________________________________________________________________________________
SCM STRATEGIC
GROWTH FUND
________________________________________________________________________________
a series of the SCM Investment Trust
Annual Report 2000
FOR THE YEAR 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
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus. Mutual fund shares are not deposits
or obligations of, or guaranteed by, any depository institution. Shares are not
insured by the FDIC, Federal Reserve Board or any other agency, and are subject
to investment risks, including possible loss of principal amount invested.
Neither the fund nor the fund's distributor is a bank.
For more information about the SCM Strategic Growth Fund, including charges and
expenses, call the fund for a free prospectus. You should read the prospectus
carefully before you invest or send money.
<PAGE>
SCM FUNDS
Dear Fellow Shareholders:
We are pleased to provide you with this annual report for the SCM Strategic
Growth Fund for the fiscal year ending May 31, 2000. Over this twelve-month
period, the Fund produced a total return of -0.98%. Consequently, the Fund
underperformed both the Russell 3000 Index (10.45%) and the Lipper Flexible
Portfolio Fund Index (5.77%).
This twelve-month performance "snapshot" differs dramatically from the previous
quarter ended March 31st. At that time, the Fund closed at $11.44 -- up 16.59%
in one year and up 5.63% for the first three months of calendar year 2000. Both
respectable absolute and relative returns. The collapse which followed in April
and May was swift and discouraging, but no doubt probably long overdue. As
evidenced by the table below, the technology-laden Nasdaq Composite Index
suffered most. However, no particular sector or index was entirely immune to the
plummet in stock prices.
<TABLE>
<S> <C> <C> <C>
YTD through Mar. 31, 2000 to May 28, 1999 to
May 31, 2000 May 31,2000 May 31, 2000
------------ ----------- ------------
SCM Strategic Growth Fund (closing price on May 31, 2000: $10.25) -5.36% -10.40% -0.98%
Nasdaq Composite Index -16.43% -25.63% 37.66%
Dow Jones Industrial Average -8.48% -3.66% -0.35%
Russell 3000 Index -2.44% -6.30% 10.45%
Wilshire 5000 Index (Best measure of the entire U.S. stock market) -5.50% -8.70% 8.99%
</TABLE>
The performance gap between the few technology favorites and the many also-rans
had reached epic proportions. One analyst calculated that current valuation
levels were so far from market norms that they should occur only once every 285
billion years. For many months investors tried to justify ever higher stock
prices for companies with no earnings and little prospect for earnings in the
coming years. While there are many proposed reasons why stocks dropped so
dramatically, it would simply seem unsustainable price valuations were the
primary culprit.
The dominant pricing tool for top-performing equities had become a multiple of
forward revenues. It appears that the market revalued these stocks to more
conventional and traditional techniques tied to earnings. When this occurs
prices can easily get cut in half, which in many cases is exactly what we've
seen.
Another factor may have been the market's appetite for initial public offerings
(IPO's). Over long time periods, fundamentals move stock prices, particularly
earnings growth. However, over short periods, supply/demand and investor
psychology may often drive prices. The recent IPO market has seen companies go
public that in less exuberant times would have remained private for several more
years. Many retail investors essentially became mid-stage venture capital
investors--sharing the lofty return expectations of professional venture
capitalists without sharing the same understanding of the risk. This high
return/low risk expectation drove margin borrowing to record highs. Leverage
then intensified recent stock price declines, as those investors who borrowed
had to sell to cover losses.
A "benefit" to the stock market correction is that concerns over a "bubble" have
been greatly reduced. Asset prices have long been a source of worry at the
Federal Reserve. With a decline in stock prices, the Fed's policies are likely
to be more accommodative in the future than they otherwise would have been. This
will help to ensure the long-term health of the market, and do much more good
than any harm a short-term setback will cause. Furthermore, a positive shift in
economic sentiment during the last days of May spurred the markets to gains.
Recent reports have indicated that certain sectors of the economy may in fact be
slowing. This has many economists reducing the time and magnitude of future Fed
rate increases. We caution, however, that the Fed may not be done raising rates
so long as consumer demand remains high.
Our near-term outlook calls for more volatility, but this should not be a major
concern. Wealth is built over the long-term, and our outlook remains positive.
The long-term underlying trends moving this market are still in place.
"Baby-boomers" are getting older and saving for their retirement. Labor remains
tight, which means businesses will continue to invest in capital as a substitute
for labor. Major investment continues in communications, led by soaring demand
for wireless and internet services. These trends coupled with strong economic
growth and low to moderate inflation, should fuel stocks to at least average to
above-average annualized returns for the next several years. Just be mindful,
there will be more bumps along the way.
<PAGE>
The stock market frequently acts like a mirror, reflecting investor confidence
levels, but what ultimately drives the price of any one stock is the underlying
value of the corporation. For this reason, we continue to primarily invest in
quality managed companies with highly visible earnings. When the market
recovers, we find these stocks will have usually held up better and rebound
faster than lower quality stocks with little or no earnings.
Portfolio Notes
---------------
The market's recent descent made some previously overvalued stocks attractive
again -- particularly within the technology sector. At the end of the last
reporting period, November 1999, the Fund had approximately 78% of its total net
assets allocated to stocks. By May 31st , that figured had increased to 84%. In
addition, thirty-nine percent of the Fund's equity holdings were classified as
either low-tech or hi-tech. This is a modest increase from the last semi-annual
report and represents the Fund's highest allocation to technology since
inception. As currently structured, we believe the Fund's fifty-four equity
positions demonstrate an appropriate balance between growth and value.
Since year-end, the Fund's technology holdings, as a group, have performed well
despite the "noise" of April and May. Scientific-Atlanta (SFA), a benefactor of
the internet's expansion to TV, has been the Fund's stellar performer adding 82%
since December 31. SFA is followed by BEI Technologies (BEIQ) and Insight
Enterprises (NSIT). BEIQ and NSIT, both low-tech ideas, have each appreciated by
at least forty-percent since being acquired in March and April. Despite such
impressive short-term performance, we believe they can return even more over
time. Other non-tech positions have also contributed favorably to the Fund's
year-to-date results. These include Tidewater Inc. (TDW), an oil and energy
services firm profiting from higher energy costs, Kansas City Southern
Industries (KSU), Medtronic (MDT), and Southwest Airlines (LUV). Most of these
are higher by at least 25 percent.
On the other hand, we tactfully mention that some of the Fund's holdings have
not performed as we would hope. The apparent slowdown in the economy,
particularly in mortgage lending and consumer spending, has been especially hard
on retailers like Home Depot (HD) and Target (TGT). A few companies, Stillwater
Mining (SWC) and BMC Software (BMCS) come to mind, have been sidelined by
operational issues which when resolved should further enhance their business
prospects. We are content to wait and see. Even one of the blue-chip technology
companies, Lucent Technologies (LU), has had a tough go so far this calendar
year after falling short of Wall Street's expectations.
There is an old saying that "getting rich quick doesn't work. . .getting rich
slow does." We have never tried to make money fast for our clients. We manage a
blend of asset classes to control risk and safely seek capital appreciation. We
manage money, in other words, to create long-term wealth. Despite the market's
spring swoon, we are committed to the "bigger picture" and remain confident
long-term investors will be ultimately rewarded.
Sincerely,
/s/ Dan Shanklin /s/ Tim Shanklin
Dan Shanklin Tim Shanklin
Chairman Portfolio Manager
P.S. The day this report was sent to the printer (7/14), the closing price of
the Fund was $11.22.
<PAGE>
SCM STRATEGIC GROWTH FUND
Performance Update - $10,000 Investment
For the period from June 29, 1998 (Commencement of Operations)
to May 31, 2000
[LINE GRAPH HERE]
--------------------------------------------------------------------------------
SCM Strategic Lipper Flexible
Growth Fund Russell 3000 Index Portfolio Fund Index
--------------------------------------------------------------------------------
6/29/98 $10,000 $10,000 $10,000
8/31/98 7,770 8,287 8,930
11/30/98 8,700 10,108 10,125
2/28/99 9,504 10,720 10,438
5/31/99 10,376 11,395 10,819
8/31/99 9,945 11,473 10,838
11/30/99 10,486 12,207 11,121
2/29/00 10,815 12,598 11,337
5/31/00 10,274 12,740 11,442
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.
Average Annual Total Returns
--------------------- ----------------------------------------
One Year Period Since 6/29/98 (commencement of
Ended 5/31/00 operations) to 5/31/00
--------------------- ----------------------------------------
(0.98)% 1.42%
--------------------- ----------------------------------------
The graph assumes an initial $10,000 investment at June 29, 1998 (commencement
of operations). All dividends and distributions are reinvested.
At May 31, 2000, the SCM Strategic Growth Fund would have grown to $10,274 - a
cumulative total investment return of 2.74% since June 29, 1998.
At May 31, 2000, a similar investment in the Russell 3000 Index would have grown
to $12,740 - a cumulative total investment return of 27.40%; and the Lipper
Flexible Portfolio Fund Index would have grown to $11,442 - a cumulative total
investment return of 14.42% 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 total returns are historical in nature and measure net
investment income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 84.23%
Auto Parts - Original Equipment - 1.82%
Johnson Controls, Inc. ..................................................... 3,250 $ 185,047
-----------
Broadcast - Radio & Television - 1.55%
(a)Pixar, Inc. ................................................................ 4,600 157,550
-----------
Commercial Services - 5.52%
(a)Concord EFS, Inc. .......................................................... 8,415 204,064
Equifax Inc. ............................................................... 6,800 188,275
(a)NOVA Corporation ........................................................... 5,750 168,906
-----------
561,245
-----------
Computer Hardware & Software - 2.28%
(a)Insight Enterprises, Inc. .................................................. 5,100 231,412
-----------
Computer Software & Services - 8.46%
(a)Acxiom Corporation ......................................................... 6,915 202,264
(a)BMC Software, Inc. ......................................................... 4,100 180,400
(a)Cisco Systems, Inc. ........................................................ 3,380 192,660
(a)Oracle Corporation ......................................................... 2,475 177,891
(a)RealNetworks, Inc. ......................................................... 2,930 106,396
-----------
859,611
-----------
Computers - 7.88%
(a)Dell Computer Corporation .................................................. 4,820 207,862
(a)NCR Corporation ............................................................ 5,205 219,586
(a)Sun Microsystems, Inc. ..................................................... 2,400 183,900
(a)Xircom, Inc. ............................................................... 4,600 189,750
-----------
801,098
-----------
Diversified Operations - 1.60%
Minnesota Mining and Manufacturing Company ................................. 1,900 162,925
-----------
Electronics - 2.38%
BEI Technologies, Inc. ..................................................... 2,300 41,400
(a)SCI Systems, Inc. .......................................................... 4,460 200,700
-----------
242,100
-----------
Electronics - Semiconductor - 4.23%
(a)Advanced Micro Devices, Inc. ............................................... 2,100 171,019
Intel Corporation .......................................................... 2,075 258,597
-----------
429,616
-----------
Financial Services - 3.23%
(a)Pre-Paid Legal Services, Inc. .............................................. 5,300 159,994
(a)The Profit Recovery Group International, Inc. .............................. 9,300 168,562
-----------
328,556
-----------
(Continued)
</TABLE>
<PAGE>
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Banks, Money Center - 6.28%
(a)Cumberland Bancorp, Inc. ................................................... 20,000 $ 255,000
J.P. Morgan & Co. Incorporated ............................................. 1,500 193,125
National Commerce Bancorporation ........................................... 10,000 190,000
-----------
638,125
-----------
Financial - Securities Brokers - 1.95%
The Charles Schwab Corporation ............................................. 7,020 198,754
-----------
Lodging - 0.47%
(a)Brookdale Living Communities, Inc. ......................................... 3,500 48,125
-----------
Medical Supplies - 4.22%
Medtronic, Inc. ............................................................ 4,982 257,196
(a)Renal Care Group, Inc. ..................................................... 7,205 172,019
-----------
429,215
-----------
Mining - 1.27%
(a)Stillwater Mining Company .................................................. 4,600 129,087
-----------
Oil & Gas - Domestic - 1.56%
(a)Louis Dreyfus Natural Gas Corp. ............................................ 4,900 158,331
-----------
Oil & Gas - Equipment & Services - 2.30%
Tidewater Inc. ............................................................. 6,000 233,250
-----------
Oil & Gas - International - 1.84%
Exxon Mobil Corporation .................................................... 2,240 186,620
-----------
Retail - Department Stores - 1.88%
Wal-Mart Stores, Inc. ...................................................... 3,310 190,739
-----------
Retail - General Merchandise - 4.23%
(a)Dollar Tree Stores, Inc. ................................................... 4,265 253,768
Target Corporation ......................................................... 2,810 176,152
-----------
429,920
-----------
Retail - Specialty Line - 1.56%
The Home Depot, Inc. ....................................................... 3,235 158,110
-----------
(Continued)
</TABLE>
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Telecommunications - 5.98%
(a)JDS Uniphase Corporation ................................................... 1,350 $ 118,800
(a)MasTec, Inc. ............................................................... 2,800 191,450
(a)Nextel Communications, Inc. ................................................ 1,185 109,761
SBC Communications Inc. .................................................... 4,295 187,638
-----------
607,649
-----------
Telecommunications Equipment - 4.82%
American Tower Corporation ................................................. 4,000 148,500
Lucent Technologies Inc. ................................................... 3,300 189,337
Scientific-Altanta, Inc. ................................................... 2,700 152,213
-----------
490,050
-----------
Transportation - Air - 3.72%
(a)FedEx Corp. ................................................................ 4,645 164,317
Southwest Airlines Co. ..................................................... 11,150 213,941
-----------
378,258
-----------
Transportation - Rail - 1.72%
Kansas City Southern Industries, Inc. ...................................... 2,600 174,850
-----------
Utilities - Telecommunications - 1.48%
(a)WorldCom, Inc. ............................................................. 4,000 150,500
-----------
Total Common Stocks (Cost $6,937,779) ............................................................ 8,560,743
-----------
------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 10.18%
United States Treasury Note .......................... $150,000 5.000% 02/28/01 148,230
United States Treasury Note .......................... 120,000 5.125% 08/31/00 119,794
United States Treasury Strip ......................... 185,000 0.000% 11/15/00 179,747
Federal Home Loan Bank ............................... 150,000 6.810% 01/25/02 148,875
Federal National Mortgage Association ................ 150,000 5.625% 02/20/04 141,422
Federal National Mortgage Association ................ 150,000 6.570% 06/27/02 147,937
Federal National Mortgage Association ................ 150,000 7.000% 12/27/02 148,359
-----------
Total U.S. Government and Agency Obligations (Cost $1,041,719) ................................... 1,034,364
-----------
(Continued)
</TABLE>
<PAGE>
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SCM STRATEGIC GROWTH FUND
PORTFOLIO OF INVESTMENTS
May 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.37%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................... 374,341 $ 374,341
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ............................. 171,027 171,027
-----------
Total Investment Companies (Cost $545,368) ....................................................... 545,368
-----------
Total Value of Investments (Cost $8,524,866 (b)) ....................................... 99.78% $10,140,475
Other Assets Less Liabilities .......................................................... 0.22% 22,753
------ -----------
Net Assets ...................................................................... 100.00% $10,163,228
====== ===========
(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 ........................................................................... $ 1,744,175
Unrealized depreciation ........................................................................... (128,566)
-----------
Net unrealized appreciation ....................................................... $ 1,615,609
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
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SCM STRATEGIC GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000
ASSETS
Investments, at value (cost $8,524,866) ......................................................... $10,140,475
Income receivable ............................................................................... 23,450
Deferred organization expenses, net (note 3) .................................................... 16,602
-----------
Total assets ............................................................................... 10,180,527
-----------
LIABILITIES
Accrued expenses ................................................................................ 14,721
Disbursements in excess of cash on demand deposit ............................................... 2,578
-----------
Total liabilities .......................................................................... 17,299
-----------
NET ASSETS
(applicable to 991,813 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ......................................... $10,163,228
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($10,163,228 / 991,813 shares) .................................................................. $10.25
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $ 9,261,585
Undistributed net investment oincome ............................................................ 20,054
Accumulated net realized loss on investments .................................................... (734,020)
Net unrealized appreciation on investments ...................................................... 1,615,609
-----------
$10,163,228
===========
See accompanying notes to financial statements
</TABLE>
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<TABLE>
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SCM STRATEGIC GROWTH FUND
STATEMENT OF OPERATIONS
Year ended May 31, 2000
INVESTMENT INCOME
Income
Interest ....................................................................................... $ 82,924
Dividends ...................................................................................... 65,166
---------
Total income ............................................................................. 148,090
---------
Expenses
Investment advisory fees (note 2) .............................................................. 85,337
Fund administration fees (note 2) .............................................................. 15,059
Custody fees ................................................................................... 4,137
Registration and filing administration fees (note 2) ........................................... 650
Fund accounting fees (note 2) .................................................................. 24,000
Audit fees ..................................................................................... 10,530
Legal fees ..................................................................................... 5,271
Securities pricing fees ........................................................................ 3,355
Shareholder recordkeeping fees ................................................................. 9,000
Shareholder servicing expenses ................................................................. 6,908
Registration and filing expenses ............................................................... 1,931
Printing expenses .............................................................................. 5,369
Amortization of deferred organization expenses (note 3) ........................................ 5,413
Trustee fees and meeting expenses .............................................................. 1,832
Other operating expenses ....................................................................... 5,964
---------
Total expenses ........................................................................... 184,756
---------
Less investment advisory fees waived (note 2) ............................................ (59,328)
---------
Net expenses ............................................................................. 125,428
---------
Net investment income ............................................................... 22,662
---------
REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS
Net realized loss from investment transactions ...................................................... (322,126)
Increase in unrealized appreciation on investments .................................................. 298,798
---------
Net realized and unrealized loss on investments ................................................ (23,328)
---------
Net decrease in net assets resulting from operations ..................................... $ (666)
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
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SCM STRATEGIC GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Period ended
May 31, May 31,
2000 1999 (b)
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income .................................................... $ 22,662 $ 15,111
Net realized loss from investment transactions ........................... (322,126) (411,894)
Increase in unrealized appreciation on investments ....................... 298,798 1,316,811
----------- -----------
Net (decrease) increase in net assets resulting from operations ..... (666) 920,028
----------- -----------
Distributions to shareholders from
Net investment income .................................................... (9,538) (8,181)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ..... 1,566,857 7,694,728
----------- -----------
Total increase in net assets ................................... 1,556,653 8,606,575
NET ASSETS
Beginning of period .......................................................... 8,606,575 0
----------- -----------
End of period (including undistributed net investment income
of $20,054 in 2000 and $6,930 in 1999) ....................... $10,163,228 $ 8,606,575
=========== ===========
(a) A summary of capital share activity follows:
------------------------------------------------------------------------------------
Year ended Period ended
May 31, 2000 May 31, 1999 (b)
Shares Value Shares Value
------------------------------------------------------------------------------------
Shares sold ............................... 411,852 $ 4,256,521 865,908 $ 8,035,651
Shares issued for reinvestment
of distributions ................... 882 9,538 878 8,181
----------- ----------- ----------- -----------
412,734 4,266,059 866,786 8,043,832
Shares redeemed ........................... (252,058) (2,699,202) (35,649) (349,104)
----------- ----------- ----------- -----------
Net increase ....................... 160,676 $ 1,566,857 831,137 $ 7,694,728
=========== =========== =========== ===========
(b) For the period from June 1, 1998 (initial seed date) to May 31, 1999.
See accompanying notes to financial statements
</TABLE>
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SCM STRATEGIC GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Period ended
May 31, May 31,
2000 1999 (a)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................................... $10.36 $10.00
(Loss) income from investment operations
Net investment income .............................................. 0.02 0.02 (b)
Net realized and unrealized (loss) gain on investments ............. (0.12) 0.35 (b)
----------- -----------
Total from investment operations .............................. (0.10) 0.37
----------- -----------
Distributions to shareholders from
Net investment income .............................................. (0.01) (0.01)
----------- -----------
Net asset value, end of period ................................................ $10.25 $10.36
=========== ===========
Total return .................................................................. (0.98)% 3.76 %
=========== ===========
Ratios/supplemental data
Net assets, end of period ............................................... $10,163,228 $ 8,606,575
=========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...................... 1.84 % 2.68 %(c)
After expense reimbursements and waived fees ....................... 1.25 % 1.25 %(c)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ...................... (0.37)% (1.07)%(c)
After expense reimbursements and waived fees ....................... 0.23 % 0.35 %(c)
Portfolio turnover rate ................................................. 113.59 % 45.51 %
(a) For the period from June 29, 1998 (commencement of operations) to May 31, 1999.
(b) 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).
(c) Annualized.
See accompanying notes to financial statements
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<PAGE>
SCM STRATEGIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The SCM Strategic Growth Fund (the "Fund"), an open-ended investment
company, is a diversified series of shares of beneficial interest of
The SCM Investment Trust (the "Trust"). The Trust 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 capital loss carryforwards for federal income tax
purposes of $734,020, $411,894 of which expires in the year 2007
and $322,126 of which expires in the year 2008. 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)
<PAGE>
SCM STRATEGIC GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 2000
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 $59,328 ($0.06 per share) for the year
ended May 31, 2000.
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 0.15% 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 $12,106,175 and $10,659,224, respectively, for the year
ended May 31, 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of 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, including the portfolio of investments, as of May 31,
2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended May 31, 2000 and 1999,
and financial highlights for the periods presented. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2000, by correspondence with the Fund's
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
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 SCM
Strategic Growth Fund as of May 31, 2000, the results of its operations for the
year ended, and the changes in its net assets and the financial highlights for
the respective stated periods, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
June 23, 2000
<PAGE>
THIS PAGE FOR NOTES AND COMPUTATIONS
<PAGE>
SCM Funds
P. O. Box 4365
Rocky Mount, NC 27803-0365
