ANNUAL REPORT FOR 1997
Dear Shareholder(s),
Enclosed are the financial statements for the SCM Portfolio Fund for the 12-
month period ending December 31, 1997. Also, enclosed is a graph which
compares the Fund's performance to that of the Standard and Poor's Index of
500 stocks (S & P 500) from 1989, the year in which the Fund was authorized
to sell shares. The Fund reports as of January 1, 1989, since its
capitalization was growing while awaiting Securities and Exchange Commission
(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. The fund was not fully invested in stocks for any period
reported, as was the S & P 500 Index, and the Fund will not likely ever be
fully invested in common stocks. Bonds and cash equivalents make up signif-
icant positions in the Fund, which is consistent with the Fund's investment
objective. Bonds and short-term (three to 12 months) treasury bills tend to
reduce volatility in a portfolio.
SEC rules require that the person or persons associated with the Fund or the
investment advisor (advisor, management), SCM Associates, Inc., be disclosed
with title(s) and that the Fund's performance be reviewed annually,
indicating the 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, Inc. and registering the adviser with the SEC.
Henry W. Blizzard, Vice President of the advisor and the Fund, serves on an
investment committee with McCutcheon. Blizzard has served in these capacities
since the Fund's inception.
The Fund reports a 16.32% total return for the year compared to the Dow Jones
Industrial Average (DJIA) of 24.87% and S & P 500 Index of 33.36%. 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. A more suitable comparison is the average of stock and
bond blend funds, which gained 14.96%, as reported by Lipper Analytical
Services in the Wall Street Journal.
The periodic average annual returns for the Fund since inception, March 8,
1989, are as follows:
<TABLE>
<C> <C>
One year 16.32%
Three years 14.12%
Five years 9.38%
Life of Fund 7.80%
</TABLE>
<PAGE>
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 reduce negative
changes in the Fund's net asset value per share in declining markets. The
Fund seeks to generate real (inflation plus) growth during favorable investment
periods and will emphasize income and capital preservation during uncertain
investment periods.
The Fund was invested at the end of year, 50.37% in common stocks; 1.36%
in preferred stocks; 8.75% in U.S.Treasury Notes; and 39.52% in cash
equivalents. This is a conservative portfolio mix, but the cash position
buffered the portfolio during precipitous declines. Also, cash provides
investing power whenever stock prices come in line with management's target
purchase price.
There was an unusual amount of volatility in the stock market during the
year. Substantial swings in stock indexes are typical when stock prices
run up beyond the normal ratio between stock price and company earnings.
The Fund management was reluctant to commit more than 50% to common stocks,
particularly when short-term interest rates still returned an inflation-
adjusted positive return. Nevertheless, Fund management wanted to participate
in the stock and bond appreciation but to protect the portfolio from the
inevitable pullback typical of an overvalued market.
Nevertheless, long-term interest rates steadily declined during the year
and inflation remained under control. These factors plus the investment
demands of baby boomers who are investing for retirement, continued to
impact positively the stock market and long-and intermediate-term bond
prices, and stocks rebounded during each correction for good gains in
stock markets averages and indexes. However, the Asian currency and
economic problems at the end of the year began to impact the stock market,
but bond prices reacted positively.
Economists are projecting that corporate profit gains in 1998 will be less
than the robust gains reported in the last three years. Evidently, the
efficiency measures implemented by the U.S. industrial giants in the early
1990's have just about run their course, and profits likely will return to
their normal range of 8-10%. The Asian problems will impact U.S. corporate
earnings but that impact will lessen during the year. The personal problems
of President Clinton are another issue. These problems are not likely to
go away soon, and stock and bond investors do not like uncertainty. But the
markets have not factored in, at this writing, the full impact of prolonged
uncertainty. Nevertheless, the Fund is well positioned for any eventuality,
even if management is totally wrong and the market takes off again. The Fund
already is sufficiently diversified in high quality growth stocks and income
producing securities to participate very well in a continuation of the bull
market.
<PAGE>
In any event, Fund management will continue to buy stocks of companies which
have prospects of growing earnings and which pull back from their 52-week
highs. As opportunities occur, whatever the conditions that present them,
management will take advantage of them in an attempt to add value to the Fund.
We will provide a further update at the annual meeting, which is planned for
7 PM, March 14. Hope to see you then. The location and an agenda will be
provided later.
Sincerely,
Steve McCutcheon
President
February 6, 1998
<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
12/31/98.
On the vertical axis the range in dollar value is $0 to $50,000.
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 12/31/97.
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 11,404 10,690
12-31-90 11,004 11,178
12-31-91 14,002 12,272
12-31-92 15,440 12,555
12-31-93 16,983 13,380
12-31-94 17,204 13,279
12-31-95 23,605 15,153
12-31-96 29,172 16,900
12-31-97 39,124 19,657
</TABLE>
<PAGE>
SCM PORTFOLIO FUND, INC
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<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 9-10
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,
1997, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended December 31, 1997 and
1996, and selected per share data and ratios for the years ended December 31,
1997, 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, 1997, 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, 1997, and the results
of its operations for the year then ended, the changes in its net assets for
the years ended December 31, 1997 and 1996, and the selected per share data and
ratios for the years ended December 31, 1997, 1996, 1995, 1994, 1993, 1992,
1991, 1990, and 1989, in conformity with generally accepted accounting
principles.
MCMULLAN AND COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
January 12, 1998
Atlanta, Georgia
<PAGE>
<TABLE>
SCM PORTFOLIO FUND INC
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<CAPTION>
ASSETS
<S> <C>
ASSETS
Investment in securities, at market values
(identified cost - $461,113) $ 699,937
Cash equivalents 449,788
Cash in custodial account and premium reserve 3,153
Dividends and interest receivable 6,008
__________
$1,158,886
==========
<CAPTION>
LIABILITIES
<S> <C>
LIABILITIES
Accounts payable $ 1,085
NET ASSETS (Equivalent to $13.05 per share
based on 88,674.029 shares outstanding;
10,000,000 share authorized) 1,157,801
__________
$1,158,886
==========
Net assets consist of:
Capital paid in $ 916,342
Unrealized depreciation on investments 240,675
Accumulated undistributed net investment income 784
__________
$1,157,801
==========
<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, 1997
<CAPTION>
Number of
Shares or Market
Face Amount Value
___________ _________
<S> <C> <C>
CASH EQUIVALENTS (39.1%)
Fidelity National Bank Money Market Cl. III
(cost $449,788) $449,788 $449,788
========
SECURITIES (60.9%)
U.S. Government Obligations (8.8%)
U.S. Treasury Notes, 6.375%, January 15, 1999 50,000 50,340
U.S. Treasury Notes, 6.25%, January 31, 2002 50,000 50,880 ________
________
Total (cost - $99,872) 101,220
________
Preferred stocks (1.4%)
General Motors Corp., 9.125%, Series B 600 15,786
________
Total (cost - $15,000) 15,786
________
Common stocks (50.7%)
Business Equipment (2.8%)
Hewlett Packard Company 300 18,711
Johnson & Johnson Company 200 13,174
Business Services (3.0%)
Air Touch Communications 300 12,468
Automatic Data Processing 200 12,274
Oracle Corporation 425 9,483
Chemical - Basic Material (5.7%)
PPG Industries 600 34,272
Sigma Aldrich Corp. 800 31,800
Chemical - Specialty Material (1.3%)
Cisco Systems, Inc. 150 8,362
Pall Corp. 300 6,204
Consumer Goods - Drugs (6.4%)
Abbott Labs 400 26,200
Amgen, Inc. 100 5,412
Merck & Co. 400 42,400
Consumer Goods - Foods (7.2%)
Flowers Industries 1,500 30,840
H. J. Heinz 650 33,027
Sysco Corporation 400 18,224
Consumer Goods - Retail (5.2%)
Home Depot 750 44,153
Walmart Stores, Inc. 400 15,772
<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, 1997
<CAPTION>
Number of
Shares or Market
Face Amount Value
___________ _________
<S> <C> <C>
SECURITIES - CONTINUED
Electric & Electrical Mach/Equip/Supply (4.8%)
AMP, Inc. 200 8,400
General Electric Company 200 14,674
Intel Corp. 300 21,075
Motorola, Inc. 200 11,436
Financial - Banks (3.2%)
Synovus Financial Corp. 1,125 36,845
Financial - Insurance (1.5%)
Torchmark Corp. 400 16,872
Household Products (.4%)
Rubbermaid, Inc. 200 5,000
Paper and Allied Products (.7%)
Minnesota Mining & Manuf. Co. 100 8,206
Primary Metals Industries (.5%)
USX U. S. Steel 200 6,250
Railroads (.8%)
Norfolk Southern Corp. 300 9,150
Utilities - Electric (1.2%)
Southern Company 200 5,174
Teco Energy Co. 300 8,436
Utilities - Telephone (5.3%)
Bell Atlantic Corp. 200 18,200
GTE Corp. 700 36,575
Worldcom, Inc. 200 6,050
Wholesale Trade - Non-Durable Goods (.7%)
Nike, Inc. - Class B 200 7,812
Total (cost - $346,241) 582,931
________
Total securities (cost - $461,113) $699,937
========
<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, 1997
<S> <C>
INVESTMENT INCOME
Income
Interest $ 27,120
Dividends 11,736
________
38,856
________
Expenses
Administrative fees 2,668
Custodial fees 3,091
Fidelity bond 906
Legal expenses 2,242
Taxes and security fees 510
Registration and reports 690
Accounting and auditing 4,000
Miscellaneous fund expenses 1,600
________
15,707
________
Net investment income 23,149
________
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on securities transaction 23,786
Change in unrealized appreciation of investments 112,532
for the year
________
Net gain on investments 136,318
________
Net increase in net assets resulting from operations $159,467
========
<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, 1997 AND 1996
<CAPTION>
1997 1996
________ ________
<S> <C> <C>
OPERATIONS
Net investment income $ 23,149 $ 21,580
Net realized gain on security transactions 23,786 21,445
Change in unrealized appreciation 112,532 58,081
________ ________
Increase in net assets resulting
from operations 159,467 101,106
________ ________
CAPITAL SHARE TRANSACTIONS
Proceeds from issuance of shares 49,575 3,000
Reinvestment of dividends 22,686 21,545
Reinvestment of gain distribution 23,786 21,445
Cost of shares redeemed (6,843) (71,452)
________ ________
Increase (decrease) in net assets from capital
share transactions 89,204 (25,462)
________ ________
DIVIDEND PAID
From net investment income (22,686) (21,545)
From realized capital gains (23,786) (21,445)
_________ ________
Decrease in net assets from dividends paid (46,472) (42,990)
________ ________
TOTAL INCREASE IN NET ASSETS 202,199 32,654
Balance at beginning of period 955,602 922,948
________ ________
Balance at end of period (including undistributed
net investment income of $784 and $321,
respectively) $1,157,801 $955,602
========= ========
<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, 1997
_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 $82,938 and $92,588, respectively.
During 1997, $195,919 of United States government obligations were purchased;
$146,028 were redeemed. Purchases exceeded sales (maturities) of cash
equivalents by $48,839 for the year. For federal income tax purposes, the
identified cost of investments owned (securities and cash equivalents) as of
December 31, 1997, was $910,901.
<PAGE>
SCM PORTFOLIO FUND INC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
_NOTE 3 - CAPITAL STOCK_
Transactions in capital stock for the year ended December 31, 1997, were as
follows:
<TABLE>
Shares Amount
<S> <C> <C>
Shares Sold 3,934.261 $ 49,575
Shares issued in reinvestment of:
Dividends 1,736.885 22,686
Capital gains distributions 1,822.715 23,786
__________ ________
7,493.861 96,047
Shares acquired (563.648) (8,365)
__________ ________
Net increase 6,930.213 $ 87,682
========== ========
</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%
of the Company's daily net assets. For the year ended December 31,
1997, 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% of the Company's average daily net assets. Fees under this
contract have been recognized for 1997 at $2,668 and for 1996 at $2,320.
<PAGE>
SCM PORTFOLIO FUND INC
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
THE YEARS ENDED DECEMBER 31, 1997, 1996, 1995,
1994, 1993, 1992, 1991, 1990, AND 1989
<TABLE>
Year Ended December 31
_____________________________________
1997 1996 1995 1994
<S> <C> <C> <C> <C>
_Selected Per-Share Data_
Net asset values, beginning $ 11.69 $ 10.97 $ 9.95 $ 10.41
of year ___________ __________ ___________ ___________
Income from investment
Operations:
Net investment income .28 .28 .32 .31
Net realized and unrealized
gain (loss) on investments 1.61 .98 1.08 (.39)
________ ___________ ___________
Total from investment
operations 1.89 1.26 1.40 (.08)
________ ________ ___________ ___________
Less Distributions:
From net investment income (.26) (.27) (.34) (.29)
From net realized gain (.27) (.27) (.04) (.09)
_________ _________ ___________ __________
Total distributions (.53) (.54) (.38) (.38)
_________ __________ ___________ __________
Net asset value, end of $ 13.05 $ 11.69 $ 10.97 $ 9.95
the year ========= ========== =========== ===========
_Total Return_ 16.32% 11.533% 14.11% (.76)%
_Ratios and Supplemental Data_
Net assets, end of year $1,157,801 $ 955,602 $ 922,948 $ 812,629
Ratio of expenses to
average net asset 1.48% 1.68% 1.47% 1.59%
Ratio of net investment income
to average net assets 3.66% 4.01% 4.52% 4.59%
Portfolio turnover rate 12.70% 11.43% 14.84% 27.17%
Average commission paid per
investment security traded $ 0.1813 $ 0.1553 - -
</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, 1997, 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, 1997.
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 12, 1998
Atlanta, Georgia
