SMITH BREEDEN EQUITY PLUS FUND
SCHEDULE OF INVESTMENTS (Unaudited) SEPTEMBER 30, 1996
Market
Face Amount Security Value
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 102.30%
FEDERAL HOME LOAN MORTGAGE CORPORATION -
1.75% *
FHLMC:
$123,880 9.50%, due 7/1/02 ......................... $128,102
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(Cost $128,393) ........................... 128,102
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
13.43% *
FNMA:
125,927 12.50%, due 9/1/12 ........................ 144,608
107,397 13.50%, due 11/1/14 to 1/1/15 ............. 124,998
FNMA ARM:
690,824 7.756%, due 9/1/18......................... 713,148
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(Cost $969,055) ........................... 982,754
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
68.00%
GNMA ARM:
1,879,739 6.00%, due 7/20/26 to 8/20/26 ............. 1,869,847
948,469 6.50%, due 2/20/16 to 7/20/26 ............. 959,102
117,113 6.875%, due 9/20/22 ....................... 118,691
1,718,773 7.125%, due 4/20/16 to 5/20/22 ............ 1,749,456
272,131 7.250%, due 8/20/22 ....................... 276,893
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (Cost $4,935,694) ............. 4,973,989
U.S. GOVERNMENT OBLIGATIONS - 19.12%
U.S. TREASURY BILL **
750,000 5.09%, due 12/19/96 ....................... 741,985
400,000 4.85%, due 12/19/96 ....................... 395,725
270,000 5.38%, due 5/29/97 ........................ 260,550
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $1,397,673) ......................... 1,398,260
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $7,430,815) ......................... 7,483,105
<PAGE>
Contracts THREE MONTH EURODOLLAR FUTURES OPTIONS- 0.03%
20 Put on Eurodollar futures, expires 3/97,
strike price $92.50 ....................... 750
25 Put on Eurodollar futures, expires 3/97,
strike price $92.75........................ 1,250
TOTAL EURODOLLAR FUTURES OPTIONS
(Cost $8,722) ............................. 2,000
5 YEAR TREASURY NOTE FUTURES OPTIONS - 0.04%
5 Put on five year Treasury note futures,
expires 11/96, strike price $105........... 2,656
5 YEAR TREASURY NOTE FUTURES OPTIONS
(Cost $5,988) ............................. 2,656
TOTAL INVESTMENTS (Cost $7,445,525) -
102.36%.................................... 7,487,761
CASH AND OTHER ASSETS LESS LIABILITIES -
(2.36%).................................... (172,856)
NET ASSETS - 100.00% ...................... $7,314,905
* Mortgage-backed obligations are subject to principal paydowns as
a result of prepayments or refinancings of the underlying mortgage
loans. As a result, the average life may be substantially less than
the original maturity. The interest rate shown is the rate in effect
at September 30, 1996. ARMs have coupon rates which adjust periodically.
The adjusted rate is determined by adding a spread to a specified index.
** The interest rate shown is the discount rate paid at the time
of purchase by the Fund.
Portfolio Abbreviations:
ARM - Adjustable-Rate Mortgage
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMITH BREEDEN EQUITY PLUS FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
(Unaudited)
ASSETS:
Investments at market value (identified
cost $7,445,525)(Note 1)................... $7,487,761
Cash....................................... 133,707
Receivables:
Interest................................ 36,009
Maturities.............................. 2,067
Subscriptions........................... 1,100
Prepaid expenses........................... 3,284
Deferred organization expenses (Note 1).... 20,653
TOTAL ASSETS.......................... 7,684,581
LIABILITIES:
Variation margin on futures contracts (Note 2) 1,000
Redemptions payable........................ 17,902
Payable for securities purchased........... 318,747
Due to adviser (Note 3).................... 24,464
Accrued expenses........................... 7,563
TOTAL LIABILITIES..................... 369,676
NET ASSETS:
(Applicable to outstanding shares of 603,141;
unlimited number of shares of beneficial
interest authorized; no stated par)....... $7,314,905
Net asset value, offering price and
redemption price per share
($7,314,905 / 603,141)..................... $12.13
SOURCE OF NET ASSETS:
Paid in capital............................ 6,977,379
Undistributed net investment income........ 51,935
Accumulated net realized gain on investments 181,678
Net unrealized appreciation of investments. 103,913
NET ASSETS............................ $7,314,905
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMITH BREEDEN EQUITY PLUS FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
INVESTMENT INCOME:
Interest and discount earned, net of premium
amortization (Note 1)........................ $179,234
EXPENSES:
Advisory fees (Note 3)....................... 19,368
Accounting and pricing services fees......... 12,500
Custodian fees............................... 5,595
Audit and tax preparation fees............... 6,500
Legal fees................................... 600
Amortization of organization expenses (Note 1) 13,934
Transfer agent fees.......................... 14,012
Registration fees............................ 10,167
Trustees fees and expenses................... 1,875
Insurance expense............................ 3,266
Other........................................ 1,773
TOTAL EXPENSES BEFORE REIMBURSEMENT...... 89,590
Expenses reimbursed by Adviser (Note 3).. (64,897)
NET EXPENSES............................. 24,693
NET INVESTMENT INCOME.................... 154,541
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............. 228,555
Change in unrealized appreciation of investments 65,639
Net realized and unrealized gain on investments 294,194
Net increase in net assets resulting from
operations................................... $448,735
The accompanying notes are an integral part of these financial statements.
<PAGE>
SMITH BREEDEN EQUITY PLUS FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
Ended
September 30,
1996 Year Ended
(Unaudited) March 31, 1996
OPERATIONS:
Net investment income.............. $154,541 $171,628
Net realized gain on investments... 228,555 709,594
Change in unrealized appreciation
(depreciation) of investments...... 65,639 (66,654)
Net increase in net assets
resulting from operations.......... 448,735 814,568
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (115,200) (159,034)
Distributions from net realized
gains on investments............... (346,002) (371,974)
Total distributions................ (461,202) (531,008)
CAPITAL SHARE TRANSACTIONS:
Shares sold........................ 2,454,310 2,256,010
Shares issued on reinvestment
of distributions................... 428,081 502,798
Shares redeemed.................... (321,553) (383,180)
Increase in net assets resulting from
capital share transactions (a)..... 2,560,838 2,375,628
TOTAL INCREASE IN NET ASSETS... 2,548,371 2,659,188
NET ASSETS:
Beginning of period................ 4,766,534 2,107,346
End of period...................... $7,314,905 $4,766,534
(a) Transactions in capital shares
were as follows:
Shares sold................... 204,835 183,531
Shares issued on reinvestment
of distributions.............. 36,227 42,520
Shares redeemed............... (26,450) (32,004)
Net increase.................. 214,612 194,047
Beginning balance ............ 388,529 194,482
Ending balance................ 603,141 388,529
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
SMITH BREEDEN EQUITY PLUS FUND
FINANCIAL HIGHLIGHTS <F5>
The following average per share data, ratios and supplemental information has been derived
from information provided in the financial statements.
<CAPTION>
Six Months
Ended Year Year Year Period
September 30, Ended Ended Ended Ended
1996 March 31, March 31, March 31, March 31,
(Unaudited) 1996 1995 1994 1993 <F3>
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $12.27 $10.84 $9.88 $10.85 $10.00
Income From Investment
Operations
Net investment income 0.294 0.615 0.568 0.476 0.355
Net realized and
unrealized gain
(loss) on
investments......... 0.627 2.768 1.081 (0.216) 1.281
Total from
investment
operations........ 0.921 3.383 1.649 0.260 1.636
Less Distributions
Dividends from net
investment income... (0.240) (0.583) (0.568) (0.472) (0.311)
Dividends in excess
of net investment
income.............. - - (0.001) - -
Distributions from net
realized gains on
investments......... (0.821) (1.370) (0.047) (0.701) (0.420)
Distributions in
excess of net realized
gains on investments. - - (0.073) (0.057) (0.055)
Total distributions.. (1.061) (1.953) (0.689) (1.230) (0.786)
Net Asset Value,
End of Period......... $12.13 $12.27 $10.84 $9.88 $10.85
Total Return.......... 16.26% <F4> 32.30% 17.18% 2.19% 22.59% <F4>
Ratios/Supplemental Data
Net assets, end of
period.............$7,314,905 $4,766,534 $2,107,346 $1,760,519 $903,846
Ratio of expenses
to average
net assets <F1>.... 0.89% <F4> 0.90% 0.90% 0.90% 0.57% <F4>
Ratio of net
investment income
to average net
assets <F2>........ 5.65% <F4> 5.53% 7.44% 8.02% 5.28% <F4>
Portfolio turnover
rate............... 88% 107% 120% 119% 271%
______________________
<FN>
<F1>
The annualized ratio of expenses to average net assets prior to reimbursement of expenses
by the Adviser was 3.25%, 4.58%, 7.75%, 7.08%, and 28.48% for the six months ended
September 30, 1996, and the years ended March 31, 1996, March 31, 1995, March 31, 1994,
and the period ended March 31, 1993, respectively.
<F2>
The annualized ratio of net investment income to average net assets prior to reimbursement
of expenses by the Adviser was 3.29%, 1.85%, 0.59%, 1.84%, and (22.63%) for
the six months ended September 30, 1996, and the years ended March 31, 1996,
March 31, 1995, March 31, 1994, and the period ended March 31, 1993, respectively.
<F3>
Commenced operations June 30, 1992.
<F4>
Annualized
<F5>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
SMITH BREEDEN EQUITY PLUS FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Breeden Equity Plus Fund (the "Fund") is a series of the Smith
Breeden Trust (the "Trust"), an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended. The
following is a summary of significant accounting policies consistently
followed by the Fund.
A. Security Valuation: Portfolio securities are valued at current
market value provided by a pricing service or by a bank or broker/dealer
experienced in such matters, when over-the-counter market quotations are
readily available. Securities and other assets for which market prices are
not readily available are valued at fair market value as determined in
accordance with procedures approved by the Board of Trustees.
B. Distributions and Taxes: The Fund intends to continue to qualify
for and elect the special tax treatment afforded regulated investment
companies under Subchapter M of the Internal Revenue Code, thereby relieving
the Fund of federal income taxes. To so qualify, the Fund intends to
distribute substantially all of its net investment income and net realized
capital gains, if any, less any available capital loss carryforward. As of
March 31, 1996, the Fund had no net capital loss carryforward.
C. Repurchase Agreements: The Fund may enter into repurchase agreements
with member banks of the Federal Reserve System having total assets in excess
of $500 million and securities dealers, provided that such banks or dealers
meet the credit guidelines of the Fund's Board of Trustees. In a repurchase
agreement, the Fund acquires securities from a third party with the
commitment that they will be repurchased by the seller at a fixed price on an
agreed upon date. The Fund's custodian maintains control or custody of these
securities which collateralize the repurchase agreements until maturity of the
repurchase agreements. The value of the collateral is monitored daily, and if
necessary, additional collateral is received to ensure that the market value
of the underlying assets remains sufficient to protect the Fund in the event
of the seller's default. However, in the event of default or bankruptcy of
the seller, the Fund's right to the collateral may be subject to legal
proceedings.
D. Reverse Repurchase Agreements: A reverse repurchase agreement
involves the sale by the Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at a
fixed price. The Fund will maintain a segregated account with its custodian,
which will be marked to market daily, consisting of cash, U.S. Government
securities or other liquid high-grade debt obligations equal in value to its
obligations under reverse repurchase agreements. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, the Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver whether to enforce the Fund's obligation to repurchase the
securities.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) (Unaudited)
E. Determination Of Gains Or Losses On Sales Of Securities: Gains or
losses on the sale of securities are calculated for accounting and tax
purposes on the identified cost basis.
F. Deferred Organization Expenses: Deferred organization expenses are
being amortized on a straight-line basis over five years.
G. Securities Transactions and Investment Income: Interest income is
accrued daily on both long-term bonds and short-term investments. Interest
income also includes net amortization from the purchase of fixed-income
securities. Transactions are recorded on the first business day following
the trade date. Realized gains and losses from security transactions are
determined and accounted for on the basis of identified cost.
2. FINANCIAL INSTRUMENTS
A. Derivative Financial Instruments Held or Issued for Purposes other
than Trading: The Fund uses interest rate futures contracts for risk
management purposes in order to manage the Fund's interest-rate risk relative
to its benchmark. Upon entering into a futures contract, the Fund is required
to deposit either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Fund each day. The variation margin
payments are equal to the daily changes in the contract value and are recorded
as unrealized gains or losses. The Fund recognizes a realized gain or loss
when the contract is closed or expires equal to the difference between the
value of the contract at the time it was opened and the value at the time
it was closed.
Futures contracts involve costs and may result in losses. The effective use
of futures strategies depends on the Fund's ability to terminate futures
positions at times when the Fund's investment adviser deems it desirable to
do so. The use of futures also involves the risk of imperfect correlation
among movements in the values of the securities underlying the futures
purchased and sold by the Fund, of the futures contract itself, and of the
securities which are the subject of a hedge.
The Fund had the following open futures contracts as of September 30, 1996:
Type Notional Amount Position Expiration Month Unrealized
Gain/(Loss)
3 Month
Eurodollar 10,000,000 Long December, 1996 $3,155
3 Month
Eurodollar 6,000,000 Long March, 1997 7,323
3 Month
Eurodollar 7,000,000 Short September, 1997 (5,707)
3 Month
Eurodollar 8,000,000 Short March, 1998 (5,011)
3 Month
Eurodollar 6,000,000 Short September, 1998 (8,976)
3 Month
Eurodollar 5,000,000 Short March, 1999 (3,148)
3 Month
Eurodollar 8,000,000 Short September, 1999 (7,261)
3 Month
Eurodollar 3,000,000 Short March, 2000 (1,888)
Total ($21,513)
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) (Unaudited)The aggregate market value
of investments pledged to cover margin requirements for the open positions at
September 30, 1996 was $310,016.
B. Derivative Financial Instruments Held or Issued for Trading Purposes:
The Fund invests in Futures Contracts on the S&P 500 Index and New York Stock
Exchange Index whose return is expected to track movements in the S&P 500
Index.
The Fund had the following open futures contracts on the S&P 500 and New York
Stock Exchange Indexes as of September 30, 1996:
Type Notional Amount Position Expiration Month Unrealized Gain
S&P 500 $ 3,456,000 Long December, 1996 $ 22,145
S&P 500 3,835,700 Long March, 1997 60,700
NYSE 184,475 Long December, 1996 343
Total $ 83,188
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Smith Breeden Associates, Inc. (the "Adviser"), a registered investment
adviser, provides the Fund with investment management services. As
compensation for these services, the Fund pays the Adviser a fee computed
daily and payable monthly, at an annual rate equal to 0.70% of the Fund's
average daily net asset value.
The Adviser has voluntarily agreed to limit the expenses of the Fund to
0.88% of the Fund's average daily net assets. This voluntary agreement may
be terminated or modified at any time by the Adviser in its sole discretion,
except that the Adviser has agreed to limit expenses of the Fund to 0.88%
through March 31, 1997. For the six months ended September 30, 1996, the
Adviser received fees of $19,368 and reimbursed the Fund $64,897.
Effective August 1, 1994, the Fund adopted a Distribution and Services Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Plan is to permit the Adviser to compensate investment
dealers and other persons involved in servicing shareholder accounts for
services provided and expenses incurred in promoting the sale of shares of
the Fund, reducing redemptions, or otherwise maintaining or improving services
provided to shareholders by such dealers or other persons.
The Plan provides for payments by the Adviser, out of its advisory fee paid
to it by the Fund, to dealers and other persons at the annual rate of up to
0.25% of the Fund's average net assets subject to the authority the Trustees
of the Fund to reduce the amount of payments permitted under the Plan or to
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.) (Unaudited)
suspend the Plan for such periods as they may determine. Subject to these
limitations, the amount of such payments and the purposes for which they are
made shall be determined by the Adviser.
Certain officers and trustees of the Fund are also officers and directors of
the Adviser.
4. INVESTMENT TRANSACTIONS
During the six months ended September 30, 1996, purchases and proceeds from
sales of securities, other than short-term investments, aggregated
$6,572,454 and $4,439,545, respectively. The cost of securities for federal
income tax purposes is $7,445,525. Net unrealized appreciation of
investments and futures contracts consists of:
Gross unrealized appreciation.......... $114,274
Gross unrealized depreciation.......... (10,361)
Net unrealized appreciation............ $103,913
