UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-05617

SCM Trust

(Exact name of registrant as specified in charter)

1050 17th Street, Suite 1710

Denver, CO 80265

 (Address of principal executive offices) (Zip code)

Stephen C. Rogers

(Name and address of agent for service)

Registrant’s telephone number, including area code: (800) 955-9988.

Date of fiscal year end: December 31

Date of reporting period: December 31, 2017

---

 

 

 

ANNUAL REPORT

 

---

 

December 31, 2017

 

Shelton Greater China Fund

Shelton BDC Income Fund

Shelton Real Estate Income Fund

Shelton Tactical Credit Fund

Shelton International Select Equity Fund

 

This report is intended only for the information of shareholders or those who have received the offering prospectus covering shares of beneficial interest of The SCM Trust which contains information about the management fee and other costs. Investments in shares of The SCM Trust are neither insured nor guaranteed by the U.S. Government.

 

 

1

 

 

Since 2009, Shelton International Equity team has been investing together using rigorous, bottom-up, fundamental stock selection to seek to deliver attractive risk-adjusted returns for our investors, and we are excited to be taking over as managers of the Shelton Greater China Fund (“The Fund”, sym: SGCFX).

 

Market Overview

 

For the full year of 2017, The Fund delivered strong returns of +34.85%, but trailed the benchmark MSCI Golden Dragon Index return of +43.79%. Overall, it was a very strong year for investors.

 

Among the many developments in the country in 2017, China’s Communist Party held its 19th National Congress meeting in October. President Xi effectively consolidated power after becoming only the fourth “core” leader in modern Chinese history. Many important issues were addressed at this twice-a-decade meeting including various social issues, widespread corruption, foreign access to local markets, and how the country may deal with its high level of indebtedness. Although details were lacking in the public remarks, it does appear that officials will not repeat their pledge to double GDP and per capita income after 2020 as they did for the 10 years starting from 2010. Over the longer-term this will help the country combat its need to hit unrealistically high annual growth targets fueled by excess credit growth. It is this credit growth that prompted both S&P and Moody’s to downgrade the country’s credit rating in 2017.

 

Additional positive developments were President Xi’s desire to open the country up to foreign investors, a continuation of the closure of excess capacity in various industries, and eradicating dangerous speculation in the real estate market. Balancing out these more ‘open-market’ reforms were a continued strong commitment to overseeing some of the overall economy through reforming state-owned enterprises and preventing loss of state assets. Also promised was the “development of a mixed-ownership economy and the cultivation of globally competitive world class firms,” according to officials.

 

In terms of market developments, technology was the standout sector in 2017. Tencent and Alibaba became the sixth and eighth largest companies in the world with total returns in 2017 of 114% and 96% respectively. These two companies together now make up approximately 18% of the MSCI Golden Dragon Index and 75% of the technology sector weighting. Consumer discretionary and healthcare also largely outperformed in 2017. Among the biggest underperforming sectors were telecom, industrials, and energy.

 

The Chinese market continues to evolve. The tightly controlled and closed nature of the internet in China has led to the creation of a few champions without outside interference from either the government or foreign competition. Meanwhile the state-owned enterprises continue to suck value (and capital) out of the market as the government struggles with how to restructure these companies.

 

Overall, despite the many challenges, we are encouraged with the latest reforms announced by the central government and continue to be optimistic about the growth prospects for the Chinese market over the long-term.

 

Performance Review

 

The Shelton Greater China Fund returned +34.85% for the year ending December 31, 2017.

 

The Top Contributors and Detractors

 

 

 

2

 

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. Current performance may be lower or higher than the performance data cited. For more recent performance information, visit our website at www.sheltoncap.com. Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

 

Average Annual Total Returns
for years ended 12/31/17

 

 

---

*

The Fund’s investment objective and investment advisor have changed. See Note 1 of the Notes to Financial Statements for more information about the change in investment objective and see Note 3 of the Notes to Financial Statements for more information about the change in investment advisor. On June 11, 2011, the Fund began investing using its new investment objective, therefore, performance prior to that date is not relevant.

 

3

---

 

 

The Shelton BDC Income Fund (the “Fund”, sym: LOANX/LOAIX) focuses its investments in securities of Business Development Companies (“BDCs”) including common stock, preferred stock, convertible bonds and other debt. Under normal market conditions, at least 80% of the Fund’s net assets will be invested in BDC related securities. The Fund’s investment objective is to provide a high level of income with the potential for capital appreciation.

 

For the one-year period ending December 31, 2017, the Fund’s Investor Class provided a 3.73% total return to shareholders, while the Fund’s Institutional Class provided a 3.94% total return to shareholders. The Fund’s benchmark, the Wells Fargo BDC Index (sym: WFBDC), returned 0.09% for the same period. At period-end, 100% of the Fund’s investments were in U.S. domiciled securities. The breakdown of the portfolio was 82.89% listed BDCs, 0.36% Specialty Finance, 3.77% BDC Preferred and 9.52% cash.

 

BDCs rallied through the first few months of 2017, along with financials in an environment of likely fiscal stimulus and deregulation, and an improved business environment for middle market companies in particular. As the Fed Funds rate rose to 1% in March and then to 1.25% in June, investors began to pull money from BDCs as the yield advantage of BDCs (yielding 8-10%) over Treasuries diminished and the case for further rate hikes strengthened. In the second half of 2017, BDCs went sideways while the broader market, including financials, continued to march upward. This, we believe, is also primarily attributed to rising Treasury yields rendering BDC spreads less competitive.

 

From a fundamental standpoint, credit losses were higher than expected for the year which was troublesome given the strong economic growth the US experienced in 2017. We believe this underlines the importance of assessing BDC management teams and being selective in the space.

 

Looking ahead, despite the recent underperformance of BDCs, Shelton Capital Management is optimistic about specific types of BDC portfolios. Asset price levels have increased the risk/reward attractiveness and we believe the pricing of mid-market assets has significant room to run. In this environment, Shelton Capital Management looks for management teams well placed to generate attractive rates of return through organic investments.

 

There are a few legislative issues which may affect BDCs going forward. First, the impact of lower corporate tax rates should be positive, albeit limited in the BDC space. Because BDCs qualify as regulated investment companies, they are not subject to corporate-level taxes and thus are not directly impacted. However, the companies which BDCs lend to are likely to benefit from lower taxes, which should improve loan to value and credit metrics in BDC loan portfolios.

 

Finally, expectations in the market about the removal of the current Acquired Fund Fees and Expenses (AFFE) disclosure seem to be well-founded. This SEC requirement, passed in January 2007, requires a fund-of-funds’ prospectus to include the operating expenses of the underlying funds and has had the unintended consequence of making BDCs ineligible for indices such as the Russell 2000 and S&P 500. A potential overturn of the rule may be a large technical positive and expand institutional ownership for larger BDCs.

 

We thank you for your investment and the confidence you have placed in the Shelton BDC Income Fund.

 

4

 

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. Current performance may be lower or higher than the performance data cited. For more recent performance information, visit our website at www.sheltoncap.com. Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

 

INSTITUTIONAL SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

INVESTOR SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

 

5

---

 

 

The Shelton Real Estate Income Fund (“The Fund”, sym: RENTX/RENIX) focuses its investments in real estate securities, including securities issued by real estate investment trusts (REITs). Under normal market conditions, at least 80% of its net assets will be invested in income producing real estate common equity, preferred equity and debt securities. The Fund’s investment objective is to provide a high level of income with the potential for capital appreciation.

 

For the one-year period ending December 31, 2017, the Fund’s Investor Class provided a 3.72% total return to shareholders, while the Fund’s Institutional Class provided a 3.98% total return to shareholders. These results lagged the broader REIT market (as defined by the S&P U.S. REIT Index) which produced a total return of 4.3%. During the same time, the bond market (as defined by the Bloomberg/Barclays US Aggregate Bond Index) produced a 7.5% total return. The Fund had near full exposure to the U.S. stock market as of December 31, 2017, with a cash position at year-end of 4.4%.

 

2017 was a year of characterized by volatility within the REIT market, driven early on in our opinion, by increasing risk-on sentiment stoked by fiscal stimulus and tax reform speculation, equity market momentum and exuberance, historically accommodative global central bank monetary policy, and relatively low inflation prospects. By the end of February 2017, the REIT market surged over 4%. However, through the first 10 days of March 2017, the S&P US REIT Index contracted by over 6.5%, erasing all of its year-to-date gains. Subsequently throughout 2017, the REIT market experienced seven additional periods whereby the S&P US REIT Index expanded or contracted by more than 4%. While The Fund also exhibited volatility in 2017, the magnitude relative to the S&P US REIT Index was significantly less, oscillating at a more subdued and generally upward trend. By the end of September 2017, the Fund’s Investor Share Class had returned 3.9%, while our Investor Share Class had returned 4.1%, both in line with the S&P US REIT Index which returned 3.9%. However, starting in October 2017, the Fund began to move into a more defensive position, similar in timing and magnitude to 2016. Throughout October 2017, the Fund raised as much as 8% in cash. In early November, management decided to raise additional cash, taking advantage of robust outperformance by the Fund’s ex-U.S. positions. Because of these decisions, the Fund held almost 14% cash by mid-November. Unfortunately, the broader REIT market staged a significant rally throughout the first two weeks of November 2017, rising by as much as 3.7%. During the same period, the Fund was also exposed to a few preferred REIT equity positions, which suffered disproportionately as interest rates and risk-on sentiment surged through the remainder of 2017. As a result, the Fund underperformed the S&P US REIT index by over 200 basis points during November and December 2017, which was the main culprit of our underperformance in 2017.

 

Moving forward, Shelton Capital Management remains optimistic about REIT valuations. We feel that commercial real estate fundamentals, while decelerating, remain sound. Supply across most sectors and markets remains disciplined, and even those sectors/markets with heightened supply levels, are expecting absorption to increase by mid-year 2018. Economic growth remains steady, extending a 9-year-old bull market, which is also supported by late-cycle fiscal stimulus here in the US, a solid job market and robust consumer sentiment and retail sales. In addition, modern-day REITs continue to provide investors with professional management, institutional asset quality, strong balance sheets and an increasing palette of property sectors to choose from. Investors are no longer constrained to traditional property types, but can now allocate among prisons, farmland/timber, single family homes, infrastructure, movie theaters, data centers and cellular towers. This expanding universe of emerging real estate property types may change the narrative describing real estate cycles, which has been traditionally focused solely on supply/demand. New and evolving real estate sectors have different fundamental demand drivers, which may result in lower correlations and provide an increasing opportunity set from which REIT investors can choose. For example, while Amazon has disrupted retailing channels and negatively impacted the shopping center and mall real estate sectors, emerging beneficiaries from this disruption include industrial real estate, data centers and cell towers. More distribution centers are needed to meet the logistic demands stemming from a growing service sector and e-commerce economy. In addition, given the rapid growth in cloud computing, 5G, and emerging trends in virtual reality and artificial intelligence, demand for data centers and cell towers is surging. Also, advances in medicine and biotechnology are helping to increase demand for outpatient medical facilities, life science campuses and even emergency-care facilities, which can now be found in your local shopping center. Baby Boomers, GenX, Millennials and GenZ are also each impacting real estate fundamentals in different ways. Boomers are living longer, increasing the need for senior housing and assisted living facilities in both rural and urban metros. The Millennial and GenZ cohorts are renting apartments longer and delaying home purchases, either due to affordability constraints or mobility preferences. At the same time, younger empty-nesters are migrating back into cities and renting. Finally, urbanization preferences among the GenX cohort is causing employers to relocate their headquarters into cities, creating more live, work and play communities. This not only helps office and multifamily absorption, but supports retail demand as well. Lastly, aging global demographics continue to drive the search for yield, providing a demand tailwind for both direct real estate.

 

However, risks remain to both fundamentals and sentiment. Volatility may return to equity markets reminding investors to take stock of their own risk tolerance. On balance however, we believe real estate related securities may continue provide a compelling investment opportunity as well as risk mitigating component to an investor’s portfolio as we move through 2018.

 

We thank you for your support and the confidence you have placed in the Shelton Real Estate Income Fund.

 

6

 

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. Current performance may be lower or higher than the performance data cited. For more recent performance information, visit our website at www.sheltoncap.com. Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

 

INSTITUTIONAL SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

INVESTOR SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

 

7

---

 

Shelton Tactical Credit Fund

 

We are pleased to write the third full year shareholder letter for the Shelton Tactical Credit Fund (“the Fund”, sym: DEBTX/DEBIX) which launched in December 2014. The Fund’s investment objective is to seek current income and capital appreciation. We seek to achieve this objective using related credit assets on both the long and short side to generate an attractive rate of return and reduce risk. Portfolio construction is implemented with a relative value framework and looks across the entire balance sheet of a corporation from senior secured liabilities down through subordinated, equity-linked securities. This hedged approach is designed to generate performance that is less reliant on the direction of the overall market than a typical credit-based fund. The Fund has changed its fiscal year end to December 31.

 

Market Review

 

●

High-yield bond prices were higher during April and May as favorable backdrops for rates, stocks, and a light new-issue calendar outweighed resurfacing oil price volatility and a multi-year low for yields. Also supportive for returns across fixed income, the 10 year US Treasury yields reached 2.20%, 40bp below the high in mid-March. Meanwhile, stocks regained record-high levels with a solid 1Q earnings season and expectations for US tax reform supporting valuations.

 

●

High-yield remained strong throughout the summer, staggering briefly in August due to concerns related to tensions with North Korea only to rally into September and October supported by the strong stock market, rallying energy bonds and optimism surrounding the U.S. tax reform plan.

 

●

In November, high-yield bond prices endured a sharp downdraft and eventual recovery amid sector specific based selling and heavy retail withdrawals. High yield finished the year quietly, rallying slightly in the final week of the year.

 

●

In 2017, CCC-rated bonds outperformed higher-rated credits for a second consecutive year in 2017.

 

●

After three years of consecutive declines, primary market activity increased in 2017, with a volume of $322 billion.

 

●

Defaults were down 46% by volume vs 2016.

 

Portfolio Commentary

 

The Fund’s investor class gained 3.34% and the insititutional class gained 3.65% for the fiscal year ending December 31, 2017, versus the Fund’s benchmark, the Barclays U.S. Aggregate Bond Index, which returned 3.54% during this period. For the fiscal year ending April 30, 2017, the Fund’s Investor Class gained 9.36% and the Institutional Class gained 9.56%.

 

Given the strong end of year performance in 2016, our belief was that the risk-reward proposition slowly moved from positive to negative on both the long and short side. Prices had little upside, shorts became too expensive and fundamentals did not justify taking significant positions either way. We compensated for this by positioning the portfolio to capture strong cash flows while avoiding directional bets on general movements in security prices. If volatility were to pick up dramatically at some point, we were ready to tactically adjust positioning if needed while avoiding initial losses and maintaining stable and attractive cash flows.

 

To be clear, 2017 was marked by complacency and listlessness. The key to managing a portfolio of leveraged credits was mitigating losses and owning attractively priced securities over the course of the year. Specifically, avoiding major pitfalls in sectors such as Retail, Telecommunications, and Consumer Products was a key to providing positive performance. While these headwinds persisted, we continued to focus on risk management, owning credits that we know well and not chasing performance for the sake of excess returns. Our belief is managing a consistent portfolio from a long-run perspective is the correct course of action, and we will continue to invest based on this viewpoint. While we believe there has been an overreaction to a certain extent, any large selloff will likely provide us with significant opportunities given positive fundamentals and the overall positive macro backdrop.

 

With this strategy in mind, the Fund owned shorter duration, high coupon bonds with an emphasis on companies with tangible assets and high relative cash flows. The top industry concentrations for the Fund were Industrials, Services, Telecom, and Technology. The Fund continues to avoid Oil, Oil Service, Commodity, Financials, and Real Estate sectors. We were active in the new issue market, incorporating several first-time issuers from the slow post-summer calendar into our core holdings. The relative smoothness of returns was the result of an eye toward more liquid investments and the ability to tactically re-allocate capital subsequent to the March lows.

 

We believe the assumption that all fixed income assets will be hurt with rising rates is a flawed one. We believe the probability of a spike in rates is low, and that a more likely scenario is one in which rates are range-bound and trend higher over a protracted timeframe as we have begun to see. However, should interest rates rise rapidly, we embrace the opportunity to deploy cash tactically as we have multiple times before. The Fund will look to invest in corporations where credit improvement will likely occur regardless of rates, owning shorter duration and less interest rate-sensitive bonds.

 

If rates move higher, we expect to become more active on the short side of the ledger, most likely in investment grade which we find to be attractively priced and an effective hedge against interest rates.

 

In an environment that can change on a dime, we believe portfolio construction that includes active hedging, tactical investing, and relative liquidity will be paramount. Keeping an “ear to the ground” will be as important as ever. The strategy of simply “owning the market” will not work. We believe passive investing will underperform a more active approach. The foundation of portfolio construction in uncertain times must be predicated on capital preservation and one which includes a wide set of investment tools. Delivering attractive risk adjusted returns will necessitate aggressive hedging, tactical re-allocation between asset classes, a laser focus on liquidity and the flexibility to change investment direction quickly. In our view, a strategic approach which marries top-down investing with bottom up asset selection will more effectively deliver returns that are less volatile and less subject to the weekly whims of the markets and central banks.

 

We thank you for your support and the confidence you have placed in the Shelton Tactical Credit Fund.

 

8

 

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. Current performance may be lower or higher than the performance data cited. For more recent performance information, visit our website at www.sheltoncap.com. Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

 

INSTITUTIONAL SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

INVESTOR SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

9

---

 

Shelton International Select Equity Fund

 

Since 2009, the team has been investing together using rigorous, bottom-up, fundamental stock selection to deliver attractive risk-adjusted returns for our investors.

 

For the Shelton International Select Equity Fund (“The Fund”, sym) our investment philosophy is centered around the concept of the competitive corporate life cycle. Our framework establishes a level global playing field from which to assess a company’s ability to create value for shareholders. We recognize that companies evolve over time, and that the risks they face and the opportunities they capitalize on will differ at the various stages of their development. We directly measure this relationship between a company’s competitive opportunities and challenges, its economic performance, and its valuation in the equity market as it travels along the corporate life cycle. And, in doing so, we believe we have established a solid framework from which to generate more consistent excess returns for our investors over time. The Fund has changed its fiscal year end to December 31.

 

Market Overview

 

The twelve-month period ending December 31, 2017 was a strong one for international equity investors, with the benchmark MSCI All Country World Ex-US index rising 27.19%.

 

The general tone for investing in 2017 was set in the first quarter of year. Driven by reflationary expectations, such as rising interest rates, accelerating global Gross Domestic Product (GDP) growth and the prospect of US government stimulus, international equity markets took off in January and never looked back.

 

Perhaps unsurprisingly, politics once again played an important role in 2017. In the US, the inauguration of Donald Trump as President delivered a clear change in direction for US policy and investor sentiment, with the return of a more business-friendly agenda emphasizing reduced regulation, tax reform, and infrastructure investment. Despite his combative style and unpredictable nature, investors cheered his message of smaller government and more growth-oriented policy.

 

But it was not only in the US where an election revealed popular discontent and the desire for change. Europeans went to the polls in France, Germany, Spain, and the Netherlands, and although the results of the elections were less dramatic then that of the US and UK in 2016, the establishment continue to suffer defeats. In France, Marine Le Pen and her National Front Party shocked the country by making it into the second round of elections. In Spain, the Catalan region voted for independence. Even in Germany, where Angela Merkel succeeded in winning her fourth term as Chancellor, her Christian Democratic Union/Christian Social Union (CDU/CSU) party was significantly weakened in the final election results while the right-wing populist Alternative for Deutschland (AfD) party gained ground.

 

Despite all the political noise, corporate earnings growth remained resilient in 2017. Investors around the globe applauded the current paradigm of ‘growth without inflation’. Non-US equity markets delivered strong returns with relatively low volatility as central banks continued to support economic growth with relatively easy monetary conditions. US investor returns further benefited from a weaker USD, which contributed nearly half of the market’s full year returns.

 

Leading the way in 2017 were global emerging markets, propelled higher by accelerating global economic growth, continued low inflation, and a weaker USD. Regionally, Asia Pacific ex Japan was the strongest and most consistent performer throughout the year. Asia Pacific strength was supported by a number of factors, including stronger commodity prices, the ongoing recovery in Asian regional and Chinese economic growth, and Technology shares. Meanwhile, European equities performed well in the first half of the calendar year but then treaded water in the second half, struggling to gain further ground beyond the support of the strengthening Euro. Finally, Japanese equity market performance was quite the opposite, lagging for most of the year before finishing strongly in the fourth quarter.

 

In terms of sectors, strong performance was realized across most economically-sensitive areas of the market, including Materials, Industrials, Consumer Discretionary, and Financials, all of which stand to benefit from improving economic conditions and, in the case of Financials, somewhat higher interest rates. But the most exceptional performance was gained in Technology shares, which delivered returns on average nearly double that of the overall international equity market, on the strength of internet and semiconductor companies. The biggest laggards, on the other hand, were Utilities, Telecoms, and Healthcare. Utilities suffered as a result of their general defensiveness in a rising market and their perceived interest-rate sensitivity as bond proxies. Telecoms, most notably the large integrated incumbent operators across, continued to struggle with increased regulation, stronger new entrant competition, rising content costs and a general lack of pricing power. Lastly, the global Healthcare industry grappled with a lack of new product innovation combined with a more challenging market environment in which US drug price increases are no longer guaranteed, especially not for me-too product or based product-life extensions. Lastly, Energy shares struggled to perform in 2017, but this relatively poor performance masks a strong recovery in the second half of the year.

 

Performance Review

 

The Fund returned +35.30% (Institutional class–no load), +34.94% (Investor class–no load) for the year ending December 31, 2017, strongly outperforming the Fund’s benchmark, the MSCI ACWI ex US Index, which returned +27.19% during this period.

 

Shelton International Selection Equity Fund Top Contributors and Detractors1

 

 

For the preiod of July 18, 2016 - April 30, 2017, the Fund returned +12.22% (Institutional Class-no load), and +12.03% (Investor class-no load).

 

10

 

 

We are happy to report the portfolio outperformed across all major regions, Continental Europe, the UK, Japan, and Asia Pacific ex Japan, in 2017. The top contributors to outperformance were Japan, Asia ex Japan, and Continental Europe, with strong stock selection registered in each region. While in the UK, good stock selection was further assisted by an underweight allocation. Lastly, the Fund contributed positively across both North America and Latin America, but detracted minimally in the Middle East and North Africa (MENA) region.

 

Overall the portfolio delivered broad-based sector outperformance. Financials, most notably across developed and emerging Asia, was the largest positive contributor to returns. But the portfolio also outperformed meaningfully in the Consumer Discretionary, Technology, Healthcare, and Industrials sectors, while adding incrementally in Telecommunications, Utilities, Consumer Staples and Materials. Finally, the portfolio modestly detracted in two of the smallest sector groups, Energy and Real Estate.

 

As always, the Shelton International Select Equity strategy seeks to deliver its excess returns over time through superior stock selection. Amongst the top performers over the course of the year was Yaskawa Electric Corp. Based in Japan, Yaskawa Electric is one of the world’s leading suppliers of servo motors, controllers, drives, and industrial robots. Over the coming decade, as industrial automation, advanced robotics and artificial intelligence transform the factory floor and large segments of the larger industrial economy with increased productivity and improved efficiency, Yaskawa Electric is well-positioned to capture the opportunity. Another top contributor was Start Today, Japan’s leading online fashion retailer. The company, through its Zozotown online platform, has continued to see rapid growth in the number of brands, users, and gross merchandise value. With Start Today still in the early stages of its expansion, there remains considerable scope to drive greater merchandise value and improved profitability with more partners, an expanded product offering, and greater overall scale. Lastly, Chinese internet giant, Tencent, with Wechat mobile chat service and leading online and mobile gaming platform, has continued to expand its reach into new adjacent retail, online, and mobile business areas. We anticipate that one of the largest untapped opportunities for Tencent is a greater monetization of its user base with increased advertising placement and higher ad rates throughout its platform of services. Over time, this additional profit driver has the potential to deliver significant further value for shareholders over the next several years.

 

Although rising modestly in 2017, Ireland’s CRH PLC underperformed the overall portfolio and detracted from performance as changing political priorities delayed much-needed US highway and infrastructure spending legislation. Without a doubt, major investment in our nation’s roads, airports, ports, and other major infrastructure projects are needed, and as one of the world’s largest building materials groups and the leading supplier to US roadbuilding, CRH will likely benefit significantly over time. Additionally, Murata Manufacturing, a leading supplier of passive components to electronic devices, detracted as production costs rose and yields suffered on a newly launched product component. Although the higher costs were disappointing in the short term, the issues appear to have been a temporary setback as yields have already begun to recover. Lastly, UK-based oil major BP PLC lagged the market, along with other Energy companies, as the price of crude languished throughout most of 2017.

 

We thank you for your investment in the Fund and for your continued support of our firm.

 

11

---

 

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. Current performance may be lower or higher than the performance data cited. For more recent performance information, visit our website at www.sheltoncap.com. Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

 

 

INSTITUTIONAL SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

*	Performance inception date is July 18, 2016

 

INVESTOR SHARES

 

Average Annual Total Returns
for years ended 12/31/17

 

 

*	Performance inception date is July 18, 2016

 

 

12

 

The Funds’ advisor, Shelton Capital Management (“Shelton Capital”), believes it is important for you to understand the impact of costs on your investment. All mutual funds have operating expenses. As a shareholder of the Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions, redemption fees, and exchange fees; and (2) ongoing costs, including management fees, distribution fees and other Fund expenses. Operating expenses, which are deducted from the Funds’ gross income, directly reduce the investment return of the Funds. The Funds’ expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2017 to December 31, 2017.

 

Actual Expenses

 

The first line of the tables below provide information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses you have paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

 

Hypothetical Example for Comparison Purposes

 

The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The Funds do not charge any sales charges. There is a redemption fee of 2% for shares of the Greater China Fund purchased that are held for 90 days or less from the date of purchase.

 

Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional cost, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the tables are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

 

More information about the Funds’ expenses can be found in this report. For additional information on operating expenses and other shareholder costs, please refer to the Funds’ prospectus.

 

13

 

 

---

*	Expenses are equal to the Fund’s expense ratio annualized.

 

14

 

Shelton Greater China

 

Shelton BDC Income Fund

 

Shelton Real Estate Income Fund

 

 

15

---

 

Shelton Tactical Credit Fund

 

Shelton International Select Equity Fund

 

 

16

 

 

*	Non-income producing security.

 

(a)	Aggregate cost for federal income tax purpose is $6,386,713

 

At December 31, 2017, unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:

 

 

See accompanying notes to financial statements.

 

17

---

 

 

 

(a)	Aggregate cost for federal income tax purpose is $14,115,112

 

(b)	Level 3 security fair valued under procedures established by the Board of Trustees, represents 0.36% of net assets. The total value of the fair value security is $54,221.

 

*	Non-income producing security.

 

At December 31, 2017, unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:

 

 

See accompanying notes to financial statements.

 

18

 

 

See accompanying notes to financial statements.

 

19

---

 

 

(a)	Aggregate cost for federal income tax purpose is $9,211,851

 

At December 31, 2017, unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:

 

 

 

 

See accompanying notes to financial statements.

 

20

 

 

See accompanying notes to financial statements.

 

21

---

 

 

*	Non-income producing security.

 

(a)	Aggregate cost for federal income tax purpose is $24,721,249

 

At December 31, 2017, unrealized appreciation (depreciation) of securities for federal income tax purposes is as follows:

 

 

 

 

See accompanying notes to financial statements.

 

22