................... 14,000 110,250
----------
Oil & Gas - Domestic - 1.82%
Atlantic Richfield ..................................................... 1,870 156,496
----------
Real Estate Investment Trust - 0.96%
Prison Realty Trust, Inc. .............................................. 6,550 82,694
----------
(Continued)
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Restaurants & Food Service - 1.70%
IHOP Corp. ............................................................. 6,120 $ 146,115
----------
Retail - Department Stores - 4.02%
Dayton Hudson Corporation .............................................. 1,700 107,100
(a)Saks Incorporated ...................................................... 4,700 129,837
Wal-Mart Stores, Inc. .................................................. 2,560 109,120
----------
346,057
----------
Retail - General Merchandise - 1.41%
Dollar Tree Stores, Inc. ............................................... 3,600 121,050
----------
Retail - Specialty Line - 3.21%
Home Depot, Inc. ....................................................... 2,250 127,969
(a)Tractor Supply Company ................................................. 5,000 148,750
----------
276,719
----------
Shoes - Leather - 1.42%
Nike, Inc. ............................................................. 2,000 121,875
----------
Telecommunications - 1.12%
CenturyTel, Inc. ....................................................... 2,505 95,973
----------
Telecommunications Equipment - 3.60%
Lucent Technologies Inc. ............................................... 2,400 136,500
Scientific-Atlanta, Inc. ............................................... 4,900 173,031
----------
309,531
----------
Transportation - Air - 3.50%
FDX Corporation ........................................................ 3,200 176,200
Southwest Airlines ..................................................... 3,900 125,044
----------
301,244
----------
Utilities - Telecommunications - 3.10%
BellSouth Corporation .................................................. 2,725 128,586
(a)MCI WorldCom, Inc. ..................................................... 1,600 138,200
----------
266,786
----------
Total Common Stocks (Cost $5,695,401) .................................. 7,020,437
----------
(Continued)
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 1999
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Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 13.24%
United States Treasury Note ................................ $ 90,000 5.875% 08/31/99 $ 90,236
United States Treasury Note ................................ 60,000 5.500% 02/29/00 60,223
United States Treasury Note ................................ 120,000 5.125% 08/31/00 119,709
United States Treasury Note ................................ 150,000 5.000% 02/28/01 148,992
United States Treasury Note ................................ 150,000 5.625% 05/15/01 150,445
United States Treasury Note ................................ 150,000 6.500% 08/31/01 153,187
Untied States Treasury Strip ............................... 126,000 0.000% 11/15/99 123,314
Untied States Treasury Strip ............................... 128,000 0.000% 05/15/00 122,037
Untied States Treasury Strip ............................... 185,000 0.000% 11/15/00 171,404
----------
Total U.S. Government and Agency Obligations (Cost $1,147,772) .................................... 1,139,547
----------
----------
Shares
----------
INVESTMENT COMPANY - 3.61%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares
(Cost $310,535) ................................................................... 310,535 310,535
----------
Total Value of Investments (Cost $7,153,708 (b)) .............................................. 98.42% $8,470,519
Other Assets Less Liabilities ................................................................. 1.58% 136,056
------ ----------
Net Assets ............................................................................. 100.00% $8,606,575
====== ==========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation ................................................................................. $1,667,271
Unrealized depreciation ................................................................................. (350,460)
----------
Net unrealized appreciation ................................................. $1,316,811
==========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999
ASSETS
Investments, at value (cost $7,153,708) ......................................................... $ 8,470,519
Cash ............................................................................................ 114,719
Income receivable ............................................................................... 12,900
Prepaid expenses ................................................................................ 1,342
Deferred organization expenses, net (note 3) .................................................... 22,016
-----------
Total assets ............................................................................... 8,621,496
-----------
LIABILITIES
Accrued expenses ................................................................................ 14,921
-----------
NET ASSETS
(applicable to 831,137 shares outstanding; unlimited
shares of $0.01 par value beneficial interest authorized) ...................................... $ 8,606,575
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($8,606,575 / 831,137 shares) ................................................................... $ 10.36
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $ 7,694,728
Undistributed net investment income ............................................................. 6,930
Accumulated net realized loss on investments .................................................... (411,894)
Net unrealized appreciation on investments ...................................................... 1,316,811
-----------
$ 8,606,575
===========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
STATEMENT OF OPERATIONS
For the period from June 1, 1998
(initial seed date)
to May 31, 1999
INVESTMENT INCOME
Income
Interest ..................................................................................... $ 25,745
Dividends .................................................................................... 42,567
-----------
Total income ........................................................................... 68,312
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 36,288
Fund administration fees (note 2) ............................................................ 6,404
Custody fees ................................................................................. 3,671
Registration and filing administration fees (note 2) ......................................... 287
Fund accounting fees (note 2) ................................................................ 22,000
Audit fees ................................................................................... 8,500
Legal fees ................................................................................... 7,000
Securities pricing fees ...................................................................... 2,210
Shareholder recordkeeping fees ............................................................... 8,250
Other accounting fees (note 2) ............................................................... 2,424
Shareholder servicing expenses ............................................................... 4,196
Registration and filing expenses ............................................................. 3,205
Printing expenses ............................................................................ 2,882
Amortization of deferred organization expenses (note 3) ...................................... 4,984
Trustee fees and meeting expenses ............................................................ 66
Other operating expenses ..................................................................... 1,869
-----------
Total expenses ......................................................................... 114,236
-----------
Less:
Expense reimbursements (note 2) ................................................... (26,718)
Investment advisory fees waived (note 2) .......................................... (34,231)
Fund administration fees waived (note 2) .......................................... (86)
-----------
Net expenses ........................................................................... 53,201
-----------
Net investment income ............................................................. 15,111
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investment transactions .................................................... (411,894)
Increase in unrealized appreciation on investments ................................................ 1,316,811
-----------
Net realized and unrealized gain on investments .............................................. 904,917
-----------
Net increase in net assets resulting from operations ................................... $ 920,028
===========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period from June 1, 1998
(initial seed date)
to May 31, 1999
INCREASE IN NET ASSETS
Operations
Net investment income ........................................................................... $ 15,111
Net realized loss from investment transactions .................................................. (411,894)
Increase in unrealized appreciation on investments .............................................. 1,316,811
-----------
Net increase in net assets resulting from operations ........................................ 920,028
-----------
Distribution to shareholders from
Net investment income ........................................................................... (8,181)
-----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............................ 7,694,728
-----------
Total increase in net assets ................................................................ 8,606,575
NET ASSETS
Beginning of period ................................................................................... 0
-----------
End of period (including undistributed net investment income of $6,930) .............................. $ 8,606,575
===========
(a) A summary of capital share activity follows:
--------------------------------
Shares Value
--------------------------------
Shares sold ............................................................ 865,908 8,035,651
Shares issued for reinvestment
of distributions .................................................. 878 8,181
----------- -----------
866,786 8,043,832
Shares redeemed ........................................................ (35,649) (349,104)
----------- -----------
Net increase ...................................................... 831,137 $ 7,694,728
=========== ===========
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the period from June 29, 1998
(commencement of operations)
to May 31, 1999
Net asset value, beginning of period ..................................................................... $ 10.00
Income from investment operations (a)
Net investment income ........................................................................ 0.02
Net realized and unrealized gain on investments .............................................. 0.35
-----------
Total from investment operations ....................................................... 0.37
-----------
Distribution to shareholders from
Net investment income ........................................................................ (0.01)
-----------
Net asset value, end of period ........................................................................... $ 10.36
===========
Total return ............................................................................................. 3.76 %
===========
Ratios/supplemental data
Net assets, end of period ......................................................................... $ 8,606,575
===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ................................................ 2.68 % (b)
After expense reimbursements and waived fees ................................................. 1.25 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ................................................ (1.07)% (b)
After expense reimbursements and waived fees ................................................. 0.35 % (b)
Portfolio turnover rate ........................................................................... 45.51 %
(a) Includes undistributed net investment income of $0.00 per share and undistributed net realized gains and unrealized gains of
$0.00 per share, from June 1, 1998 (seed date) through June 29, 1998 (commencement of operations).
(b) Annualized.
See accompanying notes to financial statements
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SCM STRATEGIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The SCM Strategic Growth Fund (the "Fund") is a diversified series of
shares of beneficial interest of The SCM Investment Trust (the
"Trust"). The Trust, an open-ended investment company, was organized on
April 18, 1998 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The investment
objective of the Fund is to provide its shareholders with a maximum
total return consisting of any combination of realized and unrealized
capital appreciation. Current income is of secondary importance. The
Fund will seek to achieve this objective by investing primarily in a
flexible portfolio of equity securities, fixed income securities, and
money market instruments. The Fund was initially seeded on June 1,
1998. The Fund had no net investment income, or net realized and
unrealized gains from the seed date through the commencement of
operations, or June 29, 1998. The following is a summary of significant
accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted on a
national market system are valued at the last sales price as of
4:00 p.m. New York time on the day of valuation. Other securities
traded in the over-the-counter market and listed securities for
which no sale was reported on that date are valued at the most
recent bid price. Securities for which market quotations are not
readily available, if any, are valued by using an independent
pricing service or by following procedures approved by the Board
of Trustees. Short-term investments are valued at cost which
approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since substantially all taxable income has been
distributed to shareholders. It is the policy of the Fund to
comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to make
sufficient distributions of taxable income to relieve it from all
federal income taxes.
The Fund has a capital loss carryforward for federal income tax
purposes of $411,894 which expires in the year 2007. It is the
intention of the Board of Trustees of the Trust not to distribute
any realized gains until the carryforwards have been offset or
expire.
C. Investment Transactions - Investment transactions are recorded on
the trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is recorded
on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September and December, on a
date selected by the Trust's Trustees. In addition, distributions
may be made annually in December out of net realized gains
through October 31 of that year. Distributions to shareholders
are recorded on the ex-dividend date. The Fund may make a
supplemental distribution subsequent to the end of its fiscal
year ending May 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets, liabilities, expenses and revenues reported in
the financial statements. Actual results could differ from those
estimates.
(Continued)
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SCM STRATEGIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Shanklin Capital
Management, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the composition
of its portfolio, and furnishes advice and recommendations with respect
to investments, investment policies and the purchase and sale of
securities. As compensation for its services, the Advisor receives a
fee at the annual rate of 0.85% of the Fund's average daily net assets.
The Advisor intends to voluntarily waive all or a portion of its fee
and reimburse expenses of the Fund to limit total Fund operating
expenses to 1.25% of the average daily net assets of the Fund. There
can be no assurance that the foregoing voluntary fee waivers or
reimbursements will continue. The Advisor has voluntarily waived a
portion of its fee amounting to $34,231 ($0.08 per share) and has
agreed to reimburse $26,718 of the Fund's operating expenses for the
year ended May 31, 1999.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.150% of the Fund's first $100 million of average daily
net assets, and 0.125% of average daily net assets over $100 million.
The Administrator also receives a monthly fee of $2,000 for accounting
and recordkeeping services. The contract with the Administrator
provides that the aggregate fees for the aforementioned administration,
accounting and recordkeeping services shall not be less than $3,000 per
month. The Administrator also charges the Fund for certain expenses
involved with the daily valuation of portfolio securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $9,211,008 and $1,967,489, respectively, for the year ended
May 31, 1999.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The SCM Investment Trust and Shareholders of SCM
Strategic Growth Fund:
We have audited the accompanying statement of assets and liabilities of SCM
Strategic Growth Fund (the "Fund"), including the portfolio of investments, as
of May 31, 1999, and the related statement of operations for the period then
ended, the statement of changes in net assets and financial highlights for the
period from June 1, 1998 (commencement of operations) to May 31, 1999. 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 the securities owned as of May 31, 1999, by
correspondence with the custodian and brokers. 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 audit provides 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 SCM
Stategic Growth Fund as of May 31, 1999, the results of its operations for the
period then ended, the changes in its net assets and the financial highlights
for the respective stated period in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
June 18, 1999
