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. 15 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 14
(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)
________ 60 days after filing pursuant to paragraph (a)(1)
________ on _______________ pursuant to paragraph (a)(1)
________ 75 days after filing pursuant to paragraph (a)(2)
________ on _________________ pursuant to paragraph (a)(2) of Rule 485
If appropriate:
________ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Please forward copies of communications to:
Robert J. Moorman
Stoel Rives, L.L.P.
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
<PAGE>
Part A-I
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[GRAPHIC OMITTED]
Columbia
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
CMC Small Cap Fund and CMC International Stock Fund (each a "Fund" and
together the "Funds") are portfolios of CMC Fund Trust. The Small Cap Fund seeks
to provide investors with long-term capital appreciation by investing primarily
in smaller companies with a market capitalization of less than $1 billion. The
International Stock Fund also seeks to provide investors with long-term capital
appreciation, but will do so by investing primarily in international stocks.
As with all mutual funds, the Securities and Exchange Commission has not
stated that the information in this Prospectus is accurate or complete, nor has
it approved or disapproved the Funds for investment merit. It is a criminal
offense to state otherwise.
December 24, 1998
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TABLE OF CONTENTS
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Risk/Return Summary............................................. 3
Overview...................................................... 3
Investment Strategy......................................... 3
Risks of Investing in Common Stock.......................... 3
Information About the Funds................................. 4
CMC Small Cap Fund............................................ 4
Goal........................................................ 4
Strategy.................................................... 4
Risk Factors................................................ 4
CMC International Stock Fund.................................. 5
Goal........................................................ 5
Strategy.................................................... 5
Risk Factors................................................ 5
Historical Performance........................................ 6
Expenses...................................................... 9
Financial Highlights.......................................... 10
Management...................................................... 11
Information About Your Investment............................... 12
Your Account.................................................. 12
Buying Shares............................................... 12
Selling Shares.............................................. 13
Distribution and Taxes........................................ 14
Income and Capital Gains Distributions...................... 14
Tax Effect of Distributions and Transactions................ 14
More About the Funds............................................ 15
Investment Strategy........................................... 15
Small Cap Fund.............................................. 15
International Stock Fund.................................... 16
Changes to Investment Objective
and Temporary Investments................................. 17
Other Risks................................................... 17
Foreign Securities.......................................... 17
Year 2000................................................... 18
Conversion to Euro.......................................... 18
For More Information............................................ 19
2
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RISK/RETURN SUMMARY
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OVERVIEW
- --------
This Prospectus provides important information about the Funds offered
by this Prospectus. For your convenience, concise descriptions of each Fund
begin on the next page. The descriptions provide the following information
about each Fund:
o GOAL
o STRATEGY
o RISK FACTORS
o HISTORICAL PERFORMANCE
o EXPENSES
o FINANCIAL HIGHLIGHTS
INVESTMENT STRATEGY
- -------------------
Columbia Management Co., the investment adviser for the Funds ("CMC"
or "Adviser") utilizes a top down analysis to evaluate the macro economic
and investment environment. Through this process the Adviser is able to
develop broad investment themes that help create a framework for industry
and stock selection. Often, themes are selected based on the review and
discovery of subtle changes in the environment, which may not be widely
recognized by the rest of the investment community. This approach is
intended to uncover opportunities that offer long-term financial reward. In
building each Fund's portfolio, the Adviser combines this top down approach
with intensive bottom up research of individual securities issues. The
Small Cap Fund focuses on investment in specialized securities and small
capitalization stocks and, therefore, places a greater emphasis on bottom
up research. The International Stock Fund, which focuses on a broader
segment of the market, emphasizes top down analysis. Both types of
analysis, however, play an integral role in the investment process, and are
explained in greater detail under "MORE ABOUT THE FUNDS, INVESTMENT
STRATEGY" in this Prospectus.
RISKS OF INVESTING IN COMMON STOCK
- ----------------------------------
Because the Funds invest primarily in common stocks, they are subject
to the risks associated with stock investing. Although common stocks have
historically provided long-term returns that are greater than other types
of investments, stock returns have also been volatile over shorter periods
of time. Consequently, the Funds' portfolios - and likewise your investment
in the Funds - will fluctuate in value in response to changes in the
economy and the activities, financial prospects and results of the
individual companies whose stock is held by the Funds.
3
<PAGE>
INFORMATION ABOUT THE FUNDS
- ---------------------------
CMC SMALL CAP FUND
GOAL
- ----
What is the Fund's Investment Goal?
The Fund seeks to provide investors long-term capital appreciation.
STRATEGY
- --------
What investment strategies does the Fund use to pursue this goal?
Under normal market conditions, the Fund invests at least 65 percent
of its total asset value in common stocks of companies that each have a
market valuation, at the time of investment, of less than $1 billion.
RISK FACTORS
- ------------
What are the principal risks of investing in the Fund?
In addition to the risks of investing in common stocks described above
under "RISKS OF INVESTING IN COMMON STOCK", investment in small cap stocks
present additional investment risks. This is because small cap companies:
o May have a limited operating history
o May be dependent on a small number of products or services
o May lack substantial capital reserves
o Have low trading volumes, which may make it difficult for the
Fund to sell the security and result in erratic or abrupt price
movements
You could lose money as a result of your investment in the Fund and
the Fund could under perform other investments if any of the above risks
occur. You should invest in this Fund only if you are willing to assume
substantial risks of significant fluctuations in the value of your
investment. An investment in this Fund should be part of a balanced
investment program.
4
<PAGE>
See "MORE ABOUT THE FUNDS" in this Prospectus and the Fund's Statement
of Additional Information for more information regarding the Fund's
investment strategy and risks.
CMC INTERNATIONAL STOCK FUND
GOAL
- ----
What is the Fund's Investment Goal?
The Fund seeks to provide investors long-term capital appreciation.
STRATEGY
- --------
What investment strategies does the Fund use to pursue its goal?
Under normal market conditions, the Fund will invest in equity
securities of companies based outside the United States. Generally, at
least 75 percent of the value of the Fund's total assets will be invested
in equity securities of well capitalized, seasoned foreign companies. The
Fund considers a foreign company to be well capitalized if it has an
aggregate market valuation of at least $500 million at the time of
investment. The Fund will invest in at least three different foreign
countries and may invest in companies located anywhere in the world.
RISK FACTORS
- ------------
In addition to the risks of investing in common stocks described above
under "RISKS OF INVESTING IN COMMON STOCK", investment in foreign
securities present additional investment risks. This is because foreign
securities:
o May be subject to greater fluctuations in price than domestic
securities
o Are affected by changes in currency exchange rates
o May be subject to foreign taxes that could reduce their effective
yield
o Are subject to potential political or economic instability of the
country of issuer, especially in emerging or developing countries
o Are generally not subject to uniform accounting, auditing, and
financial reporting standards comparable to those of domestic
companies
5
<PAGE>
o Generally have less public information available about them than
do domestic securities
o Are generally subject to less governmental regulation and
oversight
o Are generally more illiquid than domestic exchange traded
securities
You could lose money as a result of your investment in the Fund and
the Fund could under perform other investments if any of the above risks
occur. You should invest in this Fund only if you are willing to assume
substantial risks of significant fluctuations in your investment. An
investment in this Fund should be part of a balanced investment program.
See "MORE ABOUT THE FUNDS" in this Prospectus and the Fund's Statement
of Additional Information for more information regarding the Fund's
investment strategy and risks.
HISTORICAL PERFORMANCE
- ----------------------
How have the Funds historically performed?
The bar charts and tables on the following pages illustrate the Funds'
annual returns as well as their long term performance. Each bar chart shows
how the Funds' performance has varied from year to year. The first table
compares the Small Cap Fund's performance over time to that of the Russell
2000 Index, a widely recognized unmanaged index used as a benchmark for
small cap stock performance. The second table compares the International
Stock Fund's performance to that of the Morgan Stanley Capital Index (MSCI)
EAFE, an unmanaged index which reflects the movement of stock markets in
Europe, Australia, and the Far East by representing a broad selection of
domestically listed companies within each market. The bar charts and tables
assume the reinvestment of dividends and distributions. The Funds'
historical performance does not indicate how the Funds will perform in the
future.
6
<PAGE>
Small Cap Fund
Year-By-Year Total Return As Of 12/31 Each Year
Graphic bar chart depicting "Year-By-Year Total Return as of 12/31 Each Year":
<TABLE>
<CAPTION>
Year Total Return Percentage
---- -----------------------
<S> <C> <C>
1990 -11.56%
1991 45.44%
1992 12.31%
1993 16.33%
1994 1.70%
1995 36.39%
1996 21.82%
1997 21.93%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: 1Q '91 25.69%
Worst Quarter: 3Q '90 -28.29%
- -------------------------------- ------------ --------------
</TABLE>
Average Annual Total Returns As Of 12/31/97
<TABLE>
<CAPTION>
Inception
1 Year 5 Year (8/30/89)
- ----------------------- ------------ ------------ ------------------
<S> <C> <C> <C>
CMC Small Cap Fund 21.93% 19.10% 16.88%
Russell 2000 Index 22.36% 16.40% 13.40%
The Fund's total return for the nine month period ended 9/30/98 was -16.83%.
</TABLE>
7
<PAGE>
International Stock Fund
Year-By-Year Total Return As Of 12/31 Each Year
Graphic bar chart depicting "Year-By-Year Total Return as of 12/31 Each Year":
<TABLE>
<CAPTION>
Year Total Return Percentage
---- -----------------------
<S> <C> <C>
1995 5.52%
1996 16.77%
1997 10.18%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: 2Q '97 13.18%
Worst Quarter: 4Q '97 -7.60%
- -------------------------------- ------------ --------------
</TABLE>
Average Annual Total Returns As Of 12/31/97
<TABLE>
<CAPTION>
Inception
1 Year (2/1/94)
- --------------------------------- -------------- -----------------
<S> <C> <C>
CMC International Stock Fund 10.18% 5.99%
(MSCI) EAFE Index 2.06% 5.27%
The Fund's total return for the nine month period ended 9/30/98 was -6.65%.
</TABLE>
8
<PAGE>
EXPENSES
- --------
What expenses do I pay as an investor in the Funds?
The table below describes the fees and expenses that you may pay if
you buy and hold shares of a Fund. As a shareholder, you pay no transaction
fees in connection with your investment in a Fund. Annual fund operating
expenses described in the table are paid out of a Fund's assets and are
therefore reflected in the share price.
----------------------------------------------------------------
The Funds do not charge a sales load or 12b-1 distribution fee.
----------------------------------------------------------------
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<TABLE>
Fee Table
<CAPTION>
Small Cap International
Fund Stock Fund
<S> <C> <C>
Shareholder transaction fees None None
Annual Fund Operating Expenses
(expenses that are paid out of Fund assets)
Management Fees 0.75% 0.75%
Distribution and/or Service (12b-1) Fees None None
Other Expenses 0.02% 0.29%
Total Fund Operating Expenses 0.77% 1.04%
</TABLE>
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Expense Examples
These examples are intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The examples
assume that you invest $10,000 in a Fund for the time periods indicated and
then sell all of your shares at the end of those periods. The examples also
assume that your investment has a 5% return each year and that the Fund's
operating expenses remain constant as a percentage of net assets. Your
actual costs may be higher or lower, but based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Small Cap Fund $79 $246 $428 $ 954
International Stock Fund $106 $331 $574 $1,271
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights tables are intended to help you understand each
Fund's financial performance for the past five years or since inception, if the
Fund has operated for a shorter period. Certain information reflects financial
results for a single fund share. The total returns in each table represent the
rate of return an investor would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with each Fund's financial statements, are included in the Statement of
Additional Information under "Financial Statements."
<TABLE>
Small Cap Fund
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $54.40 $52.04 $56.00 $49.35 $56.44
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income (Loss)..................... (0.10) (0.04) (0.08) 0.22 0.18
Net Gains or Losses on Securities
(both realized and unrealized)................. (8.87) 14.08 16.79 10.88 1.99
------ ------ ----- ----- -----
Total from Investment Operations............. (8.97) 14.04 16.71 11.10 2.17
------ ------ ----- ----- -----
Less Distributions:
Dividends (from net investment income)........... (0.16) (0.18)
Distributions (from capital gains)............... (5.60) (11.68) (20.67) (4.29) (9.08)
------ ------- ------- ------ ------
Total Distributions.......................... (5.60) (11.68) (20.67) (4.45) (9.26)
------ ------- ------- ------ -----
Net Asset Value, End of Period................... $39.83 $54.40 $52.04 $56.00 $49.35
====== ====== ====== ====== ======
Total Return..................................... -16.49% 26.98% 30.30% 22.55% 3.87%
Ratios/Supplemental Data
Net Assets, End of Period (in thousands)......... $267,789 $521,770 $522,408 $537,167 $467,952
Ratio of Expenses to Average Net Assets.......... 0.77% 0.76% 0.78% 0.77% 0.78%
Ratio of Net Income (Loss)
to Average Net Assets (0.20)% (0.08)% (0.14)% 0.43% 0.29%
Portfolio Turnover Rate.......................... 158.98% 168.72% 147.77% 125.80% 97.24%
</TABLE>
10
<PAGE>
International Stock Fund
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996 1995 1994(1)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $42.71 $42.46 $37.06 $39.51 $40.00
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income............................ 0.25 0.41 0.32 0.39 0.10
Net Gains or Losses on Securities (both
realized and unrealized) and Foreign
Currency Transactions.......................... (0.78) 6.16 5.86 (2.64) (0.59)
------ ------ ------ ------ ------
Total from Investment Operations............ (0.53) 6.57 6.18 (2.25) (0.49)
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income)........... (0.46) (0.78) (0.20)
Distributions (from capital gains) (29.64) (5.86)
------- ------ ------ ------ ------
Total Distributions......................... (29.64) (6.32) (0.78) (0.20) -
------- ------ ------ ------ ------
Net Asset Value, End of Period................... $12.54 $42.71 $42.46 $37.06 $39.51
====== ====== ====== ====== ======
Total Return..................................... -1.24% 15.47% 16.67% -5.69% -1.23%(2)
Ratios/Supplemental Data
Net Assets, End of Period (in thousands)......... $15,377 $81,471 $73,542 $68,758 $84,298
Ratio of Expenses to Average Net Assets.......... 1.04% 1.05% 1.00% 0.98% 1.16%
Ratio of Net Income to Average Net Assets........ 0.60% 0.88% 0.78% 0.99% 0.53%
Portfolio Turnover Rate.......................... 52.68% 126.56% 119.98% 158.32% 123.80%
(1) From inception of operations on February 1, 1994. Ratios and portfolio turnover rates are annualized.
(2) Not annualized.
</TABLE>
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MANAGEMENT
- -------------------------------------------------------------------------------
The Funds' investment adviser is Columbia Management Co., 1300 S.W. Sixth
avenue, P.O. Box 1350, Portland, Oregon 97207-1350 ("CMC" or "Adviser"). CMC has
acted as an investment adviser since 1969.
The Fund's have contracted with CMC to provide research, advice, execution
and supervision with respect to investment matters and to determine what
securities to purchase or sell and what portion of the Fund's assets to invest.
For the fiscal year ended October 31, 1998, each Fund paid CMC a management fee,
expressed as a percentage of average net assets, of 0.75%.
CMC uses an investment team approach to analyze investment themes and
strategies for the Fund. Members of the investment team are responsible for the
analysis of particular industries and market sectors within those industries,
and for recommendations on individual securities within those industries or
market sectors.
11
<PAGE>
Richard J. Johnson, a Vice President of CMC and a Chartered Financial
Analyst, has since April 1995 had responsibility for implementing, on a daily
basis, the investment strategies developed for the Small Cap Fund. Mr. Johnson
joined the Adviser in 1994 as a portfolio analyst and member of the investment
team. Before joining the Adviser, Mr. Johnson was a portfolio manager and
analyst for Provident Investment Counsel (1990-1994).
James M. McAlear, a Vice President of CMC, has had principal responsibility
for investment decisions of the International Stock Fund since its inception in
1994. He joined the Adviser in 1992 as a portfolio analyst and member of the
investment team. Previously, Mr. McAlear was Senior Vice President for American
Express Financial Advisers in London (1985-1992) and Executive Director for
Merrill Lynch Europe (1972-1985).
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INFORMATION ABOUT YOUR INVESTMENT
- -------------------------------------------------------------------------------
YOUR ACCOUNT
- ------------
Buying Shares
-------------
Investment in a Fund enables clients of CMC to invest in diversified
portfolios of either small cap securities or foreign securities in a pooled
environment, rather than purchasing securities on an individual basis.
If you want to invest in a Fund, contact your CMC representative at
1-800-547-1037. In addition, an independent fiduciary of a CMC client
account, after careful review of this Prospectus, including the Fund's
expenses and consistency with the client's written investment guidelines,
may approve the investment in a Fund. Upon approving the investment, the
independent fiduciary will authorize CMC to invest a portion of the
client's portfolio in the Fund, at CMC's discretion, and subject to
limitations imposed by the independent fiduciary.
-----------------------------------------------------------
If CMC is considered to be a fiduciary of your assets,
including the account with 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 your behalf. See the Statement of Additional
Information for more detail.
-----------------------------------------------------------
The price for a Fund's shares is the Fund's net asset value per share
("NAV"), which is generally calculated as of the close of trading on the
New York Stock Exchange (usually 4:00 p.m., Eastern time) every day the
exchange is open. Your order will be priced at the next NAV calculated
after your order is accepted by the Fund.
12
<PAGE>
Each Fund's investments are valued based on their market value using
the last sales price reported on the principal securities exchange on which
the investment is traded, or, in the absence of recorded sales, at the
closing bid prices on such exchanges or over the counter markets.
Securities trading in various foreign markets may take place on days when
the New York Stock Exchange is closed. Further, when the New York Stock
Exchange is open, the foreign markets may be closed. Therefore, the
calculation of the Fund's NAV may not take place at the same time the
prices of certain securities held by a Fund are determined. In most cases,
events affecting the values of portfolio securities that occur between the
time their prices are determined and the close of normal trading on the New
York Stock Exchange on a day the Fund's NAV is calculated will not be
reflected in the Fund's NAV. If, however, CMC determines that a particular
event would materially affect the Fund's NAV, then CMC under the general
supervision of the Board of Trustees will use all relevant, available
information to determine a fair value for the affected portfolio
securities.
Although neither Fund has a policy with respect to initial or
subsequent minimum investments, purchase orders may be refused at the
discretion of the Fund.
Selling Shares
--------------
You may sell shares at any time. Upon redemption you will receive the
Fund's next NAV calculated after your order is accepted by the Fund's
transfer agent. Any certificates representing Fund shares being sold must
be returned with your redemption request. You can request a redemption by
calling your CMC Representative at 1-800-547-1037. Redemption proceeds are
normally transmitted in the manner specified in the redemption request on
the business day following the effective date of the redemption. Except as
provided by rules of the Securities and Exchange Commission, redemption
proceeds must be transmitted to you within seven days of the redemption
date.
Each Fund also reserves the right to make a "redemption in kind" - pay
you in portfolio securities rather than cash - if the amount you are
redeeming is large enough to affect the Fund's operations (for example, if
the redemption represents more than 1% of the Fund's assets).
DISTRIBUTION AND TAXES
- ----------------------
Income and Capital Gains Distributions
--------------------------------------
Each Fund pays its shareholders dividends from its net investment
income twice a year, and generally distributes substantially all of its net
realized capital gains to shareholders once a year, usually in October. The
amount distributed will depend on the amount of capital gains realized from
the sale of the Fund's portfolio securities. Dividend and capital gain
distributions are declared and paid as cash dividends and
13
<PAGE>
reinvested in additional shares at the net asset value, as calculated
after payment of the distribution, at the close of business on the dividend
payment date, unless you have elected to receive the capital gain
distribution in cash.
Tax Effect of Distributions and Transactions
--------------------------------------------
The dividends and distributions of each Fund are taxable to most
investors, unless the shareholder is exempt from federal or state income
taxes or the investment is in a tax-advantaged account. The tax status of
any distribution is the same regardless of how long you have been in the
Fund and whether you reinvest your distributions or take them as income. In
general, distributions are taxable as follows:
----------------------------------------------------------------------
Taxability of Distributions
<TABLE>
<CAPTION>
Type of Tax Rate for Tax Rate for
Distribution 15% Bracket 28% Bracket or Higher
------------ ----------- ---------------------
<S> <C> <C>
Income Dividends Ordinary Income Rate Ordinary Income Rate
Short Term Capital Gains Ordinary Income Rate Ordinary Income Rate
Long Term Capital Gains 10% 20%
---------------------------------------------------------------------------
</TABLE>
Each Fund expects that, as a result of its investment objective to
achieve capital appreciation, its distributions will consist primarily of
capital gains. Each year the Fund's will send you information detailing the
amount of ordinary income and capital gains distributed to you for the
previous year.
The sale of shares in your account may produce a gain or loss and is a
taxable event. For tax purposes, an exchange of shares of a Fund for shares
of another fund managed by the Adviser is the same as a sale.
-----------------------------------------------------------
Your investment in a Fund could have additional tax
consequences. Please consult your tax professional for
assistance.
-----------------------------------------------------------
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MORE ABOUT THE FUNDS
- -------------------------------------------------------------------------------
INVESTMENT STRATEGY
- -------------------
Small Cap Fund
--------------
In identifying attractive securities for investment in the Fund, the
Adviser begins with a bottom up, fundamental analysis of individual
companies. The bottom up analysis is intended to provide insights about the
financial condition and growth prospects of a company whose stocks are
under consideration. As part of this
14
<PAGE>
intensive research process, the Adviser evaluates a company's balance
sheets and income statements to draw conclusions about earnings growth and
profitability. The Adviser also examines quality of management, investment
in research and development, as well as the potential for new products or
services. In addition, the Adviser looks at sales trends and factors
affecting stock price, such as price earnings and price to book ratios. To
round out the bottom up research, the Advisor uses top down analysis to
determine how macro changes in the economy may affect the prospects for the
industry in which the company under consideration is operating. By
utilizing this investment strategy, the Fund strives to anticipate and act
upon market change, understand its effects on the risks and rewards of Fund
securities, and thereby generate consistent, competitive results over the
long-term.
The Fund may invest in securities convertible into common stocks of
small cap companies. Securities convertible into common stock may include
both debt securities and preferred stock. The 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.
Although at the date of this Prospectus the Adviser considers any
company with an aggregate market valuation of less than $1 billion to be
"small cap," upon notice to shareholders, the definition of small cap may
change if the Adviser 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 up to 35% of the value of the Fund's total assets in
the securities of larger, more established companies when these securities
offer capital appreciation potential that is generally comparable to small
cap securities.
International Stock Fund
------------------------
For the International Stock Fund, the Adviser uses a top down analysis
to identify attractive sectors and securities for investment. As part of
this approach, the Adviser conducts an ongoing evaluation of the global
economic and investment environments to anticipate how potential change may
influence the prospects for particular global regions, countries and the
industries in those countries. This is because even small shifts in such
macro economic factors as interest rates, inflation, government regulation,
political activity, flows of capital and international monetary policy can
all affect the overall economic health of an entire global region or a
country -- and thereby the industries in that region or country. Once the
Adviser has identified attractive regions, countries and industries for
emphasis through the top down approach, bottom up fundamental research is
used to evaluate the merits of individual companies whose stock is under
consideration. By utilizing this investment strategy, the Fund strives to
anticipate and act upon market change, understand its effects on the risks
and rewards of Fund securities and thereby generate consistent, competitive
results over the long-term.
15
<PAGE>
The Fund may invest up to 25% of its assets in smaller, less seasoned
companies when these securities offer attractive opportunities consistent
with the Fund's investment objective. These investments are subject to the
risks of investing in small cap companies discussed in the Risk/Return
Summary of the Small Cap Fund.
The Fund intends to invest principally in the equity securities of
companies located 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.
The value of the International Stock Fund is maintained in U.S.
dollars and 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 change 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. The Fund will only enter into forward contracts for hedging and
not for purposes of speculation. When 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 forward contracts. Under normal market conditions,
no more than 25 percent of the Fund's assets may be committed to 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 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.
In addition to investing directly in foreign equity securities, the
International Stock Fund may also purchase securities in the form of
American Depository Receipts ("ADRs") and Global Depository Receipts
("GDRs"). ADRs in registered form are dollar-denominated foreign securities
designed for use in the U.S. securities markets. ADRs are sponsored and
issued by domestic banks, 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.
16
<PAGE>
Changes to Investment Objective and Temporary Investments
---------------------------------------------------------
The investment objective of both Funds may be changed by the Board of
Trustees, without shareholder approval, upon 30 days written notice.
Additionally, under adverse market conditions, a Fund may depart from its
principal investment strategy by taking temporary defensive positions in
response to adverse economic or market conditions. When a Fund assumes a
temporary defensive position, it is not invested in securities designed to
achieve its stated investment objective.
OTHER RISKS
- -----------
In addition to the certain risks stated in the "RISK/RETURN SUMMARY", there
are other risks of investing in the Funds such as:
Foreign Securities. 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 concerning 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.
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.
Year 2000. Many of the services provided to the Funds by CMC and other
service providers depend on the proper functioning of their computer software
systems and those of their outside service providers. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated. Such an event could have a negative
impact on handling securities trades, payments of interest and dividends,
pricing and account services. Although, at this time, there can be no assurance
that there will be no adverse impact on the Funds, CMC has informed the Funds
that it has been actively working on necessary changes to its computer systems
to prepare for the year 2000 and expects the Fund's systems, and those of the
Fund's outside service providers, will be ready for the year 2000. CMC does not
expect the costs related to the Year 2000 problem to be substantial to the Funds
since those costs are borne by CMC and the Funds' other outside service
providers and not directly by the Funds.
Conversion to Euro. On January 1, 1999, the European Monetary Union ("EMU")
plans to introduce a new single currency, the Euro, which will replace the
national currencies of the participating member nations. As of the date of this
Prospectus, the eleven member
17
<PAGE>
nations are Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, Netherlands, Portugal and Spain. If the International Stock Fund
holds investments in countries with currencies replaced by the Euro, the
investment process, including trading, foreign exchange, payments, settlements,
cash accounts, custody and accounting will be impacted. CMC is taking steps that
it believes appropriately and reasonably address the issues involved in the
introduction of the Euro and believes that it and its outside service providers
will be ready for the introduction of the Euro. Nevertheless, because this
change to a single currency is new and untested, the establishment of the Euro
may result in market volatility. For the same reason, it is not possible to
predict the impact of the Euro on the business or financial condition of
European issuers or on the International Stock Fund. To the extent the Fund
holds non-U.S. dollar (Euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the U.S.
dollar.
18
<PAGE>
- -------------------------------------------------------------------------------
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
You can find additional information on the Funds' structure and performance
in the following documents:
o Annual/Semiannual Reports. While the Prospectus describes the Funds'
potential investments, these reports detail the Funds' actual
investments as of the report date. Reports include a discussion by
Fund management of recent market conditions, economic trends, and Fund
strategies that significantly affected the Fund's performance during
the reporting period.
o Statement of Additional Information ("SAI"). A supplement to the
Prospectus, the SAI contains further information about each Fund and
its investment restrictions, risks and polices. It also includes the
most recent annual report and the independent accountants report.
A current SAI for the Fund's is on file with the Securities and Exchange
Commission and is incorporated by reference in (is legally part of) this
Prospectus.
A copy of the SAI and current annual report may be attached to this
Prospectus. If it is not, or to obtain additional copies of the SAI or copies of
the current annual/semiannual report, without charge, or to make inquiries of
the Fund, you may contact:
CMC FUND TRUST
1300 S.W. Sixth Avenue
Portland, Oregon 97201
Telephone: 1-800-547-1037
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (telephone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, D.C.
20549-6009. Reports and other information regarding the Funds are also on the
SEC's Internet website at http://www.sec.gov.
19
SEC file number: 811-5857
<PAGE>
Part B-I
Reg. Nos. 33-30394/811-5857
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
CMC Fund Trust
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") and two portfolios of the Trust, CMC Small Cap Fund
and CMC International Stock Fund (each a "Fund" and together the "Funds").
This Statement of Additional Information is not a Prospectus. It relates to
a Prospectus dated December 24, 1998 (the "Prospectus") and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge upon request to the Trust or by calling 1-800-547-1037.
<PAGE>
TABLE OF CONTENTS
Description of the Funds.......................................................2
Management....................................................................10
Investment Advisory and Other Fees Paid to Affiliates.........................12
Portfolio Transactions........................................................13
Capital Stock and Other Securities............................................16
Purchase, Redemption and Pricing of Shares....................................16
Custodians....................................................................19
Independent Accountants.......................................................19
Taxes.........................................................................19
Performance...................................................................24
Financial Statements..........................................................25
December 24, 1998
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
The Trust is an Oregon business trust established under a Restated
Declaration of Trust, dated October 13, 1993, as amended. The Trust is an
open-end, management investment company comprised of separate portfolios, each
of which is treated as a separate fund. There are four portfolios established
under the Trust: the Funds, CMC High Yield Fund and CMC Short Term Bond Fund.
Each Fund is diversified, which means that, with respect to 75% of its total
assets, the Fund will not invest more than 5% of its assets in the securities of
any single issuer. The investment adviser for each of the Funds is Columbia
Management Co. (the "Adviser"). See the section entitled "INVESTMENT ADVISORY
AND OTHER FEES PAID TO AFFILIATES" for further information about the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
- ---------------------------------
CMC SMALL CAP FUND
The Small Cap Fund's investment objective is capital appreciation. The
Fund's investment 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.
To achieve its investment objective, the Fund will generally invest at
least 65% of the value of its total assets in common stocks or securities
convertible into common stock of companies with an aggregate market valuation of
less than $1 billion. The Fund may, however, invest from time to time up to 35%
of the value of its total assets in the securities of larger companies when the
Adviser believes these securities offer capital appreciation potential that is
generally comparable to small cap securities.
CMC INTERNATIONAL STOCK FUND
The International Stock Fund's investment objective is capital
appreciation. The Fund's investment 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.
To achieve its investment objective, under normal conditions, the Fund will
invest at least 75 percent of the Fund's assets in equity securities, including
securities convertible into equity securities, of issuers located outside the
United States that each have an aggregate market valuation of at least $500
million. The Fund may invest in smaller, less seasoned companies when the
Adviser believes these companies offer attractive opportunities consistent with
the Fund's overall investment objective. As discussed further below, an
investment in a less seasoned company may involve greater risks than an
investment in a larger, more established company.
INVESTMENTS HELD BY THE FUNDS
- -----------------------------
Under normal conditions, both Funds will invest in equity securities,
including securities convertible into equity securities. Additional information
with respect to certain securities in which the Funds may invest is set forth
below.
2
<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. The Funds 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. The Funds may only write call options 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 Adviser, are expected to be substantially similar to those of the index.
A call option may also be covered in any other manner in accordance with the
rules of the exchange upon which the option is traded and applicable laws and
regulations. A call option is covered if it is written on a security the Fund
owns. 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. The
Funds' investment restrictions do not limit the percentage of the Funds' assets
that may be invested in financial futures transactions. Each 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 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 may 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.
3
<PAGE>
Upon entering into a futures contract, each Fund will be required to
deposit with its custodian, in a segregated account, cash or certain U.S.
government securities, or any other portfolio assets as permitted by the
Securities and Exchange Commission rules and regulations 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, if 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 option or futures contract when needed; (c) the
need for additional skills and techniques beyond those required for normal
portfolio management; and (d) losses on futures contracts resulting from market
movements not anticipated by the Adviser.
Foreign Securities
- ------------------
The Small Cap Fund may invest up to one-third of its total assets in
securities of foreign issuers in developed foreign countries, primarily
companies in Canada, Western Europe and Asia, including securities issued by
foreign governments, denominated in U.S. dollars. Investments in foreign
securities may involve a greater degree of risk than those in domestic
securities. For a discussion of the risks of investing in foreign securities,
see the summary of the International Stock Fund in the Prospectus under
"RISK/RETURN SUMMARY" and "MORE ABOUT THE FUNDS, OTHER RISKS."
Repurchase Agreements
- ---------------------
Each 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. 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.
Illiquid Securities
- -------------------
No illiquid securities will be acquired by the Funds 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 Securities and Exchange Commission
("SEC"), the
4
<PAGE>
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 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, these securities
are considered 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
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.
Convertible Securities and Warrants
- -----------------------------------
Both Funds may invest in convertible debentures and convertible preferred
stock, each convertible into common stock. 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
Funds 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 Funds 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 each 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.
5
<PAGE>
Investments in Small and Unseasoned Companies
- ---------------------------------------------
The Funds may invest in companies that are unseasoned; that is, companies
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 need to
sell them over an extended period or below the original purchase price.
Investments by the Funds in these small or unseasoned companies may also be
regarded as speculative. The Small Cap 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. The International Stock Fund
limits investments in small and unseasoned companies to 5 percent of its total
assets.
Temporary Investments
- ---------------------
When, as a result of market conditions, the Adviser determines a temporary
defensive position is warranted to help preserve capital, a 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. The International Stock Fund may invest in such
securities 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 of capital appreciation.
INVESTMENT RESTRICTIONS
- -----------------------
The following is a list of investment restrictions applicable to the Funds.
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, provided, however, at
no time will a Fund's investment in illiquid securities exceed 15% of its net
assets. The Trust may not change these restrictions without a majority vote of
the outstanding securities of the applicable Fund.
The Small Cap Fund may not:
1. Buy or sell commodities. The Fund may, however, invest in futures
contracts relating to broadly based stock indices, subject to the restrictions
set forth below in restriction 15.
2. Concentrate investments in any industry. The Fund, however, may (a)
invest up to 25 percent of the value of its total assets in any one industry and
(b) invest for temporary defensive purposes up to 100% 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.
6
<PAGE>
4. Make loans to other persons (except by purchase of short-term commercial
paper, repurchase agreements, bonds, debentures, or other debt securities
constituting part of an issue). For purposes of this restriction, 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, if upon the purchase more than 10% of the
value of the Fund's net assets would consist of these securities. See
"DESCRIPTION OF THE FUNDS, INVESTMENTS IN THE FUNDS" for a complete discussion
of illiquid securities.
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 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 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 does 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 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 Securities Act of 1933, as amended ("1933 Act").
11. Borrow money in excess of 5 percent of its net asset 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 Fund's
total assets to be invested in companies which have a record of less than three
years of 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 Fund owns the
securities sold short or owns other securities convertible into an equivalent
amount of 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% of the value of the Fund's net assets
taken at market may, at the time, be held as collateral for such sales.
7
<PAGE>
15. Buy and sell puts and calls 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.
The International Stock Fund may not:
1. Buy or sell commodities. However, the Fund may invest in futures
contracts or options on such contracts relating to broadly based stock indices,
subject to the restrictions set forth below in restriction 15, and may enter
into foreign currency transactions.
2. Concentrate investments in any industry. However, the 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 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, repurchase agreements, 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, if upon the purchase more than 10% of the
value of the Fund's assets (taken at current value) would consist of these
securities. See "DESCRIPTION OF THE FUNDS, INVESTMENTS IN THE FUNDS" for a
complete discussion of illiquid securities.
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 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 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-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 Fund's total assets would be invested in any one
such company, and (iii) 10 percent of the Fund's total assets would be invested
in such securities.
9. Issue senior securities, bonds, or debentures.
8
<PAGE>
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 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 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 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 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 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.
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
The Funds are managed under the general supervision of the Trustees of the
Trust. 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; 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.,* Age 61, Chairman, President, and Trustee of the Trust;
Chairman, President, and Director of each of the Columbia Funds; Consultant with
Fleet Financial Group, Inc. (since December 1997); formerly Chairman and a
Director of Columbia Management Co., Columbia Funds Management Company ("CFMC"),
Columbia Trust Company (the "Trust Company"), the Fund's transfer agent; and
formerly a Director of Columbia Financial Center
9
<PAGE>
Incorporated ("Columbia Financial"). Mr. Inskeep's business address is
1300 S.W. Sixth Avenue, P.O. Box 1350, Portland, Oregon 97207.
JAMES C. GEORGE, Age 66, 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.
THOMAS R. MACKENZIE, Age 71, Trustee of the Trust (since December 1997);
Director of each of the Columbia Funds; and Founder and Director of Group
Mackenzie (architecture, planning, interior design and engineering). Mr.
Mackenzie's address is 0690 S.W. Bancroft Street, Portland, Oregon 97201.
ROBERT J. MOORMAN, * Age 47, Secretary of each of the Columbia Funds and the
Trust (since January 1998); attorney with Stoel Rives LLP. Mr. Moorman's
business address is 900 S.W. Fifth Avenue, Suite 2600, Portland, Oregon
97204-1268.
RICHARD L. WOOLWORTH, Age 57, Trustee of the Trust; 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.
* Mr. Inskeep and Mr. Moorman are each an "interested person" as defined by
the Investment Company Act of 1940 (the "1940 Act") and receive no trustee fees
or salaries from the Trust or the Funds.
The following table sets forth the compensation received by the
disinterested trustees of the Trust for the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
Compensation Total Compensation from the
Trustee From Trust Trust and Columbia Funds
- ------- ------------ ---------------------------
<S> <C> <C>
Richard L. Woolworth $9,000.00 $32,000.00
Thomas R. Mackenzie $9,000.00 $31,000.00
James C. George $9,000.00 $31,000.00
</TABLE>
At November 30, 1998, 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:
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name and Address at November 30, 1998
- ---------------- -------------------------
<S> <C>
CMC Small Cap Fund
Hanford Operations and Engineering 1,551,765 (21.54%)
Pension Plan
PO Box 1970, H36-08
Richland, WA 99352
10
<PAGE>
Locals 302 & 612 Operating Engineers 524,217 (7.28%)
Employers Retirement Fund
Welfare & Pension Administration Services, Inc.
P.O. Box 34203
Seattle, WA 98124
CMC International Stock Fund
Oregon Community Foundation 355,159 (30.83%)
621 S.W. Morrison St., Suite 725
Portland, OR 97205
Lumber Industry Pension Fund 329,500 (28.60%)
Associated Administrators, Inc.
2929 N.W. 31st Avenue
Portland, OR 97205
Freightliner Corporation Pension Plan 256,677 (22.28%)
4747 North Channel Avenue
Portland, OR 97217
AECOM Technology Corp. Pension Plan 95,560 (8.29%)
3250 Wilshire Blvd., 5th Floor
Los Angeles, CA 90010
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES
- --------------------------------------------------------------------------------
The investment adviser to the Funds is Columbia Management Co. (the
"Adviser"). The Adviser has entered into an investment contract with each Fund.
Pursuant to the investment contract 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
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 provides office space and pays all executive salaries and
executive expenses of each Fund. Each 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, broker's 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,
11
<PAGE>
transfer taxes, and all other expenses of preparing its registration statement,
prospectuses, and reports.
For its services provided to each Fund, the Adviser charges an advisory
fee, which is accrued daily and paid monthly. The advisory fee for each Fund
equals the annual rate of 0.75 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. Advisory fees paid by the Small Cap Fund to the Adviser were
$2,429,552, $3,462,393 and $4,126,463 for fiscal year 1998, fiscal year 1997,
and fiscal year 1996, respectively. Advisory fees paid by the International
Stock Fund to the Adviser were $395,072, $686,166, and $508,330 for fiscal year
1998, fiscal year 1997, and fiscal year 1996, respectively.
The Trust Company acts as transfer agent and dividend crediting agent for
each 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 Funds existing
at any time during the month, with a minimum aggregate fee of $1,500 per month
for each Fund. 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 on behalf of each Fund
to the Trust Company for services performed for fiscal 1998 under the respective
transfer agent agreement relating to that Fund.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Each 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 Funds may purchase their portfolio securities through a securities
broker and pay the broker a commission, or they 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 purchase price of securities
purchased from dealers serving as market makers will include the spread between
the bid and asked prices. The Funds may also purchase securities from
underwriters, the price of which will include a commission or discount paid by
the issuer to the underwriter.
Prompt execution of orders at the most favorable price will be the primary
consideration of the Funds in transactions where brokerage fees are involved.
Additional factors considered by the Adviser in selecting brokers to execute a
transaction include: (i) professional capability of the executing broker and the
value and quality of the brokerage services provided; (ii) size and type of
transaction; (iii) timing of the transaction in the context of market prices and
trends; (iv) nature and character of markets for the security to be purchased or
sold; (v) the broker's execution efficiency and settlement capability; (vi) the
broker's experience and financial stability and the execution services it
renders to the Adviser on a continuing basis; and (vii) reasonableness of
commission.
12
<PAGE>
Research, statistical, and other services offered by the broker 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. A commission in
excess of the amount of commission another broker or dealer would have charged
for effecting a transaction may be paid by the Fund if the Adviser 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.
The Adviser receives a significant amount of proprietary research from a
number of brokerage firms, in most cases on an unsolicited basis. The Adviser
does not make any commitments to allocate brokerage for proprietary research.
The value of that research, however, is considered along with other factors in
the selection of brokers. This research is considered supplemental to the
Adviser's own internal research and does not, therefore, materially reduce the
overall expenses incurred by the Adviser for its research. On a semi-annual
basis, the Adviser's research analysts and portfolio managers participate in a
detailed internal survey regarding the value of proprietary research and the
skills or contributions made by the various brokerage analysts to the Adviser's
investment process. Firms are then confidentially ranked based on that survey.
In limited circumstances, the Adviser may use a Fund's commissions to
acquire third party research and products that is not available through its full
service brokers. In these arrangements, the Adviser pays an executing broker a
commission equal to the average rate paid on all other trades (e.g., $0.06) and
achieves what it believes is best execution on the trade. The executing broker
then uses a portion of the commission to pay for a specific research service or
product provided to the Adviser. Proposed research to be acquired in this manner
must be approved by the Adviser's Chief Investment Officer, who is responsible
for determining that the research provides appropriate assistance to the Adviser
in connection with its investment management of the Funds and that the price
paid with broker commissions is fair and reasonable.
The receipt of research services and products 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 Funds. Total
brokerage commissions paid by the Small Cap Fund for the last three fiscal years
were $1,136,316, $1,285,537 and $1,254,580 for fiscal year 1998, fiscal year
1997, and for fiscal year 1996, respectively. Total brokerage commissions paid
by the International Stock Fund for the last three fiscal years were $307,219,
$577,355 and $437,587 for fiscal year 1998, fiscal year 1997, and fiscal year
1996, respectively. Of the commissions paid in the fiscal year ended in 1998,
the Small Cap Fund paid $5,000 for third party research and products provided by
brokerage firms.
The Adviser may use research services provided by and place agency
transactions with affiliated broker-dealers, if the commissions are fair and
reasonable and comparable to commissions charged by non-affiliated qualified
brokerage firms.
Investment decisions for the Funds are made independently from those of the
other portfolios of the Trust or accounts managed by the Adviser or its
affiliate, Columbia Funds
13
<PAGE>
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 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.
- --------------------------------------------------------------------------------
CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The Trust may establish separate series of investment portfolios under its
Restated Declaration of Trust. The Funds, CMC Short Term Bond 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 Funds,
have equal rights as to voting, redemption, dividends and distributions. All
issued and outstanding shares of a 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 a 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.
14
<PAGE>
Any reference to the phrase "vote of a majority of the outstanding voting
securities of the Fund" means the vote at any meeting of shareholders of a 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.
- --------------------------------------------------------------------------------
PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
PURCHASES
- ---------
Shareholders of the Funds are investment advisory clients of the Adviser.
Investments in each Fund are made directly by clients of the Adviser or by the
Adviser in its role as discretionary investment adviser over a portion of the
shareholder's assets. With respect to assets of an investment advisory client of
the Adviser invested in a Fund, that client will pay no fee pursuant to its
separate management contract with the Adviser (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 a 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 by the Adviser on behalf of the shareholder. These
conditions are 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 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 must not be 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 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 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 a
Fund will be
15
<PAGE>
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.
REDEMPTIONS
- -----------
Redemptions of all or any portion of a shareholder's investment can be made
at any time. Redemption of shares are at the net asset value next computed after
receipt of a redemption order on a day the New York Stock Exchange ("NYSE") is
open for business. Payment will be made within seven days of the date of
redemption, except as provided by the rules of the SEC. The Trust may suspend
the determination of net asset value of a Fund and the right of redemption for
any period (1) when the NYSE is closed, other than customary weekend and holiday
closings, (2) when trading on the NYSE 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 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 NYSE observes the following holidays: New
Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day, 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.
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 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.
PRICING OF SHARES
- -----------------
The net asset value per share of each Fund is determined by the Adviser,
under procedures approved by the trustees of the Trust, as of the close of
regular trading (normally 4:00 p.m. New York time) on each day the NYSE is open
for business and at other times determined by the Board of 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.
Each Fund's securities are valued at the last sale price on the securities
exchange or national securities markets at which such securities primarily are
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued using the last bid
price. Any assets or liabilities initially expressed in a foreign currency will,
on a daily basis, be converted into U.S. dollars. Foreign securities will be
valued based upon the most recent closing price on their principal exchange, or
based upon the most recent price obtained by the Fund, if the price is not
priced on an exchange, even if the close of that exchange or price determination
is earlier than the time of the Funds' NAV calculation. In the case of such
foreign security, if an event that is likely to affect materially the value of a
portfolio security occurs between the time the
16
<PAGE>
foreign price is determined and the time the Fund's NAV is calculated, it may
be necessary to value the security in light of that event.
- --------------------------------------------------------------------------------
CUSTODIANS
- --------------------------------------------------------------------------------
U S Bank N.A., 321 SW Sixth Avenue, Portland, Oregon 97208, acts as general
custodian of the Trust (a "Custodian"). Chase Manhattan Bank ("Chase" or a
"Custodian"), One Pierrepont Plaza, Brooklyn, New York 11201, has entered into a
custodian agreement with the Trust in respect of the purchase of foreign
securities by each of the Funds. The Custodians hold all securities 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 Chase (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 or a
delegate of the Trustees in accordance with regulations under the 1940 Act.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 1300 S.W. Fifth Avenue, Suite 3100, Portland,
Oregon 97201, serves as the Trust's independent accountants and, in addition to
examining the annual financial statements of the Trust, assists in the
preparation of the tax returns of the Trust and in certain other matters.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
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, a 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
17
<PAGE>
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 Funds during a taxable
year only if it meets certain additional requirements. Among other things, a
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 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 each Fund at corporate capital gain tax rates. The
policy of each 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 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.
18
<PAGE>
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 the Fund six months or less 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 (October 31), 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 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 1933 Act. Therefore, the limit on miscellaneous itemized
deductions should not apply to expenses incurred by either Fund.
19
<PAGE>
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.
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 and the
company satisfies certain holding period requirements. 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.
If the International Stock Fund elects pursuant to Section 853,
shareholders of that Fund will be required to include in income (in addition to
other taxable distributions) and will be allowed
20
<PAGE>
a credit or deduction for, 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 the shareholder's 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 an
entity that is classified as a "passive foreign investment company" ("PFIC") for
federal income tax purposes, the application of certain provisions of the Code
applying to PFICs could result in the imposition of certain federal income taxes
on the Fund. It is anticipated that any taxes on a Fund with respect to
investments in PFICs would be insignificant.
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.
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
The Trust may from time to time advertise or quote total return performance
for the Funds. 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.
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:
21
<PAGE>
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1,
5, and 10-year periods (or a fraction portion
thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods (or a fractional portion thereof) where the total return figures
represent the percentage return for the 1, 5, and 10-year periods that would
equate the initial amount invested to the ending redeemable value. If the
Trust's registration statement under the 1940 Act with respect to the Fund has
been in effect less than 1, 5 or 10 years, the time period during which the
registration statement with respect to that Fund has been in effect will be
substituted for the periods stated. For the period ended October 31, 1998, the
average annual return for the Small Cap Fund for the 1 year and 5 year periods
and since inception (August 30, 1989) was -16.49%, 11.96% and 13.05%,
respectively. For the period ended October 31, 1998, the average annual return
for the International Stock Fund for the 1 year period and since inception
(February 1, 1994) was -1.24% and 4.67%, respectively.
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 1000 mutual funds based on total
return performance. These ranking services and publications may rank the
performance of the Fund against all other funds over specified categories.
The Funds may also compare their 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 with respect to
the International Stock Fund other suitable international indices, such as the
Morgan Stanley Capital International Europe, Australia, Far East Index or the
FT-S&P Actuaries Europe-Pacific Index. 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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the Funds for the fiscal year ended October
31, 1998, together with the Independent Accountant's Report of
PricewaterhouseCoopers LLP, are attached hereto and incorporated by reference
into this Statement of Additional Information.
22
<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. For a second consecutive year, the Fund endured a volatile and challenging
period for small cap stocks, with the Fund in negative territory for the 12
months ended October 31, 1998, posting a total return of -16.49%. This
performance compares to a total return of -11.85% for the Russell 2000 for the
same period.
In the first fiscal quarter, Fund performance was marred by investors' reaction
to a burgeoning currency crisis in Southeast Asia. Investors sought the
perceived safety of larger, more liquid blue chip stocks, depressing small cap
valuations. To protect Fund performance, we quickly sold off stocks we thought
were susceptible to correction, including certain energy and technology issues.
At the same time, we increased less economically sensitive holdings such as
health care, which continues to be overweighted today.
While small caps surged for a short period during the Fund's second fiscal
quarter as investors' currency concerns eased temporarily, the month of May
ushered in a spate of new worries related to Asia, and small cap stocks once
again fell victim to negative investor sentiment. This was a theme that
continued throughout the period.
On a positive note, current valuations for small cap stocks relative to the S&P
500 are at historically low levels. A rebound in the relative performance of
small cap stocks could be sparked when investors' tolerance for risk increases,
which will likely coincide with an increase in confidence for the macro-economic
and earnings outlook for 1999 and beyond. Meanwhile, we are closely monitoring
the fundamentals of our holdings, with the goal of increasing investment in
companies whose earnings power is intact, and whose valuations are attractive.
Top holdings in the Fund as of October 31, 1998 include:
Comsat Corp. (2.2%)
Nova Corp. (2.1%)
Pathogenesis Corp. (2.0%)
Williams-Sonoma, Inc. (2.0%)
CKE Restaurants, Inc. (1.9%)
Cerner Corp. (1.9%)
Xircom, Inc. (1.8%)
Bed, Bath & Beyond, Inc. (1.7%)
Family Golf Centers, Inc. (1.7%)
American Management Systems, Inc. (1.7%)
23
<PAGE>
We appreciate your continuing support of CMC Small Cap Fund.
The Columbia Investment Team
December 14, 1998
YEAR 2000 READINESS DISCLOSURE
------------------------------
Many of the services provided to the Fund by Columbia Management Co. (the
"Adviser") and other service providers depend on the proper functioning of their
computer software systems and those of their outside service providers. Many
computer software systems in use today cannot distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated. Such an event
could have a negative impact on handling securities trades, payments of interest
and dividends, pricing and account services. Although, at this time, there can
be no assurance that there will be no adverse impact on the Fund, the Adviser
has informed the Fund that it has been actively working on necessary changes to
its computer systems to prepare for the year 2000 and expects that its systems,
and those of the Fund's outside service providers, will be ready for the year
2000.
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 10/31/98 to $30,904, $24,753 and $39,903,
respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years Since Inception
------ ------- ---------------
<S> <C> <C> <C>
CMC Small Cap -16.49% 11.96% 13.05%
Russell 2000 -11.85% 9.42% 10.35%
S&P 500 21.99% 21.30% 16.23%
</TABLE>
Past performance does not guarantee future results. 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, 1998. The S&P 500 and Russell 2000 are unmanaged stock indices.
24
<PAGE>
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
CMC International Stock Fund posted a total return of -1.24% for the fiscal year
ending October 31, 1998, the Fund's performance compares to a total return of
7.92% for the FT/S&P Euro Pacific Index and a total return of 9.95% for the MSCI
EAFE Index over the same period. Our continued commitment to the important yet
depressed Japanese market and our weighings in varoius sections of this market
were a drag on Fund performance this year.
Globally, stock markets experienced considerable volatility throughout the
Fund's fiscal year. Emerging markets suffered the most, beginning with the
developing Asian crisis in late 1997, then a withdrawal of international
liquidity from Latin America and culminating in the collapse of the Russian
economy in mid-1998. Japan, meanwhile, continues to deal with its banking crisis
and mediocre economic growth. To make matters worse, Japan's government is
making only half-hearted attempts to improve its situation. However, we believe
the Japanese stock market poses excellent potential in the medium term because
investor sentiment is so poor, and their politicians finally appear to be
grasping the need for more substantial legislation.
Europe, on the other hand, has been a bastion of success. The unification of
currency within the European Monetary Union takes place on January 1, 1999. In
anticipation of this event, there has been a substantial decline of interest
rates over the past 12 months. This has provided powerful support to European
stock markets, which have performed extremely well.
Our strategy during the year has been to take advantage of the opportunity in
Europe, by maintaining a heavy weighting in the European region, and this helped
Fund performance. Japan continues to disappoint. During the period, the economy
exhibited several bursts of strength in the form of sharp stock market rallies.
But these returns were only short-lived and were given back in the months
following the rallies. Looking ahead, we are optimistic about the longer term
prospects for developing economies and stock markets. But we currently have only
a tiny emerging market exposure as we await more concrete signs of recovery.
As of October 31, 1998, the ten largest security holdings of the Fund (as a
percentage of net assets) were:
Largest Holdings % of Net Assets
- ---------------- ---------------
Mannesmann AG 3.2%
Equant NV 2.8%
Aegon NV 2.8%
Unicredito Italiano S.p.A 2.4%
Vodafone Group 2.2%
25
<PAGE>
Novartis AG 2.1%
Nippon Telegraph & Telephone Corp. 2.1%
Shimamura Co., Ltd. 1.9%
Infosys Technologies, Ltd. 1.9%
Telecom Italia, ADR 1.8%
Thank you for your continuing support of CMC International Stock Fund.
The Columbia Investment Team
December 14, 1998
YEAR 2000 READINESS DISCLOSURE
------------------------------
Many of the services provided to the Fund by Columbia Management Co. (the
"Adviser") and other service providers depend on the proper functioning of their
computer software systems and those of their outside service providers. Many
computer software systems in use today cannot distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated. Such an event
could have a negative impact on handling securities trades, payments of interest
and dividends, pricing and account services. Although, at this time, there can
be no assurance that there will be no adverse impact on the Fund, the Adviser
has informed the Fund that it has been actively working on necessary changes to
its computer systems to prepare for the year 2000 and expects that its systems,
and those of the Fund's outside service providers, will be ready for the year
2000.
Euro Currency Conversion
On January 1, 1999 the European Monetary Union ("EMU") introduced a new single
currency, the Euro, to replace the national currency of participating member
nations. To the extent the Fund holds investments in nations replaced by the
Euro, the investment process, including trading, foreign exchange, payments,
settlements, cash accounts, custody and accounting, will be impacted. Although
it is not possible to predict the ongoing impact of the Euro on the Funds, the
transition and the elimination of currency risk among nations participating in
the EMU may change the economic environment and behavior of investors,
particularly in European markets.
The adoption of the Euro does not reduce the currency risk presented by
fluctuations in value of the U.S. dollar to other currencies, and, in fact,
currency exchange risk may be magnified. Also increased market volatility may
result. Additional risks that may result include the fact that European issuers
in which a Fund invests may face substantial conversion costs, which may not be
accurately anticipated and may impact issuer profitability and creditworthiness.
Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($8,000-$26,000) of CMC International Stock Fund,
FT/S&P Euro Pacific, S&P 500, and MSCI EAFE Index for the period 2/1/94 to
10/31/98 to $12,395, $12,622, $25,443 and $13,273, respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year Since Inception
------ ---------------
<S> <C> <C>
CMC International Stock Fund -1.24% 4.67%
FT/S&P Euro Pacific 7.92% 5.08%
S&P 500 21.99% 21.98%
MSCI EAFE Index 9.95% 6.21%
</TABLE>
Past performance does not guarantee future results. The Fund's inception date
was February 1, 1994. Index performance information is based on the period
beginning February 1, 1994. Total return performance is illustrated for the
periods ended October 31, 1998. S&P 500 and FT/S&P Euro Pacific are unmanaged
stock indices. The MSCI EAFE Index is a market capitalization weighted index
composed of companies representative of the market structure of 20 developed
market countries in Europe, Australasia and the Far East.
26
<PAGE>
- -------------------------------------------------------------------------------
(CMC Fund Trust
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period)
- -------------------------------------------------------------------------------
SMALL CAP FUND
--------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
---------- ---------- ---------- ---------- ----------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $54.40 $52.04 $56.00 $49.35 $56.44
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss).................... (0.10) (0.04) (0.08) 0.22 0.18
Net gains or losses on securities
(both realized and unrealized)................ (8.87) 14.08 16.79 10.88 1.99
---------- ---------- ---------- ---------- ----------
Total from investment operations........... (8.97) 14.04 16.71 11.10 2.17
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends (from net investment income).......... (0.16) (0.18)
Distributions (from capital gains).............. (5.60) (11.68) (20.67) (4.29) (9.08)
---------- ---------- ---------- ---------- ----------
Total distributions........................ (5.60) (11.68) (20.67) (4.45) (9.26)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period.................... $39.83 $54.40 $52.04 $56.00 $49.35
========== ========== ========== ========== ==========
Total return ..................................... -16.49% 26.98% 30.30% 22.55% 3.87%
Ratios/Supplemental data
Net assets, end of period (in thousands).......... $267,789 $521,770 $522,408 $537,167 $467,952
Ratio of expenses to average net assets........... 0.77% 0.76% 0.78% 0.77% 0.78%
Ratio of net income (loss) to average net assets.. (0.20)% (0.08)% (0.14)% 0.43% 0.29%
Portfolio turnover rate........................... 158.98% 168.72% 147.77% 125.80% 97.24%
</TABLE>
27
<PAGE>
INTERNATIONAL STOCK FUND
------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
---------- ---------- ---------- ---------- ----------
1998 1997 1996 1995 1994(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $42.71 $42.46 $37.06 $39.51 $40.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.......................... 0.25 0.41 0.32 0.39 0.10
Net gains or losses on securities and
foreign currency transactions (both
realized and unrealized)..................... (0.78) 6.16 5.86 (2.64) (0.59)
---------- ---------- ---------- ---------- ----------
Total from investment operations.......... (0.53) 6.57 6.18 (2.25) (0.49)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends (from net investment income)......... (0.46) (0.78) (0.20)
Distributions (from capital gains)............. (29.64) (5.86)
---------- ---------- ---------- ---------- ----------
Total distributions....................... (29.64) (6.32) (0.78) (0.20) -
---------- ---------- ---------- ---------- ----------
Net asset value, end of period................... $12.54 $42.71 $42.46 $37.06 $39.51
========== ========== ========== ========== ==========
Total return..................................... -1.24% 15.47% 16.67% -5.69% -1.23%(2)
Ratios/Supplemental data
Net assets, end of period (in thousands)......... $15,377 $81,471 $73,542 $68,758 $84,298
Ratio of expenses to average net assets.......... 1.04% 1.05% 1.00% 0.98% 1.16%
Ratio of net income to average net assets........ 0.60% 0.88% 0.78% 0.99% 0.53%
Portfolio turnover rate.......................... 52.68% 126.56% 119.98% 158.32% 123.80%
(1) From inception of operations on February 1, 1994. Ratios and portfolio
turnover rates are annualized.
(2) Not annualized.
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (1)
---------- ------------
<S> <C> <C>
COMMON STOCKS (88.1%)
BUILDING & FORESTRY PRODUCTS (1.6%)
MARTIN MARIETTA MATERIALS, INC. 57,500 $ 2,821,094
SOUTHDOWN, INC. 27,000 1,469,812
------------
4,290,906
------------
BUSINESS & CONSUMER SERVICES (13.5%)
ADVO, INC. 63,000 1,602,562
* APOLLO GROUP, INC. 93,300 2,997,262
* ASYMETRIX LEARNING SYSTEMS, INC. 68,600 415,887
* FAMILY GOLF CENTERS, INC. 219,400 4,621,112
* G & K SERVICES, INC. (CLASS A) 61,500 2,813,625
* GLOBAL VACATION GROUP, INC 182,300 1,253,313
* ITT EDUCATIONAL SERVICES, INC. 123,800 3,675,313
* NOVA CORP. 190,170 5,491,159
* PROFIT RECOVERY GROUP INTERNATIONAL, INC. 44,500 1,365,594
* ROMAC INTERNATIONAL, INC. 140,000 2,450,000
* SCHEIN (HENRY), INC. 86,600 3,350,338
* STERLING COMMERCE, INC. 100,000 3,525,000
* SYLVAN LEARNING SYSTEMS, INC. 87,200 2,692,300
------------
36,253,465
------------
CONSUMER DURABLE (3.8%)
* CHAMPION ENTERPRISES, INC. 96,000 1,908,000
ETHAN ALLEN INTERIORS, INC. 77,000 2,646,875
* TOWER AUTOMOTIVE, INC. 168,100 3,740,225
WATSCO, INC. 114,000 1,930,875
------------
10,225,975
------------
CONSUMER NON-DURABLE (16.1%)
* ACTION PERFORMANCE COS., INC. 138,800 4,146,650
* AMES DEPARTMENT STORES, INC. 152,800 2,807,700
* BED, BATH & BEYOND, INC. 169,600 4,674,600
CKE RESTAURANTS, INC. 192,130 5,055,421
* CAVANAUGHS HOSPITALITY CORP. 63,100 737,481
* COLUMBIA SPORTSWEAR CO. 40,300 705,250
* COST PLUS, INC. 136,500 4,095,000
* GIBSON GREETINGS, INC. 67,200 701,400
* HELEN OF TROY LTD. 140,000 2,082,500
* HOLLYWOOD ENTERTAINMENT CORP. 27,500 419,375
* OMEGA PROTEIN CORP. 38,200 339,025
* PACIFIC SUNWEAR OF CALIFORNIA, INC. 108,400 2,344,l50
* QUIKSILVER, INC. 118,200 2,445,262
* TIMBERLAND CO. (CLASS A) 59,000 2,360,000
WENDY'S INTERNATIONAL, INC. 110,000 2,310,000
* WET SEAL, INC. (CLASS A) 122,000 2,577,250
* WILLIAMS-SONOMA, INC. 195,900 5,338,275
------------
43,139,339
------------
</TABLE>
29
<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)
ENERGY (1.6%)
* SWIFT ENERGY CO. 132,600 $ 1,209,975
* TESORO PETROLEUM CORP. 104,600 1,549,387
WESTERN GAS RESOURCES, INC. 201,000 1,645,688
------------
4,405,050
------------
ENERGY SERVICES (2.7%)
* GLOBAL INDUSTRIES LTD. 135,100 1,300,338
* HANOVER COMPRESSOR CO. 169,200 4,272,300
* NEWPARK RESOURCES, INC. 180,000 1,698,750
------------
7,271,388
------------
FINANCE (1.2%)
NORTH FORK BANCORP, INC. 86,050 1,710,244
STIRLING COOKE BROWN HOLDINGS LTD. 83,500 1,492,562
------------
3,202,806
------------
FOOD & HOUSEHOLD PRODUCTS (2.6%)
* AURORA FOODS, INC. 189,100 3,309,250
* U.S. FOODSERVICE, INC. 37,700 1,790,750
* WHOLE FOODS MARKET, INC. 43,000 1,722,688
------------
6,822,688
------------
HEALTH (18.3%)
* AMERICAN ONCOLOGY RESOURCES, INC. 187,400 2,494,762
* BARR LABORATORIES, INC. 48,300 1,651,256
* CARDIAC PATHWAYS CORP. 199,400 859,913
* CENTOCOR, INC. 62,100 2,763,450
* CHIRON CORP. 127,900 2,877,750
* ELAN CORP. PLC ADR 39,368 2,758,220
* HEALTH MANAGEMENT SYSTEMS, INC. 149,700 1,029,188
* HEALTHCARE RECOVERIES, INC. 20,300 205,537
* IDEXX LABORATORIES, INC. 157,900 3,602,094
* INHALE THERAPEUTIC SYSTEMS, INC. 132,900 3,488,625
* INTELLIGENT POLYMERS LTD. (UNITS - EACH UNIT
CONSISTS OF 1 COMMON SHARE & 1 WARRANT) 139,000 3,197,000
JONES PHARMA, INC. 122,600 3,961,512
* LIGAND PHARMACEUTICALS, INC. (CLASS B) 289,600 3,149,400
* OXFORD HEALTH PLANS, INC. 24,600 290,588
* PAREXEL INTERNATIONAL CORP. 70,000 1,544,375
* PATHOGENESIS CORP. 135,500 5,420,000
* QUORUM HEALTH GROUP, INC. 81,200 1,177,400
* SPIROS DEVELOPMENT CORP. II, INC. (UNITS -
CALLABLE COMMON SHARE OF SPIOS & 1 WARRANT 89,500 962,125
OF DURA PHARMACEUTICALS - 12/31/2002)
* TRANSKARYOTIC THERAPIES, INC. 102,100 2,182,387
* UNIVERSAL HEALTH SERVICES, INC. (CLASS B) 42,000 2,155,125
* WATSON PHARMACEUTICALS, INC. 57,500 3,198,438
------------
48,969,145
------------
</TABLE>
30
<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)
MACHINERY & CAPITAL SPENDING (0.3%)
GRACO, INC. 25,000 $ 659,375
------------
METAL MINING & STEEL (0.8%)
* MERIDIAN GOLD, INC. 175,700 911,444
OREGON STEEL MILLS, INC. 109,300 1,338,925
------------
2,250,369
------------
POLLUTION CONTROL (1.0%)
* ALLIED WASTE INDUSTRIES, INC. 62,400 1,349,400
* CASELLA WASTE SYSTEMS, INC. 43,500 1,283,250
------------
2,632,650
------------
TECHNOLOGY (20.7%)
* ACTEL CORP. 155,900 1,997,469
* ACXIOM CORP. 144,600 3,633,075
* ALTERA CORP. 78,000 3,246,750
* AMERICAN MANAGEMENT SYSTEMS, INC. 148,800 4,566,300
* ARTESYN TECHNOLOGIES, INC. 77,800 1,123,238
* ASCEND COMMUNICATIONS, INC. 40,900 1,973,425
* AXENT TECHNOLOGIES, INC. 112,200 2,819,025
* CERNER CORP. 222,500 4,978,438
* CIBER, INC. 174,000 3,414,750
* ENGINEERING ANIMATION, INC. 70,500 3,088,781
* FLEXTRONICS INTERNATIONAL LTD. 30,300 1,573,706
* HMT TECHNOLOGY CORP. 135,400 1,167,825
* HNC SOFTWARE, INC. 95,500 3,211,188
* HYPERION SOLUTIONS CORP. 112,725 3,381,750
* MICROS SYSTEMS, INC. 82,500 1,820,156
* PEOPLESOFT, INC. 27,600 584,775
* SAVILLE SYSTEMS PLC ADR 100,000 1,687,500
* TRANSACTION SYSTEMS ARCHITECTS, INC. 119,700 4,320,422
* TRANSITION SYSTEMS, INC. 102,600 1,070,887
* VISIO CORP. 33,900 902,587
* XIRCOM, INC. 163,200 4,814,400
------------
55,376,447
------------
TRANSPORTATION (1.4%)
* ALASKA AIR GROUP, INC. 73,000 2,623,438
* ATLANTIC COAST AIRLINES HOLDINGS, INC. 34,500 828,000
EXPEDITORS INTERNATIONAL OF
WASHINGTON, INC. 9,900 335,362
------------
3,786,800
------------
UTILITIES/COMMUNICATIONS (2.5%)
COMSAT CORP. 150,100 5,919,569
* PACIFIC GATEWAY EXCHANGE, INC. 28,500 822,937
------------
6,742,506
------------
</TABLE>
31
<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>
TOTAL COMMON STOCKS
(COST $222,339,915) $236,028,909
------------
PREFERRED CONVERTIBLE STOCK (0.3%)
REAL ESTATE SECURITIES (0.3%)
* APARTMENT INVESTMENT & MANAGEMENT CO.
(COST $733,069) 23,449 932,098
------------
TOTAL INVESTMENTS, EXCLUDING
TEMPORARY CASH INVESTMENTS
(COST $223,072,984) 236,961,007
------------
REPURCHASE AGREEMENTS (12.1%)
GOLDMAN SACHS CORP.
5.222% DATED 10/30/1998,
DUE 11/02/1998 IN THE
AMOUNT OF $12,780,999.
COLLATERALIZED BY U.S. TREASURY BONDS
6.000% TO 12.375% DUE
05/15/2004 TO 02/15/2026 &
U.S. TREASURY NOTES
5.500% TO 6.625% DUE
02/28/1999 TO 02/15/2007. $12,779,171 12,779,171
J.P. MORGAN SECURITIES, INC.
5.374% DATED 10/30/1998,
11/02/1998 IN THE
AMOUNT OF $12,501,841.
COLLATERALIZED BY U.S. TREASURY BONDS
11.750% DUE 11/15/2014 &
U.S. TREASURY NOTES
5.875% TO 8.875% DUE
02/15/1999 TO 08/31/2009 12,500,000 12,500,000
MERRILL LYNCH, INC.
5.323% DATED 10/30/1998,
11/02/1998 IN THE
AMOUNT OF $7,001,021.
COLLATERALIZED BY U.S. TREASURY BONDS
6.625% TO 8.750% DUE
05/15/2017 TO 02/15/2027. 7,000,000 7,000,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $32,279,171) 32,279,171
------------
TOTAL INVESTMENTS (100.5%)
(COST $255,352,155) 269,240,178
</TABLE>
32
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
VALUE (1)
------------
RECEIVABLES LESS LIABILITIES (-0.5%) (1,451,015)
------------
NET ASSETS (100.0%) $267,789,163
============
(1) See Note 1 of Notes to Financial Statements.
* Non-Income Producing
The accompanying notes are an integral part of the financial statements.
</TABLE>
33
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (1)
---------- ------------
<S> <C> <C>
COMMON STOCKS (85.5%)
AUSTRALIA (0.6%)
NEWS CORPORATION LTD., THE, ADR (MEDIA) 3,500 $ 95,594
------------
BRAZIL (1.1%)
CIA TECIDOS DO NORTE DE MINAS SA (TEXTILES) 1,100,000 165,987
------------
CANADA (0.7%)
SHAW COMMUNICATIONS, INC. (MEDIA) 5,000 100,196
------------
FINLAND (1.1%)
FINNLINES OYJ (TRANSPORTATION) 3,100 127,977
HARTWALL OYJ ABP (SERIES A) (FOOD/BEVERAGES) 3,100 38,147
------------
166,124
------------
FRANCE (11.8%)
* ALSTOM SA (ELECTRICAL EQUIPMENT) 3,500 87,171
AXA-UAP SA (INSURANCE) 1,500 169,520
BANQUE NATIONALE DE PARIS (BANKS) 1,000 63,327
CAP GEMINI SA ( BUSINESS SERVICES) 1,200 180,317
ESTABLISSEMENTS ECONOMIQUES DU CASION GUICHARD-
PERRACHON SA (RETAIL) 1,700 169,178
ELF-AQUITAINE SA OIL) 1,000 115,712
FRANCE TELECOM SA, ADR (UTILITIES/COMMUNICATION) 3,300 232,031
L'OREAL SA (HEALTH/PERSONAL CARE) 1,500 110,242
RENAULT SA (AUTOMOBILES) 6,000 256,439
SCHNEIDER SA (ELECTRICAL EQUIPMENT) 1,800 106,830
SODEXHO ALLIANCE SA (BUSINESS SERVICES) 1,200 233,009
TOTAL SA, ADR (OIL) 1,600 93,600
------------
1,817,376
------------
GERMANY (6.6%)
ALLIANZ AG (INSURANCE) 700 240,071
IXOS SOFTWARE AG (BUSINESS SERVICES) 500 54,342
MANNESMANN AG (MACHINERY/CAPITAL SPENDING) 5,000 492,097
VOLKSWAGEN AG (AUTOMOBILES) 3,000 225,520
------------
1,012,030
------------
INDIA (3.5%)
BANK OF BARODA LTD. (BANKS) 74,000 92,590
INFOSYS TECHNOLOGIES LTD. (BUSINESS SERVICES) 5,000 286,010
MAHINDRA & MAHINDRA LTD. (AUTOMOBILES) 45,000 156,272
------------
534,872
------------
IRELAND (2.1%)
BANK OF IRELAND PLC (BANKS) 9,000 166,328
IRISH LIFE PLC (INSURANCE) 18,500 163,999
------------
330,327
------------
</TABLE>
34
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (1)
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ITALY (5.9%)
* AEM S.P.A (UTILITIES/ELECTRIC & GAS) 75,000 $ 102,093
ALLEANZA ASSICURAZIONI S.P.A (INSURANCE) 13,200 162,764
TELECOM ITALIA S.P.A, ADR
(UTILITIES/COMMUNICATION) 3,800 275,975
UNICREDITO ITALIANO S.P.A (BANKS) 67,500 362,593
------------
903,425
------------
JAPAN (12.5%)
FAMILYMART CO., LTD. (RETAIL) 3,000 152,154
HIROSE ELECTRIC CO., LTD. (ELECTRONICS) 1,000 57,927
MABUCHI MOTOR CO., LTD. (ELECTRICAL EQUIPMENT) 2,000 130,442
NIDEC CORP. (ELECTRICAL EQUIPMENT) 1,000 91,052
NINTENDO CO., LTD. (ENTERTAINMENT/LEISURE) 2,000 169,232
NIPPON TELEGRAPH & TELEPHONE CORP.
(UTILITIES/COMMUNICATION) 41 320,888
NOMURA SECURITIES CO., LTD., THE
(FINANCIAL SERVICES) 20,000 151,039
OLYMPUS OPTICAL CO., LTD. (ELECTRONICS) 20,000 205,962
ROHM CO., LTD. (ELECTRONICS) 1,000 88,392
SHIMAMURA CO., LTD. (RETAIL) 7,500 297,357
SUMITOMO BANK LTD., THE (BANKS) 15,000 147,391
TOKIO MARINE & FIRE INSURANCE CO., LTD., THE
(INSURANCE) 10,000 113,708
------------
1,925,544
------------
NETHERLANDS (7.5%)
ABN AMRO HOLDING NV (BANKS) 8,000 149,919
AEGON NV (INSURANCE) 5,000 433,962
* EQUANT NV (BUSINESS SERVICES) 10,000 437,500
LAURUS NV (RETAIL) 2,100 52,846
VENDEX NV (RETAIL) 3,000 76,298
------------
1,150,525
------------
SPAIN (5.7%)
AZKOYEN SA DIVERSIFIED CONSUMER MANUFACTURING) 1,100 148,105
BANCO BILBAO VIZCAYA SA (BANKS) 6,000 80,785
METROVACESA SA (REAL ESTATE) 7,000 199,659
TELEFONICA DE ESPANA SA, ADR
(UTILITIES/COMMUNICATION) 1,500 205,406
* TELEPIZZA SA (RESTAURANTS) 30,000 244,480
------------
878,435
------------
SWEDEN (2.6%)
ASSA ABLOY AB (CLASS B)
(DIVERSIFIED INDS./MANUFACTURING) 2,700 107,422
MUNTERS AB (DIVERSIFIED CONSUMER MANUFACTURING) 17,400 120,202
SKANDIA INSURANCE CO., LTD. (INSURANCE) 14,000 178,204
------------
405,828
------------
</TABLE>
35
<PAGE>
- --------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (1)
---------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SWITZERLAND (4.7%)
* GRETAG IMAGING GROUP (REGISTERED)
(MACHINERY/CAPITAL SPENDING) 1,100 $ 99,920
NOVARTIS AG (BEARER) (PHARMACEUTICALS) 180 324,084
* SAIA-BURGESS ELECTRONICS AG (REGISTERED)
(ELECTRONICS) 500 121,114
ZURICH ALLIED AG (REGISTERED) (INSURANCE) 300 182,336
------------
727,454
------------
THAILAND (1.4%)
* BANGKOK BANK PUBLIC CO., LTD.
(FOREIGN) (BANKS) 75,000 114,305
* THAI FARMERS BANK PUBLIC CO., LTD.
(FOREIGN) (BANKS) 76,000 96,179
------------
210,484
------------
UNITED KINGDOM (17.3%)
BRITISH AEROSPACE PLC (AEROSPACE/DEFENSE) 30,000 223,321
BRITISH PETROLEUM CO. PLC (OIL) 8,500 124,841
BRITISH TELECOMMUNICATIONS PLC
(UTILITIES/COMMUNICATION) 16,500 213,324
COMPASS GROUP PLC (ENTERTAINMENT/LEISURE) 21,000 212,771
GLAXO WELLCOME PLC (PHARMACEUTICALS) 7,200 223,794
GRANADA GROUP PLC (ENTERTAINMENT/LEISURE) 9,000 135,726
HAYS PLC (BUSINESS SERVICES) 14,000 206,440
MISYS PLC (BUSINESS SERVICES) 18,500 129,815
PEARSON PLC (MEDIA) 13,000 226,855
ROBERT WALTERS PLC (BUSINESS SERVICES) 18,000 81,390
SELECT APPOINTMENTS HOLDINGS PLC
(BUSINESS SERVICES) 16,000 141,211
SMITHKLINE BEECHAM PLC (PHARMACEUTICALS) 18,061 225,944
VODAFONE GROUP PLC (UTILITIES/COMMUNICATION) 25,134 336,736
WPP GROUP PLC (MEDIA) 35,000 174,085
------------
2,656,253
------------
UNITED STATES (0.4%)
FREEPORT-MCMORAN COPPER & GOLD, INC. (CLASS B)
(MINING-METAL/MINERALS) 5,500 67,719
------------
TOTAL COMMON STOCKS
(COST $11,333,660) 13,148,173
------------
PREFERRED STOCKS (1.7%)
BRAZIL (0.0%)
EMPRESA NACIONAL DE COMERCIO REDITO E
PARTICIPACOES SA (TEXTILES) 1,000,000 1,341
------------
GERMANY (1.7%)
PORSCHE AG (AUTOMOBILES) 150 265,370
</TABLE>
36
<PAGE>
- -------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (1)
---------- ------------
<S> <C> <C>
TOTAL PREFERRED STOCKS
(COST $170,498) 266,711
------------
TOTAL INVESTMENTS, EXCLUDING TEMPORARY
INVESTMENTS (COST $11,504,158) $ 13,414,884
------------
REPURCHASE AGREEMENTS (7.2%)
GOLDMAN SACHS CORP.
5.222% DATED 10/30/1998,
DUE 11/02/1998 IN THE
AMOUNT OF $700,293.
COLLATERALIZED BY U.S. TREASURY BONDS
6.000% TO 12.375% DUE
05/l5/2004 TO 02/l5/2026 &
U.S. TREASURY NOTES
5.500% TO 8.3750% DUE
02/28/1999 TO 02/15/2007. $ 700,193 700,193
------------
J.P. MORGAN SECURITIES, INC.
5.374% DATED 10/30/1998,
DUE 11/02/1998 IN THE
AMOUNT OF $400,059.
COLLATERALIZED BY U.S. TREASURY BONDS
11.750% DUE 11/15/2014 &
U.S. TREASURY NOTES
5.875% TO 8.875% DUE
02/15/1999 TO 08/31/2009 400,000 400,000
------------
TOTAL REPURCHASE AGREEMENTS
(COST $1,100,193) 1,100,193
------------
TOTAL INVESTMENTS (94.4%)
(COST $12,604,351) 14,515,077
CASH AND RECEIVABLES LESS LIABILITIES (5.6%) 861,951
------------
NET ASSETS (100%) $ 15,377,028
============
(1) See Note 1 of Notes to Financial Statements.
* Non-Income Producing
The accompanying notes are an integral part of the financial statements.
</TABLE>
37
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
October 31, 1998
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
------------- -----------------
<S> <C> <C>
ASSETS:
Investments at identified cost ............................... $ 223,072,984 $ 11,504,158
- ---------------------------------------------------------------- ------------- -------------
Investments at value (Notes 1 and 2) ......................... $ 236,961,007 $ 13,414,884
Temporary cash investments, at cost (Note 1) ................. 32,279,171 1,100,193
Cash ......................................................... 55,267
Cash denominated in foreign currencies
(cost $538,257) (Note 1) ................................... 537,064
Receivable for:
Interest ................................................... 164,524 3,695
Dividends .................................................. 10,756 60,152
Investments sold ........................................... 1,634,323 253,919
Capital stock sold ......................................... 4,654,968
------------- -------------
Total assets ............................................... 275,704,749 15,425,174
------------- -------------
LIABILITIES:
Payable for:
Capital stock redeemed ..................................... 71,280
Dividends and distributions ................................ 1,438,243
Investments purchased ...................................... 6,207,678
Investment management fee (Note 4) ......................... 148,423 9,252
Accrued expenses ........................................... 49,962 38,894
------------- -------------
Total liabilities .......................................... 7,915,586 48,146
------------- -------------
Net assets applicable to outstanding shares .................. $ 267,789,163 $ 15,377,028
============= =============
Net assets consist of:
Unrealized appreciation on:
Investments .............................................. $ 13,888,023 $ 1,910,726
Translation of assets and liabilities in foreign currencies 1,615
Undistributed net realized loss from:
Investments .............................................. (2,739,543) (13,430)
Capital paid in (Note 3) ................................... 256,640,683 13,478,117
------------- -------------
$ 267,789,163 $ 15,377,028
============= =============
Shares of capitai stock outstanding (Note 3) ................... 6,723,234 1,226,288
============= =============
Net asset value, offering and
redemption price per share (1) ............................... $ 39.83 $ 12.54
============= =============
(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.
</TABLE>
38
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
------------- -----------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest ................................................... $ 1,358,170 $ 222,327
Dividends .................................................. 503,240 711,007
Foreign taxes withheld (net of reclaims) ................... (90,994)
------------- -------------
Total income ............................................... 1,861,410 842,340
------------- -------------
Expenses:
Investment management fees (Note 4) ........................ 2,429,552 395,072
Shareholder servicing costs (Note 4) ....................... 18,213 18,000
Financial information and subscriptions .................... 63 7,769
Accounting services ........................................ 1,632 29,555
Custodian fees ............................................. 12,846 26,045
Bank transaction and checking fees ......................... 20,355 24,874
Registration fees .......................................... 134 627
Auditing fees .............................................. 23,086 30,807
Legal, insurance and other ................................. 24,873 2,361
------------- -------------
Total expenses ........................................... 2,530,754 535,110
------------- -------------
Net investment income (loss) (Note 1) ...................... (669,344) 307,230
------------- -------------
Realized gain (loss) and unrealized appreciation (depreciation)
from investments and foreign currency transactions:
Net realized gain(loss) from:
Investments (Note 2) ..................................... 29,537,972 10,857,469
Futures contracts (Notes 1 and 2) ........................ 1,770,502
Foreign currency transactions (Note 1) ................... (691,668)
------------- -------------
Net realized gain ...................................... 31,308,474 10,165,801
------------- -------------
Net unrealized appreciation (depreciation) on:
Investments (Note 1) ..................................... (61,700,383) (4,831,185)
Translation of assets and liabilities in foreign currencies
(Note 1) 77,019
------------- -------------
Net unrealized depreciation during the period ............ (61,700,383) (4,754,166)
------------- -------------
Net gain (loss) on investment and foreign currency transactions
(Note 1) (30,391,909) 5,411,635
------------- -------------
Net increase (decrease) in net assets resulting from operations $ (31,061,253) $ 5,718,865
============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
39
<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
--------------------------- ---------------------------
1998 1997 1998 1997
....................................... ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations
Net investment income (loss) ........... $ (669,344) $ (374,369) $ 307,230 $ 785,646
Net realized gain (loss) from:
Investments (Note 2) ................. 29,537,972 93,042,443 10,857,469 12,101,115
Futures contracts (Notes 1 and 2)..... 1,770,502
Foreign currency transactions (Note 1) (691,668) (59,471)
Change in net unrealized appreciation
(depreciation) on:
Investments ............................ (61,700,383) 15,392,662 (4,831,185) (43,839)
Translation of assets and liabilities
in foreign currencies (Note 1 ) ........ 77,019 (44,564)
------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations ..... (31,061,253) 108,060,736 5,718,865 12,738,887
Distributions to shareholders:
From net investment income ........... (764,742)
From net realized gain from
investment transactions ............ (31,308,474) (92,831,342) (10,805,915) (9,756,639)
In excess of net realized gain
from investment transactions ......... (1,826,187)*
Capital share transactions, net (Note 3) (189,785,414) (15,866,910) (61,006,570) 5,711,074
------------ ------------ ------------ ------------
Net increase (decrease)
in net assets ...................... (253,981,328) (637,516) (66,093,620) 7,928,580
NET ASSETS:
Beginning of period ...................... 521,770,491 522,408,007 81,470,648 73,542,068
------------ ------------ ------------ ------------
End of period (1) ........................ $267,789,163 $521,770,491 $ 15,377,028 $ 81,470,648
============ ============ ============ ============
* On a tax basis, there was no return of capital.
The accompanying notes are an integral part of the financial statements.
</TABLE>
40
<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.
Futures contracts - The CMC Small Cap Fund occasionally utilizes futures
contracts to hedge against market conditions affecting the value of securities
that the Fund owns or intends to purchase. Upon entering into a financial
futures contract, the Fund is required to pledge to the broker an amount of
cash, U.S. Government securities, or any other portfolio asset as permitted by
the Securities and Exchange Commission rules and regulations, equal to a certain
percentage of the contract amount. This amount is known as the "initial margin".
Subsequent payments, known as the "variation margin", are made or received by
the Fund each day, depending on the daily fluctuations in the value of the
underlying financial futures contract. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss until
the financial futures contract is closed, at which time the gain or loss is
reclassified to realized. Using financial futures contracts involves various
market risks. The Fund seeks to reduce these risks by investing in financial
futures contracts solely for hedging purposes and not for leverage. However,
imperfect correlation's between financial futures and the instruments being
hedged or market disruptions do not normally permit full control of these risks
at all times. CMC Small Cap Fund had no outstanding futures contracts on October
31, 1998.
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 loss arising from forward
contracts amounted to $338,426 and is included in net realized loss from foreign
currency transactions. CMC International Stock Fund had no outstanding forward
contracts on October 31, 1998.
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.
41
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. Significant accounting policies (Continued):
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 currency gains or losses arise from the sale
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 currency 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.
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 ex-dividend 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.
42
<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 of investments, excluding temporary cash investments, as of and for
the fiscal year ended October 31, 1998 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...... $480,514,416 $ 24,562,910
Futures contracts................................................. 51,399,497
------------ ------------
Total purchases.............................................. $531,913,913 $ 24,562,910
============ ============
Sales and Maturities:
Investment securities other than U.S. Government obligations...... $703,510,056 $ 92,797,462
Futures contracts................................................. 51,399,497
------------ ------------
Total sales and maturities................................... $754,909,553 $ 92,797,462
============ ============
Net Realized Gain:
Investment securities other than U.S. Government obligations...... $ 29,537,972 $ 10,857,469
Futures contracts................................................. 1,770,502
------------ ------------
Total net realized gain...................................... $ 31,308,474 $ 10,857,469
============ ============
Unrealized Appreciation (Depreciation) as of October 31, 1998:
Appreciation ..................................................... $ 28,586,130 $ 3,468,092
Depreciation ..................................................... (14,698,107) (1,557,366)
------------ ------------
Net unrealized appreciation .................................... $ 13,888,023 $ 1,910,726
============ ============
Unrealized Appreciation (Depreciation) for federal
income tax purposes as of October 31, 1998:
Appreciation ..................................................... $ 27,558,572 $ 3,468,092
Depreciation ..................................................... (16,793,478) (1,573,932)
------------ ------------
Net unrealized appreciation .................................... $ 10,765,094 $ 1,894,160
============ ============
For federal income tax purposes, the cost of investments
owned at October 31, 1998 .......................................... $226,195,913 $ 11,520,724
============ ============
</TABLE>
The net realized gain for CMC Small Cap Fund includes proceeds of $1,770,502
from futures contacts and $925,298 from shareholder class action suits related
to securities held by the Fund.
43
<PAGE>
- -------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3. Capital Stock: CMC Small CMC International
Cap Fund Stock Fund
---------------- ---------------- ---------------- ----------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended
October 31, 1998 October 31, 1997 October 31, 1998 October 31, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Shares:
Shares sold........................... 3,526,101 2,075,132 140,622 492,558
Shares issued for reinvestment
of dividends........................ 795,793 1,635,550 861,716 242,655
--------------- ---------------- ---------------- ----------------
4,321,894 3,710,682 1,002,338 735,213
Less shares redeemed.................. (7,189,299) (4,158,883) (1,683,481) (559,687)
--------------- ---------------- ---------------- ----------------
Net increase (decrease) in shares..... (2,867,405) (448,201) (681,143) 175,526
================ ================ ================ ================
Amounts:
Sales ................................ $ 166,362,699 $ 119,268,120 $ 6,648,396 $ 23,076,473
Reinvestment of dividends ............ 31,696,418 88,973,947 10,805,915 10,363,810
--------------- ---------------- ---------------- ----------------
198,059,117 208,242,067 17,454,311 33,440,283
Less redemptions ..................... (387,844,531) (224,108,977) (78,460,881) (27,729,209)
--------------- ---------------- ---------------- ----------------
Net increase (decrease) .............. $ (189,785,414) $ (15,866,910) $ (61,006,570) $ 5,711,074
================ ================ ================ ================
Capital stock authorized (shares) 100,000,000 100,000,000
</TABLE>
<TABLE>
<CAPTION>
4. Transactions with affiliates and related parties:
CMC Small CMC International
Cap Fund Stock Fund
------------- -----------------
<S> <C> <C>
Investment management fees incurred ................................. $ 2,429,552 $ 395,072
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) ............ $ 14,145 $ 2,217
</TABLE>
The transfer agent for the Fund is Columbia Trust Company (CTC), an affiliate of
CMC. 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 (the Trust).
On December 10, 1997, CMC, CTC and certain of their affiliates were acquired by
Fleet Financial Group, Inc. (Fleet), a publicly owned multi-bank holding company
registered under the Bank Holding Company Act of 1956. Prior to that date,
certain officers and trustees of the Trust were also officers and directors of
CMC and CTC. Those individuals did not receive any compensation or other payment
from the Trust. Following the transaction and as a result of federal banking
regulations, no officers or trustees of the Trust are officers or directors of
CMC or CTC. J. Jerry Inskeep, Jr., an officer and trustee of the Trust, is
affiliated with Fleet, but received no compensation or other payments from the
Trust.
44
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of CMC Fund Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CMC Small Cap Fund and CMC
International Stock Fund, two of the portfolios of CMC Fund Trust (the Funds),
investment companies, at October 31, 1998, and the results of each Fund's
operations and the changes in its net assets for the years ended October 31,
1998 and 1997, and the financial highlights for the periods presented therein,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned as of October 31, 1998
by correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
December 4, 1998
45
<PAGE>
Part A-II
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[GRAPHIC OMITTED]
Columbia
CMC HIGH YIELD FUND
CMC High Yield Fund (the "Fund") is a portfolio of CMC Fund Trust seeking
to provide investors a high level of current income by investing in
below-investment grade securities, commonly known as "junk bonds."
As with all mutual funds, the Securities and Exchange Commission has
not stated that the information in this Prospectus is accurate or complete, nor
has it approved or disapproved the Fund for investment merit. It is a criminal
offense to state otherwise.
December 24, 1998
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Risk/Return Summary............................................ 2
Goal...................................................... 2
Strategy.................................................. 2
Risk Factors.............................................. 3
Historical Performance.................................... 5
Expenses.................................................. 6
Financial Highlights........................................... 7
Management..................................................... 7
Information About Your Investment.............................. 8
Your Account.............................................. 8
Buying Shares........................................ 8
Selling Shares....................................... 9
Distribution and Taxes.................................... 9
Income and Capital Gains Distributions............... 9
Tax Effect of Distributions and Transactions......... 10
More About the Fund............................................ 11
Investment Strategy....................................... 11
Other Risks............................................... 12
Zero-Coupon Securities............................... 12
Year 2000............................................ 12
For More Information........................................... 13
2
<PAGE>
- -------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- -------------------------------------------------------------------------------
GOAL
- ----
What are the Fund's Investment Goals?
The Fund seeks to provide investors a high level of current income.
Capital appreciation is a secondary objective when consistent with a high
level of current income.
STRATEGY
- --------
What investment strategies does the Fund use to pursue these goals?
The Fund invests primarily in non-investment grade corporate debt
obligations, commonly referred to as "junk bonds." Under normal market
conditions, the Fund invests at least 80% of its total assets in high yield
corporate debt obligations rated Ba or B by Moody's Investors Services,
Inc. ("Moody's") or BB or B by Standard and Poor'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 the Fund will not invest more than 10% of the Fund's
total assets in securities with Caa or CCC ratings.
-----------------------------------------------------------
By concentrating on corporate debt obligations rated Ba or B
by Moody's or BB or B by S&P, the Fund intends to invest
primarily in "upper tier" non-investment grade securities.
By emphasizing the "upper tier" of non-investment grade
securities, the Fund seeks to provide investors with access
to higher yielding bonds without assuming all the risk
associated with the broader "junk bond" market. A
DESCRIPTION OF FIXED INCOME SECURITIES RATINGS IS CONTAINED
IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION.
-----------------------------------------------------------
In selecting securities for the Fund, Columbia Management Co., the
investment adviser for the Fund ("CMC" or "Adviser") conducts an ongoing
evaluation of the economic and market environment. Such an analysis helps
the Adviser anticipate how economic and market change, like movement in
interest rates, inflation, government regulation and demographics, may
affect certain industries and specific market sectors within those
industries, and thereby the companies making up that industry or market
sector. After determining what industries and market sectors to invest in,
the Adviser conducts intensive, fundamental research to identify attractive
individual securities within the targeted industries and market sectors.
This investment strategy is intended to give CMC a better
understanding of the long-term prospects of a particular security, based on
the characteristics of the existing
3
<PAGE>
economy and investor temperament. In this way, the Adviser strives to
anticipate and act upon market change, understand its effect on risk and
reward of Fund securities and thereby generate consistent, competitive
results over the long-term.
RISK FACTORS
- ------------
What are the principal risks of investing in the Fund?
The fixed income securities held in the Fund's investment portfolio
are subject to interest rate risk and credit risk, both of which could
cause the value of your investment to go down and impact the total return
you receive on your investment.
INTEREST RATE RISK refers to the possibility that the value of the
Fund's investments will decline due to an increase in interest rates.
-----------------------------------------------------------
When interest rates go up, the value of the Fund's portfolio
will likely decline because fixed income securities in the
portfolio are paying a lower interest rate than what
investors could obtain in the current market. When interest
rates go down, the value of the Fund's portfolio will likely
rise, because fixed income securities in the portfolio are
paying a higher interest rate than newly issued fixed income
securities.
-----------------------------------------------------------
The amount of change in the value of the Fund's portfolio depends upon
several factors, including the maturity date of the bonds in the portfolio.
In general, the price of fixed income securities with longer maturities are
more sensitive to interest rate changes than the price of fixed income
securities with shorter maturities.
CREDIT RISK refers to the ability of the issuer of the bond to meet
interest and principal payments when due. Generally, higher yielding bonds,
such as those purchased by the Fund, are subject to greater credit risk
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. High
yield bonds are often issued by smaller, less creditworthy companies or by
companies with substantial debt. Since the price of a high yield bond is
generally very sensitive to the financial conditions of the issuer, the
market for high yield bonds can behave more like the equity market. Adverse
changes in economic conditions, an issuer's financial condition, and
increases in interest rates may negatively affect the market for
lower-rated debt securities, more than higher-rated debt securities. In
addition, the secondary markets for lower-rated securities may be less
liquid and less active than markets for higher-rated securities, which may
limit the ability of the Fund to sell lower-rated securities at their
expected value.
4
<PAGE>
You could lose money as a result of your investment in the Fund and
the Fund could under perform other investments as a result of the above
risks. You should invest in this Fund only if you are willing to accept
significant fluctuations in the value of your investment in exchange for
the opportunity to achieve a high level of current income. An investment in
this Fund should be part of a balanced investment program.
See "MORE ABOUT THE FUND" in this Prospectus and the Fund's Statement
of Additional Information for more information regarding the Fund's
investment strategy and risks.
HISTORICAL PERFORMANCE
- ----------------------
How has the Fund historically performed?
The bar chart and table below illustrate the Fund's annual returns as
well as its long term performance. The bar chart shows how the Fund's
performance has varied from year to year. The table compares the Fund's
performance over time to that of the Lehman Aggregate Bond Index, a widely
recognized unmanaged index representing the 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. Both the bar chart and the table assume the reinvestment of
dividends and distributions. The Fund's historical performance does not
indicate how the Fund will perform in the future.
Year-By-Year Total Return As Of 12/31 Each Year
Graphic bar chart depicting "Year-By-Year Total Return as of 12/31 Each Year":
<TABLE>
<CAPTION>
Year Total Return Percentage
---- -----------------------
<S> <C> <C>
1995 19.86%
1996 9.70%
1997 12.12%
</TABLE>
<TABLE>
<S> <C> <C>
Best Quarter: 2Q '95 5.72%
Worst Quarter: 4Q '96 0.08%
-------------------------------- ------------ ------------
</TABLE>
5
<PAGE>
<TABLE>
Average Annual Total Returns As Of 12/31/97
<CAPTION>
Inception
1 Year (7/6/94)
--------------------------------- ------------ ----------------
<S> <C> <C>
CMC High Yield Fund 12.12% 12.10%
Lehman Aggregate Bond Index 9.32% 9.21%
The Fund's year-to-date total return as of 9/30/98 was 4.25%.
</TABLE>
EXPENSES
- --------
What expenses do I pay as an investor in the Fund?
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund. As a shareholder, you pay no
transaction fees in connection with your investment in the Fund. Annual
fund operating expenses described in the table are paid out of Fund assets
and are therefore reflected in the share price.
---------------------------------------------------------------
The fund has no sales charge (load) or 12b-1 distribution fees.
---------------------------------------------------------------
Fee Table
Shareholder transaction fees None
Annual Fund Operating Expenses (expenses
that are paid out of Fund assets)
Management Fees 0.40%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.05%
Total Fund Operating Expenses 0.45%
- -------------------------------------------------------------------------------
Expense Example
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses
6
<PAGE>
remain constant as a percentage of net assets. Your actual costs may
be higher or lower, but based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$46 $144 $252 $567
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance since inception. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate of return an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the Fund's financial statements, are included in the
Statement of Additional Information under "Financial Statements."
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996 1995 1994(1)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $36.85 $35.95 $36.24 $34.48 $35.00
Income From Investment Operations:
Net Investment Income ............................ 3.03 3.18 3.23 3.31 0.94
Net Gains or Losses on Securities
(both realized and unrealized)................. (0.85) 1.28 0.10 2.11 (0.52)
Total From Investment Operations............. 2.18 4.46 3.33 5.42 0.42
Less Distributions:
Dividends (from net investment income)............ (3.03) (3.18) (3.23) (3.31) (0.94)
Distributions (from capital gains)................ (0.21) (0.38) (0.39) (0.35)
Total Distributions.......................... (3.24) (3.56) (3.62) (3.66) (0.94)
Net Asset Value, End of Period.................... $35.79 $36.85 $35.95 $36.24 $34.48
Total Return...................................... 6.00% 12.90% 9.61% 16.49% 1.21%(2)
Ratios/Supplemental Data
Net Assets, End of Period (in thousands).......... $263,912 $119,196 $69,614 $42,192 $9,602
Ratio of Expenses to Average Net Assets........... 0.45% 0.45% 0.50% 0.54% 0.54%
Ratio of Net Income to Average Net
Assets ........................................ 8.28% 8.60% 8.90% 9.36% 9.86%
Portfolio Turnover Rate........................... 70.56% 68.96% 56.06% 45.64% 72.67%
(1) From inception of operations on July 6, 1994. Ratios and portfolio turnover rates are annualized.
(2) Not annualized.
</TABLE>
7
<PAGE>
- -------------------------------------------------------------------------------
MANAGEMENT
- -------------------------------------------------------------------------------
The Fund's investment adviser is Columbia Management Co., 1300 S.W. Sixth
avenue, P.O. Box 1350, Portland, Oregon 97207-1350 ("CMC" or Adviser). CMC has
acted as an investment adviser since 1969.
The Fund has contracted with CMC to provide research, advice and
supervision with respect to investment matters and to determine what securities
to purchase or sell and what portion of the Fund's assets to invest. For the
fiscal year ended October 31, 1998, the Fund paid CMC a management fee,
expressed as a percentage of average net assets, of 0.40%.
CMC uses an investment team approach to analyze investment themes and
strategies for the Fund. Members of the investment team are responsible for the
analysis of particular industries and market sectors within those industries,
and for recommendations on individual securities within those industries and
market sectors. Mr. Jeffrey L. Rippey, a Vice President of CMC and a Chartered
Financial Analyst, has, since inception of the Fund (July 1994), had
responsibility for implementing, on a daily basis, the investment strategies
developed for the Fund. Mr. Rippey joined the Adviser in 1981 as a portfolio
analyst and member of the investment team.
- -------------------------------------------------------------------------------
INFORMATION ABOUT YOUR INVESTMENT
- -------------------------------------------------------------------------------
YOUR ACCOUNT
- ------------
Buying Shares
-------------
The Fund enables clients of CMC to invest in a diversified portfolio
of lower-rated fixed income securities in a pooled environment, rather than
purchasing securities on an individual basis.
If you want to invest in the Fund, contact your CMC representative at
1-800-547-1037. In addition, an independent fiduciary for a CMC client
account, after careful review of this Prospectus, including the Fund's
expenses and consistency with the client's written investment guidelines,
may approve the investment in the Fund. Upon approving the investment, the
independent fiduciary will authorize CMC to invest a portion of the
client's portfolio in the Fund, at CMC's discretion, and subject to
limitations imposed by the independent fiduciary.
-----------------------------------------------------------
If CMC is considered to be a fiduciary of your assets,
including the account with 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 your behalf. See the Statement of Additional
Information for more detail.
-----------------------------------------------------------
8
<PAGE>
The price for Fund shares is the Fund's net asset value per share
("NAV"), which is generally calculated as of the close of trading on the
New York Stock Exchange (usually 4:00 p.m., Eastern time), every day the
exchange is open. Your order will be priced at the next NAV calculated
after your order is accepted by the Fund.
The Fund uses market value to value its securities as quoted by
dealers who are market makers in these securities or by an independent
pricing service, unless the Adviser determines that a fair value
determination should be made using procedures and guidelines established by
and under the general supervision of the Fund's Board of Trustees. 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.
The Fund constantly monitors the prices received from market makers and its
pricing service and, at times, will manually price its securities using
procedures established by and under the general supervision of the Fund's
Board of Trustees. Debt securities with remaining maturities of less than
60 days will generally be valued based on amortized cost.
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.
Selling Shares
--------------
You may sell shares at any time. Upon redemption you will receive the
Fund's NAV next calculated after your order is accepted by the Fund's
transfer agent. Any certificates representing Fund shares being sold must
be returned with your redemption request. You can request a redemption by
calling your CMC Representative at 1-800-547-1037. Redemption proceeds are
normally transmitted in the manner specified in the redemption request on
the business day following the effective date of the redemption. Except as
provided by rules of the Securities and Exchange Commission, redemption
proceeds must be transmitted to you within seven days of the redemption
date.
The Fund also reserves the right to make a "redemption in kind" - pay
you in portfolio securities rather than cash - if the amount you are
redeeming is large enough to affect the Fund's operations (for example, if
the redemption represents more than 1% of the Fund's assets).
DISTRIBUTION AND TAXES
- ----------------------
Income and Capital Gains 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 you have elected to receive the
dividends in cash. If all of your shares in the
9
<PAGE>
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
October. The amount distributed 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, as calculated after payment of
the distribution, at the close of business on the dividend payment date,
unless you have elected to receive the capital gain distribution in cash.
Tax Effect of Distributions and Transactions
--------------------------------------------
The dividends and distributions of the Fund are taxable to most
investors unless the shareholder is exempt from state or federal income
taxes or your investment is in a tax-advantaged account. The tax status of
any distribution is the same regardless of how long you have been in the
Fund and whether you reinvest your distributions or take them as income. In
general, distributions are taxable as follows:
- -------------------------------------------------------------------------------
Taxability of Distributions
<TABLE>
<CAPTION>
Type of Tax Rate for Tax Rate for 28%
Distribution 15% Bracket Bracket or Higher
------------ ------------ -----------------
<S> <C> <C>
Income Dividends Ordinary Income Rate Ordinary Income Rate
Short Term Capital Gains Ordinary Income Rate Ordinary Income Rate
Long Term Capital Gains 10% 20%
</TABLE>
- -------------------------------------------------------------------------------
The Fund expects that, as a result of its investment objective to
achieve a high level of current income, its distributions will consist
primarily of income dividends. Each year the Fund will send you information
detailing the amount of ordinary income and capital gains distributed to
you for the previous year.
The sale of shares in your account may produce a gain or loss and is a
taxable event. For tax purposes, an exchange of shares of a Fund for shares
of another fund managed by the Adviser is the same as a sale.
-----------------------------------------------------------
Your investment in the Fund could have additional tax
consequences. Please consult your tax professional for
assistance.
-----------------------------------------------------------
10
<PAGE>
- -------------------------------------------------------------------------------
MORE ABOUT THE FUND
- -------------------------------------------------------------------------------
INVESTMENT STRATEGY
In selecting investments, and to supplement the credit rating analysis
supplied by Moody's and S&P, the Adviser uses a top down analysis, supplemented
by a bottom up company analysis. Top down analysis begins with an overall
evaluation of the investment environment, which allows the Adviser to determine
specific industries and market sectors within those industries, and desired
levels of portfolio quality, maturity and duration to emphasize. Factors the
Adviser considers in its top down analysis include:
o economic growth
o inflation
o interest rates
o federal reserve policy
o corporate profits
o demographics
o money flows
Once individual sectors, types of instruments and markets have been
identified, the Adviser employs fundamental analysis to select individual
securities. Fundamental analysis includes the evaluation of:
o a company's financial condition
o quality of management
o industry dynamics
o earnings growth and profit margins
o sales trends
o potential for new product development
o financial ratios
o investment in research and development
By utilizing this investment strategy the Adviser strives to anticipate and
act upon market change, understand its effect on the risks and rewards of Fund
securities, and thereby generate consistent, competitive results over the
long-term.
Although under normal market conditions the Fund will invest at least 80%
of its total assets in high yielding corporate debt obligations rated Ba or B by
Moody's or BB or B by S&P, under adverse market conditions, the Fund may depart
from its principal investment strategy by taking temporary defensive positions
in response to adverse market, economic or
11
<PAGE>
political conditions. When a Fund assumes a temporary defensive position, it is
not invested in securities designed to achieve its stated investment objective.
OTHER RISKS
- -----------
In addition to the certain risks stated in the "RISK/RETURN SUMMARY" in
this Prospectus, there are other risks of investing in the Fund such as:
Zero-Coupon Securities
----------------------
The Fund may invest in lower-rated debt securities structured as
zero-coupon securities. A zero-coupon security does not pay periodic
interest. Instead, the issuer sells the security at a substantial discount
from its stated value at maturity. The interest equivalent received by the
investor from holding this security to maturity is the difference between
the stated maturity value and the purchase price. The Fund accrues taxable
income on zero-coupon 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.
Year 2000
---------
Many of the services provided to the Funds by the Adviser and other
service providers depend on the proper functioning of their computer
software systems and those of their outside service providers. Many
computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated.
Such an event could have a negative impact on handling securities trades,
payments of interest and dividends, pricing and account services. Although,
at this time, there can be no assurance that there will be no adverse
impact on the Fund, the Adviser has informed the Fund that it has been
actively working on necessary changes to its computer systems to prepare
for the year 2000 and expects that its systems, and those of the Fund's
outside service providers, will be ready for the year 2000. CMC does not
expect the costs related to the Year 2000 problem to be substantial to the
Fund since those costs are borne by CMC and the Fund's other outside
service providers and not directly by the Fund.
12
<PAGE>
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FOR MORE INFORMATION
- -------------------------------------------------------------------------------
You can find additional information on the Fund's structure and its
performance in the following documents:
o Annual/Semiannual Reports. While the Prospectus describes the Fund's
potential investments, these reports detail the Fund's actual
investments as of the report date. Reports include a discussion by
Fund management of recent market conditions, economic trends, and Fund
strategies that significantly affected the Fund's performance during
the reporting period.
o Statement of Additional Information ("SAI"). A supplement to the
Prospectus, the SAI contains further information about the Fund and
its investment restrictions, risks and polices. It also includes the
most recent annual report and the independent accountants' report.
A current SAI for the Fund is on file with the Securities and Exchange
Commission and is incorporated by reference in (is legally part of) this
Prospectus.
A copy of the SAI and current annual report may be attached to this
Prospectus. If it is not, or to obtain additional copies of the SAI or copies of
the current annual/semiannual report without charge, or to make inquiries of the
Fund, you may contact:
CMC Fund Trust
1300 S.W. Sixth Avenue
Portland, Oregon 97201
Telephone: 1-800-547-1037.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (telephone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, D.C.
20549-6009. Reports and other information regarding the Fund are also on the
SEC's Internet website at http://www.sec.gov.
13
SEC file number: 811-5857
<PAGE>
Part B-II
Reg. Nos. 33-30394/811-5857
===============================================================================
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
CMC Fund Trust
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") and a portfolio of the Trust, CMC High Yield Fund
(the "Fund").
This Statement of Additional Information is not a Prospectus. It relates to
a Prospectus dated December 24, 1998 (the "Prospectus") and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge upon request to the Trust or by calling 1-800-547-1037.
TABLE OF CONTENTS
Description of the Fund.......................................................2
Management...................................................................17
Investment Advisory and Other Fees Paid to Affiliates........................19
Portfolio Transactions.......................................................20
Capital Stock and Other Securities...........................................22
Purchase, Redemption and Pricing of Shares...................................23
Custodians...................................................................23
Independent Accountants......................................................25
Taxes........................................................................26
Yield and Performance........................................................29
Financial Statements.........................................................31
December 24, 1998
<PAGE>
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DESCRIPTION OF THE FUND
- -------------------------------------------------------------------------------
The Trust is an Oregon business trust established under a Restated
Declaration of Trust, dated October 13, 1993, as amended. The Trust is an
open-end, management investment company comprised of separate portfolios, each
of which is treated as a separate fund. There are four portfolios established
under the Trust: the Fund, CMC Short Term Bond Fund, CMC Small Cap Fund, and CMC
International Stock Fund. The Fund is diversified, which means that, with
respect to 75% of its total assets, the Fund will not invest more than 5% of its
assets in the securities of any single issuer. The investment adviser to the
Fund is Columbia Management Co. (the "Adviser").
INVESTMENT OBJECTIVE, POLICIES AND RISK
- ---------------------------------------
The Fund's primary investment objective is to provide shareholders with a
high level of current income. The Fund's objective may not be changed without a
vote of the outstanding voting securities of the Fund. There is no assurance
that the Fund will achieve its investment objective.
To achieve its investment objective, the Fund generally will invest at
least 80% of its total assets in high yielding corporate debt obligations rated
Ba or B by Moody's Investors Services, Inc. ("Moody's") or BB or B by Standard
and Poor's Corporation ("S&P"). The Fund may not invest in any fixed income
securities rated below Caa by Moody's or CCC by S&P, and the Fund will not
invest more than 10% of its total assets in corporate debt obligations rated Caa
or CCC. The Fund may also invest in unrated securities when it 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. The Fund
should represent only a portion of a balanced investment program. See the
Prospectus "RISK/RETURN SUMMARY, Risk Factors," for a description of the
principal risks of investing in lower-rated securities. Bond ratings are
described below under "INVESTMENTS IN THE FUND."
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 Adviser relies on in evaluating lower-rated fixed income securities. The
analysis by
2
<PAGE>
the 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 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 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'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.
Depending upon the 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 will consider factors
other than current yield, such as preservation of capital, maturity, and yield
to maturity.
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 than issuers of higher-rated securities. 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.
The markets for lower-rated securities 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
3
<PAGE>
for the Fund's lower-rated or nonrated securities, these securities will be
valued by a method the Board of Trustees 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.
INVESTMENTS HELD BY THE FUND
- ----------------------------
In addition to corporate debt obligations such as bonds, debentures and
notes, 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. 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. Additional information with respect to certain of the securities in
which the Fund may invest is set forth below.
Securities Rating Agencies
- --------------------------
The following is a description of the bond ratings used by Moody's and S&P.
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 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.
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.
4
<PAGE>
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.
5
<PAGE>
Certificates of Deposit
- -----------------------
Certificates of Deposit are receipts issued by a U.S. bank in exchange for
the deposit of funds. The 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.
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
6
<PAGE>
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 Securities and Mortgage Pass-Through Securities
- ---------------------------------------------------------------
The Fund may also invest in mortgage-backed securities, which are interests
in pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
Fund may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations"), and in other types of mortgage-related securities.
Because principal may be prepaid at any time, mortgage-backed securities
involve significantly greater price and yield volatility than traditional debt
securities. A decline in interest rates may lead to a faster rate of repayment
of the underlying mortgages and expose the Fund to a lower rate of return upon
reinvestment. To the extent that mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. When interest rates rise, mortgage prepayment rates tend to decline,
thus lengthening the life of mortgage-related securities and increasing their
price volatility, affecting the price volatility of the Fund's shares.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
7
<PAGE>
The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks, and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages. These guarantees, however, do not apply to the market value or yield
of mortgage-backed securities or to the value of the Fund's shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to regulation by the Secretary of Housing and Urban Development. FNMA
purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA, but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be
8
<PAGE>
considered in determining whether a mortgage-related security meets the Fund's
investment quality standards. There is no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees if, through an examination of the loan experience and practices of
the originators/services and poolers, the Adviser determines that the securities
meet the Fund's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable.
Collateralized Mortgage Obligations ("CMOs")
- --------------------------------------------
The Fund may invest in CMOs, which are hybrids between mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and
prepaid principal are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially protected against a sooner than desired return
of principal by the sequential payments. The prices of certain CMOs, depending
on their structure and the rate of prepayments, can be volatile. Some CMOs may
also not be as liquid as other securities.
In a typical CMO transaction, a corporation issues multiple series (e.g.,
A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
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.
9
<PAGE>
Other Mortgage-Backed Securities
- --------------------------------
The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investment in
addition to those described above. The mortgages underlying these securities may
include alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Adviser will, consistent
with the Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
Other Asset-Backed Securities
- -----------------------------
The securitization techniques used to develop mortgage-backed securities
are being applied to a broad range of assets. Through the use of trusts and
special purpose corporations, various types of assets, including automobile
loans, computer leases and credit card and other types of receivables, are being
securitized in pass-through structures similar to mortgage pass-through
structures described above or in a structure similar to the CMO structure.
Consistent with the Fund's investment objectives and policies, the Fund may
invest in these and other types of asset-backed securities that may be developed
in the future. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of state and
federal consumer credit laws, many of which give debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of direct parties. To reduce the effect of failures
by obligors on underlying assets to make payments, the securities may contain
elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor or the underlying assets. Liquidity protection refers to the
making of advances, generally by the entity administering the pool of assets, to
ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantee policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying
10
<PAGE>
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
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.
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 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.
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.
11
<PAGE>
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 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 Adviser, are expected to be substantially similar to those of the index.
A call option may also be covered in any other manner in accordance with the
rules of the exchange upon 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 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 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
12
<PAGE>
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, or any other portfolio assets as permitted by the Securities and
Exchange Commission rules and regulations 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.
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.
13
<PAGE>
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
14
<PAGE>
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 Fund's liquidity could be adversely affected to the extent it is invested in
such securities.
Convertible Securities and Warrants
- -----------------------------------
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 include 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 an orderly disposition or to establish long term holding
periods for income tax purposes.
- -------------------------------------------------------------------------------
Temporary Investments
- ---------------------
When, as a result of market conditions, the Fund 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 investors a high level of current income.
- -------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- -----------------------
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, provided, however, at
no time will the Fund's investments in illiquid securities
15
<PAGE>
exceed 15% of its net assets. The Trust may not change these restrictions
without a majority vote of the outstanding securities of the Fund.
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, repurchase agreements 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, if upon the purchase more than 10% of the
value of the Fund's net assets would consist of these securities. See
"DESCRIPTION OF THE FUND, INVESTMENTS IN THE FUND" for a complete discussion of
illiquid securities.
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.
16
<PAGE>
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 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.
- -------------------------------------------------------------------------------
MANAGEMENT
- -------------------------------------------------------------------------------
The Fund is managed under the general supervision of the Trustees of the
Trust. 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; 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
17
<PAGE>
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.,* Age 61, Chairman, President, and Trustee of the Trust;
Chairman, President, and Director of each of the Columbia Funds; Consultant with
Fleet Financial Group, Inc. (since December 1997); formerly Chairman and a
Director of Columbia Management Co., Columbia Funds Management Company ("CFMC"),
Columbia Trust Company (the "Trust Company"), the Fund's transfer agent; 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.
JAMES C. GEORGE, Age 66, 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.
THOMAS R. MACKENZIE, Age 71, Trustee of the Trust (since December 1997);
Director of each of the Columbia Funds; and Founder and Director of Group
Mackenzie (architecture, planning, interior design, engineering). Mr.
Mackenzie's address is 0690 S.W. Bancroft Street, Portland, Oregon 97201.
ROBERT J. MOORMAN, * Age 47, Secretary of the Trust and each of the Columbia
Funds (since January 1998); attorney with Stoel Rives LLP. Mr. Moorman's
business address is 900 S.W. Fifth Avenue, Suite 2600, Portland, Oregon
97204-1268.
RICHARD L. WOOLWORTH, Age 57, Trustee of the Trust; 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.
* Mr. Inskeep and Mr. Moorman are each an "interested person" as defined by
the Investment Company Act of 1940 (the "1940 Act") and receive no trustee fees
or salaries from the Trust or the Fund.
The following table sets forth the compensation received by the
disinterested trustees of the Trust for the fiscal year ended October 31, 1998.
18
<PAGE>
<TABLE>
<CAPTION>
Compensation Total Compensation from the
Trustee From Trust Trust and Columbia Funds
- ------- ------------ ----------------------------
<S> <C> <C>
Richard L. Woolworth $9,000.00 $32,000.00
Thomas R. Mackenzie $9,000.00 $31,000.00
James C. George $9,000.00 $31,000.00
</TABLE>
At November 30, 1998, 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:
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name and Address at November 30, 1998
- ---------------- -------------------------
<S> <C> <C>
Legacy Fixed Income Investment Fund 1,163,311 (14.68%)
Legacy Health Systems
Corporate Financial Administrative Services
1919 N.W. Lovejoy
Portland, OR 97209
Legacy Health Systems Employees 776,739 (9.80%)
Retirement Plan-Fixed
Legacy Health Systems
1919 N.W. Lovejoy
Portland, OR 97209
Lumber Industry Pension Fund 410,439 (5.18%)
Associated Administrators, Inc.
2929 N.W. 31st Avenue
Portland, OR 97210
Locals 302 & 612 Operating Engineers 409,244 (5.16%)
Employers Retirement Fund
Welfare & Pension Administration Services, Inc.
P.O. Box 34203
Seattle, WA 98124
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES
- --------------------------------------------------------------------------------
The investment adviser to the Fund is Columbia Management Co. (the
"Adviser"). The Adviser has entered into an investment contract with the Fund.
Pursuant to the investment contract 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
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
19
<PAGE>
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 provides office space and pays all executive salaries and
executive expenses of the Fund. 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, broker's 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 other
expenses of preparing its registration statement, prospectuses, and reports.
For its services provided to the Fund, the Adviser charges an advisory fee,
which is accrued daily and paid monthly. The advisory fee for the Fund equals
the annual rate of 0.40 of 1 percent of its daily net assets. Advisory fees paid
by the Fund to the Adviser were $853,566, $354,620, and $214,819 for fiscal year
1998, fiscal year 1997, and fiscal year 1996, respectively.
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 1998 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.
There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
20
<PAGE>
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers, and a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction.
Prompt execution of orders at the most favorable price will be the primary
consideration of the Fund in transactions where fees or commissions are
involved. Additional factors considered in the process of selecting a
broker-dealer to execute a transaction include: (i) professional capability of
the executing broker-dealer and the value and quality of the services provided
by the broker-dealer; (ii) size and type of the transaction; (iii) timing of the
transaction in the context of market prices and trends; (iv) nature and
character of markets for the security to be purchased or sold; (v) the
broker-dealer's execution efficiency and settlement capability; (vi) the
executing broker-dealer's stability and the execution services it renders to the
Adviser on a continuing basis; and (vii) reasonableness of commission. 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.
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. As permitted
by Section 28(e) of the Securities Exchange Act of 1934, the Adviser may cause
the Fund to pay a broker-dealer which provides "brokerage and research services"
(as defined in the Act) to the Adviser an amount of undisclosed commission for
effecting a securities transaction for the Trust in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
No brokerage commissions were paid by the Fund during the last three fiscal
years.
The Adviser may use research services provided by, and place agency
transactions with, affiliated broker-dealers if the commissions are fair and
reasonable and comparable to commissions charged by non-affiliated qualified
brokerage firms.
21
<PAGE>
Investment decisions for the Fund are made independently from those of the
other portfolios of the Trust or accounts managed by the Adviser or its
affiliates, including 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, and the other portfolios
of the Trust and other 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 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.
- --------------------------------------------------------------------------------
CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The Trust may establish separate series of investment portfolios under its
Restated 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
22
<PAGE>
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, dividends and distributions. 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.
Any reference to 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.
- --------------------------------------------------------------------------------
PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
PURCHASES
- ---------
Shareholders of the Fund are investment advisory clients of the Adviser.
However, with respect to assets of an investment advisory client of the Adviser
invested in the Fund, that client will pay no fee pursuant to its separate
management contract with the Adviser (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 the Fund by the Adviser on behalf of the shareholder. These
conditions are 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 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 must not be 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
23
<PAGE>
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 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.
REDEMPTIONS
- -----------
Redemptions of all or any portion of a shareholder's investment can be made
at any time. Redemption of shares are at the net asset value next computed after
receipt of a redemption order on a day the New York Stock Exchange ("NYSE") is
open for business. Payment will be made within seven days of the date of
redemption, except as provided by the rules of the SEC. 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, Presidents' Day, 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.
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
24
<PAGE>
(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.
PRICING OF SHARES
- -----------------
The net asset value per share of the Fund is determined by the Adviser,
under procedures approved by the trustees of the Trust, as of the close of
regular trading (normally 4:00 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. The Fund's portfolio
securities and other assets for which market quotations are readily available
are stated at market value. Market value is determined on the basis of last
reported sales prices, or if no sales are reported, as is the case for most
securities traded over-the-counter, at the average between representative bid
and asked quotations obtained from a third party pricing service or from
established market makers. Fixed income securities, including those to be
purchased under firm commitment agreements (other than obligations having a
maturity of 60 days or less), are normally valued on the basis of quotations
obtained from brokers and dealers or pricing services, which take into account
appropriate factors such as institutional-sized trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. Short-term investments having a maturity
of 60 days or less are valued at amortized cost, when the Board of Trustees
determines that amortized cost is their fair value.
Certain fixed income securities for which daily market quotations are not
readily available, or for which the Adviser believes do not accurately value the
security in question, may be valued by the Adviser, pursuant to guidelines
established by the Board of Trustees, with reference to fixed income securities
whose prices are more readily obtainable and whose durations are comparable to
the securities being valued. Subject to the foregoing, other securities for
which market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
- --------------------------------------------------------------------------------
CUSTODIANS
- --------------------------------------------------------------------------------
U S Bank N.A., 321 SW Sixth Avenue, Portland, Oregon 97208, acts as general
custodian of the Trust (a "Custodian"). Chase Manhattan Bank ("Chase" or a
"Custodian"), One Pierrepont Plaza, Brooklyn, New York 11201, 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
25
<PAGE>
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 Chase (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
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 1300 S.W. Fifth Avenue, Suite 3100, Portland,
Oregon 97201, serves as the Trust's independent accountants and, in addition to
examining the annual financial statements of the Trust, assists 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
26
<PAGE>
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 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
27
<PAGE>
gain over net short-term capital loss from the Fund are ineligible for the
dividends-received deduction.
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 six months or less 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 (October 31), 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.
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
28
<PAGE>
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.
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 of tax consequences of investment in the Fund are
necessarily general and abbreviated. No attempt has been made to present a
complete or detailed explanation of tax matters. Furthermore, the provisions of
the statutes and regulations on which they are based are subject to change by
legislative or administrative action. State and local taxes are beyond the scope
of this discussion. Prospective investors in the Fund are urged to consult their
own tax advisers regarding specific questions as to federal, state, or local
taxes.
- --------------------------------------------------------------------------------
YIELD AND PERFORMANCE
- --------------------------------------------------------------------------------
The Trust may from time to time advertise or quote current yield and total
return performance for the Fund. These figures represent historical data and are
calculated according
29
<PAGE>
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:
6
Yield = 2 [(a-b + 1) -1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day
of the period.
The Fund uses generally accepted accounting principles in determining its
income, 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 current yield
of the Fund for the 30 day period ended October 31, 1998 was 8.56%.
The Trust may publish average annual total return quotations for recent 1,
5, and 10-year periods (or a fractional portion thereof) computed by finding the
average annual compounded rates of return over the 1, 5, and 10-year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1,
5, and 10-year periods (or a fraction portion
thereof)
30
<PAGE>
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. For the period ended October 31, 1998, the
average annual return for the Fund for 1 year and since inception (July 6, 1994)
was 6.0% and 10.67%.
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 1000 mutual funds based on total
return performance. These ranking services and publications may rank the
performance of the Fund against all other funds over 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 banks 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 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.
31
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the Fund for the fiscal year ended October 31,
1998, together with the Independent Accountant's Report of
PricewaterhouseCoopers LLP, are attached hereto and incorporated by reference
with this Statement of Additional Information.
32
<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, 1998, the Fund had a total
return of 6.00%. This compares to a total return of -3.51% for the Lipper High
Yield Bond Index, and 9.32% for the Lehman Aggregate Index over the same period.
After a strong start to the fiscal year, the high yield market struggled about
halfway through the reporting period as investors became increasingly concerned
about the impact of the Asian crisis on U.S. economic growth and corporate
earnings. High yield bonds were also negatively impacted by the large supply of
new deals brought to market. This environment prompted a flight to quality
within the high yield market and increased the demand for junk bonds with higher
credit ratings. This benefited Fund performance, thanks to our focus on higher
quality issues in the high yield market. This strategy particularly paid off in
the fourth fiscal quarter, as the demand for quality spread throughout the fixed
income market, causing investors to seek refuge in U.S. Treasuries, eschewing
all other types of bonds - especially junk bonds. While Treasuries outperformed
all other types of bonds, the Fund's emphasis on higher quality junk bonds and
non-cyclical industries, such as cable TV, health care, and food and beverage
containers, helped it to outperform most of its peers.
In recent trading activity, we added to the telecommunications sector,
increasing our positions in both Nextlink (0.7% of net assets) and Level 3
Communications, Inc. (1.1% of net assets). We also added to Lamar Advertising
(2.0% of net assets) in the diversified media sector. Other new names to the
portfolio include Ball Corp. (1.0% of net assets), a container company and
Protection One (2.5% of net assets), a security monitoring company. Lastly, we
trimmed holdings in the oil and gas sector with the sale of Kelly Oil & Gas.
Looking ahead, we believe that market events have combined to create a
particularly favorable environment for junk bond funds right now:
o The yield advantage favoring high yield bonds is wider than average.
o Default rates in the high yield bond sector are below historical averages.
o The returns of high yield bonds are not highly correlated with the returns of
other assets.
o High yield bonds tend to benefit from expanding economies, and the U.S.
economy is projected to grow by approximately 2% in 1999.
For many, investing in higher quality junk bonds provides a way to increase the
yield of a fixed income portfolio while adding an acceptable level of risk.
33
<PAGE>
On October 31, 1998, the Fund had a duration of 4.76 years and an intermediate
average maturity of 6 years. The Fund's top ten holdings as of October 31, 1998
were:
Niagra Mohawk Power Corp. (3.1%)
Westpoint Stevens, Inc. (2.7%)
Protection One Alarm Monitor (2.5%)
Adelphia Communications Company (2.4%)
Hollinger International (2.4%)
Unisys Corp. (2.4%)
Federal Mogul Corp. (2.4%)
Viacom, Inc. (2.3%)
Flag Ltd. (2.3%)
Comcast Corp. (2.3%)
In keeping with its conservative focus, the CMC High Yield Fund invests
primarily in bonds rated BB or B by Moody's Investors Services, and 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 14, 1998
YEAR 2000 READINESS DISCLOSURE
------------------------------
Many of the services provided to the Fund by Columbia Management Co. (the
"Adviser") and other service providers depend on the proper functioning of their
computer software systems and those of their outside service providers. Many
computer software systems in use today cannot distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated. Such an event
could have a negative impact on handling securities trades, payments of interest
and dividends, pricing and account services. Although, at this time, there can
be no assurance that there will be no adverse impact on the Fund, the Adviser
has informed the Fund that it has been actively working on necessary changes to
its computer systems to prepare for the year 2000 and expects that its systems,
and those of the Fund's outside service providers, will be ready for the year
2000.
Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($9,000-$16,000) of CMC High Yield Fund, Lipper High
Yield Bond and Lehman Aggregate Bond for the period 7/6/94 to 10/31/98 to
$15,464, $13,983, and $14,600, respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year Since Inception
------ ---------------
<S> <C> <C>
CMC High Yield 6.00% 10.67%
Lipper Current High Yield -3.51% 8.11%
Lehman Aggregate Bond 9.32% 9.21%
</TABLE>
Past performance does not guarantee future results. 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, 1998. 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.
34
<PAGE>
- -------------------------------------------------------------------------------
(CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
---------- ---------- ---------- ---------- ----------
1998 1997 1996 1995 1994(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $36.85 $35.95 $36.24 $34.48 $35.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.......................... 3.03 3.18 3.23 3.31 0.94
Net gains or losses on securities
(both realized or unrealized)................ (0.85) 1.28 0.10 2.11 (0.52)
---------- ---------- ---------- --------- ----------
Total from investment operations.......... 2.18 4.46 3.33 5.42 0.42
---------- ---------- ---------- --------- ----------
Less distributions:
Dividends (from net investment income)......... (3.03) (3.18) (3.23) (3.31) (0.94)
Distributions (from capital gains)............. (0.21) (0.38) (0.39) (0.35)
---------- ---------- ---------- --------- ----------
Total distributions....................... (3.24) (3.56) (3.62) (3.66) 0.94)
---------- ---------- ---------- --------- ----------
Net asset value, end of period................... $35.79 $36.85 $35.95 $36.24 $34.48
========== ========== ========== ========= ==========
Total return..................................... 6.00% 12.90% 9.61% 16.49% 1.21%(2)
Ratios/Supplemental data
Net assets, end of period (in thousands)......... $263,912 $119,196 $69,614 $42,192 $9,602
Ratio of expenses to average net assets.......... 0.45% 0.45% 0.50% 0.54% 0.54%
Ratio of net income to average net assets........ 8.28% 8.60% 8.90% 9.36% 9.86%
Portfolio turnover rate.......................... 70.56% 68.96% 56.06% 45.64% 72.67%
(1) From inception of operations on July 6, 1994. Ratios and portfolio turnover rates are annualized.
(2) Not annualized.
</TABLE>
35
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value (1)
---------- -----------
<S> <C> <C>
CORPORATE BONDS (97.8%)
INDUSTRIAL (82.4%)
BASIC INDUSTRY & MANUFACTURING (15.0%)
MANUFACTURING (14.1%)
AVIATION SALES CO.
SENIOR SUBORDINATED NOTES
8.125% 02/15/2008 $ 5,485,000 $ 5,046,200
BALL CORP. (144A)
SENIOR NOTES
7.750% 08/01/2006 2,450,000 2,535,750
FEDERAL MOGUL CORP.
NOTES
7.750% 07/01/2006 6,460,000 6,208,577
HAYES WHEELS INTERNATIONAL, INC.
SERIES B SENIOR SUBORDINATED NOTES
9.125% 07/15/2007 5,465,000 5,519,650
NORTEK, INC. (144A)
SENIOR NOTES
8.875% 08/01/2008 450,000 438,750
SILGAN HOLDINGS, INC.
SENIOR SUBORDINATED DEBENTURES
9.000% 06/01/2009 2,715,000 2,579,250
TITAN WHEEL INTERNATIONAL, INC.
SENIOR SUBORDINATED NOTES
8.750% 04/01/2007 5,100,000 4,641,000
UNISYS CORP.
SENIOR NOTES
11.750% 10/15/2004 5,550,000 6,271,500
WYMAN-GORDON CO.
SENIOR NOTES
8.000% 12/15/2007 3,985,000 4,044,775
-----------
37,285,452
-----------
METALS/MINING (0.9%)
RYERSON TULL, INC.
NOTES
8.500% 07/15/2001 2,250,000 2,295,000
-----------
TOTAL BASIC INDUSTRY & MANUFACTURING 39,580,452
-----------
BUSINESS & CONSUMER SERVICES (6.7%)
IRON MOUNTAIN, INC.
SENIOR SUBORDINATED NOTES
10.125% 10/01/2006 1,000,000 1,055,000
</TABLE>
36
<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)
PROTECTION ONE ALARM MONITORING,
INC. (144A)
SENIOR NOTES
7.375% 08/15/2005 $ 6,450,000 $ 6,474,703
RENTAL SERVICE CORP.
SENIOR SUBORDINATED NOTES
9.000% 05/15/2008 5,960,000 5,632,200
UNITED STATIONERS SUPPLY CO.
SENIOR SUBORDINATED NOTES
8.375% 04/15/2008 4,565,000 4,553,588
-----------
TOTAL BUSINESS & CONSUMER SERVICES 17,715,491
-----------
CONSUMER CYCLICAL (9.1%)
HOTEL/GAMING (2.2%)
RIO HOTEL & CASINO, INC.
SENIOR SUBORDINATED NOTES
9.500% 04/15/2007 3,500,000 3,850,000
STATION CASINOS, INC.
SENIOR SUBORDINATED NOTES
9.625% 06/01/2003 2,125,000 2,082,500
-----------
5,932,500
-----------
HOUSING RELATED (1.8%)
WEBB (DEL E.) CORP.
SENIOR SUBORDINATED DEBENTURES
9.000% 02/15/2006 4,990,000 4,715,550
-----------
RETAIL (5.1%)
MAXIM GROUP, INC.
SERIES B SENIOR SUBORDINATED NOTES
9.250% 10/15/2007 3,100,000 2,960,500
SPECIALTY RETAILERS, INC.
SERIES B SENIOR NOTES
8.500% 07/15/2005 5,740,000 5,280,800
ZALE CORP.
SERIES B SENIOR NOTES
8.500% 10/01/2007 5,650,000 5,226,250
-----------
13,467,550
-----------
TOTAL CONSUMER CYCLICAL 24,115,600
-----------
</TABLE>
37
<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)
CONSUMER STAPLES (11.7%)
FOOD/BEVERAGE/TOBACCO (1.1%)
PURINA MILLS, INC.
SENIOR SUBORDINATED NOTES
9.000% 03/15/2010 $ 3,000,000 $ 3,000,000
-----------
HEALTHCARE (7.9%)
CONMED CORP.
SENIOR SUBORDINATED NOTES
9.000% 03/15/2008 4,110,000 3,966,150
HEALTHSOUTH CORP.
SENIOR SUBORDINATED NOTES
9.500% 04/01/2001 5,843,000 5,974,467
QUORUM HEALTH GROUP, INC.
SENIOR SUBORDINATED NOTES
8.750% 11/01/2005 5,325,000 5,058,750
TENET HEALTHCARE CORP.
SENIOR NOTES
8.625% 12/01/2003 2,250,000 2,368,125
TENET HEALTHCARE CORP. (144A)
SENIOR SUBORDINATED NOTES
8.125% 12/01/2008 3,500,000 3,552,500
-----------
20,919,992
-----------
OTHER (2.7%)
WESTPOINT STEVENS, INC.
SENIOR NOTES
7.875% 06/15/2005 6,950,000 7,089,000
-----------
TOTAL CONSUMER STAPLES 31,008,992
-----------
ENERGY (8.6%)
GULF CANADA RESOURCES LTD.
SUBORDINATED DEBENTURES
9.625% 07/01/2005 5,000,000 5,075,000
NEWPARK RESOURCES, INC.
SERIES B SENIOR SUBORDINATED NOTES
8.625% 12/15/2007 5,160,000 5,031,000
NUEVO ENERGY CO.
SENIOR SUBORDINATED NOTES
9.500% 04/15/2006 3,100,000 3,146,500
OCEAN ENERGY, INC.
SERIES B SENIOR NOTES
7.625% 07/01/2005 4,000,000 3,800,000
</TABLE>
38
<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)
SANTA FE ENERGY RESOURCE, INC.
SENIOR SUBORDINATED DEBENTURES
11.000% 05/15/2004 $ 5,500,000 $ 5,555,000
-----------
TOTAL ENERGY 22,607,500
-----------
ENTERTAINMENT & MEDIA (29.0%)
ADELPHIA COMMUNICATIONS CORP.
SERIES B SENIOR NOTES
10.500% 07/15/2004 5,965,000 6,427,288
CENTURY COMMUNICATIONS CORP.
SENIOR DISCOUNT NOTES
0.000% 03/15/2003 6,985,000 4,924,425
CINEMARK USA, INC.
SERIES B SENIOR SUBORDINATED NOTES
9.625% 08/01/2008 5,075,000 5,151,125
COMCAST CORP.
SENIOR SUBORDINATED DEBENTURES
9.500% 01/15/2008 5,825,000 6,125,220
HERITAGE MEDIA CORP.
SENIOR SUBORDINATED NOTES
8.750% 02/15/2006 2,250,000 2,351,250
HOLLINGER INTERNATIONAL PUBLISHING, INC.
SENIOR NOTES
8.625% 03/15/2005 6,160,000 6,406,400
JACOR COMMUNICATIONS CO.
SERIES B SENIOR SUBORDINATED NOTES
8.750% 06/15/2007 4,475,000 4,721,125
JONES INTERCABLE, INC.
SENIOR NOTES
8.875% 04/01/2007 3,740,000 3,908,300
7.625% 04/15/2008 1,700,000 1,717,000
K-III COMMUNICATIONS CORP.
SENIOR NOTES
10.250% 06/01/2004 2,600,000 2,736,500
LAMAR ADVERTISING CO.
SENIOR SUBORDINATED NOTES
9.625% 12/01/2006 4,960,000 5,282,400
LENFEST COMMUNICATIONS, INC.
SENIOR NOTES
8.375% 11/01/2005 5,200,000 5,408,000
OUTDOOR SYSTEMS, INC.
SENIOR SUBORDINATED NOTES
9.375% 10/15/2006 4,990,000 5,289,400
</TABLE>
39
<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)
SFX BROADCASTING, INC.
SERIES B SENIOR SUBORDINATED NOTES
10.750% 05/15/2006 $ 1,442,000 $ 1,557,360
SINCLAIR BROADCAST GROUP, INC.
SENIOR SUBORDINATED NOTES
8.750% 12/15/2007 4,250,000 4,037,500
VIACOM, INC.
SUBORDINATED DEBENTURES
8.000% 07/07/2006 5,975,000 6,154,250
YOUNG BROADCASTING, INC.
SERIES B SENIOR SUBORDINATED NOTES
10.125% 02/15/2005 4,250,000 4,292,500
-----------
TOTAL ENTERTAINMENT & MEDIA 76,490,043
-----------
TRANSPORTATION (2.3%)
OTHER (2.3%)
ALLIED HOLDING, INC.
SERIES B SENIOR NOTES
8.625% 10/01/2007 2,500,000 2,425,000
TEEKAY SHIPPING CORP.
GTD. 1ST PFD. SHIP. MTG.
NOTES
8.320% 02/01/2008 3,925,000 3,709,125
-----------
TOTAL TRANSPORTATION 6,134,125
-----------
TOTAL INDUSTRIAL 217,652,203
-----------
FINANCIAL (1.9%)
REIT'S (1.9%)
DUKE REALTY L.P.
NOTES
6.750% 05/30/2008 5,400,000 5,004,990
-----------
UTILITIES (13.5%)
ELECTRIC (7.8%)
AES CORP.
SENIOR SUBORDINATED NOTES
10.250% 07/15/2006 1,700,000 1,734,000
AES CORP.
SENIOR SUBORDINATED EXCHANGE NOTES
8.375% 08/15/2007 3,500,000 3,255,000
</TABLE>
40
<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)
CMS ENERGY CORP. (144A)
SENIOR UNSECURED NOTES
7.000% 01/15/2005 $ 6,235,000 $ 5,873,121
CALENERGY, INC.
SENIOR SECURED NOTES
9.875% 06/30/2003 1,400,000 1,541,918
NIAGARA MOHAWK POWER CORP.
SERIES D SENIOR NOTES
7.250% 10/01/2002 8,000,000 8,136,160
-----------
20,540,199
-----------
TELECOMMUNICATIONS (5.7%)
FLAG LTD.
SENIOR NOTES
8.250% 01/30/2008 6,710,000 6,139,650
LEVEL 3 COMMUNICATIONS, INC.
SENIOR NOTES
9.125% 05/01/2008 3,225,000 3,031,500
NEXTLINK COMMUNICATIONS, INC.
SENIOR DISCOUNT NOTES
0.000% 04/15/2008 3,450,000 1,811,250
PAGING NETWORK, INC.
SENIOR SUBORDINATED NOTES
10.000% 10/15/2008 4,150,000 4,025,500
-----------
15,007,900
-----------
TOTAL UTILITIES 35,548,099
-----------
TOTAL CORPORATE BONDS
(COST $265,477,553) 258,205,292
-----------
REPURCHASE AGREEMENT (0.2%)
GOLDMAN SACHS CORP.
5.222% DATED 10/30/1998,
DUE 11/02/1998 IN THE AMOUNT OF
$443,012. COLLATERALIZED BY
U.S. TREASURY BONDS 6.000% TO
12.375% DUE 05/15/2004 TO
02/15/2026 & U.S. TREASURY
NOTES 5.500% TO 6.625% DUE
02/28/1999 TO 02/15/2007.
(COST $442,949) 442,949 442,949
-----------
</TABLE>
41
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value (1)
------------
<S> <C>
TOTAL INVESTMENTS (98.0%)
(COST $265,920,502) $258,648,241
RECEIVABLES LESS LIABILITIES (2.0%) 5,263,315
------------
NET ASSETS (100.0%) $263,911,556
============
(1) See Note 1 of Notes to Financial Statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
42
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at identified cost .......................... $265,477,553
......................................................... ------------
Investments at value (Notes 1 and 2)..................... $258,205,292
Temporary cash investment, at cost (Note 1).............. 442,949
Interest receivable...................................... 5,765,219
------------
Total assets............................................. 264,413,460
------------
LIABILITIES:
Payable for:
Dividends and distributions............................ 375,824
Investment management fee (Note 4)..................... 89,824
Accrued expenses ...................................... 36,256
------------
Total liabilities........................................ 501,904
------------
Net assets applicable to outstanding shares.............. $263,911,556
============
Net assets consist of:
Unrealized depreciation on investments................. $ (7,272,261)
Undistributed net realized gain from investments....... 42,330
Capital paid in (Note 3)............................... 271,141,487
------------
$263,911,556
============
Shares of capital stock outstanding (Note 3)............... 7,373,471
============
Net asset value, offering and
redemption price per share (1).......................... $ 35.79
============
(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.
</TABLE>
43
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................................... $ 18,388,321
------------
Expenses:
Investment management fees (Note 4).................... 853,566
Shareholder servicing costs (Note 4)................... 18,064
Financial information and subscriptions................ 2,519
Custodian fees......................................... 8,559
Accounting services.................................... 6,790
Bank transaction and checking fees..................... 3,250
Registration fees...................................... 114
Auditing fees.......................................... 20,920
Legal, insurance and other............................. 27,280
------------
Total expenses..................................... 941,062
------------
Net investment income (Note 1)......................... 17,447,259
------------
Realized gain and unrealized depreciation
from investment transactions:
Net realized gain from investments (Note 2)............ 1,542,274
Net unrealized depreciation on investments
during the period (Note 1)........................... (9,721,765)
------------
Net loss on investments (Note 1)....................... (8,179,491)
------------
Net increase in net assets resulting from operations... $ 9,267,768
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
44
<PAGE>
- -------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
Fiscal Year Ended October 31, 1998
<TABLE>
<CAPTION>
------------- -------------
1998 1997
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income ............................... $ 17,447,259 $ 7,645,481
Net realized gain from investments (Note 2).......... 1,542,274 1,235,856
Change in net unrealized appreciation
(depreciation) on investments...................... (9,721,765) 1,267,480
------------- ------------
Net increase in net assets resulting from operations. 9,267,768 10,148,817
Distributions to shareholders:
From net investment income......................... (17,447,259) (7,645,481)
From net realized gain from investment transactions (1,530,874) (1,209,953)
Capital share transactions, net (Note 3)............. 154,425,524 48,289,337
------------- ------------
Net increase in net assets........................... 144,715,159 49,582,720
NET ASSETS:
Beginning of period.................................. 119,196,397 69,613,677
------------- ------------
End of period ....................................... $ 263,911,556 $119,196,397
============= ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
45
<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 ex-dividend 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, 1998, 100% of the Fund's portfolio was
invested in securities rated Baa (3%), Ba (53%) or B (44%) by Moody's Investor
Services, Inc.
46
<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
depreciation of investments, excluding temporary cash investments, as of and for
the fiscal year ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases:
Investment securities other than U.S. Government obligations $ 252,456,384
U.S. Government obligations................................. 44,442,734
-------------
Total purchases.......................................... $ 296,899,118
=============
Sales and Maturities:
Investment securities other than U.S. Government obligations $ 98,508,828
U.S. Government obligations................................. 44,513,672
-------------
Total sales and maturities............................... $ 143,022,500
=============
Net Realized Gain:
Investment securities other than U.S. Government obligations $ 1,471,337
U.S. Government obligations................................. 70,937
-------------
Total net realized gain.................................. $ 1,542,274
=============
Unrealized Appreciation (Depreciation) as of October 31, 1998:
Appreciation................................................ $ 2,063,383
Depreciation................................................ (9,335,644)
-------------
Net unrealized depreciation.............................. $ (7,272,261)
=============
Unrealized Appreciation (Depreciation) for federal
income tax purposes as of October 31, 1998:
Appreciation................................................ $ 2,063,383
Depreciation................................................ (9,360,169)
-------------
Net unrealized depreciation.............................. $ (7,296,786)
=============
For federal income tax purposes, the cost of
investments owned at October 31, 1998......................... $ 265,502,078
=============
</TABLE>
3. Capital Stock:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ended Ended
October 31, 1998 October 31, 1997
---------------- ----------------
<S> <C> <C>
Shares:
Shares sold....................................... 5,056,688 1,915,922
Shares issued for reinvestment of dividends....... 449,779 219,803
---------------- ----------------
5,506,467 2,135,725
Less shares redeemed.............................. (1,367,967) (837,005)
---------------- ----------------
Net increase in shares............................ 4,138,500 1,298,720
================ ================
Amounts:
Sales............................................. $ 188,362,556 $ 70,585,000
Reinvestment of dividends......................... 16,572,230 8,084,738
---------------- ----------------
204,934,786 78,669,738
Less redemptions.................................. (50,509,262) (30,380,401)
---------------- ----------------
Net increase...................................... $ 154,425,524 $ 48,289,337
================ ================
Capital stock authorized (shares) 100,000,000
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
4. Transactions with affiliates and related parties:
<TABLE>
<CAPTION>
<S> <C>
Investment management fees incurred................... $ 853,566
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).................. $ 9,066
</TABLE>
The transfer agent for the Fund is Columbia Trust Company (CTC), an affiliate of
CMC. 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 (the Trust).
On December 10, 1997, CMC, CTC and certain of their affiliates were acquired by
Fleet Financial Group, Inc. (Fleet), a publicly owned multi-bank holding company
registered under the Bank Holding Company Act of 1956. Prior to that date,
certain officers and trustees of the Trust were also officers and directors of
CMC and CTC. Those individuals did not receive any compensation or other payment
from the Trust. Following the transaction and as a result of federal banking
regulations, no officers or directors of the Trust are officers or trustees of
CMC or CTC. J. Jerry Inskeep, Jr., an officer and trustee of the Trust, is
affiliated with Fleet, but received no compensation or other payments from the
Trust.
48
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of CMC Fund Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CMC High Yield Fund, one of the
portfolios of CMC Fund Trust (the Fund), an investment company, at October 31,
1998, and the results of its operations and the changes in its net assets for
the years ended October 31, 1998 and 1997, and the financial highlights for the
periods presented therein, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned as of October 31, 1998 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
December 4, 1998
49
<PAGE>
Part A-III
- --------------------------------------------------------------------------------
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[GRAPHIC OMITTED]
Columbia
CMC SHORT TERM BOND FUND
The CMC Short Term Bond Fund (the "Fund") is a portfolio of CMC Fund Trust
seeking to provide investors a high level of current income, consistent with
stability of principal by investing primarily in high quality, short term fixed
income securities.
As with all mutual funds, the Securities and Exchange Commission has not
stated that the information in this Prospectus is accurate or complete, nor has
it approved or disapproved the Fund for investment merit. It is a criminal
offense to state otherwise.
December 24, 1998
1
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Risk/Return Summary............................................................2
Goal.......................................................................2
Strategy...................................................................2
Risk Factors...............................................................4
Expenses.....................................................................5
Financial Highlights.........................................................6
Management.....................................................................7
Information About Your Investment..............................................8
Your Account.................................................................8
Buying Shares..............................................................8
Selling Shares.............................................................9
Distribution and Taxes.......................................................9
Income and Capital Gains Distributions.....................................9
Tax Effect of Distributions and Transactions..............................10
More About the Fund...........................................................11
In vestment Strategy........................................................11
Other Risks.................................................................13
Mortgage Related Securities and CMOs......................................13
Asset Backed Securities...................................................13
Year 2000.................................................................13
For More Information..........................................................14
2
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
GOAL
- ----
What is the Fund's Goal?
The Fund seeks to provide investors a high level of current income
consistent with a high degree of stability of principal.
STRATEGY
- --------
What investment strategies does the Fund use to pursue this goal?
The Fund intends to invest primarily in high quality, short term fixed
income securities. The Fund's average portfolio duration will not exceed
three years. Under normal conditions, the Fund will invest in:
o Obligations of the U.S. Government, its agencies or
instrumentalities
o Corporate debt securities rated either AAA, AA, A or BBB by
Standard and Poor's, Inc. ("S&P") or Aaa, Aa, A or Baa by Moody's
Investor Services, Inc. ("Moody's")
o Unrated securities judged to be of comparable quality to the
securities listed above
To achieve its investment objective of a high level of current income
consistent with a high degree of stability of principal, at least 50% of
the Fund's assets will be invested in:
o Obligations of the U.S. Government, its agencies or
instrumentalities
o Corporate debt securities rated in the two highest ratings
categories by S&P (AAA or AA) or Moody's (Aaa or Aa)
-----------------------------------------------------------
A DESCRIPTION OF CORPORATE DEBT SECURITIES RATINGS IS
CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION.
-----------------------------------------------------------
3
<PAGE>
In selecting securities for the Fund, Columbia Management Co., the
investment adviser for the Fund, ("CMC" or "Adviser") conducts an ongoing
evaluation of the economic and market environment to determine the emphasis
to be placed by the Adviser on the different types of securities in which
the Fund may invest (for example, corporate bonds, Treasuries or mortgage
pass through securities). The Adviser will also evaluate the desired levels
of average quality, maturity and duration of the Fund's portfolio based
upon the current economic and market environment. After selecting the types
of securities and the desired level of quality, maturity and duration of
the portfolio, the Fund conducts intensive, fundamental analysis to
identify attractive securities within its target securities. This
investment strategy is intended to give CMC a better understanding of the
long-term prospects of a particular security, based on the characteristics
of the existing economy and investor temperament. In this way, the Adviser
strives to anticipate and act upon market change, understand its effect on
risk and reward of Fund securities and thereby generate consistent,
competitive results over the long-term.
RISK FACTORS
- ------------
What are the principal risks of investing in the Fund?
The fixed income securities held in the Fund's investment portfolio
are subject to interest rate risk and credit risk, both of which could
impact the total return you receive on your investment and cause the value
of your investment to go down. You could lose money as a result of your
investment in the Fund.
INTEREST RATE risk refers to the possibility that the value of the
Fund's investments will decline due to an increase in interest rates.
-----------------------------------------------------------
When interest rates go up, the value of the Fund's portfolio
will likely decline because fixed income securities in the
portfolio are paying a lower interest rate than what
investors could obtain in the current market. When interest
rates go down, the value of the Fund's portfolio will likely
rise, because fixed income securities in the portfolio are
paying a higher interest rate than newly issued fixed income
securities.
-----------------------------------------------------------
The amount of change in the value of the Fund's portfolio depends upon
several factors, including the maturity date of the fixed income securities
in the portfolio. In general, the price of fixed income securities with
longer maturities are more sensitive to interest rate changes than the
price of fixed income securities with shorter maturities.
4
<PAGE>
CREDIT RISK refers to the ability of the issuer of the bond to meet
interest and principal payments when due. Although the Fund intends to
invest primarily in high-quality, short term fixed income securities, the
Fund may invest in securities rated BBB by S&P or Baa by Moody's.
Securities rated BBB by S&P or Baa by Moody's are neither highly protected
nor poorly secured. These securities normally pay higher yields, but
involve potentially greater price variability than higher-quality
securities. These securities are regarded as having adequate capacity to
repay principal and pay interest, although adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to do
so.
-----------------------------------------------------------
By concentrating on short term, high quality fixed income
securities, the Fund offers less current yield than
securities of lower quality (rated below BBB/Baa) or longer
maturity. Lower quality securities, however, generally have
less liquidity. Furthermore, lower quality securities and
securities with longer maturities tend to have greater
credit risk and interest rate risk; consequently longer
term, lower quality securities generally exhibit more price
volatility.
-----------------------------------------------------------
See "MORE ABOUT THE FUNDS" in this Prospectus and the Fund's Statement
of Additional Information for more information regarding the Fund's
investment strategy and risks.
EXPENSES
- --------
What expenses do I pay as an investor in the Fund?
The table below describes the fees and expenses that you may pay if
you buy and hold shares of the Fund. As a shareholder, you pay no
transaction fees in connection with your investment in the Fund. Annual
fund operating expenses described in the table are paid out of Fund assets
and are therefore reflected in the share price.
-----------------------------------------------------------
The fund has no sales charge (load) or 12b-1 distribution
fees.
-----------------------------------------------------------
- -------------------------------------------------------------------------------
Fee Table
Shareholder transaction fees None
Annual Fund Operating Expenses (expenses
that are paid out of Fund assets)
Management Fees 0.25%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.33%(1)
5
<PAGE>
Total Fund Operating Expenses 0.58%
Expenses Reimbursement 0.13%(2)
Net Expenses 0.45%
1 Other expenses include an administrative fee paid by each
shareholder of the Fund for specialized reports provided by
the Adviser analyzing the Fund's portfolio and performance,
market conditions and economic indicators. For these services,
each shareholder pays the Adviser an annual fee calculated as
a percentage of the shareholder's net assets in the Fund. The
annual fee ranges from 0.05% to 0.20%. The maximum fee of .20%
has been included in the Fee Table.
2 For the fiscal period ended October 31, 1998, the Adviser
assumed ordinary recurring expenses of the Fund so that the
actual Total Fund Operating Expenses paid by the Fund, not
including the administrative fee paid by each shareholder, was
0.25%. For the fiscal year ending October 31, 1999, the
Adviser has contractually agreed to reimburse the Fund for all
ordinary recurring expenses of the Fund to the extent
necessary to maintain the Fund's Total Fund Operating
Expenses, not including the administrative fee paid by each
shareholder, at 0.25%.
- -------------------------------------------------------------------------------
Expense Example
This example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other
mutual funds. The example assumes that you invest $10,000 in
the Fund for the time periods indicated and then sell all of
your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and
that the Fund's operating expenses remain constant as a
percentage of net assets. Your actual costs may be higher or
lower, but based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$46 $173 $311 $713
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance since inception. Certain information reflects
financial results for a single fund share. The total return in the table
represents the rate of return an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose
6
<PAGE>
report, along with the Fund's financial statements, are included in the
Statement of Additional Information under "Financial Statements."
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31, 1998 (1)
<S> <C>
Net Asset Value, Beginning of Period ................. $12.00
------
Income From Investment Operations:
Net Investment Income ................................ 0.54
Net Gains or Losses on Securities
(both realized and unrealized)...................... 0.09
----
Total From Investment Operations................. 0.63
----
Less Distributions:
Dividends (from net investment income)................ (0.54)
Net Asset Value, End of Period........................ $12.09
======
Total Return.......................................... 5.38% (2)
Ratios/Supplemental Data
Net Assets, End of Period (in thousands).............. $42,692
Ratio of Expenses to Average Net Assets............... 0.25% (3)
Ratio of Net Income to Average Net Assets ............ 5.97%
Portfolio Turnover Rate............................... 132.09%
(1) From inception of operations on February 2, 1998. Ratios and portfolio
turnover rates are annualized.
(2) Not annualized.
(3) The ratio was 0.38% for the period, before voluntary reimbursement of
certain expenses by the Adviser. This does not include an administrative
fee, ranging between 0.05% and 0.20%, paid to the Adviser by each
shareholder.
</TABLE>
- -------------------------------------------------------------------------------
MANAGEMENT
- -------------------------------------------------------------------------------
The Fund's investment adviser is Columbia Management Co., 1300 S.W. Sixth
Avenue, P.O. Box 1350, Portland, Oregon 97207-1350 ("Adviser" or "CMC"). CMC has
acted as an investment adviser since 1969.
The Fund has contracted with CMC to provide research, advice and
supervision with respect to investment matters and to determine what securities
to purchase or sell and what portion of the Fund's assets to invest. For the
fiscal year ended October 31, 1998, the Fund paid CMC a management fee,
expressed as a percentage of average net assets, of 0.25%.
CMC uses an investment team approach to analyze investment themes and
strategies for the Fund. Members of the investment team are responsible for the
analysis of particular industries and asset types and for recommendations on
individual securities within those industries and asset types. Mr. Leonard A.
Aplet, a Vice President of CMC and Chartered Financial Analyst, has since
inception of the Fund (February 1998) had responsibility for implementing on a
daily basis the investment strategies developed for the Fund. Mr. Aplet
7
<PAGE>
joined the Adviser in 1987 as a portfolio analyst and member of the investment
team. Mr. Aplet received a Masters of Business Administration from the
University of California at Berkeley prior to joining the investment team.
- -------------------------------------------------------------------------------
INFORMATION ABOUT YOUR INVESTMENT
- -------------------------------------------------------------------------------
YOUR ACCOUNT
- ------------
Buying Shares
-------------
The Fund enables clients of CMC to invest in a diversified portfolio
of high quality fixed income securities in a pooled environment, rather
than purchasing securities on an individual basis. 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 is in addition to any fees that
CMC or any CMC affiliate may receive from the Fund for services rendered to
the Fund.
If you want to directly invest in the Fund, contact your CMC
representative at 1-800-547-1037. In addition, an independent fiduciary for
a CMC client account, after careful review of this Prospectus, including
the Fund's expenses and consistency with the client's written investment
guidelines, may approve the investment in the Fund. Upon approving the
investment, the independent fiduciary will authorize CMC to invest a
portion of the client's portfolio in the Fund, at CMC's discretion, and
subject to limitations imposed by the independent fiduciary.
-----------------------------------------------------------
If CMC is considered to be a fiduciary of your assets,
including the account with 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 your behalf. See the Statement of Additional
Information for more detail.
-----------------------------------------------------------
The price for Fund shares is the Fund's net asset value per share
("NAV"), which is generally calculated as of the close of trading on the
New York Stock Exchange (usually 4:00 p.m., Eastern time) every day the
exchange is open. Your order will be priced at the next NAV calculated
after your order is accepted by the Fund.
The Fund uses market value to value its securities as quoted by
dealers who are market makers in these securities or by an independent
pricing service, unless the Adviser determines that a fair value
determination should be made using procedures and guidelines established by
and under the general supervision of the Fund's Board of
8
<PAGE>
Trustees. 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. The Fund constantly monitors the price received from market
makers and its pricing service and, at times, will manually price its
securities using procedures established by and under the general
supervision of the Fund's Board of Trustees. Debt securities with remaining
maturities of less than 60 days will generally be valued based on amortized
cost.
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.
Selling Shares
--------------
You may sell shares at any time. Upon redemption you will receive the
Fund's NAV next calculated after your order is accepted by the Fund's
transfer agent. Any certificates representing Fund shares being sold must
be returned with your redemption request. You can request a redemption by
calling your CMC Representative at 1-800-547-1037. Redemption proceeds are
normally transmitted in the manner specified in the redemption request on
the business day following the effective date of the redemption. Except as
provided by rules of the Securities and Exchange Commission, redemption
proceeds must be transmitted to you within seven days of the redemption
date.
The Fund also reserves the right to make a "redemption in kind" - pay
you in portfolio securities rather than cash - if the amount you are
redeeming is large enough to affect the Fund's operations (for example, if
the redemption represents more than 1% of the Fund's assets).
DISTRIBUTION AND TAXES
- ----------------------
Income and Capital Gains 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 you have 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 October. The amount
distributed 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, as calculated after payment of the distribution, at
the close of business on the dividend payment date, unless you have elected
to receive the distribution in cash.
9
<PAGE>
Tax Effect of Distributions and Transactions
--------------------------------------------
The dividends and distributions of the Fund are taxable to most
investors, unless the shareholder is exempt from state or federal income
taxes or your investment is in a tax-advantaged account. The tax status of
any distribution is the same regardless of how long you have been in the
Fund and whether you reinvest your distributions or take them as income. In
general, distributions are taxable as follows:
--------------------------------------------------------------
Taxability of Distributions
<TABLE>
<CAPTION>
Type of Tax Rate for Tax Rate for
Distribution 15% Bracket 28% Bracket or Higher
------------ ----------- ---------------------
<S> <C> <C>
Income Dividends Ordinary Income Rate Ordinary Income Rate
Short Term Capital Gains Ordinary Income Rate Ordinary Income Rate
Long Term Capital Gains 10% 20%
</TABLE>
--------------------------------------------------------------
The Fund expects that, as a result of its investment objective to
achieve a high level of current income, its distributions will consist
primarily of income dividends. Each year the Fund will send you information
detailing the amount of ordinary income and capital gains distributed to
you for the previous year.
The sale of shares in your account may produce a gain or loss and is a
taxable event. For tax purposes, an exchange of shares of a Fund for shares
of another fund managed by the Adviser is the same as a sale.
-----------------------------------------------------------
Your investment in the Fund could have additional tax
consequences. Please consult your tax professional for
assistance.
-----------------------------------------------------------
- -------------------------------------------------------------------------------
MORE ABOUT THE FUND
- -------------------------------------------------------------------------------
INVESTMENT STRATEGY
- -------------------
In addition to corporate debt securities and U.S. Government and agency
obligations as described above, the Fund may, from time to time, invest in
mortgage and other asset-backed securities, bank obligations, collateralized
bonds, loan and mortgage obligations, commercial paper, preferred stocks,
repurchase agreements, and savings and loan obligations.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities).
10
<PAGE>
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
The Fund will usually invest some portion of its assets in Collateralized
Mortgage Obligations ("CMOs") issued by U.S. agencies or instrumentalities or in
privately issued CMOs that carry an investment grade rating. CMOs are hybrid
instruments with characteristics of both mortgage-backed bonds and mortgage
pass-through securities. Similar to a mortgage pass-through, interest and
prepaid principal on a CMO are paid, in most cases, monthly. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA. CMOs are structured in multiple classes, with each class bearing a
different stated maturity or interest rate. The Fund will invest 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.
The Fund is permitted to invest in asset-backed securities, subject to the
Fund's rating and quality requirements. Through the use of trusts and special
purpose subsidiaries, various types of assets, including home equity and
automobile loans and credit card and other types of receivables, as well as
purchase contracts, financing leases and sales agreements entered into by
municipalities, are being securitized in pass-through structures similar to the
mortgage pass-through structures described above. Consistent with the Fund's
investment objective policies and quality standards, the Fund may invest in
these and other types of asset-backed securities which may be developed in the
future.
Due to the inverse relationship between the price of a security and the
interest rate of that security (that is, when interest rates rise, the price of
fixed income securities generally fall and, conversely, when interests rates
fall, the price of fixed income securities generally rise) the value of the
Fund's portfolio will fluctuate with changes in interest rates. The Fund will
attempt to reduce the risk of principal fluctuations by adjusting the average
portfolio duration. In periods of rising interest rates and falling fixed income
prices, the Fund may maintain a shorter 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 three years may be sought.
In selecting investments, the Adviser uses a top down analysis,
supplemented by a bottom up analysis. Top down analysis begins with an overall
evaluation of the investment environment, and allows the Adviser to determine
specific industries, market sectors within
11
<PAGE>
those industries, specific types of fixed income instruments (for example
corporate bonds, treasuries or mortgage pass through securities) and desired
levels of portfolio quality, maturity and duration to emphasize. Factors
the Adviser considers in its top down analysis include:
o economic growth
o inflation
o interest rates
o federal reserve policy
o corporate profits
o demographics
o money flows
Once individual sectors, types of instruments and markets have been
identified, the Adviser employs fundamental analysis to select individual
securities. Fundamental analysis includes the evaluation of:
o a company's financial condition
o quality of management
o industry dynamics
o earnings growth and profit margins
o sales trends
o potential for new product development
o dividend payment history and potential
o financial ratios
o investment in research and development
By utilizing the investment strategy, the Adviser strives to anticipate and
act upon market changes, understand its effect on the risks and rewards of Fund
securities, and thereby generate consistent, competitive results over the
long-term.
OTHER RISKS
- -----------
In addition to the certain risks stated in the "RISK/RETURN SUMMARY", there
are other risks of investing in the Fund such as:
Mortgage Related Securities and CMOs
- ------------------------------------
Mortgage related securities and CMOs are subject to risks relating to cash
flow uncertainty; that is, the risk that actual prepayment on the underlying
mortgages will not correspond to the prepayment rate assumed by the Fund.
Unscheduled or early payments on
12
<PAGE>
the underlying mortgages may shorten the securities' effective maturities and
reduce their growth potential. A decline in interest rates may lead to a faster
rate of repayment of the underlying mortgage and expose the Fund to a lower rate
of return on reinvestment. To the extent that mortgage backed securities are
held by the Fund, the prepayment right of mortgages may limit the increase in
net asset value of the Fund because the value of the mortgage-backed securities
held by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. Additionally, the Fund may agree to purchase or sell these
securities with payment and delivery taking place at a future date.
Asset Backed Securities
- -----------------------
In addition to prepayment risk as described above, asset back securities do
not usually contain the benefit of a complete security interest in the related
collateral.
Year 2000
- ---------
Many of the services provided to the Fund by the Adviser and other service
providers depend on the proper functioning of their computer software systems
and those of their outside service providers. Many computer software systems in
use today cannot distinguish the year 2000 from the year 1900 because of the way
dates are encoded and calculated. Such an event could have a negative impact on
handling securities trades, payments of interest and dividends, pricing and
account services. Although, at this time, there can be no assurance that there
will be no adverse impact on the Fund, the Adviser has informed the Fund that it
has been actively working on necessary changes to its computer systems to
prepare for the year 2000 and expects that its systems, and those of the Fund's
outside service providers, will be ready for the year 2000. CMC does not
expect the costs related to the Year 2000 problem to be substantial to the Fund
since those costs are borne by CMC and the Fund's other outside service
providers and not directly by the Fund.
13
<PAGE>
- -------------------------------------------------------------------------------
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
You can find additional information on the Fund's structure and its
performance in the following documents:
o Annual/Semiannual Reports. While the Prospectus describes the Fund's
potential investments, these reports detail the Fund's actual
investments as of the report date. Reports include a discussion by
Fund management of recent market conditions, economic trends, and Fund
strategies that significantly affected the Fund's performance during
the reporting period.
o Statement of Additional Information ("SAI"). A supplement to the
Prospectus, the SAI contains further information about the Fund and
its investment restrictions, risks and polices. It also includes the
most recent annual report and the independent accountants' report.
A current SAI for the Fund is on file with the Securities and Exchange
Commission and is incorporated by reference in (is legally part of) this
Prospectus.
A copy of the SAI and the current annual report may be attached to this
Prospectus. If it is not, or to obtain additional copies of the SAI or copies of
the current annual/semiannual report, without charge, or to make inquiries of
the Fund, you may contact:
CMC Fund Trust
1300 S.W. Sixth Avenue
Portland, Oregon 97201
Telephone: 1-800-547-1037
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. (telephone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, D.C.
20549-6009. Reports and other information regarding the Fund are also on the
SEC's Internet website at http://www.sec.gov.
14
SEC file number: 811-5857
<PAGE>
Part B-III
Reg. Nos. 33-30394/811-5857
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
CMC Fund Trust
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") and a portfolio of the Trust, CMC Short Term Bond
Fund (the "Fund").
This Statement of Additional Information is not a Prospectus. It relates to
a Prospectus dated December 24, 1998 (the "Prospectus") and should be read in
conjunction with the Prospectus. Copies of the Prospectus are available without
charge upon request to the Trust or by calling 1-800-547-1037.
<PAGE>
TABLE OF CONTENTS
Description of the Fund.......................................................2
Management...................................................................16
Investment Advisory and Other Fees Paid to Affiliates........................17
Portfolio Transactions.......................................................18
Capital Stock and Other Securities...........................................21
Purchase, Redemption and Pricing of Shares...................................21
Custodians...................................................................22
Independent Accountants......................................................24
Taxes........................................................................24
Yield and Performance........................................................27
Financial Statements.........................................................29
December 24, 1998
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF THE FUND
- -------------------------------------------------------------------------------
The Trust is an Oregon business trust established under a Restated
Declaration of Trust, dated October 13, 1993, as amended. The Trust is an
open-end, management investment company comprised of separate portfolios, each
of which is treated as a separate fund. There are four portfolios established
under the Trust: the Fund, CMC High Yield Fund, CMC Small Cap Fund, and CMC
International Stock Fund. The Fund is diversified, which means that, with
respect to 75% of its total assets, the Fund will not invest more than 5% of its
assets in the securities of any single issuer. The investment adviser for the
Fund is Columbia Management Co. (the "Adviser"). See the section entitled
"INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES" for further discussion
regarding the Adviser.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
- ----------------------------------------
The Fund's primary investment objective is to provide shareholders with a
high level of current income consistent with a high degree of stability of
principal. The Fund's objective may not be changed without a vote of the
outstanding voting securities of the Fund. There is no assurance that the Fund
will achieve its investment objective.
To achieve its investment objective, the Fund expects to invest at least
50% of its assets in:
(i) U.S. Government securities, including bonds, notes and bills issued by
the U.S. Treasury, and securities issued by agencies and instrumentalities
of the U.S. Government;
(ii) corporate debt securities rated, at the time of purchase, in one of
the two highest ratings categories of Standard & Poor's ("S&P") (AAA or AA)
or Moody's Investor's Services, Inc. ("Moody's") (Aaa or Aa);
(iii) or, if not rated, judged to be of comparable quality.
Subject to the above restrictions, the Fund may invest in investment grade
debt securities, meaning securities which, at the time of purchase, are rated
Baa or higher by Moody's, BBB or higher by S&P, or, if unrated, believed 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 price of such bonds 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 existing
2
<PAGE>
circumstances, of retaining any security whose credit rating drops below Baa or
BBB after its purchase by the Fund. Finally, 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), commonly referred to as "junk bonds," when the Adviser believes these
securities present attractive investment opportunities despite their speculative
characteristics. Bond ratings are described below under "INVESTMENTS IN THE
FUND."
The Fund's average portfolio duration may not exceed 3 years. 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 portfolio duration 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 duration range. This may result in a greater level of realized capital
gains and losses than if the Fund held all securities to maturity.
Depending upon the 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 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 the Adviser's judgement as to the best obtainable price.
INVESTMENTS HELD 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. 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. Additional information with respect to certain of the securities in
which the Fund may invest is set forth below.
Securities Rating Agencies
- --------------------------
The following is a description of the bond ratings used by Moody's and S&P.
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
3
<PAGE>
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.
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.
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
4
<PAGE>
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.
Certificates of Deposit
- -----------------------
Certificates of Deposit are receipts issued by a U.S. bank in exchange for
the deposit of funds. The 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.
5
<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 arise as a result of public interest
questions and preparation to meet such obligations.
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.
6
<PAGE>
Mortgage-Backed Securities and Mortgage Pass-Through Securities
- ---------------------------------------------------------------
The Fund may also invest in mortgage-backed securities, which are interests
in pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
Fund may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations"), and in other types of mortgage-related securities.
Because principal may be prepaid at any time, mortgage-backed securities
involve significantly greater price and yield volatility than traditional debt
securities. A decline in interest rates may lead to a faster rate of repayment
of the underlying mortgages and expose the Fund to a lower rate of return upon
reinvestment. To the extent that mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities. When interest rates rise, mortgage prepayment rates tend to decline,
thus lengthening the life of mortgage-related securities and increasing their
price volatility, affecting the price volatility of the Fund's shares.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
sale of the underlying property, refinancing or foreclosure, net of fees or
costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks, and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages. These guarantees, however,
7
<PAGE>
do not apply to the market value or yield of mortgage-backed securities or to
the value of the Fund's shares. Also, GNMA securities often are purchased at a
premium over the maturity value of the underlying mortgages. This premium is
not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to regulation by the Secretary of Housing and Urban Development. FNMA
purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA, but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There is no assurance that the private insurers or guarantors
can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees if, through an examination of the loan experience and practices of
the originators/services and poolers, the Adviser determines that the securities
meet the Fund's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable.
8
<PAGE>
Collateralized Mortgage Obligations ("CMOs")
- --------------------------------------------
The Fund may invest in CMOs, which are hybrids between mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and
prepaid principal are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially protected against a sooner than desired return
of principal by the sequential payments. The prices of certain CMOs, depending
on their structure and the rate of prepayments, can be volatile. Some CMOs may
also not be as liquid as other securities.
In a typical CMO transaction, a corporation issues multiple series (e.g.,
A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
purchase mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
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.
Other Mortgage-Backed Securities
- --------------------------------
The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investment in
addition to those described above. The mortgages underlying these securities may
include alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Adviser will, consistent
9
<PAGE>
with the Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
Other Asset-Backed Securities
- -----------------------------
The securitization techniques used to develop mortgage-backed securities
are being applied to a broad range of assets. Through the use of trusts and
special purpose corporations, various types of assets, including automobile
loans, computer leases and credit card and other types of receivables, are being
securitized in pass-through structures similar to mortgage pass-through
structures described above or in a structure similar to the CMO structure.
Consistent with the Fund's investment objectives and policies, the Fund may
invest in these and other types of asset-backed securities that may be developed
in the future. In general, the collateral supporting these securities is of
shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of state and
federal consumer credit laws, many of which give debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There is the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing
the obligations of a number of direct parties. To reduce the effect of failures
by obligors on underlying assets to make payments, the securities may contain
elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor or the underlying assets. Liquidity protection refers to the
making of advances, generally by the entity administering the pool of assets, to
ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantee policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit support could
adversely affect the return on an investment in such a security.
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
10
<PAGE>
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.
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 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.
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
11
<PAGE>
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.
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
12
<PAGE>
limitation on the investment in restricted or other illiquid securities. Under
the supervision of the Trustees of the Trust, the Fund's 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 Fund's liquidity could be adversely affected to the extent it is invested in
such securities.
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 Investment Company Act of
1940, as amended (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
13
<PAGE>
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.
INVESTMENT RESTRICTIONS
- -----------------------
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, provided, however, at
no time will the Fund's investment in illiquid securities exceed 15% of its net
assets. The Trust may not change these restrictions without a majority vote of
the outstanding securities of the Fund.
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% of the value of its total assets in
certificates of deposit (C/D's) and banker's acceptances with maturities not
greater than one year. C/D's and banker's acceptances will be limited to
domestic banks which have total assets in excess of $1 billion and are subject
to regulatory supervision by the U.S. Government or state governments.
Commitments to purchase securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities on a "when-issued" basis may not exceed 20
percent of the total assets of the Fund. Emphasis on investments in securities
of a particular industry will be shifted whenever the adviser determines that
such action is desirable for investment reasons. The 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, repurchase agreements 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.
14
<PAGE>
5. Purchase illiquid securities, if upon the purchase more than 10% of the
value of the Fund's net assets would consist of such illiquid securities. See
"DESCRIPTION OF THE FUND, INVESTMENTS IN THE FUND" for a complete discussion of
illiquid securities.
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, 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 he 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 Securities Act of 1933, as amended (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 market value, nor may it pledge,
mortgage, or hypothecate assets valued 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 confirmations thereof.
15
<PAGE>
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.
- -------------------------------------------------------------------------------
MANAGEMENT
- -------------------------------------------------------------------------------
The Fund is managed under the general supervision of the Trustees of the
Trust. 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; 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.,* Age 61, Chairman, President, and Trustee of the Trust;
Chairman, President, and Director of each of the Columbia Funds; Consultant with
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"), the Fund's transfer agent; 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.
JAMES C. GEORGE, Age 66, 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.
THOMAS R. MACKENZIE, Age 71, Trustee of the Trust (since December 1997);
Director of each of the Columbia Funds; and Founder and Director of Group
Mackenzie (architecture, planning, interior design, engineering). Mr.
Mackenzie's address is 0690 S.W. Bancroft Street, Portland, Oregon 97201.
ROBERT J. MOORMAN, * Age 47, Secretary of the Columbia Funds and the Trust
(since January 1998); attorney with Stoel Rives LLP. Mr. Moorman's business
address is 900 S.W. Fifth Avenue, Suite 2600, Portland, Oregon 97204-1268.
16
<PAGE>
RICHARD L. WOOLWORTH, Age 57, Trustee of the Trust; 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.
* Mr. Inskeep and Mr. Moorman are each an "interested person" as defined by
the Investment Company Act of 1940 (the "1940 Act") and receive no trustee fees
or salaries from the Trust or the Fund.
The following table sets forth the compensation received by the
disinterested trustees of the Trust for the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
Compensation Total Compensation from the
Trustee From Trust Trust and Columbia Funds
- ------- ------------ ----------------------------
<S> <C> <C>
Richard L. Woolworth $9,000.00 $32,000.00
Thomas R. Mackenzie $9,000.00 $31,000.00
James C. George $9,000.00 $31,000.00
</TABLE>
At November 30, 1998, 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 30, 1998
- ---------------- -------------------------
Legacy Fixed Income Investment Fund
Corporate Financial Admin. Services 2,439,458 (66.57%)
1919 N.W. Lovejoy
Portland, OR 97209
CMC S/T Bond A/C #ST0502 438,396 (11.96%)
Lawrence S. Viehl
2424 S.W. Sherwood Drive
Portland, OR 97201-1614
- -------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES
- -------------------------------------------------------------------------------
The investment adviser to the Fund is Columbia Management Co. (the
"Adviser"). The Adviser has entered into an investment contract with the Fund.
Pursuant to the
17
<PAGE>
investment contract 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 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 provides office space and pays all executive salaries and
executive expenses of the Fund. 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, broker's 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 other
expenses of preparing its registration statement, prospectuses, and reports.
For its services provided to the Fund, the Adviser charges an advisory fee,
which is accrued daily and paid monthly. The advisory fee for the Fund equals
the annual rate of 0.25 of 1 percent of its daily net assets. Advisory fees paid
by the Fund to the Adviser were $67,403 for the period from inception, February
2, 1998, through October 31, 1998. The Adviser has agreed to reimburse the Fund
to the extent Total Fund Operating Expenses, not including the administrative
fee described below, exceed 0.25%. If the Adviser had not agreed to reimburse
the Fund for such expenses, Total Fund Operating Expenses for the Fund, not
including the Administrative fee described below, would have been 0.38%.
In addition to the investment advisory fee payable by the Fund to the
Adviser, each shareholder enters into an Administrative Services Agreement (the
"Agreement") with the Adviser. Pursuant to this Agreement, the Adviser agrees to
provide certain administrative services to each shareholder and charges each
shareholder a fee for those services based on the level of shareholder assets
invested in the Fund. The fees range from 0.05% to 0.20%.
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
18
<PAGE>
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 $13,500 to the Trust Company
for services performed for the fiscal period ended October 31, 1998 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.
There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Fund of negotiated brokerage commissions. Such brokerage commissions vary among
different brokers, and a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Prompt execution of orders at the most favorable price will be the primary
consideration of the Fund in transactions where fees or commissions are
involved. Additional factors considered in the process of selecting a
broker-dealer to execute a transaction include: (i) professional capability of
the executing broker-dealer and the value and quality of the services provided
by the broker-dealer; (ii) size and type of the transaction; (iii) timing of the
transaction in the context of market prices and trends; (iv) nature and
character of markets for the security purchased or sold; (v) the broker-dealer's
execution efficiency and settlement capability; (vi) the executing
broker-dealer's stability and the execution services it renders to the Adviser
on a continuing basis; and (vii) reasonableness of commission. 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.
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
19
<PAGE>
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. As permitted by Section 28(e) of the Securities and
Exchange Act of 1934, the Adviser may cause the Fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the Act) to the
Adviser an amount of undisclosed commission for effecting a securities
transaction for the Trust in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
The Adviser may use research services provided by, and place agency
transactions with, affiliated broker-dealers if the commissions are fair and
reasonable and comparable to commissions charged by non-affiliated qualified
brokerage firms.
Investment decisions for the Fund are made independently from those of the
other portfolios of the Trust or accounts managed by the Adviser or its
affiliate, 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, other portfolios of the
Trust and other 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
20
<PAGE>
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.
- -------------------------------------------------------------------------------
CAPITAL STOCK AND OTHER SECURITIES
- -------------------------------------------------------------------------------
The Trust may establish separate series of investment portfolios under its
Restated 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, dividends and
distributions. 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.
Any reference to 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.
- -------------------------------------------------------------------------------
PURCHASE, REDEMPTION AND PRICING OF SHARES
- -------------------------------------------------------------------------------
PURCHASES
- ---------
Shareholders of the Fund are investment advisory clients of the Adviser.
Investments in the Fund are made directly by clients of the Adviser or by the
Adviser in its role as discretionary investment adviser for a portion of
shareholder's assets. However, with respect to assets of an investment advisory
client of the Adviser invested in the Fund, that client will
21
<PAGE>
pay no fee pursuant to its separate management contract with the Adviser (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 the Fund by the Adviser on behalf of the shareholder. These
conditions are 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 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 must not be 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 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.
REDEMPTIONS
- -----------
Redemptions of all or any portion of a shareholder's investment can be made
at any time. Redemption of shares are at the net asset value next computed after
receipt of a redemption order on a day the New York Stock Exchange ("NYSE") is
open for business.
22
<PAGE>
Payment will be made within seven days of the date of redemption, except as
provided by the rules of the SEC. 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, Presidents' Day, 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.
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 (or 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.
PRICING OF SHARES
- -----------------
The net asset value per share of the Fund is determined by the Adviser,
under procedures approved by the trustees of the Trust, as of the close of
regular trading (normally 4:00 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.
The Fund's portfolio securities and other assets for which market
quotations are readily available are stated at market value. Market value is
determined on the basis of last reported sales prices, or if no sales are
reported, as is the case for most securities traded over-the-counter, at the
average between representative bid and asked quotations obtained from a third
party pricing service or from established market makers. Fixed income
securities, including those to be purchased under firm commitment agreements
(other than obligations having a maturity of 60 days or less), are normally
valued on the basis of quotations obtained from brokers and dealers or pricing
services, which take into account appropriate factors such as
institutional-sized trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data. Short-term investments having a maturity of 60 days or less are valued at
amortized cost, when the Board of Trustees determines that amortized cost is
their fair value.
23
<PAGE>
Certain fixed income securities for which daily market quotations are not
readily available, or for which the Adviser believes accurate quotations have
not been received from the pricing service, may be valued by the Adviser,
pursuant to guidelines established by the Board of Trustees, with reference to
fixed income securities whose prices are more readily obtainable and whose
durations are comparable to the securities being valued. Subject to the
foregoing, other securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board of
Trustees.
- -------------------------------------------------------------------------------
CUSTODIANS
- -------------------------------------------------------------------------------
U S Bank N.A., 321 SW Sixth Avenue, Portland, Oregon 97208, acts as general
custodian of the Trust (a "Custodian"). Chase Manhattan Bank ("Chase" or a
"Custodian"), One Pierrepont Plaza, Brooklyn, New York 11201, 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 Chase (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
- -------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 1300 S.W. Fifth Avenue, Suite 3100, Portland,
Oregon 97201, serves as the Trust's independent accountants and, in addition to
examining the annual financial statements of the Trust, assists in the
preparation of the tax returns of the Trust and in certain other matters.
24
<PAGE>
- -------------------------------------------------------------------------------
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).
25
<PAGE>
A regulated investment company that meets the requirements described above
is taxed only on its "investment company taxable income," which generally equals
the undistributed portion of its ordinary net income and any excess of net
short-term capital gain over net long-term capital loss. In addition, any excess
of net long-term capital gain over net short-term capital loss that is not
distributed is taxed to the Fund at corporate capital gain tax rates. The policy
of the Fund is to apply capital loss carry-forwards as a deduction against
future capital gains before making a capital gain distribution to shareholders.
If any net long-term capital gains in excess of net short-term capital
losses are retained by the Fund, requiring federal income taxes to be paid
thereon by the Fund, the Fund may elect to treat such capital gains as having
been distributed to shareholders. In the case of such an election, shareholders
will be taxed on such amounts as long-term capital gains, will be able to claim
their proportional share of the federal income taxes paid by the Fund on such
gains as a credit against their own federal income tax liabilities, and
generally will be entitled to increase the adjusted tax basis of their shares in
the Fund by the differences between their pro rata shares of such gains and
their tax credits.
Shareholders of the Fund are taxed on distributions of net investment
income, or of any excess of net short-term capital gain over net long-term
capital loss, as ordinary income. Income distributions from the Fund are
unlikely to qualify for the dividends-received deduction for corporate
shareholders because the income of the Fund consists largely or entirely of
interest rather than dividends. Distributions of any excess of net long-term
capital gain over net short-term capital loss from the Fund are ineligible for
the dividends-received deduction.
The Fund may invest up to 10 percent of its total assets in the securities
of foreign corporations and issuers. Foreign countries may impose income taxes,
generally collected by withholding, on foreign-source dividends and interest
paid to the Fund. These foreign taxes will reduce the Fund's distributed income.
The Fund generally expects to incur, however, no foreign income taxes on gains
from the sale of foreign securities. The United States has entered into income
tax treaties with many foreign countries to reduce or eliminate the foreign
taxes on certain dividends and interest received from corporations in those
countries. The Fund intends to take advantage of such treaties where possible.
It is impossible to predict with certainty in advance the effective rate of
foreign taxes that will be paid by the Fund since the amount invested in
particular countries will fluctuate and the amounts of dividends and interest
relative to total income will fluctuate.
Distributions properly designated by the Fund as representing the excess of
net long-term capital gain over net short-term capital loss are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by shareholders. For noncorporate taxpayers,
the highest rate that applies to long-term capital gains is lower than the
highest rate that applies to ordinary income. Any loss that is realized and
allowed on redemption of shares of the Fund less than six months from the date
of purchase of the shares and following the receipt of a capital gain dividend
will be treated as a long-term capital loss to the extent of the capital gain
dividend. For this purpose, Section
26
<PAGE>
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 (October 31), 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.
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 1933 Act. 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.
27
<PAGE>
Additional Information
- ----------------------
The foregoing summary and the summary included in the Prospectus under
"Taxes" of tax consequences of an investment in the Fund are necessarily general
and abbreviated. No attempt has been made to present a complete or detailed
explanation of tax matters. Furthermore, the provisions of the statutes and
regulations on which they are based are subject to change by legislative or
administrative action. State and local taxes are beyond the scope of this
discussion. Prospective investors in the Fund are urged to consult their own tax
advisers regarding specific questions as to federal, state, or local taxes.
- -------------------------------------------------------------------------------
YIELD AND PERFORMANCE
- -------------------------------------------------------------------------------
The Trust may from time to time advertise or quote current yield and total
return performance for the Fund. These figures represent historical data and are
calculated according to SEC rules standardizing such computations. The
investment return on and the value of shares of the Fund will fluctuate so that
the shares when redeemed may be worth more or less than their original cost.
Current yield of the Fund is calculated by dividing the net investment
income per share earned during an identified 30-day period by the maximum
offering price per share on the last day of the same period, according to the
following formula:
6
Yield = 2 [(a-b + 1) -1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day
of the period.
The Fund uses generally accepted accounting principles in determining its
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 current yield
of the Fund for the 30 day period ended October 31, 1998 was 5.63%.
28
<PAGE>
The Trust may publish average annual total return quotations for recent 1,
5, and 10-year periods (or a fractional portion thereof) computed by finding the
average annual compounded rates of return over the 1, 5, and 10-year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1,
5, and 10-year periods (or a fraction portion
thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods (or a fractional portion thereof) where the total return figures
represent the percentage return for the 1, 5, and 10-year periods that would
equate the initial amount invested to the ending redeemable value. If the
Trust's registration statement under the 1940 Act with respect to the Fund has
been in effect less than 1, 5 or 10 years, the time period during which the
registration statement with respect to that Fund has been in effect will be
substituted for the periods stated. For the period ended October 31, 1998, the
total return for the Fund since inception (February 2, 1998) was 5.38%.
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 1000 mutual funds based on total
return performance. These ranking services and publications may rank the
performance of the Fund against all other funds over 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
29
<PAGE>
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 banks 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 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.
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The financial statements for the Fund for the fiscal year ended October 31,
1998, together with the Independent Accountant's Report of
PricewaterhouseCoopers LLP, are attached hereto and incorporated by reference
with this Statement of Additional Information.
30
<PAGE>
CMC SHORT TERM BOND FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
We are pleased to provide an investment discussion of the CMC Short Term Bond
Fund. From the Fund's inception date of February 2, 1998 through the end of its
fiscal year on October 31, 1998, the Fund had a total return of 5.38%. This
compares to the Lipper Short Investment Grade Debt Fund Average of 4.11% for the
same period.
The Fund's average duration was maintained at just over two years throughout the
period, and we were able to add some price appreciation to the income return of
the Fund. Given its relatively short duration, the Fund is expected to have less
risk and return potential than fixed income funds with longer durations.
During the first half of the 1998 calendar year, the bond market rallied as
interest rates declined. This rally accelerated into the third quarter with
rates falling an additional 66 to 124 basis points along the yield curve. Low
inflation and expectations for slowing growth convinced the Federal Reserve
Board to leave monetary policy intact until the Fund's fourth fiscal quarter.
Because it appeared that the financial crisis in Southeast Asia was expanding to
other parts of the world, investors bolted away from higher risk markets and
investments. The Fed lowered interest rates by .25% twice within a three-week
period as a "flight to quality" ensued. Investors sought out U.S. Treasuries as
a safe haven, pushing their returns up substantially and outperforming all other
fixed income investments. This caused the yield differential between Treasuries
and corporate and asset-backed bonds to increase dramatically over a short
period of time. As a result, performance of the Fund was held back during its
fourth fiscal quarter. However, the widened yield spread that now exists between
short-term bonds and Treasuries presents an opportunity for Fund performance to
improve in the future due to its increased yield advantage.
Throughout the reporting period, the Fund sought to provide investors with a
high level of current income consistent with stability of principal by investing
in high quality, short-term fixed income securities. To maximize the income
potential of the Fund, we have taken advantage of the higher yields available
from both mortgage-backed securities and corporate bonds by increasing our
weightings in each of these sectors.
The Fund is managed to minimize credit risk and market value fluctuations while
striving to maintain liquidity for shareholders.
Thank you for your investment in CMC Short Term Bond Fund.
The Columbia Investment Team
December 14, 1998
31
<PAGE>
YEAR 2000 READINESS DISCLOSURE
------------------------------
Many of the services provided to the Fund by Columbia Management Co. (the
"Adviser") and other service providers depend on the proper functioning of their
computer software systems and those of their outside service providers. Many
computer software systems in use today cannot distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated. Such an event
could have a negative impact on handling securities trades, payments of interest
and dividends, pricing and account services. Although, at this time, there can
be no assurance that there will be no adverse impact on the Fund, the Adviser
has informed the Fund that it has been actively working on necessary changes to
its computer systems to prepare for the year 2000 and expects that its systems,
and those of the Fund's outside service providers, will be ready for the year
2000.
Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($10,000-$10,700) of CMC Short Term Bond Fund, Merrill
1-5 Gov't/Corp. Index and Lipper Short Inv. Grade Fund Index for the period
2/2/98 to 10/31/98 to $10,538, $10,618, and $10,411, respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
Since Inception
---------------
<S> <C>
CMC Short Term Bond Fund 5.38%
Merrill 1-5 Gov't Corp. Index 6.18%
Lipper Short Inv. Grade Fund Index 4.11%
</TABLE>
Past performance does not guarantee future results. The Fund's inception date
was February 2, 1998. The Merrill Index and the Lipper Index are based on the
periods beginning February 1, 1998. Total return performance is illustrated for
the periods ended October 31, 1998. The Merrill Lynch 1-5 Year Gov't Corp. Index
represents average market-weighted performance of U.S. Treasury and agency
securities and investment-grade corporate bonds with maturities between one and
five years. The Lipper Index represents average performance of the 30 largest
short term investment grade debt funds tracked by Lipper Analytical Services,
Inc.
32
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- -------------------------------------------------------------------------------
Fiscal Year Ended
October 31,1998(1)
------------------
Net asset value, beginning of period........... $12.00
------------------
Income from investment operations:
Net investment income........................ 0.54
Net gains or losses on securities
(both realized or unrealized).............. 0.09
------------------
Total from investment operations........ 0.63
------------------
Less distributions:
Dividends (from net investment income)....... (0.54)
------------------
Net asset value, end of period................. $12.09
==================
Total return................................... 5.38%(2)
Ratios/Supplemental data
Net assets, end of period (in thousands)....... $42,692
Ratio of expenses to average net assets........ 0.25%(3)
Ratio of net income to average net assets...... 5.97%
Portfolio turnover rate........................ 132.09%
(1) From inception of operations on February 2, 1998. Ratios and portfolio
turnover rates are annualized.
(2) Not annualized.
(3) The ratio was 0.38% for the period, before voluntary reimbursement of
certain expenses by the investment adviser.
33
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
U.S. GOVERNMENT, FEDERAL AGENCY
OBLIGATIONS (40.6%)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) (10.0%)
6.500% 08/15/2028 - 10/15/2028 $ 571,738 $ 578,170
6.500% 08/20/2028 - 10/20/2028 (GNMA II) 1,180,787 1,185,215
7.000% 06/15/2028 1,279,241 1,309,815
7.000% 06/20/2028 - 09/20/2028 (GNMA II) 1,160,907 1,180,134
-----------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 4,253,334
-----------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (22.6%)
FHLMC (9.6%)
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1543 CL. XN
7.000% 07/15/2023 265,000 285,034
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 2057 CL. PD
6.750% 11/15/2026 350,000 368,779
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 2068 CL. CL
6.500% 03/15/2026 370,000 378,472
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 2065 CL. PG
6.000% 04/15/2021 210,000 212,569
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1570 CL. D
0.000% 03/15/2000 318,093 309,543
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1767 CL. H
7.500% 09/15/2022 900,000 942,750
FHLMC GNMA MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES G40 CL. N
6.500% 05/17/2021 900,000 910,807
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1900 CL. M
7.500% 08/15/2024 400,000 412,500
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1932 CL. B
7.000% 06/15/2025 280,000 292,396
-----------------
4,112,850
-----------------
FNMA (9.5%)
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1993-87 CL. G
6.500% 01/25/2019 270,000 275,860
</TABLE>
34
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
U.S. GOVERNMENT, FEDERAL AGENCY
OBLIGATIONS (CONTINUED)
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1993-241 CL. PE
0.000% 10/25/1999 $ 325,000 $ 316,976
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1994-10 CL. KC
6.500% 10/25/2010 400,000 413,624
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1994-97 CL. PB
0.000% 06/25/1999 423,197 417,640
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1997-17 CL. PE
7.000% 01/18/2026 310,000 326,472
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. G97-3 CL. VB
7.000% 08/20/2006 250,000 264,685
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1997-G5 CL. AC
7.500% 10/17/2017 103,804 103,900
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1997-G5 CL. VD
7.250% 04/17/2010 505,000 525,988
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1997-63 CL. PH
7.000% 07/18/2026 480,000 513,977
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1997-74 CL. D
7.500% 09/20/2023 876,908 895,751
-----------------
4,054,873
-----------------
GNMA (1.5%)
GNMA GTD. REMIC PASS THRU SECS.
REMIC TR. 1997-11 CL. M
8.000% 05/16/2024 470,000 485,321
GNMA GTD. REMIC PASS THRU SECS.
REMIC TR. 1998-9 CL. B
6.850% 12/20/2025 150,000 154,031
-----------------
639,352
-----------------
OTHER AGENCY (2.0%)
RYLAND ACCEPTANCE CORP. FOUR
SERIES 26 CL. C
9.000% 12/01/2016 152,916 157,596
WESTAM MORTGAGE FINANCIAL CORP.
SERIES 10 CL. C
0.000% 02/26/2002 736,595 703,373
-----------------
860,969
-----------------
</TABLE>
35
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
U.S. GOVERNMENT, FEDERAL AGENCY
OBLIGATIONS (CONTINUED)
TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS $ 9,668,044
-----------------
OTHER GOVERNMENT AGENCY (8.0%)
A.I.D., MOROCCO FLOATING RATE
4.969% 05/01/2023 $ 400,000 390,500
SMALL BUSINESS ADMINISTRATION
5.875% 10/25/2021 - 06/25/2022 2,382,487 2,409,291
6.000% 07/25/2021 - 11/25/2021 612,950 619,075
-----------------
TOTAL OTHER GOVERNMENT AGENCY 3,418,866
-----------------
TOTAL U.S. GOVERNMENT, FEDERAL AGENCY OBLIGATIONS
(COST $17,237,157) 17,340,244
-----------------
OTHER SECURITIZED LOANS (22.7%)
ASSET BACKED SECURITIES (13.7%)
HOME EQUITY LOAN RECEIVABLES (9.8%)
ABFS MORTGAGE LOAN TRUST
SERIES 1997-2 CL. A-5
7.125% 01/15/2029 300,000 323,880
AFC HOME EQUITY LOAN TRUST
SERIES 1993-1 CL. A
5.900% 05/20/2008 717,859 719,233
CITYSCAPE HOME EQUITY LOAN TRUST
SERIES 1997-B CL. A7
7.410% 5/25/2028 320,000 338,846
CROWN HOME EQUITY LOAN TRUST
SERIES 1996-1 CL. A-5
7.300% 04/25/2027 450,000 470,654
IMC HOME EQUITY LOAN TRUST
SERIES 1995-3 CL. A-5
7.500% 04/25/2026 300,000 316,009
NEW CENTURY HOME EQUITY LOAN TRUST
SERIES 1997-NC5 CL. A-4
6.780% 08/25/2025 1,450,000 1,492,724
SOUTHERN PACIFIC SECURED ASSETS CORP.
SERIES 1996-2 CL. A-5
7.690% 04/25/2025 250,000 253,125
STRUCTURED ASSET SECURITIES CORP.
SERIES 1997-4 CL. 2-A2
7.000% 12/25/2027 250,000 258,931
-----------------
4,173,402
-----------------
</TABLE>
36
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
OTHER SECURITIZED LOANS (CONTINUED)
MANUFACTURED HOUSING RECEIVABLES (1.5%)
GREEN TREE FINANCIAL CORP.
SERIES 1996-4 CL. A-7
7.900% 06/15/2027 $ 326,000 $ 354,118
OAKWOOD MORTGAGE INVESTORS, INC.
SERIES 1996-C CL. A-3
6.750% 04/15/2027 275,000 279,962
-----------------
634,080
-----------------
OTHER ASSET BACKED SECURITIES (2.4%)
CORESTATES HOME EQUITY TRUST
SERIES 1996-1 CL. A-2
6.750% 12/15/2005 503,233 505,875
FDIC REMIC TRUST
SERIES 1994-C1 CL. 2-A2
7.850% 09/25/2025 257,292 257,935
FIRST UNION STUDENT LOAN TRUST
SERIES 1997-1 CL. A-1
4.750% 07/25/2004 287,832 285,518
-----------------
1,049,328
-----------------
TOTAL ASSET BACKED SECURITIES 5,856,810
-----------------
COLLATERALIZED MORTGAGE OBLIGATIONS (9.0%)
RESIDENTIAL ASSET SECURITIZATION TRUST
SERIES 1996-A8 CL. A3
8.000% 12/25/2026 970,000 985,151
GE CAPITAL MORTGAGE SERVICES, INC.
SERIES 1997-8 CL. A-6
7.250% 10/25/2027 325,000 327,844
GE CAPITAL MORTGAGE SERVICES, INC.
SERIES 1995-HE1 CL. A-6
7.500% 09/25/2010 202,633 206,258
ICIFC SECURED ASSETS CORP.
SERIES 1997-1 CL. A-7
7.750% 03/25/2028 260,000 264,921
LB COMMERCIAL CONDUIT MORTGAGE TRUST
SERIES 1995-C2 CL. A
7.174 % 08/25/2004 495,945 517,417
NOMURA ASSET SECURITIES CORP.
SERIES 1996-MDV CL. A-1B
7.120% 04/13/2036 530,000 565,550
NORWEST ASSET SECURITIES CORP.
SERIES 1997-16 CL. A-2
6.750% 10/25/2027 660,000 663,709
</TABLE>
37
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
OTHER SECURITIZED LOANS (CONTINUED)
PNC MORTGAGE SECURITIES CORP.
SERIES 1997-4 CL. IIPP-2
7.500% 07/25/2027 $ 280,000 $ 300,438
-----------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 3,831,288
-----------------
TOTAL OTHER SECURITIZED LOANS
(COST $9,588,407) 9,688,098
-----------------
CORPORATE BONDS (32.5%)
INDUSTRIAL (16.0%)
COCA-COLA ENTERPRISES, INC.
6.375% 08/01/2001 800,000 822,952
FEDERATED DEPT. STORES, INC.
6.125% 09/01/2001 425,000 429,866
FORD MOTOR CREDIT CO.
6.500% 02/28/2002 300,000 308,352
GENERAL ELECTRIC CAPITAL CORP.
MEDIUM TERM NOTES
6.350% 09/15/2001 750,000 777,630
MCDONALD'S CORP.
6.000% 06/23/2002 750,000 774,848
PHILIP MORRIS COS., INC.
6.150% 03/15/2000 450,000 454,468
PROCTER & GAMBLE CO.
5.250% 09/15/2003 1,000,000 1,016,860
SERVICE CORP. INTERNATIONAL
6.300% 03/15/2003 300,000 303,039
TYCO INTERNATIONAL GROUP S.A.
6.125% 06/15/2001 750,000 759,390
USA WASTE SERVICES, INC.
6.125% 07/15/2001 400,000 408,204
WAL-MART STORES, INC.
5.650% 02/01/2000 750,000 755,693
-----------------
TOTAL INDUSTRIAL 6,811,302
-----------------
FINANCIAL (15.4%)
BANKAMERICA CORP.
5.750% 02/20/2002 480,000 473,376
BEAR STEARNS CO., INC.
6.125% 02/01/2003 250,000 248,220
BEAR STEARNS CO., INC.
MEDIUM TERM NOTES
5.404% 10/10/2000 500,000 491,250
</TABLE>
38
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CIT GROUP, INC.
MEDIUM TERM SENIOR NOTES
6.375% 11/15/2002 $ 525,000 $ 536,613
CHRYSLER FINANCIAL CORP.
5.250% 10/19/2000 900,000 908,631
EOP OPERATING L.P.
6.376% 02/15/2002 700,000 691,397
JOHN DEERE CAPITAL
5.350% 10/23/2001 450,000 448,168
GENERAL MOTORS ACCEPTANCE CORP.
5.330% 10/20/2000 500,000 500,850
HOUSEHOLD FINANCE CORP.
5.875 11/01/2002 400,000 398,980
INTERNATIONAL LEASE FINANCE CORP.
6.000% 06/15/2003 525,000 529,300
MORGAN STANLEY DEAN WITTER DISCOVER CO.
MEDIUM TERM NOTES
5.750% 02/15/2001 550,000 552,387
SALOMON SMITH BARNEY HOLDINGS, INC.
6.750% 02/15/2003 450,000 462,011
SIMON DEBARTOLO GROUP L.P. (144A)
6.625% 06/15/2003 350,000 342,419
-----------------
TOTAL FINANCIAL 6,583,602
-----------------
UTILITIES (1.1%)
TRANSCANADA PIPELINES LTD.
MEDIUM TERM NOTES
6.490% 01/21/2009 450,000 463,005
-----------------
TOTAL CORPORATE BONDS
(COST $13,744,305) 13,857,909
-----------------
TOTAL INVESTMENTS, EXCLUDING TEMPORARY
CASH INVESTMENT
(COST $40,569,869) 40,886,251
-----------------
</TABLE>
39
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE (1)
---------------- -----------------
<S> <C> <C>
REPURCHASE AGREEMENT (3.4%)
GOLDMAN SACHS CORP.
5.222% DATED 10/30/1998,
DUE 11/02/1998 IN THE
AMOUNT OF $1,461,384.
COLLATERALIZED BY U.S. TREASURY BONDS
6.000% TO 12.375% DUE
05/15/2004 TO 02/15/2026
& U.S. TREASURY NOTES
5.500% TO 6.625% DUE
02/28/1999 TO 02/15/2007.
(COST $1,461,175) $ 1,461,175 $ 1,461,175
-----------------
TOTAL INVESTMENTS (99.2%)
(COST $42,031,044) 42,347,426
RECEIVABLES LESS LIABILITIES (0.8%) 344,812
-----------------
NET ASSETS (100.0%) $ 42,692,238
=================
(1) See Note 1 of Notes to Financial Statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
40
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
October 31,1998
<TABLE>
<S> <C>
ASSETS:
Investments at identified cost .................................................... $ 40,569,869
- ------------------------------------------------------------------------------------- -----------------------
Investments at value (Notes 1 and 2)............................................... $ 40,886,251
Temporary cash investment, at cost (Note 1)........................................ 1,461,175
Receivable for:
Interest......................................................................... 338,672
Investments sold................................................................. 85,493
Expense reimbursement from investment advisor (Note 4)........................... 9,947
-----------------------
Total assets....................................................................... 42,781,538
-----------------------
LIABILITIES:
Payable for:
Investments purchased............................................................ 70,298
Investment management fee (Note 4)............................................... 9,055
Acrrued expenses................................................................. 9,947
---------------------
Total liabilities.................................................................. 89,300
---------------------
Net assets applicable to outstanding shares........................................ $ 42,692,238
=======================
Net assets consist of:
Unrealized appreciation on investments........................................... $ 316,382
Undistributed net realized gain from investments................................. 15,207
Capital paid in (Note 3)......................................................... 42,360,649
-----------------------
$ 42,692,238
=======================
Shares of capital stock outstanding (Note 3)......................................... 3,530,582
=======================
Net asset value, offering and
redemption price per share (1).................................................... $ 12.09
=======================
(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.
41
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
For the period from inception of operations, February 2, 1998 to October 31,
1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.............................................................. $ 1,692,247
---------------------
Expenses:
Investment management fees (Note 4)................................... 67,403
Shareholder servicing costs (Note 4).................................. 14,296
Financial information and subscriptions............................... 300
Accounting services................................................... 2,649
Bank transaction and checking fees.................................... 180
Auditing fees......................................................... 13,400
Legal, insurance and other............................................ 4,525
---------------------
102,753
Expenses reimbursed by investment adviser (1)......................... (35,401)
---------------------
Total expenses.................................................... 67,352
---------------------
Net investment income (Note 1)............................................ 1,624,895
---------------------
Realized gain and unrealized appreciation from investment transactions:
Net realized gain from investments (Note 2)............................... 15,207
Net unrealized appreciation on investments during the period (Note 1)..... 316,382
---------------------
Net gain on investments (Note 1).......................................... 331,589
---------------------
Net increase in net assets resulting from operations...................... $ 1,956,484
=====================
(1) The Adviser has voluntarily agreed to assume ordinary expenses of the Fund,
to the extent that these expenses, together with the Fund's advisory fee,
exceed 0.25% of the Fund's average net assets.
The accompanying notes are an integral part of the financial statements.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
For the period from inception of operations, February 2, 1998 to October 31,
1998
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income ........................................... $ 1,624,895
Net realized gain from investments (Note 2)...................... 15,207
Change in net unrealized appreciation on investments............. 316,382
-----------------
Net increase in net assets resulting from operations............. 1,956,484
Distributions to shareholders:
From net investment income....................................... (1,624,895)
Capital share transactions, net (Note 3).............................. 42,360,649
----------------
Net increase in net assets....................................... 42,692,238
NET ASSETS:
Beginning of period................................................... -
-----------------
End of period ........................................................ $ 42,692,238
=================
The accompanying notes are an integral part of the financial statements.
</TABLE>
43
<PAGE>
- -------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. Significant accounting policies:
CMC Short Term Bond 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 High
Yield 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 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 ex-dividend 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.
44
<PAGE>
- --------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
2. Investment transactions:
Aggregate purchases, sales and maturities, net realized gain and net
unrealized appreciation of investments, excluding temporary cash investments, as
of and for the period ended October 31, 1998, were as follows:
<TABLE>
<S> <C>
Purchases:
Investment securities other than U.S. Government obligations................. $ 33,280,708
U.S. Government obligations.................................................. 43,491,388
-------------------
Total purchases......................................................... $ 76,772,096
===================
Sales and Maturities:
Investment securities other than U.S. Government obligations................. $ 9,905,815
U.S. Government obligations.................................................. 26,346,911
-------------------
Total sales and maturities.............................................. $ 36,252,726
===================
Net Realized Gain (Loss):
Investment securities other than U.S. Government obligations................. $ (42,780)
U.S. Government obligations.................................................. 57,987
-------------------
Total net realized gain................................................. $ 15,207
===================
Unrealized Appreciation (Depreciation) as of October 31, 1998:
Appreciation.................................................................. $ 453,633
Depreciation.................................................................. (137,251)
-------------------
Net unrealized appreciation............................................. $ 316,382
====================
Unrealized Appreciation (Depreciation) for federal income tax purposes as of
October 31, 1998:
Appreciation.................................................................. $ 450,890
Depreciation.................................................................. (142,386)
--------------------
Net unrealized appreciation................................................. $ 308,504
====================
For federal income tax purposes, the cost of
investments owned at October 31, 1998........................................... $ 40,577,746
====================
</TABLE>
3. Capital Stock:
<TABLE>
<CAPTION>
For Period Ended
October 31, 1998 (1)
--------------------
<S> <C>
Shares:
Shares sold.............................................. 4,541,453
Shares issued for reinvestment of dividends.............. 135,212
--------------------
4,676,665
Less shares redeemed..................................... (1,146,083)
--------------------
Net increase in shares................................... 3,530,582
====================
Amounts:
Sales.................................................... $ 54,437,600
Reinvestment of dividends................................ 1,624,895
--------------------
56,062,495
Less redemptions......................................... (13,701,846)
--------------------
Net increase............................................. $ 42,360,649
====================
Capital stock authorized (shares) 100,000,000
(1 From inception of operations on February 2, 1998.
</TABLE>
45
<PAGE>
- --------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
4. Transactions with affiliates and related parties:
Investment management fees incurred.................................. $67,403
Investment management fee computation basis
(percentage of daily net assets per annum)......................... 0.25 of 1%
Transfer agent fee (included in shareholder
servicing costs)................................................... $13,500
Fees earned by trustees not affiliated with the Fund's
investment adviser or transfer agent (included in other expenses).. $1,572
The investment adviser of the Fund is Columbia Management Co. (CMC). In addition
to the investment management fee, each shareholder enters into a written
Administrative Services Agreement with CMC for an annual fee ranging between
0.05% and 0.20%, depending on the size of the investment in the Fund. CMC
provides each shareholder specialized reports regarding the Fund's portfolio and
performance, market conditions and economic indicators.
The transfer agent for the Fund is Columbia Trust Company (CTC), an affiliate of
CMC. 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 (the Trust).
On December 10, 1997, CMC, CTC and certain of their affiliates were acquired by
Fleet Financial Group, Inc. (Fleet), a publicly owned multi-bank holding company
registered under the Bank Holding Company Act of 1956. Prior to that date,
certain officers and trustees of the Trust were also officers and directors of
CMC and CTC. Those individuals did not receive any compensation or other payment
from the Trust. Following the transaction and as a result of federal banking
regulations, no officers or trustees of the Trust are officers or directors of
CMC or CTC. J. Jerry Inskeep, Jr., an officer and trustee of the Trust, is
affiliated with Fleet, but received no compensation or other payments from the
Trust.
46
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of CMC Fund Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of CMC Short Term Bond Fund, one of
the portfolios of CMC Fund Trust (the Fund), an investment company, at October
31, 1998, and the results of its operations and the changes in its net assets
for the period from inception, February 2, 1998 to October 31, 1998, and the
financial highlights for the period indicated therein, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities owned as of October 31, 1998 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
December 4, 1998
47
<PAGE>
CMC FUND TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
(a1) Restated Declaration of Trust.(1)
(a2) Amendment to Restated Declaration of Trust.(1)
(a3) Amendment No. 2 to Restated Declaration of Trust.(2)
(b) Bylaws.(1)
(c1) Specimen Stock Certificate for CMC Small Cap Fund.(1)
(c2) Specimen Stock Certificate for CMC International Stock Fund.(1)
(c3) Specimen Stock Certificate for CMC High Yield Fund.(1)
(c4) Specimen Stock Certificate for CMC Short Term Bond Fund.(2)
(d1) Investment Advisory Contract for CMC Small Cap Fund.(3)
(d2) Investment Advisory Contract for CMC International Stock Fund.(3)
(d3) Investment Advisory Contract for CMC High Yield Fund.(3)
(d4) Investment Advisory Contract for CMC Short Term Bond Fund.(2)
(e) Underwriting Contracts - Not Applicable.
(f) Not Applicable.
(g1) Custodian Contract between United States National Bank of Oregon
and CMC Fund Trust.(1)
(g2) Custodian Contract between CMC Fund Trust and Morgan Stanley Trust
Company.(1)
(h1) Transfer Agent Agreement for CMC Small Cap Fund.(3)
C-1
<PAGE>
(h2) Transfer Agent Agreement for CMC International Stock Fund.(3)
(h3) Transfer Agent Agreement for CMC High Yield Fund.(3)
(h4) Transfer Agent Agreement for CMC Short Term Bond Fund.(2)
(h5) Form of Administrative Services Agreement.(3)
(i) Opinion of Counsel - Not Applicable for this filing.
(j) Consent of Accountants.*
(k) Omitted Financial Statements - Not Applicable.
(l) Not Applicable.
(m) 12b-1 Plan - Not Applicable.
(n1) Financial Data Schedule for CMC Small Cap Fund.*
(n2) Financial Data Schedule for CMC International Stock Fund.*
(n3) Financial Data Schedule for CMC High Yield Fund.*
(n4) Financial Data Schedule for CMC Short Term Bond Fund.*
(o) Plan Adopting Multiple Classes by Shares - Not Applicable.
(p) Powers of Attorney for Messrs. George and Mackenzie.(3) Powers of
Attorney for Messrs. Inskeep and Woolworth.(1)
(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.
(3) Incorporated herein by Reference to Post-Effective Amendment No.
13 to Registrant's Registration Statement on Form N-1A, File No.
33-30394, filed December 24, 1997.
*Filed herewith.
C-2
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
The Registrant has an investment advisory contract with Columbia Management
Co., an Oregon corporation (the "Adviser"). Columbia Daily Income Company,
Columbia Growth Fund, Inc., Columbia Special Fund, Inc., Columbia Fixed Income
Securities Fund, Inc., Columbia Municipal Bond Fund, Inc., Columbia Real Estate
Equity Fund, Inc., Columbia U.S. Government Securities Fund, Inc., Columbia
Balanced Fund, Inc., Columbia Common Stock Fund, Inc., Columbia International
Stock Fund, Inc., Columbia Small Cap Fund, Inc., Columbia National Municipal
Bond 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"
and "Investment Advisory and Other Fees paid to Affiliates" in the Statement of
Additional Information.
Item 25. 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.
The Registrant's trustees and officers are named insureds under an
insurance policy issued by ICI Mutual Insurance Company.
C-3
<PAGE>
Item 26. 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" 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 27. Principal Underwriters
Not applicable.
Item 28. 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 S.W. Sixth Avenue, Portland,
Oregon 97201. Records relating to the Registrant's portfolio securities are also
maintained by U S Bank N.A., 321 S.W. Sixth Avenue, Portland, Oregon 97208 and
Chase Manhattan Bank, One Pierrepont Plaza, Brooklyn, New York 11201.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
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 of
the requirements for effectiveness of this Registration Statement under 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, 1998.
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, 1998
by the following persons in the capacities indicated.
(i) Principal executive officer:
* J. JERRY INSKEEP, JR. President, Chairman, and Trustee
- --------------------------------------
J. Jerry Inskeep, Jr.
(ii) Principal accounting and financial officer:
* J. JERRY INSKEEP, JR. President, Chairman, 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
- ------- -----------
(a1) Restated Declaration of Trust.(1)
(a2) Amendment to Restated Declaration of Trust.(1)
(a3) Amendment No. 2 to Restated Declaration of Trust.(2)
(b) Bylaws.(1)
(c1) Specimen Stock Certificate for CMC Small Cap Fund.(1)
(c2) Specimen Stock Certificate for CMC International Stock Fund.(1)
(c3) Specimen Stock Certificate for CMC High Yield Fund.(1)
(c4) Specimen Stock Certificate for CMC Short Term Bond Fund.(2)
(d1) Investment Advisory Contract for CMC Small Cap Fund.(3)
(d2) Investment Advisory Contract for CMC International Stock Fund.(3)
(d3) Investment Advisory Contract for CMC High Yield Fund.(3)
(d4) Investment Advisory Contract for CMC Short Term Bond Fund.(2)
(e) Underwriting Contracts - Not Applicable.
(f) Not Applicable.
(g1) Custodian Contract between United States National Bank of Oregon
and CMC Fund Trust.(1)
(g2) Custodian Contract between CMC Fund Trust and Morgan Stanley Trust
Company.(1)
(h1) Transfer Agent Agreement for CMC Small Cap Fund.(3)
(h2) Transfer Agent Agreement for CMC International Stock Fund.(3)
(h3) Transfer Agent Agreement for CMC High Yield Fund.(3)
C-7
<PAGE>
(h4) Transfer Agent Agreement for CMC Short Term Bond Fund.(2)
(h5) Form of Administrative Services Agreement.(3)
(i) Opinion of Counsel - Not Applicable for this filing.
(j) Consent of Accountants.*
(k) Omitted Financial Statements - Not Applicable.
(l) Not Applicable.
(m) 12b-1 Plan - Not Applicable.
(n1) Financial Data Schedule for CMC Small Cap Fund.*
(n2) Financial Data Schedule for CMC International Stock Fund.*
(n3) Financial Data Schedule for CMC High Yield Fund.*
(n4) Financial Data Schedule for CMC Short Term Bond Fund.*
(o) Plan Adopting Multiple Classes by Shares - Not Applicable.
(p) Powers of Attorney for Messrs. George and Mackenzie.(3) Powers
of Attorney for Messrs. Inskeep and Woolworth.(1)
(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.
(3) Incorporated herein by Reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A, File No. 33-30394, filed
December 24, 1997.
*Filed herewith.
C-8
PRICEWATERHOUSECOOPERS PriceWaterhouseCoopers LLP
CONSENT OF INDEPENDENT ACCOUNTANTS 1001 Fourth Avenue Plaza
Suite 4200
Seattle, WA 98154
(206) 622-1505
To the Board of Trustees of CMC Fund Trust:
We consent to the inclusion in Post-Effective Amendment No. 15 to the
Registration Statement of CMC Fund Trust on Form N-1A (File No. 33-30394) of our
reports dated December 4, 1998, on our audits of the financial statements and
financial highlights of the CMC Small Cap Fund, CMC International Stock Fund,
CMC High Yield Fund, and CMC Short Term Bond Fund, portfolios of CMC Fund Trust,
which reports are included in the Annual Reports to Shareholders for the year
ended October 31, 1998. We also consent to the reference to our firm under the
caption "Independent Accountants".
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
December 4, 1998
<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, 1998, AND THE AUDITED ANNUAL REPORT OF CMC SMALL CAP
FUND (A PORTFOLIO OF CMC FUND TRUST) DATED OCTOBER 31, 1997, 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-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,072,984
<INVESTMENTS-AT-VALUE> 236,961,007
<RECEIVABLES> 6,464,571
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 32,279,171
<TOTAL-ASSETS> 275,704,749
<PAYABLE-FOR-SECURITIES> 6,207,678
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,707,908
<TOTAL-LIABILITIES> 7,915,586
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 256,640,683
<SHARES-COMMON-STOCK> 6,723,234
<SHARES-COMMON-PRIOR> 9,590,639
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,739,543)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,888,023
<NET-ASSETS> 267,789,163
<DIVIDEND-INCOME> 503,240
<INTEREST-INCOME> 1,358,170
<OTHER-INCOME> 0
<EXPENSES-NET> 2,530,754
<NET-INVESTMENT-INCOME> (669,344)
<REALIZED-GAINS-CURRENT> 31,308,474
<APPREC-INCREASE-CURRENT> (61,700,383)
<NET-CHANGE-FROM-OPS> (31,061,253)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 33,134,661
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,526,101
<NUMBER-OF-SHARES-REDEEMED> 7,189,299
<SHARES-REINVESTED> 795,793
<NET-CHANGE-IN-ASSETS> (253,981,328)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (244,012)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,429,552
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,530,754
<AVERAGE-NET-ASSETS> 328,648,098
<PER-SHARE-NAV-BEGIN> 54.40
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> (8.87)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 5.29
<RETURNS-OF-CAPITAL> 0.31
<PER-SHARE-NAV-END> 39.83
<EXPENSE-RATIO> 0.77
<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, 1998, AND THE AUDITED ANNUAL REPORT OF CMC
INTERNATIONAL STOCK FUND (A PORTFOLIO OF CMC FUND TRUST) DATED OCTOBER 31, 1997
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-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 11,504,158
<INVESTMENTS-AT-VALUE> 13,414,884
<RECEIVABLES> 317,766
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,692,524
<TOTAL-ASSETS> 15,425,174
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,146
<TOTAL-LIABILITIES> 48,146
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,478,117
<SHARES-COMMON-STOCK> 1,226,288
<SHARES-COMMON-PRIOR> 1,907,431
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,430)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,912,341
<NET-ASSETS> 15,377,028
<DIVIDEND-INCOME> 620,673
<INTEREST-INCOME> 221,667
<OTHER-INCOME> 0
<EXPENSES-NET> 535,110
<NET-INVESTMENT-INCOME> 307,230
<REALIZED-GAINS-CURRENT> 10,165,801
<APPREC-INCREASE-CURRENT> (4,754,166)
<NET-CHANGE-FROM-OPS> 5,718,865
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 10,805,915
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 140,622
<NUMBER-OF-SHARES-REDEEMED> 1,683,481
<SHARES-REINVESTED> 861,716
<NET-CHANGE-IN-ASSETS> (66,093,620)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9,692)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 395,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 535,110
<AVERAGE-NET-ASSETS> 51,492,938
<PER-SHARE-NAV-BEGIN> 42.71
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> (0.78)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 29.64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.54
<EXPENSE-RATIO> 1.04
<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, 1998, AND THE AUDITED ANNUAL REPORT OF CMC HIGH YIELD
FUND (A PORTFOLIO OF CMC FUND TRUST) DATED OCTOBER 31, 1997, 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-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 265,477,553
<INVESTMENTS-AT-VALUE> 258,205,292
<RECEIVABLES> 5,765,219
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 442,949
<TOTAL-ASSETS> 264,413,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 501,904
<TOTAL-LIABILITIES> 501,904
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 271,141,487
<SHARES-COMMON-STOCK> 7,373,471
<SHARES-COMMON-PRIOR> 3,234,971
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42,330
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,272,261)
<NET-ASSETS> 263,911,556
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,388,321
<OTHER-INCOME> 0
<EXPENSES-NET> 941,062
<NET-INVESTMENT-INCOME> 17,447,259
<REALIZED-GAINS-CURRENT> 1,542,274
<APPREC-INCREASE-CURRENT> (9,721,765)
<NET-CHANGE-FROM-OPS> 9,267,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,447,259
<DISTRIBUTIONS-OF-GAINS> 1,530,874
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,056,688
<NUMBER-OF-SHARES-REDEEMED> 1,367,967
<SHARES-REINVESTED> 449,779
<NET-CHANGE-IN-ASSETS> 144,715,159
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 30,930
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 853,566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 941,062
<AVERAGE-NET-ASSETS> 210,641,462
<PER-SHARE-NAV-BEGIN> 36.85
<PER-SHARE-NII> 3.03
<PER-SHARE-GAIN-APPREC> (0.85)
<PER-SHARE-DIVIDEND> 3.03
<PER-SHARE-DISTRIBUTIONS> .21
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.79
<EXPENSE-RATIO> 0.45
<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 SHORT TERM BOND FUND (A PORTFOLIO OF
CMC FUND TRUST) DATED OCTOBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854126
<NAME> CMC FUND TRUST
<SERIES>
<NUMBER> 04
<NAME> CMC SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> FEB-02-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 40,569,869
<INVESTMENTS-AT-VALUE> 40,886,251
<RECEIVABLES> 434,112
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,461,175
<TOTAL-ASSETS> 42,781,538
<PAYABLE-FOR-SECURITIES> 70,298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,002
<TOTAL-LIABILITIES> 89,300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,360,649
<SHARES-COMMON-STOCK> 3,530,582
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,207
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 316,382
<NET-ASSETS> 42,692,238
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,692,247
<OTHER-INCOME> 0
<EXPENSES-NET> 67,352
<NET-INVESTMENT-INCOME> 1,624,895
<REALIZED-GAINS-CURRENT> 15,207
<APPREC-INCREASE-CURRENT> 316,382
<NET-CHANGE-FROM-OPS> 1,956,484
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,624,895
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,541,453
<NUMBER-OF-SHARES-REDEEMED> 1,146,083
<SHARES-REINVESTED> 135,212
<NET-CHANGE-IN-ASSETS> 42,692,238
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,403
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102,753
<AVERAGE-NET-ASSETS> 36,494,163
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.09
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
