Reg. Nos. 33-30394/ 811-5857
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 12 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 11 [ X ]
(Check appropriate box or boxes.)
CMC Fund Trust
(Exact Name of Registrant as Specified in Charter)
1300 SW Sixth Avenue, PO Box 1350, Portland, Oregon 97207
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (503) 222-3600
John A. Kemp
1300 SW Sixth Avenue, PO Box 1350, Portland, Oregon 97207
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
_____ on _______________ pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on _______________ pursuant to paragraph (a)(1)
__X__ 75 days after filing pursuant to paragraph (a)(2)
_____ on _______________ pursuant to paragraph (a)(2) of Rule 485
If appropriate:
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Please forward copies of communications to:
Robert J. Moorman
Stoel Rives, L.L.P.
900 SW Fifth Avenue
Portland, Oregon 97204
An indefinite number of shares of the Trust are being registered by this
Registration Statement pursuant to Rule 24f-2 under the Investment Company Act
of 1940. A Rule 24f-2 Notice for the year ended October 31, 1996 was filed
December 23, 1996.
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CMC FUND TRUST
CROSS-REFERENCE SHEET
Location in
Part A - INFORMATION REQUIRED IN A PROSPECTUS Prospectus
----------
Item 1. Cover Page.............................. Cover
Item 2. Synopsis................................ "Fund Expenses"
Item 3. Condensed Financial Information......... Not applicable
Item 4. General Description of
Registrant......................... "Features of the
Fund" and
"Description of
the Fund"
Item 5. Management of the Fund.................. "Management of the
Fund" and
"Transfer Agent"
Item 6. Capital Stock and Other
Securities......................... "Voting Rights";
"Taxes"; "Investment
in the Fund";
"Distributions"; and
Cover
Item 7. Purchase of Securities Being
Offered............................ "Investment in the
Fund" and
"Determination of
Net Asset Value"
Item 8. Redemption or Repurchase................ "Redemptions"
Item 9. Legal Proceedings....................... Not applicable
Location in
Statement of
Part B - INFORMATION REQUIRED IN A Additional
STATEMENT OF ADDITIONAL INFORMATION Information
-----------
Item 10. Cover Page............................ Cover
Item 11. Table of Contents..................... "Table of Contents"
Item 12. General Information and
History.......................... Not applicable
Item 13. Investment Objectives and
Policies......................... "Investment
Restrictions" and
"Additional
Information
Regarding Certain
Investments by the
Fund." Additional
information is in
Prospectus under
"Description of the
Fund."
2
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Item 14. Management of the Registrant.......... "Management"
Item 15. Control Persons and Principal
Holders of Securities............ "Management"
Item 16. Investment Advisory and
Other Services................... "Investment Advisory
and Other Fees Paid
to Affiliates" and
"Custodians."
Additional
information is in
Prospectus under
"Transfer Agent."
Item 17. Brokerage Allocation and Other
Practices........................ "Portfolio
Transactions"
Item 18. Capital Stock and Other
Securities....................... All required
information is in
Prospectus under
"Voting Rights."
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.................... "Redemptions and Net
Asset Value."
Additional
information is in
Prospectus under
"Determination of
Net Asset Value" and
"Investment
in the Fund."
Item 20. Tax Status............................ "Taxes." Additional
information is in
Prospectus
under "Taxes."
Item 21. Underwriters.......................... Not applicable
Item 22. Calculation of Performance Data....... "Yield and
Performance."
Additional
information is in
Prospectus under
"Performance
Information."
Item 23. Financial Statements.................. Not applicable
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
item in Part C of this registration statement.
3
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Part A-I
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[GRAPHIC OMITTED]
Columbia
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
1300 S.W. Sixth Avenue
Portland, Oregon 97201
503-222-3600
This Prospectus provides information on CMC Fund Trust (the "Trust"), an
open-end diversified management investment company, and one of its portfolios,
CMC Short Term Bond Fund (the "Fund"). The Fund seeks to provide a high level of
current income consistent with a high degree of principal stability by investing
primarily in high quality, short-term fixed income securities. The Fund will
pursue this objective primarily through investment in high quality, short-term
fixed income securities.
The Fund enables clients of Columbia Management Co. ("CMC" or "Adviser") to
invest in a diversified portfolio of fixed income securities rather than having
to purchase individual securities for their accounts.
This Prospectus concisely sets forth information about the Fund that
clients should know before investing and should be retained for future
reference. A Statement of Additional Information about the Fund, dated
_________________, has been filed with the Securities and Exchange Commission
("SEC") and is available without charge upon request to the Trust. The Statement
of Additional Information is legally a part of (incorporated by reference into)
this Prospectus.
THE FUND CHARGES NO SALES LOAD. SHARES OF THE FUND ARE SOLD AND REDEEMED AT
THEIR NET ASSET VALUE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
__________________, 1997
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TABLE OF CONTENTS
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Fund Expenses..................................................................2
Features of the Fund...........................................................3
Description of the Fund........................................................3
Investment in the Fund.........................................................5
Redemptions....................................................................6
Determination of Net Asset Value...............................................6
Distributions..................................................................6
Performance Information........................................................7
Voting Rights..................................................................8
Taxes..........................................................................8
Management of the Fund.........................................................9
Transfer Agent................................................................10
Additional Information........................................................10
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FUND EXPENSES
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The following table sets forth all shareholder expenses and estimated
annual operating expenses of the Fund. The Fund is new, so "Annual Fund
Operating Expenses" are based on estimates for the current fiscal year of the
Fund. In the future, the amount of expenses will depend on the annual average
net assets of the Fund and other factors. "Other Operating Expenses" include
estimates of such expenses as audit, transfer agent, custodian, legal fees, and
other business operating expenses. The purpose of this table is to assist you in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly. See "Management of the Fund."
Shareholder Transaction Expenses None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management Fees .25%(1)
12b-1 Fees None
Other Operating Expenses .21%
Total Fund Operating Expenses .46%
(1)Each shareholder also enters into a written Administrative Services Agreement
with the Adviser and agrees to pay an annual shareholder administrative services
fee calculated as a specified percentage of the shareholder's average net assets
in the Fund. This annual shareholder administrative services fee may range from
.00 to .20%.
EXAMPLE OF EXPENSES
The following example illustrates the expenses you would pay on a
$1,000 investment over the periods shown assuming (1) a 5% annual rate of return
and (2) redemption at the end of each period.
1 Year 3 Years
------ -------
$4.70 $14.76
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This above table should not be considered a representation of past or future
performance. The 5% rate of return used in the example is required by the SEC
for comparison purposes; actual expenses and performance may be greater or less
than those shown.
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FEATURES OF THE FUND
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The Trust enables clients of CMC to invest as a group in fixed income
securities rather than purchasing such securities on an individual basis.
Although there are risks which cannot be eliminated in owning securities,
management believes the Fund offers many advantages to CMC's clients that would
not normally be available if similar securities were purchased on an individual
basis. Among those advantages are economies of scale, diversification, and
convenience.
The Fund is a portfolio of the Trust, an open-end diversified management
company established as an Oregon business trust under a Restated Declaration of
Trust dated October 13, 1993, as amended ("Declaration of Trust"). The Trust has
established three other portfolios, CMC Small Cap Fund, CMC International Stock
Fund and CMC High Yield Fund. The Trust is not required under its Declaration of
Trust to hold annual shareholder meetings, but special meetings may be called
for purposes such as electing or removing Trustees, changing fundamental
investment policies, or approving an investment advisory contract.
The Fund is a "no-load fund," which means investors pay no sales load and
do not incur any additional expenses beyond those paid directly by the Fund or
by the shareholders under the Administrative Services Agreement. See "Fund
Expenses" and "Investment in the Fund."
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DESCRIPTION OF THE FUND
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Investment Objective and Policies. The Fund's investment objective is to
provide shareholders with a high level of current income consistent with a high
degree of principal stability by investing primarily in high quality, short-term
fixed income securities. To achieve this objective, the Fund may invest in fixed
income securities consisting of corporate debt securities (including bonds,
debentures, and notes), asset-backed securities, bank obligations,
collateralized bonds, loan and mortgage obligations, commercial paper, preferred
stocks, repurchase agreements, savings and loan obligations, and U.S. Government
and agency obligations. Debt securities and preferred stocks may be convertible
into, or exchangeable for, common stock, and may have warrants attached.
The Fund's average portfolio duration may not exceed 3 years. The Fund's
investment objective may not be changed without a vote of a majority of the
outstanding voting securities of the Fund. There is no assurance that the Fund
will achieve its investment objective.
The Fund expects to invest a major portion (normally at least 95%) of its
assets in investment-grade debt securities. "Investment grade" debt securities
are considered to be those which at the time of the investment are: (a) rated
Baa or higher by Moody's Investor Services, Inc. ("Moody's"), (b) rated BBB or
higher by Standard & Poor's Corporation ("S&P"); or (c) unrated, but believed by
the Adviser to be equivalent to securities with those ratings. Although bonds
rated Baa or BBB are believed to have adequate capacity to pay principal and
interest, they have speculative characteristics because they lack certain
protective elements. In addition, the prices of bonds rated Baa or BBB may be
more sensitive to adverse economic changes or individual corporate developments
than bonds with higher investment ratings. The Fund will evaluate the
appropriateness, in light of the then existing circumstances, of retaining any
security whose credit rating drops below Baa or BBB after its purchase by the
Fund. Up to 5% of the Fund's assets may be invested in lower grade securities
(rated Ba or B by
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Moody's or BB or B by S&P) when the Adviser believes these securities present
attractive investment opportunities despite their speculative characteristics.
For information on the risk of lower-rated securities and additional rating
information, please see "Additional Information - Bond Ratings."
A portion of the Fund's portfolio will ordinarily be invested in
obligations issued by the U.S. Government and its agencies and instrumentalities
(such as Federal Home Loan Mortgage Corp., the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Housing
Administration) and in short-term corporate obligations. The Fund may also
invest in repurchase agreements, which are described under "Additional
Information."
The Fund will usually invest some portion of its assets in collateralized
mortgage obligations ("CMOs") issued by a U.S. agency or instrumentality or in
privately issued CMOs that carry an investment-grade rating. The holder of a CMO
is entitled to interest and/or principal payments that are fully collateralized
by a portfolio or pool of mortgages or mortgage-backed securities. CMOs are
generally issued in different classes, with different priorities as to the
receipt of interest and/or principal payments on the underlying mortgages. In
addition to the interest rate risk associated with all fixed income securities,
mortgage-related securities and CMOs are also subject to risks relating to cash
flow uncertainty; that is, the risk that assumed prepayment rates on the
underlying mortgages will increase or decrease. Changes in assumed prepayment
rates have the effect of shortening or lengthening the effective maturity of the
CMO held by the Fund, which may have an adverse effect on the value of the CMO.
The Fund will invest only in those CMOs whose characteristics and terms are
consistent with the average maturity and market risk profile of the other fixed
income securities held by the Fund.
Securities will be selected on the basis of the Adviser's assessment of
interest rate trends and the liquidity of various instruments under prevailing
market conditions. Shifting the average maturity of the portfolio in response to
anticipated changes in interest rates will generally be carried out through the
sale of securities and the purchase of different securities within the desired
maturity range. This may result in a greater level of realized capital gains and
losses than if the Fund held all securities to maturity. Portfolio decisions
will be made solely on the basis of investment, rather than tax ,
considerations.
Risk Considerations. All fixed income securities are subject to two types
of risk: credit risk and interest rate risk. The credit risk relates to the
ability of the issuer to pay interest and principal payments when due. The
ratings of fixed income securities by Moody's and S&P are a generally accepted
barometer of credit risk. Although the Fund intends to invest at least 95% of
its assets in investment-grade debt securities (ranked Baa or higher by Moody's,
BBB or higher by S&P, or unrated, but believed by the Adviser to be equivalent
to securities with those ratings), the Fund may invest up to 5% of its assets in
lower grade securities (rated Ba or B by Moody's or BB or B by S&P), commonly
referred to as "junk bonds". See "Additional Information--Bond Ratings."
Interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed income securities resulting solely from the inverse
relationship between the price and interest rates of fixed income securities;
that is, when interest rates rise, the prices of fixed income securities
generally fall and, conversely, when interest rates fall, the price of fixed
income securities generally rise. The change in net asset value depends upon
several factors, including the fixed income securities' maturity date. In
general, fixed income securities with long maturities are more sensitive to
interest rate changes than fixed income securities with shorter maturities.
Therefore, the net asset value of the Fund will fluctuate with changes in
interest rates, although this fluctuation should be more moderate than if the
Fund held fixed income securities with a average portfolio duration in excess
of 3 years. The Adviser, however, will attempt to reduce principal fluctuation
through, among other things, diversification, credit analysis, security
selection, and adjustment of the Fund's average portfolio duration. In periods
of rising interest rates and falling fixed income securities prices, the Adviser
may shorten the Fund's average portfolio duration to reduce the impact of a
decline in the value of fixed income securities in the Fund's portfolio.
Conversely, during times of falling rates and rising prices, a longer average
portfolio duration of up to 3 years may be sought.
4
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The Fund generally will not trade in securities for short-term profits but,
when circumstances warrant, it may purchase and sell securities without regard
to the length of time held. A high portfolio turnover may increase transaction
costs and may affect taxes paid by shareholders to the extent short-term gains
are distributed. See "Taxes" in this Prospectus and "Taxes" and "Portfolio
Transactions" in the Statement of Additional Information. The Fund does not
expect its annual portfolio turnover rate to exceed 100%.
Investment Restrictions. See "Additional Information" for information on
the purchase by the Fund of repurchase agreements, foreign securities, loan
transactions, and temporary investments. A description of other investment
restrictions and certain additional investment practices of the Fund is included
in the Statement of Additional Information.
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INVESTMENT IN THE FUND
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Investments in the Fund are made directly by institutional clients of CMC.
Each investor enters into an Administrative Services Agreement (an "Agreement")
with CMC under which CMC agrees to provide certain shareholder services,
including attendance at client meetings, preparation of a variety of client or
shareholder reports, and performance of other administrative tasks. Each
investor pays a fee under the Agreement that is expressed as a percentage of
assets it has invested in the Fund. This fee is in addition to any fees that CMC
or any CMC affiliate may receive for services rendered to the Fund. See "Fund
Expenses." If CMC is deemed to be a fiduciary with respect to a shareholder of
the Fund under the Employee Retirement Income Security Act of 1974, certain
conditions and fiduciary approvals must be satisfied before assets may be
invested in the Fund by CMC on behalf of a client. See "Investment Advisory and
Other Fees Paid to Affiliates" in the Statement of Additional Information.
The shares of the Fund are purchased and redeemed at the net asset value
next determined after an order is received by the Fund. Net asset value of the
Fund is determined as of the close of regular trading (normally 4:00 p.m. New
York time) on each day the New York Stock Exchange ("NYSE") is open for
business. See "Determination of Net Asset Value."
Orders received by the Fund are processed the day they are received. Orders
received before the close of regular trading on each day the NYSE is open for
business will be entered at the net asset value per share calculated that day.
Orders received after the close of regular trading on each day the NYSE is open
for business will be entered at the net asset value next determined. All
investments are credited to the shareholder's account in full and fractional
shares computed to the third decimal place. Although the Fund has no policy with
respect to initial or subsequent minimum investments, purchase orders may be
refused at the discretion of the Fund.
The transfer agent for the Fund may, at its discretion, permit investors to
purchase shares through the exchange of securities they hold. Any securities
exchanged must meet the investment objective, policies, and limitations of the
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. The market value of any securities
exchanged, plus any cash, must be at least $100,000. Shares purchased in
exchange for securities generally may not be redeemed or exchanged until the
transfer has settled -- usually within 15 days following the purchase by
exchange.
The basis of the exchange will depend upon the relative net asset value of
the shares purchased and securities exchanged. Securities accepted by the Fund
will be valued in the same manner as the Fund values its assets. Any interest
earned on securities following their delivery to the transfer agent and prior to
the exchange will be considered in valuing the securities. All interest,
dividends, subscription, or other rights attached to the securities become the
property of the Fund, along with the securities. Before engaging in an exchange,
investors should consult their tax advisers concerning the tax consequences to
them of the exchange.
Shareholder inquiries, including requests for certificated shares, may be
made by writing to CMC or the Fund at 1300 SW Sixth Avenue, Portland, Oregon
97207 or by calling (503) 222-3600.
5
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REDEMPTIONS
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Redemptions of all or any portion of a shareholder's investment can be made
at any time. Redemptions of shares are at the net asset value next computed
after receipt of a redemption order. See "Determination of Net Asset Value."
Payment will be made within seven days of the date of redemption except as
provided by the rules of the SEC.
If certificates for shares of the Fund have been issued to a shareholder,
they must be returned to the Fund, properly endorsed, before any redemption
request may be processed. Redemption proceeds are normally transmitted in the
manner specified in the redemption request on the business day following the
effective date of the redemption. Although a shareholder may redeem shares that
were recently purchased by check, the Fund may hold the redemption proceeds
until payment for the purchase of such shares has cleared, which may take up to
15 days from the date of purchase. No interest is paid on the redemption
proceeds after the redemption date and before the proceeds are transmitted. This
holding period does not apply to the redemption of shares recently purchased by
bank wire or with a cashier's or certified check.
The Trust reserves the right to redeem Fund shares in cash or in kind. The
Trust has elected, however, to be governed by Rule 18f-1 under the Investment
Company Act of 1940 (the "1940 Act"), pursuant to which the Fund is obligated to
redeem, during any 90-day period, shares of a shareholder solely for cash up to
the lesser of $250,000 or 1 percent of the net asset value of the Fund. A
shareholder whose shares are redeemed in kind may incur brokerage fees upon the
sale of any securities distributed upon redemption.
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DETERMINATION OF NET ASSET VALUE
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The net asset value per share of the Fund is determined by CMC, under
procedures approved by the Trustees of the Trust, as of the close of regular
trading (normally 4 p.m. New York time) on each day the NYSE is open for
business and at other times determined by the Trustees. The net asset value per
share is computed by dividing the value of all assets of the Fund, less its
liabilities, by the number of shares outstanding.
Securities will be valued according to the market value obtained in a
consistent manner from the broadest and most representative markets. These
market quotations, depending on local convention or regulation, may be last sale
price, last bid or asked price, or the mean between last bid and asked prices as
of, in each case, the close of the applicable exchange. Securities for which
market quotations are not readily available and other assets will be valued at
fair value as determined in good faith under procedures established by and under
the general supervision of the Trustees. These procedures may include valuing
portfolio securities by reference to other securities with comparable ratings,
interest rates, and maturities and using pricing services, in each case only
when these procedures result in prices that are believed to reflect fair market
value. Fair value for debt securities with remaining maturities of less than 60
days is based on cost adjusted for amortization of discount or premium and
accrued interest (unless the Trustees believe unusual circumstances indicate
another method of determining fair value should be considered).
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DISTRIBUTIONS
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Income dividends, consisting of net investment income, are declared daily
and paid monthly by the Fund. All income dividends paid by the Fund will be
reinvested in additional shares of the Fund at the net asset value on the
dividend payment date unless the account has elected to receive the dividends in
cash.
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If all of your shares in the Fund are redeemed, the undistributed dividends
on the redeemed shares will be paid at that time. The Fund will generally
distribute substantially all of its net realized capital gains to shareholders
once a year, usually in December. The amount distributed, if any, will depend on
the amount of capital gains realized from the sale of the Fund's portfolio
securities. Capital gain distributions are declared and paid as cash dividends
and reinvested in additional shares at the net asset value, at the close of
business on the record date, less the amount of the distribution.
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PERFORMANCE INFORMATION
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The Fund will from time to time advertise or quote its current yield, which
represents the annualization of the Fund's net investment income over a recent
30-day period divided by the Fund's net asset value at the end of that period.
The Fund will also periodically provide average annual total return and total
return information. This information is historical data and is not intended to
indicate future performance. The return and principal value of your investment
will fluctuate, so that your shares when redeemed may be worth more or less than
their original cost. "Total return" refers to the change in value of an
investment in a Fund over a stated period, assuming the reinvestment of any
dividends and capital gains. "Average annual total return" is a hypothetical
rate of return that, if achieved annually, would have produced the same total
return if performance had been constant over the entire period. Average annual
total returns smooth out the variations in performance but are not the same as
actual annual results. For additional information on yield and total return
calculations for the Fund, see the Statement of Additional Information.
The Fund may compare its performance to other mutual funds with similar
investment objectives and to the mutual fund industry as a whole, as quoted by
ranking services and publications of general interest. Examples of these
services or publications include Lipper Analytical Services, Inc., Barron's,
Business Week, Changing Times, The Financial Times, Financial World, Forbes,
Investor's Daily, Money, Morningstar Mutual Funds, Personal Investor, The
Economist, The Wall Street Journal, and USA Today. These ranking services and
publications may rank the performance of the Fund against all other funds over
specified periods and against funds in specified categories.
The Fund may also compare its performance to that of a recognized unmanaged
index of investment results, including the S&P 500, Dow Jones Industrial
Average, Russell 2000, and Nasdaq stock indices and the Lehman Brothers and
Salomon bond indices. Unmanaged indices may assume the reinvestment of
dividends, but generally do not reflect deductions for administrative and
management costs and expenses. The comparative material found in advertisements,
sales literature, or in reports to shareholders may contain past or present
performance ratings. This is not to be considered representative or indicative
of future results or future performance. Performance information on the Fund
does not guarantee future results. Share prices and return will fluctuate, and
you may have a gain or loss when you sell your shares.
The Fund may also compare its performance to other income-producing
securities such as (i) money market funds; (ii) various bank products (based on
average rates of bank and thrift institution certificates of deposit, money
market deposit accounts, and NOW accounts as reported by the Bank Rate Monitor
and other financial reporting services, including newspapers); and (iii) U.S.
treasury bills or notes. There are differences between these income-producing
alternatives and the Fund other than their yields, some of which are summarized
below.
The yield of the Fund is not fixed and will fluctuate. In addition, your
investment is not insured and its yield is not guaranteed. Although the yields
of bank money market deposit accounts and NOW accounts will fluctuate, principal
will not fluctuate and is insured by the Federal Deposit Insurance Corporation
up to $100,000. Bank passbook savings accounts normally offer a fixed rate of
interest, and their principal and interest are also guaranteed and insured. Bank
certificates of deposit offer fixed or variable rates for a set term. Principal
7
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and fixed rates are guaranteed and insured. There is no fluctuation in principal
value. Withdrawal of these deposits prior to maturity will normally be subject
to a penalty.
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VOTING RIGHTS
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The Trust may establish separate series of investment portfolios under its
Declaration of Trust. The Fund, CMC Small Cap Fund, CMC International Stock
Fund, and CMC High Yield Fund are the only series established under the Trust.
Shares of each series vote together, except as provided in the Trust's
Declaration of Trust and under applicable law. It is expected that shares of a
series would vote separately by series on any changes in fundamental investment
policies relating to that series. All shares of each series of the Trust,
including the Fund, have equal rights as to voting, redemption, and
distribution. All issued and outstanding shares of the Fund are fully paid and
nonassessable. Shares have no preemptive or conversion rights. Fractional shares
have the same rights proportionately as full shares. The shares of the Fund do
not have cumulative voting rights. As a result, holders of a plurality of the
outstanding voting securities of the Trust voting for the election of Trustees
can elect all the Trustees if they choose to do so. In certain circumstances,
Trustees may be removed by action of the Trustees or the shareholders.
Under the provisions of the 1940 Act, and as used elsewhere in this
Prospectus, the phrase "vote of a majority of the outstanding voting securities
of the Fund" means the vote at any meeting of shareholders of the Fund of (i) 67
percent or more of the shares present or represented by proxy at the meeting, if
the holders of more than 50 percent of the outstanding shares are present or
represented by proxy, or (ii) more than 50 percent of the outstanding shares,
whichever is less.
Annual meetings of shareholders will not be held except as required by the
1940 Act and other applicable law. A special meeting will be held to vote on the
removal of a Trustee or Trustees of the Trust if requested in writing by the
holders of not less than 10% of the outstanding shares of the Trust.
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TAXES
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The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
qualifying and by meeting certain other requirements, the Fund will not be
subject to federal income taxes to the extent it distributes to its shareholders
its net investment income and realized capital gains. The Fund intends to make
sufficient distributions to relieve itself from liability for federal income
taxes.
Shareholders that are subject to federal income taxes will recognize
ordinary income on distributions of net investment income or of any excess of
net short-term capital gain over net long-term capital loss. Distributions
properly designated as representing the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder held shares of
the Fund.
The tax character of dividends and other distributions from the Fund is the
same whether they are paid in cash or reinvested in additional shares of the
Fund. Dividends declared in October, November, or December to shareholders of
record as of a date in one of those months and paid in the following January
will be reportable as if received by the shareholders on December 31. Thus, the
shareholders may be taxed on these dividends in the taxable year prior to the
year of actual receipt.
8
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A distribution may be taxable to a shareholder even if the distribution
reduces the net asset value of the shares held below their cost (and is in an
economic sense a return of the shareholder's capital). This tax result is most
likely when shares are purchased shortly before an annual distribution of
capital gains or other earnings.
The Fund will mail to its shareholders annually a summary of the federal
income tax status of the Fund's distributions for the preceding year. Additional
information regarding certain income tax consequences of investments in the Fund
is set forth in the Statement of Additional Information.
This "Taxes" section is only a brief summary of the major tax
considerations affecting the Fund and its shareholders and is not a complete or
detailed explanation of tax matters. In addition to federal taxes, shareholders
of the Fund may be subject to state and local taxes. Accordingly, investors are
urged to consult their tax advisers concerning the tax consequences to them of
investing in the Fund.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund is managed under the general supervision of the Trustees of the
Trust. The Trust has contracted with CMC to provide investment advisory services
to the Fund and the other series of the Trust, CMC Small Cap Fund, CMC
International Stock Fund, and CMC High Yield Fund. CMC has acted as an
investment adviser since 1969 and acts as investment manager for approximately
$14 billion of assets of other institutions. CMC is owned by its employees,
including J. Jerry Inskeep, Jr. and James F. Rippey, who are principal
shareholders of CMC and Trustees and officers of the Trust. The address of CMC
is 1300 S.W. Sixth Avenue, P.O. Box 1350, Portland, Oregon 97207-1350.
Under the investment advisory contract with the Trust, CMC provides
research, advice, and supervision with respect to investment matters, and
determines which securities are purchased or sold. In addition, CMC provides
office space and pays all executive salaries and expenses and ordinary office
expenses of the Fund. Certain employees of CMC are also officers of the Trust
and, subject to the authority of the Trustees of the Trust, are responsible for
the overall management of the Trust. CMC will pay all of the organizational
expenses of the Fund.
The Adviser uses an investment team approach to analyze investment themes
and strategies for the Fund. Thomas L. Thomsen, a Senior Vice President and
director of CMC, is the Managing Director-Investments of the Investment Team.
With over 27 years of experience in the investment management industry, Mr.
Thomsen supervises the Investment Team in establishing broad investment
strategies and determining portfolio guidelines for the Fund.
Members of the Investment Team are responsible for the analysis of
particular industries or types of fixed income securities and for
recommendations on individual securities within those industries or asset
categories. Investment decisions are made by the Investment Team and Leonard A.
Aplet, Vice President of the Adviser and a Chartered Financial Analyst who is
responsible for investment decisions on behalf of the Fund. Mr. Aplet received a
Masters of Business Administration from the University of California at Berkeley
prior to joining the Investment Team in 1987.
Members of the Investment Team and other personnel of the Trust or CMC are
permitted to trade securities for their own or family accounts, subject to the
rules of the Code of Ethics adopted by the Trust. The rules that govern personal
trading by investment personnel are based on the principal that employees owe a
fiduciary duty to conduct their trades in a manner that is not detrimental to
the Fund or its shareholders. The Trust has adopted the recommendations of the
Investment Company Institute, an organization of members of the mutual fund
industry, relating to restrictions on personal trading. For more information on
the Code of Ethics and specific trading restrictions, see the Statement of
Additional Information.
9
<PAGE>
The investment advisory fee of the Fund is accrued daily and paid monthly.
The advisory fee for the Fund equals the annual rate of .25 of 1 percent of its
daily net assets. The Fund assumes its costs relating to trust matters, cost of
services to shareholders, transfer and dividend paying agent fees, custodian
fees, legal and auditing expenses, disinterested trustees' fees, taxes and
governmental fees, interest, brokers' commissions, transaction expenses, cost of
stock certificates and any other expenses (including clerical expenses) of
issue, sale, repurchase, or redemption of its shares, expenses of registering or
qualifying its shares for sale, transfer taxes, and all expenses of preparing
its registration statements, prospectuses, and reports.
- --------------------------------------------------------------------------------
TRANSFER AGENT
- --------------------------------------------------------------------------------
Columbia Trust Company (the "Trust Company") acts as transfer agent and
dividend paying agent for the Fund. The Trust Company is owned principally by
Columbia Funds Management Company, which is owed by its employees, including J.
Jerry Inskeep, Jr. and James F. Rippey, who are also principal shareholders of
CMC and Trustees and officers of the Trust. The address of the Trust Company is
1301 S.W. Fifth Avenue, P.O. Box 1350, Portland, Oregon 97207-1350.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund may invest in repurchase agreements, which
are agreements by which the Fund purchases a security and simultaneously commits
to resell that security to the seller (a commercial bank or recognized
securities dealer) at a stated price within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus a rate of interest which is unrelated to the coupon rate or maturity
of the purchased security. Repurchase agreements may be considered loans by the
Fund collateralized by the underlying security. The obligation of the seller to
pay the stated price is in effect secured by the underlying security. The seller
will be required to maintain the value of the collateral underlying any
repurchase agreement at a level at least equal to the price of the repurchase
agreement. In the case of default by the seller, the Fund could incur a loss. In
the event of a bankruptcy proceeding commenced against the seller, the Fund may
incur costs and delays in realizing upon the collateral. The Fund will enter
into repurchase agreements only with those banks or securities dealers who are
deemed creditworthy pursuant to criteria adopted by the Trustees of the Trust.
There is no limit on the portion of the Fund's assets that may be invested in
repurchase agreements with maturities of seven days or less.
Foreign Securities. The Fund may invest up to 10% of its total assets in
fixed income securities of foreign issuers, including securities issued by
foreign governments, denominated in U.S. dollars. Foreign securities may be
subject to foreign taxes that would reduce their effective yield. Certain
foreign governments levy withholding taxes against dividend and interest income.
Although in some countries a portion of these taxes is recoverable, the
unrecovered portion of any foreign withholding taxes would reduce the income the
Fund receives from its foreign investments. Foreign investments involve certain
other risks, including possible political or economic instability, the
possibility of currency exchange controls, reduced availability of public
information about a foreign company, and the lack of uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
domestic companies. In addition, with respect to certain foreign countries,
there is a possibility of expropriation, nationalization, confiscatory taxation,
or diplomatic developments that could affect investments in those countries.
Finally, in the event of default on a foreign debt obligation, it may be more
difficult for the Fund to obtain or enforce a judgment against the issuers of
the obligation.
Loan Transactions. The Fund may lend portfolio securities to qualified
institutional investors for the short-term purpose of realizing additional
income. The aggregate value of all securities loaned may not exceed 33 1/3% of
the Fund's total assets, and such loans will be collateralized by cash, cash
equivalents, or an irrevocable
10
<PAGE>
letter of credit in accordance with regulations adopted by the SEC. For more
information on loan transactions, see the Statement of Additional Information.
Dollar Roll Transactions. The Fund may enter into dollar roll transactions
with selected banks and broker-dealers. Dollar roll transactions consist of sale
by the Fund of mortgage-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date, at the same
price. In addition, the Fund is paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed after cash settlement
and initially involve only a firm commitment agreement by the Fund to buy a
security. The Fund will not use such transactions for leveraging purposes, and
accordingly, if required by the SEC, will segregate cash, U.S. Government
securities, or other high grade debt obligations in an amount sufficient to meet
their purchase obligations under the transactions.
Temporary Investments. When, as a result of market conditions, the Fund
determines that a temporary defensive position is warranted to help preserve
capital, the Fund may without limit temporarily retain cash or invest in prime
commercial paper, high-grade debt securities, securities of the U.S. Government
and its agencies and instrumentalities, and high-quality money market
instruments, including repurchase agreements. When the Fund assumes a temporary
defensive position, it is not invested in securities designed to achieve its
stated investment objective.
Illiquid Investments. No illiquid investments will be acquired if, upon
purchase, more than 10% of the Fund's net assets would consist of these
securities. "Illiquid Investments" are securities that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price used to determine the Fund's net asset value. Under
current interpretations of the staff of the SEC, the following securities in
which the Fund may invest will be considered illiquid:
- repurchase agreements maturing in more than seven days;
- restricted securities (securities whose public resale is subject to
legal restrictions); and
- any other securities in which the Fund may invest that are not readily
marketable.
The Fund may purchase without limit, however, certain restricted securities
that can be resold to qualifying institutions pursuant to a regulatory exemption
under SEC Rule 144A ("Rule 144A Securities"). If a dealer or institutional
trading market exists for Rule 144A Securities, the securities may be deemed to
be liquid and thus treated as exempt from the Fund's liquidity restrictions.
Under the supervision of the Board of Trustees of the Trust, the Adviser
determines the liquidity of Rule 144A Securities and, through reports from the
Adviser, the Board of Trustees monitors trading activity in these securities. In
reaching liquidity decisions, the Adviser will consider, among other things, the
following factors:
- the frequency of trades and price quotes for the security;
- the number of dealers willing to purchase or sell the security and the
number of other potential purchasers;
- dealer undertakings to make a market in the security; and
- the nature of the security and the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers, and
the procedures for transfer).
If institutional trading in Rule 144A Securities declines, the liquidity of
the Fund could be adversely affected to the extent it is invested in Rule 144A
Securities.
Bond Ratings. Moody's -- The following is a description of Moody's bond
ratings:
Aaa - Best quality; smallest degree of investment risk.
11
<PAGE>
Aa - High quality by all standards; Aa and Aaa are known as high-grade
bonds.
A - Many favorable investment attributes; considered upper medium-grade
obligations.
Baa - Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over
any great length of time.
Ba - Speculative elements; future cannot be considered well assured.
Protection of interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future.
B - Generally lack characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
S&P -- The following is a description of S&P's bond ratings:
AAA - Highest rating; extremely strong capacity to pay principal and
interest.
AA - Also high-quality with a very strong capacity to pay principal and
interest; differ from AAA issues only by a small degree.
A - Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions.
BBB - Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest than for higher rated bonds.
Bonds rated AAA, AA, A, and BBB are considered investment grade bonds.
BB - Less near-term vulnerability to default than other speculative grade
debt; face major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions that could lead to inadequate capacity to meet
timely interest and principal payment.
B - Greater vulnerability to default but presently have the capacity to
meet interest payments and principal repayments; adverse business, financial, or
economic conditions would likely impair capacity or willingness to pay interest
and repay principal.
Bonds rated BB and B are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Investment Restrictions. A description of other investment restrictions and
certain investment practices of the Fund is included in the Statement of
Additional Information.
12
<PAGE>
Part A-II
================================================================================
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
Columbia Financial Center
1300 SW Sixth Avenue
PO Box 1350
Portland, Oregon 97207
(503) 222-3600
This Statement of Additional Information contains information relating to
CMC Fund Trust (the "Trust"), an open-end diversified management investment
company established as an Oregon business trust on August 7, 1989, and a
portfolio of the Trust, CMC Short Term Bond Fund (the "Fund"). The Trust has
three other portfolios, CMC Small Cap Fund, CMC International Stock Fund, and
CMC High Yield Fund.
This Statement of Additional Information is not a Prospectus. It relates to
a Prospectus dated _______________, 1997 (the "Prospectus") and should be read
in conjunction with the Prospectus. Copies of the Prospectus are available
without charge upon request to the Trust.
Table of Contents
Management.................................................................... 2
Investment Advisory and Other Fees Paid to Affiliates......................... 3
Portfolio Transactions........................................................ 4
Redemptions and Net Asset Value............................................... 5
Custodians.................................................................... 5
Independent Accountants....................................................... 6
Taxes......................................................................... 6
Yield and Performance......................................................... 8
Investment Restrictions....................................................... 9
Additional Information Regarding Certain
Investments by the Fund...................................................11
________________, 1997
1
<PAGE>
================================================================================
MANAGEMENT
================================================================================
The trustees and officers of the Trust are listed below, together with
their principal business occupations. Except as otherwise indicated, each person
listed has held his position with the Trust since inception in August 1989. All
other principal business positions have been held for more than five years,
except as follows: Columbia Small Cap Fund, Inc. since August 1996; Columbia
Real Estate Equity Fund, Inc. since April 1994; Columbia High Yield Fund, Inc.
since July 1993; and except as otherwise indicated. The term "Columbia Funds"
refers to Columbia High Yield Fund, Inc., Columbia Balanced Fund, Inc., Columbia
Common Stock Fund, Inc., Columbia International Stock Fund, Inc., Columbia
Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia U.S.
Government Securities Fund, Inc., Columbia Special Fund, Inc., Columbia Growth
Fund, Inc., Columbia Daily Income Company, Columbia Small Cap Fund, Inc., and
Columbia Fixed Income Securities Fund, Inc.
J. JERRY INSKEEP, JR.,* Chairman and Trustee of the Trust; Chairman and Director
of the Columbia Funds; Chairman, Director, and a principal shareholder of
Columbia Management Co. (the "Adviser"), the investment adviser of the Fund, and
Columbia Funds Management Company ("CFMC"); Chairman and Director of Columbia
Trust Company (the "Trust Company"); Director of Columbia Financial Center
Incorporated ("Columbia Financial").
JAMES F. RIPPEY,* President and Trustee of the Trust; Director of the Columbia
Funds; President, Director, and a principal shareholder of the Adviser and CFMC;
President and Director of the Trust Company.
RICHARD L. WOOLWORTH, Trustee of the Trust (since July 1993); Director of the
Columbia Funds. Mr. Woolworth is Chairman and Chief Executive Officer of Blue
Cross and Blue Shield of Oregon and Chairman and Chief Executive Officer of The
Benchmark Group, health insurers, 100 S. W. Market Street, Portland, Oregon
97201.
GEORGE L. HANSETH,* Trustee, Vice President, Assistant Secretary, and Treasurer
of the Trust; Senior Vice President, Assistant Secretary, and Treasurer of the
Columbia Funds; Vice President, Assistant Secretary, Treasurer, and Director of
the Adviser and CFMC; Vice President, Treasurer, Assistant Secretary, and
Director of the Trust Company; President and Director of Columbia Financial.
JOHN A. KEMP,* Trustee and Vice President of the Trust; President and Director
of the Columbia Funds; Senior Vice President and Director of the Adviser, CFMC,
Columbia Financial, and the Trust Company.
ALEXANDER S. MACMILLAN III, * Trustee of the Trust (since March 1994); Vice
President of the Adviser and CFMC.
PETER C. OLSON,* Trustee of the Trust (since April 1991); Vice President of the
Adviser.
PETER T. SHAND,* Trustee of the Trust (since April 1991); Vice President of the
Adviser.
LAWRENCE S. VIEHL,* Vice President of the Trust and the Columbia Funds; Vice
President and Director (since April 1997) of the Adviser, CFMC, and the Trust
Company.
JEFF B. CURTIS,* Secretary of the Trust (since April 1994); Secretary of the
Columbia Funds (since April 1994); General Counsel, Vice President, and
Secretary to the Adviser, CFMC, the Trust Company, and Columbia Financial (since
April 1993); Stoel Rives (1986-1993), a law firm in Portland, Oregon.
2
<PAGE>
*These officers and trustees are "interested persons" as defined by the
Investment Company Act of 1940 (the "1940 Act") and receive no trustee fees or
salaries from the Fund. The business address of each such person is 1300 SW
Sixth Avenue, PO Box 1350, Portland, Oregon 97207.
As of the date of this Statement of Additional Information, there were no
shareholders of the Fund.
================================================================================
INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES
================================================================================
Information regarding services performed by the Adviser to the Fund and the
formula for calculating the fees paid for those services are set forth in the
Prospectus under "Management of the Fund."
Shareholders of the Fund enter into an Administrative Services Agreement
(the "Agreement") with the Adviser, in addition to their indirect relationship
to the Adviser by virtue of their status as shareholders of the Fund. Pursuant
to the Agreement, the Adviser agrees to provide certain shareholder services,
including client meetings and reports and other administrative responsibilities.
If the Adviser is deemed to be a fiduciary with respect to a prospective
shareholder of the Fund pursuant to the Employee Retirement Income Security Act
of 1974 ("ERISA"), certain conditions must be satisfied before assets may be
invested in the Fund. These conditions have been set forth by the U. S.
Department of Labor in Prohibited Transaction Class Exemption No. 77-4 (the
"Exemption"). The Exemption permits a client of the Adviser to direct
investments of ERISA-qualified plans to a mutual fund, such as the Fund, for
which the Adviser serves as an investment adviser if, after review of the
Prospectus and disclosure relating to fees of the Fund and fees under the
advisory contract, another fiduciary, as determined under ERISA, with respect to
that shareholder approves investments in the Fund. The second fiduciary must be
independent of and unrelated to the Adviser under standards set forth by the U.
S. Department of Labor in the Exemption.
The second, independent fiduciary that must approve investments in the Fund
is not engaged as a second fiduciary only in contemplation of a possible
investment in the Fund. Rather, the second, independent fiduciary is almost
always a committee appointed by the employee benefit plan sponsor and has
oversight responsibility for appointment of CMC as an investment adviser with
respect to certain plan assets. This committee is almost always made up of one
or more employees of the plan sponsor, and, as such, these employees receive
compensation from the plan sponsor but are not compensated out of plan assets.
The Adviser is registered under the Investment Advisers Act of 1940, is
engaged principally in the business of rendering investment supervisory
services, and is responsible for payment of all executive salaries and executive
expenses and office rent of the Fund and the Trust.
Messrs. Inskeep and Rippey, who are Trustees and officers of the Trust,
each own approximately 41 percent of the voting securities of the Adviser and,
therefore, are considered "controlling persons" under the 1940 Act. Certain
affiliated persons of the Trust are also affiliated persons of the Adviser. See
"Management." The Adviser acts as an investment manager for approximately $14
billion of assets of other institutions. The Fund is intended to provide an
investment vehicle for certain client accounts managed by the Adviser. An
independent fiduciary of those client accounts, after careful review of the
Fund's Prospectus, Statement of Additional Information, and fees arrangement,
approves the investment in the Fund and makes such investment subject to the
terms and conditions of the Prospectus and the Statement of Additional
Information.
The Trust Company acts as transfer agent and dividend crediting agent for
the Fund. Its address is 1301 SW Fifth Avenue, PO Box 1350, Portland, Oregon
97207. It issues certificates for shares of the Fund, if requested, and records
and disburses dividends for the Fund. The Trust pays the Trust Company a per
account fee of $1 per month for each shareholder account with the Fund existing
at any time during the month, with a
3
<PAGE>
minimum aggregate fee of $1,500 per month. In addition, the Trust pays the Trust
Company for extra administrative services performed at cost in accordance with a
schedule set forth in the agreement between the Trust Company and the Trust and
reimburses the Trust Company for certain out-of-pocket expenses incurred in
carrying out its duties under that agreement. Certain trustees and officers of
the Trust are minority shareholders of the Trust Company.
================================================================================
PORTFOLIO TRANSACTIONS
================================================================================
The Fund will not generally invest in securities for short-term capital
appreciation but, when business and economic conditions, market prices or the
Fund's investment policy warrant, individual security positions may be sold
without regard to the length of time they have been held. The Trust expects that
the Fund's portfolio turnover rate will not exceed 100%.
The Fund may purchase its portfolio securities through a securities broker
and pay the broker a commission, or the Fund may purchase the securities
directly from a broker which acts as principal and sells securities directly for
its own account without charging a commission. The Fund may also purchase
securities from underwriters, the price of which will include a commission or
concession paid by the issuer to the underwriter. The purchase price of
securities purchased from dealers serving as market makers will include the
spread between the bid and asked prices.
Prompt execution of orders at the most favorable price will be the primary
consideration of the Fund in transactions where brokerage fees are involved.
Research, statistical, and other services also may be taken into consideration
in selecting broker-dealers. These services may include: advice concerning the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or the purchasers or sellers of
securities; and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategies, and performance
of accounts. While the Fund has no arrangements or formulas as to either the
allocation of brokerage business or commission rates paid thereon, a commission
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction may be paid by the Fund if management of
the Trust determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided, viewed in terms of
either that particular transaction or management's overall responsibilities with
respect to the Fund.
Allocation of transactions to obtain research services for the Adviser
enables the Adviser to supplement its own research and analysis with the
statistics, information, and views of others. While it is not possible to place
a dollar value on these services, it is the opinion of the Adviser that the
receipt of such services will not reduce the overall expenses for its research
or those of its affiliated companies. The fees paid to the Adviser by the Fund
would not be reduced as a result of the receipt of such information and services
by the Fund. The receipt of research services from brokers or dealers might be
useful to the Adviser and its affiliates in rendering investment management
services to the Fund or other clients; and, conversely, information provided by
brokers or dealers who have executed orders on behalf of other clients might be
useful to the Adviser in carrying out its obligations to the Fund.
Investment decisions for the Fund are made independently from those of the
other portfolios of the Trust or accounts managed by the Adviser or CFMC. The
same security is sometimes held in the portfolio of more than one fund or
account. Simultaneous transactions are inevitable when several funds or accounts
are managed by the same investment adviser, particularly when the same security
is suitable for the investment objective of more than one fund or account. In
the event of simultaneous transactions, allocations among the Fund or accounts
will be made on an equitable basis.
Both the Trust and the Adviser have adopted a Code of Ethics (the "Code")
that sets forth general and specific standards relating to the securities
trading activities of all their employees. The purpose of the Code is to
4
<PAGE>
ensure that all employees conduct their personal transactions in a manner that
does not interfere with the portfolio transactions of the Fund or the Adviser's
other clients or take unfair advantage of their relationship with the Adviser.
The specific standards in the Code include, among others, a requirement that all
employee trades be pre-cleared; a prohibition on investing in initial public
offerings; required pre-approval of an investment in private placements; a
prohibition on portfolio managers trading in a security seven days before or
after a trade in the same security by an account over which the manager
exercises investment discretion; and a prohibition on realizing any profit on
the trading of a security held less than 60 days. Certain securities and
transactions, such as mutual fund shares or U. S. Treasuries and purchases of
options on securities indexes or securities under an automatic dividend
reinvestment plan, are exempt from the restrictions in the Code because they
present little or no potential for abuse. Certain transactions involving the
stocks of large capitalization companies are exempt from the seven day black-out
period and short-term trading prohibitions because such transactions are highly
unlikely to affect the price of these stocks. In addition to the trading
restrictions, the Code contains reporting obligations that are designed to
ensure compliance and allow the Adviser's Ethics Committee to monitor that
compliance.
The Trust and the Adviser have also adopted a Policy and Procedures
Designed to Detect and Prevent Insider Trading (the "Insider Trading Policy").
The Insider Trading Policy prohibits any employee from trading, either
personally or on behalf of others (including a client account), on the basis of
material nonpublic information. All employees are required to certify each year
that they have read and complied with the provisions of the Code and the Insider
Trading Policy.
================================================================================
REDEMPTIONS AND NET ASSET VALUE
================================================================================
Information regarding redemptions is set forth in the Prospectus under
"Redemptions". Information regarding the determination of the net asset value
per share of the Fund is set forth in the Prospectus under "Determination of Net
Asset Value."
The Trust may suspend the determination of net asset value of the Fund and
the right of redemption for any period (1) when the New York Stock Exchange is
closed, other than customary weekend and holiday closings, (2) when trading on
the New York Stock Exchange is restricted, (3) when an emergency exists as a
result of which sale of securities owned by the Fund is not reasonably
practicable or it is not reasonably practicable for the Trust to determine the
value of the Fund's net assets, or (4) as the Securities and Exchange Commission
("SEC") may by order permit for the protection of security holders, provided the
Trust complies with rules and regulations of the SEC governing whether the
conditions described in (2) or (3) exist. The New York Stock Exchange observes
the following holidays: New Year's Day, Martin Luther King, Jr.'s. Birthday,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving, and Christmas. In the case of suspension of the right to redeem,
shareholders may withdraw their redemption request or receive payment based upon
the net asset value computed upon the termination of the suspension.
================================================================================
CUSTODIANS
================================================================================
United States National Bank of Oregon, 321 SW Sixth Avenue, Portland,
Oregon 97208, acts as general custodian of the Trust (a "Custodian"). Morgan
Stanley Trust Company ("Morgan Stanley" or a "Custodian"), One Evertrust Plaza,
Jersey City, New Jersey 07302, has entered into a custodian agreement with the
Trust in respect of the purchase of foreign securities by the Fund. The
Custodians hold all securities and cash of the Fund, receive and pay for
securities purchased, deliver against payment for securities sold, receive and
collect income from investments, make all payments covering expenses of the
Fund, and perform other administrative
5
<PAGE>
duties, all as directed by authorized officers of the Trust. The Custodians do
not exercise any supervisory function in the purchase and sale of portfolio
securities or payment of dividends.
The Fund is authorized to invest up to 10% of its total assets in fixed
income securities of foreign issuers, denominated in U.S. dollars. Portfolio
securities purchased outside the United States by the Fund are maintained in the
custody of foreign banks, trust companies, or depositories that have
sub-custodian arrangements with Morgan Stanley. Each of the domestic and foreign
custodial institutions that may hold portfolio securities of the Fund has been
approved by the Trustees of the Trust in accordance with regulations under the
1940 Act.
================================================================================
INDEPENDENT ACCOUNTANTS
================================================================================
Coopers & Lybrand, L.L.P., 1300 S.W. Fifth Avenue, Suite 2700, Portland,
Oregon 97201, serves as the Trust's independent accountants and, in addition to
examining the financial statements of the Trust at fiscal year-end, is expected
to assist in the preparation of the tax returns of the Trust and in certain
other matters.
================================================================================
TAXES
================================================================================
Federal Income Taxes
The Fund intends and expects to meet continuously the tests for
qualification as a regulated investment company under Part I of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"). The Fund believes it
satisfies the tests to qualify as a regulated investment company.
To qualify as a regulated investment company for any taxable year, the Fund
must, among other things:
(a) derive at least 90 percent of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies (the "90 Percent Test"); and
(b) diversify its holdings so that at the end of each quarter (i) 50
percent or more of the value of the assets of the Fund is represented by cash,
government securities, and other securities limited, in respect of any one
issuer of such other securities, to an amount not greater than 5 percent of the
value of the assets of the Fund and 10 percent of the outstanding voting
securities of such issuer, and (ii) not more than 25 percent of the value of the
assets of the Fund is invested in the securities (other than government
securities) of any one issuer or of two or more issuers that the Fund "controls"
within the meaning of Section 851 of the Code and that meet certain
requirements. In addition, the Fund must file, or have filed, a proper election
with the Internal Revenue Service.
Part I of Subchapter M of the Code will apply to the Fund during a taxable
year only if it meets certain additional requirements. Among other things, the
Fund must: (a) have a deduction for dividends paid (without regard to capital
gain dividends) at least equal to the sum of 90 percent of its investment
company taxable income (computed without any deduction for dividends paid) and
90 percent of its tax-exempt interest in excess of certain disallowed deductions
(unless the Internal Revenue Service waives this requirement) and (b) either (i)
have been subject to Part I of Subchapter M for all taxable years ending after
November 8, 1983 or (ii) as of the close of the taxable year have no earnings
and profits accumulated in any taxable year to which Part I of Subchapter M did
not apply.
6
<PAGE>
The Trust currently has four portfolios, including the Fund. The Trust may
establish additional funds in the future. Federal income tax laws generally will
treat each fund as a separate corporation (provided that each fund consists of a
segregated portfolio of assets the beneficial interests in which are owned by
the holders of a class or series of stock that is preferred over all other
classes or series in respect of that portfolio of assets).
A regulated investment company that meets the requirements described above
is taxed only on its "investment company taxable income," which generally equals
the undistributed portion of its ordinary net income and any excess of net
short-term capital gain over net long-term capital loss. In addition, any excess
of net long-term capital gain over net short-term capital loss that is not
distributed is taxed to the Fund at corporate capital gain tax rates. The policy
of the Fund is to apply capital loss carry-forwards as a deduction against
future capital gains before making a capital gain distribution to shareholders.
If any net long-term capital gains in excess of net short-term capital
losses are retained by the Fund, requiring federal income taxes to be paid
thereon by the Fund, the Fund may elect to treat such capital gains as having
been distributed to shareholders. In the case of such an election, shareholders
will be taxed on such amounts as long-term capital gains, will be able to claim
their proportional share of the federal income taxes paid by the Fund on such
gains as a credit against their own federal income tax liabilities, and
generally will be entitled to increase the adjusted tax basis of their shares in
the Fund by the differences between their pro rata shares of such gains and
their tax credits.
Shareholders of the Fund are taxed on distributions of net investment
income, or of any excess of net short-term capital gain over net long-term
capital loss, as ordinary income. Income distributions from the Fund are
unlikely to qualify for the dividends-received deduction for corporate
shareholders because the income of the Fund consists largely or entirely of
interest rather than dividends. Distributions of any excess of net long-term
capital gain over net short-term capital loss from the Fund are ineligible for
the dividends-received deduction.
The Fund may invest up to 10 percent of its total assets in the securities
of foreign corporations and issuers. Foreign countries may impose income taxes,
generally collected by withholding, on foreign-source dividends and interest
paid to the Fund. These foreign taxes will reduce the Fund's distributed income.
The Fund generally expects to incur, however, no foreign income taxes on gains
from the sale of foreign securities. The United States has entered into income
tax treaties with many foreign countries to reduce or eliminate the foreign
taxes on certain dividends and interest received from corporations in those
countries. The Fund intends to take advantage of such treaties where possible.
It is impossible to predict with certainty in advance the effective rate of
foreign taxes that will be paid by the Fund since the amount invested in
particular countries will fluctuate and the amounts of dividends and interest
relative to total income will fluctuate.
Distributions properly designated by the Fund as representing the excess of
net long-term capital gain over net short-term capital loss are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by shareholders. For noncorporate taxpayers,
the highest rate that applies to long-term capital gains is lower than the
highest rate that applies to ordinary income. Any loss that is realized and
allowed on redemption of shares of the Fund less than six months from the date
of purchase of the shares and following the receipt of a capital gain dividend
will be treated as a long-term capital loss to the extent of the capital gain
dividend. For this purpose, Section 852(b)(4) of the Code contains special rules
on the computation of a shareholder's holding period.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether paid in shares or in cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. Within 60 days after the close of each taxable
year, the Fund issues to each shareholder a statement of the federal income tax
status of all distributions, including a statement of the prior taxable year's
distributions which the Fund has designated to be treated as long-term capital
gain.
7
<PAGE>
A distribution may be taxable to a shareholder even if the distribution
reduces the net asset value of the shares held below their cost (and is in an
economic sense a return of the shareholder's capital). This tax result is most
likely when shares are purchased shortly before an annual distribution of
capital gains or other earnings.
If the Fund declares a dividend in October, November, or December payable
to shareholders of record on a certain date in such a month and pays the
dividend during January of the following year, the shareholders will be taxed as
if they had received the dividend on December 31 of the year in which the
dividend was declared. Thus, a shareholder may be taxed on the dividend in a
taxable year prior to the year of actual receipt.
A special tax may apply to the Fund if it fails to make sufficient
distributions during the calendar year. The required distributions for each
calendar year generally equal the sum of (a) 98 percent of the ordinary income
for the calendar year plus (b) 98 percent of the capital gain net income for the
one-year period that ends on October 31 during the calendar year, plus (c) an
adjustment relating to any shortfall for the prior taxable year. If the actual
distributions are less than the required distributions, a tax of 4 percent
applies to the shortfall.
The Code allows the deduction by certain individuals, trusts, and estates
of "miscellaneous itemized deductions" only to the extent that such deductions
exceed 2 percent of adjusted gross income. The limit on miscellaneous itemized
deductions will not apply, however, with respect to the expenses incurred by any
"publicly offered regulated investment company." The Fund believes that it is a
publicly offered regulated investment company because its shares are
continuously offered pursuant to a public offering (within the meaning of
section 4 of the Securities Act of 1933 (the "1933 Act"), as amended).
Therefore, the limit on miscellaneous itemized deductions should not apply to
expenses incurred by the Fund.
State Income Taxes
The state tax consequences of investments in the Fund are beyond the scope
of the tax discussions in the Prospectus and this Statement of Additional
Information.
Additional Information
The foregoing summary and the summary included in the Prospectus under
"Taxes" of tax consequences of investment in the Fund are necessarily general
and abbreviated. No attempt has been made to present a complete or detailed
explanation of tax matters. Furthermore, the provisions of the statutes and
regulations on which they are based are subject to change by legislative or
administrative action. State and local taxes are beyond the scope of this
discussion. Prospective investors in the Fund are urged to consult their own tax
advisers regarding specific questions as to federal, state, or local taxes.
================================================================================
YIELD AND PERFORMANCE
================================================================================
The Trust may from time to time advertise or quote current yield and total
return performance for the Fund. These figures represent historical data and are
calculated according to SEC rules standardizing such computations. The
investment return on and the value of shares of the Fund will fluctuate so that
the shares when redeemed may be worth more or less than their original cost.
8
<PAGE>
Current yield of the Fund is calculated by dividing the net investment
income per share earned during an identified 30-day period by the maximum
offering price per share on the last day of the same period, according to the
following formula:
6
Yield = 2 [(a-b + 1) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
The Fund uses generally accepted accounting principles in determining
actual income paid, and these principles differ in some instances from SEC rules
for computing income for the above yield calculations. Therefore, the quoted
yields as calculated above may differ from the actual dividends paid.
The Trust may publish average annual total return quotations for recent 1,
5, and 10-year periods (or a fractional portion thereof) computed by finding the
average annual compounded rates of return over the 1, 5, and 10-year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made
at the beginning of the 1, 5, and 10-year periods (or a
fraction portion thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods (or a fractional portion thereof) where the total return figures
represent the percentage return for the 1, 5, and 10-year periods that would
equate the initial amount invested to the ending redeemable value.
If the Trust's registration statement under the 1940 Act with respect to
the Fund has been in effect less than 1, 5 or 10 years, the time period during
which the registration statement with respect to that Fund has been in effect
will be substituted for the periods stated.
================================================================================
INVESTMENT RESTRICTIONS
================================================================================
The Prospectus sets forth the investment objectives and certain
restrictions applicable to the Fund. The following is a list of investment
restrictions applicable to the Fund. If a percentage limitation is adhered to at
the time of an investment by the Fund, a later increase or decrease in
percentage resulting from any change in value or net assets will not result in a
violation of such restriction. The Trust may not change these restrictions
9
<PAGE>
without the approval of a majority of its shareholders, which means the vote at
any meeting of shareholders of the Fund of (i) 67 percent or more of the shares
present or represented by proxy at the meeting (if the holders of more than 50
percent of the outstanding shares are present or represented by proxy) or (ii)
more than 50 percent of the outstanding shares, whichever is less.
The Fund may not:
1. Buy or sell commodities or commodity futures contracts.
2. Concentrate investments in any industry. However, it may (a) invest up
to 25 percent of the value of its total assets in any one industry, (b) invest
up to 100 percent of the value of its total assets in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and (c)
invest for defensive purposes up to 80 percent of the value of its total assets
in certificates of deposit (C/D's) and bankers' acceptances with maturities not
greater than one year. C/D's and bankers' acceptances will be limited to
domestic banks which have total assets in excess of $1 billion and are subject
to regulatory supervision by the U.S. Government or state governments.
Commitments to purchase securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities on a "when-issued" basis may not exceed 20
percent of the total assets of the Fund. Emphasis on investments in securities
of a particular industry will be shifted whenever the Adviser determines that
such action is desirable for investment reasons. The Board of Directors will
periodically review these decisions of the Adviser.
3. Buy or sell real estate. However, the Fund may purchase or hold
securities issued by companies such as real estate investment trusts, which
operate in real estate or interests therein, and participation interests in
pools of real estate mortgage loans.
4. Make loans to other persons (except by purchase of short-term commercial
paper, bonds, debentures, or other debt securities constituting part of an
issue). The Fund may lend portfolio securities to broker-dealers or other
institutional investors if, as a result thereof, the aggregate value of all
securities loaned does not exceed 33 1/3 percent of its total assets.
5. The Fund may not purchase a repurchase agreement with a maturity greater
than seven days or a security that is subject to legal or contractual
restrictions on resale or for which there are no readily available market
quotations, if, as a result of such purchase, more than 10 percent of its total
assets (taken at current value) are invested in such securities, except as set
forth in the Prospectus.
6. Purchase the securities of any issuer if the purchase, at the time
thereof, would cause more than 10 percent of the outstanding voting securities
of that issuer to be held in the Fund.
7. Purchase the securities of any issuer if the purchase, at the time
thereof, would cause more than 5 percent of the value of its total assets at
market value to be invested in the securities of that issuer (other than
obligations of the U.S. Government and its instrumentalities), with reference to
75 percent of the assets of the Fund.
8. Purchase or retain securities issued by an issuer, any of whose officers
or directors or security holders is an officer or director of the Fund or of its
adviser if, or so long as, the officers and directors of the Fund and of its
adviser together own beneficially more than 5 percent of any class of securities
of the issuer.
9. Purchase securities of other open-end investment companies, except as
permitted by Section 12(d)(1)(A) of the 1940 Act.
10. Issue senior securities, bonds, or debentures.
10
<PAGE>
11. Underwrite securities of other issuers, except the Fund may acquire
portfolio securities in circumstances where, if the securities are later
publicly offered or sold by the Fund, it might be deemed to be an underwriter
for purposes of the 1933 Act.
12. Borrow money, except as a temporary measure for extraordinary or
emergency purposes. Its borrowings may not exceed 5 percent of the value of the
gross assets of the Fund taken at the lesser of cost or market value, nor may it
pledge, mortgage, or hypothecate assets taken at market to an extent greater
than 10 percent of the gross assets taken at cost of the Fund.
13. Invest in the securities of any company if the purchase, at the time
thereof, would cause more than 5 percent of the value of the Fund's total assets
to be invested in companies which, including predecessors and parents, have a
record of less than three years of continuous operation.
14. Invest in companies to exercise control or management.
15. Buy any securities or other property on margin, or purchase or sell
puts or calls, or combinations thereof.
16. Engage in short sales of securities except to the extent that it owns
other securities convertible into an equivalent amount of such securities. These
short sales may only be made to protect a profit in or to attempt to minimize a
loss with respect to convertible securities. In any event no more than 10
percent of the Fund's net assets valued at market may, at any time, be held as
collateral for such sales.
Some of the practices described above prohibit particular practices. Other
policies (paragraphs 2, 4, 5, 12, 13, and 16) permit specified practices but
limit the portion of the Fund's assets that may be so invested. Subject to the
investment restriction, the Fund expects to engage in the practices described in
paragraph 5 (restricted securities). (See the Prospectus for additional
information). The Fund has no intention of engaging in the other permitted
practices in the foreseeable future.
================================================================================
ADDITIONAL INFORMATION REGARDING CERTAIN INVESTMENTS BY THE FUND
================================================================================
Investments by the Fund
Securities held by the Fund may include a variety of fixed income debt
securities, such as bonds, debentures, notes, equipment trust certificates,
short-term obligations (those having maturities of 12 months or less), such as
prime commercial paper and bankers' acceptances, domestic certificates of
deposit, obligations of or guaranteed by the U.S. Government and its agencies or
instrumentalities, Government National Mortgage Association "GNMA"
mortgage-backed certificates and other similar securities representing ownership
in a pool of loans ("pass-through securities"), and repurchase agreements with
banks or securities dealers relating to these securities. Portfolio securities
may have variable or "floating" interest rates. Information regarding certain of
these securities is included below. Investments may also be made in fixed income
preferred stocks. Debt securities and preferred stocks may be convertible into,
or exchangeable for, common stocks, and may have warrants attached.
Depending on prevailing market conditions, debt securities may be purchased
at a discount from face value, producing a yield of more than the coupon rate,
or at a premium over face value, producing a yield of less than the coupon rate.
In making investment decisions, the Adviser will consider factors other than
current yield, such as preservation of capital, maturity, and yield to maturity.
Common stocks acquired through exercise of conversion rights or warrants or
acceptance of exchange or similar offers will not be retained in the portfolio.
Orderly disposition of these equity securities will be made consistent with
management's judgment as to the best obtainable price.
11
<PAGE>
To achieve its investment objective, the Fund expects to invest a major
portion (normally at least 95 percent) of its fixed income in investment grade
debt securities. "Investment grade" debt securities are considered to be those
which at the time of the investment are (a) rated Baa or higher by Moody's
Investor Services, Inc. ("Moody's"), (b) rated BBB or higher by Standard and
Poor's Corporation ("S&P"), or (c) unrated, but believed by the Adviser for the
Fund to be equivalent to securities with those ratings. Up to five percent of
the Fund's assets may be invested in lower grade securities (rated Ba or B by
Moody's or BB or B by S&P), commonly referred to as "junk bonds" when the Fund's
Adviser believes these securities present attractive investment opportunities
notwithstanding their speculative characteristics. See the Prospectus under
"Additional Information" for a description of corporate bond ratings.
Government Securities
Government securities may be either direct obligations of the U.S. Treasury
or may be the obligations of an agency or instrumentality of the United States.
Treasury Obligations. The U.S. Treasury issues a variety of marketable
securities that are direct obligations of the U.S. Government. These securities
fall into three categories - bills, notes, and bonds distinguished primarily by
their maturity at time of issuance. Treasury bills have maturities of one year
or less at the time of issuance, while Treasury notes currently have maturities
of 1 to 10 years. Treasury bonds can be issued with any maturity of more than 10
years.
Obligations of Agencies and Instrumentalities. Agencies and
instrumentalities of the U.S. Government are created to fill specific
governmental roles. Their activities are primarily financed through securities
whose issuance has been authorized by Congress. Agencies and instrumentalities
include Export Import Bank, Federal Housing Administration, Government National
Mortgage Association, Tennessee Valley Authority, Banks for Cooperatives,
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal
Home Loan Mortgage Corp., U.S. Postal System, and Federal Finance Bank. Although
obligations of "agencies" and "instrumentalities" are not direct obligations of
the U.S. Treasury, payment of the interest or principal on these obligations is
generally backed directly or indirectly by the U.S. Government. This support can
range from backing by the full faith and credit of the United States or U.S.
Treasury guarantees, or to the backing solely of the issuing instrumentality
itself.
Mortgage-Backed Certificates
GNMA Certificates ("Certificates") are mortgage-backed securities. The
Certificates evidence part ownership of a pool of mortgage loans. The
Certificates which the Fund may purchase are of the "modified pass-through"
type. "Modified pass-through" Certificates entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of fees paid to
the servicing agent and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
The GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal of and interest on securities backed by a group
(or pool) of mortgages insured by FHA or FMHA or guaranteed by the VA. The GNMA
guarantee is backed by the full faith and credit of the United States. GNMA is
also empowered to borrow without limitation from the U.S. Treasury to make any
payments required under its guarantee.
The Life of GNMA Certificates. The average life of GNMA Certificates is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities. Regular payments and prepayments of principal by
mortgagors and mortgage foreclosures will result in the return of the greater
part of principal invested well before the maturity of the mortgages in the
pool. (Because of the GNMA guarantee, foreclosures impose no risk to principal
investment.)
12
<PAGE>
Because prepayment rates of individual mortgage pools will vary widely, it
is not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA are normally used as
an indicator of the expected average life of GNMA Certificates. These statistics
indicate that the average life of single-family dwelling mortgages with 25-30
year maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. For this reason, it is standard
practice to treat GNMA Certificates as 30-year mortgage-backed securities which
prepay fully in the 12th year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the servicing agent. For the most common type of mortgage
pool, containing single-family dwelling mortgages, GNMA receives an annual fee
of 0.06 of 1 percent of the outstanding principal for providing its guarantee,
and the insurer is paid an annual fee of 0.44 of 1 percent for assembling the
mortgage pool and for passing through monthly payments of interest and principal
to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates may be issued at a premium or discount rather than at par.
2. After issuance, certificates may trade in the secondary market at a
premium or discount.
3. Interest is earned monthly, rather than semi-annually as for traditional
bonds. Monthly payment has the effect of raising the effective yield earned on
GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate. That is,
if borrowers pay off their mortgages early, the principal returned to
Certificate holders may be reinvested at more or less favorable rates.
In quoting yields for GNMA Certificates, the standard practice is to assume
that the Certificates will have a 12-year life. Compared to this basis, GNMA
Certificates have historically yielded roughly .50 of 1 percent more than
high-grade corporate bonds and 1 percent more than U.S. Government and U.S.
Government Agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a 12-year life.
Market for GNMA Certificates. Since the inception of the GNMA
Mortgage-Backed Securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make the GNMA Certificates a highly liquid instrument. Prices of GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
Other Pass-Through Certificates. The Fund may invest in other pass-through
securities. These are mortgage-backed securities for which the payments on the
underlying mortgages are passed from the mortgage holder through the servicing
agent, net of fees paid to the servicing agent, to the Fund. These securities
may be "modified pass-through certificates" (like GNMA certificates) whereby the
Fund would receive interest and principal payments regardless of whether the
mortgagors make the payments, or they may be "straight pass-through
certificates" whereby the Fund would receive principal only to the extent
actually collected by the servicing agent. The servicing agent may be an
instrumentality or agency of the U.S. Government or may be an institution such
as a bank or savings and loan association. The underlying mortgages may be
conventional mortgages as well as mortgages guaranteed by federal agencies or
instrumentalities. Straight pass-through securities involve additional risks
because payments are not guaranteed. However, this risk may be mitigated to the
extent that the underlying mortgages are guaranteed by a federal agency or
instrumentality or by a private
13
<PAGE>
insurance company. Examples of pass-through securities that the Fund may
purchase are: Federal National Mortgage Association; Federal Home Loan Mortgage
Corporation ("Participation Certificates"); Conventional Mortgage Pass-Through
Certificates ("CONNIE MAC") Residential Funding Corp. Participation
Certificates; and Federal Housing Administration Insured Project Pass-Through
Pools.
Floating or Variable Rate Securities
Floating or variable rate securities have interest rates that periodically
change according to the rise and fall of a specified interest rate index or a
specific fixed-income security that is used as a benchmark. The interest rate
typically changes every six months, but for some securities the rate may
fluctuate weekly, monthly, or quarterly. Indices commonly used by the Fund
include LIBOR, Prime or the rate for 90 or 180 day Treasury Bills. Variable-rate
and floating-rate securities may have interest rate ceilings or caps that fix
the interest rate on such a security if, for example, a specified index exceeds
a predetermined interest rate. If an interest rate on a security held by the
Fund becomes fixed as a result of a ceiling or cap provision, the interest
income received by the Fund will be limited by the rate of the ceiling or cap.
In addition, the principal values of these types of securities will be adversely
affected if market interest rates continue to exceed the ceiling or cap rate.
Collateralized Mortgage Obligations ("CMOs")
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which the Fund invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities. Changes in assumed prepayment rates have the effect of shortening or
lengthening the effective maturity of the CMO held by the Fund. CMOs may also be
less marketable than other securities. The Fund will only invest in CMOs issued
by agencies or instrumentalities of the U.S. Government or privately-issued CMOs
carrying investment-grade ratings. In addition, the Fund will invest only in
those CMOs whose characteristics and terms are consistent with the average
maturity and market risk profile of the other fixed income securities held by
the Fund.
Securities Rating Agencies
Subsequent to its purchase by the Fund, a security may cease to be rated,
or its rating may be reduced below the criteria set forth for the Fund. Neither
event would require the elimination of the security from the Fund's portfolio,
but the Adviser will consider that event in its determination of whether the
Fund should continue to hold such security in its portfolio. To the extent the
ratings accorded by S&P or Moody's for securities may change as a result of
changes in such organizations or changes in the rating systems, the Fund will
attempt to use comparison ratings as standards for its investments in bonds in
accordance with the policies described herein.
Commercial Paper Ratings. A1 and Prime 1 are the highest commercial paper
ratings issued by S&P and Moody's respectively.
Commercial paper rated A1 by S&P has the following characteristics: (1)
liquidity ratios are adequate to meet cash requirements; (2) long-term senior
debt is rated A or better; (3) the issuer has access to at least two additional
channels of borrowing; (4) basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances; (5) typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and (6) the reliability and quality of management are unquestioned.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of 10 years; (7) financial strength of a parent company and the
relationships which exist
14
<PAGE>
with the issuer; and (8) recognition by the management of obligations which may
be present or may rise as a result of public interest questions and preparation
to meet such obligations.
Bond Ratings. See the Prospectus under "Additional Information -- Bond
Ratings" for a description of the ratings used by Moody's and S&P.
Certificates of Deposit
Certificates of Deposit are receipts issued by a U.S. bank in exchange for
the deposit of funds. The U.S. bank agrees to pay the amount deposited, plus
interest, to the bearer of the receipt on the date specified on the certificate.
Because the certificate is negotiable, it can be traded in the secondary market
before maturity. Under current FDIC regulations, $100,000 is the maximum insured
amount of Certificates of Deposit issued to the Fund by any one bank. Therefore,
Certificates of Deposit purchased by the Fund may not be fully insured.
Loan Transactions
Loan transactions involve the lending of securities to a broker-dealer or
institutional investor for its use in connection with short sales, arbitrage, or
other securities transactions. Loans of portfolio securities of the Fund will be
made (if at all) in strictest conformity with applicable federal and state rules
and regulations. The purpose of a qualified loan transaction is to afford the
Fund the opportunity to continue to earn income on the securities loaned and at
the same time to earn income on the collateral held by it.
Management of the Fund understands that it is the view of the Staff of the
SEC that the Fund is permitted to engage in loan transactions only if the
following conditions are met: (1) the Fund must receive at least 100 percent
collateral in the form of cash, cash equivalents, e.g., U.S. Treasury bills or
notes, or an irrevocable letter of credit; (2) the borrower must increase the
collateral whenever the market value of the securities loaned (determined on a
daily basis) rises above the level of the collateral; (3) the Fund must be able
to terminate the loan, after notice, at any time; (4) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; (6) voting rights on the
securities loaned may pass to the borrower; however, if a material event
affecting the investment occurs, the Trustees must be able to terminate the loan
and vote proxies or enter into an alternative arrangement with the borrower to
enable the Trustees to vote proxies. Excluding items (1) and (2), these
practices may be amended from time to time as regulatory provisions permit.
While there may be delays in recovery of loaned securities or even a loss
of rights in collateral supplied if the borrower fails financially, loans will
be made only to firms deemed by the Fund's management to be of good standing and
will not be made unless, in the judgment of the Fund's management, the
consideration to be earned from such loans would justify the risk.
Bankers' Acceptances
Time drafts are drawn on a U.S. bank by an exporter or importer to obtain a
stated amount of funds to pay for specific merchandise or, less frequently,
foreign exchange. The draft is then "accepted" by the U.S. bank (the drawee)
which in effect unconditionally guarantees to pay the face value of the
instrument on its maturity date. The face of the instrument specifies the dollar
amount involved, the maturity date and the nature of the underlying transaction.
Letters of Credit
Letters of Credit are issued by banks and authorize the beneficiary to draw
drafts upon such banks for acceptance and payment under specified conditions.
15
<PAGE>
Commercial Paper
Commercial paper is an unsecured short-term note of indebtedness issued in
bearer form by business or banking firms to finance their short-term credit
needs.
Dollar Roll Transactions
The Fund may enter into "dollar roll" transactions, which consist of the
sale by the Fund to a bank or broker-dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date and at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. The Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a new purchase and repurchase price fixed and a
cash settlement made at each renewal without physical delivery of securities.
The Fund will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. Government securities or other high grade
debt obligations in an amount sufficient to meet their purchase obligations
under the transactions. The Funds will also maintain asset coverage of at least
300% for all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls may be treated for purposes of the 1940 Act as borrowings of
the Fund because they involve the sale of a security coupled with an agreement
to repurchase. Like all borrowings, a dollar roll involves costs to the Fund.
For example, while the Fund receives a fee as consideration for agreeing to
repurchase the security, the Fund forgoes the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Fund, thereby effectively
charging the Fund interest on its borrowing. Further, although the Fund can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or decrease
the cost of the Fund's borrowing.
The entry into dollar rolls involves potential risks of loss which are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the Fund may be
required to purchase securities in connection with a dollar roll at a higher
price than may otherwise be available on the open market. Since, as noted above,
the counterparty is required to deliver a similar, but not identical security to
the Fund, the security which the Fund is required to buy under the dollar roll
may be worth less than an identical security.
16
<PAGE>
CMC FUND TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Index to Financial Statements.
CMC Small Cap Fund -- Not included in this filing.
CMC International Stock Fund -- Not included in this filing.
CMC High Yield Fund -- Not included in this filing.
CMC Short Term Bond Fund -- Not applicable.
(b) Exhibits:
(1A) Restated Declaration of Trust. Incorporated by reference to
Exhibit 1A of the Registration Statement.
(1B) Amendment No. 2 to Restated Declaration of Trust.
(2) Bylaws. Incorporated by reference to Exhibit 2 of the
Registration Statement.
(4A) Specimen Stock Certificate for CMC Small Cap Fund.
Incorporated by reference to Exhibit 4A of the Registration
Statement.
(4B) Specimen Stock Certificate for CMC International Stock Fund.
Incorporated by reference to Exhibit 4B of the Registration
Statement.
(4C) Specimen Stock Certificate for CMC High Yield Fund.
Incorporated by reference to Exhibit 4C of the Registration
Statement.
(4D) Specimen Stock Certificate for CMC Short Term Bond Fund.
(5A) Investment Advisory Contract for CMC Small Cap Fund.
Incorporated by reference to Exhibit 5A of the Registration
Statement.
(5B) Investment Advisory Contract for CMC International Stock Fund.
Incorporated by reference to Exhibit 5B of the Registration
Statement.
(5C) Investment Advisory Contract for CMC High Yield Fund.
Incorporated by reference to Exhibit 5C of the Registration
Statement.
(5D) Investment Advisory Contract for CMC Short Term Bond Fund.
(8A) Custodian Contract between United States National Bank of
Oregon and CMC Fund Trust. Incorporated by reference to
Exhibit 8A of the Registration Statement.
(8B) Custodian Contract between CMC Fund Trust and Morgan Stanley
Trust Company. Incorporated by reference to Exhibit 8B of the
Registration Statement.
(9A) Transfer Agent Agreement for CMC Small Cap Fund. Incorporated
by reference to Exhibit 9A of the Registration Statement.
C-1
<PAGE>
(9B) Transfer Agent Agreement for CMC International Stock Fund.
Incorporated by reference to Exhibit 9B of the Registration
Statement.
(9C) Transfer Agent Agreement for CMC High Yield Fund. Incorporated
by reference to Exhibit 9C of the Registration Statement.
(9D) Transfer Agent Agreement for CMC Short Term Bond Fund.
(9E) Form of Administrative Services Agreement.*
(10) Opinion of Counsel with respect to CMC Short Term Bond Fund.*
(12) See paragraph (a) of this Item 24.
(17) Powers of Attorney. All powers of attorney previously filed
and herein incorporated by reference.
* To be filed
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
The Registrant has an investment advisory contract with Columbia
Management Co., an Oregon corporation (the "Adviser"). Columbia Daily Income
Company, Columbia Growth Fund, Inc., Columbia Special Fund, Inc., Columbia Fixed
Income Securities Fund, Inc., Columbia Municipal Bond Fund, Inc., Columbia Real
Estate Equity Fund, Inc., Columbia U.S. Government Securities Fund, Inc.,
Columbia Balanced Fund, Inc., Columbia Common Stock Fund, Inc., Columbia
International Stock Fund, Inc., Columbia Small Cap Fund, Inc. and Columbia High
Yield Fund, Inc., each an Oregon corporation, have investment advisory contracts
with Columbia Funds Management Company, an Oregon corporation ("CFMC"). J. Jerry
Inskeep, Jr. and James F. Rippey, Trustees and officers of the Registrant, own
14.9% and 27.2%, respectively, of the voting securities of CFMC; 33.4% each of
the voting securities of Columbia Financial Center Incorporated, an Oregon
corporation; 41.1% each of the voting securities of the Adviser; and 3.6% and
.08%, respectively, of the voting securities of Columbia Trust Company. CFMC
owns 79% of the voting securities of Columbia Trust Company. See "Management" in
the Statement of Additional Information.
Item 26. Number of Holders of Securities
-------------------------------
CMC Small Cap Fund -- At June 30, 1997, all outstanding shares of CMC
Small Cap Fund were held by 73 shareholders.
CMC International Stock Fund -- At June 30, 1997, all outstanding
shares of CMC International Stock Fund were held by 23 shareholders.
CMC High Yield Fund -- At June 30, 1997, all outstanding shares of
CMC High Yield Fund were held by 35 shareholders.
CMC Short Term Bond Fund -- Not applicable.
Item 27. Indemnification
---------------
Under the Declaration of Trust and Bylaws of the Registrant, any
trustee or officer of the Registrant may be indemnified by the Registrant
against all expenses incurred by the trustee or officer in connection with any
claim, action, suit or proceeding, civil or criminal, by reason of his or her
being a trustee or officer of the Registrant, to the fullest extent not
prohibited by law and the Investment Company Act of 1940 (the "1940 Act") and
related regulations and interpretations of the Securities and Exchange
Commission ("SEC").
C-2
<PAGE>
Insofar as reimbursement or indemnification for expenses incurred by
a director or officer in legal proceedings arising under the Securities Act of
1933 (the "1933 Act") may be permitted by the above provisions or otherwise, the
Registrant has been advised that in the opinion of the SEC such reimbursement or
indemnification is against public policy as expressed in the Act and therefore
unenforceable. In the event that any claim for indemnification under the above
provisions is asserted by an officer or trustee in connection with the
securities being registered, the Registrant, unless in the opinion of its
counsel the matter has already been settled by controlling precedent, will
(except insofar as such claim seeks reimbursement of expenses paid or incurred
by an officer or trustee in the successful defense of any such action, suit or
proceeding or claim, issue, or matter therein) submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
The Registrant's trustees and officers are named insureds under an
insurance policy issued by ICI Mutual Insurance Company.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Information regarding the businesses of Columbia Management Co. and
its officers and directors is set forth under "Management of the Fund" in the
Prospectus and under "Management" and "Investment Advisory and Other Fees Paid
to Affiliates" in the Statement of Additional Information and is incorporated
herein by reference. Columbia Trust Company also acts as trustee and/or agent
for the investment of the assets of pension and profit sharing plans in pooled
accounts.
Item 29. Principal Underwriters
----------------------
Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
The records required to be maintained under Section 31(a) of the 1940
Act and Rules 31a-1 to 31a-3 thereunder are maintained by CMC Fund Trust,
Columbia Management Co., and Columbia Trust Company at 1300 SW Sixth Avenue,
Portland, Oregon 97201. Records relating to the Registrant's portfolio
securities are also maintained by United States National Bank of Oregon, 321 SW
Sixth Avenue, Portland, Oregon 97208 and Morgan Stanley Trust Company, One
Evertrust Plaza, Jersey City, New Jersey 07302.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) The Registrant undertakes to file a post-effective amendment for
CMC Short Term Bond Fund, using financial statements that need not be certified,
within four to six months of the later of the effective date of this amendment
to the Registration Statement or commencement of operations of the CMC Short
Term Bond Fund.
(b) The Registrant hereby undertakes to promptly call a meeting of
the shareholders of the Registrant for the purpose of voting on the removal of
any trustee of the Registrant when requested in writing by shareholders of at
least 10 percent of the outstanding shares of the Registrant. The Registrant
undertakes to assist its shareholders in communicating with other shareholders
of the Registrant to the extent required by Section 16 of the 1940 Act or any
regulations promulgated thereunder.
(c) The Registrant hereby undertakes, upon request and without
charge, to furnish a copy of the Registrant's annual report to shareholders to
each person to whom a prospectus is delivered.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland
and State of Oregon on the 2nd day of September, 1997.
CMC FUND TRUST
By: GEORGE L. HANSETH
-------------------------------------
George L. Hanseth
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below on
the 2nd day of September, 1997 by the following persons in the capacities
indicated.
(i) Principal executive officer:
* JAMES F. RIPPEY President and Trustee
- ----------------------------------
James F. Rippey
(ii) Principal accounting and
financial officer:
GEORGE L. HANSETH Vice President
- ---------------------------------- and Trustee
George L. Hanseth
(iii) Trustees:
* J. JERRY INSKEEP, JR. Chairman and
- ---------------------------------- and Trustee
J. Jerry Inskeep, Jr.
* RICHARD L. WOOLWORTH Trustee
- ----------------------------------
Richard L. Woolworth
C-4
<PAGE>
* JOHN A. KEMP Trustee
- ----------------------------------
John A. Kemp
* ALEXANDER S. MACMILLAN Trustee
- ----------------------------------
Alexander S. Macmillan
* PETER C. OLSON Trustee
- ----------------------------------
Peter C. Olson
* PETER T. SHAND Trustee
- ----------------------------------
Peter T. Shand
*By: GEORGE L. HANSETH
------------------------------
George L. Hanseth
Attorney-In-Fact
C-5
<PAGE>
CMC FUND TRUST
EXHIBIT INDEX
Exhibit Description
- ------- -----------
(1B) Amendment No. 2 to Restated Declaration of Trust.
(4D) Specimen Stock Certificate for CMC Short Term Bond Fund.
(5D) Investment Advisory Contract for CMC Short Term Bond Fund.
(9D) Transfer Agent Agreement for CMC Short Term Bond Fund.
(9E) Form of Administrative Services Agreement.*
(10) Opinion of Counsel *
* To be filed.
C-6
Exhibit 1.B.
CMC FUND TRUST
AMENDMENT NO. 2
TO
RESTATED DECLARATION OF TRUST
The undersigned officer of CMC Fund Trust (the "Trust") certifies that the
following amendment to the Restated Declaration of Trust dated October 13, 1993
of the Trust was duly adopted by the Trustees of the Trust effective July 30,
1997.
1. Section 3.06 is amended to add a new Section 3.06.6-6 to read in its
entirety as follows:
"3.06-6 Subject to the relative rights and preferences and
other terms of this Declaration of Trust, the Trustees
authorize the establishment of the fourth Series to be
designated as follows: CMC Short Term Bond Fund."
Dated: July 30, 1997
GEORGE L. HANSETH
-----------------------------------------
George L. Hanseth
Vice President and Assistant Secretary
Exhibit 4.D.
NUMBER [LOGO] SHARES
CMC SHORT TERM BOND FUND, INC.
A SERIES PORTFOLIO OF CMC FUND TRUST, AN OREGON BUSINESS TRUST
This Certifies that
*SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
fully paid and non-assessable Shares of the CMC Short Term Bond Fund
transferable on the books of the Fund by the holder thereof in person or by duly
authorized attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the transfer agent.
Witness the facsimile signatures of its duly authorized officers.
Jeff B. Curtis
SECRETARY
Dated:
James F. Rippey
PRESIDENT
COUNTERSIGNED:
BY TRANSFER AGENT
- -------------------------------------------------------------------
Authorized Officer
<PAGE>
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY A COMMERCIAL BANK OR BY A SECURITIES
FIRM HAVING MEMBERSHIP ON A RECOGNIZED NATIONAL SECURITIES EXCHANGE, WHOSE
SIGNATURE(S) IS KNOWN TO THE TRANSFER AGENT OF THE FUND.
For value received, __________________hereby sell, assign and transfer unto
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Common Stock represented by the within Certificate and do hereby
irrevocably
constitute and appoint Attorney
--------------------------------------------------
to transfer the said stock on the books of the within-named Fund with full
power of substitution in the premises.
Dated, __________________________ 19____
------------------------------------------------------------
Owner
------------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT: BEFORE SIGNING, READ AND COMPLY CAREFULLY
WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) GUARANTEED BY:______________________________________
*The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
THIS SPACE MUST NOT BE COVERED IN ANY WAY
EXHIBIT 5.D.
CMC FUND TRUST
CMC SHORT TERM BOND FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made the __th day of ______, 1997 between CMC FUND TRUST,
an Oregon business trust, (the "Fund") and COLUMBIA MANAGEMENT CO., an Oregon
corporation having its principal place of business in Portland, Oregon (the
"Adviser"). The Fund is registered as an open-end investment company pursuant to
the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an
investment adviser pursuant to the Investment Advisers Act of 1940. The Fund has
established a fourth series of shares, referred to as "CMC Short Term Bond Fund"
(the "Series"), and this Agreement relates to services to be performed by the
Adviser with respect to that Series.
The parties agree as follows:
1. Duties of Adviser. With respect to the Series, the Adviser shall
regularly provide the Fund with research, advice, and supervision with respect
to investment matters and shall furnish continuously an investment program,
recommend what securities shall be purchased or sold and what portion of the
Fund's assets shall be held invested or uninvested, subject always to the
provisions of the Act and the Fund's Declaration of Trust and Bylaws, and
amendments thereto, which amendments shall be furnished to the Adviser by the
Fund. The Adviser shall take any steps necessary or appropriate to carry out its
decisions in regard to the foregoing matters and the general conduct of the
business of the Fund. The Adviser may take into consideration receipt of
research and statistical information and other services rendered to the Fund in
the allocation of commissions from portfolio brokerage business.
2. Allocation of Charges and Expenses.
(a) With respect to the Series, the Adviser shall pay or reimburse the Fund
for payments made by the Fund for all executive salaries and executive expenses,
office rent of the Fund, ordinary office expenses (other than the expense of
clerical services relating to the administration of the Fund), and for any other
expenses that, if otherwise borne by the Fund, would cause the Fund to "be
deemed to be acting as a distributor of securities of which it is the issuer,
other than through an underwriter," pursuant to Rule 12b-1 under the Act. The
Adviser shall provide investment advisory, statistical, and research facilities
and all clerical services relating to research, statistical, and investment work
with respect to the Series.
(b) The Adviser shall not be required to pay any expenses of the Fund other
than those enumerated in this Agreement. The Fund will assume all other costs,
including the cost of its custodian, legal, auditing, and accounting expenses,
disinterested directors'
1
<PAGE>
fees, taxes, and governmental fees, interest, brokers' commissions, transaction
expenses, cost of stock certificates, and any other expenses (including clerical
expenses) of issue, sale, repurchase, or redemption of shares, expenses of
registering or qualifying shares for sale, transfer taxes, and all expenses of
preparing the Fund's registration statement and prospectus, and the cost of
printing and delivering to shareholders prospectuses and reports.
3. Compensation of the Adviser. For the services to be rendered, the
facilities to be furnished, and the payments to be made by the Adviser, as
provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay
to the Adviser a fee computed at the annual rate of .25 of 1 percent of daily
net assets of the Series. If the asset value is not required to be determined on
any particular business day, then for the purposes of this Section 3, the asset
value of a share as last determined shall be deemed to be the asset value of a
share as of the close of business on that day. If there is no business day in
any calendar month, the fee shall be computed on the basis of the asset value of
a share as last determined, multiplied by the average number of shares
outstanding on the last day of the month.
4. Covenants of the Adviser. In connection with purchases or sales of
portfolio securities for the account of the Fund, neither the Adviser nor any
officer, director, or employee of the Adviser shall act as a principal. The
Adviser covenants that it and its employees will comply with investment
restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of
its affiliates give any advice to clients concerning the shares of the Fund, it
will act solely as investment counsel for the clients and not on behalf of the
Fund.
5. Limitation on Liability of Adviser. The Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this agreement relates, except a loss
resulting from willful malfeasance, bad faith, or gross negligence on the part
of the Adviser in the performance of its duties or from reckless disregard by
the Adviser of its obligations and duties under this Agreement. The federal
securities laws impose liabilities under certain circumstances on persons who
act in good faith, and therefore nothing herein shall in any way constitute a
waiver or limitation of any rights which the Fund may have under any federal
securities laws.
6. Duration and Termination of this Agreement.
(a) This Agreement shall remain in force for two years from the date
hereof, and it may be continued from year to year thereafter if approved
annually by a vote of a majority of the Fund's shareholders or by its trustees
and in either case a vote of a majority of the trustees who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
2
<PAGE>
(b) This Agreement may be terminated at any time without the payment of any
penalty by vote of the trustees of the Fund, by vote of a majority of the
outstanding shares of the Fund, or by the Adviser, on 60 days written notice to
the other party.
(c) This Agreement shall automatically terminate if it is assigned. The
Adviser shall notify the Fund of any change in the officers or directors of the
Adviser within a reasonable time after the change. The terms "assignment," "vote
of a majority of the outstanding voting securities", and "interested persons"
shall have the meanings specified in the Act.
7. Applicable to Specific Series. The Adviser agrees that, with respect to
any obligation of the Fund under this Agreement, the Adviser shall look only to
the assets of the Series to which this Agreement relates.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as
of the day and year first written above.
CMC FUND TRUST
By
--------------------------------------
Title: Vice President
COLUMBIA MANAGEMENT CO.
By
--------------------------------------
Title: Senior Vice President
3
EXHIBIT 9.D.
CMC FUND TRUST
CMC SHORT TERM BOND FUND
TRANSFER AGENT AGREEMENT
__________________, 1997
This Agreement is made between CMC FUND TRUST ("Fund"), an Oregon business
trust, and COLUMBIA TRUST COMPANY ("Agent"), an Oregon corporation, as of
______________, 1997.
Fund is an investment company registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), whose shares are registered for sale under
the Securities Act of 1933, as amended (the "1933 Act");
Fund has established a Series of shares (the "Series"), referred to as "CMC
Short Term Bond Fund"; and
Fund desires to have Agent serve as transfer agent and dividend disbursing
agent for Fund with respect to the Series, and Agent is willing to serve as
transfer agent and dividend disbursing agent for Fund with respect to the
Series.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, Fund and Agent agree as follows:
1. Appointment. Fund hereby appoints Agent as transfer agent for the shares
of the Fund, as described in the Declaration of Trust of the Fund, (the "Stock")
and dividend disbursing agent for Fund, and Agent agrees to serve as transfer
agent and dividend disbursing agent under the terms and conditions hereinafter
set forth.
2. Documents. Fund has furnished Agent copies of Fund's Declaration of
Trust, investment advisory contract, custodian contract, all account
applications forms, and other documents relating to shareholders' accounts and a
certified copy of the resolutions of Fund's Trustees adopting Fund's form of
stock certificate and approving the appointment of Agent hereunder. Fund shall
furnish promptly to Agent a copy of any amendment or supplement to the
above-mentioned documents and any additional documents necessary for Agent to
perform its functions hereunder.
3. Authorized Shares. Fund certifies to Agent that, as of the date hereof,
Fund is authorized to issue an unlimited number of shares.
4. Services to be Performed. Agent shall be responsible for performing the
duties of transfer agent and dividend disbursing agent for Fund, which duties
are more fully
1
<PAGE>
set forth in Schedule A to this Agreement. All computer programs and procedures
developed by Agent to perform services required under this Agreement shall
remain the exclusive property of Agent.
5. Maintenance of Records; Confidentiality. All records maintained by Agent
as required on Schedule A shall remain the exclusive property of Fund and shall
be preserved and retained by Agent while this Agreement remains in effect. Agent
shall make available during regular business hours all records and other data
created and maintained pursuant to this Agreement for reasonable audit and
inspection by the Fund or any person retained by Fund. Agent shall treat all
records and other information with respect to Fund with confidence.
6. Compensation. As compensation for the performance of the services
described in parts I and II of Schedule A, Agent shall receive from Fund a per
account fee in the amount set forth in Schedule B, but in no event less than
$1,500 per month. These fees will be charged for any account in existence during
any part of a month, and the fees will be charged for any part of a month
preceding termination of this Agreement. As compensation for the performance of
extra charge services described in part III of Schedule A, Agent shall be paid
by Fund at the rates listed on Schedule B. Upon request of the Agent, the hourly
rates listed on Schedule B may be adjusted, subject to approval by the Fund's
Trustees in accordance with paragraph 17.
7. Expenses. Fund agrees to pay directly or reimburse Agent for postage and
the procurement or printing of share certificates, statements, envelopes,
checks, reports, tax forms, proxies, or other forms of printed material required
in the performance of its services to Fund under this Agreement, and Agent
agrees that Fund may purchase these materials directly for use by Agent, subject
to prior approval by Agent as to the compatibility of any materials with Agent's
data processing equipment. Fund agrees to pay directly or reimburse Agent for
all freight and other delivery charges and insurance or bonding charges incurred
by Agent in delivering certificates to shareholders and any and all other
out-of-pocket expenses and charges incurred by Agent in performing services
under this Agreement.
8. Monthly Statement. At the end of each month during the term of this
Agreement and upon termination of this Agreement, Agent will render an itemized
statement to Fund for its fees and expenses under this Agreement. Payment by
Fund is due 10 days from the date the statement is received.
9. Compliance With Governmental Rules and Regulations.
9.1 Agent represents that it is registered with the Securities and
Exchange Commission as a transfer agent under Section 17A of the Securities
Exchange Act of 1934, as amended, and will notify the Fund promptly if its
registration is revoked or if any proceeding is commenced before the Securities
and Exchange Commission with may lead to revocation. Agent shall be responsible
for compliance with all laws, rules,
2
<PAGE>
and regulations of governmental authorities having jurisdiction over transfer
agents and their activities.
9.2 Except for the accuracy of information furnished to Fund by Agent,
Fund assumes full responsibility for the preparation, contents, and distribution
of its prospectuses and for compliance with all applicable requirements of the
1933 Act, the 1940 Act, and any other laws, rules, or regulations of
governmental authorities with jurisdiction over Fund.
10. References to Agent. Fund shall not circulate any printed matter that
contains any reference to Agent without the prior written approval of Agent,
except printed matter that identifies Agent as transfer agent and dividend
disbursing agent for Fund.
11. Acts of God, National Emergency, etc. Agent shall not be liable for
loss of data, delays, or errors occurring by reasons of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood, catastrophe, acts of God, insurrection, war,
riot, failure of transportation, communication, or power supply, or machine
breakdown. Agent shall use its best efforts to minimize the likelihood of
damage, loss of data, delays, or errors resulting from such uncontrollable
events, and if damage, loss of data, delays, or errors occur, Agent shall use
its best efforts to mitigate the effects of the occurrence.
12. Standard of Care. Agent shall at all times act in good faith and use
its best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement and to absorb all costs for time, materials, or
other expenses necessary to correct any errors made by Agent. Agent shall not be
liable for any loss or damage due to its errors unless the errors are caused by
its gross negligence, bad faith, or willful misconduct or that of its employees
or agents. Fund agrees to pay Agent, at the rates set forth in Schedule B, for
any excess work required by Agent due to the errors of Fund's employees or
representatives or due to incorrect data furnished to Agent by Fund, Fund's
investment adviser, or Fund's custodian.
13. Instructions and Opinion of Counsel. At any time Agent may apply to an
officer of Fund for instructions and consult counsel for Fund or its own counsel
on any matter arising in connection with this Agreement. Agent shall not be
liable for any action taken or omitted by it in good faith in accordance with
such instructions or with the advice or opinion of such counsel.
14. Indemnification. Fund shall indemnify and hold Agent harmless from all
loss, cost, damage, and expense, including reasonable expenses for counsel,
incurred by Agent resulting from any claim, demand, action, or suit in
connection with the performance of its duties hereunder or as the result of
acting upon any instruction, advice, or opinion obtained pursuant to paragraph
13 hereof, upon any other instruction reasonably believed by Agent to have been
properly executed by a duly authorized officer
3
<PAGE>
of Fund, or upon any information, data, records, or documents provided to Agent
by Fund, Fund's investment adviser, or Fund's custodian. This indemnification
shall not apply to actions or omissions constituting gross negligence, bad
faith, or willful misconduct of Agent, its employees, or agents. Prior to
confessing any claim against it which may be subject to this indemnification,
Agent shall give Fund reasonable opportunity to defend against that claim in its
own name or in the name of the Agent.
15. Fidelity Bond. Agent will maintain in force throughout the duration of
this Agreement a fidelity bond that complies with applicable regulatory
requirements, written by a reputable bonding company, covering theft,
embezzlement, forgery, and other acts of malfeasance by Agent, its employees, or
agents in connection with services performed for Fund.
16. Duration and Termination.
16.1 This Agreement shall remain in force until two years from the
date hereof and may be continued from year to year thereafter if approved
annually by a vote of a majority of the Fund's shareholders (as determined in
accordance with the requirements of the 1940 Act) or by its Trustees and in
either case a vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on approval.
16.2 This Agreement may be terminated at any time without the payment
of any penalty by vote of the Trustees of Fund or by vote of a majority of the
outstanding shares of Fund on 60 days written notice to the other party. This
Agreement may be terminated by Agent upon 180 days written notice thereof to
Fund. Any termination in accordance with this Agreement shall not affect the
rights and obligations of the parties under paragraphs 11, 12, 13 and 14 hereof.
Immediately upon termination of this Agreement, all records and other data in
the possession of Agent which are the property of Fund shall be furnished to
Fund in computer written data forms as requested by Fund.
16.3 This Agreement shall automatically terminate if it is assigned,
the term "assignment" for this purpose having the meaning defined in Section
2(a)(4) of the 1940 Act. Agent shall notify Fund of any change in the officers
or directors of Agent within a reasonable time after the change.
17. Amendments. This Agreement may be amended with the written consent of
Agent and Fund if the amendment has been approved by the Trustees of Fund,
including a majority of the disinterested Trustees.
18. Applicable to Specific Series. Agent agrees that, with respect to any
obligation of Fund under this Agreement, Agent shall look only to the assets of
the Series.
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19. Notices. Any notice shall be officially given when sent by registered
or certified mail by either party to the following addresses, provided that
either party may notify the other of any changed address to which such notices
should be mailed hereunder:
If to Fund: CMC Fund Trust
1300 SW Sixth Avenue
PO Box 1350
Portland, Oregon 97207
Attention: President
If to Agent: Columbia Trust Company
1301 SW Fifth Avenue
PO Box 1350
Portland, Oregon 97207
Attention: President
20. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Oregon.
21. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, supersedes any agreements previously entered into by them,
and may be amended only by written agreement, duly executed on behalf of the
respective parties in accordance with paragraph 17.
IN WITNESS WHEREOF, the parties hereto cause this Agreement to be duly
executed and to become effective as of the date first written above.
CMC FUND TRUST
By
--------------------------------------
COLUMBIA TRUST COMPANY
By
--------------------------------------
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SCHEDULE A
I. Shareholder Services
A. Maintain all shareholder records on electronic data processing
equipment, including:
1. Share balances
2. Account transaction history
3. Names and addresses
4. Certificate records
5. Distribution records
6. Transfer records
7. Over-all control records
B. New Accounts
1. Deposit all moneys received into transfer account maintained for
the Custodian
2. Set up account according to shareholders' instructions as to:
a. Amount of shares purchased
b. Whether to deliver stock certificates to shareholders
C. Additional Purchases
1. Deposit moneys received into a transfer account maintained for
the Custodian
2. Issue shareholder confirmations
D. Redemptions - Full and Partial
1. Redeem shares upon shareholder request
2. Issue checks for the amount of redemption
3. Issue and mail shareholder confirmations
E. Transfer shares as requested, which includes obtaining necessary
papers and documents to satisfy transfer requirements. On irregular
transfers requiring
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special legal opinions, such special legal fees, if any, are to be
paid for by the Fund.
F. Prepare and mail certificates as requested by shareholders
G. Process changes, corrections of addresses and registrations
H. Compute distributions, dividends and capital gains
1. Reinvest in additional shares as requested by shareholders
2. Issue checks as requested by shareholders
3. Advise each shareholder of amount of dividends received and tax
status annually
I. Handle replacement of lost certificates
J. Produce transcripts of shareholder account history as required
K. Maintain the controls associated with the computer programs and manual
systems to arrive at the Company's total shares outstanding
L. Receive mail and perform other administrative functions relating to
transfer agent work
II. Reports and Schedules
A. Daily
1. Name and address changes
2. Name and address additions and deletions
3. Transaction Register
a. Purchases
b. Redemptions
c. Transfer and adjustments
4. Cash reconciliation - Cash received for day
5. Check reconciliation - checks issued for day
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6. Transaction reconciliation
a. Amount received
b. Total shares purchased
c. Number of purchase transactions
d. Dollar amount redeemed
e. Shares redeemed
f. Number of accounts redeeming
g. Checks issued for redemptions
B. Monthly/Daily
1. Balance list of shareholders in account number sequence
a. Number of shares outstanding for which stock certificates
were issued
b. Number of shares outstanding for which stock certificates
were not issued
c. Total shares outstanding (a + b)
2. a. Purchases, sales and adjustments
b. Certificates issued
c. Certificates, redemptions and transfers
d. Certificates reconciliations by certificate number
C. Monthly
1. Sales by states for month
D. Periodically
1. Alphabetical account listing
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III. Extra Charge Services
A. Mailing labels or other mailing services to shareholders
B. Services in connection with any stock splits
C. The computer system is designed to produce almost any display of
statistical management or accounting data in almost any format desired
by the management, auditors or directors. The parameters of reporting
are only limited to the data contained on disc. With sufficient notice
this information is available to management in accordance with charges
as itemized in Schedule B.
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CMC FUND TRUST
CMC SHORT TERM BOND FUND
SCHEDULE B
BASIC FEE
$1.00 per account per month
TIME AND MATERIAL FOR EXTRA SERVICES
Computer............. ....... ....... ....... ....... ....... ....... At Cost
Key punch............ ....... ....... ....... ....... ....... ....... At Cost
Clerical............. ....... ....... ....... ....... ....... ....... At Cost
Programming and Direct
Technical Management....... ....... ....... ....... ....... ....... At Cost
Travel and per diem expenses
(Chargeable only when authorized
in advance by Fund)........ ....... ....... ....... ....... ....... At Cost
Mailing Services.............. ....... ....... ....... ....... ....... At Cost
Permanent file supplies, forms,
microfilm, microfiche...... ....... ....... ....... ....... ....... At Cost
Any of the above services when performed outside regular working hours of Agent
may be billed at 150 percent of the above.
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