ANNUAL REPORT FOR 1996
Dear Shareholders,
Enclosed are the financial statements for the SCM Portfolio Fund for the 12-
month period ending December 31, 1996. Also, enclosed is a graph which
compares the Fund's performance to that of the S & P 500 Index from 1989, the
year in which the Fund became effective. The Fund reports as of January 1,
1989, since its capitalization was growing while awaiting SEC notification of
effectiveness, which occurred on March 8, 1989. The S & P 500 Index is a
broad-based index which meets the SEC requirements for comparative purposes.
While the Fund's adviser has a preference for investing totally in common
stocks, the Fund makes no representation that it was fully invested in stocks
for any period reported, as was the S & P 500 Index, or that the Fund ever will
be fully invested in common stocks.
Recent SEC rules require that the person or persons associated with the Fund
or investment adviser, SCM Associates, Inc., be disclosed with title(s) and
that the Fund's performance be reviewed annually, indicating investment
strategy and relating it to the Fund's objective and market conditions during
the year.
Stephen C. McCutcheon has managed the portfolio of the Fund since its
inception. He began managing client funds individually in 1986 with the
founding of SCM Associates and registering the adviser with the SEC.
The Fund reports a 11.53 per cent total return for the year compared to the S
& P 500's 22.98 per cent total return. Total return, of course, is the
combined result of capital appreciation and distributions (dividends and
capital gains) reinvested in shares of the Fund or comparative index. By way
of another comparison, according to Lipper Analytical Services, as reported in
the Wall Street Journal, the average balanced fund (stocks and bonds) gained
13.01 per cent. Of course, balanced funds and indexes are fully invested all
the time.
The objective of the Fund is to realize a combination of income and capital
appreciation which will result in the highest total return consistent with
safety of principal. The Fund follows a flexible investment policy and invests
in common stocks, preferred stocks, bonds, and money market instruments in
varying percentages, depending on the judgement of management as to the general
market and economic conditions. Management seeks to avoid or reduce negative
changes in the Fund's net asset value per share and seeks to provide a positive
return even in a declining market.
<PAGE>
The SCM Portfolio Fund was invested at the end of year, 50.23 per cent in
common stocks; 1.75 per cent in preferred stocks; 5.28 per cent in U.S.
Treasury Notes; and 42.74 per cent in cash equivalents. This is a conservative
portfolio mix, and the cash position held our total return back during the
year. However, the traditional indicators, such as price to earnings
ratio and yield on S & P average were in record unacceptable territory, and
Fund management was reluctant to commit more than 50 per cent to common stocks.
Nevertheless, interest rates continued to decline during most of the year
and inflation appeared under control to investors, and these factors,
plus the investment demands of baby boomers who are investing for retirement,
negated the traditional indicators of over-value in stocks.
As interest rates continue to decline and inflation remains under control, Fund
management will continue to buy stocks of companies which have prospects of
growing earnings.
We will have a further update at the annual meeting on March 8th. Hope to see
you then.
Sincerely,
Steve McCutcheon
February 6, 1997
<PAGE>
Description of line graph comparing the change in value of $10,000 investment
in SCM Portfolio Fund and the S & P 500 Index dating from 01/01/89 through
12/31/96.
On the vertical axis the range in dollar value is $0 to $30,000.
On the horizontal axis, the dates begin with 01/01/89, next 03/08/89 (SEC
effectiveness date of the SCM Portfolio Fund), and thereafter each year ending
date (12/31) through 12/31/96.
The plotted values are as follows:
<TABLE>
<CAPTION>
Date S & P Index SCM Portfolio Fund
<C> <C> <C>
01-01-89 $10,000 $10,000
03-08-89 10,193 10,140
12-31-89 11,408 10,690
12-31-90 11,013 11,178
12-31-91 14,018 12,272
12-31-92 15,463 12,555
12-31-93 17,012 13,380
12-31-94 17,239 13,279
12-31-95 23,658 15,153
12-31-96 29,312 16,900
</TABLE>
<PAGE>
SCM PORTFOLIO FUND, INC
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Independent Auditor's Report 1
Statement of Assets and Liabilities 2
Schedule of Investments 3-4
Statement of Operations 5
Statements of Changes in Net Assets 6
Notes to Financial Statements 7-8
Supplementary Information
Selected Per Share Data and Ratios 10
Auditor's Report on Internal Control Structure 11
</TABLE>
<PAGE>
MCMULLAN AND COMPANY
Certified Public Accountants
1355 Peachtree Street N E
Suite 820
Atlanta, GA 30309
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
SCM Portfolio Fund, Inc.
We have audited the accompanying statement of assets and liabilities of SCM
Portfolio Fund, Inc., including the schedule of investments, as of December 31,
1996, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended December 31, 1996 and
1995, and selected per share data and ratios for the years ended December 31,
1996, 1995, 1994, 1993, 1992, 1991, 1990, and 1989. These financial
statements, per share data and ratios are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and per share data and ratios 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 per
share data and ratios are free of material misstatement. Our procedures
included confirmation of securities owned as of December 31, 1996, by
correspondence with the custodian. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. 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 selected per share data and ratios
referred to above present fairly, in all material respects, the financial
position of SCM Portfolio Fund, Inc., as of December 31, 1996, and the results
of its operations for the year then ended, the changes in its net assets for
the years ended December 31, 1996 and 1995, and the selected per share data and
ratios for the years ended December 31, 1996, 1995, 1994, 1993, 1992, 1991,
1990, and 1989, in conformity with generally accepted accounting principles.
MCMULLAN AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
January 9, 1997
Atlanta, Georgia
<PAGE>
<TABLE>
SCM PORTFOLIO FUND INC
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<CAPTION>
ASSETS
<S> <C>
ASSETS
Investment in securities, at market values
(identified cost - $420,871) $547,259
Cash equivalents 402,480
Cash in custodial account and premium reserve 3,057
Dividends and interest receivable 4,325
________
$957,121
========
<CAPTION>
LIABILITIES
<S> <C>
LIABILITIES
Accounts payable $ 1,519
NET ASSETS (Equivalent to $11.69 per share
based on 81,743.816 shares outstanding;
10,000,000 share authorized) 955,602
________
$957,121
========
Net assets consist of:
Capital paid in $827,138
Unrealized depreciation on investments 128,143
Accumulated undistributed net investment income 321
________
$955,602
========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SCM PORTFOLIO FUND INC
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
<CAPTION>
Number of
Shares or Market
Face Amount Value
___________ _________
<S> <C> <C>
CASH EQUIVALENTS (42.4%)
Fidelity National Bank Money Market Cl. III
(cost $402,480) $402,480 $402,480
========
SECURITIES (57.6%)
U.S. Government Obligations (5.3%)
U.S. Treasury Notes, 6.375%, January 15, 1999 50,000 50,500
________
Total (cost - $49,981) 50,500
________
Preferred stocks (1.8%)
General Motors Corp., 9.125%, Series B 600 16,722
________
Total (cost - $15,000) 16,722
________
Common stocks (50.5%)
Business Equipment (1.6%)
Hewlett Packard Company 300 15,075
Business Services (.9%)
Automatic Data Processing 200 8,574
Chemical - Basic Material (5.0%)
PPG Industries 400 22,448
Sigma Aldrich Corp. 400 24,972
Chemical - Specialty Material (.8%)
Pall Corp. 300 7,686
Consumer Goods - Apparel, Textiles (.6%)
Hartmarx Corp 1,000 5,620
Consumer Goods - Drugs (8.3%)
Abbott Labs 400 20,300
Bristol Myers Squibb Co. 200 21,800
Merck & Co. 400 31,848
Amgen, Inc. 100 5,437
Consumer Goods - Foods (6.5%)
Coca Cola Company 200 10,524
Flowers Industries 1,000 21,500
H. J. Heinz 650 23,238
Sysco Corporation 200 6,524
Consumer Goods - Retail (4.0%)
Home Depot 500 25,060
Walmart Stores, Inc. 400 9,100
Office Depot 200 3,574
<FN>
-CONTINUED-
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SCM PORTFOLIO FUND INC
SCHEDULE OF INVESTMENTS - CONTINUED
DECEMBER 31, 1996
<CAPTION>
Number of
Shares or Market
Face Amount Value
___________ _________
<S> <C> <C>
SECURITIES - CONTINUED
Electric & Electrical Mach/Equip/Supply (3.7%)
General Electric Company 100 9,887
Intel Corp. 100 13,093
Motorola, Inc. 200 12,250
Energy - Oil - International (1.2%)
Pennzoil Co. 200 11,300
Environmental Control Services (1.4%)
WMX Technologies, Inc. 400 13,000
Financial - Banks (2.5%)
Synovus Financial Corp. 750 24,090
Financial - Insurance (1.1%)
Torchmark Corp. 200 10,100
Household Products (1.4%)
Rubbermaid, Inc. 600 13,572
Paper and Allied Products (.9%)
Minnesota Mining & Manuf. Co. 100 8,300
Primary Metals Industries (.7%)
USX U. S. Steel 200 6,274
Printing, Publishing (.8%)
Readers Digest 200 8,050
Railroads (.9%)
Norfolk Southern Corp. 100 8,800
Utilities - Electric (1.3%)
Southern Company 200 4,524
Teco Energy Co. 300 7,236
Utilities - Telephone (4.7%)
Bell Atlantic Corp. 200 12,950
GTE Corp. 700 31,759
Utilities - Gas (1.3%)
Atlanta Gas Light Co. 600 12,672
Wholesale Trade - Durable Goods (.9%)
Genuine Parts Company 200 8,900
________
Total (cost - $355,890) 480,037
________
Total securities (cost - $420,871) $547,259
========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SCM PORTFOLIO FUND INC
STATEMENT OF OPERATIONS
DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME
Income
Interest $ 24,819
Dividends 12,309
________
37,128
________
Expenses
Administrative fees 2,320
Custodial fees 2,689
Fidelity bond 1,022
Legal expenses 2,354
Taxes and security fees 522
Registration and reports 350
Accounting and auditing 4,050
Miscellaneous fund expenses 2,241
________
15,548
________
Net investment income 21,580
________
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on securities transaction 21,445
Change in unrealized appreciation of investments for the year 58,081
________
Net gain on investments 79,526
________
Net increase in net assets resulting from operations $101,106
========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
SCM PORTFOLIO FUND INC
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
________ ________
<S> <C> <C>
OPERATIONS
Net investment income $ 21,580 $ 25,891
Net realized gain on security transactions 21,445 3,333
Change in unrealized appreciation 58,081 82,899
________ ________
Increase in net assets resulting
from operations 101,106 112,123
________ ________
CAPITAL SHARE TRANSACTIONS
Proceeds from issuance of shares 3,000 148,000
Reinvestment of dividends 21,545 25,806
Reinvestment of gain distribution 21,445 3,333
Cost of shares redeemed (71,452) (149,804)
________ ________
(Decrease) increase in net assets from capital
share transactions (25,462) 27,335
________ ________
DIVIDEND PAID
From net investment income (21,545) (25,806)
From realized capital gains (21,445) (3,333)
________ ________
Decrease in net assets from dividends paid (42,990) (29,139)
________ ________
TOTAL INCREASE IN NET ASSETS 32,654 110,319
Balance at beginning of period 922,948 812,629
________ ________
Balance at end of period (including undistributed
net investment income of $321 and $287, $955,602 $922,948
respectively)
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
SCM PORTFOLIO FUND INC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
_NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES_
The SCM Portfolio Fund, Inc. (the Fund) is a diversified, open-end, fully
managed investment company. The following is a summary of significant
accounting policies followed by the Fund in the preparation of its Financial
statements.
_Security Valuation_
Investments in securities are stated at market values based on the latest
quoted market prices.
_Cash Equivalents_
Cash equivalents represent temporary investments in bank money market account,
and are stated at cost which approximates market value.
_Federal Income Taxes_
No provision for federal income taxes is considered necessary since the Fund
intends to distribute substantially all of its taxable net income, including
any realized net gains on investment, and to otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. The identified cost method of determining the cost of investments
for purposes of computing gains or losses from securities transactions is used
for tax purposes.
_Other_
As is common in the industry, security transactions are accounted for on the
date the securities are purchased or sold. Dividend income and distributions
to shareholders are recorded on the ex-dividend date. Realized gains and
losses from securities transactions and unrealized appreciation and
depreciation of investments are reported on an identified cost basis.
_NOTE 2 - PURCHASES AND SALES OF SECURITIES_
Purchases and sales of securities other than United States government
obligations and cash equivalents aggregated $56,387 and $66,379, respectively.
During 1996, no United States government obligations were purchased; $49,807
were redeemed. Purchases exceeded sales (maturities) of cash equivalents by
$34,232 for the year. For federal income tax purposes, the identified cost of
investments owned (securities and cash equivalents) as of December 31, 1996,
was $823,351.
<PAGE>
SCM PORTFOLIO FUND INC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996
_NOTE 3 - CAPITAL STOCK_
Transactions in capital stock for the year ended December 31, 1996, were as
follows:
<TABLE>
Shares Amount
<S> <C> <C>
Shares Sold 261.752 $ 3,000
Shares issued in reinvestment of:
Dividends 1,857.217 21,545
Capital gains distributions 1,817.333 21,445
__________ ________
3,936.302 45,990
Shares acquired (6,343.008) ( 71,452)
__________ ________
Net decrease (2,406.706) $(25,462)
========== ========
</TABLE>
_NOTE 4 - INVESTMENT ADVISORY FEES AND ADMINISTRATIVE COSTS_
The Company is party to an Investment Advisory Contract that provides for fees
to be computed at an annual rate of 0.74 percent of the Company's average daily
net assets. The Company's president is also president of the investment
adviser. The agreement provides for an expense reimbursement from the
investment adviser to the extent that the Company's total expenses exceed 2
percent of the Company's daily net assets. For the year ended December 31,
1996, no fees were paid. The adviser waived the balance of its fees.
The Company is also party to an Administrative Services Contract with the same
adviser. This contract provides for fees to be computed at an annual rate of
0.25 percent of the Company's average daily net assets. Fees under this
contract have been recognized for 1996 at $2,320.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
SCM PORTFOLIO FUND INC
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993, 1992, 1991, 1990, AND 1989
<TABLE>
Year Ended December 31
_____________________________________
1996 1995 1994
<S> <C> <C> <C>
_Selected Per-Share Data_
Net asset values, beginning $ 10.97 $ 9.95 $ 10.41
of year __________ ___________ ___________
Income from investment
Operations:
Net investment income .28 .32 .31
Net realized and unrealized
gain (loss) on investments .98 1.08 (.39)
________ ___________ ___________
Total from investment
operations 1.26 1.40 (.08)
________ ___________ ___________
Less Distributions:
From net investment income (.27) (.34) (.29)
From net realized gain (.27) (.04) (.09)
__________ ___________ ___________
Total distributions (.54) (.38) (.38)
__________ ___________ ___________
Net asset value, end of $ 11.69 $ 10.97 $ 9.95
the year ========== =========== ===========
_Total Return_ 11.53% 14.11% (.76)%
_Ratios and Supplemental Data_
Net assets, end of year $ 955,602 $ 922,948 $ 812,629
Ratio of expenses to
average net asset 1.68% 1.47% 1.59%
Ratio of net investment income
to average net assets 4.01% 4.52% 4.59%
Portfolio turnover rate 11.43% 14.84% 27.17%
</TABLE>
<PAGE>
<TABLE>
Year Ended December 31
_____________________________________
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
_Selected Per-Share Data_
Net asset values, beginning $ 10.26 $ 10.49 $ 9.98 $ 9.96 $ 10.00
of year ________ _______ _______ _______ _______
Income from investment
Operations:
Net investment income .31 .31 .44 .59 .75
Net realized and unrealized
gain (loss) on investments .35 (.08) .52 (.13) (.06)
________ _______ _______ _______ _______
Total from investment .66 .23 .96 .46 .69
operations ________ _______ _______ _______ _______
Less Distributions:
From net investment income (.29) (.30) (.44) (.44) (.73)
From net realized gain (.22) (.16) (.01) .00 .00
__________ ________ _______ _______ _______
Total distributions (.51) (.46) (.45) (.44) (.73)
__________ ________ _______ _______ _______
Net asset value, end of $ 10.41 $ 10.26 $ 10.49 $ 9.98 $ 9.96
the year ========== ======== ======= ======= =======
_Total Return_ 6.57% 2.25% 9.78% 4.57% 6.69%
_Ratios and Supplemental Data_
Net assets, end of year $ 731,106 $ 655,028 $706,098 $693,383 $358,406
Ratio of expenses to
average net asset 1.58% 1.83% 1.39% 1.70% 1.40%
Ratio of net investment income
to average net assets 4.36% 2.91% 4.22% 5.75% 7.20%
Portfolio turnover rate 21.00% 28.00% 35.00% 45.00% 0.00%
</TABLE>
<PAGE>
McMullan and Company
Certified Public Accountants
AUDITOR'S REPORT ON INTERNAL CONTROL STRUCTURE
Board of Directors
SCM Portfolio Fund, Inc.
In planning and performing our audit of the financial statements of SCM
Portfolio Fund, Inc., for the year ended December 31, 1996, we considered its
internal control structure, including procedures for safeguarding securities,
in order to determine our auditing procedures for the purpose of expressing our
opinion on the financial statements and to comply with the requirements of Form
N-SAR, not to provide assurance on the internal control structure.
The management of SCM Portfolio fund, Inc., is responsible for establishing and
maintaining an internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. Two of the objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projection of any
evaluation of the structure to future periods is subject to the risk that it
may become inadequate because of changes in conditions or that the
effectiveness of the design and operation may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce
to a relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statements being audited
may occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above as of
December 31, 1996.
This report is intended solely for the information and use of management and
the Securities and Exchange Commission.
McMullan and Company
CERTIFIED PUBLIC ACCOUNTANTS
January 9, 1997
Atlanta, Georgia
