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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 6
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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SIGNATURE MARIANTHE S. MEWKILL
TITLE TREASURER
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SMITH BREEDEN EQUITY MARKET PLUS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
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<OTHER-ITEMS-LIABILITIES> 228501
<TOTAL-LIABILITIES> 46624078
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119446947
<SHARES-COMMON-STOCK> 8107634
<SHARES-COMMON-PRIOR> 1075509
<ACCUMULATED-NII-CURRENT> 312398
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9085281
<NET-ASSETS> 136667439
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3442654
<OTHER-INCOME> 0
<EXPENSES-NET> 532659
<NET-INVESTMENT-INCOME> 2909995
<REALIZED-GAINS-CURRENT> 9514596
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<NET-CHANGE-FROM-OPS> 21998183
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<DISTRIBUTIONS-OF-GAINS> 2556880
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 123373056
<NUMBER-OF-SHARES-REDEEMED> 21939416
<SHARES-REINVESTED> 4918950
<NET-CHANGE-IN-ASSETS> 123160062
<ACCUMULATED-NII-PRIOR> 36234
<ACCUMULATED-GAINS-PRIOR> 865097
<OVERDISTRIB-NII-PRIOR> 0
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<EXPENSE-RATIO> 0.88
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SMITH BREEDEN FINANCIAL SERVICES FUND
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<PERIOD-END> MAR-31-1998
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<NET-INVESTMENT-INCOME> 47982
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<APPREC-INCREASE-CURRENT> 678794
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<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
REPORT ON INTERNAL CONTROLS
To the Board of Trustees and Shareholders of Smith Breeden Equity Market Plus
Fund of the Smith Breeden Trust:
In planning and performing our audit of the financial statements of the Smith
Breeden Equity Market Plus Fund (the "Fund") for the year ended March 31,
1998 (on which we have issued our report dated May 15, 1998), we considered
its internal control, including control activities 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, and not to provide assurance on the Fund's
internal control.
The management of the Fund is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments
by management are required to assess the expected benefits and related costs
of controls. Generally, controls that are relevant to an audit pertain to the
entity's objective of preparing financial statements for external purposes
that are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use, or disposition.
Because of inherent limitations in any internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control 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 Fund's internal control would not necessarily
disclose all matters in internal control 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 one or more of the internal control components does not reduce
to a relatively low level the risk that errors or fraud 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 Fund's internal control and its operation, including controls
for safeguarding securities, that we consider to be material weaknesses as
defined above as of March 31, 1998.
This report is intended solely for the information and use of management,
the Board of Trustees of Smith Breeden, and the Securities and Exchange
Commission.
DELOITTE & TOUCHE LLP
May 15, 1998
REPORT ON INTERNAL CONTROLS
To the Board of Trustees and Shareholders of Smith Breeden Financial Services
Fund of the Smith Breeden Trust:
In planning and performing our audit of the financial statements of the Smith
Breeden Financial Services Fund (the "Fund") for the year ended March 31,
1998 (on which we have issued our report dated May 15, 1998), we considered
its internal control, including control activities 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, and not to provide assurance on the Fund's
internal control.
The management of the Fund is responsible for establishing and maintaining
internal control. In fulfilling this responsibility, estimates and judgments
by management are required to assess the expected benefits and related costs
of controls. Generally, controls that are relevant to an audit pertain to the
entity's objective of preparing financial statements for external purposes
that are fairly presented in conformity with generally accepted accounting
principles. Those controls include the safeguarding of assets against
unauthorized acquisition, use, or disposition.
Because of inherent limitations in any internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control 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 Fund's internal control would not necessarily
disclose all matters in internal control 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 one or more of the internal control components does not reduce
to a relatively low level the risk that errors or fraud 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 Fund's internal control and its operation, including controls
for safeguarding securities, that we consider to be material weaknesses as
defined above as of March 31, 1998.
This report is intended solely for the information and use of management,
the Board of Trustees of Smith Breeden, and the Securities and Exchange
Commission.
DELOITTE & TOUCHE LLP
May 15, 1998
