fp0034197

 

SCM Trust
Shelton Greater China Fund

 

1050 17th Street, Suite 1710
Denver, CO 80265

 

June 21, 2018

 

Dear Shareholder:

 

A Special Meeting of Shareholders of the Shelton Greater China Fund (the “Greater China Fund”), a series of SCM Trust has been scheduled for July 25, 2018 (the “Special Meeting”) to vote on the proposal to reorganize (the “Reorganization”) of the Greater China Fund into Shelton International Select Equity Fund (the “International Select Equity Fund”), also a series of SCM Trust.

 

The Reorganization is expected to take effect on our about July 27, 2018.

 

The investment objectives of the Greater China Fund and the International Select Equity Fund are the same. Both seek to provide long-term capital appreciation. The Greater China Fund under normal circumstances invests at least 80% of the Fund’s net assets in the common and preferred stocks of Greater China companies, whereas under normal market conditions the Shelton International Select Equity Fund invests at least 80% of the Fund’s net assets (plus borrowings for investment purposes) in non-U.S. companies worldwide.

 

“Greater China Companies” are companies that either: (i) are domiciled in, or traded on exchanges located in, the Greater China region, specifically Taiwan, Hong Kong, Singapore and the People’s Republic of China; or (ii) have derived or are expected to derive in the company’s current fiscal year (measured as of the time of original investment) a significant portion (at least 50%) of their revenues by exporting to or importing from, trading with, or operating in, mainland China.

 

For the reasons discussed below and in the attached Combined Proxy Statement/Prospectus, and based on the recommendations of Shelton, the Board of Trustees of the Greater China Fund (the “Board”) has determined that the Reorganization is in the best interests of the Greater China Fund and its shareholders, and that the interests of the shareholders of the Greater China Fund will not be diluted as a result of the Reorganization. As a result, the Board—including the trustees who are not “interested persons” within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended—has approved the Reorganization and directed that the Reorganization be submitted to the Greater China Fund’s shareholders for approval.

 

The Board recommends that shareholders vote “FOR” the Reorganization.

 

If the Reorganization is approved by the Greater China Fund’s shareholders, each shareholder of the Greater China Fund will receive shares of the Shelton International Select Equity Fund, with no dilution in the dollar amount of his or her investment. Shareholders of the Greater China Fund will receive the same number of full and fractional shares of Institutional Class shares of the Shelton International Select Equity Fund, as they originally held in the Greater China Fund. The Greater China Fund would then be dissolved. The Reorganization is not expected to result in the recognition of taxable gain or loss for federal income tax purposes for the Greater China Fund or its shareholders. The attached Combined Proxy Statement/Prospectus is designed to give you more information about the proposals.

 

 

If you have any questions regarding the proposals to be voted on, please do not hesitate to call (866) 796-1288.

 

If you are a shareholder of record of the Greater China Fund as of the close of business on May 1, 2018, the record date for the Special Meeting, you are entitled to vote at the Special Meeting and at any adjournment or postponement thereof. While you are welcome to join us at the Special Meeting, most shareholders will cast their votes by completing and signing the enclosed Proxy Card.

 

Whether or not you are planning to attend the Special Meeting, we need your vote. Please mark, sign and date the enclosed Proxy Card and promptly return it so that the maximum number of shares may be voted. In the alternative, please call the toll-free number on your Proxy Card to vote by telephone. You should use the enclosed instructions to vote by telephone. You can also vote on the Internet at the website address listed on your Proxy Card. You may revoke your proxy before it is exercised at the Special Meeting, either by writing to SCM Trust at the address noted in the Combined Proxy Statement/Prospectus or in person at the time of the Special Meeting. A prior proxy vote can also be revoked by voting the proxy again at the Special Meeting, through the toll-free number or the Internet address listed in the enclosed voting instructions.

 

Thank you for taking the time to consider these important proposals.

 

Sincerely,

 

/s/ Stephen C. Rogers

 

Chairman of SCM Trust

 

 

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SCM Trust
Shelton Greater China Fund

 

1050 17th Street, Suite 1710
Denver, CO 80265

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 25, 2018

 

NOTICE IS HEREBY GIVEN that a SPECIAL MEETING OF SHAREHOLDERS (the “Special Meeting”) of the Shelton Greater China Fund (the “Greater China Fund”) will be held on July 25, 2018 at 10:00 a.m., Eastern Time, at the offices of Shelton Capital Management, the Greater China Fund’s administrator, at 1050 17th Street, Suite 1710, Denver, CO 80265. At the Special Meeting, you and the other shareholders of the Greater China Fund will be asked to consider and vote upon two proposals.

 

Proposal 1. Approval of Agreement and Plan of Reorganization:

 

By voting in favor of Proposal 1, shareholders are being asked to approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Greater China Fund to, and the assumption of all of the liabilities of the Greater China Fund by, SCM Trust, which shall assign such assets and liabilities to the Shelton International Select Equity Fund, an existing series of SCM Trust (the “International Select Equity Fund”), in exchange for shares of the International Select Equity Fund to be distributed pro rata by the Greater China Fund to its shareholders upon the fund’s liquidation (the “Reorganization”). The Greater China Fund has one class of shares, and shareholders of the Greater China Fund will receive Institutional Class shares of the International Select Equity Fund.

 

Proposal 2. To consider and transact such other business as may properly come before the Meeting and any adjournments, postponements or delays thereof, including obtaining votes necessary for a quorum.

 

By voting in favor of Proposal 2, shareholders are being asked to grant authority for the consideration of other business, and specifically to allow the adjournment of the meeting in the event sufficient votes are not received to constitute a quorum. In the event sufficient votes are not received to attain a quorum, it is anticipated that the meeting will be adjourned until such time as a quorum is attained. Adjournment of the meeting will only take place under circumstances that are consistent with applicable law.

 

Only shareholders of record at the close of business on May 1, 2018 will be entitled to notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof.

 

YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR PROXY CARD PROMPTLY OR VOTE YOUR PROXY ON THE INTERNET OR BY TELEPHONE USING THE WEBSITE ADDRESS OR TOLL-FREE TELEPHONE NUMBER FOUND ON YOUR PROXY CARD.

 

THE BOARD OF TRUSTEES OF THE GREATER CHINA FUND RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSALS.

 

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As a shareholder, you are asked to attend the Special Meeting either in person or by proxy. If you are unable to attend the Special Meeting in person, we urge you to authorize proxies to cast your vote, commonly referred to as “proxy voting.” Whether or not you expect to attend the Special Meeting, please submit your vote by toll-free telephone or through the Internet according to the enclosed voting instructions. You may also vote by completing, dating and signing your Proxy Card and mailing it in the enclosed postage prepaid envelope. Your prompt voting by proxy will help ensure a quorum at the Special Meeting. Voting by proxy will not prevent you from voting your shares in person at the Special Meeting. You may revoke your proxy before it is exercised at the Special Meeting, either by writing to the Secretary of the SCM Trust at the address noted in the Combined Proxy Statement/Prospectus or in person at the time of the Special Meeting. A prior proxy can also be revoked by voting your proxy again through the toll-free number or Internet website address listed in the enclosed voting instructions.

 

  By Order of the Board of Trustees of SCM Trust  
     
 

/s/ Stephen C. Rogers

 
 

Chairman of SCM Trust

 

 

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SCM Trust
Shelton Greater China Fund

 

1050 17th Street, Suite 1710
Denver, CO 80265

 

QUESTIONS AND ANSWERS

 

YOUR VOTE IS VERY IMPORTANT!

 

Dated: June 21, 2018

 

Question: What is this document and why did you send it to me?

 

Answer: At a meeting of the Board of Trustees (the “Board”) of SCM Trust (the “Trust”) held on February 8, 2018, the Board—including the trustees who are not “interested persons” (the “Independent Trustees”) within the meaning of Section 2 (a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”)—approved, upon the recommendation of its investment adviser, Shelton Capital Management (“Shelton”), a plan to reorganize the Shelton Greater China Fund (the “Greater China Fund”) into another series, the Shelton International Select Equity Fund (the “International Select Equity Fund”), of SCM Trust, which also is advised by Shelton Capital Management. The Reorganization of the Greater China Fund into the International Select Equity Fund is referred to herein as the “Reorganization.”

 

In approving the Reorganization, the Board determined that the Reorganization is in the best interests of the Greater China Fund’s shareholders, and the Board directed that the Reorganization be submitted to the Greater China Fund’s shareholders for approval.

 

This document provides you with information on the Reorganization and how to vote. If the Greater China Fund’s shareholders approve the Reorganization, each shareholder of the Greater China Fund will receive Institutional class shares of the International Select Equity Fund with no dilution in the dollar amount of his or her investment. The Reorganization will take effect on or about July 27, 2018.

 

The Board recommends that you for “FOR” the Reorganization.

 

For more information regarding the factors considered by the Board in coming to these conclusions, please review “Reasons for the Reorganization” in the attached Combined Proxy Statement/Prospectus.

 

Shareholder approval is needed to proceed with the Reorganization and a special shareholder meeting will be held on July 25, 2018 (the “Special Meeting”) to consider the proposals. We are sending this document to you for your use in deciding whether to vote in favor of the Reorganization at the Special Meeting. This document includes a Notice of Special Meeting of Shareholders, the Combined Proxy Statement/Prospectus, and a Proxy Card.

 

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Question: Why is the Reorganization being proposed?

 

Answer: At a meeting held on February 8, 2018, the Board, including the Board’s Independent Trustees, considered and approved a proposal by Shelton Capital Management to reorganize the Greater China Fund into the International Select Equity Fund. The relatively smaller size of the Greater China Fund means that its expenses are relatively higher than those of the Shelton International Select Equity Fund. Therefore, following the Reorganization, shareholders will have the benefit of lower overall costs. Furthermore, to the extent shareholders invest in the Greater China Fund to seek long term capital appreciation diversified outside the United States, becoming shareholders in the International Select Equity Fund offers the same investment objective, implemented by the same portfolio management team using a very similar portfolio management approach across a much greater investible universe of companies, namely companies anywhere outside the United States including Greater China. Finally, the Board determined that the future prospects of material increases in the size of the Greater China Fund are very limited given its more narrow focus, and therefore the opportunity for it to achieve significant scale and lower its expenses also is very limited, to the detriment of the existing shareholders.

 

The Board unanimously approved the terms of the Reorganization and approved the agreement and plan of reorganization. The Board, including the Board’s Independent Trustees also directed that the Reorganization and the agreement and plan of reorganization be submitted to the Greater China Fund’s shareholders for approval. Therefore, the Board is soliciting the approval of the Greater China Fund’s shareholders. It is anticipated that the Reorganization would occur as soon as practicable after the Reorganization is approved by the Greater China Fund’s shareholders.

 

Question: Who is Shelton?

 

Shelton Capital Management, or Shelton, is the current investment adviser to both the Greater China Fund and the International Select Equity Fund. Further, the same portfolio management team manages both funds. Shelton is also the investment adviser and administrator for 14 other mutual funds in SCM Trust and SCM Trust. The International Select Equity Fund is a series of SCM Trust.

 

As of January 26, 2018, Shelton managed 16 mutual funds and separate accounts with over $2.07 billion in aggregate assets. Shelton operates offices located in Denver, Greenwich, CT and San Francisco. More information about Shelton is available at www.Sheltoncap.com.

 

Question: Why did the Board approve the Reorganization?

 

After considering potential courses of action with respect to future management of the Greater China Fund and the Trust, the Board, including the Board’s Independent Trustees, determined that the Reorganization was in the best interests of the Greater China Fund and its shareholders based upon the following factors, among others, with no single factor being controlling or dispositive:

 

Investment Objectives, Principal Investment Strategies and Principal Risks. The investment objectives of the Greater China Fund and the International Select Equity Fund are the same: both seek to provide long-term capital appreciation.

 

The principal investment strategies and principal risks of the Funds are different in that the Greater China Fund generally limits the geographic scope of its investments to Greater China, whereas the International Select Equity Fund generally invests in issuers located anywhere outside the United States (including Greater China). This different geographic scope also means that while the Funds

 

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are subject to many of the same investment risks, certain risks are either different or different in their degree for the two Funds. These risks are explained in the Comparison of Investment Objectives, Strategies and Policies section of the Combined Proxy Statement and Prospectus.

 

To the extent shareholders invest in the Greater China Fund to seek long term capital appreciation diversified outside the United States, becoming shareholders in the International Select Equity Fund offers the same investment objective, implemented by the same portfolio management team using a very similar portfolio management approach across a much greater investible universe of companies, namely companies anywhere outside the United States including the Greater China region.

 

Portfolio Management. The portfolio managers for the Greater China Fund also are the portfolio managers of the International Select Equity Fund responsible for the day-to-day portfolio management activities of both Funds, which promotes continuity of asset management and investment expectations for Greater China Fund’s shareholders.

 

Investment Advisory Fees and Operating Expenses. The total annual operating expenses (i.e., the total fund operating expenses after expense reimbursement) of each share class of the International Select Equity Fund immediately after the Reorganization is expected to be lower than the corresponding share class of the Greater China Fund immediately before the Reorganization. Specifically:

 

 

the total annual operating expenses of the Institutional Class shares of the International Select Equity Fund are expected to be 0.99%, compared to as total annual operating expenses of the Direct Class shares of the Greater China Fund which are 1.98%.

 

Expected Tax-Deferred Conversion of the Greater China Fund’s Shares. The Board also considered the expected tax-deferred nature of the Reorganization. If you were to redeem your investment in the Greater China Fund and invest the proceeds in another mutual fund or other investment product, you generally would recognize a gain or loss for U.S. federal income tax purposes upon your redemption of the shares. By contrast, upon completion of the Reorganization, it is expected that for U.S. federal income tax purposes: (1) you will not recognize a taxable gain or loss on the transfer of your investment to the International Select Equity Fund; (2) you will have the same tax basis in your International Select Equity Fund shares as you had in your Greater China Fund shares; and (3) assuming that you hold your Greater China Fund shares as a capital asset, the holding period for your International Select Equity Fund shares will include the holding period for your Greater China Fund shares. As a shareholder of a mutual fund, you will continue to have the right to redeem any or all of your International Select Equity Fund shares at net asset value at any time. At that time, you generally would recognize a gain or loss for U.S. federal income tax purposes.

 

Prospective Economies of Scale. The Board determined that the future prospects of material increases in the size of the Greater China Fund are very limited given its more narrow focus, and therefore the opportunity for it to achieve significant scale and lower its expenses also is very limited, to the detriment of the existing shareholder. As part of a larger fund with greater marker appeal, shareholders could benefit not only from immediate economies of scale, but from any future asset growth of the International Select Equity Fund.

 

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Question: What happens if the Reorganization is not approved?

 

Answer: If the Reorganization is not approved, the Board will consider other options for the future management and organization of the Greater China Fund. These options may include a continuation of the Fund or the closure and liquidation of the Fund given its size and other factors, such as market conditions. As noted above, the Board considered several factors with respect to future management of the Fund, and determined that the Reorganization is in the best interests of the Fund’s shareholders in comparison to alternative potential courses of action, including a continuation of the Fund.

 

Question: What is the anticipated timing of the Reorganization?

 

Answer: The Special Meeting is scheduled to occur on July 25, 2018. If all necessary approvals are obtained, the proposed Reorganization will likely take place on or about July 27, 2018.

 

Question: Are there any significant differences between the investment objectives and policies of the Greater China Fund and the International Select Equity Fund?

 

Answer: The investment objectives of the Greater China Fund and the International Select Equity Fund are the same. Both seek to provide long-term capital appreciation. The Greater China Fund under normal circumstances invests at least 80% of the Fund’s net assets in the common and preferred stocks of Greater China companies (as defined in the Fund’s prospectus), whereas under normal market conditions the Shelton International Select Equity Fund invests at least 80% of the Fund’s net assets (plus borrowings for investment purposes) in non-U.S. companies worldwide.

 

Question: What changes are anticipated in the current investments held by the Greater China Fund after the Reorganization in comparison to the combined Fund?

 

Answer: Notwithstanding the similarity of the investment objectives and the continuity of the portfolio management team and its approach to investing, significant changes are expected in these investments due to the reorganization, given that Greater China securities are an expected to be a relatively small geographic subcomponent of the International Select Equity Fund’s investible universe. As of May 29, 2018, the Greater China Fund invested approximately 88% of its portfolio in Greater China securities, and immediately following the expected date of the Reorganization the International Select Equity Fund is currently expected invest less than 15% of its portfolio invested in Greater China securities. Changes in portfolio holdings may occur in the ordinary course of investment decision-making as the newly combined Fund invests and seeks to fulfill its investment objective in the context of market movements, an individual company’s performance, and all the other factors described in this prospectus/proxy statement.

 

Question: How will the proposed Reorganization affect fees and expenses?

 

Answer: The total annual operating expenses (i.e., the total fund operating expenses after expense reimbursement) the Institutional Class shares of the International Select Equity Fund immediately after the Reorganization are expected to be lower than the corresponding share class of the Greater China Fund immediately before the Reorganization. Specifically:

 

 

the total annual operating expenses of the Institutional Class shares of the International Select Equity Fund are expected to be 0.99%, compared to as total annual operating expenses of the Direct Class shares of the Greater China Fund which are 1.98%.

 

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Shelton Capital Management has contractually agreed to waive a portion or all of its management fees and pay certain expenses to the extent necessary to ensure that the International Select Equity Fund’s total operating expenses (excluding acquired fund fees and expenses, interest, taxes, any class-specific expenses such as Rule 12b-1 distribution fees, shareholder servicing fees, transfer agency fees, dividend and interest and securities sold short, brokerage commissions, certain compliance expenses, and extraordinary expenses) does not exceed 1.24% and 0.99% of the Investor and Institutional class shares, respectively, (on an annual basis) of average daily net assets of the Fund’s shares (the “Expense Reimbursement”). The Expense Reimbursement will remain in effect until at least July 1, 2019, and may be terminated before that date only by the Board of Trustees of SCM Trust. Shelton Capital Management may recover any previously waived fees and paid expenses from the Fund for three (3) years from the date they were waived or paid. Shelton Capital Management’s ability to recover any previously waived fees and paid expenses is subject to the Expense Reimbursement as in effect at the time such fees were waived or expenses were paid. A recapture, if it is implemented, will have the effect of increasing the total fund operating expenses paid by shareholders for the period in which it is paid.

 

With respect to particular fees:

 

 

The International Select Equity Fund has a lower management fee (0.74%) compared to the Greater China Fund (1.25%).

 

 

Neither the shares of the Greater China Fund nor the Institutional Class shares of the International Select Equity Fund impose a 12b-1 fee.

 

 

Neither the Greater China Fund nor the International Select Equity Fund assess sales charges upon purchase, exchange fees or deferred sales charges.

 

Question: Will I be charged a sales charge or contingent deferred sales charge as a result of the Reorganization

 

No. If the Reorganization is approved and effected, shareholders of the Greater China Fund will receive shares of the International Select Equity Fund without the imposition of any sales charges or contingent deferred sales charges.

 

Question: Will there be changes in the management and operation of the Greater China Fund?

 

Answer: The International Select Equity Fund, like the Greater China Fund, is a series of SCM Trust, therefore the Trustees both Funds are the same.

 

Shelton Capital Management is the current investment adviser to both the Greater China Fund and the International Select Equity Fund. Further, the same portfolio management team manages both funds using a very similar investment management approach. Shelton is also the investment adviser and administrator for 14 other mutual funds in SCM Trust and SCM Trust.

 

The International Select Equity Fund uses the same service providers as the Greater China Fund.

 

Question: How will the Reorganization work?

 

Answer: Pursuant to the Agreement and Plan of Reorganization (the “Plan”) (attached as Appendix A to the Combined Proxy Statement/Prospectus), the Greater China Fund will transfer all of its assets and liabilities to SCM Trust, which shall assign all such assets and liabilities to the International Select Equity Fund, in exchange for shares of the International Select Equity

 

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Fund. The Greater China Fund will then distribute the shares it receives to its shareholders upon its liquidation. As a result, shareholders of the Greater China Fund will become shareholders of the International Select Equity Fund, with no dilution in the dollar amount of any shareholder’s investment. Shareholders of the Greater China Fund will receive Institutional Class shares of the International Select Equity Fund. The shares of the Greater China Fund will be cancelled following the Reorganization.

 

If the Plan is carried out as proposed, we expect that the Reorganization will not result in the recognition of taxable gain or loss for the Greater China Fund or its shareholders for federal income tax purposes. Please refer to the Combined Proxy Statement/Prospectus for a detailed explanation of the proposals.

 

Shareholders of the Greater China Fund will receive shares of the International Select Equity Fund based upon the Greater China Fund’s and International Select Equity Fund’s respective net asset values as of the close of the New York Stock Exchange (typically 4:00 pm Eastern Time) on the date the Reorganization is affected. The Reorganization will not change the dollar value of your investment at the time that the Reorganization is affected.

 

Question: Why do I need to vote?

 

Answer: Your vote is needed to ensure that the proposals can be acted upon at the Special Meeting. Your immediate response, even if you are a small investor, on the enclosed Proxy Card will help prevent the need for any further solicitations for a shareholder vote. We encourage all shareholders to participate.

 

Question: How does the Board suggest that I vote?

 

Answer: After careful consideration and upon recommendation of Shelton, the Board recommends that you vote “FOR” the Reorganization and Proposal 2 with respect consideration and transaction of such other business as may properly come before the Meeting and any adjournments, postponements or delays thereof, including obtaining votes necessary for a quorum.

 

Question: Who is paying for expenses related to the Special Meeting and the Reorganization?

 

Answer: The estimated cost for the Reorganization is $45,000 and will be allocated between the Greater China Fund and the International Select Equity Fund based on their relative net assets. Assuming the Reorganization is completed, the costs effectively will therefore be borne by the combined International Select Equity Fund to the extent they are paid after completion of the Reorganization.

 

Question: How do I cast my vote?

 

Answer: You may vote on the Internet at the website provided on your Proxy Card or you may vote by telephone using the toll free number found on your Proxy Card. You may also use the enclosed postage-paid envelope to mail your Proxy Card. Please follow the enclosed instructions to use these methods of voting. You also may vote in person at the Special Meeting.

 

Question: Whom do I call if I have questions?

 

Answer: We will be happy to answer your questions about the proxy solicitation. Please call (866) 796-1288.

 

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COMBINED PROXY STATEMENT AND PROSPECTUS

 

June 21, 2018

 

FOR THE REORGANIZATION OF

 

Shelton Greater China Fund,
Series of the SCM Trust
1050 17th Street, Suite 1710
Denver, CO 80265
(800) 955-9988

 

INTO
Shelton International Select Equity Fund,
Series of SCM Trust

 

1050 17th Street, Suite 1710
Denver, CO 90265
(800) 955-9988

 

This Combined Proxy Statement and Prospectus (the “Proxy Statement/Prospectus”) is being sent to you in connection with the solicitation of proxies by the Board of Trustees of SCM Trust for use at a Special Meeting of Shareholders (the “Special Meeting”) of the Shelton Greater China Fund (the “Greater China Fund”), at the offices of Shelton Capital Management, the Greater China Fund’s administrator, located at 1050 17th Street, Suite 1710, Denver, CO 80265 on July 25, 2018 at 10:00 a.m. Eastern Time. At the Special Meeting, shareholders of the Greater China Fund will be asked to consider and vote upon two proposals:

 

Proposal 1. Approval of Agreement and Plan of Reorganization:

 

By voting in favor of Proposal 1, shareholders are being asked to approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Greater China Fund to, and the assumption of all of the liabilities of the Greater China Fund by, SCM Trust, which shall assign such assets and liabilities to the Shelton International Select Equity Fund, an existing series of SCM Trust (the “International Select Equity Fund”), in exchange for shares of the International Select Equity Fund to be distributed pro rata by the Greater China Fund to its shareholders upon the fund’s liquidation (the “Reorganization”). Shareholders of the Greater China Fund will receive Institutional Class shares of the International Select Equity Fund.

 

Proposal 2.To consider and transact such other business as may properly come before the Meeting and any adjournments, postponements or delays thereof, including obtaining votes necessary for a quorum.

 

By voting in favor of Proposal 2, shareholders are being asked to grant authority for the consideration of other business, and specifically to allow the adjournment of the meeting in the event sufficient votes are not received to constitute a quorum. In the event sufficient votes are not received to attain a quorum, it is anticipated that the meeting will be adjourned until such time as a quorum is attained. Adjournment of the meeting will only take place under circumstances that are consistent with applicable law.

 

The Reorganization will take effect on approximately July 27, 2018.

 

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Shareholders of the Greater China Fund at the close of business on May 1, 2018 (the “Record Date”) will be entitled to be present and vote at the Special Meeting. Shareholders who execute proxies may revoke them at any time before they are voted, either by writing to SCM Trust, in person at the time of the Special Meeting, or by voting the proxy again through the toll-free number or through the Internet address listed in the enclosed voting instructions. Information on how to obtain directions to be able to attend the meeting and vote in person can be requested by calling (866) 796-1288.

 

The Greater China Fund and the Select International Equity Fund both are separate series of SCM Trust, an open-end management investment company that is registered with the Securities and Exchange Commission (the “SEC”) and organized as a Massachusetts business trust.

 

This Proxy Statement/Prospectus incorporates by reference the following documents, which contain information about the Greater China Fund and the International Select Equity Fund:

 

 

(1)

The Prospectus dated July 31, 2017 of Shelton International Select Equity Fund (Accession No. 0001398344-17-009834).

 

 

(2)

The Statement of Additional Information dated July 31, 2017 of SCM Trust for Shelton International Select Equity Fund (Accession No. 0001398344-17-009616).

 

 

(3)

The Shareholder Annual Report of SCM Trust for Shelton International Select Fund dated December 31, 2017 (Accession No. 0001398344-18-003843).

 

Copies of these documents are available upon request and without charge by writing to the SCM Trust through the internet at www.Sheltoncap.com or by calling (800) 955-9988. In addition, a current prospectus for the International Select Equity Fund accompanies this Proxy Statement/Prospectus.

 

This Proxy Statement/Prospectus includes as Appendix A the form of Agreement and Plan of Reorganization (the “Plan”).

 

The Greater China Fund expects that this Proxy Statement/Prospectus will be mailed to shareholders on or about June 21, 2018.

 

This Proxy Statement/Prospectus sets forth the basic information you should know before voting on the proposal(s) and investing in the International Select Equity Fund. You should read it and keep it for future reference. A Statement of Additional Information dated June 21, 2018, relating to this Proxy Statement/Prospectus, contains more information about the Reorganization and the International Select Equity Fund and is incorporated herein by reference. The Statement of Additional Information has been filed with the SEC and is available upon request without charge by writing to the SCM Trust or by calling toll free (800) 955-9988.

 

THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The shares offered by this Proxy Statement/Prospectus are not deposits or obligations of any bank, and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. An investment in the International Select Equity Fund involves investment risk, including the possible loss of principal.

 

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Important Notice Regarding Internet Availability of Proxy Materials for the Shareholder Meeting to be held on July 25, 2018

 

The Notice of Shareholder Meeting, this Proxy Statement/Prospectus and the Proxy Card are available at proxyonline.com/docs/GreaterChinaFund2018.pdf

 

The Greater China Fund’s annual and semi-annual reports are available by calling (800) 955-9988.

 

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TABLE OF CONTENTS

 

 

Page

OVERVIEW

14

The Reorganization

14

The Funds

14

Comparison of Fees and Expenses

15

Pro Forma Capitalization

17

Portfolio Turnover

18

Comparison of Investment Objectives, Strategies and Policies

18

Comparison of Performance

21

Comparison of Key Features of the Funds

22

COMPARISON OF PRINCIPAL INVESTMENT RISKS

23

Portfolio Holdings Disclosure

26

INFORMATION ABOUT THE REORGANIZATION

27

Summary of the Proposed Reorganization

27

Description of the International Select Equity Fund’s Shares

27

SCM Trust Board Consideration of the Reorganization

27

Federal Income Tax Consequences

29

Comparison of Shareholder Rights

30

ADDITIONAL COMPARISONS OF THE GREATER CHINA FUND AND INTERNATIONAL SELECT EQUITY FUND

32

Boards of Trustees

32

Investment Management

32

Service Providers

33

Distribution and Shareholder Services Plans

34

Pricing of Funds and Purchase, Exchange and Redemption Procedures

34

Dividends, Distributions and Taxes

34

VOTING INFORMATION

35

Required Vote

35

Effect of Abstentions and Broker Non-Votes

35

Shareholder Objections

36

Shareholder Proposals

36

Shareholder Communications with the Board

36

Adjournment and Postponements

37

Revocation of Proxy

37

Shareholders Entitled to Vote

37

 

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Page

Method and Cost of Solicitation

37

Security Ownership of Certain Beneficial Owners and Management

38

FURTHER INFORMATION ABOUT THE GREATER CHINA FUND AND THE INTERNATIONAL SELECT EQUITY FUND

39

Other Business

40

Delivery of Proxy Statement

40

Experts

40

APPENDIX A – Form of Agreement and Plan of Reorganization

41

 

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OVERVIEW

 

This Overview is a summary of certain information contained elsewhere in this Proxy Statement/Prospectus or incorporated by reference into this Proxy Statement/Prospectus. Shareholders should read this entire Proxy Statement/Prospectus carefully. The Overview is qualified in its entirety by reference to the Prospectuses and Statements of Additional Information for the Greater China Fund and International Select Equity Fund. For more complete information, please read the Prospectuses and Statements of Additional Information for the Greater China Fund and International Select Equity Fund.

 

The Reorganization

 

Pursuant to the Plan, the Greater China Fund will transfer all of its assets and liabilities to the SCM Trust, which shall assign all such assets and liabilities to the International Select Equity Fund, in exchange solely for shares of the International Select Equity Fund. The Greater China Fund will then distribute the International Select Equity Fund shares that it receives to its shareholders upon its complete liquidation. The result of the Reorganization is that shareholders of the Greater China Fund will become shareholders of the International Select Equity Fund. Shareholders of the Greater China Fund will receive Institutional Class shares of the International Select Equity Fund. No front-end sales charges or contingent deferred sales charges will be imposed in connection with the Reorganization. The shares of the Greater China Fund will be cancelled following the Reorganization.

 

If a Reorganization is not approved, the Board will consider other options for the future management and organization of the Greater China Fund.

 

The Board of Trustees of the Greater China Fund— including the trustees who are not “interested persons” (the “Independent Trustees”) within the meaning of Section 2 (a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”)—has concluded that the Reorganization is in the best interests of the Greater China Fund and its shareholders.

 

The Board of Trustees of the Greater China Fund recommends that you vote FOR the approval of the Reorganization.

 

The Reorganization is intended to qualify for federal income tax purposes as a tax-deferred reorganization. Assuming the Reorganization qualifies as such, shareholders of the Greater China Fund will not recognize a gain or loss in the transaction.

 

The Funds

 

The International Select Equity Fund is a separate series of the SCM Trust, an open-end management investment company organized as a Massachusetts business trust. The International Select Equity Fund has two classes of shares: Investor Class and Institutional Class.

 

The Greater China Fund also is a separate series of SCM Trust. The Greater China Fund currently offers a single class of its shares to the public on a continuous basis.

 

If the Reorganization is approved, shareholders of the Greater China Fund will receive Institutional Class shares of the International Select Equity Fund.

 

14

 

 

The investment objectives of the Greater China Fund and the International Select Equity Fund are the same. Both seek to provide long-term capital appreciation. The Greater China Fund under normal circumstances invests at least 80% of the Fund’s net assets in the common and preferred stocks of Greater China companies (as defined in the Fund’s prospectus), whereas under normal market conditions the Shelton International Select Equity Fund invests at least 80% of the Fund’s net assets (plus borrowings for investment purposes) in non-U.S. companies worldwide. Both Funds are managed by the same portfolio management team.

 

Comparison of Fees and Expenses

 

If the Reorganization is approved by the Greater China Fund’s shareholders, you will pay the fees and expenses of the International Select Equity Fund(s) in which you will be invested. Like all mutual funds, the Greater China Fund and International Select Equity Fund incur certain fees and expenses in its operations and, as a shareholder, you pay these expenses indirectly.

 

The total annual operating expenses (i.e., the total fund operating expenses after expense reimbursement) of each share class of the International Select Equity Fund immediately after the Reorganization is expected to be lower than the corresponding share class of the Greater China Fund immediately before the Reorganization. Specifically:

 

 

the total annual operating expenses of the Institutional Class shares of the International Select Equity Fund are expected to be 0.99%, compared to as total annual operating expenses of the Direct Class shares of the Greater China Fund which are 1.98%.

 

Shelton Capital Management has contractually agreed to waive a portion or all of its management fees and pay certain expenses to the extent necessary to ensure that the International Select Equity Fund’s total operating expenses (excluding acquired fund fees and expenses, interest, taxes, any class-specific expenses such as Rule 12b-1 distribution fees, shareholder servicing fees, transfer agency fees, dividend and interest and securities sold short, brokerage commissions, certain compliance expenses, and extraordinary expenses) does not exceed 1.24% and 0.99% of the Investor and Institutional class shares, respectively, (on an annual basis) of average daily net assets of the Fund’s shares (the “Expense Reimbursement”). The Expense Reimbursement will remain in effect until at least July 1, 2019, and may be terminated before that date only by the Board of Trustees of SCM Trust. Shelton Capital Management may recover any previously waived fees and paid expenses from the Fund for three (3) years from the date they were waived or paid. Shelton Capital Management’s ability to recover any previously waived fees and paid expenses is subject to the Expense Reimbursement as in effect at the time such fees were waived or expenses were paid. A recapture, if it is implemented, will have the effect of increasing the total fund operating expenses paid by shareholders for the period in which it is paid.

 

With respect to particular fees:

 

 

The International Select Equity Fund has a lower management fee (0.74%) compared to the Greater China Fund (1.25%).

 

 

Neither the shares of the Greater China Fund nor the Institutional Class shares of the International Select Equity Fund impose a 12b-1 fee.

 

 

Neither the Greater China Fund nor the International Select Equity Fund assess sales charges upon purchase, exchange fees or deferred sales charges.

 

15

 

 

The following tables compare the fees and expenses of the Greater China Fund and the International Select Equity Fund for the most recent annual fiscal period ended December 31, 2017 with the current estimated fees and expenses for the International Select Equity Fund on a pro forma basis assuming consummation of the Reorganization.

 

Comparison of Fees and Expenses

 

 

Greater
China
Fund

Shelton
International
Select Equity
Fund
Institutional
Class

International
Select Equity
Fund Investor
Class After
Reorganization

Shareholder fees
(fees paid directly from your investment)

     

Redemption or exchange fees (as a percentage of amount redeemed, for shares that are held 90 days or less from the date of purchase)

2.00%

None

None

Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

 

 

 

Management Fees

1.25%

0.74%

0.74%

Distribution and Service (12b-1) Fees

None

None

None

Other Expenses

1.37%

0.60%

0.61%

Total Annual Fund Operating Expenses

2.62%

1.34%

1.35%

Expense Reimbursement

(0.64)%(1)

(0.35)%(2)

(0.36)%(2)

Total Fund Operating Expenses After Expense Reimbursement

1.98%

0.99%

0.99%

 

1

Shelton Capital Management has voluntarily agreed to reimburse expenses incurred by the Greater China Fund to the extent that total annual fund operating expenses (excluding extraordinary expenses) exceed 1.98% until July 1, 2019. This agreement can only be terminated with the approval of the Board of Trustees.

2

Shelton Capital Management has contractually agreed to waive a portion or all of its management fees and pay certain expenses to the extent necessary to ensure that the International Select Equity Fund’s total operating expenses (excluding acquired fund fees and expenses, interest, taxes, any class-specific expenses such as Rule 12b-1 distribution fees, shareholder servicing fees, transfer agency fees, dividend and interest and securities sold short, brokerage commissions, certain compliance expenses, and extraordinary expenses) does not exceed 0.99% of the Institutional class shares (on an annual basis) of average daily net assets of the Fund’s shares (the “Expense Reimbursement”). The Expense Reimbursement will remain in effect until at least July 1, 2019, and may be terminated before that date only by the Board of Trustees of SCM Trust. The Fund may only make repayments to Shelton Capital Management if such repayment does not cause the Fund’s expense ratio (after the repayment is taken into account) to exceed both: (1) the expense cap in place at the time such amounts were waived; and (2) the Fund’s current expense cap. Any such reimbursement is subject to the review and approval of the Fund’s Board of Trustees.

 

16

 

 

Example

 

This Example is intended to help you compare the cost of investing in the Greater China Fund with the cost of investing in the International Select Equity Fund, assuming the Reorganization has been completed. The Example assumes that you invest $10,000 in the Greater China Fund and International Select Equity Fund for the time periods indicated, that your investment has a 5% return each year, and that the Greater China Fund’s and International Select Equity Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions you would pay the following expenses if you redeem or reinvest all of your shares at the end of the time periods indicated:

 

1 Year

3 Years

5 Years

10 Years

Greater China Fund

$201

$754

$1,333

$2,907

International Select Equity Fund, Institutional Class

$101

$390

$701

$1,582

International Select Equity Fund, Institutional Class After Reorganization

$101

$392

$705

$1,593

 

The Example above should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown.

 

Pro Forma Capitalization

 

The following tables set forth the capitalization of the Greater China Fund as of December 31, 2017, and, on a pro forma basis, the capitalization of the International Select Equity Fund (and each share class thereof), assuming the Reorganization has been completed. The following is an example of the number of shares of the International Select Equity Fund that would be exchanged for shares of the Greater China Fund if the Reorganization were consummated on December 31, 2017, and does not reflect the number of shares or value of shares that would actually be received if the Reorganization, as depicted, occurs. Each shareholder of the Greater China Fund will receive the number of full and fractional corresponding shares of the International Select Equity Fund equal in value to the value (as of the Valuation Time) of the shares of the Greater China Fund held by the shareholder. The International Select Equity Fund will be the accounting survivor for financial statement purposes.

 

Greater China Fund  Greater
China Fund
(unaudited)
   International
Select Equity
Fund –
Institutional
Class
(unaudited)
   Adjustments   International
Select Equity
Fund –
Institutional
Class after
Reorganization
(estimated)
(unaudited)
 
Net Assets  $8,885,336   $42,823,887   $(45,000)*  $51,664,223 
Total Shares Outstanding   981,828    2,006,822    (567,646)**   2,421,004 
Net Asset Value Per Share  $9.05   $21.34   $(0.02)***  $21.34 

 

17

 

 

*

Reflects the estimated costs of the Reorganization (approximately $45,000) to be allocated between the Funds based on relative net assets.

**

Adjustment to reflect the exchange of shares outstanding from the Fund to the Acquiring Fund.

***

Reflects the net asset value per share costs of the Reorganization to be paid by the Fund.

 

The investment objectives of the Greater China Fund and the International Select Equity Fund are the same: both seek to provide long-term capital appreciation.

 

   International
Select Equity
Fund –
Investor Class
   Adjustments   International
Select Equity
Fund –
Institutional
Class after
Reorganization
(estimated)
(unaudited)
 
Net Assets  $3,784,632       $3,784,632 
Total Shares Outstanding   177,722        177,722 
Net Asset Value Per Share  $21.30       $21.30 

 

Portfolio Turnover

 

The Greater China Fund and the International Select Equity Fund pay transaction costs, such as commissions, when they buy and sell securities (or “turn over” their portfolios). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect a fund’s performance. The funds pay transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). The portfolio turnover rate of the International Select Equity Fund is currently anticipated to be 24% of the average value of its portfolio per year, whereas during the most recent fiscal year, the Greater China Fund’s portfolio turnover rate was 25% of the average value of its portfolio.

 

Comparison of Investment Objectives, Strategies and Policies

 

The investment objectives of the Greater China Fund and the International Select Equity Fund are the same. Both seek to provide long-term capital appreciation. The Greater China Fund under normal circumstances invests at least 80% of the Fund’s net assets in the common and preferred stocks of Greater China companies (as defined in the Fund’s prospectus), whereas under normal market conditions the Shelton International Select Equity Fund invests at least 80% of the Fund’s net assets (plus borrowings for investment purposes) in non-U.S. companies worldwide. Both funds are managed by the same portfolio management team.

 

The remainder of this section describes the investment objectives and principal investment strategies of the Greater China Fund and International Select Equity Fund. Please be aware that this is only a brief discussion. More complete information may be found in the Prospectuses of the Greater China Fund and International Select Equity Fund.

 

18

 

 

Greater China Fund

International Select Equity Fund

Investment Objectives

Seeks to provide long-term capital appreciation.

Seeks to achieve long term capital appreciation.

Principal
Investment
Strategies

The Fund seeks to invest primarily in large-sized companies (i) are domiciled in, or traded on exchanges located in, the Greater China region, specifically Taiwan, Hong Kong, Singapore and the People’s Republic of China or (ii) have derived or are expected to derive in the company’s current fiscal year (measured as of the time of original investment) a significant portion (at least 50%) of their revenues by exporting to or importing from, trading with, or operating in, mainland China. A company meeting the requirements of either items (i) or (ii) of the previous sentence is defined as a “Greater China company.”

 

Under normal circumstances, the Fund will invest at least 80% of the Fund’s net assets in the common and preferred stocks of Greater China companies. Net assets would typically include borrowings for investment purposes; however, the Fund has no present intent to borrow. A company is considered to be domiciled in, or traded on exchanges located in, a country if it (i) is organized under the laws of that country, or (ii) derives at least 50% of its revenues or profits from goods produced or sold, investments made, services performed, or has at least 50% of its assets located within that country, or (iii) has the primary trading markets for its securities in that country, or (iv) is controlled by a governmental entity or agency, instrumentality or a political subdivision of that country.

The Fund ordinarily invests in no fewer than three different countries outside the U.S. Under normal market conditions, the Fund will invest at least 40% of its net assets, plus any borrowings for investment purposes, in securities of non-U.S. companies. However, the Fund may invest a lesser amount of its assets in securities of non-U.S. companies when market conditions are not deemed favorable, in which case the Fund would invest at least 30% of its net assets, plus any borrowings for investment purposes, in securities of non-U.S. companies. The Fund will normally invest in the securities of approximately 30 to 50 issuers.

 

The Fund invests its assets in equity securities of non-U.S. companies located in countries with developed markets, but may also invest in companies domiciled in emerging markets.

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing in a universe of stocks listed within the MSCI ACWI ex USA index, as well as those in other developed, emerging, and frontier markets with a market capitalization of $2.5 billion or higher. Shelton anticipates that the percentage of the

 

Fund’s investable universe not included in the MSCI ACWI ex USA index will be approximately 20%.

 

The Fund’s investments in equity securities may include common and preferred stock, convertible preferred stock, warrants and rights.

 

19

 

 

Greater China Fund

International Select Equity Fund

Investment Process and Strategy Implementation

Shelton Capital Management (the “Advisor”) implements its investment strategy by first using a proprietary “life-cycle” screen to narrow the Fund’s investable universe. The Advisor then uses a fundamental, “bottom-up” research selection and disciplined portfolio construction process which is focused on identifying stocks that the Advisor believes have the ability to generate sustainable returns, regardless of sector or country.

Same

 

The Advisor’s “life-cycle” screen classifies companies according to one of the following five categories:

 

● Innovation: Companies characterized as having high level of capital investment and below the cost of capital returns.

 

● Expansion: Companies characterized by aggressive investment to compound their high and rising returns, achieving a peak in both growth and cash flow returns.

 

● Deceleration: Companies characterized as having very high returns, combined with good, but slowing growth prospects.

 

● Maturity: Companies characterized as earning a small positive spread above the cost of capital.

 

● Distress: Companies characterized as having returns driven down below the cost of capital.

 

The Advisor’s investment team actively invests across all five categories of the “life-cycle,” building a diversified portfolio of high growth, high-return, income-oriented and distressed investments. In managing the portfolio, the investment team seeks to balance the portfolio’s risk and return by maximizing stock specific risk (risk from security selection) while at the same time minimizing systematic factor risks (which includes, but is not limited to, sector selection, country selection, currency management).

 

 

20

 

 

Greater China Fund

International Select Equity Fund

 

The Fund may engage in frequent and active trading of securities as a part of its principal investment strategy. The Advisor will sell or reallocate a Fund’s securities if the Advisor believes the issuer of such securities no longer meets certain growth criteria, if certain political and economic events occur, or if it believes that more attractive opportunities are available. The team strives to preserve capital as part of its investment process. The Advisor may elect to purchase futures contracts and/or options to attempt to remain fully invested in the markets. The percentage of futures held in the portfolio will typically not exceed the cash (or cash equivalents) balance of the Fund.

 

 

Comparison of Performance

 

The average annual total return table below indicates risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. These figures assume that all distributions are reinvested.

 

Average Annual Return (for the period ended 12/31/2016) Greater China Fund

1 year

5 years

10 years

Return Before Taxes

1.95%

4.28%

0.56%

Return After Taxes on Distributions

0.91%

3.52%

0.19%

Return After Taxes on Distributions and Sale of Fund Shares

1.08%

2.97%

0.26%

MSCI Golden Dragon Index (net of foreign withholding taxes)

5.42%

6.54%

3.88%

 

Shelton Capital Management has been the investment adviser to the International Select Equity Fund since July 18, 2016. Therefore, the table below shows average total returns for the period from July 18, 2016 to June 30, 2017.

 

International Select Equity Fund1
Average Total Returns for the Period July 18, 2016 to June 30, 20172

Institutional Class Return

20.80%

MSCI ACWI Ex USA (NET) Index 3

20.20%

 

1

Although the performance information shown above is for less than one calendar year, it may give some indication of the risk of an investment in the Fund by comparing the Fund’s performance with a broad measure of market performance.

 

21

 

 

2

Shelton Capital Management became the investment advisor to the predecessor fund of the International Select Equity Fund on July 18, 2016. The predecessor fund was reorganized into the International Select Equity Fund on July 28, 2017. The investment objective, strategy, risks and policies of the predecessor fund during the period July 18, 2016 to July 28, 2017 were identical to those of the International Select Equity Fund.

3

The MSCI ACWI Ex USA Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. & Canada. MSCI, Inc. publishes two versions of this Index reflecting the reinvestment of dividends using two different methodologies: gross dividends and net dividends. While both versions reflect reinvested dividends, they differ with respect to the manner in which taxes associated with dividend payments are treated. In calculating the gross dividends version, MSCI reinvests as much as possible of a company’s dividend distributions. The reinvested amount is equal to the total dividend amount distributed to persons residing in the country of the dividend-paying company. Gross total return indexes do not, however, include any tax credits. In calculating the net dividends version, MSCI incorporates reinvested dividends applying the withholding tax rate applicable to foreign non-resident institutional investors that do not benefit from double taxation treaties.

 

The Funds’ performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results. Updated performance information may be obtained on our website www.sheltoncap.com or by calling (800) 955-9988.

 

Comparison of Key Features of the Funds

 

Distribution and Shareholder Services Plans. The Greater China Fund has not adopted a distribution and/or shareholder service plan. The International Select Equity Fund has adopted a distribution and/or shareholder services plan for Investor Class shares only.

 

Purchase, Exchange, and Redemption Procedures. The purchase, exchange and redemption policies and procedures of the two Funds are the same, consistent with their being funds managed by Shelton Capital Management and distributed by its affiliated broker-dealer, RFS Partners.

 

Service Providers. Shelton currently serves as investment adviser to the Greater China Fund and will serve as the investment adviser to the International Select Equity Fund following the Reorganization. Shelton will also serve as the administrator of the International Select Equity Fund following the Reorganization.

 

The International Select Equity Fund uses the same service providers currently used by the Greater China Fund. The table below lists the service providers of the Greater China Fund and the International Select Equity Fund.

 

Greater China Fund

International Select Equity Fund

Transfer agency and fund accounting

Transfer agency and fund accounting

Gemini Fund Services

Gemini Fund Services

Fund administration

Fund administration

Shelton Capital Management

Shelton Capital Management

Distribution

 

RFS Partners

RFS Partners

 

22

 

 

Custodian

 

U.S. Bank, NA

U.S. Bank, NA

 

COMPARISON OF PRINCIPAL INVESTMENT RISKS

 

Like all investments, an investment in the Greater China Fund or International Select Equity Fund involves risk. All investments carry some degree of risk that will affect the value of the Greater China Fund and International Select Equity Fund, as well as its investment performance and the price of its shares. As a result, you could lose money if you invest in the Greater China Fund or International Select Equity Fund. There is no assurance that the Greater China Fund or International Select Equity Fund will meet its investment objective. The ability of the Greater China Fund or International Select Equity Fund to achieve its investment objective will depend on, among other things, its portfolio managers’ analytical and portfolio management skills. An investment in the Greater China Fund or International Select Equity Fund is not a deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

 

The principal investment risks of a fund largely depend upon the fund’s principal investment strategies. To the extent the principal investment strategies of the Greater China Fund and the Shelton International Select Equity Fund International Select Equity Fund both involve investments in equities of issuers outside the United States, their principal risks are similar. Therefore, the principal investment risks of the two funds are discussed together with any differences noted.

 

The Funds are subject to the principal risks summarized below.

 

Principal Investment Risk

Applicable to Greater China Fund

Applicable to International Select Equity Fund

Equity Securities Risk: Stock markets are volatile. The price of equity securities fluctuates based on changes in a company’s financial condition and overall market and economic conditions. This risk may be considered generic to stocks of all companies while other risks may apply to small and midcap stocks.

Yes

Yes

Additionally, in the case of Greater China Fund, because the Fund’s strategy is to invest a significant portion of its net assets in the common stocks of Greater China companies, there is a risk that an issuer that is treated as an eligible portfolio company because it is expected to derive a significant portion of its revenues from exports to or operations in mainland China may not actually derive a significant portion of its revenues from Chinese exports or operations. As a result, the Fund’s portfolio may not be as closely linked to the Chinese economy.

Yes

No

 

23

 

 

Principal Investment Risk

Applicable to Greater China Fund

Applicable to International Select Equity Fund

Foreign Investing Risks: Foreign stocks may underperform U.S. stocks and may be more volatile than U.S. stocks. Risks relating to investments in foreign securities (including, but not limited to, depositary receipts) include: currency exchange rate fluctuation; less available public information about the issuers of securities; less stringent regulatory standards; lack of uniform accounting, auditing and financial reporting standards; and country risks including less liquidity, high inflation rates, unfavorable economic practices; political instability and expropriation and nationalization risks.

Yes

Yes

Emerging Market Risk: Emerging markets are riskier than more developed markets because they tend to develop unevenly and may never fully develop. Investments in emerging markets may be considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets.

 

This risk is more concentrated in the case of the Greater China Fund, given its geographic focus.

Yes

Yes

Reporting Standards Risk: Accounting, auditing and financial reporting standards and requirements in the securities markets of the Greater China region differ, in some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements of a foreign issuer may not reflect its financial position or results of operations in the way they would be reflected had the financial statement been prepared in accordance with U.S. generally accepted accounting principles. Inflation accounting may indirectly generate losses or profits. Consequently, financial data may be materially affected by restatements for inflation and may not accurately reflect the real condition of those issuers and securities markets. Substantially less information is publicly available about certain non-U.S. issuers than is available about U.S. issuers.

Yes

No

 

24

 

 

Principal Investment Risk

Applicable to Greater China Fund

Applicable to International Select Equity Fund

Political, Social and Economic Risk: Investments in the Greater China region involve certain risks and special considerations not typically associated with investments in the United States, such as greater government control over the economy, political and legal uncertainty and the risk that the Chinese government may decide not to continue to support economic reform programs and the risk of nationalization or expropriation of assets. The value of the Fund’s assets may be adversely affected by these political, economic, social and religious instabilities, as well as inadequate investor protection, changes in laws or regulations of countries within the Asian region (including countries in which the Fund invests, as well as the broader region), international relations with other nations, natural disasters, medical emergencies, corruption and military activity. The Greater China region, and particularly China, may be adversely affected by political, military, economic and other factors related to North Korea. In addition, China’s border disputes with many of its neighbors and historically strained relations with Japan could adversely impact economies in the region. The economies of many countries in the Greater China region differ from the economies of more developed countries in many respects, such as rate of growth, inflation, capital reinvestment, resource self-sufficiency, financial system stability, the national balance of payments position and sensitivity to changes in global trade. Certain countries in the Greater China region are highly dependent upon and may be affected by developments in the United States, Europe and other economies in the Greater China region.

Yes

No

Growth Securities Risks: Growth stocks may fall out of favor with investors and underperform other asset types during given periods. A company may never achieve the earnings growth the Advisor anticipates.

Yes

Yes

Mid Cap Stock Risk: Mid cap stock risk is the risk that stocks of mid-sized companies may be subject to more abrupt or erratic market movements than stocks of larger, more established companies. Mid-sized companies may have limited product lines or financial resources, and may be dependent upon a particular niche of the market. This risk is less for the Greater China Fund given its emphasis on larger European issuers.

Yes

Yes

 


25

 

 

Principal Investment Risk

Applicable to Greater China Fund

Applicable to International Select Equity Fund

Small Cap Stock Risk: The risk that stocks of smaller capitalization companies may be subject to more abrupt or erratic market movements than stocks of larger, more established companies. Small capitalization companies may have limited product lines or financial resources, or may be dependent upon a small or inexperienced management group, and their securities may trade less frequently and in lower volume than the securities of larger companies, which could lead to higher transaction costs. Generally, the smaller the company size, the greater the risk. This risk is less for the Greater China Fund given its emphasis on larger European issuers.

Yes

Yes

Management Risk: As with any managed fund, the Advisor may not be successful in selecting the best-performing securities or investment techniques, and the Fund’s performance may lag behind that of similar funds. The Advisor may also miss out on an investment opportunity because the assets necessary to take advantage of the opportunity are tied up in less advantageous investments.

Yes

Yes

Market Risk: The risk that the market value of a security may, sometimes rapidly and unpredictably, fluctuate. The prices of securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.

Yes

Yes

Currency Risk: The risk that foreign currencies will fluctuate in value relative to the U.S. dollar, adversely affecting the value of the Fund’s investments and its returns. Because the Fund’s NAV is determined on the basis of U.S. dollars, you may lose money if the local currency of a foreign market depreciates against the U.S. dollar, even if the market value of the Fund’s holdings appreciates.

Yes

Yes

Portfolio Turnover Risk: The risk that high portfolio turnover is likely to lead to increased Fund expenses that may result in lower investment returns. High portfolio turnover also is likely to result in higher short-term capital gains taxable to shareholders.

Yes

Yes

Valuation Risk: The risk that the Fund has valued certain of its securities at a higher price than it can sell them.

Yes

Yes

 

Portfolio Holdings Disclosure

 

A description of the International Select Equity Fund’s policies and procedures with respect to portfolio holdings is available in the Statement of Additional Information of the International Select Equity Fund, which is incorporated herein by reference.

 

26

 

 

INFORMATION ABOUT THE REORGANIZATION

 

Summary of the Proposed Reorganization

 

At the Special Meeting, the shareholders of the Greater China Fund will be asked to approve the Plan to reorganize the Greater China Fund into the International Select Equity Fund. The Reorganization will take effect on approximately July 27, 2018.

 

If the Plan is approved, the Greater China Fund will transfer all of its assets and liabilities to the SCM Trust, which shall assign all such assets and liabilities to the International Select Equity Fund, in exchange solely for shares of the International Select Equity Fund. The Greater China Fund will then distribute the International Select Equity Fund shares that it receives to its shareholders upon its complete liquidation. The result of the Reorganization is that shareholders of the Greater China Fund will become shareholders of the International Select Equity Fund. Shareholders of the Greater China Fund will receive Institutional Class shares of the International Select Equity Fund. The shares of the Greater China Fund will be cancelled following the Reorganization. In no case will the dollar value of a shareholder’s investment be diluted.

 

The Plan may not be changed except by an agreement signed by each party to the Plan. In addition, the Plan may be terminated and the Reorganization abandoned at any time (whether before or after adoption by the shareholders of the Greater China Fund) prior to the Closing Date by the Board of Trustees of the Greater China Fund or the Board of Trustees of the International Select Equity Fund, if, among other reasons, any condition of the other party’s obligations set forth in the Plan has not been fully met or waived by the applicable board.

 

The estimated cost for the Reorganization is $45,000 and will be allocated between the Greater China Fund and the International Select Equity Fund based on their relative net assets. Assuming the Reorganization is completed, the costs effectively will therefore be borne by the combined International Select Equity Fund to the extent they are paid after completion of the Reorganization.

 

Description of the International Select Equity Fund’s Shares

 

The shares of the International Select Equity Fund, when issued to the shareholders of the Greater China Fund, will be duly authorized, validly issued, fully paid and non-assessable, will be transferable without restriction, and will have no preemptive or conversion rights. The International Select Equity Fund’s shares may be redeemed based upon the International Select Equity Fund’s NAV next determined after receipt of a purchase or redemption request, as described in the International Select Equity Fund’s Prospectus. For additional information about the rights of shareholders of the International Select Equity Fund, see “INFORMATION ABOUT THE REORGANIZATION – Comparison of Shareholder Rights” in this Proxy Statement/Prospectus.

 

Board Consideration of the Reorganization

 

At a meeting on February 8, 2018, the Board of Trustees of the Greater China Fund (the “Board”), including the Board’s Independent Trustees, considered and approved the Reorganization and the Plan.

 

In determining whether to approve the Reorganization and to recommend approval of the Reorganization to shareholders of the Greater China Fund, the Board (including the Independent Trustees) made inquiries into a number of matters and considered the following factors, among others, with no single factor being controlling or dispositive:

 

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Investment Objectives, Principal Investment Strategies and Principal Risks. The investment objective of the Greater China Fund is very similar to that of the International Select Equity Fund. To the extent shareholders invest in the Greater China Fund to seek long term capital appreciation diversified outside the United States, becoming shareholders in the International Select Equity Fund offers the same investment objective, implemented by the same portfolio management team using a very similar portfolio management approach across a much greater investible universe of companies, namely companies anywhere outside the United States including the Greater China region. To the extent both Funds invest in equities of issuers outside of the United States, their principal risks are similar although their investment strategies focus on different geographies.

 

Portfolio Management. The portfolio managers for the Greater China Fund also are the portfolio managers of the International Select Equity Fund responsible for the day-to-day portfolio management activities of both Funds, which promotes continuity of asset management and investment expectations for Greater China Fund’s shareholders.

 

Investment Advisory Fees and Operating Expenses. The total annual operating expenses (i.e., the total fund operating expenses after expense reimbursement) of each share class of the International Select Equity Fund immediately after the Reorganization is expected to be lower than the corresponding share class of the Greater China Fund immediately before the Reorganization. Specifically:

 

 

the total annual operating expenses of the Institutional Class shares of the International Select Equity Fund are expected to be 0.99%, compared to as total annual operating expenses of the Direct Class shares of the Greater China Fund which are 1.98%.

 

Shelton Capital Management has contractually agreed to waive a portion or all of its management fees and pay certain expenses to the extent necessary to ensure that the International Select Equity Fund’s total operating expenses (excluding acquired fund fees and expenses, interest, taxes, any class-specific expenses such as Rule 12b-1 distribution fees, shareholder servicing fees, transfer agency fees, dividend and interest and securities sold short, brokerage commissions, certain compliance expenses, and extraordinary expenses) does not exceed 1.24% and 0.99% of the Investor and Institutional class shares, respectively, (on an annual basis) of average daily net assets of the Fund’s shares (the “Expense Reimbursement”). The Expense Reimbursement will remain in effect until at least July 1, 2019, and may be terminated before that date only by the Board of Trustees of SCM Trust. Shelton Capital Management may recover any previously waived fees and paid expenses from the Fund for three (3) years from the date they were waived or paid. Shelton Capital Management’s ability to recover any previously waived fees and paid expenses is subject to the Expense Reimbursement as in effect at the time such fees were waived or expenses were paid. A recapture, if it is implemented, will have the effect of increasing the total fund operating expenses paid by shareholders for the period in which it is paid.

 

With respect to particular fees:

 

 

The International Select Equity Fund has a lower management fee (0.74%) compared to the Greater China Fund (1.25%).

 

 

Neither the shares of the Greater China Fund nor the Institutional Class shares of the International Select Equity Fund impose a 12b-1 fee.

 

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Neither the Greater China Fund nor the International Select Equity Fund assess sales charges upon purchase, exchange fees or deferred sales charges.

 

Expected Tax-Deferred Conversion of the Greater China Fund’s Shares. The Board also considered the expected tax-deferred nature of the Reorganization. If you were to redeem your investment in the Greater China Fund and invest the proceeds in another mutual fund or other investment product, you generally would recognize a gain or loss for U.S. federal income tax purposes upon your redemption of the shares. By contrast, upon completion of the Reorganization, it is expected that for U.S. federal income tax purposes: (1) you will not recognize a taxable gain or loss on the transfer of your investment to the International Select Equity Fund; (2) you will have the same tax basis in your International Select Equity Fund shares as you had in your Greater China Fund shares; and (3) assuming that you hold your Greater China Fund shares as a capital asset, the holding period for your International Select Equity Fund shares will include the holding period for your Greater China Fund shares. As a shareholder of a mutual fund, you will continue to have the right to redeem any or all of your International Select Equity Fund shares at net asset value at any time. At that time, you generally would recognize a gain or loss for U.S. federal income tax purposes.

 

Prospective Economies of Scale. The Board determined that the future prospects of material increases in the size of the Greater China Fund are very limited given its more narrow focus, and therefore the opportunity for it to achieve significant scale and lower its expenses also is very limited, to the detriment of the existing shareholder. As part of a larger fund with greater marker appeal, shareholder could benefit not only from immediate economies of scale, but from any future asset growth of the International Select Equity Fund.

 

The Board also concluded that the economic interests of the Greater China Fund’s shareholders would not be diluted as a result of the proposed Reorganization because, among other things, the number of shares of the International Select Equity Fund to be issued to shareholders of the Greater China Fund will be calculated based on the net asset value of the Greater China Fund.

 

In approving the Plan, the Board based its decision on the recommendation of Shelton Capital Management that the Reorganization will provide long-term benefits to the Greater China Fund and its shareholders. In addition, the Board reviewed and considered such information provided to them by Shelton Capital Management regarding the Reorganization, and have considered all factors which they have deemed relevant to evaluate the Reorganization. In light of the foregoing considerations, among others, and the Board’s evaluation of the information presented to the Board, and in accordance with its fiduciary duties, the Board, including its Independent Trustees, determined that the Reorganization of the Greater China Fund is in the best interests of the Greater China Fund and its shareholders. As such, the Board, including its Independent Trustees, approved the Reorganization and directed that the Reorganization be submitted to the Greater China Fund’s shareholders for approval.

 

If the Reorganization is not approved, the Board will consider other options for the future management and organization of the Greater China Fund.

 

Federal Income Tax Consequences

 

As a condition of the Reorganization, the International Select Equity Fund and the Greater China Fund will receive an opinion from the International Select Equity Fund’s counsel, Davis Graham & Stubbs LLP, that the Reorganization will qualify as a reorganization as defined in Section 368(a) of

 

29

 

 

the Internal Revenue Code of 1986, as amended. Therefore, neither the Greater China Fund, the International Select Equity Fund nor its shareholders will be expected to recognize any income, gain or loss for federal income tax purposes as a result of the Reorganization. In addition, the aggregate tax basis of, and the holding period for, the International Select Equity Fund shares received by each shareholder of the Greater China Fund in the Reorganization is expected to be the same as the aggregate tax basis of, and the holding period for, the Greater China Fund shares exchanged by such shareholder in the Reorganization, provided that such shares are held as capital assets by the shareholder of the Greater China Fund at the time of the Reorganization. An opinion of counsel is not binding on the Internal Revenue Service.

 

On or before the final valuation of the assets of the Greater China Fund, the Greater China Fund may make one or more distributions to shareholders. Such distributions generally will be taxable as ordinary income, capital gains or qualified dividend income (taxable to noncorporate shareholders at maximum federal income tax rates applicable to long-term capital gains) for shareholders that hold their shares of the Greater China Fund in a taxable account.

 

Shareholders are urged to consult their own tax advisors as to the specific consequences to them of the Reorganization in light of their individual circumstances, and as to the applicability and effect of state, local, non-U.S. and other tax laws.

 

Certain Tax Effects of Reorganization on the Greater China Fund’s Portfolio Investments.

 

If the Greater China Fund has capital losses that it has carried forward from previous fiscal years at the date of Reorganization, the losses will be carried forward to the International Select Equity Fund to offset future capital gains recognized by the International Select Equity Fund. However, assuming that the Reorganization will result in an “ownership change” as defined in Section 382 of the Code [i.e., the Internal Revenue Code of 1986, as amended], the use of these losses will be limited by an “annual loss limitation amount” as prescribed under Code Section 382. The annual loss limitation amount will be equal to the fair market value of the equity of the Greater China Fund immediately before the Reorganization, subject to certain adjustments, multiplied by a certain interest rate published by the IRS (2.3% for ownership changes occurring in April 2018), and will be increased, during the first five years following the Reorganization, by recognized gains that were inherent in the assets of the Greater China Fund, if those inherent gains exceed a certain de minimis amount. In addition, for the first five years following the Reorganization, under Code Section 384, the carryover losses may not be available to offset recognized gains that were inherent in the assets of the International Select Equity Fund at the time of the Reorganization, if those inherent gains exceed a certain de minimis amount.

 

Comparison of Shareholder Rights

 

Because both Funds are series of the same Trust, SCM Trust, there are no differences in the rights of the Greater China Fund’s shareholders and the rights of the International Select Equity Fund’s shareholders under applicable law or the Funds’ governing documents.

 

Governing Law. Both Funds are separate series of SCM Trust, an open-end management investment company that is organized as a Massachusetts business trust. The SCM Trust is governed by its Declaration of Trust, its Bylaws, Massachusetts law, and federal law.

 

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Federal law, and particularly the 1940 Act, protects various shareholder rights, and those protections do not differ between the Greater China Fund and the International Select Equity Fund.

 

Shareholder Liability. Under Massachusetts law, a shareholder of either Fund could, under certain circumstances, be held personally liable for the obligations of the SCM Trust. There is a remote possibility that in certain circumstances shareholders of one series could be held personally liable for the obligations of a different series. However, SCM Trust’s Declaration of Trust provides that no shareholder shall be subject to personal liability in connection with the affairs of the Trust, and that the Trust shall indemnify any shareholder held liable of Trust provides for shareholder indemnification, if a shareholder of a Fund is held liable on account of being or having been a shareholder, the risk of the shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations and insurance purchased for the purposes of protection is used in its entirety.

 

Trustee Liability. The declaration of trust of a Massachusetts business trust may limit the liability of a trustee, who is not also an officer of the corporation, for breach of fiduciary duty except for, among other things, any act or omission not in good faith which involves intentional misconduct or a knowing violation of law or any transaction from which such trustee derives an improper direct or indirect financial benefit.

 

Voting Rights. The rights of both Fund’s shareholders to vote are governed by federal law, Massachusetts state law, and the Declaration of Trust and By-laws of SCM Trust.

 

As investment companies registered under the 1940 Act, many shareholder voting rights relating to the Greater China Fund and International Select Equity Fund are governed by federal law. For example, the 1940 Act requires shareholder approval to, among other actions, increase investment advisory fees, increase Rule 12b-1 fees, or change fundamental investment restrictions. With respect to matters that require shareholder approval under the 1940 Act, there are no differences between the voting rights of the Greater China Fund’s shareholders and the International Select Equity Fund’s shareholders.

 

For matters that do not require shareholder approval under the 1940 Act, shareholder voting rights depend on state law and the funds’ governing documents. Under Massachusetts law, shareholder voting rights are limited to those provided in a trust’s declaration of trust or by-laws.

 

Shareholder Voting Rights. Other than matters that require shareholder approval under the 1940 Act, shareholders of each Fund have the power to vote, to the extent described in the Declaration of Trust and By-Laws of the SCM Trust, on (i) the election or removal of trustees; (ii) the termination of the trust; (iii) amendments to the declaration of trust; (iv) with respect to mergers, consolidations, conversions or sales of assets; and (iv) such additional matters relating to the trust as may be required by applicable law, any registration statement of the trust filed with the SEC, or as the trustees may otherwise deem necessary or desirable. In addition, shareholders of the International Select Equity Fund have the power to vote only to the same extent as stockholders of a Massachusetts business corporation with respect to whether or not a court action proceeding or claim should or should not be brought or maintained on behalf of the SCM Trust or its shareholders.

 

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A shareholder meeting may be called (i) by the board of trustees of the SCM Trust, the chairperson of the board, the president of the trust, or any vice president of the trust, or (ii) the written request of shareholders entitled to cast at least 10% of all votes entitled to be cast at such meeting, provided that, except with respect to the removal of one or more trustees, the board of trustees of the SCM Trust has approved the holding of such meeting. On any matter submitted to a vote of the shareholders, each shareholder shall be entitled to one vote for each share (and fractional vote for each fractional share) standing in such shareholder’s name. Each individual series of the SCM Trust votes separately, except when (a) required by the applicable law or (b) when the trustees have determined that the matter voted upon affects the interests of more than one series.

 

Except as otherwise required by applicable law or the Declaration of Trust or By-Laws of the SCM Trust, the presence in person or by proxy at the meeting of at least 50% of the votes entitled to be cast on any particular matter constitutes a quorum. At any meeting at which a quorum is present, any matter shall be approved by the affirmative vote of 50% of the votes to be cast on such matter unless otherwise required by applicable law. There shall be no cumulative voting in the election of trustees. In addition, except as otherwise required by applicable law or the Declaration of Trust or By-Laws of the SCM Trust, any action taken by shareholders may be taken without a meeting of shareholders entitled to cast at least a majority of all the votes entitled to be cast on the matter consent to the action in writing.

 

Series and Shares Classes. The Greater China Fund is a separate series of SCM Trust. The Greater China Fund has a single class of shares. The International Select Equity Fund is also a separate series of the SCM Trust. The International Select Equity Fund has two classes of shares: Investor Class and Institutional Class.

 

Each class of shares of the Fund represents an investment in the same portfolio of securities, but each class utilizes a distinct combination of fees. Moreover, each class of shares of the Fund has equal voting, dividend and distribution and liquidation rights with other shares of the Greater China Fund.

 

There is a remote risk that a series of a Massachusetts business trust could be liable for the debt or obligations of another series of the Trust.

 

Board Composition. SCM Trust has one board for all of its series. As always, the establishment of any board of trustees of a registered investment company must comply with applicable securities laws, including the provision of the 1940 Act regarding the election of trustees by shareholders.

 

ADDITIONAL COMPARISONS OF THE GREATER CHINA FUND AND INTERNATIONAL SELECT EQUITY FUND

 

Board of Trustees

 

The oversight of the business and affairs of both Funds is the responsibility of the Board of Trustees of SCM Trust, which consists of four trustees, three of whom are Independent Trustees. The Board selects the officers who are responsible for the day-to-day operations of the Trust.

 

Investment Management

 

Shelton Capital Management, or Shelton, is the current investment adviser and to both Funds.

 

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Shelton, located at 1050 17th Street, Suite 1710, Denver, CO 80265, is a California limited partnership. Shelton is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Shelton manages and supervises the investment of the International Select Equity Fund’s assets on a discretionary basis, subject to oversight by the International Select Equity Fund’s Board of Trustees. Shelton has provided investment management services to mutual funds and separate accounts since 1985. As of January 26, 2018, Shelton managed 16 mutual funds and separate accounts with over $2.07 billion in aggregate assets.

 

Portfolio Managers. The portfolio management team for the Shelton International Select Equity Fund is the same team for the International Select Equity Fund.

 

Mr. Andrew Manton serves as the portfolio manager. He is lead manager for the Shelton International Select Equity Fund. He has 18 years of investing experience, most recently as Senior Portfolio Manager for the Rivington strategies at WHV. Previously, Andrew worked for Victory Capital Management, Deutsche Asset Management, and Merrill Lynch. He has a BS in Finance from the University of Illinois at Chicago and an MBA with a concentration in Quantitative Finance and Accounting from the Tepper School of Business at Carnegie Mellon University.

 

The Statement of Additional Information provides additional information about the portfolio manager’s compensation structure, other accounts managed and ownership of securities of the Greater China Fund.

 

Service Providers

 

As outlined below, the Greater China Fund and International Select Equity Fund have the same transfer agent, fund accountant, distributor, administrator, custodian, and independent registered public accountants. Below is information about the companies providing services to the Greater China Fund and International Select Equity Fund and a brief description of the services provided.

 

Greater China Fund and International Select Equity Fund

Transfer agency and fund accounting

Gemini Fund Services (“Gemini”), 80 Arkay Drive, Suite 110, Hauppauge NY 11788, serves as transfer agent to the International Select Equity Fund pursuant to a Transfer Agency Agreement. Gemini receives a fee based on the type of services provided to the funds as agreed upon by the funds and Gemini. Gemini also provides fund accounting services to the funds pursuant to the Fund Accounting Agreement. For its services, Gemini receives a fee from each fund.

Fund administration

Shelton Capital Management, 1050 17th Street Denver, CO 80265, serves as each fund’s administrator. The administrative services of Shelton include providing office space, equipment and clerical personnel to the funds and supervising custodial, auditing, valuation, bookkeeping, legal and dividend disbursing services, among other activities.

 

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Distribution

RFS Partners, LP, 1050 17th Street Denver, CO 80265, serves as the principal underwriter of each fund’s shares. It may enter into arrangements with banks, broker-dealers and other financial intermediaries through which investors may purchase or redeem shares.

Custodian

U.S. Bank, National Association, 425 Walnut Street, M.L. CN-OH-W6TC, Cincinnati, OH 45202, serves as the custodian to the funds.

Independent registered public accounting firm

Tait, Weller & Baker LLP, 1818 Market Street, Suite 2400, Philadelphia, PA 19103, serves as the independent registered public accounting firm

 

Distribution and Shareholder Services Plans

 

The Greater China Fund has adopted distribution and/or shareholder service plans for its Class K shares. The International Select Equity Fund has adopted a distribution and/or shareholder service plan for its Investor Class shares.

 

The Funds’ principal underwriter, RFS Partners, LP (the “Distributor”), provides distribution and shareholder services to the Funds pursuant to underwriting agreements with the Trust. Pursuant to the underwriting agreements, the Distributor provides distribution assistance with respect to the Funds’ shares.

 

Pricing of Funds and Purchase, Exchange and Redemption Procedures

 

Procedures for pricing and procedures and policies relating to the purchase and redemption of shares of the Greater China Fund and International Select Equity Fund are identical.

 

For more information regarding the Pricing of Funds and Purchase, Exchange, and Redemption Procedures, please refer to the Prospectuses and Statements of Additional Information of the Greater China Fund and the International Select Equity Fund.

 

Dividends, Distributions and Taxes

 

Dividends and Distributions. The Greater China Fund and International Select Equity Fund have similar policies for dividends and distributions.

 

Shareholders of the Greater China Fund and International Select Equity Fund are entitled to receive dividends and distributions when declared by the applicable Boards of Trustees. The Funds generally declare and pay dividends, if any, on a quarterly basis; however, they may declare and pay dividends more frequently. Unless the Greater China Fund or an International Select Equity Fund shareholder elects to receive distributions in cash, distributions will be reinvested in additional shares of such Greater China Fund or International Select Equity Fund.

 

Purchasing shares of the Greater China Fund or International Select Equity Fund shortly before it makes dividends or capital gain distributions will have the effect of returning a portion of the purchase price by the amount of the distribution. This is sometimes referred to as “buying a dividend” because, although the distribution is in effect a return of a portion of the purchase price, it is taxable.

 

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Unless you are investing in a tax-deferred account like an IRA or Education Savings Account, you may want to consider waiting to invest until after a distribution is made by the Greater China Fund or the International Select Equity Fund.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 1

 

VOTING INFORMATION

 

Required Vote

 

Proposal 1. Under Proposal 1, shareholders of the Greater China Fund are being asked to approve an Agreement and Plan of Reorganization providing for the transfer of all of the assets of the Greater China Fund to, and the assumption of all of the liabilities of the Greater China Fund by, the SCM Trust, which shall assign such assets and liabilities to the Shelton International Select Equity Fund, a series of the SCM Trust, in exchange for shares of the Shelton International Select Equity Fund to be distributed pro rata by the Greater China Fund to its shareholders upon the fund’s liquidation.

 

Pursuant to the 1940 Act, Proposal 1 must be approved by a majority of the outstanding shares of the Greater China Fund. A “majority of the outstanding shares” means the vote of the holders of the lesser of (a) 67% or more of the Greater China Fund’s shares present at the Special Meeting or represented by proxy if the holders of more than 50% of such shares are so present or represented, or (b) more than 50% of the outstanding shares of the Greater China Fund, with one (1) vote for each dollar (and a proportionate fractional vote for each fraction of a dollar) of net asset value (determined as of the Record Date) represented by full and fractional shares of all of the Greater China Fund’s outstanding classes of shares.

 

Approval of the Reorganization will occur only if a sufficient number of votes are cast “FOR” each proposal.

 

If the Reorganization is not approved, the Board of Trustees of the Greater China Fund will consider other options for the future management and organization of the Greater China Fund.

 

Proposal 2: To consider and transact such other business as may properly come before the Meeting and any adjournments, postponements or delays thereof, including obtaining votes necessary for a quorum.

 

By voting in favor of Proposal 2, shareholders are being asked to grant authority for the consideration of other business, and specifically to allow the adjournment of the meeting in the event sufficient votes are not received to constitute a quorum. In the event sufficient votes are not received to attain a quorum, it is anticipated that the meeting will be adjourned until such time as a quorum is attained. Adjournment of the meeting will only take place under circumstances that are consistent with applicable law.

 

Effect of Abstentions and Broker Non-Votes

 

Proxies that reflect abstentions and “broker non-votes” (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not have discretionary voting power on a

 

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particular matter) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum and will have the effect of being counted as votes against the Proposal.

 

Shareholder Objections

 

A shareholder of the Greater China Fund who objects to the proposed Reorganization will not be entitled to demand payment for, or an appraisal of, his or her shares. However, shareholders should be aware that the Reorganization as proposed is not expected to result in recognition of gain or loss to shareholders for federal income tax purposes. If the Reorganization is consummated, shareholders will be free to redeem the shares of the International Select Equity Fund that they receive in the transaction at the then-current NAV. Shares of the Greater China Fund also may be redeemed at any time prior to the consummation of the Reorganization. Redeeming shareholders will receive the NAV next computed after receipt of the redemption request. Shareholders of the Greater China Fund may wish to consult their tax advisors as to any different consequences of redeeming its shares prior to the Reorganization or exchanging such shares in the Reorganization.

 

Shareholder Proposals

 

SCM Trust is generally not required to hold annual meetings of shareholders, and the Trust generally does not hold a meeting of shareholders in any year unless certain specified shareholder actions, such as election of directors or approval of a new advisory agreement, are required to be taken under the 1940 Act. By observing this policy, the Trust seeks to avoid the expenses customarily incurred in the preparation of proxy materials and the holding of shareholder meetings, as well as the related expenditure of personnel time. Shareholders wishing to submit proposals for consideration for inclusion in a proxy statement for a subsequent shareholders’ meeting of the Trust (if any) should send its written proposals to the Secretary of the Trust at 1050 17th Street, Suite 1710, Denver, CO 80265. Proposals must be received a reasonable time before the date of a meeting of shareholders to be considered for inclusion in the proxy materials for that meeting. Timely submission of a proposal does not, however, guarantee that the proposal will be included. A shareholder who wishes to make a proposal at the next meeting of shareholders without including the proposal in the Trust’s proxy statement must notify the Secretary of the Trust in writing of such proposal within a reasonable time prior to the date of the meeting. If a shareholder fails to give timely notice, then the persons named as proxies in the proxies solicited by the Board for the next meeting of shareholders may exercise discretionary voting power with respect to any such proposal.

 

Shareholder Communications with the Board

 

Shareholders may send written communications to the Board of Trustees of SCM Trust or to individual Trustees by mailing such correspondence to the Board or the Trustees at 1050 17th Street, Suite 1710, Denver, CO 80265. Such communications must be signed by the shareholder and identify the Greater China Fund, class and number of shares held by the shareholder. Properly submitted shareholder communications will be forwarded to the entire Board of Trustees or to the individual Trustee(s), as applicable. Any shareholder proposal submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, must continue to meet all the requirements of Rule 14a-8. See “Additional Information — Shareholder Proposals” above. Shareholders may also send confidential communications to the Funds’ Chief Compliance Officer, Attn: Gregory T. Pusch at 1050 17th Street, Suite 1710, Denver, CO 80265.

 

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Adjournment and Postponements

 

In the event that an insufficient amount of shares of the Greater China Fund are not represented at the Special Meeting or at any adjournment thereof to act upon a proposal, or, even though a sufficient amount of share are represented, in the event that sufficient votes to approve a proposal are not received, the persons named as proxies may propose and vote for one or more adjournments of the Special Meeting to be held within a reasonable time after the date originally set for the Special Meeting, and further solicitation of proxies may be made without the necessity of further notice. The persons named as proxies will vote those proxies which instruct them to vote in favor of a proposal in favor of any such adjournment, and will vote those proxies which instruct them to vote against or to abstain from voting on a proposal against any such adjournment. Any such adjournment must be approved by a majority of the shares voting on the matter.

 

In determining whether to adjourn the Special Meeting, the following factors may be considered: the percentage of votes actually cast, the percentage of negative votes actually cast, the nature of any further solicitation and the information to be provided to shareholders with respect to the reasons for the solicitation. Any adjournment or postponement will require an affirmative vote of a majority of those shares represented at the Special Meeting, whether or not a quorum is present, in person or by proxy. Any business that might have been transacted at the Special Meeting with respect to the Greater China Fund may be transacted at any such adjourned session(s) at which a quorum is present.

 

Revocation of Proxy

 

Any shareholder giving a proxy may revoke it before it is exercised at the Special Meeting, either by providing written notice to SCM Trust by submission of a later-dated, duly executed proxy or by voting in person at the Special Meeting. A prior proxy can also be revoked by proxy voting again through the toll-free number or on the website listed in the enclosed Voting Instructions. If not so revoked, the votes will be cast at the Special Meeting, and any postponements or adjournments thereof. Attendance by a shareholder at the Special Meeting does not, by itself, revoke a proxy.

 

Shareholders Entitled to Vote

 

Only shareholders of record on the Record Date are entitled to receive notice of and to vote at the Special Meeting or at any adjournment or postponement thereof. Each whole share held as of the close of business on the Record Date is entitled to one vote and each fractional share is entitled to a proportionate fractional vote. The number of shares of beneficial interest of the Greater China Fund that were outstanding as of the Record Date and, therefore, are entitled to vote at the Meeting are as set out below:

 

Number of shares outstanding

Greater China Fund

964,551.229

 

Method and Cost of Solicitation

 

The Greater China Fund expects that the solicitation of proxies will be primarily by mail and telephone. The solicitation may also include facsimile, Internet or oral communications by certain employees of Shelton, who will not be paid for these services. Solicitation may also be made by

 

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AST FundSolutions, Inc., a paid proxy solicitation firm, at an estimated cost of $[ ]. The agreement with AST FundSolutions, Inc. provides for the indemnification of AST FundSolutions, Inc. in certain circumstances and requires AST FundSolutions, Inc. to keep certain information confidential.

 

Security Ownership of Certain Beneficial Owners and Management

 

To the knowledge of the Greater China Fund, as of the Record Date, no trustee or officer owned, on an individual basis or beneficially, more than 1% of the outstanding shares of any Greater China Fund.

 

As of the Record Date, the International Select Equity Fund had no shares outstanding.

 

As of the Record Date, to the knowledge of the trustees and officers of the Greater China Fund, other than as set forth below, no person owned beneficially or of record more than 5% of the outstanding shares of any Greater China Fund. Shareholders indicated below holding greater than 25% of the Greater China Fund may be “controlling persons” under the 1940 Act. Persons controlling the Greater China Fund can determine the outcome of any proposal submitted to the shareholders for approval.

 

Greater China Fund

 

Name & Address

Amount of
Shares Owned

Percent Owned

STATE STREET BANK AND TRUST CO
225 FRANKLIN ST MAO CO
BOSTON, MA 02110

131,846.026

13.67%

CHARLES SCHWAB & CO
INC/SPECIAL CUSTODY ACCT
FBO CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO, CA 94104-4122

124,144.206

12.87%

J.P.MORGAN CHASE
BANK/MUTUAL FUNDS DEPT
13TH FLOOR
14201 DALLAS PARKWAY
DALLAS, TX 75254

89,405.247

9.27%

TD AMERITRADE INC FOR THE
/EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103

80,829.840

8.38%

NATIONAL FINANCIAL SERVICES LLC/FOR THE
EXCLUSIVE BENEFIT OF OUR CUSTOMER
ATTN MUTUAL FUND DEPT 5TH FL
200 LIBERTY ST ONE WORLD FIN CTR
NEW YORK, NY 10281

66,609.373

6.91%

 


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Name & Address

Amount of
Shares Owned

Percent Owned

CHARLES SCHWAB & CO
INC/SPECIAL CUSTODY A/C
FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO, CA 94105

65,710.277

6.81%

BROWN BROTHERS HARRIMAN
& CO AS/CUSTODIAN FOR 5488150
ATTENTION MUTUAL FUND SERVICES
140 BROADWAY
NEW YORK, NY 10005

62,293.248

6.46%

MERRILL LYNCH, /PIERCE, FENNER & SMITH
101 HUDSON STREET 9TH FL
JERSEY CITY, NJ 07302

48,740.553

5.05%

 

FURTHER INFORMATION ABOUT THE GREATER CHINA FUND AND THE INTERNATIONAL SELECT EQUITY FUND

 

More information about the Greater China Fund and the International Select Equity Fund is included in: (i) the Prospectus for SCM Trust, dated May 1, 2017; (ii) the Statement of Additional Information of SCM Trust dated May 1, 2017, and (iii) the Statement of Additional Information dated June 21, 2018 (relating to this Proxy Statement/Prospectus).

 

You may request free copies of the Greater China Fund’s Prospectus or Statement of Additional Information (including any supplements) by writing the SCM Trust at 1050 17th Street, Suite 1710, Denver, CO 80265, by calling (800) 955-9988, by emailing at info@sheltoncap.com or on the Shelton Capital Management website at www.sheltoncap.com.

 

You can request a free copy of the International Select Equity Fund’s Prospectus and Statement of Additional Information, by calling (800) 955-9988 or by writing the SCM Trust at 1050 17th Street #1710, Denver, CO 80265. In addition, a current Prospectus for the International Select Equity Fund accompanies this Proxy Statement/Prospectus.

 

This Proxy Statement/Prospectus, which constitutes part of a Registration Statement filed by the SCM Trust with the SEC under the Securities Act of 1933, as amended, omits certain information contained in such Registration Statement. Reference is hereby made to the Registration Statement and to the exhibits and amendments thereto for further information with respect to the International Select Equity Fund and the shares offered. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the SEC.

 

The Greater China Fund and the International Select Equity Fund also file proxy materials, reports, and other information with the SEC in accordance with the informational requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act. These materials can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 and at the following regional offices of the SEC: Northeast Regional

 

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Office, 3 World Financial Center, Suite 400, New York, New York 10281; Southeast Regional Office, 801 Brickell Avenue, Suite 1800, Miami, Florida 33131; Midwest Regional Office, 175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604; Central Regional Office, 1801 California Street, Suite 1500, Denver, Colorado 80202; and Pacific Regional Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036. Also, copies of such material can be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549, at prescribed rates or from the SEC’s web site at www.sec.gov. To request information regarding the Funds, you may also send an e-mail to the SEC at publicinfo@sec.gov.

 

Other Business

 

The Board of Trustees of the Greater China Fund know of no other business to be brought before the Special Meeting. If any other matters come before the Special Meeting, the Board of Trustees intends that proxies that do not contain specific restrictions to the contrary will be voted on those matters in accordance with the judgment of the persons named in the enclosed form of proxy.

 

Delivery of Proxy Statement

 

The SEC has adopted rules that permit investment companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, which is commonly referred to as “house holding,” potentially means extra convenience for shareholders and cost savings for companies. We are only delivering one proxy statement to multiple shareholders sharing an address, unless you have instructed us not to do so. If, at any time, you no longer wish to participate in “house holding” and would prefer to receive a separate proxy statement, please notify your financial intermediary or direct a written request to SCM Trust, 1050 17th Street, Suite 1710, Denver, CO 80265 or call toll-free (888) 948-4685. Shareholders who currently receive multiple copies of the proxy statement at its address and would like to request “house holding” of its communications should contact its financial intermediary or the applicable Greater China Fund directly.

 

Experts

 

The audited financial statements for the Greater China Fund included in the Greater China Fund’s Annual Report dated December 31, 2017, have been audited by Tait, Weller & Baker LLP, independent registered public accounting firm, as set forth in its report therein and incorporated by reference into the Statement of Additional Information relating to this Proxy Statement/Prospectus. Such financial statements are incorporated therein by reference in reliance upon such report given upon the authority of said firm as experts in accounting and auditing.

 

A copy of the Notice of Shareholder Meeting, the Proxy Statement/Prospectus and the Proxy Card are available at www.proxyonline.com/docs/sheltoninternational.pdf.

 

By Order of the Trustees of Board of Trustees of SCM Trust, on behalf of the Greater China Fund

 

/s/ Stephen C. Rogers

 

Chairman

 

June 21, 2018

 

 

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APPENDIX A

 

FORM OF AGREEMENT AND PLAN OF REORGANIZATION

 

This AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) dated as of ______, 2018 by and among SCM Trust, a Delaware statutory Trust (“SCM Trust”), on behalf of its Shelton Greater China Fund (the “Acquired Fund”) and SCM Trust, on behalf of the Shelton International Select Equity Fund (the “Acquiring Fund” and, together with the SCM Trust, SCM Trust and the Acquired Fund, the “Parties” and each, individually, a “Party”). CCM Partners, LP d/b/a Shelton Capital Management, a California Limited Partnership (“SCM”), joins this Agreement solely for purposes of paragraphs 5.1 and 7.1.

 

RECITALS

 

SCM Trust issues shares of beneficial interest representing interests in the Acquired Fund. Likewise, the SCM Trust issues shares of beneficial interest representing interests in the Acquiring Fund.

 

The Parties wish to conclude a series of business combination transactions under the terms set forth in this Agreement in which: (1) all of the Fund Assets of the Acquired Fund will be transferred to the Acquiring Fund, as set forth on Exhibit A, in exchange for shares of the Acquiring Fund and the assumption by that Acquiring Fund of all of the Acquired Fund’s Liabilities, and (2) shares of the Acquiring Fund will be distributed to holders of shares of the Acquired Fund, in complete liquidation of such Acquired Fund. The business combination transaction set forth under this Agreement is referred to as the “Reorganization.”

 

The Parties intend this Agreement to be, and adopt it as, a plan of reorganization within the meaning of the regulations under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The financial information in the Acquired Fund’s most recent registration statement amendment filed on November 13, 2017 is as of its most recent annual period ended December 31, 2016.

 

The Board of Trustees of SCM Trust (the “SCM Trust Board”), including a majority of the trustees who are not “interested persons” (as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”)) (“Independent Trustees”) of SCM Trust, has determined with respect to the Acquired Fund that: (1) participation in the Fund Transaction (as defined in paragraph 1.1) is in the best interests of the Acquired Fund and its shareholders, and (2) the interests of existing shareholders of the Acquired Fund will not be diluted as a result of the Fund Transaction.

 

The SCM Trust Board, including a majority of the Independent Trustees, has determined with respect to the Acquiring Fund that: (1) participation in the Fund Transaction is in the best interests of the Acquiring Fund and its shareholders, and (2) the interests of existing shareholders of the Acquiring Fund will not be diluted as a result of the Fund Transaction.

 

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NOW THEREFORE, in consideration of the mutual promises, representations, and warranties made herein, covenants and agreements hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties, intending to be legally bound hereby, agree as follows:

 

ARTICLE I - THE REORGANIZATION AND FUND TRANSACTIONS

 

1.1 The Reorganization and Fund Transaction. In accordance with the laws of the State of Delaware (“Delaware Law”) and the laws of the Commonwealth of Massachusetts (“Massachusetts Law”), on the Closing Date (as defined in paragraph 3.1), upon the terms and subject to the conditions of this Agreement, and on the basis of the representations and warranties contained herein, each of SCM Trust and the Acquired Fund shall assign, deliver and otherwise transfer all Fund Assets of the Acquired Fund, subject to all of the Liabilities of such Acquired Fund, to SCM Trust which shall assign the Fund Assets of the Acquired Fund that it receives to the Acquiring Fund set opposite such Acquired Fund on Exhibit A hereto (the Acquired Fund and the Acquiring Fund, a “Transaction Party” of the other), and SCM Trust, on behalf of the Acquiring Fund, shall assume all of the Liabilities of the Acquired Fund and shall assign the Liabilities of the Acquired Fund that it assumes to the Acquired Fund’s Transaction Party. In consideration of the foregoing, SCM Trust, on behalf of the Acquiring Fund, shall on the Closing Date deliver to the Acquired Fund full and fractional (to the third decimal place) Institutional Class and Investor Class shares, as applicable, of the Acquiring Fund, the number of which shall be determined as set forth in paragraphs 2.2 and 2.3 for each series. (The transaction between the Acquired Fund and its Transaction Party is hereinafter referred to as a “Fund Transaction”.) At and after the Closing Date, all of the Fund Assets of the Acquired Fund shall become and be the Fund Assets of its Transaction Party and all of the Liabilities of the Acquired Fund shall become and be the Liabilities of and shall attach to its Transaction Party. The Liabilities of the Acquired Fund may henceforth be enforced only against its Transaction Party to the same extent as if such Liabilities had been incurred by such Transaction Party subject to any defense and/or set off the Acquired Fund was entitled to assert immediately prior to the Closing Date and further subject to any defense and/or setoff that SCM Trust or the Acquiring Fund may from time to time be entitled to assert.

 

1.2 Acquired Fund Assets. At least fifteen Business Days prior to the Closing Date, SCM Trust will provide SCM Trust with a schedule of the securities and other assets and known Liabilities of the Acquired Fund, and SCM Trust will provide the SCM Trust with a copy of the current investment objective, principal strategies and restrictions applicable to the Acquiring Fund.

 

1.3 Assumption of Liabilities. SCM Trust, on behalf of the Acquiring Fund, will assume all of the remaining Liabilities of the Acquired Fund, assigning them to the Transaction Party of the Acquired Fund.

 

1.4 Distribution of Acquiring Fund Shares. Immediately upon receipt, the Acquired Fund will distribute the shares representing interests in its Transaction Party pro-rata to the record holders of the Acquired Fund, determined as of the close of regular trading on the New York Stock Exchange (“NYSE”) on the Closing Date (the “Valuation Time”) in complete liquidation of the Acquired Fund. The Acquired Fund, in accordance with paragraphs 2.2 and 2.3 of this Agreement and Exhibit A hereto, will distribute pro-rata (i) its Transaction Party’s Institutional Class shares to holders of the Acquired Fund. Such distributions will be accomplished by an instruction, signed by an appropriate officer of SCM Trust and SCM Trust, as applicable, to transfer the Acquiring Fund shares then credited to the Acquired Fund’s account on the Books and Records of SCM Trust,

 

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as applicable, and to open accounts on the Books and Records of SCM Trust, established and maintained by SCM Trust’s transfer agent, in the names of record holders of the Acquired Fund, and crediting the number of Acquiring Fund shares due to such record holders. All issued and outstanding Acquired Fund shares will be cancelled simultaneously therewith by the Acquired Fund on SCM Trust’s Books and Records. Any such shares issued and outstanding prior to such cancellation shall thereafter represent only the right to receive the Acquiring Fund shares issued to such Acquired Fund in accordance with the Reorganization. In addition, each record holder of the Acquired Fund shall continue to have the right to receive any unpaid dividends or other distributions which were declared with respect to his/her or its shares of the Acquired Fund before the Valuation Time.

 

1.5 Liquidation of Acquired Fund/Dissolution and Deregistration of Acquired Fund. As soon as conveniently practicable after the distribution of Acquiring Fund shares by the Acquired Fund pursuant to this Agreement has been made, and in any event no more than one year after the Closing Date, the Acquired Fund shall take, in accordance with Delaware Law and the 1940 Act, all such steps as may be necessary or appropriate to effect a complete liquidation and termination of the Acquired Fund, dissolution of Acquired Fund and deregistration of Acquired Fund under the 1940 Act. Any reporting obligation, including but not limited to, the filing of any Form N-SAR, N-CSR, Rule 24f-2 notice or federal, state or local tax returns, or other responsibility of Acquired Fund is and shall remain such Party’s responsibility until it is dissolved and deregistered. If and to the extent that any trust, escrow account or other similar entity continues after the close of such one-year period in connection either with making provision for payment of liabilities or taxes or with distributions to stockholders of the Acquired Fund, such entity shall either (i) qualify as a liquidating trust under Section 7701 of the Code (and applicable Treasury Regulations thereunder) or other entity which does not constitute a continuation of the Acquired Fund for federal income tax purposes, or (ii) be subject to a waiver under Section 368(a)(2)(G)(ii) of the complete distribution requirement of Section 368(a)(2)(G)(i) of the Code.

 

1.6 Transfer Taxes. Any transfer taxes payable on issuance of a share in a name other than that of the record holder on Acquired Fund books exchanged therefor, shall be paid by the Person to whom the Acquiring Fund’s shares are issued as a condition of that transfer.

 

ARTICLE II - VALUATION

 

2.1 Valuation of Assets. The value of the Acquired Fund’s assets to be acquired by its Transaction Party shall be the value of such assets computed as of the Valuation Time, after the declaration and payment of any dividends and/or other distributions on that date, using the valuation procedures described in the then-current prospectus and statement of additional information of the Acquired Fund’s Transaction Party.

 

2.2 Valuation of Shares. The number of Acquiring Fund shares to be issued (including fractional shares (to the third decimal place), if any) in connection with the Fund Transaction shall be equal in value to its Transaction Party’s net asset value computed as of the Valuation Time determined in accordance with the valuation procedures referred to in this agreement.

 

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2.3 Numbers of Classes of Shares. The number of Institutional Class shares to be issued by the Acquiring Fund (including fractional shares (to the third decimal place), if any) in connection with the Fund Transaction shall be equal in value to the net asset value of the Transaction Party’s shares computed as of the Valuation Time determined in accordance with the valuation procedures referred to in this agreement.

 

2.4 Determination of Value. All computations of net asset value and the value of securities transferred under this Article II shall be made by U.S. Bank, NA, SCM Trust Trust’s accounting agent, in accordance with its regular practice and the requirements of the 1940 Act.

 

ARTICLE III - CLOSING AND CLOSING DATE

 

3.1 Closing. The closing of the Fund Transaction (the “Closing”) will take place at the offices of SCM, 1050 17th Street #1710, Denver, CO 80265, or at such other place as may be mutually agreed in writing by an authorized officer of each Party, on _____, 2018 at 4:00 p.m., Eastern Time, or on such other date or time as may be mutually agreed in writing by an authorized officer of each Party (the “Closing Date”).

 

3.2 Transfer and Delivery of Fund Assets. SCM Trust shall direct its custodian (“Custodian”) to deliver to SCM Trust at the Closing a certificate of an authorized officer certifying that: (a) the Custodian, on its accounting records, has transferred the Fund Assets of the Acquired Fund subject to all of its Liabilities into an account of its Transaction Party at US Bank; and (b) all necessary taxes in connection with the delivery of such Fund Assets, including all applicable foreign, federal and state stock transfer stamps and any other stamp duty taxes, if any, have been paid or provision (as reasonably estimated) for payment has been made. At least five Business Days prior to the Closing Date, the Custodian shall present for examination those Fund Assets represented by a certificate or other written instrument to those Persons at US Bank who have primary responsibility for the safekeeping of the SCM Trust’s assets. On the Closing Date, the Acquired Fund shall endorse and deliver, or transfer by appropriate transfer or assignment documents, such certificates and other written instruments as of the Closing Date for the account of the Acquiring Fund in proper form for transfer and in such condition as to constitute good delivery thereof. The Custodian shall deliver other Fund Assets to those Persons at US Bank who have primary responsibility for the safekeeping of the assets of the SCM Trust as of the Closing Date by book entry, in accordance with the customary practices of the Custodian and of each securities depository (as defined in Rule 17f-4 and Rule 17f-7 under the 1940 Act) in which such Fund Assets are held.

 

3.3 SCM Trust Share Records. SCM Trust shall direct its transfer agent to deliver to SCM Trust at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the record holders and the number and percentage ownership (to three decimal places) of Acquired Fund shares owned by each record holder of the Acquired Fund immediately prior to the Closing. SCM Trust shall deliver to the Secretary of SCM Trust a confirmation evidencing that: (a) the appropriate number of Acquiring Fund shares has been delivered to the account of the Acquired Fund on the books of the Acquired Fund’s Transaction Party prior to the actions contemplated, and (b) the appropriate number of Acquiring Fund shares has been credited to the accounts of record holders of Acquired Fund shares on the books of SCM Trust.

 

3.4 Postponement of Closing Date. If immediately prior to the Valuation Time: (a) the NYSE or another primary trading market for portfolio securities of the Acquiring Fund or Acquired Fund is closed to trading, or trading thereupon is restricted; or (b) trading or the reporting of trading

 

44

 

 

on such market is disrupted so that, in the judgment of an appropriate officer of SCM Trust or SCM Trust, accurate appraisal of the value of the net assets of the Acquiring Fund or Acquired Fund is impracticable, the Closing Date for the Fund Transaction shall be postponed until the first Business Day after the day when trading shall have been fully resumed and reporting shall have been restored or such later date as may be mutually agreed in writing by an authorized officer of each affected Party.

 

ARTICLE IV - REPRESENTATIONS AND WARRANTIES

 

4.1 Representations and Warranties of Acquired Fund. SCM Trust, on behalf of the Acquired Fund, hereby represents and warrants to SCM Trust (only with respect to itself and not with respect to the other entities contained in the representation and warranty), as follows, which representations and warranties shall be true and correct on both the date hereof and on the Closing Date (as though made on and as of the Closing Date):

 

(a) The Acquired Fund is a series of SCM Trust duly organized, validly existing and in good standing under Delaware Law and is duly qualified, licensed or admitted to do business and is in good standing as a foreign association under the Laws of each jurisdiction in which the nature of the business conducted by it makes such qualification, licensing or admission necessary, except in such jurisdictions where the failure to be so qualified, licensed or admitted and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on its properties or assets or the properties or assets of the Acquired Fund. The Acquired Fund has full power under SCM Trust’s declaration of trust to conduct its business as it is now being conducted and to own the properties and assets it now owns for itself and on behalf the Acquired Fund. SCM Trust has all necessary approvals from any applicable Governmental or Regulatory Body necessary to carry on its business as such business is now being carried on.

 

(b) The execution, delivery and performance of this Agreement by SCM Trust on behalf of the Acquired Fund, and the consummation of the Fund Transaction contemplated herein, have been duly and validly authorized by the SCM Trust Board, and the SCM Trust Board has approved the Fund Transaction and has resolved to recommend the Fund Transaction to the shareholders of the Acquired Fund and to call a special meeting of shareholders of the Acquired Fund for the purpose of approving this Agreement and the Fund Transaction. Other than the affirmative “vote of a majority of the outstanding voting securities” (as defined in the 1940 Act) of the Acquired Fund, no other action on the part of SCM Trust, the Acquired Fund or its shareholders is necessary to authorize the execution, delivery and performance of this Agreement by SCM Trust on behalf of the Acquired Fund or the consummation of the Fund Transaction contemplated herein. This Agreement has been duly and validly executed and delivered by SCM Trust on behalf of the Acquired Fund and is a legal, valid and binding obligation of SCM Trust, as it relates to the Acquired Fund, enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Laws affecting the rights of creditors generally and the exercise of judicial discretion in accordance with general principles of equity).

 

(c) There is an unlimited number of authorized shares of beneficial interest of SCM Trust with a par value of $0.01 per share. The issued and outstanding shares of the Acquired Fund are duly authorized, validly issued, fully paid and non-assessable. There are no outstanding options, warrants or other rights of any kind to acquire from the Acquired Fund, any shares of any class or series or equity interests of the Acquired Fund or securities convertible into or exchangeable for,

 

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or which otherwise confer on the holder thereof any right to acquire, any such additional shares, nor is the Acquired Fund committed to issue any share appreciation or similar rights or options, warrants, rights or securities in connection with any series of shares.

 

(d) SCM Trust does not have any subsidiaries.

 

(e) Except for consents, approvals, or waivers to be received prior to Closing, the execution, delivery or performance of this Agreement by SCM Trust for itself and on behalf of the Acquired Fund does not, and the consummation of the Fund Transaction contemplated herein will not: (i) violate or conflict with the terms, conditions or provisions of SCM Trust’s declaration of trust, or of any contract, agreement, indenture, instrument, or other undertaking to which it is a party or by which it or the Acquired Fund is bound, (ii) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease or other undertaking to which SCM Trust or the Acquired Fund is a party or by which it or the Acquired Fund is bound, (iii) result in a breach or violation by SCM Trust or the Acquired Fund of any terms, conditions, or provisions of any Law or Order, or (iv) require any consent or approval of, filing with or notice to, any Governmental or Regulatory Body.

 

(f) Prior to the execution of this Agreement, SCM Trust has delivered to SCM Trust true and complete copies of the statements of assets and liabilities of the Acquired Fund as of December 31, 2017, and the related statements of income and changes in net assets and financial highlights for the period then ended.

 

(g) Except as set forth in the notes thereto, such financial statements were prepared in accordance with accounting principles generally accepted in the United States, consistently applied throughout the period then ended, and fairly present the financial condition and results of operations of the Acquired Fund as of the date thereof and for the period covered thereby.

 

(h) Except as reflected or reserved against in the statement of assets and liabilities included in the Acquired Fund’s financial statements as of December 31, 2017 or in the notes thereto, or as previously disclosed in writing to SCM Trust, there are no liabilities against, relating to or affecting the Acquired Fund or any of its properties and assets, other than those incurred in the ordinary course of business consistent with past practice, which, individually or in the aggregate, would have a Material Adverse Effect on SCM Trust or its respective properties or assets or on the Acquired Fund or the Acquired Fund’s property or assets. In particular, since December 31, 2017, there has not been any material adverse change in the financial condition, properties, assets, liabilities or business of the Acquired Fund other than changes occurring in the ordinary course of business. For purposes of this paragraph, a decline in net asset value of the Acquired Fund due to declines in market values of securities in its portfolio, the discharge of liabilities, or the redemption of shares representing an interest in the Acquired Fund, shall not constitute a material adverse change.

 

(i) As of the date hereof, except as previously disclosed to SCM Trust in writing, and except as have been corrected as required by applicable Law, and to the best of each of SCM Trust’s and the SCM Trust Board’s knowledge, there have been no material miscalculations of the net asset value of the Acquired Fund or the net asset value per share during the twelve-month period preceding the date hereof, and all such calculations have been made in accordance with the applicable provisions of the 1940 Act.

 

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(j) The minute books and other similar records of SCM Trust as made available to SCM Trust prior to the execution of this Agreement contain a true and complete record of all action taken at all meetings and by all written consents in lieu of meetings of the shareholders of SCM Trust and the Acquired Fund, and at all meetings and by all written consents in lieu of meetings of the SCM Trust Board and committees of the SCM Trust Board. The stock transfer ledgers and other similar records of SCM Trust and the Acquired Fund as made available to SCM Trust prior to the execution of this Agreement accurately reflect all record transfers prior to the execution of this Agreement in the shares of the Acquired Fund.

 

(k) SCM Trust and the Acquired Fund have maintained, or caused to be maintained on its behalf, all Books and Records required of a registered investment company in compliance with the requirements of Section 31 of the 1940 Act and rules thereunder.

 

(l) There is no Action or Proceeding pending against SCM Trust and to SCM Trust’s knowledge, threatened against, relating to or affecting, SCM Trust and/or the Acquired Fund.

 

(m) No agent, broker, finder or investment or commercial banker, or other Person or firm engaged by or acting on behalf of SCM Trust or the Acquired Fund in connection with the negotiation, execution or performance of this Agreement or any other agreement contemplated hereby, or the consummation of the Fund Transaction contemplated hereby, is or will be entitled to any broker’s or finder’s or similar fees or other commissions as a result of the consummation of such Fund Transaction.

 

(n) SCM Trust is duly registered as an open-end management investment company under the 1940 Act, and the Acquired Fund is “diversified” within the meaning of Section 5(b)(1) of the 1940 Act.

 

(o) As of the date hereof and at the Closing Date, all federal and other tax returns, dividend reporting forms, and other tax-related reports of the Acquired Fund required by Law to have been filed by such dates (including any extensions) have or shall have been filed and are or will be correct in all material respects, and all state, local, federal and other taxes shown as due or required to be shown as due on such returns and reports shall have been paid or provision shall have been made for the payment thereof and no such return is currently under audit and no written assessment has been asserted with respect to such returns. There are no levies, liens, or other encumbrances relating to taxes existing, pending or, to SCM Trust’s knowledge, threatened, with respect to the assets of SCM Trust, respectively (or with respect to any assets of the Acquired Fund).

 

(p) For each taxable year of its operation (including the taxable year ending on the Closing Date occurs), the Acquired Fund has met the requirements of Subchapter M of the Code for qualification as a regulated investment company and has elected to be treated as such, and has been eligible to and has computed its federal income tax under Section 852 of the Code, has been, and will be as of the Closing Date treated as a separate corporation for federal income tax purposes pursuant to Section 851(g) of the Code. The Acquired Fund will qualify as a regulated investment company as of the Closing Date and will have satisfied as of the close of its most recent prior quarter of its taxable year, the diversification requirements of Section 851(b)(3) of the Code without regard to the last sentence of Section 851(d) of the Code. The Acquired Fund has not taken any action, caused any action to be taken or caused any action to fail to be taken which action or failure could cause the Acquired Fund to fail to qualify as a regulated investment company under the Code.

 

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(q) All issued and outstanding shares of the Acquired Fund have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities Laws, are registered under the 1933 Act and under the Laws of all jurisdictions in which registration is or was required. Such registrations, including any periodic reports or supplemental filings, were, in all material respects, complete and current at the time the Acquired Fund’s issued and outstanding shares were sold, and all fees required to be paid have been paid. The Acquired Fund was not subject to any “stop order” at the time its issued and outstanding shares were sold, and the Acquired Fund was fully qualified to sell its shares in each jurisdiction in which such shares were registered and sold.

 

(r) The prospectus and statement of additional information of the Acquired Fund used at all times prior to the date of this Agreement conformed at the time of its use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the SEC thereunder, and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading.

 

(s) The proxy statement and prospectus and statement of additional information (collectively, the “Proxy Statement/Prospectus”) to be included in SCM Trust’s registration statement on Form N-14 (the “Registration Statement”), and the documents incorporated therein by reference and any amendment or supplement thereto, insofar as they relate to the Acquired Fund, each comply or will comply in all material respects with the applicable requirements of the 1933 Act and the 1940 Act and the applicable rules and regulations of the SEC thereunder. The Proxy Statement/Prospectus, Registration Statement and the documents incorporated therein by reference and any amendment or supplement thereto, insofar as they relate to the Acquired Fund, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not materially misleading; provided, however, that SCM Trust makes no representations or warranties as to the information contained in the Proxy Statement/Prospectus, Registration Statement and the documents incorporated therein by reference and any amendment or supplement thereto in reliance upon and in conformity with information relating to SCM Trust, the Acquiring Fund, or SCM.

 

(t) Except as previously disclosed in writing to SCM Trust, the Acquired Fund has, and on the Closing Date will have, good and marketable title to its Fund Assets and full right, power, and authority to sell, assign, transfer and deliver such Fund Assets, free and clear of all liens, mortgages, pledges, encumbrances, charges, claims and equities, and subject to no restrictions on the subsequent transfer thereof.

 

(u) The shares of the Acquiring Fund to be issued to the Acquired Fund pursuant to this agreement will not be acquired for the purpose of making any distribution thereof other than to the Acquired Fund’s shareholders as provided in this Agreement.

 

4.2 Representations and Warranties of SCM Trust. SCM Trust, on behalf of the Acquiring Fund, hereby represents and warrants to SCM Trust and the Acquired Fund as follows which representations and warranties shall be true and correct on both the date hereof and on the Closing Date (as though made on and as of the Closing Date):

 

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(a) SCM Trust is a business trust duly organized and validly existing under Massachusetts Law and is duly qualified, licensed or admitted to do business and is in good standing as a foreign association under the Laws of each jurisdiction in which the nature of the business conducted by it makes such qualification, licensing or admission necessary, except in such jurisdictions where the failure to be so qualified, licensed or admitted and in good standing would not, individually or in the aggregate, have a Material Adverse Effect on its properties or assets or the properties or assets of the Acquiring Fund. SCM Trust has full power under its declaration of trust and by-laws to conduct its business as it is now being conducted and to own the properties and assets it now owns for itself and on behalf of the Acquiring Fund. SCM Trust has all necessary approvals from any applicable Governmental or Regulatory Body necessary to carry on its business as such business is now being carried on.

 

(b) The execution, delivery and performance of this Agreement by SCM Trust on behalf of the Acquiring Fund and the consummation of the Fund Transaction contemplated herein have been duly and validly authorized by the SCM Board and the SCM Board has approved the Fund Transaction. No other action on the part of SCM Trust or its shareholders, or the shareholders of the Acquiring Fund, is necessary to authorize the execution, delivery and performance of this Agreement by SCM Trust on behalf of the Acquiring Fund or the consummation of the Fund Transaction contemplated herein. This Agreement has been duly and validly executed and delivered by SCM Trust on behalf of the Acquiring Fund and is a legal, valid and binding obligation of SCM Trust, as it relates to the Acquiring Fund, enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Laws affecting the rights of creditors generally and the exercise of judicial discretion in accordance with general principles of equity).

 

(c) The authorized capital of SCM Trust is an unlimited number of shares of beneficial interest, par value $0.00001. The Acquiring Fund and each class of the Acquiring Fund has been duly established. The Acquiring Fund has no shares of beneficial interest issued and outstanding, and the shares of the Acquiring Fund to be issued and delivered to its Transaction Party pursuant to the terms of this Agreement will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued shares in the Acquiring Fund, and will be fully paid and non-assessable. There are no outstanding options, warrants or other rights of any kind to acquire from SCM Trust any shares of any class or series or equity interests of the Acquiring Fund or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares, nor is SCM Trust committed to issue any share appreciation or similar rights or options, warrants, rights or securities in connection with any series of shares.

 

(d) The Acquiring Fund (i) will elect to be taxed as a regulated investment company, will qualify for the tax treatment afforded regulated investment companies under the Code for its taxable year that includes the Closing Date, and intends to continue to qualify for such treatment for its subsequent taxable years, (ii) will be eligible to compute its federal income tax under Section 852 of the Code for the taxable year that includes the Closing Date, and (iii) will be treated as a separate corporation for federal income tax purposes pursuant to Section 851(g) of the Code for its taxable year that ends on the Closing Date.

 

(e) SCM Trust has no subsidiaries.

 

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(f) Except for consents, approvals, or waivers to be received prior to Closing, the execution, delivery or performance of this Agreement by SCM Trust for itself and on behalf of the Acquiring Fund does not, and the consummation of the Fund Transaction contemplated herein will not: (i) violate or conflict with the terms, conditions or provisions of its agreement and declaration of trust or by-laws, or of any contract, agreement, indenture, instrument, or other undertaking to which it is a party or by which it or the Acquiring Fund is bound, (ii) result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, indenture, instrument, contract, lease or other undertaking to which SCM Trust is a party or by which it or the Acquiring Fund is bound, (iii) result in a breach or violation by SCM Trust or the Acquiring Fund of any terms, conditions, or provisions of any Law or Order, or (iv) require any consent or approval of, filing with or notice to, any Governmental or Regulatory Body.

 

(g) The minute books and other similar records of SCM Trust as made available to SCM Trust prior to the execution of this Agreement contain a true and complete record of all action taken at all meetings and by all written consents in lieu of meetings of the shareholders of SCM Trust and the Acquiring Fund, and at all meetings and by all written consents in lieu of meetings of the SCM Board and committees of the SCM Board.

 

(h) SCM Trust and the Acquiring Fund have maintained, or caused to be maintained on its behalf, all Books and Records required of a registered investment company in compliance with the requirements of Section 31 of the 1940 Act and rules thereunder.

 

(i) There is no Action or Proceeding pending against or, to the best of SCM Trust’s knowledge, threatened against, relating to or affecting, SCM Trust or the Acquiring Fund.

 

(j) No agent, broker, finder or investment or commercial banker, or other Person or firm engaged by or acting on behalf of SCM Trust or the Acquiring Fund in connection with the negotiation, execution or performance of this Agreement or any other agreement contemplated hereby, or the consummation of the Fund Transaction contemplated hereby, is or will be entitled to any broker’s or finder’s or similar fees or other commissions as a result of the consummation of such Fund Transaction.

 

(k) SCM Trust is duly registered as an open-end management investment company under the 1940 Act, and the Acquiring Fund is “diversified” within the meaning of Section 5(b)(1) of the 1940 Act.

 

(l) As of the Closing Date, the current prospectus and statement of additional information of the Acquiring Fund conforms in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the SEC thereunder, and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading.

 

(m) The Proxy Statement/Prospectus to be included in the Registration Statement, and the documents incorporated therein by reference and any amendment or supplement thereto insofar as they relate to SCM Trust and the Acquiring Fund, each comply or will comply in all material respects with the applicable requirements of the 1933 Act and the 1940 Act and the applicable rules and regulations of the SEC thereunder. The Proxy Statement/Prospectus, Registration Statement and the documents incorporated therein by reference and any amendment or supplement thereto, insofar as they relate to SCM Trust and the Acquiring Fund, do not contain

 

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any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not materially misleading; provided, however, that SCM Trust makes no representations or warranties as to the information contained in the Proxy Statement/Prospectus, Registration Statement and the documents incorporated therein by reference and any amendment or supplement thereto in reliance upon and in conformity with information relating to SCM Trust or the Acquired Fund and furnished to SCM Trust thereby specifically for use in connection with the Proxy Statement/Prospectus, Registration Statement and the documents incorporated therein by reference and any amendment or supplement thereto.

 

(n) As of the Closing Date, the investment management agreement between SCM Trust on behalf of the Acquiring Fund and SCM; the distribution agreement, dated June 13, 2011, between SCM Trust and RFS Partners, LP; and the custody agreement dated May 17, 2013 between SCM Trust and US Bank, have been duly authorized, executed and delivered by SCM Trust, are valid and legally binding obligations of SCM Trust and comply in all material respects with the applicable requirements of the 1940 Act.

 

(o) SCM Trust, on behalf of the Acquiring Fund, has adopted a distribution and service plan pursuant to Rule 12b-1 under the 1940 Act and a multiple class plan pursuant to Rule 18f-3 under the 1940 Act. Such plan has been approved by the SCM Board and, to the extent required by law (as interpreted by Commission staff positions), by a majority of the SCM Board’s Independent Trustees and by the Acquiring Fund’s sole initial shareholder.

 

(p) SCM Trust, with respect to the SCM Board and the Acquiring Fund, complies and will comply with the requirements of Section 15(f)(1)(A) of the 1940 Act for a period of at least three years after the Closing Date and Section 15(f) (1)(B) of the 1940 Act for a period of at least two years after the Closing Date.

 

ARTICLE V – COVENANTS AND AGREEMENTS

 

5.1 Conduct of Business. After the date of this Agreement and on or prior to the Closing Date, SCM Trust and SCM Trust will conduct the businesses of the Acquired Fund and the Acquiring Fund, respectively, only in the ordinary course and in accordance with this Agreement and, with respect to the Acquired Fund, the most recent prospectus and statement of additional information of each share class of the Acquired Fund. With respect to the Acquired Fund, it is being understood that such ordinary course of business shall include (a) the declaration and payment of customary dividends and distributions and (b) the continued good faith performance by the investment adviser, administrator, distributor and other service providers of their respective responsibilities in accordance with their agreements with the Acquired Fund and applicable law. In order to facilitate the transfer of Fund Assets on the Closing Date, SCM may limit or cease portfolio trading on behalf of an Acquired Fund for a period of up to three days prior to the Closing Date.

 

5.2 Portfolio Investments. The Acquired Fund has furnished SCM Trust with a schedule of the Acquired Fund’s portfolio investments as of the date of this Agreement. The Acquired Fund may sell any of such investments and will confer with SCM Trust concerning, and keep SCM Trust apprised of, any additional investments made for the Acquired Fund. SCM Trust has furnished SCM Trust with a statement of the Acquiring Fund’s investment objectives, principal strategies and restrictions and will, within a reasonable time prior to the Closing Date, provide SCM Trust with a list of the investments, if any, held by the Acquired Fund that would not be permitted

 

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under applicable Law or its Transaction Party’s investment policies or where the transfer of any investments would result in material operational or administrative difficulties to SCM Trust in connection with facilitating the orderly consummation of the Fund Transaction. SCM Trust will consult with SCM Trust about selling or otherwise disposing of any such investments, or an amount thereof sufficient to avoid violating applicable Law or the Acquiring Fund’s investment policies or to avoid creating material operational or administrative difficulties for SCM Trust regarding the orderly transition of the Acquired Fund’s Fund Assets, prior to the Closing Date.

 

5.3 Shareholders’ Meeting. SCM Trust will call, convene and hold a meeting of shareholders of the Acquired Fund as soon as practicable, in accordance with applicable Law and SCM Trust’s declaration of trust, for the purpose of approving this Agreement and the Fund Transaction contemplated herein, and for such other purposes as may be necessary or desirable, and the SCM Trust Board will recommend a favorable vote thereon.

 

5.4 Proxy Statement/Prospectus and Registration Statement.

 

(a) On behalf of each Fund, SCM Trust intends to prepare the Proxy Statement/Prospectus and Registration Statement and cause the Registration Statement to be filed with the SEC as promptly as practicable after execution of this Agreement. Upon effectiveness of the Registration Statement, the Acquired Fund will cause the Proxy Statement/Prospectus to be delivered to shareholders of the Acquired Fund entitled to vote on this Agreement and the Fund Transaction contemplated herein at least twenty days and no more than ninety days prior to the date of the shareholders meeting called pursuant to Section 5.3.

 

(b) SCM Trust, having filed a post-effective amendment to its registration statement on Form N-1A (“SCM Trust’s N- 1A Registration Statement) with the SEC establishing the Acquiring Fund as series of SCM Trust, shall file any supplements and amendments as may be required. SCM Trust shall use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act and the 1940 Act, and to register the SCM Trust’s shares with such state securities commissions as it may deem appropriate in order to commence operations of the Acquiring Fund on the Closing Date.

 

5.5 Information. SCM Trust and SCM Trust will furnish to one another, and the other’s accountants, legal counsel and other representatives, throughout the period prior to the Closing, all such cooperation, documents and other information concerning the Acquired Fund and the Acquiring Fund, respectively, and their business and properties as may reasonably be requested by the other Party. Such cooperation shall include providing copies of requested documents and other information. Each Party shall make its employees and officers available on a mutually convenient basis to provide explanation of any documents or information provided hereunder to the extent, if any, that such Party’s employees are familiar with such documents or information.

 

5.6 Notice of Material Changes. Each Party will notify the other Parties of any Material Adverse Effect to such Party as soon as practicable following any event causing such an effect.

 

5.7 Financial Statements. At the Closing, SCM Trust will deliver to SCM Trust statements of assets and liabilities of the Acquired Fund, together with schedules of portfolio investments as of the Closing Date. These financial statements will present fairly the financial position and portfolio investments of the Acquired Fund as of the Closing Date in conformity with accounting principles generally accepted in the United States applied on a consistent basis, and there will be no material contingent liabilities of the Acquired Fund not disclosed in said financial statements.

 


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These financial statements shall be certified by the treasurer of SCM Trust as, to the best of his or her knowledge, complying with the requirements of the preceding sentence. Acquired Fund also will deliver to the Acquiring Fund on or before the Closing Date, (i) the detailed tax- basis accounting records for each security or other investment to be transferred to the Acquiring Fund hereunder, which shall be prepared in accordance with the requirements for specific identification tax-lot accounting and clearly reflect the bases used for determination of gain and loss realized on the partial sale of any security to be transferred to the SCM Trust, and (i) a copy of any other tax books and records of the Acquired Fund available and necessary for purposes of preparing any tax returns required to be filed after the Closing Date.

 

5.8 Other Necessary Action. Acquired Fund and SCM Trust will each take all necessary corporate or other action and use its best efforts to complete all filings and obtain all governmental and other consents and approvals required for consummation of the Fund Transaction contemplated by this Agreement.

 

5.9 Dividends. Prior to the Closing Date, the Acquired Fund shall declare and pay a dividend, which, together with all previous dividends, shall have the effect of distributing to its shareholders all of the Acquired Fund’s investment company taxable income (computed without regard to any deduction for dividends paid), if any, plus any excess of its interest income excludible from gross income under Section 103(a) of the Code over its deductions disallowed under Sections 265 and 171(a)(2) of the Code for all taxable periods or years ending on or before the Closing Date, and all of the Acquired Fund’s net capital gain, if any (after reduction for any capital loss carry-forward and computed without regard to any deduction for dividends paid), recognized in all taxable periods or years ending on the Closing Date.

 

5.10 Books and Records. Each Party will make available to the other Parties for review any Books and Records which are reasonably requested by such other Party in connection with this Reorganization.

 

5.11 Section 368(a). SCM Trust and SCM Trust agree to report the Reorganization as a reorganization qualifying under Section 368(a) of the Code, with the Acquiring Fund Transaction Party as the successor to the Acquired Fund Transaction Party. No Party shall take any action or cause any action to be taken (including, without limitation, the filing of any tax return) that results in the failure of a Reorganization to qualify as a reorganization within the meaning of Section 368(a) of the Code or is inconsistent with the treatment of that Reorganization as a reorganization within the meaning of such Code section. At or prior to the Closing Date, the parties to this Agreement will take such reasonable action, or cause such action to be taken, as is reasonably necessary to enable Davis Graham & Stubbs LLP to render the tax opinion contemplated in this Agreement.

 

5.12 Reporting Responsibility. Any reporting responsibility of the Acquired Fund, including, without limitation, the responsibility for filing of regulatory reports, tax returns or other documents with the Commission, any state securities commission, and any federal, state or local tax authorities or any other relevant authority, shall be assumed by and shall become the responsibility of the Acquiring Fund.

 

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ARTICLE VI – CONDITIONS PRECEDENT

 

6.1 Conditions Precedent to Obligations of Acquired Fund. The obligations of the Acquired Fund to conclude the Fund Transaction provided for herein shall be subject, at its election, to the performance by SCM Trust of all of the obligations to be performed by it hereunder on or before the Closing Date and to the condition that the representations and warranties of SCM Trust contained in this Agreement are true and correct as of the Closing Date (as though made on and as of the Closing Date), and, in addition thereto, to the following further conditions:

 

(a) With respect to the Acquired Fund, the transfer of all of the Fund Assets to and the assumption of all of the Liabilities by its Transaction Party shall have been duly approved by the SCM Trust Board and by the requisite affirmative vote of the shareholders of the Acquired Fund.

 

(b) SCM Trust shall have furnished to Acquired Fund the opinion of Davis Graham & Stubbs LLP, in a form reasonably satisfactory to the Acquired Fund, and dated as of the Closing Date, to the effect that:

 

(i) SCM Trust is a validly existing voluntary association with transferable shares of beneficial interest under Massachusetts Law.

 

(ii) SCM Trust has the power to carry on its business as presently conducted in accordance with the description thereof in SCM Trust’s N-1A Registration Statement under the 1933 Act and the 1940 Act.

 

(iii) The Agreement has been duly authorized, executed and delivered by SCM Trust, on behalf of the Acquiring Fund, and constitutes a valid and legally binding obligation of SCM Trust, on behalf of the Acquiring Fund, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

 

(iv) The execution and delivery of the Agreement by SCM Trust, on behalf of the Acquiring Fund, did not, and the issuance of Acquiring Fund shares pursuant to the Agreement will not, violate SCM Trust’s declaration of trust or by-laws.

 

(v) The Acquiring Fund shares to be delivered as provided for by the Agreement are duly authorized and, upon such delivery, will be validly issued and will be fully paid and non-assessable.

 

(vi) To the knowledge of such counsel, and without any independent investigation, (i) the SCM Trust is not subject to any litigation or other proceedings that might have a materially adverse effect on the operations of the Acquiring Fund, (ii) SCM Trust is registered as an investment company with the SEC and is not subject to any stop order, and (iii) all regulatory consents, authorizations, approvals or filings required to be obtained or made by the SCM Trust under the federal laws of the United States or Massachusetts Law for the issuance of Acquiring Fund shares pursuant to the Agreement, have been obtained or made.

 

(vii) As of the date of their mailing, the Proxy Statement/Prospectus and as of the date of its filing, the Registration Statement (other than as each may relate to information about SCM Trust and the Acquired Fund or the financial statements and other financial and statistical

 

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information contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the 1933 Act and the 1940 Act and the applicable rules and regulations of the SEC thereunder.

 

(c) The delivery of such opinion is conditioned upon receipt by Davis Graham & Stubbs LLP of customary representations it shall reasonably request of SCM Trust.

 

(d) SCM Trust shall have furnished to the Acquired Fund a certificate of SCM Trust, signed by the principal executive officer and the principal financial officer of SCM Trust, dated as of the Closing Date, to the effect that such officers have examined the Proxy Statement/Prospectus and the Registration Statement (and any supplement thereto) and this Agreement and that:

 

(i) the representations and warranties of SCM Trust in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and SCM Trust has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing;

 

(ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to SCM Trust’s knowledge, threatened; and

 

(e) Prior to the Closing Date, SCM Trust shall have furnished to SCM Trust such further information, certificates and documents, including certified copies of the minutes of the meetings of the SCM Board, SCM Trust may reasonably request.

 

(f) SCM Trust shall have completed to its satisfaction their due diligence reviews of SCM Trust and the Acquiring Fund.

 

6.2 Conditions Precedent to Obligations of SCM Trust. The obligation of SCM Trust to conclude the Fund Transaction provided for herein shall be subject, at its election, to the performance by Acquired Fund of all of the obligations to be performed by it hereunder on or before the Closing Date and to the condition that the representations and warranties of Acquired Fund contained in this Agreement are true and correct as of the Closing Date (as though made on and as of the Closing Date), and, in addition thereto, to the following further conditions:

 

(a) With respect to the Acquired Fund, the transfer of all of the Fund Assets to and the assumption of all of the Liabilities by its Transaction Party shall have been duly approved by the SCM Trust Board and by the requisite affirmative vote of the shareholders of the Acquired Fund.

 

(b) SCM Trust shall have furnished to SCM Trust the opinion of Davis Graham & Stubbs LLP dated as of the Closing Date, to the effect that:

 

(i) SCM Trust is a validly existing voluntary association with transferable shares of beneficial interest under Massachusetts Law and has full power under its declaration of trust to conduct its business as it is now being conducted and to own the properties and assets it now owns.

 

(ii) To the knowledge of such counsel, and without any independent investigation, SCM Trust is registered as an investment company with the SEC under the 1940 Act as an open-end management investment company, and is not subject to any stop order.

 

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(iii) All issued and outstanding Acquired Fund shares are duly authorized, validly issued, fully paid and non-assessable.

 

(iv) Except as set forth in SCM Trust’s registration statement on Form N-1A, such counsel knows of no material legal proceedings pending or threatened against SCM Trust or the Acquired Fund that might have a materially adverse effect on the operations of the Acquired Fund.

 

(v) This Agreement has been duly authorized, executed and delivered by SCM Trust and, assuming due authorization, execution and delivery by SCM Trust, constitutes a valid and legally binding obligation of SCM Trust, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Laws affecting the rights of creditors generally and the exercise of judicial discretion in accordance with general principles of equity.

 

(vi) As of the date of their mailing, and solely as they relate to information about SCM Trust and the Acquired Fund, the Proxy Statement/Prospectus and as of the date of its filing, the Registration Statement (other than the financial statements and other financial and statistical information contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the 1933 Act and the 1940 Act and the applicable rules and regulations of the SEC thereunder.

 

(vii) The execution and delivery of this Agreement and the consummation of the Fund Transaction herein contemplated do not and will not conflict with or result in a material breach of the terms or provisions of, or constitute a material default under, the declaration of trust of SCM Trust or any material agreement or instrument known to such counsel to which SCM Trust is a party or by which any properties belonging to the Acquired Fund may be bound.

 

(viii) The execution and delivery of this Agreement and the consummation of the Fund Transaction herein contemplated do not and will not conflict with or result in a material breach or violation by SCM Trust or the Acquired Fund of any terms, conditions, or provisions of any federal securities Law or Delaware Law.

 

(ix) To the knowledge of such counsel, no consent, approval, authorization or other action by or filing with any Governmental or Regulatory Body is required in connection with the consummation of the transactions herein contemplated, except such as have been obtained or made under the 1933 Act and the 1940 Act and the applicable rules and regulations of the SEC thereunder and Delaware Law and such as may be required under state securities Laws.

 

(c) In rendering such opinion, Davis Graham & Stubbs LLP, may rely upon certificates of officers of SCM Trust and of public officials as to matters of fact.

 

(d) The Acquired Fund shall have furnished to SCM Trust a certificate of SCM Trust, signed by such Party’s principal executive officer and principal financial officer, dated as of the Closing Date, to the effect that they have examined the Proxy Statement/Prospectus and the Registration Statement (and any supplement thereto) and this Agreement and that:

 

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(i) the representations and warranties of the Acquired Fund (as applicable) in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and Acquired Fund (as applicable) has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing; and

 

(ii) since the date of the most recent financial statements of the Acquired Fund included in the Proxy Statement/Prospectus (or any supplement thereto), there has been no Material Adverse Effect on the business or properties of the Acquired Fund (other than changes in the ordinary course of business, including, without limitation, dividends and distributions in the ordinary course and changes in net asset value per share), except as set forth in or contemplated in the Proxy Statement/Prospectus (or any supplement thereto).

 

(e) SCM Trust shall have duly executed and delivered to SCM Trust, on behalf of the Acquired Fund, such bills of sale, assignments, certificates and other instruments of transfer (“Transfer Documents”) as SCM Trust may reasonably deem necessary or desirable to evidence the transfer to the respective Transaction Party of the Acquired Fund all of the right, title and interest of the Acquired Fund in and to the Fund Assets of such Acquired Fund. In each case, the Fund Assets of the Acquired Fund shall be accompanied by all necessary state stock transfer stamps or cash for the appropriate purchase price therefor.

 

(f) SCM Trust shall have received: (i) a certificate of an authorized signatory of the Custodian, stating that the Fund Assets of the Acquired Fund have been delivered, and (ii) a certificate of an authorized signatory of the transfer agent for SCM Trust, stating that its records contain the names and addresses of the record holders of the Acquired Fund shares and the number and percentage of ownership of the Acquired Fund shares owned by each such holder as of the close of business on the Valuation Time.

 

(g) Prior to the Closing Date, SCM Trust shall have furnished to SCM Trust such further information, certificates and documents, including certified copies of the minutes of the meetings of the SCM Trust Board and shareholders, as SCM Trust may reasonably request.

 

(h) SCM Trust shall have completed to its satisfaction its due diligence review of SCM Trust and the Acquired Fund.

 

(i) SCM Trust’s and the Acquired Fund’s agreements with each of their respective service contractors shall have terminated at the Valuation Time with respect to the Acquired Fund and each Party has received reasonable assurance that no claim for damages (liquidated or otherwise) will arise as a result of such termination.

 

(j) At the Closing Date, except as previously disclosed to SCM Trust in writing, and except as have been corrected as required by applicable Law, and to the best of SCM Trust’s knowledge, there shall have been no material miscalculations of the net asset value of the Acquired Fund or the net asset value per share of any class or series of shares during the twelve-month period preceding the Closing Date, and all such calculations shall have been made in accordance with the applicable provisions of the 1940 Act. At the Closing Date, all liabilities of the Acquired Fund which are required to be reflected in the net asset value per share of each share class of the Acquired Fund in accordance with applicable Law will be reflected in the net asset value per share of such share class of the Acquired Fund.

 

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6.3 Other Conditions Precedent. Unless waived in writing by the Parties with the consent of the respective boards trustees of SCM Trust and SCM Trust, as applicable, all obligations under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions:

 

(a) The Registration Statement shall have become effective under the 1933 Act, and no stop order suspending effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened.

 

(b) SCM Trust’s registration statement, as amended to add the Acquiring Fund as series of SCM Trust, shall have become effective under the 1933 Act and the 1940 Act, and no stop order suspending effectiveness of SCM Trust’s N-1A Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened.

 

(c) All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the SEC and of state “Blue Sky” and securities authorities) deemed necessary by SCM Trust or SCM Trust to permit consummation, in all material respects, of the Fund Transaction contemplated hereby shall have been obtained, except when failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquired Fund or its Transaction Party.

 

(d) SCM Trust shall have received an opinion from Davis Graham & Stubbs LLP (based upon certain facts, qualifications, assumptions and representations) in a form reasonably satisfactory to SCM Trust that with respect to the Reorganization, for federal income tax purposes:

 

(i) the Reorganization will constitute a “reorganization” within the meaning of section 368(a) of the Code, and the Acquiring Fund and the Acquired Fund will each be a “party to a reorganization” within the meaning of section 368(b) of the Code;

 

(ii) the Acquired Fund will recognize no gain or loss (a) upon the transfer of its assets to the Acquiring Fund in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of all the Acquired Fund’s liabilities, and (b) upon the distribution of those shares to the shareholders of the Acquired Fund, except for (A) gain or loss that may be recognized on the transfer of “section 1256 contracts” as defined in Section 1256(b) of the Code, (B) gain that may be recognized on the transfer of stock in a “passive foreign investment company” as defined in Section 1297(a) of the Code, and (C) any other gain or loss that may be required to be recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a non-recognition transaction under the Code;

 

(iii) the Acquiring Fund will recognize no gain or loss upon the receipt of the Fund Assets of the Acquired Fund in exchange for shares of the Acquiring Fund and the assumption of the Liabilities of the Acquired Fund;

 

(iv) the tax basis in the hands of the Acquiring Fund of each Fund Asset transferred by the Acquired Fund to the Acquiring Fund in the Reorganization will be the same as the basis of that Fund Asset in the hands of the Acquired Fund immediately before the transfer, increased by the amount of gain (or decreased by the amount of loss), if any, recognized by the Acquired Fund on the transfer;

 

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(v) the holding period of each Fund Asset of the Acquired Fund in the hands of the Acquiring Fund, other than assets with respect to which gain or loss is required to be recognized, will include the period during which that Fund Asset was held by the Acquired Fund;

 

(vi) the shareholders of the Acquired Fund will recognize no gain or loss upon the exchange of shares of the Acquired Fund for shares of the Acquiring Fund;

 

(vii) the aggregate tax basis of the Acquiring Fund shares received by each shareholder of the Acquired Fund will equal the aggregate tax basis of Acquired Fund shares surrendered in exchange therefor;

 

(viii) the holding periods of the Acquiring Fund shares received by each Acquired Fund shareholder will include the holding periods of the Acquired Fund shares surrendered in exchange therefor, provided that the Acquired Fund shares are held by that shareholder as capital assets on the date of the exchange; and

 

(ix) the Acquiring Fund will succeed to and take into account the tax attributes of the Acquired Fund described in Section 381(c) of the Code.

 

(e) No suit, action or other proceeding against SCM Trust, the Acquired Fund, SCM Trust or the Acquiring Fund or their respective officers or trustees shall be threatened or pending before any court or other Governmental or Regulatory Body in which it will be, or it is, sought to restrain or prohibit the Fund Transaction contemplated by this Agreement or to obtain damages or other relief in connection with this Agreement or the Fund Transaction contemplated hereby.

 

ARTICLE VII – EXPENSES

 

7.1 Expenses Borne by Acquired Fund and the Acquiring Fund. Each of the Acquired Fund and the Acquiring Fund will bear, on a pro rata basis relative to its assets on the Closing Date, all expenses, incurred or charged by, or owed to, the respective service providers in connection with the Reorganization, including, but not limited to, the following

 

(a) all fees, expenses and costs of their respective agents, representatives, outside counsel, accountants, and other service providers;

 

(b) their regulatory filings, tax and other legal opinions, and other related documents;

 

(c) the drafting, reviewing and filing of the Registration Statement, and mailing of the Proxy Statement/Prospectus and related materials to shareholders of the Acquired Fund;

 

(d) conversion programming for the Reorganization incurred by Gemini Fund Services, Inc.; and

 

(e) any other third-party related costs that are mutually agreed upon in writing between the Parties.

 

59

 

 

ARTICLE VIII – AMENDMENTS AND TERMINATION

 

8.1 Amendments. The Parties may amend this Agreement in such manner as may be agreed upon, whether before or after the meeting of the Acquired Fund shareholders at which action upon this Agreement and the Fund Transaction contemplated hereby is to be taken; provided, however, that after the requisite approval of the shareholders of the Acquired Fund has been obtained, this Agreement shall not be amended or modified so as to change the provisions with respect to the Fund Transaction herein contemplated in any manner that would materially and adversely affect the rights of such shareholders without their further approval.

 

8.2 Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement may be terminated at any time prior to the Closing Date:

 

(a) by the mutual consent of the Parties;

 

(b) by SCM Trust (i) upon any material breach by SCM Trust or the Acquiring Fund of any of its representations, warranties or covenants contained in this Agreement, provided that SCM Trust or the Acquired Fund shall have been given a period of 10 Business Days to cure such breach or (ii) if the conditions set forth in in the representations and warranties are not satisfied as specified;

 

(c) by SCM Trust (i) upon any material breach by SCM Trust or the Acquired Fund of any of its representations, warranties or covenants contained in this Agreement, provided that SCM Trust or the Acquired Fund shall have been given a period of 10 Business Days to cure such breach or (ii) if the conditions set forth in the representations are not satisfied as specified in said sections; and

 

(d) by either Party if the Closing does not occur by ________, 2018.

 

8.3 Damages. If for any reason the Fund Transaction contemplated by this Agreement is not consummated, no Party shall be liable to any other Party for any damages resulting therefrom, including without limitation consequential damages.

 

ARTICLE IX – PUBLICITY; CONFIDENTIALITY

 

9.1 Publicity. Any announcements or similar publicity with respect to this Agreement or the Fund Transaction contemplated herein will be made at such time and in such manner as the Parties mutually shall agree, provided that nothing herein shall prevent either Party from making such public announcements as may be required by Law, in which case the Party issuing such statement or communication shall advise the other Party prior to such issuance.

 

9.2 Confidentiality. The Parties will hold, and will cause their board members, officers, employees, representatives, agents and affiliated Persons to hold, in strict confidence, and not disclose to any other Person, and not use in any way except in connection with the Fund Transaction herein contemplated, without the prior written consent of the other Party, all confidential information obtained from the other Party in connection with the Fund Transaction contemplated by this Agreement (including the existence of this Agreement, any of the terms hereof, and the negotiations between the Parties hereto), except such information may be disclosed: (i) to shareholders, if necessary, in connection with any approvals or consents to the Fund Transaction contemplated by this Agreement, to Governmental or Regulatory Bodies, and,

 

60

 

 

where necessary, to any other Person in connection with the obtaining of consents or waivers as contemplated by this Agreement; (ii) if required by court order or decree or applicable Law; (iii) if it is publicly available through no act or failure to act of such Party; (iv) if it was already known to such Party on a non-confidential basis on the date of receipt; (v) during the course of or in connection with any litigation, government investigation, arbitration, or other proceedings based upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the Fund Transaction contemplated hereby to be consummated; or (vi) if it is otherwise expressly provided for herein.

 

In the event of a termination of this Agreement, each Party agrees that it along with their board members, employees, representative agents and affiliated Persons shall, and shall cause its Affiliates to, except with the prior written consent of the other Party, keep secret and retain in strict confidence, and not use for the benefit of itself or themselves, nor disclose to any other Person, any and all confidential or proprietary information relating to the other Party and its related parties and Affiliates, whether obtained through its due diligence investigation, this Agreement or otherwise, except such information may be disclosed: (i) if required by court order or decree or applicable Law; (ii) if it is publicly available through no act or failure to act of such Party; (iii) during the course of or in connection with any litigation, government investigation, arbitration, or other proceedings based upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the Fund Transaction contemplated hereby to be consummated; or (iv) if it is otherwise expressly provided for herein.

 

ARTICLE X – MISCELLANEOUS

 

10.1 Entire Agreement. This Agreement (including the lists, schedules and documents delivered pursuant hereto, which are a part hereof) constitutes the entire agreement of the Parties with respect to the matters covered by this Agreement. This Agreement supersedes any and all prior understandings, written or oral, between the Parties and may be amended, modified, waived, discharged or terminated only by an instrument in writing signed by an authorized executive officer of the Party against which enforcement of the amendment, modification, waiver, discharge or termination is sought.

 

10.2 Notices. All notices or other communications under this Agreement shall be in writing and sufficient if delivered personally, via email, via fax (if confirmed) or sent via registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

If to SCM Trust:
1050 17th Street #1710
Denver, CO 80265
Attn: Stephen Rogers
Telephone No.: (800) 995-9988
Facsimile No.:
E-mail: srogers@sheltoncap.com

 

61

 

 

With copies (which shall not constitute notice) to:

Davis Graham & Stubbs LLP
1550 17th Street, Suite 500
Denver, CO 80202225 Fifth Avenue
Attn: Peter H. Schwartz
Telephone No.: (303) 892-7381
Facsimile No.: (303) 893-1379
E-mail: peter.schwartz@dgslaw.com

 

10.3 Waiver. The failure of any Party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any Party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. A Party may waive any condition to its obligations hereunder (such waiver to be in writing and authorized by an authorized officer of the waiving Party).

 

10.4 Assignment. This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any Party without the written consent of the other Party. Nothing herein, express or implied, is intended to or shall confer any rights, remedies or benefits upon any Person other than the Parties hereto.

 

10.5 Survival. The respective representations, warranties and covenants contained in this Agreement shall not survive the consummation of the Fund Transactions contemplated hereunder; provided that this paragraph 10.5 shall not limit any covenant contained herein that by its terms contemplates performance after Closing, including paragraph 1.5, nor shall it limit any covenants contained in Article VII.

 

10.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

10.7 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

10.8 Governing Law. This Agreement shall be governed by and construed in accordance with Delaware Law, without regard to its principles of conflicts of laws.

 

10.9 Further Assurances. Subject to the terms and conditions herein provided, each of the Parties hereto shall use its best efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such additional documents and instruments and to do, or cause to be done, all things necessary, proper or advisable under the provisions of this Agreement and under applicable Law to consummate and make effective the Fund Transaction contemplated by this Agreement, including, without limitation, delivering and/or causing to be delivered to the other Party hereto each of the items required under this Agreement as a condition to such Party’s obligations hereunder. In addition, SCM Trust shall deliver or cause to be delivered to SCM Trust, the Books and Records of the Acquired Fund (regardless of whose possession they are in).

 

62

 

 

10.10 Beneficiaries. Nothing contained in this Agreement shall be deemed to create rights in Persons not parties hereto (including, without limitation, any shareholder of SCM Trust or SCM Trust).

 

10.11 Validity. Whenever possible, each provision and term of this Agreement shall be interpreted in a manner to be effective and valid, but if any provision or term of this Agreement is held to be prohibited by Law or invalid, then such provision or term shall be ineffective only in the jurisdiction or jurisdictions so holding and only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term or the remaining provisions or terms of this Agreement.

 

10.12 Effect of Facsimile Signature. A facsimile signature of an authorized officer of a Party hereto on any Transfer Document shall have the same effect as if executed in the original by such officer.

 

10.13 SCM Trust Liability: Acquiring Fund. All Persons dealing with SCM Trust or the Acquiring Fund must look solely to the property of SCM Trust or the Acquiring Fund for the enforcement of any claims as none of its trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of SCM Trust. Both Parties specifically acknowledge and agree that any liability of SCM Trust under this Agreement with respect to the Acquiring Fund, or in connection with the Fund Transaction contemplated herein, shall be discharged only out of the assets of the Acquiring Fund and that no other portfolio of SCM Trust shall be liable with respect thereto. A copy of the declaration of trust of SCM Trust is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the SCM Trust by officers of the SCM Trust as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property of the SCM Trust.

 

10.14 SCM Trust Liability: Acquired Fund. All Persons dealing with SCM Trust or the Acquired Fund must look solely to the property of SCM Trust or the Acquired Fund for the enforcement of any claims as none of its trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of SCM Trust. Both Parties specifically acknowledge and agree that any liability of the Acquired Fund, or in connection with the Fund Transaction contemplated herein, shall be discharged only out of the assets of the Acquired Fund and that no other portfolio of SCM Trust shall be liable with respect thereto. Notice is hereby given that this Agreement is executed on behalf of SCM Trust by officers of SCM Trust as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets and property of SCM Trust.

 

ARTICLE XI – DEFINITIONS

 

As used in this Agreement, the following terms have the following meanings:

 

“Action or Proceeding” means any action, suit, proceeding or arbitration by any Person, or any investigation or audit by any Governmental or Regulatory Body.

 

“Affiliate” means, with respect to any Person, any other Person controlling, controlled by or under common control with such first Person.

 

63

 

 

“Books and Records” means SCM Trust’s accounts, books, records or other documents (including but not limited to minute books, stock transfer ledgers, financial statements, tax returns and related work papers and letters from accountants, and other similar records) required to be maintained by SCM Trust or SCM Trust with respect to the Acquired Fund or Acquiring Fund, respectively, pursuant to Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder.

 

“Business Day” means a day other than Saturday, Sunday or a day on which banks located in New York City are authorized or obligated to close.

 

“Fund Assets” means all properties and assets of every kind and description whatsoever, including, without limitation, all cash, cash equivalents, securities, claims (whether absolute or contingent, known or unknown, accrued or unaccrued) and receivables (including dividend and interest receivable) good will and other intangible property, Books and Records, and all interests, rights, privileges and powers, owned by SCM Trust on behalf of the Acquired Fund, and any prepaid expenses shown on the Acquired Fund’s books on the Closing Date.

 

“Governmental or Regulatory Body” means any court, tribunal, arbitrator or any government or political subdivision thereof, whether federal, state, county, local or foreign, or any agency, authority, official or instrumentality of any such government or political subdivision.

 

“Law” means any law, statute, rule, regulation, ordinance and other pronouncement having the effect of law of any Governmental or Regulatory Body.

 

“Liabilities” means all liabilities and obligations of any nature, whether accrued, absolute, contingent, unknown or otherwise of the Acquired Fund including, but not limited to, those reflected on an unaudited statement of assets and liabilities of the Acquired Fund prepared by SCM Trust’s accounting and administration services agent as of the Closing Date in accordance with generally accepted accounting principles consistently applied from the prior audited reporting period and reviewed and approved by the respective treasurers of SCM Trust, and SCM Trust on the Closing Date.

 

“Material Adverse Effect” as to any Person means a material adverse effect on the business, prospects, and results of operations or financial condition of such Person.

 

“1933 Act” means the Securities Act of 1933, as amended.

 

“Order” means any writ, judgment, decree, injunction or similar order of any Government or Regulatory Body, in each case whether preliminary or final.

 

“Person” means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental or Regulatory Body or other entity.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

[SIGNATURE PAGES FOLLOW]

 

64

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered by their duly authorized officers, as of the day and year first above written.

 

 

SCM TRUST
On behalf of its series listed on Exhibit A

 
   

 

 
 

By:

   
 

Name:

Stephen C. Rogers

 
 

Title:

Chairman

 
       
 

SCM TRUST
On behalf of its series listed on Exhibit A

 
       
 

By:

   
 

Name:

Stephen C. Rogers

 
 

Title:

Chairman

 
       
 

CCM Partners, LP
Solely for purposes of paragraphs 4.3, 5.1, and 7.1

 
       
 

By:

   
 

Name:

Stephen C. Rogers

 
 

Title:

Chief Executive Officer

 

 

65

 

 

EXHIBIT A to the Plan of Reorganization

 

Transaction Parties

 

SCM Trust

 

SCM Trust

Greater China Fund

 

Shelton Select International Equity Fund, Institutional Class

 

66

 

 

 

 

 

67

 

 

 

68

 

PART B
STATEMENT OF ADDITIONAL INFORMATION

 

SCM Trust
Shelton International Select Equity Fund
1050 17th Street, Suite 1710
Denver, CO 80265

 

The date of this Statement of Additional Information is June 21, 2018.

 

This Statement of Additional Information (“SAI”) is not a prospectus, but should be read in conjunction with the Combined Proxy Statement and Prospectus dated June 21, 2018 for use in connection with the solicitation of proxies by the Board of Trustees of SCM Trust for use at a Special Meeting of Shareholders of the Shelton Greater China Fund, a series of SCM Trust (“Greater China Fund”), relating to the Reorganization of the Shelton Greater China Fund into the Shelton International Select Equity Fund, a series of SCM Trust (the “International Select Equity Fund”). A copy of the Combined Proxy Statement and Prospectus may be obtained without charge by calling Shelton Capital Management at (800) 955-9988 or writing SCM Trust at 1050 17th Street, Suite 1710, Denver, CO 80265.

 

This SAI relates specifically to the proposed Reorganization of the Greater China Fund with and into the International Select Equity Fund. The SAI consists of this cover page, the pro forma financial information on the following pages and the following described documents, each of which are hereby incorporated by reference.

 

(1) the Prospectus for SCM Trust, dated May 1, 2018, (Accession No. 0001398344-18-006776).

 

(2) the Statement of Additional Information of SCM Trust dated May 8, 2018, (Accession No. 0001398344-18-006776).

 

(3) The Certified Annual Report of SCM Trust for the period ended December 31, 2017 (Accession No. 0001398344-18-003843).

 

69

 

 

PRO FORMA FINANCIAL INFORMATION

 

The accompanying unaudited pro forma financial statements are presented to show the effect of the proposed Reorganization, which involves the Reorganization of the Greater China Fund to be reorganized into the Shelton International Select Equity Fund. The Shelton International Select Equity Fund is a series of the SCM Trust.

 

The unaudited Pro Forma Combined Schedule of Investments and Combined Statement of Assets and Liabilities reflect the financial position of the Greater China Fund and Shelton International Select Equity Fund at December 31, 2017, and assumes that the Reorganization occurred on that date. The unaudited Pro Forma Combined Statement of Operations reflects the results of operations of the Greater China Fund and Shelton International Select Equity Fund for the year ended December 31, 2017 and assumes that the Reorganization occurred at the beginning of the period. The Shelton International Select Equity Fund will be the accounting survivor for financial statement purposes.

 

The unaudited pro forma financial information set forth below is for informational purposes only and does not purport to be indicative of the financial condition that actually would have resulted if the Reorganization had been consummated. The closing of the reorganization of the Greater China Fund is contingent upon certain conditions being satisfied or waived, including that shareholders of the Greater China Fund must approve the Reorganization.

 

These pro forma numbers have been estimated in good faith based on information regarding the Greater China Fund and the Shelton International Select Equity Fund. The unaudited pro forma financial information should be read in conjunction with the historical financial statements of the SCM Trust, which are available in its annual shareholder reports.

 

70

 

 

PRO FORMA COMBINED
PORTFOLIO OF INVESTMENTS - December 31, 2017 (Unaudited)

 

   SHELTON
GREATER CHINA
FUND
   SHELTON
INTERNATIONAL SELECT EQUITY
FUND
   PRO FORMA
ADJUSTMENTS
   SHELTON
INTERNATIONAL
SELECT EQUITY
FUND PRO FORMA
COMBINED
 
Security Description  Shares   Value   Shares   Value   Shares   Value   Shares   Value 
Common Stock (98.08%)                            
                             
Belgium (2.68%)                                
KBC Group NV           17,445    1,489,610            17,445    1,489,610 
Total Belgium                 1,489,610                  1,489,610 
                                         
Brazil (2.28%)                                        
Banco Bradesco SA           123,775    1,267,456            123,775    1,267,456 
Total Brazil                 1,267,456                  1,267,456 
                                         
Britain (5.84%)                                        
ASOS PLC           8,890    807,543            8,890    807,543 
Intertek Group PLC           17,050    1,197,042            17,050    1,197,042 
Unilever NV           21,920    1,234,534            21,920    1,234,534 
Total Britain                 3,239,119                  3,239,119 
                                         
Cayman Islands (0.20%)                                        
CK Asset Holdings Ltd   13,000    113,581                    13,000    113,581 
Total Cayman Islands        113,581                           113,581 
                                         
China (12.29%)                                        
Alibaba Group Holding Ltd   2,500    431,075    7,175    1,237,185            9,675    1,668,260 
ANTA Sports Products Ltd   27,000    122,440                    27,000    122,440 
Bank of China Ltd   431,000    211,715                    431,000    211,715 
China CITIC Bank Corp Ltd   135,000    84,620                    135,000    84,620 
China Communications Services   202,000    135,402                    202,000    135,402 
China Construction Bank Corp   375,000    345,388                    375,000    345,388 
China Longyuan Power Group Corp   152,000    108,109                    152,000    108,109 
China Mengniu Dairy Co Ltd   32,000    95,174                    32,000    95,174 
Chongqing Rural Commercial Bank   191,000    134,870                    191,000    134,870 

 

71

 

 

   SHELTON
GREATER CHINA
FUND
   SHELTON
INTERNATIONAL SELECT EQUITY
FUND
   PRO FORMA
ADJUSTMENTS
   SHELTON
INTERNATIONAL
SELECT EQUITY
FUND PRO FORMA
COMBINED
 
Security Description  Shares   Value   Shares   Value   Shares   Value   Shares   Value 
CNOOC Ltd   56,000    80,376                    56,000    80,376 
Fosun International Ltd   43,368    96,086                    43,368    96,086 
Great Wall Motor Co Ltd   111,000    127,084                    111,000    127,084 
Industrial & Commercial Bank of China   451,000    362,886                    451,000    362,886 
New Oriental Education & Technology Group   1,000    94,000                    1,000    94,000 
PetroChina Co Ltd   200,000    139,434                    200,000    139,434 
Ping An Insurance Group Co of China Ltd   30,000    312,192                    30,000    312,192 
Sinopec Shanghai Petrochemical   186,000    105,881                    186,000    105,881 
Tencent Holdings Ltd   21,700    1,127,013    26,600    1,381,500            48,300    2,508,513 
YY Inc*   800    90,448                    800    90,448 
Total China        4,204,193         2,618,685                  6,822,878 
                                         
Denmark (2.71%)                                        
Ambu A/S           16,800    1,506,483            16,800    1,506,483 
Total Denmark                 1,506,483                  1,506,483 
                                         
France (11.24%)                                        
BNP Paribas SA           18,200    1,360,447            18,200    1,360,447 
L'Oreal SA           6,100    1,354,738            6,100    1,354,738 
Thales SA           11,000    1,187,208            11,000    1,187,208 
TOTAL SA           21,552    1,191,629            21,552    1,191,629 
Valeo SA           15,300    1,144,040            15,300    1,144,040 
Total France                 6,238,062                  6,238,062 
                                         
Germany (7.42%)                                        
adidas AG           4,600    923,284            4,600    923,284 
Beiersdorf AG           9,950    1,169,706            9,950    1,169,706 
Siemens AG           5,925    826,378            5,925    826,378 
Wirecard AG           10,700    1,195,816            10,700    1,195,816 
Total Germany                 4,115,184                  4,115,184 
                                         
Great Britain (0.56%)                                        
HSBC Holdings PLC   30,400    310,910                    30,400    310,910 
Total Great Britain        310,910                           310,910 

 

72

 

 

   SHELTON
GREATER CHINA
FUND
   SHELTON
INTERNATIONAL SELECT EQUITY
FUND
   PRO FORMA
ADJUSTMENTS
   SHELTON
INTERNATIONAL
SELECT EQUITY
FUND PRO FORMA
COMBINED
 
Security Description  Shares   Value   Shares   Value   Shares   Value   Shares   Value 
                                 
Hong Kong (8.51%)                                
AIA Group Ltd   54,600    465,518    187,800    1,601,176            242,400    2,066,694 
BOC Hong Kong Holdings Ltd   70,000    354,598                    70,000    354,598 
China Everbright International   32,000    45,683                    32,000    45,683 
China Everbright Ltd   20,000    44,721                    20,000    44,721 
China Mobile Ltd   20,900    211,879                    20,900    211,879 
China Resources Power Holdings   72,000    134,104                    72,000    134,104 
China State Construction International   202,500    283,391                    202,500    283,391 
China Taiping Insurance Holdings   55,764    209,009                    55,764    209,009 
CK Hutchison Holdings Ltd   13,000    163,138                    13,000    163,138 
Galaxy Entertainment Group Ltd   18,000    144,372                    18,000    144,372 
Haier Electronics Group Co Ltd   75,000    205,314                    75,000    205,314 
Hong Kong Exchanges & Clearing   5,100    156,445                    5,100    156,445 
Hysan Development Co Ltd   31,000    164,373                    31,000    164,373 
Kingboard Chemical Holdings Ltd   29,000    156,736                    29,000    156,736 
Nine Dragons Paper Holdings Ltd   80,000    128,126                    80,000    128,126 
Sun Hung Kai Properties Ltd   15,166    252,983                    15,166    252,983 
Total Hong Kong        3,120,390         1,601,176                  4,721,566 
                                         
Indonesia (3.12%)                                        
Bank Rakyat Indonesia Persero           4,300,150    1,153,679            4,300,150    1,153,679 

 

73

 

 

   SHELTON
GREATER CHINA
FUND
   SHELTON
INTERNATIONAL SELECT EQUITY
FUND
   PRO FORMA
ADJUSTMENTS
   SHELTON
INTERNATIONAL
SELECT EQUITY
FUND PRO FORMA
COMBINED
 
Security Description  Shares   Value   Shares   Value   Shares   Value   Shares   Value 
Telekomunikasi Indonesia Perse           18,010    580,282            18,010    580,282 
Total Indonesia                 1,733,961                  1,733,961 
                                         
Ireland (2.22%)                                        
CRH PLC           34,295    1,233,591            34,295    1,233,591 
Total Ireland                 1,233,591                  1,233,591 
                                         
Japan (16.27%)                                        
CyberAgent Inc           27,900    1,089,747            27,900    1,089,747 
Daikin Industries Ltd           8,800    1,041,704            8,800    1,041,704 
ITOCHU Corp           81,600    1,523,344            81,600    1,523,344 
Komatsu Ltd           40,000    1,448,025            40,000    1,448,025 
Mitsubishi UFJ Financial Group           100,700    738,735            100,700    738,735 
Murata Manufacturing Co Ltd           6,800    912,703            6,800    912,703 
Start Today Co Ltd           37,050    1,126,465            37,050    1,126,465 
Yaskawa Electric Corp           26,000    1,145,939            26,000    1,145,939 
Total Japan                 9,026,662                  9,026,662 
                                         
Luxembourg (2.31%)                                        
ArcelorMittal           39,428    1,283,765            39,428    1,283,765 
Total Luxembourg                 1,283,765                  1,283,765 
                                         
Netherlands (2.34%)                                        
ING Groep NV           70,600    1,299,201            70,600    1,299,201 
Total Netherlands                 1,299,201                  1,299,201 
                                         
Norway (2.17%)                                        
Norsk Hydro ASA           157,800    1,202,887            157,800    1,202,887 
Total Norway                 1,202,887                  1,202,887 
                                         
Singapore (2.40%)                                        
DBS Group Holdings Ltd           71,650    1,332,313            71,650    1,332,313 
Total Singapore                 1,332,313                  1,332,313 
                                         

 

74

 

 

   SHELTON
GREATER CHINA
FUND
   SHELTON
INTERNATIONAL SELECT EQUITY
FUND
   PRO FORMA
ADJUSTMENTS
   SHELTON
INTERNATIONAL
SELECT EQUITY
FUND PRO FORMA
COMBINED
 
Security Description  Shares   Value   Shares   Value   Shares   Value   Shares   Value 
Switzerland (6.65%)                            
dormakaba Holding AG           1,255    1,168,715            1,255    1,168,715 
Givaudan SA           525    1,213,238            525    1,213,238 
Nestle SA           15,200    1,306,744            15,200    1,306,744 
Total Switzerland                 3,688,697                  3,688,697 
                                         
Taiwan (4.19%)                                        
Chunghwa Telecom Co Ltd   36,000    128,232                    36,000    128,232 
Fubon Financial Holding Co Ltd   54,713    93,215                    54,713    93,215 
Largan Precision Co Ltd   1,000    135,087                    1,000    135,087 
Taiwan Semiconductor Manufacturing   68,284    526,612    33,200    1,316,380            101,484    1,842,992 
Uni-President Enterprises Corp   57,374    127,247                    57,374    127,247 
Total Taiwan        1,010,393         1,316,380                  2,326,773 
                                         
Thailand (2.68%)                                        
Bangkok Bank PCL           221,500    1,488,447            221,500    1,488,447 
Total Thailand                 1,488,447                  1,488,447 
                                         
Total Common Stock (Cost $38,509,056)        8,759,467         45,681,679                  54,441,146 
                                         
Total Investments (Cost $38,509,056) (a) (98.08%)        8,759,467         45,681,679                  54,441,146 
Other Net Assets (1.92%)        125,869         926,840         (45,000)(a)        1,007,709 
Net Assets (100.00%)        8,885,336         46,608,519         (45,000)        55,448,855 

 

*

Non-income producing security.

**

All investments of the Greater China Fund as of December 31, 2017 would have complied with the investment guidelines and compliance restrictions of the International Select Equity Fund.

(a)

Reflects pro forma adjustment for reorganization expenses.

 

See accompanying notes to financial statements.

 

75

 

 

PRO FORMA COMBINED
STATEMENTS OF ASSETS AND LIABILITIES - December 31, 2017 (Unaudited)

 

   Shelton
Greater China
Fund
   Shelton
International
Select Equity
Fund
   Pro Forma
Adjustments
   Shelton
International
Select
Equity Fund
Pro Forma
Combined
 
Assets                
Investments in securities                
Cost of investments  $6,033,535   $32,475,521   $   $38,509,056 
Market value of investments (Note 1)   8,759,467    45,681,679        54,441,146 
Cash   162,092    953,811        1,115,903 
Foreign Cash (Cost $-, $1,294)       685        685 
Dividend receivable   4,366    38,062        42,428 
Receivable for fund shares sold   680    1,903        2,583 
Reclaim Receivable       226,578        226,578 
Prepaid expenses       9,152        9,152 
Total assets  $8,926,605   $46,911,870   $   $55,838,475 
                     
Liabilities                    
Payables and other liabilities                    
Fund shares redeemed  $10,860   $249,186   $   $260,046 
Investment advisor   8,600    21,023        29,623 
Distributions payable                
12b-1 fees       2,503        2,503 
Administration fees   650    3,919        4,569 
Printing fees   4,083    1,284        5,367 
Custody fees   6,342    5,032        11,374 
Fund accounting fees   980    2,500        3,480 
Audit fees   4,232    16,000        20,232 
CCO Fees   128    563        691 
Transfer agent fees   2,704    604        3,308 
Trustee Fees   1,771    391        2,162 
Expenses   919    346    45,000(a)   46,265 
Total liabilities  $41,269   $303,351   $45,000   $389,620 
                     
Net assets  $8,885,336   $46,608,519   $   $55,448,855 

 

76

 

 

   Shelton
Greater China
Fund
   Shelton
International
Select Equity
Fund
   Pro Forma
Adjustments
   Shelton
International
Select
Equity Fund
Pro Forma
Combined
 
Net assets consist of                
Paid-in capital  $7,094,302   $93,095,839   $   $100,190,141 
Undistributed net investment income   (109,776)   (1,273)   (45,000)(a)   (156,049)
Accumulated net realized gain (loss)   (825,154)   (59,698,081)       (60,523,235)
Unrealized appreciation (depreciation) of investments   2,725,964    13,212,034        15,937,998 
   $8,885,336   $46,608,519   $(45,000)  $55,448,855 
                     
Net assets                    
Direct Shares  $8,885,336   $   $(8,885,336)(a)  $ 
Institutional Shares       42,823,887    8,840,336    51,664,223 
Investor Shares       3,784,632         3,784,632 
    8,885,336    46,608,519    (45,000)   55,448,855 
Shares outstanding                    
Direct Shares (no par value, unlimited shares authorized)   981,828             
Institutional Shares (no par value, unlimited shares authorized)       2,006,822    (567,646)(b)   2,421,004 
Investor Shares (no par value, unlimited shares authorized)       177,722        177,722 
Net asset value per share                    
Direct Shares  $9.05             
Institutional Shares      $21.34       $21.34 
Investor Shares      $21.30       $21.30 

 

(a)

Reflects pro forma adjustment for reorganization expenses paid by the Fund.

(b)

Reflects adjustment of shares as a result of the reorganization.

 

See accompanying notes to financial statements.

 

77

 

 

PRO FORMA COMBINED
STATEMENTS OF OPERATIONS - For the year ended December 31, 2017 (Unaudited)

 

   Shelton
Greater China
Fund
   Shelton
International
Select Equity
Fund
   Pro Forma
Adjustments
   Shelton
International
Select
Equity Fund
Pro Forma
Combined
 
Investment income                
Interest income  $   $   $   $ 
Dividend income (net of foreign tax withheld: $19,315 and $200,376 respectively)   274,870    922,222        1,197,092 
Total  $274,870   $922,222   $   $1,197,092 
                     
Expenses                    
Management fees  $104,565   $328,252   $(43,380)(a)  $389,437 
Administration fees   7,302    61,713    (16,388)(a)   52,627 
Transfer agent fees   5,212    34,701    (23,825)(a)   16,088 
Accounting services   9,472    29,328    19,854(b)    58,654 
Custodian fees   23,604    15,619    (1,085)(a)   38,138 
Legal and audit fees   46,217    79,417    (76,877)(a)   48,757 
CCO fees   697    8,233    (1,318)(a)   7,612 
Trustees fees   5,951    6,529    (7,480)(a)   5,000 
Insurance   518    3,785    (774)(a)   3,529 
Printing   4,083    25,474    (13,853)(a)   15,704 
Registration and dues   5,173    44,842    (34,753)(a)   15,262 
12b-1 fees Investor Class       10,868        10,868 
12b-1 fees Class K                
Shareholder service fees Class K                
Other expenses   6,474    53,670        60,144 
Merger Costs           45,000(b)    45,000 
Total expenses   219,268    702,431    (154,879)   766,820 
Less reimbursement from manager   (53,237)   (217,805)   78,940(c)    (192,102)
Net expenses   166,031    484,627    (75,939)   574,718 
Net investment income  $108,839   $437,595   $75,939   $622,374 

 

78

 

 

   Shelton
Greater China
Fund
   Shelton
International
Select Equity
Fund
   Pro Forma
Adjustments
   Shelton
International
Select
Equity Fund
Pro Forma
Combined
 
Realized and unrealized gain (loss) on investments                
Net realized gain (loss) from security transactions  $811,633   $5,649,397   $   $6,461,030 
Change in unrealized appreciation (depreciation) of investments   1,507,773    6,162,645        7,670,418 
Net realized and unrealized gain (loss) on investments   2,319,406    11,812,042        14,131,448 
Net increase (decrease) in net assets resulting from operations  $2,428,245   $12,249,638   $75,939   $14,753,822 

 

(a)

Reflects the anticipated savings as a result of the Reorganization.

(b)

Reflects an anticipated expense increase as a result of the Reorganization.

(c)

The adjustment is based on the current expense limitation agreement for the surviving fund.

 

See accompanying notes to financial statements.

 

79

 

 

Notes to Financial Statements

 

Note 1 – Basis of Combination

 

At a meeting of the Board of Trustees (the “Board”) of SCM Trust (the “Trust”) held on February 8, 2018, the Board—including the trustees who are not “interested persons” approved, upon the recommendation of its investment adviser, Shelton Capital Management (“Shelton”), a plan to reorganize the Shelton Greater China Fund (the “Greater China Fund”) into another series, the Shelton International Select Equity Fund (the “International Select Equity Fund”), of SCM Trust, which also is advised by Shelton Capital Management. The Reorganization of the Greater China Fund into the International Select Equity Fund is referred to herein as the “Reorganization.”

 

The Reorganization will be accounted for as a tax-free exchange. The unaudited pro forma statement of investments and assets and liabilities reflect the financial position of the Acquiring Fund and the Fund on December 31, 2017. The unaudited pro forma statement of operations reflects the results of operations of the Acquiring Fund and the Fund for the twelve months ended December 31, 2017. These statements have been derived from the Fund’s and the Acquiring Fund’s respective books and records utilized in calculating daily net asset value at the dates indicated above under accounting principles general accepted in the United States (“GAAP”). The historical cost of the investment securities will be carried forward to the surviving entity and results of operations of the Acquiring Fund for prior periods will not be restated. No significant accounting policies, including investment valuation policies, will change as a result of the Exchange.

 

Note 2 – Significant Accounting Policies

 

(a) Adjustments – Adjustments made to the pro forma financial statements are based on accounting assumptions and reflect expected changes in actual operating expenses of the funds. The actual expenses paid may be higher or lower for individual contracts, but in total, the expenses are expected to be lower for the Acquiring Fund as reflected in the adjustments. However, because of the expense limitation that is in effect, the differences to the operating expenses are not expected to be material to the assets, liabilities or net asset value of the fund shares.

 

(b) Security Valuation – Equity securities listed on a national or international exchange are valued at the last reported sales price. Futures contracts are valued at the settle price, depending on the exchange the contract trades on, typically as of 4:15 p.m., Eastern Time. Securities for which market quotes are not readily available from the Trust’s third-party pricing service are valued at fair value, determined in good faith and in accordance with procedures adopted by the Board of Trustees. The Board has delegated to its Pricing Committee the responsibility for determining the fair value, subject to the Board oversight and the review of the pricing decisions at its quarterly meetings.

 

The Funds utilize various methods to measure the fair value of most of its investments on a recurring basis. U.S. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the company has the ability to access.

 

80

 

 

Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.

 

Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

 

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

 

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

All of the investments in each fund are considered Level 1 at December 31, 2017.

 

All portfolio investments of the Greater China Fund as of December 31, 2017 were eligible investments to be held by the International Select Equity Fund. No realignment of portfolio investments is anticipated to take place before or after the reorganization.

 

(d) Share Valuation – The net asset value (NAV) per share of the Fund is calculated as of the close of trading on the Exchange every day the Exchange is open. The NAV is calculated by deducting from the Fund’s assets, the Fund’s liabilities, and then dividing the resulting net assets by the total number of shares outstanding, rounded to the nearest cent. The purchase price and redemption price per share is equal to the next determined NAV per share.

 

(e) Federal Income Tax – The Acquiring Trust treats the Fund as a separate entity for Federal income tax purposes. The Fund intends to continue to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). By qualifying under the Code, the Fund will not be subject to Federal income taxes to the extent that it distributes substantially all of its taxable or tax-exempt income, if any, for its tax year ending December 31. In addition, by distributing in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, the Fund will not be subject to a Federal excise tax. Therefore, no provision is made by the Fund for Federal income or excise taxes. Withholding taxes on foreign dividends are paid or provided for in according to the applicable country’s tax rules and rates.

 

The Reorganization of the Acquired Fund to the Acquiring Fund is not expected to have any federal income tax consequences for the Acquired Fund or its shareholders. If the Greater China Fund has capital losses that it has carried forward from previous fiscal years at the date of Reorganization,

 

81

 

 

the losses will be carried forward to the International Select Equity Fund to offset future gains. However, the use of these losses may be limited by an annual amount as prescribed in applicable tax regulations.

 

(f) Use of Estimates in Pro Forma Financial Statements – In preparing the pro forma financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the to make estimates and assumptions that affect the amounts reported at the date of the pro forma financials, as well as the reported amounts of income and expenses. Management believes the estimates and security valuations provided in the pro forma financial statements are appropriate; however, actual results may differ from those estimates, and the security valuations reflected in these pro forma may differ from the value the Fund ultimately realizes upon sale of the securities.

 

Note 3 – Investment Management Fee and Other Expenses

 

Shelton Capital Management, a California limited partnership, provides each Fund with management and administrative services pursuant to investment management and administration servicing agreements.

 

All costs associated with the reorganization will be allocated between the Funds based on relative net assets.

 

If the Greater China Fund has remaining cumulative unreimbursed amounts waived at the date of the reorganization, the Advisor may only recapture any remaining unreimbursed amount, subject to approval by the Board of Trustees, up to the date or the reorganization. Any remaining amount will not transfer to the International Select Equity Fund.

 

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