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. 13 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 12
(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
J. Jerry Inskeep, Jr.
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:
X immediately upon filing pursuant to paragraph (b)
-----
on _______________ pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on _______________ pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on _________________ pursuant to paragraph (a)(2) of Rule 485
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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
Title of Securities Being Registered: Shares of Beneficial Interest
1
<PAGE>
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.... "Financial Highlights"
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";
"Distributions"; "How
Investments in the Fund are
Made" and Cover
Item 7. Purchase of Securities Being
Offered...................... "How Investments in the
Fund Are Made" 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."
Item 14. Management of the Registrant....... "Management"
2
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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............... "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 "How
Investments in the Fund are
Made."
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............... "Financial Statements"
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
<PAGE>
Part A-I
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[LOGO]
Columbia
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios 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 two of its portfolios
(the "Funds"), the CMC Small Cap Fund (the "Small Cap Fund") and the CMC
International Stock Fund (the "International Stock Fund"). The Funds have
different investment objectives.
Small Cap Fund. The Small Cap Fund's investment objective is to achieve
capital appreciation by investing principally in common stocks or securities
convertible into common stocks of companies that each have an aggregate market
valuation of less than $800 million ("small cap"). See "Small Cap Fund --
Investment Objective and Policies." The Small Cap Fund may, however, invest up
to 35 percent of its total assets in the securities of companies with larger
capitalizations when the Trustees or the Fund's investment adviser believes the
potential for capital appreciation of such securities is comparable to that of
small cap securities. While over the long-term small cap securities have on
average outperformed the Standard and Poor's 500 Stock Index (the "S&P 500"),
which the Fund believes is generally representative of securities of companies
with larger capitalizations, they have also been more volatile and riskier than
the market as a whole.
International Stock Fund. The International Stock Fund's investment
objective is to provide long-term capital appreciation by investing primarily in
foreign equity securities. Under normal market conditions, at least 75 percent
of the Fund's foreign equity securities will be securities of well capitalized,
seasoned companies. See "International Stock Fund -- Investment Objective and
Policies." Investments in foreign securities involve special risks, including
currency risk and political risk, which may result in significant price
fluctuations. See "International Stock Fund -- Risk Considerations."
The Funds enable clients of Columbia Management Co. ("CMC" or "Adviser") to
invest in a diversified portfolio of small cap securities or foreign equity
securities rather than having to purchase individual securities for their
accounts.
This Prospectus concisely sets forth information about the Funds that
clients should know before investing and should be retained for future
reference. A Statement of Additional Information about the Funds dated December
24, 1997 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 incorporated by reference into this Prospectus.
THE FUNDS CHARGE NO SALES LOAD. SHARES OF THE FUNDS 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.
December 24, 1997
<PAGE>
Table Of Contents
Fund
Expenses............................................................2
Financial
Highlights..........................................................3
Features of the
Funds...............................................................4
How Investments in the Funds Are
Made................................................................5
Redemptions.........................................................6
Determination of Net Asset
Value...............................................................6
Description of the
Funds...............................................................8
Small Cap
Fund.......................................................8
International Stock
Fund.......................................................9
Distributions......................................................11
Performance
Information........................................................11
Voting
Rights.............................................................13
Taxes..............................................................13
Management of the
Funds..............................................................14
Transfer
Agent..............................................................15
Additional
Information........................................................16
FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of
each Fund will incur. The purpose of this table is to assist you in
understanding the various costs and expenses an investor in a Fund will bear
directly or indirectly. The expenses and fees set forth in the table are for the
1997 fiscal year. "Other Operating Expenses" includes custodial and transfer
agent fees and audit, legal, and other business operating expenses. See
"Management of the Funds." If assets under separate management by CMC are
invested in a Fund, the shareholder will pay no fee pursuant to its advisory
contract with CMC with respect to those assets invested in that Fund (for the
period during which the assets are invested in the Fund).
Small Cap International
Fund Stock Fund
--------------------------------
Shareholder Transaction Expenses None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management Fees .75% .75%
12b-1 Fees None None
Other Operating Expenses .01% .30%
Total Fund Operating Expenses .76% 1.05%
EXAMPLE OF EXPENSES
The following example illustrates the expenses that you would pay on a
$1,000 investment over the periods shown, assuming a 5% annual rate of return
and redemption at the end of each period.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Small Cap Fund $8 $24 $42 $94
International Stock Fund $11 $33 $58 $128
The above example should not be considered a representation of past or future
expenses or performance. The 5% rate of return used in the example is required
by the SEC for comparative purposes; actual expenses and performance may be
greater or less than those shown.
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<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The tables below have been audited by Coopers & Lybrand, L.L.P., independent
accountants, as stated in their report appearing on page 41 in the Statement of
Additional Information. This information should be reviewed in conjunction with
the financial statements and notes thereto appearing in the Statement of
Additional Information. Additional information about the performance of the
Funds for fiscal 1997 is in the Statement of Additional Information under
"Financial Statements."
SMALL CAP FUND
--------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 52.04 $ 56.00 $ 49.35 $ 56.44 $ 50.68 $ 49.53 $ 30.66 $ 40.12 $ 40.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net Investment Income (Loss)........... (0.04) (0.08) 0.22 0.18 0.05(2) 0.03 0.05(2) 0.08(2) 0.13(2)
Net Realized and Unrealized Gains
(Losses) on Investments.............. 14.08 16.79 10.88 1.99 15.50 2.72 20.00 (9.43) (0.01)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations... 14.04 16.71 11.10 2.17 15.60 2.75 20.05 (9.35) 0.12
------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment
income).............................. (0.16) (0.17) (0.10) (0.03) (0.06) (0.11)
Dividends (in excess of net investment
income).............................. (0.01)
Distributions (from capital gains)..... (11.68) (20.67) (4.25) (8.99) (9.74) (1.57) (1.12)
Distributions (in excess of capital
gains)............................... (0.04) (0.09)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions................ (11.68) (20.67) (4.45) (9.26) (9.84) (1.60) (1.18) (0.11)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period......... $ 54.40 $ 52.04 $ 56.00 $ 49.35 $ $56.44 $ 50.68 $ 49.53 $ 30.66 $ 40.12
======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return........................... 26.98% 30.30% 22.55% 3.87% 30.87% 5.54% 65.44% -23.35% 0.30%(3)
Ratios/Supplemental Data
Net Assets, End of Period (in
millions) ........................... $522 $522 $537 $468 $493 $411 $276 $20 $ 128
Ratio of Expenses to Average Net
Assets............................... 0.76% 0.78% 0.77% 0.78% 0.79% 0.80% 0.81% 0.91% 1.46%
Ratio of Net Investment Income (Loss)
to Average Net (0.08)% (0.14)% 0.43% 0.29% 0.17% 0.06% 0.12% 0.21% 1.85%
Assets.................................
Portfolio Turnover Rate................ 168.72% 147.77% 125.8% 97.24% 64.39% 56.02% 69.65% 59.42% 34.48%
Average Commission Rate Paid on
Portfolio Transactions (4) .......... $0.0563 $0.0539
</TABLE>
(1) From inception of operations on August 30, 1989. Ratios and portfolio
turnover rates are annualized.
(2) Based on average number of shares outstanding during the period.
(3) Not annualized.
(4) The average commission rate paid by the fund is computed by dividing the
total dollar amount of commissions paid during the period by the total
number of shares purchased and sold during the period for which commissions
were charged.
3
<PAGE>
INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
1997 1996 1995 1994(1)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 42.46 $ 37.06 $ 39.51 $ 40.00
Income from Investment Operations:
Net Investment Income............................ 0.41 0.32 0.39 0.10
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currency
Transactions................................... 6.16 5.86 (2.64) (0.59)
Total from Investment Operations............ 6.57 6.18 (2.25) (0.49)
Less Distributions:
Dividends (from net investment income)........... (0.46) (0.78) (0.19)
Dividends (in excess of net investment
income)........................................ (0.01)
Distributions (from capital gains) (5.86)
------- ------- ------- -------
Total Distributions......................... (6.32) (0.78) (0.20) --
------- ------- ------- -------
Net Asset Value, End of Period................... $ 42.71 $ 42.46 $ 37.06 $ 39.51
======= ======= ======= =======
Total Return..................................... 15.47% 16.67% -5.69% -1.23% (2)
Ratios/Supplemental Data
Net Assets, End of Period (in millions).......... $ 81 $ 74 $ 69 $ 84
Ratio of Expenses to Average Net Assets.......... 1.05% 1.00% 0.98% 1.16%
Ratio of Net Investment Income to Average
Net Assets.................................. 0.88% 0.78% 0.99% 0.53%
Portfolio Turnover Rate.......................... 126.56% 119.98% 158.32% 123.80%
Average Commission Rate Paid
on Portfolio Transactions (3) ................. $0.0050 $0.0012
</TABLE>
(1) From inception of operations on February 1, 1994. Ratios and portfolio
turnover rates are annualized.
(2) Not annualized.
(3) The average commission rate paid by the fund is computed by dividing the
total dollar amount of commissions paid during the period by the total
number of shares purchased and sold during the period for which commissions
were charged.
- -------------------------------------------------------------------------------
FEATURES OF THE FUNDS
- -------------------------------------------------------------------------------
The Trust enables clients of CMC to invest in diversified portfolios of
either small cap securities or foreign securities rather than purchasing such
securities on an individual basis. Although there are risks that cannot be
eliminated in owning securities, management believes the Funds offer 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, convenience, and, with respect to the
International Stock Fund, foreign custody. Notwithstanding those advantages,
investments by the Funds in small cap companies and foreign securities,
respectively, may be regarded as speculative. See "Investment Objective and
Policies" for each Fund.
By combining a portion of the capital of CMC clients' accounts into a large
portfolio, it is possible to offer all clients who invest in a Fund effective
access to either small capitalization or foreign company issues, as the case may
be, as well as professional investment supervision.
4
<PAGE>
Each 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 ("Declaration of Trust"). The Trust has established
two other portfolios, the CMC High Yield Fund and the CMC Short Term Bond 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 transfer agent for the Funds 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 limitiations of the
applicable 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 a 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.
Each 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. See
"Fund Expenses."
- -------------------------------------------------------------------------------
HOW INVESTMENTS IN THE FUNDS ARE MADE
- -------------------------------------------------------------------------------
Investments in a Fund may be made directly by an institutional client of
CMC. In addition, an independent fiduciary of a CMC client account, after
careful review of this prospectus, including Fund expenses and its consistency
with the client's written investment guidelines, may approve the investment in a
Fund and authorize CMC to invest in a Fund at its discretion for the client's
portfolio, subject to limitations imposed by the independent fiduciary. If CMC
is deemed to be a fiduciary with respect to a shareholder of a Fund under the
Employee Retirement Income Security Act of 1974, certain conditions must be
satisfied before assets may be invested in a Fund by CMC on behalf of the
shareholder. See "Investment Advisory and Other Fees Paid to Affiliates" in the
Statement of Additional Information.
The shares of each Fund are purchased and redeemed at the net asset value
next determined after an order is received by the Fund. Net asset value of each
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 a 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 Funds have no policy
with respect to initial or subsequent minimum investments, purchase orders may
be refused at the discretion of a Fund.
Shares purchased are credited to the CMC client's account on the record
books of the applicable Fund, with confirmations supplied by the Fund to the
account custodian for the CMC client.
5
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Shareholder inquiries, including requests for certificated shares, may be
made by writing to CMC or the applicable Fund at 1300 SW Sixth Avenue, Portland,
Oregon 97207 or by calling (503) 222-3600.
- -------------------------------------------------------------------------------
REDEMPTIONS
- -------------------------------------------------------------------------------
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 on days when the NYSE is open for business.
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 a 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, a 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.
Each Fund 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 each 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 who is redeemed in kind may incur brokerage fees upon the sale of
any securities distributed upon redemption.
- -------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
The net asset value per share of each 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).
Trading in securities on many foreign securities exchanges and
over-the-counter markets is normally completed at various times before the close
of business on each day on which the NYSE is open. In
6
<PAGE>
addition, trading of these foreign securities may not take place on all NYSE
business days. Trading may take place in various foreign markets on Saturday or
on other days the NYSE is not open for business and on which a Fund's net asset
value is therefore not calculated. The calculation of a Fund's net asset value
may not take place contemporaneously with the determination of the prices of the
Fund's portfolio securities. Events affecting the values of portfolio securities
that occur between the time the prices are determined and the close of the NYSE
will not be reflected in a Fund's calculation of net asset value unless the
Trustees deem that the particular event would materially affect net asset value.
Assets of foreign securities are translated from the local currency into U.S.
dollars at the prevailing exchange rates.
7
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- -------------------------------------------------------------------------------
Small Cap Fund
Investment Objective and Policies. The investment objective of the Small
Cap Fund is to achieve capital appreciation by investing, in normal
circumstances, at least 65 percent of the value of the Fund's total assets in
common stocks or securities convertible into common stocks of "small cap"
companies. As of the date of this Prospectus, a company is considered small cap
if it has an aggregate market valuation of less than $800 million. Upon notice
to shareholders, the definition of small cap may change in the future if CMC
determines, based on changes in market levels and accepted industry definitions,
that a different market capitalization is more appropriate. There is no minimum
aggregate market valuation for a company to be considered an appropriate
investment for the Fund. The Fund may, however, invest from time to time up to
35 percent of the value of the Fund's total assets in the securities of larger,
more established companies when the Trustees or the Fund's investment adviser
believes such securities offer capital appreciation potential that is generally
comparable to small cap securities. During periods when the Adviser determines
market conditions call for a temporary defensive posture, the Fund may without
limit retain cash or invest in high-grade fixed income securities or money
market instruments. See "Additional Information -- Temporary Investments and --
Repurchase Agreements." To the extent the Fund's assets are invested in these
types of securities or held in cash, the Fund will not be invested in securities
designed to achieve the Fund's investment objective of capital appreciation. The
Fund may also purchase certain options and futures contracts. See "Additional
Information -- Options and Financial Futures Transactions." The Fund's
investment objective may be changed by the Trustees without shareholder approval
upon 30 days written notice.
The Small Cap Fund may invest in convertible debentures and convertible
preferred stock, each convertible into the common stock of small cap companies.
Convertible debentures are interest-bearing debt securities, typically
unsecured, that represent an obligation of the corporation providing the owner
with claims to the corporation's earnings and assets before common and preferred
stock owners, generally on par with unsecured creditors. If unsecured, claims of
convertible debenture owners would be inferior to claims of secured debt
holders. Convertible preferred stocks are securities that represent an ownership
interest in a corporation providing the owner with claims to the corporation's
earnings and assets before common stock owners but after bond owners.
Investments by the Small Cap Fund in convertible debentures or convertible
preferred stock would be a substitute for an investment in the underlying common
stock, primarily either in circumstances where only the convertible security is
available in quantities necessary to satisfy the Fund's investment needs (for
example, in the case of a new issuance of convertible securities) or where,
because of financial market conditions, the conversion price of the convertible
security is comparable to the price of the underlying common stock, in which
case a preferred position with respect to the corporation's earnings and assets
may be preferable to holding common stock.
The Small Cap Fund may also invest in warrants, which are options to buy a
stated number of underlying securities at a specified price any time during the
life of the warrants. The securities underlying these warrants will be the same
types of securities that the Fund will invest in to achieve its investment
objective of capital appreciation. The purchaser of a warrant expects the market
price of the underlying security will exceed the purchase price of the warrant
plus the exercise price of the warrant, thus resulting in a profit. If the
market price never exceeds the purchase price plus the exercise price of the
warrant before the expiration date of the warrant, the purchaser will suffer a
loss equal to the purchase price of the warrant. Securities held by the Small
Cap Fund will generally be traded in established over-the-counter markets or
listed on a national or regional securities exchange. The Small Cap Fund does
not intend to concentrate its investments in any particular industry or group of
industries, but to diversify its holdings among as many different companies and
industries as seems appropriate in light of the conditions prevailing at any
given time. The Small Cap Fund may also
8
<PAGE>
invest up to 5 percent of its total assets in equity securities of closed-end
investment companies where the investment policies of the closed-end investment
company are generally similar to those of the Fund. To the extent the Fund makes
any such investments, shareholders of the Fund will incur, indirectly,
additional investment advisory and other expenses as indirect shareholders of
the closed-end investment company.
The Small Cap Fund may invest up to one-third of its total assets in
securities issued by companies in developed foreign countries, principally
companies in Canada, Western Europe, and Asia, or in American Depository
Receipts ("ADRs") for foreign securities. For a discussion of the special risks
involved with investing in foreign securities, see "International Stock Fund --
Risk Considerations."
Investments in small cap companies may involve greater risks, with a
corresponding effect on the Small Cap Fund's net asset value, than investments
in larger companies. For this reason, the Fund is not intended to be a complete
investment vehicle. The Fund is designed for that portion of a portfolio that
can appropriately be invested in securities with greater risk but also greater
potential for appreciation.
International Stock Fund
Investment Objective and Policies. The International Stock Fund's
investment objective is to provide long-term capital appreciation by investing
primarily in equity securities of companies based outside the United States.
This objective may be changed by the Trustees without shareholder approval upon
30 days written notice. There is no assurance that the Fund will achieve its
investment objective.
Under normal market conditions, the International Stock Fund will invest in
equity securities (i.e., common stock and preferred stock), including securities
convertible into equity securities, of issuers located outside the United
States. Under normal market conditions, at least 75 percent of the Fund's assets
invested in equity securities will be securities of well capitalized, seasoned
companies. The Fund considers a company well capitalized if it has an aggregate
market valuation over $500 million. The Fund may invest in smaller, less
seasoned companies when the Fund's investment adviser believes such companies
offer attractive opportunities consistent with the Fund's overall investment
objective. An investment in a less seasoned company may involve greater risks
than an investment in a larger, more established company. See "Additional
Information -- Investments in Small and Unseasoned Companies." In addition to
investing in equity securities, the Fund may also enter into foreign currency
exchange contracts and purchase other securities to protect against fluctuations
in exchange rates. These securities are described below and under "Additional
Information."
The International Stock Fund's investment adviser intends to select
portfolio securities using what is sometimes referred to as a "top down"
approach, under which the international investment environment is first analyzed
in the following areas: economic activity and prospects for growth in the United
States and foreign countries, trends in monetary and fiscal policy, the outlook
for currency exchange rates, prospects for political changes, investor
sentiment, and market momentum. This "top down" analysis aids in identifying the
appropriate allocation of investments among various geographic regions or
countries and the various business sectors within those regions or countries.
The Fund does not intend to concentrate its investment in any particular
industries. Once the analysis is completed, specific portfolio selections are
made. Factors affecting individual security selection include:
* financial strength of the issuer
* ability of management
* dynamics of the business sector
* earnings growth and profit margins
* trend in sales
* potential for new product development
* dividend payment history and potential
* financial ratios, including price/earnings and price/book ratios
* investment for the future in research and facilities
9
<PAGE>
The International Stock Fund will invest in at least three different
foreign countries and may invest in companies located anywhere in the world. The
Fund intends to invest principally in the following countries: Belgium, Brazil,
Denmark, Finland, France, Germany, Italy, India, The Netherlands, Norway, Spain,
Sweden, Switzerland, the United Kingdom, Australia, Hong Kong, Japan, New
Zealand, Singapore, Canada, and Mexico.
Currency Management. The value of the International Stock Fund will
fluctuate as a result of changes in the exchange rates between the U.S. dollar
and the currencies in which the foreign securities or bank deposits held by the
Fund are denominated. To reduce or limit exposure to adverse changes in currency
exchange rates (referred to as "hedging"), the Fund may enter into forward
currency exchange contracts that in effect lock in a rate of exchange during the
period of the forward contract. Forward contracts are usually entered into with
currency traders, are not traded on securities exchanges, and usually have a
term of less than one year but can be renewed. A default on a contract would
deprive the Fund of unrealized profits or force the Fund to cover its
commitments for purchase or sale of currency, if any, at the market price. The
Fund will only enter into forward contracts for hedging and not for speculation.
If required by the Investment Company Act or the SEC, the Fund may "cover" its
commitment under the forward contracts by segregating cash or liquid high-grade
securities with the Fund's custodian in an amount not less than the value of the
Fund's total assets committed to the consummation of the contracts. Under normal
market conditions, no more than 25 percent of the Fund's assets may be committed
to the consummation of currency exchange contracts.
The International Stock Fund may also purchase or sell foreign currencies
on a "spot" (cash) basis or on a forward basis to lock in the U.S. dollar value
of a transaction at the exchange rate or rates then prevailing. The Fund may use
this hedging technique in an attempt to insulate itself against possible losses
and gains resulting from a change in the relationship between the U.S. dollar
and the relevant foreign currency during the period between the date the
security is purchased or sold and the date on which payment is made or received.
Hedging against adverse changes in exchange rates will not eliminate
fluctuation in the prices of the International Stock Fund's portfolio securities
or prevent loss if the prices of those securities decline. In addition, the use
of forward contracts may limit potential gains from an appreciation in the U.S.
dollar value of a foreign currency. The forecasting of short-term currency
market movements is very difficult, and there can be no assurance that
short-term hedging strategies used by the Fund will be successful.
Risk Considerations. Investing in foreign securities that are traded
principally in markets outside the United States may involve greater risk than
investing in domestic securities. Investing in foreign securities, which are
generally denominated in foreign currencies, and the use of forward currency
exchange contracts involve risks not typically associated with investing in
domestic securities. The value of the International Stock Fund's portfolio will
be affected by changes in currency exchange rates and in currency exchange
regulations. 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 in the country of the issuer, the difficulty
of predicting international trade patterns, and the possibility of currency
exchange controls. Foreign securities may also be subject to greater
fluctuations in price than domestic securities. There may be less publicly
available information about a foreign company than about a domestic company.
Foreign companies generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of stock exchanges,
brokers, and listed companies abroad than in the United States. 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
10
<PAGE>
more difficult for the International Stock Fund to obtain or enforce a judgment
against the issuers of the obligation. The Fund will normally execute its
portfolio securities transactions on the principal stock exchange on which the
security is traded.
The International Stock Fund may invest a portion of its assets in
developing countries or in countries with new or developing capital markets,
such as countries in Eastern Europe, Latin America, South America or Southeast
Asia. The considerations noted above regarding the risk of investing in foreign
securities are generally more significant for these investments. These countries
may have relatively unstable governments and securities markets in which only a
small number of securities trade. Markets of developing countries may generally
be more volatile than markets of developed or emerging countries. Investments in
these markets may involve significantly greater risks, as well as the potential
for greater gains.
In addition to investing directly in foreign equity securities, the
International Stock Fund may also purchase such securities in the form of
American Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs").
ADRs in registered form are dollar-denominated securities designed for use in
the U.S. securities markets. ADRs are sponsored and issued by domestic banks and
represent and may be converted into underlying foreign securities deposited with
the domestic bank or a correspondent bank. ADRs do not eliminate the risks
inherent in investing in the securities of foreign issuers. By investing in ADRs
rather than directly in the foreign security, however, the Fund may avoid
currency risks during the settlement period for either purchases or sales. There
is a large, liquid market in the United States for most ADRs. GDRs are receipts
representing an arrangement with a European bank similar to that for ADRs. GDRs
are not necessarily denominated in the currency of the underlying security.
Additional costs may be incurred in connection with the International Stock
Fund's foreign investments. Foreign brokerage commissions are generally higher
than those in the United States. Expenses may also be incurred on currency
conversions when the Fund moves investments from one country to another.
Increased custodian costs as well as administrative difficulties may be
experienced in connection with maintaining assets in foreign jurisdictions.
A description of other investment restrictions and certain investment
practices of the International Stock Fund is included under "Additional
Information" and in the Statement of Additional Information. The Fund's
investment restrictions include a prohibition on investing more than 10 percent
of its total assets in the securities of companies that have a record of less
than 3 years of continuous operations or more than 10 percent of its total
assets in illiquid securities.
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DISTRIBUTIONS
- -------------------------------------------------------------------------------
Generally, each Fund distributes net investment income twice a year and net
realized capital gains from investment transactions annually. The amount
distributed, if any, will vary according to the income received from securities
held by the Funds and capital gains realized from the sale of securities.
All distributions are paid as cash dividends and reinvested in additional
shares at the net asset value at the close of business on the record date unless
the account has elected to receive them in cash.
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
Historical average annual total return and total return information for the
Funds will be provided periodically. Such performance information represents
historical data, and the investment return and principal value of an investment
will fluctuate so that shares of a Fund when redeemed may be worth
11
<PAGE>
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. The table below shows total return and
performance information for the Small Cap Fund and the International Stock Fund
for the periods ended October 31, 1997. A discussion by the Adviser regarding
each Fund's performance for fiscal 1997 is set forth under "Financial
Statements" in the Statement of Additional Information.
<TABLE>
<CAPTION>
Average Annual Total Return Total Return
--------------------------- ------------
Since Since
1 Year 5 Years Inception* 1 Year 5 Years Inception*
------ ------- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
CMC Small Cap Fund........................ 26.98% 22.48% 17.30% 26.98% 175.64% 270.05%
</TABLE>
<TABLE>
<CAPTION>
Since Since
1 Year Inception* 1 Year Inception*
------ --------- ------ ---------
<S> <C> <C> <C> <C>
CMC International Stock Fund.............. 15.47% 6.33% 15.47% 25.50%
</TABLE>
* Since August 30, 1989 for the Small Cap Fund and since February 1, 1994 for
the International Stock Fund.
The Funds may compare their 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, The Financial Times, Financial World, Forbes, Investor's Business
Daily, Money, Morningstar Mutual Funds, Personal Investor, The Economist, The
Wall Street Journal, and USA Today. (Lipper Analytical Services, Inc. is an
independent rating service that ranks over 1,000 mutual funds based upon total
return performance). These ranking services and publications may rank the
performance of the Funds against all other funds over specified periods and
against funds in specified categories.
The Funds may compare their performance to that of a recognized stock
index, such as the S&P 500 Stock Index, the Russell 2000 Stock Index, Morgan
Stanley Capital International Europe, Australia, Far East Index ("EAFE"), or the
FT/S&P Actuaries Europe-Pacific Index. Client communications may contain past or
present performance rankings. This is not to be considered representative or
indicative of future results.
12
<PAGE>
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VOTING RIGHTS
- -------------------------------------------------------------------------------
The Trust may establish separate series of investment portfolios under its
Declaration of Trust. The Funds, CMC High Yield Fund and CMC Short Term Bond
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 Funds, have equal
rights as to voting, redemption, and distribution. All issued and outstanding
shares of the Funds 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 Funds do not have cumulative voting rights, which
means that the holders of more than 50 percent of the shares of the Funds and
any other portfolio of the Trust, if established, 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. As of November 28, 1997, 71.45% or 1,305,482 shares of the
International Stock Fund were beneficially owned by the State of Oregon Stock
Growth Fund.
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.
- -------------------------------------------------------------------------------
TAXES
- -------------------------------------------------------------------------------
Each 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, a 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. Each 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. A portion of any distributions received from a Fund may be eligible
for the dividends received deduction in the case of corporate shareholders,
depending on the amount of qualifying dividends received by the Fund from
domestic corporations.
The tax character of dividends and other distributions from a 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.
13
<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.
Investment income received by the International Stock Fund and derived from
foreign securities may be subject to foreign income taxes withheld by the
foreign company. The United States has entered into tax treaties with many
foreign countries that entitle a fund to a reduced rate of tax or exemption from
tax on this income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of the International Stock Fund's assets to be
invested within various countries will fluctuate and the extent to which foreign
tax refunds will be recovered is uncertain. The International Stock Fund intends
to operate so as to qualify for treaty-reduced tax rates where applicable.
If the International Stock Fund has paid withholding or other taxes to
foreign governments during the year, the taxes will reduce the Fund's income. In
that event, the International Stock Fund may qualify for and make an election
permitted under the Code so that shareholders will be required to treat as
taxable income their pro rata portion of the income taxes paid by the Fund to
foreign countries and may, subject to limitations, be able to claim a credit or
deduction for the same amount. Although the International Stock Fund intends to
meet the requirements of the Code to "pass through" these foreign taxes, there
can be no assurance the Fund will be able to do so.
Each 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
Funds is set forth in the Statement of Additional Information.
This "Taxes" section is only a brief summary of the major tax
considerations affecting each Fund and its shareholders and is not a complete or
detailed explanation of tax matters. In addition to Federal taxes, shareholders
of the Funds 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 Funds.
- -------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- -------------------------------------------------------------------------------
Each 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 Funds. 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 an indirect wholly owned subsidiary of Fleet Financial
Group, Inc., a publicly owned multibank holding company registered under the
Bank Holding Company Act of 1956 with total assets of approximately $84 billion
at September 30, 1997. The address of CMC is 1300 S.W. Sixth Avenue, P.O. Box
1350, Portland, Oregon 97207-1350.
Under the investment contract with the Trust, the Adviser provides
research, advice and supervision with respect to investment matters and
determines what securities to purchase or sell and what portion of the Fund's
assets to invest. The Adviser provides office space and pays all executive
salaries and expenses and ordinary expenses of each Fund.
The Adviser uses an investment team approach to analyze investment themes
and strategies for the Funds. Thomas L. Thomsen, President and Director of CMC
and Columbia Trust Company, is the Chief Investment Officer of the Investment
Team. With over 28 years of experience, Mr. Thomsen has also served as head of
Columbia's Fixed Income Team, developing strategies for Columbia's fixed income
mutual funds and institutional accounts. Mr. Thomsen currently supervises the
Investment Team in establishing broad investment strategies and determining
portfolio guidelines for the Funds.
14
<PAGE>
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 for the Funds are then made by the Investment
Team and the individual portfolio managers who are responsible for investment
decisions on behalf of the Funds.
Richard J. Johnson, a Vice President of CMC and a Chartered Financial
Analyst, joined the Investment Team in 1994 and assumed principal responsibility
for investment decisions on behalf of the Small Cap Fund in April 1995. Mr.
Johnson is the portfolio manager for Columbia Small Cap Fund, Inc. (since its
inception in October, 1996). Mr. Johnson is also the portfolio manager for CTC
Small Stock Fund (since April 1995), an investment fund managed by Columbia
Trust Company. Prior to joining the Columbia Investment Team, Mr. Johnson was a
Portfolio Manager and Analyst with Provident Investment Counsel (1990-1994). Mr.
Johnson received a Masters of Business Administration from the Anderson Graduate
School of Management at UCLA in 1990.
James McAlear, a Vice President of CMC, has had principal responsibility
for investment decisions on behalf of the International Stock Fund since its
inception in 1994. Mr. McAlear is also the portfolio manager for Columbia
International Stock Fund, Inc. (since 1992) and CTC International Stock
Investment Fund (since 1992). Prior to joining the Columbia Investment Team in
1992, Mr. McAlear was a Senior Vice President of IDS International, Inc.
(1985-1992) and an Executive Director for Merrill Lynch Europe (1972-1985).
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 Funds or their shareholders. The Trust has adopted the recommendations of
the Investment Company Institute, an organization comprised 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.
The investment advisory fee of each Fund is accrued daily and paid monthly.
The advisory fee for each Fund equals the annual rate of .75 of 1 percent of its
daily net assets. While comparable to the advisory fees paid by other mutual
funds with similar investment objectives, these fees are higher than the
advisory fees paid by most other mutual funds. For the fiscal year ended October
31, 1997, the investment advisory fees incurred by the Small Cap Fund and
International Stock Fund were $3,462,393 and $686,166 respectively. The Funds
assume their respective 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. Total fund operating expenses for the
fiscal year ended October 31, 1997 were .76% and 1.05% of the average net
assets of the Small Cap Fund and the International Stock Fund, respectively.
- -------------------------------------------------------------------------------
TRANSFER AGENT
- -------------------------------------------------------------------------------
Columbia Trust Company (the "Trust Company") acts as transfer agent and
dividend paying agent for the Funds. Its address is 1301 S.W. Fifth Avenue, P.O.
Box 1350, Portland, Oregon 97207-1350. The Trust Company is an indirect wholly
owned subsidiary of Fleet Financial Group, Inc.
15
<PAGE>
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
Repurchase Agreements. The Funds 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 a
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, a Fund could incur a loss. In
the event of a bankruptcy proceeding commenced against the seller, a Fund may
incur costs and delays in realizing upon the collateral. Each 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 a Fund's assets that may be invested in
repurchase agreements with maturities of seven days or less.
Investments in Small and Unseasoned Companies. The Funds may invest in
companies that are unseasoned; that is, these companies may have limited or
unprofitable operating histories, limited financial resources, and inexperienced
management. In addition, they often face competition from larger or more
established firms that have greater resources. Securities of small and
unseasoned companies are frequently traded in the over-the-counter market or on
regional exchanges where low trading volumes may result in erratic or abrupt
price movements. To dispose of these securities, the Funds may have to sell them
over an extended period of time or below the original purchase price.
Investments by the Funds in these small or unseasoned companies may also be
regarded as speculative. Each Fund has a fundamental policy not to invest more
than 10 percent of its total assets in companies that have a record of less than
three years of continuous operations.
Illiquid Securities. The Funds may buy securities whose public resale would
be subject to legal restrictions ("restricted securities"). No illiquid
securities, including restricted securities and repurchase agreements of more
than seven days maturity, will be acquired if upon the purchase more than 10
percent of the value of a Fund's net assets would consist of these securities.
"Illiquid securities" 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 instruments in which the Fund may invest will be
considered illiquid: (1) repurchase agreements maturing in more than seven days;
(2) restricted securities (securities whose public resale is subject to legal
restrictions); (3) options, with respect to specific securities, not traded on a
national securities exchange that are not readily marketable; and (4) any other
securities in which the Fund may invest that are not readily marketable.
The International Stock Fund may purchase certain restricted securities
that can be resold to qualifying institutions pursuant to a regulatory exemption
under Rule 144A ("Rule 144A securities"). If a dealer or institutional trading
market exists for Rule 144A securities, such securities are deemed to be liquid
and thus not subject to the International Stock Fund's 10 percent limitation on
the investment in restricted or other illiquid securities. Under the supervision
of the Trustees of the Trust, the Adviser determines the liquidity of Rule 144A
securities and, through reports from the Adviser, the Trustees monitor trading
activity in these securities. In reaching liquidity decisions, the Adviser will
consider, among other things, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) 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 the transfer).
Because institutional trading in Rule 144A securities is relatively new, it is
difficult to predict accurately how these markets will develop. If institutional
trading in Rule 144A securities declines, the International Stock Fund's
liquidity could be adversely affected to the extent it is invested in such
securities.
16
<PAGE>
Options and Financial Futures Transactions. Each Fund may invest up to 5
percent of its net assets in premiums on put and call exchange-traded options. A
call option gives the holder (buyer) the right to purchase a security at a
specified price (the exercise price) at any time until a certain date (the
expiration date). A put option gives the buyer the right to sell a security at
the exercise price at any time until the expiration date. Each Fund may also
purchase options on securities indices. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, on exercise of the option, an
amount of cash if the closing level of the securities index on which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. Each Fund may enter into closing
transactions, exercise its options, or permit the options to expire. A Fund may
only write call options on securities or securities indices that are covered. A
call option on a security is covered if written on a security the Fund owns or
if the Fund has an absolute and immediate right to acquire that security without
additional cash consideration upon conversion or exchange of other securities
held by the Fund. If additional cash consideration is required, that amount will
be held in a segregated account by the Fund's custodian bank. A call option on a
securities index is covered if the Fund owns securities whose price changes, in
the opinion of the Advisor, are expected to be substantially similar to those of
the index. Call options may also be covered in any other manner in accordance
with the rules of the exchange on which the option is traded and applicable laws
and regulations. Each Fund may write such options on up to 25 percent of its net
assets.
The Funds may engage in financial futures transactions, including interest
rate futures transactions. Financial futures contracts are commodity contracts
that obligate the long or short holder to take or make delivery of a specified
quantity of a financial instrument, such as a security or the cash value of a
securities index, during a specified future period at a specified price. Each
Fund's investment restrictions do not limit the percentage of a Fund's assets
that may be invested in financial futures transactions. Neither Fund, however,
intends to enter into financial futures transactions for which the aggregate
initial margin exceeds 5 percent of the net assets of the Fund after taking into
account unrealized profits and unrealized losses on any such transactions it has
entered into. The Funds may engage in futures transactions only on commodities
exchanges or boards of trade.
The Funds will not engage in transactions in index options, financial
futures contracts, or related options for speculation, but only as an attempt to
hedge against market conditions affecting the values of securities that the Fund
owns or intends to purchase. When a Fund purchases a put on a stock index or on
a stock index future not held by the Fund, the put protects the Fund against a
decline in the value of all securities held by it to the extent that the stock
index moves in a similar pattern to the prices of the securities held. The
correlation, however, between indices and price movements of the securities in
which a Fund will generally invest will be imperfect. Each Fund expects,
nonetheless, that the use of put options that relate to such indices will, in
certain circumstances, protect against declines in values of specific portfolio
securities or a Fund's portfolio generally. Although the purchase of a put
option may partially protect a Fund from a decline in the value of a particular
security or its portfolio generally, the cost of a put will reduce the potential
return on the security or the portfolio if either increases in value.
Upon entering into a futures contract, a Fund will be required to deposit
with its custodian in a segregated account cash or certain U.S. government
securities in an amount known as the "initial margin." This amount, which is
subject to change, is in the nature of a performance bond or a good faith
deposit on the contract and would be returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
The principal risks of options and futures transactions are: (1) possible
imperfect correlation between movements in the prices of options, currencies, or
futures contracts and movements in the prices of the securities or currencies
hedged or used for cover; (2) lack of assurance that a liquid secondary market
will exist for any particular options or futures contract when needed; (3) the
need for additional skills and techniques beyond those required for normal
portfolio management; (4) losses on
17
<PAGE>
futures contracts resulting from market movements not anticipated by the
investment adviser; and (5) possible need to defer closing out certain options
or futures contracts to continue to qualify for beneficial tax treatment
afforded "regulated investment companies" under the Code.
Portfolio Turnover. The Funds generally will not trade in securities for
short-term profits but, when circumstances warrant, they may purchase and sell
securities without regard to the length of time they have been held. A high
portfolio turnover may increase transaction costs and may affect taxes paid by
shareholders to the extent short-term gains are distributed. The Funds'
portfolio turnover rates are shown in the table under "Financial Highlights."
Temporary Investments. When, as a result of market conditions, a Fund's
investment adviser determines a temporary defensive position is warranted to
help preserve capital, the Fund may without limit temporarily retain cash,
denominated in domestic or foreign currencies, 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, issued by entities organized in the United
States or any foreign country, denominated in U.S. dollars or foreign currency.
When a Fund assumes a temporary defensive position, it is not invested in
securities designed to achieve its investment objective.
Investment Restrictions. A description of other investment restrictions and
certain investment practices of the Funds is included in the Statement of
Additional Information.
18
<PAGE>
Part B-I
Reg. Nos. 33-30394/811-5857
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios 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 two
portfolios of the Trust, CMC Small Cap Fund (the " Small Cap Fund") and CMC
International Stock Fund (the "International Stock Fund"). The "Fund" or "Funds"
when used in this Statement of Additional Information refers to these two funds.
The Trust has established two other portfolios, the CMC High Yield Fund and the
CMC Short Term Bond Fund.
This Statement of Additional Information is not a Prospectus. It relates to
a Prospectus dated December 24, 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..................................................5
Redemptions and Net Asset Value.........................................6
Custodians..............................................................6
Independent Accountants.................................................7
Taxes...................................................................7
Performance.............................................................11
Investment Restrictions.................................................12
Additional Information Regarding Certain Investments by the Funds.......15
Financial Statements....................................................18
December 24, 1997
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MANAGEMENT
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The trustees and officers of the Trust are listed below, together with
their principal business occupations. All 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, President, Secretary, and Trustee of the
Trust; Chairman, President, Secretary, and Director of each of the Columbia
Funds; Consultant for Fleet Financial Group, Inc. (since December 1997);
formerly Chairman and a Director of Columbia Management Co. (the "Adviser"), the
investment adviser of the Funds, Columbia Funds Management Company ("CFMC"),
Columbia Trust Company (the "Trust Company"); and formerly a Director of
Columbia Financial Center Incorporated ("Columbia Financial"). Mr. Inskeep's
business address is 1300 S.W. Sixth Avenue, P.O. Box 1350, Portland, Oregon
97207.
RICHARD L. WOOLWORTH, Trustee of the Trust (since July 1993); Director of each
of the Columbia Funds; Chairman and Chief Executive Officer of Blue Cross and
Blue Shield of Oregon; and Chairman and Chief Executive Officer of the Regence
Group, health insurers. Mr. Woolworth's address is 100 S. W. Market Street,
Portland, Oregon 97201.
THOMAS R. MACKENZIE, Trustee of the Trust (since December 1997); Director of
each of the Columbia Funds; and Chairman of the Board of Directors of Group
Mackenzie (architecture, planning, interior design, engineering). Mr.
Mackenzie's address is 0690 S.W. Bancroft Street, Portland, Oregon 97201.
JAMES C. GEORGE, Trustee of the Trust (since December 1997) and Director of each
of the Columbia Funds (since June 1994). Mr. George, former investment manager
of the Oregon State Treasury (1962-1992), is an investment consultant. Mr.
George's business address is 1001 S.W. Fifth Avenue, Portland, Oregon 97204.
*Mr. Inskeep is an "interested person" as defined by the Investment Company
Act of 1940 (the "1940 Act") and receives no trustee fees or salaries from the
Trust or any Fund.
The following table sets forth the compensation of the disinterested
trustees of the Trust. For Mr. Woolworth, the amount represents compensation
received by Mr. Woolworth for the fiscal year ending October 31, 1997. The
amounts for Mr. Mackenzie and Mr. George, both of whom became trustees of the
Trust December 10, 1997, are estimates of compensation to be paid in fiscal year
1998 by the Trust and the Columbia Funds.
Total Compensation from the
Trustee Compensation From Trust Trust and Columbia Funds
Richard L. Woolworth $8,000 $29,000
Thomas R. Mackenzie $9,000 $31,000
James C. George $9,000 $31,000
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At November 28, 1997, to the knowledge of the Trust, the following persons
owned of record or beneficially more than 5 percent of the outstanding shares of
the Small Cap Fund or the International Stock Fund:
Shares Beneficially Owned
Name and Address at November 28, 1997
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Small Cap Fund
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Hanford Operations and Engineering 1,360,485 (16.31%)
Pension Plan
3060 George Washington Way
P.O. Box 1970 H30-08
Richland, WA 99352
State of Oregon Stock Growth Fund 1,163,816 (13.95%)
Department of the Treasury
State of Oregon
Salem, OR 97310
R.K. Mellon Common Trust #1 452,351 (5.42%)
P.O. Box RKM
Ligonier, PA 15658-0945
International Stock Fund
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State of Oregon Stock Growth Fund 1,305,482 (71.45%)
Department of the Treasury
State of Oregon
Salem, OR 97310
Alaska Electrical Pension Fund 110,924 (6.07%)
2600 Denali Street, Suite 200
Anchorage, AK 99503-2782
Lumber Industry Pension Fund 97,327 (5.33%)
2929 NW 31st Ave.
Portland, OR 97210
Because the State of Oregon owns approximately 71.45% of the International
Stock Fund, it may be able to effectively control the outcome of any matters
submitted to the shareholders of either the Fund or the Trust, including the
election of trustees or revisions to any fundamental investment policy of the
Fund.
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INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES
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Information regarding services performed by the Adviser to the Funds and
the formula for calculating the fees paid for those services are set forth in
the Prospectus under "Management of the Funds." Advisory fees incurred by the
Small Cap Fund were $3,462,393, $4,126,463, and $3,528,353 for fiscal 1997,
fiscal 1996, and fiscal 1995, respectively. Advisory fees incurred by the
International Stock Fund were $686,166, $508,330, and $543,358 for fiscal 1997,
fiscal 1996, and fiscal 1995, respectively.
Shareholders of the Funds will be investment advisory clients of the
Adviser, in addition to their indirect relationship to the Adviser by virtue of
their status as shareholders of a Fund. If, however, the
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assets of an investment advisory client of the Adviser are invested in a Fund,
that client will pay no fee pursuant to its separate management contract with
the Adviser with respect to those assets invested in that Fund (for the period
during which the assets are invested in a Fund).
If the Adviser is deemed to be a fiduciary with respect to a prospective
shareholder of a Fund pursuant to the Employee Retirement Income Security Act of
1974 ("ERISA"), certain conditions must be satisfied before assets may be
invested in that Fund by the Adviser on behalf of the shareholder. 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
the Adviser to direct investments of ERISA-qualified plans to a mutual fund,
such as a 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 a Fund
by the Adviser 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 Funds and the Trust.
The Adviser and the Trust Company are indirect wholly owned subsidiaries of
Fleet Financial Group, Inc. ("Fleet"). Fleet and its affiliates provide a wide
range of banking, financial and investment products and services to individuals
and businesses. Their principal activities include customer and commercial
banking, mortgage lending and servicing, trust administration, investment
management, retirement plan services, brokerage and clearing services,
securities underwriting, private and corporate financing and advisory
activities, and insurance services.
The Adviser acts as an investment manager for approximately $14 billion of
assets. The Funds are intended to provide investment vehicles for certain client
accounts managed by the Adviser. An independent fiduciary of those client
accounts, after careful review of the Funds' Prospectus, Statement of Additional
Information, and fees arrangement, approves the investment in the Funds. The
independent fiduciary then authorizes the Adviser to purchase and sell shares of
the Fund at its discretion for the client's portfolio, subject to any
limitations imposed by the authorization.
The Trust Company acts as transfer agent and dividend crediting agent for
the Funds. Its address is 1301 SW Fifth Avenue, P.O. Box 1350, Portland, Oregon
97207. It issues certificates for shares of the Funds, if requested, and records
and disburses dividends for the Funds. 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 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. The Trust paid on behalf of each Fund $18,000 to the Trust Company
for services performed for fiscal 1997 under the transfer agent agreement
relating to the Small Cap Fund and the International Stock Fund.
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PORTFOLIO TRANSACTIONS
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Each Fund will not generally invest in securities for short-term capital
appreciation but, when business and economic conditions, market prices, or a
Fund's investment policy warrant, individual security positions may be sold
without regard to the length of time they have been held. The rate of portfolio
turnover for the Small Cap Fund and the International Stock Fund is disclosed in
the Prospectus under "Financial Highlights."
Each 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. Each 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 a 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 Funds have 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 a 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 a 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 a 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 Funds 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 Funds. Total
brokerage commissions paid by the Trust on transactions by the Small Cap Fund
were $1,285,537, $1,254,580, and $1,459,444 in fiscal 1997, fiscal 1996, and
fiscal 1995, respectively. Total brokerage commissions paid by the Trust on
transactions by the International Stock Fund were $577,355, $437,587, and
$657,669 for fiscal 1997, fiscal 1996, and fiscal 1995, respectively.
The Trustees of the Trust will from time to time review whether the
recapture for the benefit of a Fund of some portion of the brokerage commissions
or similar fees paid by a Fund on portfolio transactions is legally permissible
and, if so, to determine, in the exercise of its business judgment, whether it
would be advisable for a Fund to seek such recapture.
Investment decisions for one Fund are made independently from those of the
other Fund or accounts managed by the Adviser or mutual funds managed by
Columbia Funds Management Company, an affiliate of the Adviser. 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 Funds or accounts will
be made on an equitable basis.
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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 ensure
that all employees conduct their personal transactions in a manner that does not
interfere with the portfolio transactions of the Funds 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 investments 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.
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REDEMPTIONS AND NET ASSET VALUE
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Information regarding redemptions is set forth in the Prospectus under
"Redemptions." Information regarding the determination of the net asset value
per share of a Fund is set forth in the Prospectus under "Determination of Net
Asset Value."
The Trust may suspend the determination of net asset value of a 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 a 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 which govern as to whether the
conditions prescribed in (2) or (3) exist. The New York Stock Exchange observes
the following holidays: New Year's Day, Washington's Birthday, Martin Luther
King, Jr.'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.
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CUSTODIANS
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United States National Bank of Oregon, 321 SW Sixth Avenue, Portland,
Oregon 97208, acts as general custodian of the Trust. 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 Funds. The Custodians hold
all securities
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and cash of the Funds, receive and pay for securities purchased, deliver against
payment securities sold, receive and collect income from investments, make all
payments covering expenses of the Funds, and perform other administrative
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.
Portfolio securities purchased outside the United States by the Funds are
maintained in the custody of foreign banks, trust companies, or depositories
that have sub-custodian arrangements with Morgan Stanley (the "foreign
sub-custodians"). Each of the domestic and foreign custodial institutions that
may hold portfolio securities of the Funds has been approved by the Trustees of
the Trust in accordance with regulations under the 1940 Act.
The Trustees of the Trust review, at least annually, whether it is in the
best interest of the Funds ("Prevailing Market Risk") and their shareholders to
maintain Fund assets in each of the countries in which the Funds invest.
Additionally, the Trustees evaluate or delegate to Morgan Stanley the
responsibility to evaluate the foreign sub-custodians in those countries. The
review of Prevailing Market Risk includes an assessment of the risk of holding
Fund assets in that country, including risks of expropriation or imposition of
exchange controls. In evaluating the foreign sub-custodians, the Trustees or
their delegate will review the operational capability and reliability of the
foreign sub-custodian and the impact of local laws on the arrangement. If the
Trustees make this evaluation on their own, they are aided in their review by
Morgan Stanley, which has assembled the network of foreign sub-custodians used
by the Funds, as well as by the Adviser and counsel. The Trustees may delegate
this review to Morgan Stanley upon a determination that it is reasonable to rely
on Morgan Stanley. The Trustees must be satisfied that Morgan Stanley has the
requisite experience to select and monitor foreign sub-custodians and is able to
provide informative and timely reports to the Trustees. With respect to foreign
sub-custodians, however, there can be no assurance that the Funds, and the value
of their shares, will not be adversely affected by acts of foreign governments,
financial or operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or enforcing judgments
against, the foreign sub-custodians, or the application of foreign law to a
Fund's foreign sub-custodial arrangement. Accordingly, an investor should
recognize that the administrative risks involved in holding assets abroad are
greater than those associated with investing in the United States.
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INDEPENDENT ACCOUNTANTS
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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.
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TAXES
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Federal Income Taxes
Each 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"). Each Fund believes
it satisfies the tests to qualify as a regulated investment company.
To qualify as a regulated investment company for any taxable year, each
Fund must, among other things:
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(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, a Fund must file, or have filed, a proper election
with the Internal Revenue Service.
Special Aspects of 90 Percent Test with Respect to Foreign Currency. For
purposes of the 90 Percent Test, foreign currency gains that are not directly
related to a Fund's principal business of investing in stocks or securities (or
options and futures with respect to stock or securities) may be excluded from
qualifying income by regulation. No such regulations, however, have been issued.
Unless an exception applies, a Fund may be required to recognize some
income with respect to foreign currency contracts under the mark-to-market rules
of Section 1256 of the Code even though that income is not realized. Special
rules under Sections 1256 and 988 of the Code determine the character of any
income, gain, or loss on foreign currency contracts.
Two possible exceptions to marking-to-market relate to hedging transactions
and mixed straddles. A hedging transaction is defined for purposes of Section
1256 as a transaction that (1) a Fund properly identifies as a hedging
transaction, (2) is entered into in the normal course of business primarily to
reduce the risk of price changes or currency fluctuations with respect to the
Fund's investments, and (3) results in ordinary income or loss. A mixed straddle
is a straddle where (1) at least one (but not all) of the straddle positions are
Section 1256 contracts and (2) the Fund properly identifies each position
forming part of the straddle. A straddle for these purposes generally is
offsetting positions with respect to personal property. A Fund holds offsetting
positions generally if there is a substantial diminution of the Fund's risk of
loss from holding a position by reason of its holding one or more other
positions.
Part I of Subchapter M of the Code will apply to a 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.
The Trust currently has four Funds. 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 a Fund at corporate capital gain tax rates. The policy
of a Fund is to apply capital loss carry-
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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 a 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 each 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 to corporate shareholders
from a Fund may qualify, in whole or in part, for the federal income tax
dividends-received deduction, depending on the amount of qualifying dividends
received by the Fund by domestic corporations. The dividends received deduction
equals 70 percent of eligible dividends received from a Fund by a shareholder.
Distributions of any excess of net long-term capital gain over net short-term
capital loss from a Fund are ineligible for the dividends-received deduction.
Distributions properly designated by a 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 a 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, each 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.
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 a 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 a 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
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incurred by any "publicly offered regulated investment company." Each 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 a Fund.
Foreign Income Taxes. The International Stock Fund invests 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 a Fund. These foreign taxes will reduce the International
Stock Fund's distributed income. That Fund generally expects to incur, however,
no foreign income taxes on gains from the sale of foreign stocks and 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 International Stock
Fund intends to take advantage of such treaties where possible. It is impossible
to predict with certainty the effective rate of foreign taxes that will be paid
by that Fund since the amount invested in particular countries will fluctuate
and the amounts of dividends and interest relative to total income will
fluctuate.
U.S. Foreign Tax Credits or Deductions for Shareholders of the
International Stock Fund. Section 853 of the Code allows a regulated investment
company to make a special election relating to foreign income taxes if more than
50 percent of the value of the company's total assets at the close of its
taxable year consists of stock or securities in foreign corporations. The
International Stock Fund generally expects, if necessary, to qualify for and to
make the election permitted under Section 853 of the Code. Although the
International Stock Fund intends to meet the requirements of the Code to "pass
through" such foreign taxes, there can be no assurance that the Fund will be
able to do so. The International Stock Fund will elect under Section 853 of the
Code only if it believes that it is in the best interests of its shareholders to
do so.
As a result of the Section 853 election, shareholders of the International
Stock Fund will be able to claim a credit or deduction on their income tax
returns for, and will be required to include in income in addition to taxable
distributions actually received, their pro rata portions of the income taxes
paid by the Fund to foreign countries. A shareholder's use of the credits
resulting from the election will be subject to the limits of Section 904 of the
Code. In general, those limits will prevent a shareholder from using foreign tax
credits to reduce U.S. taxes on U.S. source income. Each shareholder should
discuss the use of foreign tax credits and the Section 904 limits with an
individual tax adviser.
No deduction for foreign taxes may be claimed under the Code by individual
shareholders who do not elect to itemize deductions on their federal income tax
returns, although such a shareholder may claim a credit for foreign taxes and in
any event will be treated as having taxable income in the amount of the
shareholder's pro rata share of foreign taxes paid by the Fund.
Each year, the International Stock Fund will provide a statement to each
shareholder showing the amount of foreign taxes for which a credit or a
deduction may be available.
Investment in Passive Foreign Investment Companies. If a Fund invests in
certain non-U.S. corporations that receive at least 75 percent of their annual
gross income from passive sources (such as sources that produce certain
interest, dividends, royalties, capital gains, or rental income) or hold at
least 50 percent of their assets in such passive sources ("passive foreign
investment companies"), the Fund could be subject to federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by a Fund is distributed to its shareholders in a
timely manner. A Fund would not be able to pass through to its shareholders any
credit or deduction for such tax. Accordingly, each Fund expects to limit its
investments in such passive foreign investment companies and expects to attempt
to undertake appropriate actions to limit its tax liability, if any, with
respect to such investments. The Internal Revenue Service has proposed
regulations that, if adopted, will allow a
10
<PAGE>
regulated investment company to avoid the tax and interest charge with respect
to a passive foreign investment company by electing to mark the stock to market
each year.
State Income Taxes
The state tax consequences of investments in the Funds 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 Funds 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.
- -------------------------------------------------------------------------------
PERFORMANCE
- -------------------------------------------------------------------------------
The Trust may from time to time advertise or quote the total return
performance for the Funds. These figures represent historical data and are
calculated according to the SEC rules standardizing such computations. The
investment return on and the value of shares of a Fund will fluctuate so that
the shares when redeemed may be worth more or less than their original cost.
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:
P(1+T)n = 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 fractional 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 a
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.
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INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
11
<PAGE>
The Prospectus sets forth the investment objectives and certain
restrictions applicable to the Funds. The following is a list of investment
restrictions applicable to each Fund. If a percentage limitation is adhered to
at the time of the investment, 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 without a
majority vote of the outstanding shares of the applicable Fund.
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<PAGE>
The Small Cap Fund may not:
1. Buy or sell commodities. The Small Cap Fund may, however, invest in
futures contracts relating to broadly based stock indices, subject to the
restrictions in paragraph 15.
2. Concentrate investments in any industry. The Small Cap Fund, however,
may (a) invest up to 25 percent of the value of the total assets in any one
industry and (b) invest for temporary defensive purposes up to 100 percent of
the value of the total assets in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
3. Buy or sell real estate.
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). For purposes of this restriction 4, the making of a loan by the Fund
will not include the purchase of a portion of an issue of publicly distributed
bonds, debentures, or other securities, whether or not the purchase is made upon
the original issuance of the securities.
5. Purchase illiquid securities, including restricted securities and
repurchase agreements of more than seven days maturity if, as a result of such
purchase, more than 10 percent of the assets of the Fund (taken at current
value) is invested in such securities. "Illiquid securities" 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 and
include restricted securities that are subject to legal or contractual
restrictions on resale.
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 Small Cap 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 the total assets of the
Small Cap Fund at market value to be invested in the securities of that issuer
(other than obligations of the U.S. Government and its agencies and
instrumentalities), with reference to 75 percent of the assets of the Fund.
8. Purchase securities of other open-end investment companies. The Fund
may, however, purchase securities of closed-end investment companies so long as
the Fund and the International Stock Fund do not own in the aggregate more than
10 percent of the outstanding voting securities of such investment company.
9. Issue senior securities, bonds, or debentures.
10. Underwrite securities of other issuers, except that the Small Cap 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.
11. Borrow money in excess of 5 percent of its net assets value. Any
borrowing must only be temporary, from banks, and for extraordinary or emergency
purposes.
12. Invest its assets in the securities of any company if the purchase, at
the time thereof, would cause more than 10 percent of the value of the Small Cap
Fund's total assets to be invested in companies which have a record of less than
three years' continuous operation, including the operation of predecessors and
parents.
13. Invest in companies for the purpose of exercising control or
management.
14. Engage in short sales of securities except to the extent that such
sales are "against the box"; that is, only to the extent the Small Cap Fund owns
the securities sold short or owns other
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<PAGE>
securities convertible into an equivalent amount of the securities sold short.
Such transactions 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 value of the Small Cap Fund's net assets taken at market
may, at any time, be held as collateral for such sales.
15. Buy and sell puts and calls on stock index futures or options on stock
index futures, or financial futures or options on financial futures, unless such
options are written by other persons and the options or futures are offered
through the facilities of a national securities association or are listed on a
national securities or commodities exchange.
Some of the policies described above prohibit particular practices. Other
policies (paragraphs 4, 5, 11, 12, and 14) permit specified practices but limit
the portion of the Small Cap Fund's assets that may be so invested. (See the
Prospectus for additional information.) Except for the practices described in
paragraph 5, the Small Cap Fund has no intention of engaging in these permitted
practices in the foreseeable future.
The International Stock Fund may not:
1. Buy or sell commodities. However, the International Stock Fund may
invest in futures contracts or options on such contracts relating to broadly
based stock indices, subject to the restrictions in paragraph 15, and may enter
into foreign currency transactions.
2. Concentrate investments in any industry. However, the International
Stock Fund may (a) invest up to 25 percent of the value of its assets in any one
industry and (b) invest for temporary defensive purposes up to 100 percent of
the value of its assets in securities issued or guaranteed by the United States
or its agencies or instrumentalities.
3. Buy or sell real estate. However, the International Stock Fund may
purchase or hold readily marketable securities issued by companies, such as real
estate investment trusts, which deal in real estate or interests therein.
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
and except to the extent the entry into repurchase agreements in accordance with
the Fund's investment restrictions may be deemed a loan.
5. Purchase illiquid securities, including restricted securities and
repurchase agreements of more than seven days maturity if, as a result of such
purchase, more than 10 percent of the assets of the Fund (taken at current
value) is invested in such securities. "Illiquid securities" 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 and
include restricted securities that are subject to legal or contractual
restrictions on resale. Certain restricted securities that can be resold to
qualifying institutions pursuant to a regulatory exemption under Rule 144A under
the 1933 Act and for which a dealer or institutional trading market exists may
be deemed to be liquid securities by the Trustees of the Trust and, therefore,
are not subject to the above investment restriction.
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 by the International Stock Fund.
7. Purchase the securities of any issuer (including any foreign government
issuer) if the purchase, at the time thereof, would cause more than 5 percent of
the value of the total assets of the Fund at market value to be invested in the
securities of that issuer (other than obligations of the U.S. government and its
agencies and instrumentalities), with reference to 75 percent of the assets of
the International Stock Fund.
8. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization, or by purchase in
the open market of securities of closed-
14
<PAGE>
end investment companies where no underwriter or dealer's commission or profit,
other than customary broker's commission, is involved and only if immediately
thereafter not more than (i) 3 percent of the total outstanding voting stock of
such company is owned by the Fund, (ii) 5 percent of the International Stock
Fund's total assets would be invested in any one such company, and (iii) 10
percent of the International Stock Fund's total assets would be invested in such
securities.
9. Issue senior securities, bonds, or debentures.
10. Underwrite securities of other issuers, except that the International
Stock Fund may acquire portfolio securities in circumstances where, if the
securities are later publicly offered or sold by the International Stock Fund,
it might be deemed to be an underwriter for purposes of the 1933 Act.
11. Borrow money, except temporarily for extraordinary or emergency
purposes. For all amounts borrowed, the Fund will maintain an asset coverage of
300 percent. The International Stock Fund will not make any additional
investments while borrowings exceed 5 percent of the Fund's total assets.
12. Invest its funds in the securities of any company if the purchase would
cause more than 5 percent of the value of the International Stock Fund's total
assets to be invested in companies which have a record of less than three years
of continuous operation, including operation of predecessors and parents.
13. Invest in companies for the purpose of exercising control or
management.
14. Engage in short sales of securities except to the extent that the
International Stock Fund owns other securities convertible into an equivalent
amount of such securities. Such transactions 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 5 percent of the value of the
International Stock Fund's net assets taken at market may, at any time, be held
as collateral for such sales.
15. Buy and sell puts and calls on securities, stock index futures, or
options on stock index futures, or financial futures or options on financial
futures, unless such options are written by other persons and the options or
futures are offered through the facilities of a recognized securities
association or are listed on a recognized securities or commodities exchange or
similar entity.
Some of the policies described above prohibit particular practices. Other
policies (paragraphs 5, 8, 11, 12, and 14) permit specified practices but limit
the portion of the International Stock Fund's assets that may be so invested.
Subject to the investment restriction, the International Stock Fund expects to
engage in the practices described in paragraphs 5 (illiquid securities) and 8
(investment companies). The International Stock Fund has no intention of
engaging in the other permitted practices in the foreseeable future.
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ADDITIONAL INFORMATION REGARDING CERTAIN INVESTMENTS BY THE FUNDS
- -------------------------------------------------------------------------------
Additional information with respect to certain of the securities in which a
Fund may invest on a temporary basis, as described under "Temporary Investments"
in the Prospectus, is set forth below.
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
insurance payable
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<PAGE>
on Certificates of Deposit issued to a Fund by any one bank. Therefore,
Certificates of Deposit purchased by a Fund may not be fully insured.
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.
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.
Securities Rating Agencies
Subsequent to its purchase by a Fund, an issue 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 bonds from a 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 Standard & Poor's Corporation ("S&P") or Moody's Investors Services,
Inc. ("Moody's") for securities may change as a result of changes in the rating
systems, a Fund will attempt to use comparison ratings as standards for its
investments in municipal 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 with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparation to meet such obligations.
Bond Ratings. Moody's -- The following is a description of Moody's three
highest bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
16
<PAGE>
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
S&P -- The following is a description of S&P's three highest bond ratings:
AAA - This is the highest rating assigned by S&P's to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
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 to the backing solely of the issuing instrumentality itself.
Mortgage-Backed Certificates
GNMA (Government National Mortgage Association) Certificates
("Certificates") are mortgage-backed securities. The Certificates evidence part
ownership of a pool of mortgage loans. The Certificates which the Funds 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.
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<PAGE>
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 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.
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. A 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 a Fund. These securities may
be "modified pass-through certificates" (like GNMA certificates) whereby a Fund
would receive interest and principal payments regardless of whether the
mortgagors make the payments, or they may be "straight pass-through
certificates" whereby a Fund would receive principal and/or interest 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 insurance company. The Fund will limit its
investments in other pass-through securities to those issued by Federal National
Mortgage Association; Federal Home Loan Mortgage Corporation (Participation
Certificates); and Resolution Funding Corp. Participation Certificates.
18
<PAGE>
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
MANAGEMENT DISCUSSION OF PERFORMANCE
We are pleased to provide you with an investment discussion for CMC Small Cap
Fund. Weathering a volatile and challenging year for small cap stocks, the Fund
returned 26.98% for the fiscal year ended October 31, 1997, versus 29.34% for
the Russell 2000 Stock Index.
The first two fiscal quarters were difficult as value oriented stocks
significantly outperformed growth stocks, and the Fund -- which has a tilt
toward growth -- underperformed the Russell 2000. Although financial stocks were
top performers during this time, the Fund remained underweighted in this sector
due to concerns about valuations, scant growth candidates and poor liquidity in
many of the small banks and savings and loans that are represented in the
Russell 2000. Overall, small cap stocks also underperformed the S&P 500 during
the first half of the fiscal year because of rising interest rates, strong S&P
earnings performance, and strong money flows into large cap stocks.
In the third and fourth fiscal quarters, small cap growth stocks came back to
life and the Fund significantly outperformed both the Russell 2000 and the S&P
500 during this period. Investors began to recognize the attractive relative
valuations of small cap stocks, and as S&P earnings growth showed signs of
slowing, investors sought higher growth opportunities in small cap growth names.
By mid-October, the Fund had caught up and surpassed the return of the Russell
2000.
In late October, however, market volatility increased suddenly and dramatically
as the troubles in Asian economies and currencies spilled into global markets.
Typically, large increases in volatility cause investors to place a premium on
liquidity and safety, which tends to undermine the relative performance of small
cap growth stocks. As a result, the Fund underperformed during the last 3 weeks
of the fourth fiscal quarter, ending the year slightly behind the Russell 2000.
In an effort to uncover superior earnings growth at reasonable prices throughout
the year, the Fund employed a bottoms-up approach for stock selection. This
risk/reward evaluation, we believe, enabled the Fund to suffer much less in the
first half of the year when many of the momentum-oriented growth funds were down
25% or more.
Sectors contributing most significantly to Fund performance during the year
included energy and energy service, specialty retailing, quick service
restaurants and health care. Technology had many ups and downs during the year,
and in general, did not perform as well as expected. Technology stocks that we
believed were most vulnerable to weakness in the Asian markets were sold in
October.
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<PAGE>
Top holdings in the Fund as of October 31 include:
Watson Pharmaceuticals, Inc. (2.2%)
CKE Restaurants, Inc. (2.0%)
Tubos de Acero de Mexico SA ADR (1.9%)
Trinity Industries, Inc. (1.9%)
Engineering Animation, Inc. (1.8%)
AccuStaff, Inc. (1.7%)
ATL Ultrasound, Inc. (1.7%)
American Power Conversion Corp. (1.7%)
MICROS Systems, Inc. (1.5%)
Williams-Sonoma, Inc. (1.5%)
For 1998, the Fund is focusing on companies and sectors that are expected to
continue growing their earnings in a slowing economy, despite the effects of a
strong dollar and potential export weakness or import competition.
We appreciate your continuing support of CMC Small Cap Fund.
The Columbia Investment Team
December 5, 1997
[Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($5,000-$40,000) of CMC Small Cap, Russell 2000 and S&P
500 for the period 8/30/89 to 10/31/97 to $37,005, $28,077 and $32,712,
respectively:
Average Annual Total Return
1 Year 5 Years Since Inception*
------ ------- ----------------
CMC Small Cap 26.98% 22.48% 17.30%
Russell 2000 29.34% 18.69% 13.42%
S&P 500 32.11% 19.87% 15.55%
* The Fund's inception date was August 30, 1989. Index performance is based on
the periods beginning August 31, 1989. Total return performance is illustrated
for the periods ended October 31, 1997. Past performance does not guarantee
future results. The S&P and Russell 2000 are unmanaged stock indices.]
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<PAGE>
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
We are pleased to provide you with the investment results for the CMC
International Stock Fund. Posting a total return of 15.47% for the fiscal year
ending October 31, 1997, the Fund compares to a total return of 3.32% for the
FT/S&P Euro Pacific Index over the same period.
In addition to increased volatility in global stock markets, the Fund
experienced a number of negative influences over the last year. The U.S.
dollar's continued recovery against the Japanese Yen and some sharp devaluations
in other Asian currencies combined to adversely impact many foreign investments.
The continued inability of the Japanese authorities to pull the economy out of
its doldrums held back performance of this important stock market. Despite these
negative influences, the Fund was successful in posting significant gains by
avoiding the financial sector in Japan and overweighting its export sectors such
as automobiles and electronics.
The Fund was also able to bypass many of the negatives influences resulting from
the stock market troubles in South East Asia, as its holdings in those countries
have been very small throughout the year.
European markets provided some positive gains in local terms, and we continue to
emphasize this geographic area, especially because growth prospects in Europe
are beginning to brighten. We expect these markets to continue contributing to
Fund performance. Recently, we increased positions in Italy and Spain, which are
expected to benefit from declining interest rates. In the UK, corporate profits
continue to grow and economic policy is close to equilibrium, creating a
favorable environment for equities there. Although emerging market investments
are less important to the portfolio than they were a year ago, we continue to
favor Brazil, Mexico and India.
As of October 31, 1997, the ten largest country weightings and the ten largest
security holdings of the Fund (as a percentage of net assets) were:
Country Weightings Largest Holdings
Japan (20.8%) Tubos de Acero de Mexico SA, ADR (1.9%)
United Kingdom (15.0%) Fomento Economico Mexicano SA de CV (Series B) (1.7%)
France (8.9%) Sony Corp. (1.4%)
Germany (5.8%) Fiat S.p.A. (1.4%)
Netherlands (5.5%) Glaxo Wellcome plc. (1.4%)
Mexico (4.8%) Novartis AG (Bearer) (1.3%)
Sweden (4.7%) ICB Shipping AB (Class B) (1.3%)
Canada (4.0%) Mannesman (1.2%)
India (3.9%) Philips Electronics NV (1.2%)
Brazil (3.4%) Royal Dutch Petroleum Co. (1.2%)
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Thank you for your continuing support of CMC International Stock Fund.
The Columbia Investment Team
December 5, 1997
[Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($8,000-$22,000) of CMC International Stock Fund,
FT/S&P Euro Pacific and S&P 500 for the period 2/1/94 to 10/31/97 to $12,550,
$11,697, and $20,859, respectively:
Average Annual Total Return
1 Year Since Inception*
------ ----------------
CMC International 15.47% 6.33%
FT/S&P Euro Pacific 3.32% 4.33%
S&P 500 32.11% 21.98%
* The Fund's inception date was February 1, 1994. Index performance is based on
the period beginning February 1, 1994. Total return performance is illustrated
for the periods ended October 31, 1997. Past performance does not guarantee
future results. The S&P and FT/S&P Euro Pacific are unmanaged stock indices.]
22
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
October 31, 1997
Shares or
Principal
Amount Value(1)
--------- --------
Common Stocks (94.0%)
Aerospace (1.3%)
*Orbital Sciences Corp. 281,300 $ 6,856,687
-----------
Finance (5.5%)
*Golden State Bancorp, Inc. 180,300 5,994,975
*Imperial Credit Commercial
Mortgage Investment Corp. 77,200 1,273,800
*Insignia Financial Group, Inc. (Class A) 306,500 6,628,062
North Fork Bancorp, Inc. 271,200 7,983,450
TCF Financial Corp. 115,000 6,540,625
-----------
-----------
28,420,912
-----------
Business & Consumer Services (5.5%)
*AccuStaff, Inc. 310,300 8,862,944
*Billing Information Concepts Corp. 147,100 5,773,675
Danka Business Systems plc ADR 200,000 7,400,000
*Family Golf Centers, Inc. 100,000 2,675,000
*Philip Services Corp. 158,000 2,765,000
*Walsh International, Inc. 138,800 1,405,350
-----------
-----------
28,881,969
-----------
Consumer Durable (3.0%)
*Bombay Co. (The), Inc. 300,000 1,818,750
Clayton Homes, Inc. 345,000 5,670,938
Exide Corp. 104,900 2,445,481
*Tower Automotive, Inc. 140,000 5,862,500
-----------
-----------
15,797,669
-----------
Consumer Non-Durable (6.6%)
*Bed, Bath & Beyond, Inc. 96,800 3,073,400
*Borders Group, Inc. 203,300 5,273,094
CKE Restaurants, Inc. 264,700 10,571,456
*Cost Plus, Inc. 181,000 4,909,625
K2, Inc. 98,700 2,498,344
*Williams-Sonoma, Inc. 200,200 8,033,025
-----------
-----------
34,358,944
-----------
Consumer Staples (2.2%)
*Beringer Wine Estates
Holdings, Inc. (Class B) 52,000 1,612,000
*Fresh Del Monte Produce, Inc. 243,000 3,918,375
*Mondavi (Robert) Corp. (Class A) 120,000 6,097,500
-----------
11,627,875
-----------
Energy (5.3%)
*Cairn Energy USA, Inc. 321,100 4,495,400
23
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
Shares or
Principal
Amount Value(1)
--------- --------
Common Stocks (Continued)
*Gulf Canada Resources Ltd. 564,600 $ 4,728,525
*Gulf Indonesia Resources Ltd. 65,000 1,365,000
*Ocean Energy, Inc. 110,700 6,835,725
*Seagull Energy Corp. 200,000 4,887,500
*Swift Energy Co. 201,080 5,215,512
-----------
27,527,662
-----------
Energy Services (6.4%)
*Dril-Quip, Inc. 42,000 1,506,750
*Hanover Compressor Co. 73,000 1,578,625
*Nabors Industries, Inc. 153,000 6,292,125
*Noble Drilling Corp. 100,000 3,556,250
*Pride International, Inc. 150,000 4,950,000
*Tubos de Acero de Mexico SA ADR 500,000 10,093,750
*Veritas DGC, Inc. 66,900 2,738,719
*Willbros Group, Inc. 149,000 2,905,500
-----------
33,621,719
-----------
Entertainment & Media (2.2%)
*Golden Books Family Entertainment, Inc. 195,300 1,953,000
*Regal Cinemas, Inc. 200,000 4,600,000
*WMS Industries, Inc. 195,000 4,740,937
-----------
11,293,937
-----------
Health (23.1%)
*American Oncology Resources, Inc. 200,000 2,925,000
*Assisted Living Concepts, Inc. 205,800 4,218,900
*ATL Ultrasound, Inc. 200,000 8,600,000
*Atria Communities, Inc. 21,000 349,125
*Cardiac Pathways Corp. 200,000 1,900,000
*Concentra Managed Care, Inc. 125,000 4,078,125
*Dura Pharmaceuticals, Inc. 159,300 7,706,137
*Elan Corp. plc ADR 100,000 4,987,500
*ESC Medical Systems Ltd. 152,500 5,985,625
*FPA Medical Management, Inc. 163,400 3,942,025
*Health Management Systems, Inc. 200,000 1,300,000
*HealthCare COMPARE Corp. 111,600 5,998,500
*IDEXX Laboratories, Inc. 150,000 2,381,250
*Immunex Corp. 75,000 4,800,000
Jones Medical Industries, Inc. 211,000 6,356,375
*Ligand Pharmaceuticals, Inc (Class B) 407,200 5,955,300
*Medic Computer Systems, Inc. 76,700 2,674,913
*MedPartners, Inc. 266,000 6,766,375
*MedQuist, Inc. 178,200 4,343,625
*NeXstar Pharmaceuticals, Inc. 100,000 1,462,500
*Protein Design Labs, Inc. 116,500 5,810,438
24
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
Shares or
Principal
Amount Value(1)
--------- --------
Common Stocks (Continued)
*Quorum Health Group, Inc. 200,000 $ 4,850,000
*Thermedics, Inc. 415,100 7,056,700
*Transkaryotic Therapies, Inc. 144,600 4,952,550
*Watson Pharmaceuticals, Inc. 353,000 11,207,750
------------
120,608,713
------------
Machinery & Capital Spending (2.2%)
*Flanders Corp. 189,400 1,515,200
Trinity Industries, Inc. 220,000 9,845,000
------------
11,360,200
------------
Metal Mining & Steel (2.5%)
*Getchell Gold Corp. 96,700 3,481,200
*Meridian Gold, Inc. 438,300 1,780,594
*NS Group, Inc. 192,000 5,136,000
Oregon Steel Mills, Inc. 125,000 2,632,812
------------
13,030,606
------------
Pollution Control (1.5%)
*Allied Waste Industries, Inc. 299,000 6,092,125
*Casella Waste Systems, Inc. (Class A) 70,000 1,548,750
------------
7,640,875
------------
Technology (23.7%)
*Actel Corp. 281,100 4,198,931
*Acxiom Corp. 95,000 1,561,562
*ADC Telecommunications, Inc. 51,900 1,719,188
*American Power Conversion Corp. 315,000 8,583,750
*Aspect Telecommunications Corp. 316,500 7,596,000
*AXENT Technologies, Inc. 127,700 2,984,988
*CHS Electronics, Inc. 245,100 5,989,631
*CIBER, Inc. 150,000 6,637,500
*Computer Products, Inc. 91,500 2,493,375
*Eltron International, Inc. 204,700 5,961,888
*Engineering Animation, Inc. 215,000 9,486,875
*Galileo International, Inc. 87,400 2,195,925
*HMT Technology Corp. 140,000 2,362,500
*HNC Software, Inc. 120,000 4,440,000
*Hyperion Software Corp. 200,000 7,625,000
*Integrated Process Equipment Corp. 200,000 4,437,500
*Intelligent Polymers Ltd. Units 144,000 2,844,000
*JDA Software Group, Inc. 71,700 2,240,625
*MICROS Systems, Inc. 178,600 8,037,000
*Molecular Dynamics, Inc. 223,500 5,252,250
*Platinum Software Corp. 400,000 4,150,000
*RadiSys Corp. 74,400 3,459,600
*Security Dynamics Technologies, Inc. 105,000 3,556,875
25
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value(1)
--------- --------
<S> <C> <C>
Common Stocks (Continued)
*Transition Systems, Inc. 235,300 $ 4,764,825
*Trident Microsystems, Inc. 420,200 5,305,025
*World Access, Inc. 218,000 5,777,000
------------
123,661,813
------------
Transportation (0.5%)
*Miller Industries, Inc. 208,600 2,112,075
*Ryanair Holdings plc ADR 25,200 630,000
------------
2,742,075
------------
Utilities/Communications (2.1%)
*Anicom, Inc. 350,300 5,429,650
*ICG Communications, Inc. 49,000 1,127,000
*Intermedia Communications, Inc. 28,000 1,270,500
*ITC DeltaCom, Inc. 88,000 1,694,000
*Metromedia Fiber Network, Inc. 63,000 1,512,000
------------
11,033,150
------------
Utilities/Electric/Gas (0.4%)
*CalEnergy Co., Inc. 55,000 1,883,750
------------
Total Common Stocks
(Cost $414,760,150) 490,348,556
------------
Repurchase Agreements (6.5%)
Goldman Sachs Corp.
5.678% dated 10/31/1997,
due 11/03/1997 in the
amount of $26,279,582
Collateralized by U.S. Treasury Notes
6.000% to 6.375% due
05/15/1999 to 08/15/2000 $ 26,267,324 26,267,324
J.P. Morgan Securities, Inc.
5.740% dated 10/31/1997,
due 11/03/1997 in the
amount of $7,503,538
Collateralized by U.S. Treasury Bills
due 01/22/1998 to 08/20/1998,
U.S. Treasury Bond
10.750% due 05/15/2003,
U.S. Treasury Notes
6.125% to 6.750% due
08/31/1998 to 06/30/1999 7,500,000 7,500,000
------------
Total Repurchase Agreements
(Cost $33,767,324) 33,767,324
------------
</TABLE>
26
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
Shares or
Principal
Amount Value(1)
--------- --------
Total Investments (100.5%)
(Cost $448,527,474) $ 524,115,880
Receivables less liabilities (-0.5%) (2,345,389)
-------------
Net Assets (100.0%) $ 521,770,491
=============
(1) See Note 1 of Notes to Financial Statements.
* Non-Income Producing
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
October 31, 1997
<TABLE>
<CAPTION>
Shares or
Principal Amount Value (1)
---------------- ----------
<S> <C> <C>
Common Stocks (87.6%)
Argentina (1.2%)
Banco de Galicia y Buenos Aires SA de CV, ADR (Banking) 10,500 $ 254,461
* Disco SA, ADR (Retail) 17,000 688,500
----------
----------
942,961
----------
Belgium (0.6%)
* Lernout & Hauspie Speech Products NV (Business Services) 10,000 485,000
----------
Canada (4.0%)
Bombardier, Inc. (Class B)
(Manufacturing - Diversified Inds.) 15,000 287,540
Canadian National Railway Co. (Transportation) 5,000 269,791
* Canadian Natural Resources Ltd.
(Oil Exploration & Production) 15,000 436,635
Magna International, Inc. (Class A)
(Motor Vehicles & Parts) 8,000 527,653
* Newbridge Networks Corp. (Electronics) 10,000 533,546
Northern Telecom Ltd. (Electronics) 4,500 403,195
Royal Bank of Canada (Banking) 11,000 588,463
Thomson Corp. (Media) 10,000 239,972
----------
3,286,795
----------
Chile (0.6%)
* Distribucion y Servicio D&S SA, ADR (Retail) 30,000 526,875
----------
Finland (2.7%)
Finnlines Oy (Transportation) 20,000 734,012
Merita Ltd. (Class A) (Banking) 165,000 808,479
Metsa Serla Oy (Series B) (Paper & Forest Products) 72,000 634,466
----------
2,176,957
----------
France (8.5%)
Alcatel Alsthom SA (Electronics) 6,500 784,463
BIC SA (Consumer Products) 8,000 547,390
Carrefour SA (Retail) 700 365,355
Cie de Saint Gobain SA (Building Materials) 3,047 437,474
Cie Francaise d'Etudes et de Construction Technip
(Construction) 2,100 222,490
Cipe France SA (Business Services) 3,300 82,686
Elf-Aquitaine SA (Oil Exploration & Production) 5,000 619,039
* France Telecom SA, ADR (Utilities - Communication) 23,200 878,700
Lafarge SA (Building Materials) 4,300 268,722
L'Oreal SA (Consumer Products) 1,800 637,975
* Renault SA (Motor Vehicles & Parts) 22,000 612,277
Schneider SA (Electrical Equipment) 9,000 480,666
Sodexho Alliance SA (Food & Beverages) 1,000 498,873
Synthelabo SA (Pharmaceuticals) 4,500 529,825
----------
6,965,935
----------
</TABLE>
28
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Amount Value (1)
---------------- ----------
<S> <C> <C>
Common Stocks (Continued)
Germany (4.4%)
Allianz AG (Insurance) 1,000 $ 223,152
Deutsche Bank AG (Banking) 8,500 557,183
Gehe AG (Wholesale Distributor) 11,000 575,314
Heidelberger Zement AG (Building Materials) 2,750 228,847
Mannesmann AG (Machinery & Capital Spending) 2,370 1,002,650
Thyssen AG (Steel) 2,000 442,236
Volkswagen AG (Motor Vehicles & Parts) 950 562,558
----------
3,591,940
----------
Hungary (0.4%)
* Gedeon Richter Ltd., GDS (Pharmaceuticals) 3,600 333,900
----------
India (3.9%)
Bajaj Auto Ltd., GDR (Motor Vehicles & Parts) 18,000 317,250
Bank of Baroda Ltd.(Banking) 174,000 580,080
Indian Hotels Co., Ltd., The, GDR
(Entertainment & Leisure) 21,650 376,169
Industrial Credit & Investment Corp. of India Ltd., The,
GDR (Financial Services) 21,600 318,600
Infosys Technologies Ltd. (Business Services) 10,000 370,377
Mahindra & Mahindra Ltd. (Motor Vehicles & Parts) 45,000 450,371
Tata Engineering & Locomotive Co., Ltd., GDS
(Motor Vehicles & Parts) 30,000 320,250
Videsh Sanchar Nigam Ltd., GDR
(Utilities - Communication) 30,000 412,500
----------
3,145,597
----------
Indonesia (0.6%)
* Asia Pacific Resources International Holdings Ltd.
----------
(Paper & Forest Products) 130,000 511,875
----------
Italy (3.1%)
Credito Italiano S.p.A (Banking) 217,500 583,474
ENI S.p.A (Oil Exploration & Production) 85,000 481,458
Fiat S.p.A (Motor Vehicles & Parts) 358,000 1,138,180
Gewiss S.p.A (Electrical Equipment) 16,000 312,541
----------
2,515,653
----------
Japan (20.8%)
Banyu Pharmaceutical Co., Ltd. (Pharmaceuticals) 14,000 203,793
Bellsystem 24, Inc. (Business Services) 3,600 497,089
BRIDGESTONE CORP. (Motor Vehicles & Parts) 17,000 367,659
CANON, INC. (Electronics) 18,000 437,198
DENSO CORP. (Motor Vehicles & Parts) 17,000 367,659
Fuji Heavy Inds., Ltd. (Machinery & Capital Spending) 60,000 239,062
Fuji Photo Film Co., Ltd. (Entertainment & Leisure) 25,000 906,671
FUJITSU LTD. (Electronics) 30,000 329,396
Hitachi Maxell Ltd. (Electronics) 20,000 445,849
</TABLE>
29
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Amount Value (1)
---------------- -----------
<S> <C> <C>
Common Stocks (Continued)
Ishikawajima-Harima Heavy Industries Co., Ltd.
(Machinery & Capital Spending) 205,000 $ 465,521
KEYENCE CORP. (Electronics) 2,400 359,341
KOMATSU LTD. (Machinery & Capital Spending) 81,000 433,231
MABUCHI MOTOR CO., LTD. (Electrical Equipment) 10,000 557,312
Mitsubishi Estate Co., Ltd. (Real Estate) 37,000 467,809
Mitsubishi Trust & Banking Corp., The (Banking) 30,000 369,323
MITSUI & CO., LTD. (Wholesale Distributor) 70,000 531,609
MURATA MANUFACTURING CO., LTD
(Electrical Equipment) 9,000 362,336
Nintendo Co., Ltd. (Entertainment & Leisure) 9,000 778,573
Nippon Paper Industries Co., Ltd.(Paper & Forest Products) 107,000 585,643
NIPPON STEEL CORP. (Metals, Mining & Steel) 260,000 536,350
NIPPON TELEGRAPH & TELEPHONE CORP
(Utilities - Communication) 57 483,613
Nomura Securities Co., Ltd., The (Financial Services) 44,000 512,394
NTT Data Communications Systems Corp.
(Business Services) 9 430,461
ROHM CO., LTD. (Electronics) 7,000 692,896
SANKYO CO., LTD. (Pharmaceuticals) 16,000 528,365
Shiseido Co., Ltd. (Consumer Products) 30,000 409,250
SONY CORP. (Electronics) 14,000 1,163,367
Sumitomo Bank Ltd., The (Banking) 36,000 383,297
Sumitomo Trust & Banking Co., Ltd., The (Banking) 45,000 343,246
Takeda Chemical Inds., Ltd. (Pharmaceuticals) 27,000 736,649
TDK CORP. (Electronics) 8,000 664,116
Tokio Marine & Fire Insurance Co., Ltd., The (Insurance) 80,000 798,536
TOYOTA MOTOR CORP. (Motor Vehicles & Parts) 15,000 417,984
TRANS COSMOS, INC. (Business Services) 6,000 147,230
-----------
16,952,828
-----------
Mexico (4.8%)
Fomento Economico Mexicano SA de CV (Series B)
(Food & Beverages) 191,500 1,353,114
* Industrias CH SA (Series B) (Steel) 87,000 448,024
Panamerican Beverages, Inc. (Class A) (Food & Beverages) 18,000 558,000
* Tubos de Acero de Mexico SA, ADR (Steel) 78,000 1,574,625
-----------
3,933,763
-----------
Netherlands (5.5%)
ABN Amro Holding NV (Banking) 20,324 409,581
Aegon NV (Insurance) 7,793 614,539
Akzo Nobel NV (Chemicals) 2,600 458,437
* ASM Lithography Holding NV (Electronics) 3,000 219,750
Koninklijke Pakhoed NV (Certificates)
(Oil Equipment & Services) 11,333 371,497
</TABLE>
30
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Amount Value (1)
---------------- ----------
<S> <C> <C>
Common Stocks (Continued)
Philips Electronics NV (Electronics) 12,500 $ 979,281
Royal Dutch Petroleum Co. (Oil Exploration
& Production) 18,000 952,788
Vendex International NV (Certificates) (Retail) 8,110 443,078
----------
4,448,951
----------
Norway (1.4%)
Smedvig ASA (Class A) (Oil Equipment & Services) 19,000 572,747
Tomra Systems ASA (Machinery & Capital Spending) 21,500 552,889
----------
1,125,636
----------
Spain (3.2%)
Banco Bilbao Vizcaya SA (Banking) 18,000 481,635
Dragados & Construcciones SA (Construction) 25,000 507,291
Inmobiliaria Metropolitana Vasco Central SA (Real Estate) 11,000 448,686
* Sotogrande SA (Real Estate) 47,000 96,987
* Tele Pizza SA (Restaurants) 4,000 274,866
Telefonica de Espana SA, ADR (Utilities - Communication) 6,000 493,500
Vallehermoso SA (Real Estate) 12,500 318,132
----------
2,621,097
----------
Sweden (4.7%)
* Argonaut AB (Class B) (Transportation) 341,000 797,687
Assa Abloy AB (Class B) (Manufacturing - Diversified Inds.) 20,900 477,730
ICB Shipping AB (Class B) (Transportation) 72,000 1,029,809
* Munters AB (Manufacturer - Consumer Products) 66,000 670,499
SSAB Svenskt Stal AB (Class B) (Metals, Mining & Steel) 18,000 300,762
Telefonaktiebolaget LM Ericsson, ADR (Electronics) 12,000 531,000
----------
3,807,487
----------
Switzerland (2.0%)
Credit Suisse Group (Registered) (Financial Services) 4,000 565,227
Novartis AG (Bearer) (Pharmaceuticals) 680 1,075,607
----------
1,640,834
----------
Taiwan (0.2%)
* China Development Corp. (Banking) 29,100 82,940
Far Eastern Department Stores Ltd. (Retail) 31,587 30,558
* President Enterprises Corp. (Food & Beverages) 33,000 38,159
----------
151,657
----------
United Kingdom (15.0%)
Bank of Scotland (Banking) 66,000 542,801
Barclays plc (Banking) 32,408 809,365
British Aerospace plc (Aircraft & Aerospace) 22,000 584,072
British Petroleum Co. plc (Oil Exploration & Production) 43,034 631,077
British Sky Broadcasting Group plc (Media) 68,000 475,532
British Telecommunications plc (Utilities - Communication) 50,000 378,969
Compass Group plc (Restaurants) 50,000 525,531
Electrocomponents plc (Electronics) 56,305 436,659
</TABLE>
31
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Amount Value (1)
---------------- -----------
<S> <C> <C>
Common Stocks (Continued)
Glaxo Wellcome plc (Pharmaceuticals) 52,000 $ 1,109,654
Granada Group plc (Entertainment & Leisure) 40,649 557,293
Hays plc (Business Services) 68,400 798,553
National Westminster Bank plc (Banking) 59,000 848,413
Next plc (Retail) 70,900 828,334
Railtrack Group plc (Transportation) 50,000 803,163
Reuters Holdings plc (Media) 44,300 478,606
Siebe plc (Machinery & Capital Spending) 38,102 735,854
SmithKline Beecham plc (Pharmaceuticals) 93,556 886,958
Wetherspoon, J.D. plc (Restaurants) 13,075 353,695
WPP Group plc (Media) 100,000 457,275
-----------
12,241,804
Total Common Stocks
(Cost $64,372,526) 71,407,545
-----------
Preferred Stocks (4.1%)
Brazil (3.4%)
Bardella Industrias Mecanicas SA
(Manufacturing - Diversified Inds.) 3,000 462,600
Cia Cervejaria Brahma SA (Food & Beverages) 754,000 471,934
Cia Paranaense de Energi SA (Class B)
(Utilities - Electric) 32,000,000 386,067
Cia Tecidos do Norte de Minas SA (Textiles) 1,000,000 371,825
DIXIE TOGA SA (Containers) 233,000 116,246
* Empresa Nacional de Comercio Redito e Participacoes SA
(Textiles) 1,000,000 907
Petroleo Brasileiro SA (Oil Exploration & Production) 2,000,000 371,916
Telecommunicacoes Brasileiras SA
(Utilities - Communication) 5,700,000 568,759
-----------
2,750,254
-----------
Germany (0.7%)
Porsche AG (Motor Vehicles & Parts) 390 574,529
Total Preferred Stocks
-----------
(Cost $3,176,318) 3,324,783
-----------
Warrants (0.4%)
France (0.4%)
* Cie Generale des Eaux (05/02/2001) (Utilities) 652,000 344,824
-----------
Japan (0.0%)
* Mr. Max Corp. (02/17/1998) (Retail) 5,000 0
-----------
</TABLE>
32
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Amount Value (1)
---------------- -----------
<S> <C> <C>
Total Warrants
(Cost $748,960) $ 344,824
-----------
Convertible Note (0.7%)
Germany (0.7%)
Daimler-Benz AG, GDR (Motor Vehicles & Parts)
5.750% 06/14/2002
(Cost $583,438) $ 560,000 546,000
-----------
Total Investments, excluding temporary cash investment
(Cost $68,881,241) 75,623,152
-----------
Repurchase Agreement (0.4%)
Goldman Sachs Corp.
5.678% dated 10/31/1997,
due 11/03/1997 in the
amount of $315,614
Collateralized by U.S. Treasury Notes
6.000% to 6.375%,
due 05/15/1999 to 08/15/2000
(Cost $315,467) 315,467 315,467
-----------
Total Investments (93.2%)
(Cost $69,196,708) 75,938,619
Cash and receivables less liabilities (6.8%) 5,532,029
-----------
Net Assets (100%) $81,470,648
===========
<FN>
(1) See Note 1 of Notes to Financial Statements.
* Non-Income Producing
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
October 31, 1997
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
------------ -----------------
<S> <C> <C>
ASSETS:
Investments at identified cost .................................................... $414,760,150 $ 68,881,241
- ------------------------------------------------------------------------------------- ------------ ------------
Investments at value (Notes 1 and 2)............................................... $490,348,556 $ 75,623,152
Temporary cash investments, at cost (Note 1)....................................... 33,767,324 315,467
Cash............................................................................... 24,417
Cash denominated in foreign currencies
(cost $2,046,308) (Note 1)....................................................... 1,957,153
Receivable for:
Interest......................................................................... 61,343 29,772
Dividends........................................................................ 40,680 164,322
Investments sold................................................................. 8,236,665 17,193,331
Capital stock sold............................................................... 391,680
------------ ------------
Total assets....................................................................... 532,846,248 95,307,614
------------ ------------
LIABILITIES:
Payable for:
Capital stock redeemed........................................................... 1,800,000 13,394,462
Dividends and distributions...................................................... 3,857,395 157,570
Investments purchased............................................................ 5,036,800 167,276
Investment management fee (Note 4)............................................... 352,108 66,788
Accrued expenses ................................................................ 29,454 50,870
------------ ------------
Total liabilities................................................................. 11,075,757 13,836,966
------------ ------------
Net assets applicable to outstanding shares........................................ $521,770,491 $ 81,470,648
============ ============
Net assets consist of:
Unrealized appreciation (depreciation) on:
Investments.................................................................... $ 75,588,406 $ 6,741,911
Translation of assets and liabilities in foreign currencies.................... (75,404)
Undistributed net realized (loss) from:
Investments.................................................................. (244,012) (9,692)
Capital paid in (Note 3)......................................................... 446,426,097 74,813,833
------------ ------------
$521,770,491 $ 81,470,648
============ ============
Shares of capital stock outstanding (Note 3)......................................... 9,590,639 1,907,431
============ ============
Net asset value, offering and
redemption price per share (1).................................................... $ 54.40 $ 42.71
============ ============
<FN>
(1) The net asset value per share is computed by dividing net assets applicable
to outstanding shares by shares of capital stock outstanding.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1997
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
----------- -----------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest .............................................................. $ 2,379,763 $ 440,052
Dividends ............................................................. 789,572 1,460,878
Foreign taxes withheld (net of reclaims) .............................. (177,051)
------------ ------------
Total income ...................................................... 3,169,335 1,723,879
------------ ------------
Expenses:
Investment management fees (Note 4) ................................... 3,462,393 686,166
Shareholder servicing costs (Note 4) .................................. 18,000 18,000
Financial information and subscriptions ............................... 175 9,926
Accounting service fees ............................................... 24,317
Custodian fees ........................................................ 18,823 102,559
Bank transaction and checking fees .................................... 19,490 36,587
Registration fees ..................................................... 135 3,946
Legal, insurance, auditing fees and other ............................. 24,688 42,385
Miscellaneous transaction fees ........................................ 14,347
------------ ------------
Total expenses .................................................... 3,543,704 938,233
------------ ------------
Net investment income (loss) (Note 1) ..................................... (374,369) 785,646
------------ ------------
Realized gain and unrealized appreciation (depreciation) from investments and
foreign currency transactions:
Net realized gain(loss) from:
Investments (Note 2) .................................................. 93,042,443 12,101,115
Foreignncurrency transactions (Note 1) ................................ (59,471)
------------ ------------
Net realized gain .................................................. 93,042,443 12,041,644
------------ ------------
Net unrealized appreciation (depreciation) on:
Investments (Note 1) .................................................. 15,392,662 (43,839)
Translation of assets and liabilities in foreign currencies (Note 1) .. (44,564)
------------ ------------
Net unrealized appreciation (depreciation) during the period ....... 15,392,662 (88,403)
------------ ------------
Net gain on investment and foreign currency transactions (Note 1) ......... 108,435,105 11,953,241
------------ ------------
Net increase in net assets resulting from operations ...................... $108,060,736 $ 12,738,887
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
Fiscal Year Ended October 31,
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
------------------------------- -------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income (loss) ........................... $ (374,369) $ (766,830) $ 785,646 $ 528,342
Net realized gain (loss) from:
Investments (Note 2) .............................. 93,042,443 171,828,992 12,101,115 5,010,568
Foreign currency transactions
(Note 1) .......................................... (59,471) 1,127,670
Change in net unrealized appreciation (depreciation) on:
Investments ....................................... 15,392,662 (24,142,743) (43,839) 3,557,467
Translation of assets and liabilities
in foreign currencies (Note 1 ) ................... (44,564) (302,501)
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ......................... 108,060,736 146,919,419 12,738,887 9,921,546
Distributions to shareholders:
From net investment income ............................. (764,742) (528,342)
In excess of net investment income ..................... (798,682)
From net realized gain from
investment transactions ........................... (92,831,342) (149,951,166) (9,756,639)
Capital share transactions, net (Note 3) .................... (15,866,910) (11,727,605) 5,711,074 (3,810,006)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets .................. (637,516) (14,759,352) 7,928,580 4,784,516
NET ASSETS:
Beginning of period ......................................... 522,408,007 537,167,359 73,542,068 68,757,552
------------- ------------- ------------- -------------
End of period (1) ........................................... $ 521,770,491 $ 522,408,007 $ 81,470,648 $ 73,542,068
============= ============= ============= =============
(1) Includes undistributed net investment
income (loss) of: ....................................... $ -- $ -- $ -- $ 8,115
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. Significant accounting policies:
CMC Small Cap Fund and CMC International Stock Fund (the Funds) are
portfolios of CMC Fund Trust (the Trust), an open-end diversified investment
company registered under the Investment Company Act of 1940, as amended. The
Trust has established two other portfolios, CMC High Yield Fund and CMC Short
Term Bond Fund, neither of which are included in these financial statements.
Each portfolio issues a separate series of the Trust's shares and maintains a
separate investment portfolio. The policies described below are consistently
followed by the Funds for the preparation of their financial statements in
conformity with generally accepted accounting principles.
Investment valuation - The values of the Funds' investments are based on
the last sale prices reported by the principal securities exchanges on which the
investments are traded, or, in the absence of recorded sales, at the closing bid
prices on such exchanges or over-the-counter markets. Temporary investments in
short-term securities, principally repurchase agreements, are valued at cost,
which approximates market.
Forward foreign currency exchange contracts - The CMC International Stock
Fund enters into forward foreign currency exchange contracts to hedge certain
portfolio securities denominated in foreign currencies. Forward contracts are
recorded at market value. The CMC International Stock Fund could be exposed to
risks if counterparties to the forward contracts are unable to meet the terms of
their contracts or if the value of the foreign currency changes unfavorably. The
effect of any change in the value of a hedged foreign currency would be offset
by the increase (resulting from a change in exchange rates) in value of the
securities denominated in that currency. Net realized gain arising from forward
contracts amounted to $99,190 and is included in net realized loss from foreign
currency transactions. CMC International Stock Fund had no outstanding forward
contracts on October 31, 1997.
Foreign currency translations - The books and records of the CMC
International Stock Fund are maintained in U.S. dollars. Foreign currency
transactions are translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets, and
liabilities at the daily rates of exchange on the valuation date, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The CMC International Stock Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
investments held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, and the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the CMC International Stock Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities, other than investments in securities, resulting from
changes in the exchange rates.
37
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
1. Significant accounting policies (Continued):
Shareholder distributions - The Funds distribute net investment income
twice a year and any net realized gains from investment transactions annually.
Distributions to shareholders are recorded on the record date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, net operating losses, deferral of losses from
wash sales and passive foreign investment companies.
Use of estimates - The preparation of the financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Federal income taxes - The Funds have made no provision for federal income
taxes on net investment income or net realized gains from sales of securities,
since it is the intention of the Funds to comply with the provisions of the
Internal Revenue Code available to certain regulated investment companies, and
to make distributions of income and security profits sufficient to relieve them
from substantially all federal income taxes.
Other - Investment transactions are accounted for on the date the
investments are purchased or sold. The cost of investments sold is determined by
the use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on the accrual basis and
dividend income is recorded on the ex-dividend date. Realized gains and losses
from investment transactions and unrealized appreciation or depreciation of
investments are reported on the basis of identified costs.
The Funds, through their custodians, receive delivery of underlying
securities collateralizing repurchase agreements (included in temporary cash
investments). Market values of these securities are required to be at least 100%
of the cost of the repurchase agreements. The Funds' investment adviser
determines that the value of the underlying securities is at all times at least
equal to the resale price. In the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
38
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
2. Investment transactions:
Aggregate purchases, sales and maturities, net realized gain and unrealized
appreciation (depreciation) of investments, excluding temporary cash
investments, as of and for the fiscal year ended October 31, 1997 were as
follows:
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
------------- -----------------
<S> <C> <C>
Purchases:
Investment securities other than U.S. Government obligations ........................... $ 706,667,337 $ 104,532,823
============= =============
Sales and Maturities:
Investment securities other than U.S. Government obligations ........................... $ 803,737,173 $ 103,254,217
============= =============
Net Realized Gain:
Investment securities other than U.S. Government obligations ........................... $ 93,042,443 $ 12,101,115
============= =============
Unrealized Appreciation (Depreciation)
as of October 31, 1997:
Appreciation ........................................................................... $ 88,739,722 $ 10,640,840
Depreciation ........................................................................... (13,151,316) (3,898,929)
------------- -------------
Net unrealized appreciation .......................................................... $ 75,588,406 $ 6,741,911
============= =============
Unrealized Appreciation (Depreciation) for federal income tax purposes as of
October 31, 1997:
Appreciation ........................................................................... $ 88,575,840 $ 10,635,679
Depreciation ........................................................................... (13,254,101) (3,910,464)
------------- -------------
Net unrealized appreciation .......................................................... $ 75,321,739 $ 6,725,215
============= =============
For federal income tax purposes, the cost of investments
owned at October 31, 1997 ............................................................ $ 415,026,817 $ 68,892,776
============== =============
</TABLE>
The net realized gain for CMC Small Cap Fund includes proceeds of $158,726 from
shareholder class action suits related to securities held by the Fund.
39
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
3. Capital Stock:
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
--------------------------------- -----------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended
October 31, 1997 October 31, 1996 October 31, 1997 October 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares:
Shares sold................................... 2,075,132 1,170,133 492,558 581,183
Shares issued for reinvestment
of dividends................................ 1,635,550 2,784,309 242,655 30,593
-------------- -------------- ------------- -------------
3,710,682 3,954,442 735,213 611,776
Less shares redeemed.......................... (4,158,883) (3,508,620) (559,687) (734,959)
-------------- -------------- ------------- -------------
Net increase (decrease) in shares............. (448,201) 445,822 175,526 (123,183)
============== ============== ============= ==============
Amounts:
Sales......................................... $ 119,268,120 $ 75,859,359 $ 23,076,473 $ 24,149,770
Reinvestment of dividends..................... 88,973,947 143,113,471 10,363,810 1,300,503
-------------- -------------- ------------- -------------
208,242,067 218,972,830 33,440,283 25,450,273
Less redemptions.............................. (224,108,977) (230,700,435) (27,729,209) (29,260,279)
-------------- -------------- ------------- -------------
Net increase (decrease)....................... $ (15,866,910) $ (11,727,605) $ 5,711,074 $ (3,810,006)
============== ============== ============= =============
Capital stock authorized (shares) 100,000,000 100,000,000
</TABLE>
4. Transactions with affiliates and related parties:
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
---------- -----------------
<S> <C> <C>
Investment management fees incurred........................................... $3,462,393 $686,166
Investment management fee computation basis
(percentage of daily net assets per annum)................................. 0.75 of 1% 0.75 of 1%
Transfer agent fee (included in shareholder servicing costs)................. $18,000 $18,000
Fees earned by trustees not affiliated with the Fund's investment
adviser or transfer agent (included in other expenses)...................... $5,777 $1,114
</TABLE>
The investment adviser of the Funds is Columbia Management Co. The transfer
agent for the Funds is Columbia Trust Company, a subsidiary of Columbia Funds
Management Company. The transfer agent is compensated based on a per account fee
or a minimum of $1,500 per month. The contracts for investment advisory and
transfer agent services for the CMC Small Cap Fund and the CMC International
Stock Fund must be renewed annually by a majority vote of the Fund's
shareholders or by the Trustees of CMC Fund Trust. During fiscal year 1997,
certain officers and Trustees of CMC Fund Trust were also officers and directors
of Columbia Management Co., Columbia Trust Company and Columbia Funds Management
Company. They did not receive any direct payments from the Funds. (Note 5)
40
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
5. Subsequent event:
On December 10, 1997 Columbia Management Co., Columbia Trust Company and
Columbia Funds Management Company were acquired by Fleet Financial Group, Inc.,
a publicly owned multi-bank holding company registered under The Bank Holding
Company Act of 1956. In connection with this transaction the composition of the
officers and Trustees of CMC Fund Trust changed as of December 10, 1997. The
Funds' investment adviser and transfer agent will continue to operate as
autonomous business units, in accordance with the acquisition agreement. There
are no current plans to materially change the individuals responsible for
portfolio management and accounting services.
41
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of CMC Fund Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of CMC Small Cap Fund and CMC
International Stock Fund, two of the portfolios of CMC Fund Trust (the "Funds")
as of October 31, 1997, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Funds as of October 31, 1997, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated therein, in conformity with generally acceptable accounting
principles.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
December 5, 1997, except
for Note 5 as to which the
date is December 10, 1997
Coopers & Lybrand, L.L.P. is a member of Coopers & Lybrand International,
a Swiss limited liability association.
42
<PAGE>
Part A-II
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[LOGO]
Columbia
CMC HIGH YIELD 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 High Yield Fund (the "Fund"). The Fund seeks to provide a high level of
current income by investing primarily in lower-rated fixed income securities.
Capital appreciation is a secondary investment objective when consistent with
seeking high current income. Under normal market conditions, at least 80% of the
Fund's total assets will be invested in lower-rated fixed income securities,
commonly known as "junk bonds." Investments of this type are subject to a
greater risk of loss of principal and non-payment of interest. An investment in
the Fund should represent only a portion of a balanced investment program.
Investors should carefully assess the risks associated with an investment in the
Fund. See "Description of the Fund -- Investment Objective and Policies and
- --Risk Considerations."
The Fund enables clients of Columbia Management Co. ("CMC" or "Adviser") to
invest in a diversified portfolio of lower-rated 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 December
24, 1997 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 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.
December 24, 1997
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Fund Expenses................................................................2
Financial Highlights.........................................................3
Features of the Fund ........................................................3
How Investments in the Fund Are Made.........................................4
Redemptions..................................................................5
Determination of Net Aseet Value.............................................5
Description of the Fund......................................................6
Distributions................................................................9
Performance Information......................................................9
Voting Rights................................................................10
Taxes........................................................................10
Management of the Fund.......................................................11
Transfer Agent...............................................................12
Additional Information.......................................................12
- -------------------------------------------------------------------------------
FUND EXPENSES
- -------------------------------------------------------------------------------
The following table sets forth all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal 1997 year. "Other Operating Expenses" includes custodial and transfer
agent fees and audit, legal, 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." If assets under separate management by CMC are invested in the Fund, the
shareholder will pay no fee pursuant to its advisory contract with CMC with
respect to those assets invested in the Fund (for the period during which the
assets are invested in the Fund).
Shareholder Transaction Expenses None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management Fees .40%
12b-1 Fees None
Other Operating Expenses .05%
Total Fund Operating Expenses .45%
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 5 Years 10 Years
------ ------- ------- --------
$5 $14 $25 $57
This example should not be considered a representation of past or future
expenses or 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.
2
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The table below has been audited by Coopers & Lybrand, L.L.P., independent
accountants, as stated in their report appearing on page 33 in the Statement of
Additional Information. This information should be reviewed in conjunction with
the financial statements and notes thereto appearing in the Statement of
Additional Information. Additional information about the performance of the Fund
for fiscal 1997 is included in the Statement of Additional Information under
"Financial Statements."
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
1997 1996 1995 1994 (1)
---- ---- ---- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $ 35.95 $ 36.24 $ 34.48 $ 35.00
----------- ---------- ---------- ---------
Income From Investment Operations:
Net Investment Income ................... 3.18 3.23 3.31 0.94
Net Realized and Unrealized Gain (Loss)
on Investments ........................ 1.28 0.10 2.11 (0.52)
----------- ---------- ---------- ---------
Total From Investment Operations ... 4.46 3.33 5.42 0.42
----------- ---------- ---------- ---------
Less Distributions:
Dividends (from net investment income) .. (3.18) (3.23) (3.31) (0.94)
Distributions (from capital gains) ...... (0.38) (0.39) (0.35)
---------- ---------- --------- ---------
Total Distributions ................ (3.56) (3.62) (3.66) (0.94)
----------- ---------- ---------- ---------
Net Asset Value, End of Period .......... $ 36.85 $ 35.95 $ 36.24 $ 34.48
=========== ========== ========== =========
Total Return ............................ 12.90% 9.61% 16.49% 1.21%(2)
Ratios/Supplemental Data
Net Assets, End of Period (in thousands) $ 119,196 $ 69,614 $ 42,192 $ 9,602
Ratio of Expenses to Average Net Assets . 0.45% 0.50% 0.54% 0.54%
Ratio of Net Investment Income to Average
Net Assets ......................... 8.60% 8.90% 9.36% 9.86%
Portfolio Turnover Rate ................. 68.96% 56.06% 45.64% 72.67%
</TABLE>
(1) From inception of operations on July 6, 1994. Ratios and portfolio turnover
rates are annualized.
(2) Not annualized.
- -------------------------------------------------------------------------------
FEATURES OF THE FUND
- -------------------------------------------------------------------------------
The Trust enables clients of CMC to invest in a diversified portfolio of
lower-rated 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. Notwithstanding those advantages, investments
by the Fund in lower-rated securities involves special risks. See "Description
of the Fund -- Risk Considerations."
3
<PAGE>
By combining a portion of the capital of CMC clients' accounts into a large
portfolio, it is possible to offer all clients who invest in the Fund effective
access to higher yielding, lower-rated securities, as well as professional
investment supervision.
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 the CMC Short Term Bond 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. See
"Fund Expenses".
- -------------------------------------------------------------------------------
HOW INVESTMENTS IN THE FUND ARE MADE
- -------------------------------------------------------------------------------
Investments in the Fund may be made directly by an institutional client of
CMC. In addition, an independent fiduciary of a CMC client account, after
careful review of this prospectus, including Fund expenses and its consistency
with the client's written investment guidelines, may approve the investment in
the Fund and authorize CMC to invest in the Fund at its discretion for the
client's portfolio, subject to limitations imposed by the independent fiduciary.
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
must be satisfied before assets may be invested in the Fund by CMC on behalf of
the shareholder. 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 -- usuually 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
4
<PAGE>
securities. Before engaging in an exchange, investors should consult their tax
advisers concerning the tax consequences to them of the exchange.
Shares purchased are credited to the CMC client's account on the record
books of the Fund, with confirmations supplied by the Fund to the account
custodian for the CMC client.
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.
- -------------------------------------------------------------------------------
REDEMPTIONS
- -------------------------------------------------------------------------------
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 on days when the NYSE is open for business.
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 Fund 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 who is redeemed in kind may incur brokerage fees upon the sale of
any securities distributed upon redemption.
- -------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
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
5
<PAGE>
(unless the Trustees believe unusual circumstances indicate another method of
determining fair value should be considered).
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DESCRIPTION OF THE FUND
- -------------------------------------------------------------------------------
Investment Objective and Policies. The Fund's primary investment objective
is to provide shareholders with a high level of current income by investing
primarily in lower-rated fixed income securities. A security purchased by the
Fund for high current income may also be purchased for the purpose of achieving
the Fund's secondary investment objective of capital appreciation. Capital
appreciation may result, for example, from an improvement in the issuer's
financial condition or credit rating or from a decline in interest rates. A
fixed income security held by the Fund may depreciate from, among other things,
a decline in the issuer's financial condition or a general rise in interest
rates. See "Risk Considerations." The Fund's 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 may invest in fixed income securities consisting of corporate debt
securities (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.
Under normal market conditions, the Fund will invest at least 80% of its
total assets in high yielding fixed income securities rated Ba or B by Moody's
Investors Service, Inc. ("Moody's") or BB or B by S&P's Corporation ("S&P"). The
Fund will not invest in fixed income securities rated below Caa by Moody's or
CCC by S&P, and no more than 10% of the Fund's total assets may be invested in
securities with Caa or CCC ratings. Up to 20% of the Fund's total assets may be
invested in fixed income securities rated Baa or better by Moody's or BBB or
better by S&P. The Fund may also invest in unrated fixed income securities when
the Fund's investment adviser believes the security is of comparable quality to
that of securities eligible for purchase by the Fund. If the credit rating of a
security drops below the rating it held when purchased by the Fund, the Fund
will evaluate the appropriateness of retaining that security.
When, as a result of market conditions, the Fund's investment adviser
determines 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
investment objective of providing a high level of current income.
Securities rated Ba or less by Moody's or BB or less by S&P, commonly
referred to as "junk bonds," are considered noninvestment grade securities,
subject to a high degree of risk, and considered speculative by the major credit
rating agencies with respect to the issuer's ability to meet principal and
interest payments. The Fund is designed for investors who are willing to assume
substantial risks of significant fluctuations in principal value in order to
achieve a high level of current income. The Fund should represent only a portion
of a balanced investment program. See "Risk Considerations" for a description of
the risks of investing in lower-rated securities and "Additional Information"
for a description of corporate bond ratings.
The table below shows the ratings assigned to the fixed income securities
held by the Fund during 1997. The figures, expressed as a percentage of total
net assets, are dollar-weighted averages of month end holdings for 1997. The
Fund did not hold any securities unrated by either Moody's or S&P, or securities
rated above Baa/BBB or below B/B by Moody's/S&P's during that period.
6
<PAGE>
Moody's Standard & Poor's
Rating Average Rating Average
- ------ ------ ------ -------
Baa 0.8% BBB 7.6%
Ba 44.4% BB 48.3%
B 49.7% B 38.8%
The securities ratings by Moody's and S&P are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of the rating. As a result, the rating assigned to a security does not
necessarily reflect the issuer's current financial condition, which may be
better or worse than the rating indicates. Credit ratings are only one factor
the Fund's investment adviser relies on in evaluating lower-rated fixed income
securities. The analysis by the Fund's investment adviser of a lower-rated
security may also include consideration of the issuer's experience and
managerial strength, changing financial condition, borrowing requirements or
debt maturity schedules, regulatory concerns, and responsiveness to changes in
business conditions and interest rates. The Fund's adviser also may consider
relative values based on anticipated cash flow, interest or dividend coverage,
balance sheet analysis, and earnings prospects. Because of the number of
investment considerations involved in investing in lower-rated securities,
achievement of the Fund's investment objective may be more dependent upon the
investment adviser's credit analysis than is the case with investing in higher
quality debt securities.
There are no limitations on the dollar weighted average maturity of the
Fund's portfolio. Although a substantial portion of the lower-rated debt
securities that may be purchased by the Fund have maturities ranging from less
than one year to 10 years, the Fund may also purchase securities with maturities
of up to 30 years. Securities will be selected on the basis of the Fund
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 generally
will be carried out through the sale of securities and the purchase of different
securities within the desired maturity range. This may result in greater
realized capital gains and losses than would be the case if the Fund generally
held all securities to maturity. Portfolio decisions will be made solely on the
basis of investment, rather than tax, considerations.
The Fund may invest in corporate debt securities or preferred stocks that
are convertible into or exchangeable for common stock. The Fund may also acquire
common stock in the following circumstances: in connection with the purchase of
a unit of securities that includes both fixed income securities and common
stock; when fixed income securities held by the Fund are converted by the issuer
into common stock; upon the exercise of warrants attached to fixed income
securities held by the Fund; and if purchased in the context of a corporate
transaction in which the holders of common stock will receive newly issued fixed
income securities. Common stock acquired by the Fund in these circumstances may
be held by the Fund to permit orderly disposition or to establish long-term
holding periods for income tax purposes.
The Fund may invest up to 10% of its total assets in fixed income
securities of foreign issuers, including foreign governments, denominated in
U.S. dollars. See "Additional Information" for a discussion of the risks
involved in the investment in foreign securities.
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 meet interest and principal payments when due.
Generally, higher yielding bonds, such as those acquired by the Fund, are
subject to credit risk to a greater extent than higher quality, lower yielding
bonds. High yield bonds may be issued in connection with corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events. In addition, high yield bonds are often
issued by smaller, less creditworthy companies or by companies with substantial
debt. The ratings of fixed income securities by Moody's and S&P are a generally
accepted barometer of credit risk.
Interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed income
7
<PAGE>
securities resulting solely from the inverse relationship between the price and
yield of fixed income securities; that is, when interest rates rise, bond prices
generally fall and, conversely, when interest rates fall, bond prices generally
rise. The change in net asset value depends upon several factors, including the
bond's maturity date. In general, bonds with longer maturities are more
sensitive to interest rate changes than bonds with shorter maturities.
The market for lower-rated debt securities is relatively new and until
recently its growth has paralleled a long economic expansion. Past experience,
therefore, may not provide an accurate indication of future performance of this
market, particularly during an economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers of the Fund's securities to pay principal and interest,
meet projected business goals, and obtain additional financing. These
circumstances also may result in a higher incidence of defaults compared to
higher rated securities. In addition to general economic conditions, the price
of a lower-rated debt security is more sensitive to the financial condition of
the issuer than is the case with higher rated debt securities. Consequently, the
market for lower-rated bonds often behaves more like the market for equity
securities. Adverse changes in economic conditions or an issuer's financial
condition and increases in interest rates may adversely affect the market for
lower-rated debt securities, the value of such securities in the Fund's
portfolio, and, therefore, the Fund's net asset value. As a result, investment
in the Fund is more speculative than investment in shares of a fund that invests
primarily in higher rated debt securities.
Although the Fund intends generally to purchase lower-rated securities that
have secondary markets, these markets may be less liquid and less active than
markets for higher rated securities. These factors may limit the ability of the
Fund to sell lower-rated securities at their expected value. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly traded market. If market quotations are not readily available for the
Fund's lower-rated or nonrated securities, these securities will be valued by a
method the Fund's board of directors believes accurately reflects fair value.
Judgment plays a greater role in valuing lower-rated debt securities than it
does in valuing securities for which more extensive quotations and last sale
information are available.
Special tax considerations are associated with investing in lower-rated
debt securities structured as zero coupon or pay-in-kind securities. A zero
coupon security has no cash coupon payments. Instead, the issuer sells the
security at a substantial discount from its maturity value. The interest
equivalent received by the investor from holding this security to maturity is
the difference between the maturity value and the purchase price. Pay-in-kind
securities are securities that pay interest in either cash or additional
securities, at the issuer's option, for a specified period. The price of
pay-in-kind securities is expected to reflect the market value of the underlying
debt plus an amount representing accrued interest since the last payment. Zero
coupon bonds and pay-in-kind securities are more volatile than cash pay
securities. The Fund accrues taxable income on these securities prior to the
receipt of cash payments. The Fund intends to distribute substantially all of
its income to its shareholders to qualify for pass-through treatment under the
tax laws and may, therefore, need to use its cash reserves to satisfy
distribution requirements.
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. The Fund's portfolio turnover rates are shown in the table
under "Financial Highlights."
Investment Restrictions. See "Additional Information" for information on
the purchase by the Fund of repurchase agreements, illiquid securities,
when-issued securities, loan transactions, and options. A description of other
investment restrictions and certain additional investment practices of the Fund
is included in the Statement of Additional Information.
8
<PAGE>
- -------------------------------------------------------------------------------
DISTRIBUTIONS
- -------------------------------------------------------------------------------
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.
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 generally distributes
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.
9
<PAGE>
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
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 current yield for the 30-day period ended October 31, 1997 was 8.04%. 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. The average annual total returns for the Fund for the
following periods ended October 31, 1997 were: 12.90% for one year and 12.13%
for the life of the Fund (since July 6, 1994). 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, The Financial Times, Financial World, Forbes, Investor's Business
Daily, Money, Morningstar Mutual Funds, Personal Investor, The Economist, The
Wall Street Journal, and USA Today. (Lipper Analytical Services, Inc. is an
independent rating service that ranks over 1,000 mutual funds based upon total
return performance.) 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
Lipper Analytical bond indices. 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.
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. The principal value
of your investment in the Fund at redemption may be more or less than its
original cost. 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 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.
10
<PAGE>
- -------------------------------------------------------------------------------
VOTING RIGHTS
- -------------------------------------------------------------------------------
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 Short Term Bond 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, which means that the holders of more than 50
percent of the shares of the Fund and any other portfolio 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
Investment Company Act of 1940 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.
- -------------------------------------------------------------------------------
TAXES
- -------------------------------------------------------------------------------
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.
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.
11
<PAGE>
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. 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 an indirect wholly owned subsidiary of Fleet Financial
Group, Inc., a publicly owned multibank holding company registered under the
Bank Holding Company Act of 1956 with total assets of approximately $84 billion
at September 30, 1997. The address of CMC is 1300 S.W. Sixth Avenue, P.O. Box
1350, Portland, Oregon 97207-1350.
Under the investment contract with the Trust, the Adviser provides
research, advice and supervision with respect to investment matters and
determines what securities to purchase or sell and what portion of the Fund's
assets to invest. The Adviser provides office space and pays all executive
salaries and expenses and ordinary expenses of the Fund.
The Adviser uses an investment team approach to analyze investment themes
and strategies for the Funds. Thomas L. Thomsen, President and Director of CMC
and Columbia Trust Company, is the Chief Investment Officer of the Investment
Team. With over 28 years of experience, Mr. Thomsen has also served as head of
Columbia's Fixed Income Team, developing strategies for Columbia's fixed income
mutual funds and institutional accounts. Mr. Thomsen currently supervises the
Investment Team in establishing broad investment strategies and determining
portfolio guidelines for the Funds.
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. Mr. Thomsen has principal oversight responsibility for investment
strategies on behalf of the Fund. Prior to joining the Investment Team in 1978,
Mr. Thomsen was a Senior Investment Officer for the Treasury Department of the
State of Oregon (1974-1978) and a Fixed Income Portfolio Manager for First
National Bank of Oregon (1969-1973). Mr. Jeffrey L. Rippey, a Vice President of
CMC, has the responsibility of implementing on a daily basis the investment
strategies developed for the Fund. Prior to joining the Investment Team in 1981,
Mr. Jeffrey Rippey worked in the Trust Department of Rainier National Bank
(1978-1981).
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 Funds or their shareholders. The Trust has adopted the recommendations of
the Investment Company Institute, an organization comprised 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.
The investment advisory fee of the Fund is accrued daily and paid monthly.
The advisory fee for the Fund equals the annual rate of .40 of 1 percent of its
daily net assets. The investment advisory fees
12
<PAGE>
incurred by the Fund were $354,620 for fiscal 1997. 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. Total fund operating expenses for the fiscal year
ended October 31, 1997 were .45% of the average net assets of the Fund.
- -------------------------------------------------------------------------------
TRANSFER AGENT
- -------------------------------------------------------------------------------
Columbia Trust Company (the "Trust Company") acts as transfer agent and
dividend paying agent for the Fund. Its address is 1301 S.W. Fifth Avenue, P.O.
Box 1350, Portland, Oregon 97207-1350. The Trust Company is an indirect wholly
owned subsidiary of Fleet Financial Group, Inc.
- -------------------------------------------------------------------------------
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.
Illiquid Securities. No illiquid securities will be acquired by the Fund if
upon the purchase more than 10 percent of the value of the Fund's net assets
would consist of these securities. "Illiquid securities" 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 instruments in
which the Fund may invest will be considered illiquid: (1) repurchase agreements
maturing in more than seven days; (2) restricted securities (securities whose
public resale is subject to legal restrictions); (3) options, with respect to
specific securities, not traded on a national securities exchange that are not
readily marketable; and (4) 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 Rule 144A ("Rule 144A securities"). If a dealer or institutional trading
market exists for Rule 144A securities, such securities are deemed to be liquid
and thus not subject to the Fund's 10 percent limitation on the investment in
restricted or other illiquid securities. Under the supervision of the Trustees
of the Trust, the Adviser determines the liquidity of Rule 144A securities and,
through reports from the Adviser, the Trustees monitor trading activity in these
securities. In reaching liquidity decisions, the Adviser will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of
13
<PAGE>
dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) 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 the transfer). Because institutional trading in Rule 144A
securities is relatively new, it is difficult to predict accurately how these
markets will develop. If institutional trading in Rule 144A securities declines,
the Fund's liquidity could be adversely affected to the extent it is invested in
such securities.
Options and Financial Futures Transactions. The Fund may invest up to 5
percent of its net assets in premiums on put and call exchange-traded options.
The Fund may also purchase options on securities indices. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, on exercise of the
option, an amount of cash if the closing level of the securities index on which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
The Fund may engage in financial futures transactions, including interest
rate futures transactions. Financial futures contracts are commodity contracts
that obligate the long or short holder to take or make delivery of a specified
quantity of a financial instrument, such as a security or the cash value of a
securities index, during a specified future period at a specified price. The
Fund's investment restrictions do not limit the percentage of the Fund's assets
that may be invested in financial futures transactions. The Fund, however, does
not intend to enter into financial futures transactions for which the aggregate
initial margin exceeds 5 percent of the net assets of the Fund after taking into
account unrealized profits and unrealized losses on any such transactions it has
entered into. The Fund may engage in futures transactions only on commodities
exchanges or boards of trade.
The Fund will not engage in transactions in index options, financial
futures contracts, or related options for speculation, but only as an attempt to
hedge against market conditions affecting the values of securities that the Fund
owns or intends to purchase. Additional information on options and financial
futures transactions, including the principal risks to the Fund and its
shareholders, is set forth in the Statement of Additional Information under
"Additional Information Regarding Certain Investments by the Fund."
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 letter of credit in accordance with regulations
adopted by the SEC. For more information on loan transactions, see the Statement
of Additional Information.
Bond Ratings. Moody's -- The following is a description of Moody's bond
ratings:
Aaa - Best quality; smallest degree of investment risk.
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<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.
Caa - Poor standing, may be in default; elements of danger with respect to
principal or interest.
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.
CCC - Current identifiable vulnerability to default and dependent upon
favorable business, financial, and economic conditions to meet timely payments
of interest and repayments of principal. In the event of adverse business,
financial, or economic conditions, they are not likely to have the capacity to
pay interest and repay principal.
Bonds rated BB, B, and CCC are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and CCC a higher degree of
speculation. 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 Funds is included in the Statement of
Additional Information.
15
<PAGE>
Part B-II
Reg. Nos. 33-30394/811-5857
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CMC HIGH YIELD 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 High Yield Fund (the "Fund"). The Trust has three
other portfolios, CMC Small Cap Fund, CMC International Stock Fund, and CMC
Short Term Bond Fund.
This Statement of Additional Information is not a Prospectus. It relates to
a Prospectus dated December 24, 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..............................................6
Custodians...................................................................6
Independent Accountants......................................................7
Taxes........................................................................7
Yield and Performance........................................................9
Investment Restrictions......................................................10
Additional Information Regarding Certain Investments by the Fund.............12
Financial Statements.........................................................18
December 24, 1997
1
<PAGE>
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MANAGEMENT
- -------------------------------------------------------------------------------
The trustees and officers of the Trust are listed below, together with
their principal business occupations. All 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, President, Secretary, and Trustee of the
Trust; Chairman, President, Secretary, and Director of each of the Columbia
Funds; Consultant for Fleet Financial Group, Inc. (since December 1997);
formerly Chairman and a Director of Columbia Management Co. (the "Adviser"), the
investment adviser of the Fund, Columbia Funds Management Company ("CFMC"),
Columbia Trust Company (the "Trust Company"); and formerly a Director of
Columbia Financial Center Incorporated ("Columbia Financial"). Mr. Inskeep's
business address is 1300 S.W. Sixth Avenue, P.O. Box 1350, Portland, Oregon
97207.
RICHARD L. WOOLWORTH, Trustee of the Trust (since July 1993); Director of each
of the Columbia Funds; Chairman and Chief Executive Officer of Blue Cross and
Blue Shield of Oregon; and Chairman and Chief Executive Officer of the Regence
Group, health insurers. Mr. Woolworth's address is 100 S. W. Market Street,
Portland, Oregon 97201.
THOMAS R. MACKENZIE, Trustee of the Trust (since December 1997); Director of
each of the Columbia Funds; and Chairman of the Board of Directors of Group
Mackenzie (architecture, planning, interior design, engineering). Mr.
Mackenzie's address is 0690 S.W. Bancroft Street, Portland, Oregon 97201.
JAMES C. GEORGE, Trustee of the Trust (since December 1997) and Director of each
of the Columbia Funds (since June 1994). Mr. George, former investment manager
of the Oregon State Treasury (1962-1992), is an investment consultant. Mr.
George's business address is 1001 S.W. Fifth Avenue, Portland, Oregon 97204.
*Mr. Inskeep is an "interested person" as defined by the Investment Company
Act of 1940 (the "1940 Act") and receives no trustee fees or salaries from the
Trust or the Fund.
The following table sets forth the compensation of the disinterested
trustees of the Trust. For Mr. Woolworth, the amount represents compensation
received by Mr. Woolworth for the fiscal year ending October 31, 1997. The
amounts for Mr. Mackenzie and Mr. George, both of whom became trustees of the
Trust December 10, 1997, are estimates of compensation to be paid in fiscal
year 1998 by the Trust and the Columbia Funds.
Total Compensation from the
Trustee Compensation From Trust Trust and Columbia Funds
- ------- ----------------------- ---------------------------
Richard L. Woolworth $8,000 $29,000
Thomas R. Mackenzie $9,000 $31,000
James C. George $9,000 $31,000
2
<PAGE>
At November 28, 1997, to the knowledge of the Trust, the following persons
owned of record or beneficially more than 5 percent of the outstanding shares of
the Fund:
Shares Beneficially Owned
Name and Address at November 28, 1997
- ---------------- ---------------------------
Legacy Health System Employees 452,489 (15.31%)
Retirement Plan-Fixed
Legacy Health Systems
1919 N.W. Lovejoy
Portland, OR 97209
3
<PAGE>
Shares Beneficially Owned
Name and Address at November 28, 1997
- ---------------- ---------------------------
Legacy Fixed Income Investment Fund 323,120 (10.93%)
Legacy Health Systems
Corporate Financial Administrative Services
1919 N.W. Lovejoy
Portland, OR 97209
Lumber Industry Pension Fund 231,293 (7.83%)
2929 NW 31st Avenue
Portland, OR 97210
Locals 302 & 612 Operating Engineers 165,700 (5.61%)
Employers Retirement Plan
P.O. Box 34203
Seattle, WA 98124
Collins Charitable Trust 148,663 (5.03%)
Foster, Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, WA 98101
Bullitt Charitable Trust-Fixed 148,557 (5.03%)
Foster, Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, WA 98101
- -------------------------------------------------------------------------------
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." Advisory fees incurred by the Fund
were $354,620, $214,819, and $106,597 for fiscal 1997, fiscal 1996 and fiscal
1995, respectively.
Shareholders of the Fund will be investment advisory clients of the
Adviser, in addition to their indirect relationship to the Adviser by virtue of
their status as shareholders of the Fund. If, however, the assets of an
investment advisory client of the Adviser are invested in the Fund, that client
will pay no fee pursuant to its separate management contract with the Adviser
with respect to those assets invested in the Fund (for the period during which
the assets are invested in the Fund).
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 that Fund by the Adviser on behalf of the shareholder. 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
the Adviser to direct investments of ERISA-qualified plans to a mutual fund,
such as the Fund, for which the Adviser serves as an
4
<PAGE>
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
by the Adviser 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.
The Adviser and the Trust Company are indirect wholly owned subsidiaries of
Fleet Financial Group, Inc. ("Fleet"). Fleet and its affiliates provide a wide
range of banking, financial and investment products and services to individuals
and businesses. Their principal activities include customer and commercial
banking, mortgage lending and servicing, trust administration, investment
management, retirement plan services, brokerage and clearing services,
securities underwriting, private and corporate financing and advisory
activities, and insurance services.
The Adviser acts as an investment manager for approximately $14 billion of
assets. The Fund is intended to provide investment vehicles 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. The
independent fiduciary then authorizes the Adviser to purchase and sell shares of
the Fund at its discretion for the client's portfolio, subject to any
limitations imposed by the authorization.
The Trust Company acts as transfer agent and dividend crediting agent for
the Fund. Its address is 1301 SW Fifth Avenue, P.O. 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 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. The Trust paid $18,000 to the Trust Company for services performed
for fiscal 1997 under the transfer agent agreement relating to the Fund.
- -------------------------------------------------------------------------------
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 portfolio turnover
rate for the Fund is disclosed in the prospectus under "Financial Highlights."
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
5
<PAGE>
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 Columbia
Funds Management Company. 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 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
6
<PAGE>
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 which govern as to whether
the conditions prescribed 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 securities sold, receive and
collect income from investments, make all payments covering expenses of the
Fund, and perform other administrative 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 (the "foreign sub-custodians").
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 or a
delegate of the Trustees in accordance with regulations under the 1940 Act.
- -------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
7
<PAGE>
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");
(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.
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
8
<PAGE>
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 purchase zero coupon bonds and payment-in-kind ("PIK") bonds.
With respect to zero coupon bonds, the Fund recognizes original-issue-discount
income ratably over the life of the bond even though the Fund receives no
payments on the bond until the bond matures. With respect to PIK bonds, the Fund
recognizes interest income equal to the fair market value of the bonds
distributed as interest. Because the Fund must distribute 90 percent of its
income to remain qualified as a registered investment company, the Fund may need
to use its cash reserves or be forced to liquidate a portion of its portfolio to
generate cash to distribute to its shareholders with respect to
original-issue-discount income from zero coupon bonds and interest income from
PIK bonds.
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.
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<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.
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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.
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:
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Yield = 2 [( a-b + 1)6 -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:
P(1+T)n = 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.
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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 the investment, 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 without a majority vote
of the outstanding shares of the Fund.
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<PAGE>
The Fund may not:
1. Buy or sell commodities or commodity futures contracts.
2. Concentrate investments in any industry. However, it may invest up to 25
percent of the value of its total assets in any one industry and more than 25
percent of the value of its total assets in cash, cash equivalents, or
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. 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
Trustees 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, that deal
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. Purchase illiquid securities, including restricted securities and
repurchase agreements of more than seven days maturity, if upon the purchase
more than 10 percent of the value of the Fund's net assets would consist of
these securities. "Illiquid securities" 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 and include
restricted securities that are subject to legal or contractual restrictions on
resale. Certain restricted securities that can be resold to qualifying
institutions pursuant to a regulatory exemption under Rule 144A of the 1933 Act
and for which a dealer or institutional trading market exists may be deemed to
be liquid securities by the Trustees of the Fund and, therefore, are not subject
to the above investment restriction.
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 of an issuer if those officers or
directors of the Fund or the Adviser who individually own more than 1/2 of 1% of
the outstanding securities of that issuer together own more than 5% of such
securities.
9. Purchase securities of other open-end investment companies.
10. Issue senior securities, bonds, or debentures.
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 gross assets
of the Fund valued at the lesser of cost or
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<PAGE>
market value, nor may it pledge, mortgage, or hypothecate assets valued at
market to an extent greater than 10 percent of the gross assets valued 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, except for short-term
credits necessary for clearing transactions and except that margin payments and
other deposits in connection with transactions in options, futures, and forward
contracts shall not be deemed to constitute purchasing securities on margin.
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.
17. Invest directly in oil, gas, or other mineral development or
exploration programs or leases; although, the Fund may own securities of
companies engaged in those businesses.
Some of the practices described above prohibit particular practices.
Certain policies described in paragraphs 4, 5, 12, 13, and 16 permit specified
practices but limit the portion of the Fund's assets that may be so invested.
Except for the practices described in paragraph 5, the Fund has no current
intention of engaging in any of these permitted practices in the foreseeable
future.
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ADDITIONAL INFORMATION REGARDING CERTAIN INVESTMENTS BY THE FUND
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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 Fund's 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.
To achieve its investment objective, the Fund generally will invest at
least 80% of its total assets in high yielding fixed income securities rated Ba
or lower by Moody's Investors Services, Inc. ("Moody's") or BB or lower by
Standard & Poor's Corporation ("S&P"). The Fund may
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<PAGE>
not invest in any fixed income securities rated below Caa by Moody's or CCC by
S&P, and no more than 10% of the Fund's total assets may be invested in fixed
income securities rated Caa or CCC. The Fund may also invest in unrated fixed
income securities when the Fund's Adviser believes the security is of comparable
quality to that of securities eligible for purchase by the Fund. Securities
rated Ba or less by Moody's or BB or less by S&P, commonly referred to as "junk
bonds," are considered noninvestment grade securities, subject to a high degree
of risk, and considered speculative by the major credit rating agencies with
respect to the issuer's ability to meet principal and interest payments. The
Fund is designed for investors who are willing to assume substantial risks of
significant fluctuations in principal value in order to achieve a high level of
current income. The Fund should represent only a portion of a balanced
investment program. See the Prospectus under "Description of the Fund -- Risk
Considerations" for a description of the risks of investing in lower-rated
securities and under "Additional Information" for a description of corporate
bond ratings.
Additional information with respect to certain of the securities in which
the Fund may invest is set forth below.
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
insurance payable on Certificates of Deposit issued to the Fund by any one bank.
Therefore, Certificates of Deposit purchased by the Fund may not be fully
insured.
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.
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.
Securities Rating Agencies
Subsequent to its purchase by the Fund, an issue 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 bonds 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
the rating systems, the Fund will attempt to use comparison ratings as standards
for its investments in municipal bonds in accordance with the policies described
herein.
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<PAGE>
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 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.
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 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
15
<PAGE>
insured by FHA or FMHA, or guaranteed by 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.
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. A 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 and/or interest 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 insurance company. The Fund will limit its
investments in other pass-through securities to those issued by Federal National
Mortgage Association; Federal Home Loan Mortgage Corporation (Participation
Certificates); and Resolution Funding Corp. Participation Certificates.
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. The index used is often 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. CMOs may also be less marketable than other securities. The Fund
will invest only in those CMO's whose characteristics and terms are consistent
with the average maturity and market risk profile of the other securities held
by the Fund.
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<PAGE>
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 Adviser to be of good standing and will not
be made unless, in the judgment of the Adviser, the consideration to be earned
from such loans would justify the risk. Such loan transactions are referred to
in this section as "qualified loan transactions."
Options and Financial Futures Transactions
The Fund may invest up to 5 percent of its net assets in premiums on put
and call exchange-traded options. A call option gives the holder (buyer) the
right to purchase a security at a specified price (the exercise price) at any
time until a certain date (the expiration date). A put option gives the buyer
the right to sell a security at the exercise price at any time until the
expiration date. The Fund may also purchase options on securities indices.
Options on securities indices are similar to options on a security except that,
rather than the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right to receive, on
exercise of the option, an amount of cash if the closing level of the securities
index on which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The Fund may
enter into closing transactions, exercise its options, or permit the options to
expire. The Fund may only write call options that are covered. A call option is
covered if written on a security the Fund owns. The Fund may write such options
on up to 25 percent of its net assets.
The Fund may engage in financial futures transactions, including interest
rate futures transactions. Financial futures contracts are commodity contracts
that obligate the long or short holder to take or make delivery of a specified
quantity of a financial instrument, such as a security or the cash value of a
securities index, during a specified future period at a specified price. The
Fund's investment restrictions do not limit the percentage of the Fund's assets
that may be invested in financial futures transactions. The Fund, however, does
not intend to enter into financial futures transactions for which the aggregate
initial margin exceeds 5 percent of the net assets of the Fund after taking into
account unrealized profits and unrealized losses on any such transactions it has
entered into. The Fund may engage in futures transactions only on commodities
exchanges or boards of trade.
The Fund will not engage in transactions in index options, financial
futures contracts, or related options for speculation, but only as an attempt to
hedge against market conditions affecting the values of securities that the Fund
owns or intends to purchase. When the Fund purchases a put on a stock
17
<PAGE>
index or on a stock index future not held by the Fund, the put protects the Fund
against a decline in the value of all securities held by it to the extent that
the stock index moves in a similar pattern to the prices of the securities held.
The correlation, however, between indices and price movements of the securities
in which the Fund will generally invest may be imperfect. The Fund expects,
nonetheless, that the use of put options that relate to such indices will, in
certain circumstances, protect against declines in values of specific portfolio
securities or the Fund's portfolio generally. Although the purchase of a put
option may partially protect the Fund from a decline in the value of a
particular security or its portfolio generally, the cost of a put will reduce
the potential return on the security or the portfolio if either increases in
value.
Upon entering into a futures contract, the Fund will be required to deposit
with its custodian in a segregated account cash or certain U.S. government
securities in an amount known as the "initial margin." This amount, which is
subject to change, is in the nature of a performance bond or a good faith
deposit on the contract and would be returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
The principal risks of options and futures transactions are: (a) possible
imperfect correlation between movements in the prices of options, currencies, or
futures contracts and movements in the prices of the securities or currencies
hedged or used for cover; (b) lack of assurance that a liquid secondary market
will exist for any particular options or futures contract when needed; (c) the
need for additional skills and techniques beyond those required for normal
portfolio management; (d) losses on futures contracts resulting from market
movements not anticipated by the investment adviser; and (e) possible need to
defer closing out certain options or futures contracts to continue to qualify
for beneficial tax treatment afforded "regulated investment companies" under the
Code.
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<PAGE>
CMC HIGH YIELD FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
We are pleased to provide you with an investment discussion for the CMC High
Yield Fund. For the fiscal year ending October 31, 1997, CMC High Yield Fund had
a total return of 12.90%. This compares to a total return of 8.91% for the
Lehman Aggregate Index, and 14.01% for the Lipper High Yield Bond Index over the
same period.
For the first half of the Fund's fiscal year, interest rates rose on fears that
strong economic growth would lead to increased inflation and Federal Reserve
tightening. While the economy remained strong during the second half of the
year, inflation rates actually trended downward, causing intermediate Treasury
rates to fall by more than 1% from their highs in April. The strong economy
helped to minimize the number of defaults for high yield bonds.
The high yield market continues to be dominated by new issues. A total of $89.1
billion in new issues have come to market so far in 1997, which exceeds the
total supply of new issues during any previous year. Favorable conditions such
as solid economic growth, low inflation, continued entry of new classes of
investors into the market and positive cash flows into high yield mutual funds
continue to make this market attractive for the near term.
In recent trading activity, we added to the Fund's specialty retailing, textile,
trucking and energy holdings. At the same time, weightings in diversified media,
automotive and container stocks were decreased.
On October 31, 1997, the Fund had a duration of 4.24 years and an intermediate
average maturity. The Fund's top ten holdings as of October 31, 1997 were:
Tenet Healthcare Corp. (2.5%)
Hollinger International (2.5%)
Ucar Global (2.5%)
Specialty Retailers (2.4%)
Rogers Cantel (2.3%)
Worldcom (2.3%)
Zale Corp. (2.3%)
Titan Wheel International (2.2%)
Cinemark (2.1%)
Allied Holdings (2.1%)
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<PAGE>
In keeping with its conservative focus, the CMC High Yield Fund invests
primarily in bonds rated BB or B by Moody's Investors Services. As a result, the
Fund outperformed investment-grade bonds during the fiscal year but did not
perform as well compared to the broader high yield bond market, where bonds
rated below B performed the best. The Fund continues to place great emphasis on
thorough credit analysis and careful security selection.
As always, we appreciate your continuing investment in CMC High Yield Fund.
The Columbia Investment Team
December 5, 1997
[Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($9,000-$15,000) of CMC High Yield Fund, Lehman
Aggregate Bond and Lipper High Yield Bond for the period 7/6/94 to 10/31/97 to
$14,590, $13,362, and $14,460, respectively:
Average Annual Total Return
1 Year Since Inception*
------ ----------------
CMC High Yield 12.90% 12.13%
Lehman Aggregate Bond 8.91% 9.18%
Lipper High Yield Bond 14.01% 11.82%
* Performance for CMC High Yield Fund and the Lehman Aggregate Index begin with
the Fund's inception date on 7/6/94. Performance for the Lipper High Yield Bond
Fund Index begins on 6/30/94. Total return performance is illustrated for the
periods ended October 31, 1997. Past performance does not guarantee future
results. The Lehman Aggregate Bond Index represents average market-weighted
performance of U.S. Treasury and aggregate securities, investment-grade
corporate bonds and mortgage-backed securities with maturities greater than one
year. The Lipper High Yield Bond Fund Index reflects equally-weighted
performance of the 30 largest mutual funds within its category.]
20
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount Value (1)
----------- ----------
<S> <C> <C>
Corporate Bonds (94.1%)
Industrial (3.4%)
Business Services (3.4%)
Iron Mountain, Inc. (144A)
Senior Subordinated Notes
8.750% 09/30/2009 $ 500,000 $ 505,000
Iron Mountain, Inc.
Senior Subordinated Notes
10.125% 10/01/2006 1,000,000 1,085,000
Pierce Leahy Corp.
Senior Subordinated Notes
11.125% 07/15/2006 2,138,000 2,415,940
----------
Total Industrial 4,005,940
----------
Basic Industry (7.2%)
Chemicals (2.8%)
Freeport-McMoRan Resource Partners L.P.
Senior Subordinated Notes
8.750% 02/15/2004 1,950,000 2,032,875
ICO, Inc. (144A)
Senior Notes
10.375% 06/01/2007 1,250,000 1,337,500
----------
3,370,375
----------
Metals/Mining (4.4%)
Ryerson Tull, Inc.
Notes
8.500% 07/15/2001 2,250,000 2,317,500
UCAR Global Enterprises
Series B Senior Subordinated Notes
12.000% 01/15/2005 2,605,000 2,917,600
----------
5,235,100
----------
Total Basic Industry 8,605,475
----------
Consumer Related (19.0%)
Hotel/Gaming (8.2%)
California Hotel Finance Corp.
Guaranteed Senior Subordinated Notes
11.000% 12/01/2002 1,750,000 1,837,500
CapStar Hotel Co. (144A)
Senior Subordinated Notes
8.750% 08/15/2007 500,000 512,500
HMH Properties, Inc.
Senior Secured Note
9.500% 05/15/2005 1,900,000 1,976,000
</TABLE>
21
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value (1)
----------- ----------
<S> <C> <C>
Corporate Bonds (Continued)
Hilton Hotels Corp.
Senior Notes
7.375% 06/01/2002 $ 1,500,000 $ 1,546,875
Rio Hotel & Casino, Inc.
Senior Subordinated Notes
9.500% 04/15/2007 1,700,000 1,789,250
Station Casinos, Inc.
Senior Subordinated Notes
9.625% 06/01/2003 2,125,000 2,135,625
-----------
9,797,750
-----------
Healthcare (6.8%)
Abbey Healthcare Group, Inc.
Senior Subordinated Notes
9.500% 11/01/2002 1,650,000 1,716,000
HEALTHSOUTH Rehabilitation Corp.
Senior Subordinated Notes
9.500% 04/01/2001 1,200,000 1,272,000
Quorum Health Group, Inc.
Senior Subordinated Notes
8.750% 11/01/2005 2,100,000 2,184,000
Tenet Healthcare Corp.
Senior Subordinated Notes
10.125% 03/01/2005 2,750,000 2,997,500
-----------
8,169,500
-----------
Other (4.0%)
Maxim Group, Inc. (144A)
Senior Subordinated Notes
9.250% 10/15/2007 2,500,000 2,437,500
Westpoint Stevens, Inc.
Senior Subordinated Debenture
9.375% 12/15/2005 2,200,000 2,299,000
-----------
4,736,500
-----------
Total Consumer Related 22,703,750
-----------
Energy (6.1%)
Gulf Canada Resources Ltd.
Subordinated Debentures
9.625% 07/01/2005 2,000,000 2,170,000
Kelley Oil & Gas Corp.
Series B Senior Subordinated Notes
10.375% 10/15/2006 1,400,000 1,477,000
Maxus Energy Corp.
Notes
9.875% 10/15/2002 1,650,000 1,772,215
</TABLE>
22
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value (1)
----------- ----------
<S> <C> <C>
Corporate Bonds (Continued)
Nuevo Energy Co.
Senior Subordinated Notes
9.500% 04/15/2006 $ 1,000,000 $ 1,070,000
Santa Fe Energy Resource, Inc.
Senior Subordinated Debentures
11.000% 05/15/2004 750,000 819,375
-----------
Total Energy 7,308,590
-----------
Housing Related (5.3%)
Johns Manville International Group
Senior Notes
10.875% 12/15/2004 2,000,000 2,240,000
USG Corp.
Series B Senior Notes
9.250% 09/15/2001 1,700,000 1,806,250
Webb (Del E.) Corp.
Senior Subordinated Notes
9.750% 01/15/2008 2,250,000 2,272,500
-----------
Total Housing Related 6,318,750
-----------
Manufacturing (10.3%)
Hayes Wheels International, Inc.
Series B Senior Subordinated Notes
9.125% 07/15/2007 2,200,000 2,255,000
Polymer Group, Inc.
Series B Senior Subordinated Notes
9.000% 07/01/2007 1,500,000 1,485,000
Rohr, Inc.
Senior Note
11.625% 05/15/2003 800,000 892,000
Silgan Holdings, Inc.
Senior Subordinated Debentures
9.000% 06/01/2009 2,500,000 2,537,500
Titan Wheel International, Inc.
Senior Subordinated Notes
8.750% 04/01/2007 2,500,000 2,587,500
Tracor, Inc.
Senior Subordinated Notes
8.500% 03/01/2007 2,450,000 2,474,500
-----------
Total Manufacturing 12,231,500
-----------
</TABLE>
23
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value (1)
----------- ----------
<S> <C> <C>
Corporate Bonds (Continued)
Media (21.0%)
Cinemark USA, Inc.
Series B Senior Subordinated Notes
9.625% 08/01/2008 $ 2,500,000 $ 2,550,000
Heritage Media Corp.
Senior Subordinated Notes
8.750% 02/15/2006 2,250,000 2,396,250
Hollinger International Publishing, Inc.
Senior Notes
8.625% 03/15/2005 2,900,000 2,950,750
Jacor Communications Co. (144A)
Senior Subordinated Notes
8.750% 06/15/2007 1,750,000 1,758,750
Jones Intercable, Inc.
Senior Notes
8.875% 04/01/2007 1,500,000 1,530,000
Lamar Advertising Co.
Senior Subordinated Notes
9.625% 12/01/2006 1,250,000 1,321,875
Lenfest Communications, Inc.
Senior Secured Notes
8.375% 11/01/2005 1,000,000 995,000
Outdoor Systems, Inc.
Senior Subordinated Notes
9.375% 10/15/2006 1,750,000 1,811,250
Regal Cinemas, Inc. (144A)
Senior Subordinated Notes
8.500% 10/01/2007 1,500,000 1,485,000
SFX Broadcasting, Inc.
Series B Senior Subordinated Notes
10.750% 05/15/2006 2,250,000 2,441,250
TCI Communications, Inc.
Senior Notes
8.000% 08/01/2005 2,000,000 2,117,980
Viacom, Inc.
Subordinated Debenture
8.000% 07/07/2006 2,000,000 1,960,000
Young Broadcasting, Inc.
Guaranteed Senior Subordinated Notes
11.750% 11/15/2004 1,500,000 1,657,500
-----------
Total Media 24,975,605
-----------
</TABLE>
24
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value (1)
----------- ----------
<S> <C> <C>
Corporate Bonds (Continued)
Retail (6.3%)
Other (6.3%)
Ethan Allen, Inc.
Senior Notes
8.750% 03/15/2001 $2,000,000 $2,040,000
Specialty Retailers, Inc.
Senior Notes
8.500% 07/15/2005 2,750,000 2,798,125
Zale Corp. (144A)
Senior Notes
8.500% 10/01/2007 2,750,000 2,688,125
----------
7,526,250
----------
Transportation (3.2%)
Other (3.2%)
Allied Holdings, Inc. (144A)
Senior Notes
8.625% 10/01/2007 2,500,000 2,550,000
Teekay Shipping Corp.
Gtd. 1st Pfd. Ship. Mtg. Notes
8.320% 02/01/2008 1,250,000 1,262,500
----------
3,812,500
----------
Utilities (9.7%)
Electrics (2.8%)
AES Corp.
Senior Subordinated Notes
10.250% 07/15/2006 1,700,000 1,823,250
California Energy, Inc.
Senior Secured Note
9.875% 06/30/2003 1,400,000 1,523,242
----------
3,346,492
----------
Telecommunications (6.9%)
Intermedia Communications, Inc. (144A)
Senior Notes
8.875% 11/01/2007 1,000,000 977,500
Paging Network, Inc.
Senior Subordinated Notes
10.000% 10/15/2008 1,750,000 1,750,000
Rogers Cantel, Inc. (144A)
Senior Secured Notes
8.300% 10/01/2007 2,750,000 2,736,250
</TABLE>
25
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value (1)
----------- ----------
<S> <C> <C>
Corporate Bonds (Continued)
Worldcom, Inc.
Senior Notes
8.875% 01/15/2006 $ 2,499,820 $ 2,726,579
------------
8,190,329
------------
Total Utilities 11,536,821
------------
Yankee (2.6%)
Argentina Republic
Unsubordinated Global Bond
11.000% 10/09/2006 1,500,000 1,483,125
Mexico-United Mexican States
Global Bonds
11.375% 09/15/2016 1,500,000 1,601,250
------------
Total Yankee 3,084,375
------------
Total Corporate Bonds
(Cost $109,660,052) 112,109,556
------------
Repurchase Agreement (2.3%)
Goldman Sachs Corp.
5.678% dated 10/31/1997,
due 11/03/1997 in the
amount of $2,787,119
Collateralized by U.S. Treasury Notes
6.000% to 6.375% due
05/15/1999 to 08/15/2000
(Cost $2,785,819) 2,785,819 2,785,819
------------
Total Investments (96.4%)
(Cost $112,445,871) 114,895,375
Receivables less liabilities (3.6%) 4,301,022
------------
Net Assets (100.0%) $119,196,397
============
</TABLE>
(1) See Note 1 of Notes to Financial Statements.
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
October 31, 1997
ASSETS:
Investments at identified cost ........................... $ 109,660,052
- ------------------------------------------------------------ -------------
Investments at value (Notes 1 and 2)...................... $ 112,109,556
Temporary cash investment, at cost (Note 1)............... 2,785,819
Receivable for:
Interest................................................ 2,622,274
Investments sold........................................ 1,930,938
-------------
Total assets.............................................. 119,448,587
-------------
LIABILITIES:
Payable for:
Dividends and distributions............................. 192,925
Investment management fee (Note 4)...................... 40,639
Accrued expenses ....................................... 18,626
-------------
Total liabilities......................................... 252,190
-------------
Net assets applicable to outstanding shares............... $ 119,196,397
=============
Net assets consist of:
Unrealized appreciation on investments.................. $ 2,449,504
Undistributed net realized gain from investments........ 30,930
Capital paid in (Note 3)................................ 116,715,963
-------------
$ 119,196,397
=============
Shares of capital stock outstanding (Note 3)................ 3,234,971
=============
Net asset value, offering and
redemption price per share (1)........................... $ 36.85
=============
(1) The net asset value per share is computed by dividing net assets applicable
to outstanding shares by shares of capital stock outstanding.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Interest ............................................................... $ 8,046,226
-----------
Expenses:
Investment management fees (Note 4) .................................... 354,620
Shareholder servicing costs (Note 4) ................................... 18,000
Financial information and subscriptions ................................ 2,958
Custodian fees ......................................................... 3,521
Bank transaction and checking fees ..................................... 2,128
Registration fees ...................................................... 10,448
Legal, insurance, auditing fees and other .............................. 9,070
-----------
Total expenses...................................................... 400,745
-----------
Net investment income (Note 1) .............................................. 7,645,481
-----------
Net realized gain from investments (Note 2) ................................. 1,235,856
Net unrealized appreciation on investments during the period (Note 1) ....... 1,267,480
-----------
Net gain on investments (Note 1) ............................................ 2,503,336
-----------
Net increase in net assets resulting from operations ........................ $10,148,817
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
Fiscal Year Ended October 31,
<TABLE>
<CAPTION>
------------ -----------
1997 1996
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income .............................. $ 7,645,481 $ 4,779,488
Net realized gain from investments (Note 2) ........ 1,235,856 747,251
Change in net unrealized appreciation (depreciation)
on investments .................................. 1,267,480 (226,346)
------------ -----------
Net increase in net assets resulting from operations 10,148,817 5,300,393
Distributions to shareholders:
From net investment income ......................... (7,645,481) (4,779,488)
From net realized gain from investment transactions (1,209,953) (742,224)
Capital share transactions, net (Note 3) ............... 48,289,337 27,643,483
------------ -----------
Net increase in net assets ......................... 49,582,720 27,422,164
NET ASSETS:
Beginning of period .................................... 69,613,677 42,191,513
------------ -----------
End of period .......................................... $119,196,397 $69,613,677
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. Significant accounting policies:
CMC High Yield Fund (the Fund) is a portfolio of CMC Fund Trust (the
Trust), an open-end diversified investment company registered under the
Investment Company Act of 1940, as amended. The Trust has established three
other portfolios, CMC Small Cap Fund, CMC International Stock Fund and CMC Short
Term Bond Fund, which are not included in this financial statement. Each
portfolio issues a separate series of the Trust's shares and maintains a
separate investment portfolio. The policies described below are consistently
followed by the Fund for the preparation of its financial statements in
conformity with generally accepted accounting principles.
Investment valuation - The Fund's investments are carried at values deemed
best to reflect their fair values as determined in good faith by or under the
supervision of the Trustees. These values are based on market value as quoted by
dealers who are market makers in these securities or by an independent pricing
service unless unusual circumstances indicate that another method of determining
fair value should be considered. Market values are based on the average of bid
and ask prices, or by reference to other securities with comparable ratings,
interest rates and maturities. Temporary investments in short-term securities,
principally repurchase agreements, are valued at cost, which approximates
market.
Shareholder distributions - The Fund distributes net investment income
monthly and any net realized gains from investment transactions annually.
Distributions to shareholders are recorded on the record date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for net
operating losses and deferral of losses from wash sales.
Use of estimates - The preparation of the financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
Federal income taxes - The Fund has made no provisions for federal income
taxes on net investment income or net realized gains from sales of investment
securities, since it is the intention of the Fund to comply with the provisions
of the Internal Revenue Code available to certain regulated investment
companies, and to make distributions of income and security profits sufficient
to relieve it from substantially all federal income taxes.
Other - Investment transactions are accounted for on the date the
investments are purchased or sold. The cost of investments sold is determined by
the use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on the accrual basis.
Amortization of discount or premium is recorded over the life of the respective
instrument. Realized gains and losses from investment transactions and
unrealized appreciation or depreciation of investments are reported on the basis
of identified costs.
The Fund, through its custodian, receives delivery of underlying securities
collateralizing repurchase agreements (included in temporary cash investments).
Market values of these securities are required to be at least 100% of the cost
of the repurchase agreement. The Fund's investment adviser determines that the
value of the underlying securities is at all times at least equal to the resale
price. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
The Fund invests in lower rated debt securities, which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders, and uncertainties exist as to an issuer's ability to meet principal and
interest payments. At October 31, 1997, 100% of the Fund's portfolio was
invested in securities rated Baa (1%), Ba (43%) or B (56%) by Moody's Investor
Services, Inc.
30
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
2. Investment transactions:
Aggregate purchases, sales and maturities, net realized gain and
unrealized appreciation of investments, excluding temporary cash investments, as
of and for the fiscal year ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases:
Investment securities other than U.S. Government obligations ......................... $ 94,601,766
U.S. Government obligations .......................................................... 6,322,304
-------------
Total purchases ................................................................. $ 100,924,070
=============
Sales and Maturities:
Investment securities other than U.S. Government obligations ......................... $ 51,744,832
U.S. Government obligations .......................................................... 6,978,524
-------------
Total sales and maturities ...................................................... $ 58,723,356
=============
Net Realized Gain:
Investment securities other than U.S. Government obligations ......................... $ 1,364,840
U.S. Government obligations .......................................................... (128,984)
-------------
Total net realized gain ......................................................... $ 1,235,856
=============
Unrealized Appreciation (Depreciation) as of October 31, 1997:
Appreciation .......................................................................... $ 2,870,615
Depreciation .......................................................................... (421,111)
-------------
Net unrealized appreciation ..................................................... $ 2,449,504
=============
Unrealized Appreciation (Depreciation) for federal income tax purposes as of
October 31, 1997:
Appreciation .......................................................................... $ 2,870,615
Depreciation .......................................................................... (421,111)
-------------
Net unrealized appreciation ......................................................... $ 2,449,504
=============
For federal income tax purposes, the cost of
investments owned at October 31, 1997 ................................................... $ 109,660,052
=============
</TABLE>
3. Capital Stock:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Shares:
Shares sold ....................................................... 1,915,922 1,124,256
Shares issued for reinvestment of dividends ....................... 219,803 145,259
------------- -------------
2,135,725 1,269,515
Less shares redeemed .............................................. (837,005) (497,533)
------------- -------------
Net increase in shares ............................................ 1,298,720 771,982
============= =============
Amounts:
Sales ............................................................. $ 70,585,000 $ 40,435,000
Reinvestment of dividends ......................................... 8,084,738 5,234,319
------------- -------------
78,669,738 45,669,319
Less redemptions .................................................. (30,380,401) (18,025,836)
------------- -------------
Net increase ...................................................... $ 48,289,337 $ 27,643,483
============= =============
Capital stock authorized (shares) .................................... 100,000,000
</TABLE>
31
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
4. Transactions with affiliates and related parties:
Investment management fees incurred...................................$354,620
Investment management fee
computation basis (percentage of daily net assets
per annum)..........................................................0.40 of 1%
Transfer agent fee (included in shareholder
servicing costs)....................................................$ 18,000
Fees earned by trustees not affiliated with the Fund's
investment adviser or transfer agent (included in other expenses)...$ 1,109
The investment adviser of the Funds is Columbia Management Co. The transfer
agent for the Funds is Columbia Trust Company, a subsidiary of Columbia Funds
Management Company. The transfer agent is compensated based on a per account fee
or a minimum of $1,500 per month. The contracts for investment advisory and
transfer agent services must be renewed annually by a majority vote of the
Fund's shareholders or by the Trustees of CMC Fund Trust. During fiscal year
1997, certain officers and trustees of CMC Fund Trust were also officers and
directors of Columbia Management Co., Columbia Trust Company and Columbia Funds
Management Company. They did not receive any direct payments from the Fund.
(Note 5)
5. Subsequent event:
On December 10, 1997 Columbia Management Co., Columbia Trust Company and
Columbia Funds Management Company were acquired by Fleet Financial Group, Inc.,
a publicly owned multi-bank holding company registered under The Bank Holding
Company Act of 1956. In connection with this transaction the composition of the
officers and Trustees of CMC Fund Trust changed as of December 10, 1997. The
Funds' investment adviser and transfer agent will continue to operate as
autonomous business units, in accordance with the acquisition agreement. There
are no current plans to materially change the individuals responsible for
portfolio management and accounting services.
32
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of CMC Fund Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of CMC High Yield Fund, one of the
portfolios of CMC Fund Trust (the "Fund") as of October 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of October 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for the periods indicated
therein, in conformity with generally acceptable accounting principles.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
December 5, 1997, except
for Note 5 as to which the
date is December 10, 1997
Coopers & Lybrand, L.L.P. is a member of Coopers & Lybrand International,
a Swiss limited liability association.
33
<PAGE>
Part A-III
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[LOGO]
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 December
24, 1997 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.
December 24, 1997
<PAGE>
TABLE OF CONTENTS
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...............................................................7
Performance Information.....................................................7
Voting Rights...............................................................8
Taxes.......................................................................9
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(1)
(As a percentage of average net assets)
Management Fees .25%
12b-1 Fees None
Other Operating Expenses (after reimbursement) .0%(2)
Total Fund Operating Expenses (after reimbursement) .25%(2)
(1)In addition to the Annual Fund Operating Expenses set forth below, each
shareholder will enter into a written Administrative Services Agreement (the
"Agreement") with the Adviser. Pursuant to the Agreement, the Adviser will
provide the shareholder specialized reports regarding the Fund, performance of
the shareholder's investment, and market of conditions and economic indicators.
For such services, each shareholder will pay an annual fee calculated as a
percentage of the shareholder's net assets in the Fund. The annual fee shall
range from .00% to .20%.
(2)For the fiscal period ending October 31, 1998, the Adviser has voluntarily
agreed to assume ordinary recurring expenses of the Fund to the extent necessary
to maintain Total Fund Operating Expenses of .25%. If the Adviser did not assume
payment of these expenses it is estimated that Other Operating Expenses for the
Fund would be .21% and Total Fund Operating Expenses for the Fund would be .46%
for the fiscal period ending October 31, 1998.
2
<PAGE>
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
------ -------
$3 $8
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 in a diversified portfolio of
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. Each shareholder of the Fund is required to enter into an
Administrative Services Agreement with CMC. See "Investment in the Fund."
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
- -------------------------------------------------------------------------------
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.
3
<PAGE>
The Fund emphasizes high quality investments. At least 50% of the Fund's
assets will be invested in (a) obligations of the U.S. government, its agencies
or instrumentalities, and (b) debt securities rated, at the time of purchase, in
one of the two highest ratings categories of Standard and Poor's ("S&P") (AAA or
AA) or Moody's Investor's Services, Inc. ("Moody's") (Aaa or Aa) or, if not
rated, judged to be of comparable quality by the Adviser. Additionally, 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, (b) rated BBB or higher by 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 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). See
"Additional Information--Bond Ratings."
4
<PAGE>
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.
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
- -------------------------------------------------------------------------------
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.
5
<PAGE>
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.
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REDEMPTIONS
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
- -------------------------------------------------------------------------------
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
6
<PAGE>
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
- -------------------------------------------------------------------------------
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.
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.
- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
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, The Financial Times, Financial World, Forbes, Investor's Business
Daily, Money, Morningstar Mutual Funds, Personal Investor, The Economist, The
Wall Street Journal, and USA Today.
7
<PAGE>
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
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
- -------------------------------------------------------------------------------
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.
8
<PAGE>
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TAXES
- -------------------------------------------------------------------------------
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.
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.
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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 an indirect wholly owned
subsidiary of Fleet Financial Group, Inc., a publicly owned multibank holding
company registered under the Bank Holding Company Act of 1956 with total assets
of approximately $84 billion at September 30, 1997. 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. CMC will pay all of the organizational expenses of the
Fund.
9
<PAGE>
The Adviser uses an investment team (the "Investment Team") approach to
analyze investment themes and strategies for the Fund. Thomas L. Thomsen,
President and Director of CMC, is the Chief Investment Officer of the Investment
Team. With over 28 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.
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. The Adviser has,
however, voluntarily agreed to reimburse the Fund to the extent Total Fund
Operating Expenses exceed .25 of 1 percent of its daily net assets in the fiscal
year ending October 31, 1998.
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TRANSFER AGENT
- -------------------------------------------------------------------------------
Columbia Trust Company (the "Trust Company") acts as transfer agent and
dividend paying agent for the Fund. The Trust Company is an indirect wholly
owned subsidiary of Fleet Financial Group, Inc. 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.
10
<PAGE>
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 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;
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* 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.
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.
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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.
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Part B-III
Reg. Nos. 33-30394/811-5857
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CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
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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 December 24, 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
December 24, 1997
<PAGE>
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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, President, Secretary, and Trustee of the
Trust; Chairman, President, Secretary, and Director of the Columbia Funds; and
Consultant with Fleet Financial Group Inc. (since December 1997); formerly
Chairman and Director of Columbia Management Co. (the "Adviser"), the investment
adviser of the Fund, Columbia Funds Management Company ("CFMC"), Columbia Trust
Company (the "Trust Company"), the Funds' transfer agent; and formerly Director
of Columbia Financial Center Incorporated. Mr. Inskeep's business address is
1300 S.W. Sixth Avenue, P.O. Box 1350, Portland, Oregon 97207.
RICHARD L. WOOLWORTH, Trustee of the Trust (since July 1993); Director of the
Columbia Funds; 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. Mr. Woolworth's business address is 100 S. W. Market
Street, Portland, Oregon 97201.
THOMAS R. MACKENZIE, Trustee of the Trust (since December 1997); Director of
each of the Columbia Funds; and Chairman of the Board of Directors of Group
Mackenzie (architecture, planning, interior design, engineering). Mr.
Mackenzie's business address is 0690 S.W. Bancroft Street, Portland, Oregon
97201.
JAMES C. GEORGE, Trustee of the Trust (since December 1997) and Director of each
of the Columbia Funds (since June 1994). Mr. George, former investment manager
of the Oregon State Treasury (1962-1992), is an investment consultant. Mr.
George's business address is 1001 S.W. Fifth Avenue, Portland, Oregon 97204.
*Mr. Inskeep is an "interested person" as defined by the Investment Company
Act of 1940 (the "1940 Act") and receives no trustee fees or salary from the
Trust or the Fund.
The following table sets forth the compensation of the disinterested
trustees of the Trust. For Mr. Woolworth, the amount represents compensation
received by Mr. Woolworth for the fiscal year ending October 31, 1997. The
amounts for Mr. Mackenzie and Mr. George, both of whom became trustees of the
Trust on December 10, 1997, are estimates of compensation to be paid in fiscal
year 1998 by the Trust and the Columbia Funds.
Total Compensation from the
Trustee Compensation From Trust Trust and Columbia Funds
- ------- ----------------------- ------------------------
Richard L. Woolworth $8,000 $29,000
Thomas R. Mackenzie $9,000 $31,000
James C. George $9,000 $31,000
As of the date of this Statement of Additional Information, there were no
shareholders of the Fund.
2
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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 administrative services
to each shareholder and charges a fee for those services based on the level of
shareholder assets invested in the Fund.
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.
The Adviser and the Trust Company are indirect wholly owned subsidiaries of
Fleet Financial Group, Inc. ("Fleet"). Fleet and its affiliates provide a wide
range of banking, financial and investment products and services to individuals
and businesses. Their principal activities include customer and commercial
banking, mortgage lending and servicing, trust administration, investment
management, retirement plan services, brokerage and clearing services,
securities underwriting, private and corporate financing and advisory activities
and insurance services.
The Adviser acts as an investment manager for approximately $14 billion of
assets. The Fund is intended to principally provide investment vehicles 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. The independent fiduciary then authorizes the Adviser to purchase and sell
shares of the Fund at its discretion for the client's portfolio subject to any
limitations imposed by the authorization.
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 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
3
<PAGE>
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.
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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 dealer 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 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
4
<PAGE>
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 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 will be
approved in accordance with regulations under the 1940 Act.
5
<PAGE>
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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.
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
6
<PAGE>
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.
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.
7
<PAGE>
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.
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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.
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:
Yield = 2 [(a-b + 1)6 -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 period.
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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:
P(1+T)n = 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.
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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
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
9
<PAGE>
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.
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.
10
<PAGE>
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.
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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.
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
11
<PAGE>
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.)
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.
12
<PAGE>
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 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.
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<PAGE>
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 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
14
<PAGE>
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 Adviser to be of good standing and will not
be made unless, in the judgment of the Adviser, 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.
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.
15
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CMC FUND TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements.
CMC Small Cap Fund -- Included in the Statement of Additional Information
CMC International Stock Fund -- Included in the Statement of Additional
Information CMC High Yield Fund -- Included in the Statement of Additional
Information CMC Short Term Bond Fund -- Not Applicable
(b) Exhibits:
(1A) Restated Declaration of Trust.(1)
(1B) Amendment to Restated Declaration of Trust.(1)
(1C) Amendment No. 2 to Restated Declaration of Trust.(2)
(2) Bylaws.(1)
(4A) Specimen Stock Certificate for CMC Small Cap Fund.(1)
(4B) Specimen Stock Certificate for CMC International Stock Fund.(1)
(4C) Specimen Stock Certificate for CMC High Yield Fund.(1)
(4D) Specimen Stock Certificate for CMC Short Term Bond Fund.(2)
(5A) Investment Advisory Contract for CMC Small Cap Fund.*
(5B) Investment Advisory Contract for CMC International Stock Fund.*
(5C) Investment Advisory Contract for CMC High Yield Fund.*
(5D) Investment Advisory Contract for CMC Short Term Bond Fund.(2)
(8A) Custodian Contract between United States National Bank of Oregon and
CMC Fund Trust.(1)
C-1
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(8B) Custodian Contract between CMC Fund Trust and Morgan Stanley Trust
Company.(1)
(9A) Transfer Agent Agreement for CMC Small Cap Fund.*
(9B) Transfer Agent Agreement for CMC International Stock Fund.*
(9C) Transfer Agent Agreement for CMC High Yield Fund.*
(9D) Transfer Agent Agreement for CMC Short Term Bond Fund.(2)
(9E) Form of Administrative Services Agreement.*
(10) Opinion of Counsel with respect to CMC Short Term Bond Fund.*
(11) Consent of Coopers & Lybrand, L.L.P., Independent Accountants,
relating to financial statements of CMC Small Cap Fund, CMC
International Stock Fund, and CMC High Yield Fund.*
(12) See paragraph (a) of this Item 24.
(17) Powers of Attorney for Messrs. George and Mackenzie.* Powers of
Attorney for Messrs. Inskeep and Woolworth.(1)
(27A) Financial Data Schedule for CMC Small Cap Fund.*
(27B) Financial Data Schedule for CMC International Stock Fund.*
(27C) Financial Data Schedule for CMC High Yield Fund.*
(1) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, File No. 33-30394, filed
December 16, 1996.
(2) Incorporated herein by Reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A, File No. 33-30394, filed
September 2, 1997.
*Filed herewith.
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.,
C-2
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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"). Fleet
Financial Group, Inc. ("Fleet") is a publicly owned multibank holding company
registered under the Bank Holding Company Act of 1956. CFMC, the Adviser,
Columbia Trust Company and Columbia Financial Center Incorporated are indirect
wholly owned subsidiaries of Fleet. See "Management" in the Statement of
Additional Information.
Item 26. Number of Holders of Securities
CMC Small Cap Fund -- At November 28, 1997, all outstanding shares of CMC
Small Cap Fund were held by 70 shareholders.
CMC International Stock Fund -- At November 28, 1997, all outstanding
shares of CMC International Stock Fund were held by 20 shareholders.
CMC High Yield Fund -- At November 28, 1997, all outstanding shares of CMC
High Yield Fund were held by 39 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").
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.
C-3
<PAGE>
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 in 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this 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 24th day of
December, 1997.
CMC FUND TRUST
By: J. JERRY INSKEEP, JR.
------------------------------------
J. Jerry Inskeep, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 24th day of December, 1997
by the following persons in the capacities indicated.
(i) Principal executive officer:
* J. JERRY INSKEEP, JR. President, Chairman, Secretary and
- ---------------------------------------- Trustee
J. Jerry Inskeep, Jr.
(ii) Principal accounting and financial officer:
J. JERRY INSKEEP, JR. President, Chairman, Secretary and
- ---------------------------------------- Trustee
J. Jerry Inskeep, Jr.
(iii) Trustees:
* RICHARD L. WOOLWORTH Trustee
- ----------------------------------------
Richard L. Woolworth
C-5
<PAGE>
* JAMES C. GEORGE Trustee
- ----------------------------------------
James C. George
* THOMAS R. MACKENZIE Trustee
- ----------------------------------------
Thomas R. Mackenzie
*By: J. JERRY INSKEEP, JR.
------------------------------------
J. Jerry Inskeep, Jr.
Attorney-In-Fact
C-6
<PAGE>
CMC FUND TRUST
EXHIBIT INDEX
Exhibit Description
(1A) Restated Declaration of Trust.(1)
(1B) Amendment to Restated Declaration of Trust.(1)
(1C) Amendment No. 2 to Restated Declaration of Trust.(2)
(2) Bylaws.(1)
(4A) Specimen Stock Certificate for CMC Small Cap Fund.(1)
(4B) Specimen Stock Certificate for CMC International Stock Fund.(1)
(4C) Specimen Stock Certificate for CMC High Yield Fund.(1)
(4D) Specimen Stock Certificate for CMC Short Term Bond Fund.(2)
(5A) Investment Advisory Contract for CMC Small Cap Fund.*
(5B) Investment Advisory Contract for CMC International Stock Fund.*
(5C) Investment Advisory Contract for CMC High Yield Fund.*
(5D) Investment Advisory Contract for CMC Short Term Bond Fund.(2)
(8A) Custodian Contract between United States National Bank of Oregon and
CMC Fund Trust.(1)
(8B) Custodian Contract between CMC Fund Trust and Morgan Stanley Trust
Company.(1)
(9A) Transfer Agent Agreement for CMC Small Cap Fund.*
(9B) Transfer Agent Agreement for CMC International Stock Fund.*
(9C) Transfer Agent Agreement for CMC High Yield Fund.*
(9D) Transfer Agent Agreement for CMC Short Term Bond Fund.(2)
(9E) Form of Administrative Services Agreement.*
C-7
<PAGE>
(10) Opinion of Counsel with respect to CMC Short Term Bond Fund.*
(11) Consent of Coopers & Lybrand, L.L.P., Independent Accountants,
relating to financial statements of CMC Small Cap Fund, CMC
International Stock Fund, and CMC High Yield Fund.*
(12) See paragraph (a) of this Item 24.
(17) Powers of Attorney for Messrs. George and Mackenzie.* Powers of
Attorney for Messrs. Inskeep and Woolworth.(1)
(27A) Financial Data Schedule for CMC Small Cap Fund.*
(27B) Financial Data Schedule for CMC International Stock Fund.*
(27C) Financial Data Schedule for CMC High Yield Fund.*
(1) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A, File No. 33-30394, filed
December 16, 1996.
(2) Incorporated herein by Reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A, File No. 33-30394, filed
September 2, 1997.
*Filed herewith.
C-8
EXHIBIT 5.A.
CMC FUND TRUST
CMC SMALL CAP FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made the 10TH day of December, 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 first series of shares, referred to as "CMC
Small Cap 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
1
<PAGE>
the cost of its custodian, legal, auditing, and accounting expenses,
disinterested directors' 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 .75 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 J. JERRY INSKEEP, JR.
------------------------------------------
Title: President
COLUMBIA MANAGEMENT CO.
By GEORGE L. HANSETH
------------------------------------------
Title: Vice President
3
EXHIBIT 5.B.
CMC FUND TRUST
CMC INTERNATIONAL STOCK FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made the 10TH day of December, 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 second series of shares, referred to as "CMC
International Stock 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.
1
<PAGE>
(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' 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 .75 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
2
<PAGE>
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.
(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 J. JERRY INSKEEP, JR.
------------------------------------------
Title: President
COLUMBIA MANAGEMENT CO.
By GEORGE L. HANSETH
------------------------------------------
Title: Vice President
3
EXHIBIT 5.C.
CMC FUND TRUST
CMC HIGH YIELD FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made the 10TH day of December, 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 third series of shares, referred to as "CMC
High Yield 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
1
<PAGE>
the cost of its custodian, legal, auditing, and accounting expenses,
disinterested directors' 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 .40 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 J. JERRY INSKEEP, JR.
------------------------------------------
Title: President
COLUMBIA MANAGEMENT CO.
By GEORGE L. HANSETH
------------------------------------------
Title: Vice President
3
EXHIBIT 9.A.
CMC FUND TRUST
CMC SMALL CAP FUND
TRANSFER AGENT AGREEMENT
December 10, 1997
This Agreement is made between CMC FUND TRUST ("Fund"), an Oregon business
trust, and COLUMBIA TRUST COMPANY ("Agent"), an Oregon corporation.
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
Small Cap 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, and
2
<PAGE>
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.
4
<PAGE>
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 J. JERRY INSKEEP, JR.
------------------------------------------
COLUMBIA TRUST COMPANY
By GEORGE L. HANSETH
------------------------------------------
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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.
9
<PAGE>
CMC FUND TRUST
CMC SMALL CAP FUND
SCHEDULE B
BASIC FEE
$1.00 per account per month
(Minimum aggregate fee of $1,500 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.
10
EXHIBIT 9.B.
CMC FUND TRUST
CMC INTERNATIONAL STOCK FUND
TRANSFER AGENT AGREEMENT
December 10, 1997
This Agreement is made between CMC FUND TRUST ("Fund"), an Oregon business
trust, and COLUMBIA TRUST COMPANY ("Agent"), an Oregon corporation.
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
International Stock 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, and
2
<PAGE>
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.
4
<PAGE>
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 J. JERRY INSKEEP, JR.
------------------------------------------
COLUMBIA TRUST COMPANY
By GEORGE L. HANSETH
------------------------------------------
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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.
9
<PAGE>
CMC FUND TRUST
CMC INTERNATIONAL STOCK FUND
SCHEDULE B
BASIC FEE
$1.00 per account per month
(Minimum aggregate fee of $1,500 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.
10
EXHIBIT 9.C.
CMC FUND TRUST
CMC HIGH YIELD FUND
TRANSFER AGENT AGREEMENT
December 10, 1997
This Agreement is made between CMC FUND TRUST ("Fund"), an Oregon business
trust, and COLUMBIA TRUST COMPANY ("Agent"), an Oregon corporation.
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
High Yield 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
<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, and
2
<PAGE>
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.
4
<PAGE>
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 J. JERRY INSKEEP, JR
------------------------------------------
COLUMBIA TRUST COMPANY
By GEORGE L. HANSETH
------------------------------------------
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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.
9
<PAGE>
CMC FUND TRUST
CMC HIGH YIELD FUND
SCHEDULE B
BASIC FEE
$1.00 per account per month
(Minimum aggregate fee of $1,500 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.
10
Exhibit 9.E.
[Date]
Mailed to Client:
Effective Date:
(NAME AND ADDRESS OF CLIENT)
Attention: (PERSON TO WHOM SENT)
Re: Administrative Services Agreement
Gentlemen:
Columbia Management Co. ("CMC") is registered as an investment adviser
under the Investment Advisers Act of 1940. CMC serves as investment adviser to
CMC Fund Trust ("Trust").
Trust is an open-end management company registered under the Investment
Company Act of 1940 ("the Investment Company Act"). Trust has registered its
shares under the Securities Act of 1933 ("Securities Act") and currently offers
shares of four separate series ("Funds"), each with its own investment
objectives and strategies. CMC Short Term Bond Fund ("Bond Fund") is a separate
series of Trust offering to clients of CMC the opportunity to pool resources in
purchasing fixed income securities instead of purchasing such securities on an
individual basis. Pursuant to this Administrative Services Agreement, CMC
intends to provide to shareholders of the Bond Fund the individualized services
described below (the "Services").
(NAME OF CLIENT) desires to utilize CMC's Services in connection with its
investment in the Fund. CMC is willing to provide its Services.
Therefore, CMC and (NAME OF CLIENT) agree as follows:
1. SERVICES PROVIDED BY THE COMPANY. CMC will provide the following Services
to you: A representative of CMC will meet with you as reasonably requested
(no more frequently than quarterly) to review (i) the performance of the
Fund, (ii) its portfolio composition, (iii) the performance of your
investment during the reported period, (iv) market conditions and economic
indicators, and (v) other information and reports and analyses concerning
the investment performance of the Bond Fund and the overall investment
environment as you shall reasonably request.
2. AVAILABILITY OF TRUST SHARES. When you have determined that shares of the
Bond Fund are suitable for acquisition, CMC shall arrange for the sale of
Bond Fund shares to you on the terms and subject to the conditions and
restrictions set forth in the Trust's prospectus effective at the time of
purchase.
<PAGE>
3. REPORTS. As a shareholder of Trust, you will receive semi-annual reports
showing the Bond Fund's financial condition, investment portfolio and
investment performance as of the end of the period. The annual financial
statements will be audited by independent public accountants.
4. FEES TO CMC. For the services provided by CMC, you agree to pay to CMC, a
fee at the annual rate set forth in Exhibit A hereto, payable, in arrears,
computed upon the average assets you have invested in shares of the Bond
Fund. Average Assets" shall be determined by computing the average of the
value of your assets invested in the Fund on the last business day of each
of the three months comprising the calendar quarter and on the last
business day of the preceding calendar quarter.
In the event of a redemption during a calendar quarter of Bond Fund shares
representing substantially all of your assets, the quarterly fee, pro-rated
to the date of redemption, shall become payable immediately to CMC. When
determining the pro-rated fee, "Average assets" shall be determined by
computing the average of the value of your assets invested in the Bond Fund
on the last business day of the preceding calendar quarter, and on the
business day immediately prior to the redemption date; and the fee rate
shall be determined by multiplying the quarterly fee rate times the ratio
of the number of days in the quarter prior to the redemption to the number
of days in the quarter.
You hereby appoint CMC as your agent and irrevocably authorize CMC to
redeem at the then current net asset value a sufficient number of shares of
the Bond Fund and to retain the proceeds of such redemption to pay fees
owed to CMC if you have not paid such fees when due and payable; provided,
however, that CMC shall give you three days' written notice of its
intention to do so.
5. ASSIGNMENT. No assignment of this Agreement shall be made by either party
hereto, and CMC shall not make an "assignment" of this Agreement as that
term is defined in Section 202(a)(1) of the Investment Advisers Act of
1940, without the written consent of the other party, and this Agreement
shall terminate automatically in the event that it is assigned.
6. EFFECTIVE DATE AND DURATION OF AGREEMENT. This Agreement shall become
effective on the date set forth on page 1, and shall continue in effect
until terminated by either party as provided in Section 7, below; provided,
however, that CMC shall have no obligation to make shares of the Bond Fund
available to you during any period in which the Trust's registration
statement under the Securities Act or applicable state securities
registration laws is not effective.
2
<PAGE>
7. TERMINATION AND AGREEMENTS UNDER TERMINATION. This Agreement may be
terminated by either party under the following circumstances and in the
following manner:
A. You may terminate this Agreement at any time without penalty upon
written notice to CMC. In addition, Section 22(e) of the Investment
Company Act prohibits the Trust from suspending the right of
redemption of its shares except under specified circumstances;
accordingly, a complete or substantially complete redemption of shares
of Trust held by you shall be treated as and result in your immediate
termination of the Agreement.
B. CMC may terminate this Agreement at any time without penalty upon 30
days' written notice to you.
C. Upon either party's termination of this Agreement, pursuant to Section
7A. or B. above, you agree to redeem within 30 days all shares of
Trust which you hold; and in the event you fail to do so, you hereby
irrevocably appoint CMC as your agent and authorize CMC to effect such
redemption and transmit the proceeds, less any fees which you then owe
to CMC.
8. AMENDMENT. This Agreement may be amended at any time by written agreement
between you and CMC.
9. DELIVERY OF DOCUMENTS. You hereby acknowledge receipt of the current
prospectus of the Bond Fund.
10. APPLICABLE LAW. To the extent of state law shall not have been preempted by
the provisions of any laws of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall
be administered, construed, and enforced according to the laws of the State
of Oregon.
COLUMBIA MANAGEMENT CO.
-----------------------------
By: George L. Hanseth
Title: Vice President
Accepted:
[Company]
- -----------------------------
By:
Title:
COLUMBIA MANAGEMENT COMPANY
Exhibit 10
December 17, 1997
The Trustees
CMC Fund Trust
1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207-1350
As general counsel to Columbia Management Co. (the "Advisor"), the
investment advisor to CMC Fund Trust (the "Trust"), I have had responsibility
for the preparation and filing of the Fund's Registration Statement on Form N-1A
(the "Registration Statement") under the Securities Act of 1933 and the
Investment Company Act of 1940 covering an indefinite number of shares of the
CMC Short Term Bond Fund (the "Fund"), a portfolio of the Trust, pursuant to
Rule 24f-2. I have reviewed the corporate action of the Trust in connection with
this matter and have examined those documents, corporate records and other
instruments I deemed necessary for purposes of this opinion.
Based upon the foregoing, it is my opinion that:
1. The Trust has been duly organized and is validly existing as a business
trust under the laws of the State of Oregon;
2. An unlimited number of Shares of the Trust have been duly authorized;
and
3. Shares of the Trust representing a beneficial interest in the Fund, when
issued and sold in the manner described in the Fund's Prospectus included with
the Registration Statement and in accordance with resolutions adopted by the
Trustees of the Trust, and when payment therefor shall have been received by the
Trust, will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
JEFF B. CURTIS
Jeff B. Curtis
General Counsel
EXHIBIT 11
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of CMC Fund Trust:
We consent to the inclusion in Post-Effective Amendment No. 13 to the
Registration Statement of CMC Fund Trust on Form N-1A (File No. 33-30394) of our
reports dated December 5, 1997, except for Note 5 as to which the date is
December 10, 1997, on our audits of the financial statements and the financial
highlights of the CMC Small Cap Fund, CMC International Stock Fund, and CMC High
Yield Fund, portfolios of CMC Fund Trust, which reports are included in the
Annual Reports to Shareholders for year ended October 31, 1997, which is
included in the Registration Statement. We also consent to the reference to our
firm under the caption "Independent Accountants".
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Portland, Oregon
December 24, 1997
Coopers & Lybrand, L.L.P. is a member of Coopers & Lybrand International,
a Swiss limited liability association.
EXHIBIT 17
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
J. Jerry Inskeep, Jr. as the undersigned's true and lawful attorney and agent,
with full power of substitution and resubstitution for and in the name, place
and stead of the undersigned, in any and all capacities, to sign the
Registration Statement on Form N-1A for the registration of shares of CMC Fund
Trust, and any and all amendments (including post-effective amendments) thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each attorney and agent full power and authority to do any and all acts and
things necessary or advisable to be done, as fully and to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that the attorney and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Dated: December 16, 1997
JAMES C. GEORGE
----------------------------------
James C. George
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
J. Jerry Inskeep, Jr. as the undersigned's true and lawful attorney and agent,
with full power of substitution and resubstitution for and in the name, place
and stead of the undersigned, in any and all capacities, to sign the
Registration Statement on Form N-1A for the registration of shares of CMC Fund
Trust, and any and all amendments (including post-effective amendments) thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each attorney and agent full power and authority to do any and all acts and
things necessary or advisable to be done, as fully and to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that the attorney and agent, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Dated: December 16, 1997
THOMAS R. MACKENZIE
----------------------------------
Thomas R. Mackenzie
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED ANNUAL REPORT OF CMC SMALL CAP FUND (A PORTFOLIO OF CMC FUND TRUST)
DATED OCTOBER 31, 1997, AND THE AUDITED ANNUAL REPORT OF CMC SMALL CAP
FUND (A PORTFOLIO OF CMC FUND TRUST) DATED OCTOBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854126
<NAME> CMC FUND TRUST
<SERIES>
<NUMBER> 01
<NAME> CMC SMALL CAP FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 414,760,150
<INVESTMENTS-AT-VALUE> 490,348,556
<RECEIVABLES> 8,730,368
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 33,767,324
<TOTAL-ASSETS> 532,846,248
<PAYABLE-FOR-SECURITIES> 5,036,800
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,038,957
<TOTAL-LIABILITIES> 11,075,757
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 446,426,097
<SHARES-COMMON-STOCK> 9,590,639
<SHARES-COMMON-PRIOR> 10,038,840
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (244,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 75,588,406
<NET-ASSETS> 521,770,491
<DIVIDEND-INCOME> 789,572
<INTEREST-INCOME> 2,379,763
<OTHER-INCOME> 0
<EXPENSES-NET> 3,543,704
<NET-INVESTMENT-INCOME> (374,369)
<REALIZED-GAINS-CURRENT> 93,042,443
<APPREC-INCREASE-CURRENT> 15,392,662
<NET-CHANGE-FROM-OPS> 108,060,736
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 92,831,342
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,075,132
<NUMBER-OF-SHARES-REDEEMED> 4,158,883
<SHARES-REINVESTED> 1,635,550
<NET-CHANGE-IN-ASSETS> (637,516)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (80,744)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,462,393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,543,704
<AVERAGE-NET-ASSETS> 463,394,314
<PER-SHARE-NAV-BEGIN> 52.04
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 14.08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 11.68
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 54.40
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED ANNUAL REPORT OF CMC INTERNATIONAL STOCK FUND (A PORTFOLIO OF CMC
FUND TRUST) DATED OCTOBER 31, 1997, AND THE AUDITED ANNUAL REPORT OF CMC
INTERNATIONAL STOCK FUND (A PORTFOLIO OF CMC FUND TRUST) DATED OCTOBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854126
<NAME> CMC FUND TRUST
<SERIES>
<NUMBER> 02
<NAME> CMC INTERNATIONAL STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 68,881,241
<INVESTMENTS-AT-VALUE> 75,623,152
<RECEIVABLES> 17,387,425
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,297,037
<TOTAL-ASSETS> 95,307,614
<PAYABLE-FOR-SECURITIES> 167,276
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,669,690
<TOTAL-LIABILITIES> 13,836,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,813,833
<SHARES-COMMON-STOCK> 1,907,431
<SHARES-COMMON-PRIOR> 1,731,905
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,692)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,666,507
<NET-ASSETS> 81,470,648
<DIVIDEND-INCOME> 1,284,009
<INTEREST-INCOME> 439,870
<OTHER-INCOME> 0
<EXPENSES-NET> 938,233
<NET-INVESTMENT-INCOME> 785,646
<REALIZED-GAINS-CURRENT> 12,041,644
<APPREC-INCREASE-CURRENT> (88,403)
<NET-CHANGE-FROM-OPS> 12,738,887
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 764,742
<DISTRIBUTIONS-OF-GAINS> 9,756,639
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 492,558
<NUMBER-OF-SHARES-REDEEMED> 559,687
<SHARES-REINVESTED> 242,655
<NET-CHANGE-IN-ASSETS> 7,928,580
<ACCUMULATED-NII-PRIOR> 8,115
<ACCUMULATED-GAINS-PRIOR> (2,323,716)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 686,166
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 938,233
<AVERAGE-NET-ASSETS> 89,382,482
<PER-SHARE-NAV-BEGIN> 42.46
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> 6.16
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> 5.86
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 42.71
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED ANNUAL REPORT OF CMC HIGH YIELD FUND (A PORTFOLIO OF CMC FUND TRUST)
DATED OCTOBER 31, 1997, AND THE AUDITED ANNUAL REPORT OF CMC HIGH YIELD
FUND (A PORTFOLIO OF CMC FUND TRUST) DATED OCTOBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854126
<NAME> CMC FUND TRUST
<SERIES>
<NUMBER> 03
<NAME> CMC HIGH YIELD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 109,660,052
<INVESTMENTS-AT-VALUE> 112,109,556
<RECEIVABLES> 4,553,212
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,785,819
<TOTAL-ASSETS> 119,448,587
<PAYABLE-FOR-SECURITIES> 0
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<SHARES-COMMON-STOCK> 3,234,971
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<APPREC-INCREASE-CURRENT> 1,267,480
<NET-CHANGE-FROM-OPS> 10,148,817
<EQUALIZATION> 0
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<DISTRIBUTIONS-OTHER> 0
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> 3.18
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</TABLE>
