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. 16 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 15
(Check appropriate box or boxes.)
CMC Fund Trust
(Exact Name of Registrant as Specified in Charter)
1300 S.W. Sixth Avenue, P.O. 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 S.W. Sixth Avenue, P.O. 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.
<PAGE>
Part A-I
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[Logo]
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 capitalization companies. 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
approved or disapproved these securities or passed on the adequacy of this
Prospectus. Any representation to the contrary is a criminal offense.
December 20, 1999
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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
Portfolio Turnover..................................................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
- --------------------------------------------------------------------------------
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, with its emphasis on identifying
attractive regions, countries and industries in which to invest, 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.
3
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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.
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 with market
capitalizations of less than 250 percent of the dollar-weighted median
market capitalization of the S&P Small Cap 600 index. As of November 30,
1999, under the above definition, companies with a market capitalization of
$1.9 billion or less would be considered small cap.
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 limited short operating histories, fewer financial
resources, and inexperienced management
o May be dependent on a small number of products or services
o May have low trading volumes, making it difficult for the Fund to
sell a particular security, resulting in erratic or abrupt price
movements
You could lose money as a result of your investment in the Fund.
Additionally, the Fund could underperform other investments if any of the
above risks occur. You should invest in this Fund only if you are willing
to assume substantial risks
4
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of significant fluctuations in the value of 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 Funds' Statement
of Additional Information for more information regarding the Funds'
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 at least 65% of
its assets in equity securities of companies from at least three countries
other than the United States and may invest in companies located anywhere
in the world. While the Fund's investments are not limited by market
capitalization, the Fund intends to invest at least 75% of its assets in
companies with at least $500 million in market cap, which - in foreign
markets - is generally considered large and well-established.
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. The risks associated with
foreign investing include:
o Foreign securities may be subject to greater fluctuations in
price than domestic securities
o The price of foreign securities are affected by changes in
currency exchange rates
o Foreign taxes may reduce a foreign investments effective yield
o A foreign security may be effected by potential political or
economic instability of the country of the issuer, especially
in emerging or developing countries
5
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o Foreign companies are generally not subject to uniform
accounting, auditing, and financial reporting standards and have
less governmental regulation and oversight than U.S. companies
o There is generally less public information available about
foreign copanies
o Foreign securities are generally less liquid than U.S. securities
You could lose money as a result of your investment in the Fund.
Additionally, the Fund could underperform 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, Australasia, 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
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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":
Year Total Return Percentage
---- -----------------------
1990 -11.56%
1991 45.44%
1992 12.31%
1993 16.33%
1994 1.70%
1995 36.39%
1996 21.82%
1997 21.93%
1998 -1.05%
Best Quarter: 1Q '91 25.69%
Worst Quarter: 3Q '90 -28.29%
----------------------------------------------------------
Average Annual Total Returns As Of 12/31/98
Inception
1 Year 5 Year (8/30/89)
--------------------------------------------------------------------------
CMC Small Cap Fund -1.05% 15.31% 14.81%
Russell 2000 Index -2.55% 11.87% 11.56%
The Fund's total return for the nine month period ended 9/30/99 was 5.61%.
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":
Year Total Return Percentage
---- -----------------------
1995 5.52%
1996 16.77%
1997 10.18%
1998 12.17%
Best Quarter: 4Q '98 20.17%
Worst Quarter: 3Q '98 -18.24%
---------------------------------------------------------
Average Annual Total Returns As Of 12/31/98
Inception
1 Year (2/1/94)
------------------------------------------------------------------------
CMC International Stock Fund 12.17% 7.22%
(MSCI) EAFE Index 20.33% 7.90%
The Fund's total return for the nine month period ended 9/30/99 was 19.80%.
8
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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. |
|-----------------------------------------------|
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Fee Table
Small International
Cap Fund Stock Fund
<S> <C> <C>
Shareholder transaction fees (fees paid directly None None
from your investment)
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 0.04% 0.56%
Total Fund Operating Expenses 0.79% 1.31%
------------------------------------------------------------------------------------
</TABLE>
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:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Small Cap Fund $ 81 $ 252 $ 439 $ 978
International Stock Fund $ 133 $ 415 $ 718 $ 1,579
9
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FINANCIAL HIGHLIGHTS
- --------------------
The financial highlights tables are intended to help you understand each
Fund's financial performance for the past five years. 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>
<CAPTION>
Small Cap Fund
Fiscal Year Ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 9.96 $ 13.60 $ 13.01 $ 14.00 $ 12.34
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss)..................... (0.04) (0.03) (0.01) (0.02) 0.06
Net realized and unrealized gains (losses)
on investments................................. 3.69 (2.21) 3.52 4.20 2.71
-------- -------- -------- -------- --------
Total from investment operations............. 3.65 (2.24) 3.51 4.18 2.77
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income......................................... - - - - (0.04)
Distributions from net capital gains............. (0.02) (1.40) (2.92) (5.17) (1.07)
-------- -------- -------- -------- --------
Total distributions.......................... (0.02) (1.40) (2.92) (5.17) (1.11)
-------- -------- -------- -------- --------
Net asset value, end of year..................... $ 13.59 $ 9.96 $ 13.60 $ 13.01 $ 14.00
======== ======== ======== ======== ========
Total return..................................... 36.70% -16.49% 26.98% 30.30% 22.55%
Ratios/Supplemental data
Net assets, end of year
(in thousands) ................................ $240,129 $267,789 $521,770 $522,408 $537,167
Ratio of expenses to average net
assets......................................... 0.79% 0.77% 0.76% 0.78% 0.77%
Ratio of net income (loss) to average
net assets..................................... (0.33)% (0.20)% (0.08)% (0.14)% 0.43%
Portfolio turnover rate.......................... 186.07% 158.98% 168.72% 147.77% 125.80%
NOTE: Per share amounts have been adjusted to retroactively reflect a 4 for 1
share split effective September 1, 1999.
</TABLE>
10
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<TABLE>
<CAPTION>
International Stock Fund
Fiscal Year Ended October 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............... $ 12.54 $ 42.71 $ 42.46 $ 37.06 $ 39.51
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income (loss)..................... (0.02) 0.25 0.41 0.32 0.39
Net realized and unrealized gains (losses)
on investments................................. 5.34 (0.78) 6.16 5.86 (2.64)
-------- -------- -------- -------- --------
Total from investment operations............ 5.32 (0.53) 6.57 6.18 (2.25)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income............. - - (0.46) (0.78) (0.20)
Distributions from net capital gains (0.00)* (29.64) (5.86) -- --
-------- -------- -------- -------- --------
Total distributions......................... 0.00 (29.64) (6.32) (0.78) (0.20)
-------- -------- -------- -------- --------
Net asset value, end of year..................... $ 17.86 $ 12.54 $ 42.71 $ 42.46 $ 37.06
======== ======== ======== ======== ========
Total return..................................... 42.44% -1.24% 15.47% 16.67% -5.69%
Ratios/Supplemental data
Net assets, end of year (in thousands)........... $ 30,492 $ 15,377 $ 81,471 $ 73,542 $ 68,758
Ratio of expenses to average net assets.......... 1.31% 1.04% 1.05% 1.00% 0.98%
Ratio of net income (loss) to average net
assets......................................... (0.14)% 0.60% 0.88% 0.78% 0.99%
Portfolio turnover rate.......................... 96.34% 52.68% 126.56% 119.98% 158.32%
* Amount represents less than $0.01 per share.
</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 Funds have 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 Funds' assets to invest. For the
fiscal year ended October 31, 1999, 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 Funds. 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).
- --------------------------------------------------------------------------------
INFORMATION ABOUT YOUR INVESTMENT
- --------------------------------------------------------------------------------
YOUR ACCOUNT
- ------------
Buying Shares
-------------
Shares in the Funds are available for purchase by clients of CMC
enabling them to invest in a diversified portfolio 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. CMC may, at its discretion also use the Funds as a way to
diversify the portfolios of its separately managed accounts. If the
separately managed account is governed by the rules and regulations
promulgated under the Employee Retirement Income Securities Act of 1974,
any investment in the Funds will only be made after the investment has been
approved by an independent fiduciary and certain conditions are satisfied.
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
12
<PAGE>
open. Your order will be priced at the next NAV calculated after your order
is accepted by the Fund.
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 information
available to it 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).
13
<PAGE>
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 December.
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 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 |
| |
| Type of Tax Rate for Tax Rate for 28% |
| Distribution 15% Bracket Bracket or Higher |
| ------------ ------------ ----------------- |
| |
| Income Dividends Ordinary Ordinary Income |
| Income Rate Rate |
| |
| Short Term Capital Gains Ordinary Ordinary Income |
| Income Rate Rate |
| |
| Long Term Capital Gains 10% 20% |
|------------------------------------------------------------|
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.
14
<PAGE>
|-------------------------------------------------|
| 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 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, a company's level of investment in research
and development, as well as the company's 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.
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
15
<PAGE>
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 countries, stock markets, industries, 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 macroeconomic factors as interest rates,
inflation, government regulation, political activity, flows of capital and
international monetary policy can affect the overall economic health of an
entire global region or a country, including the industries in that region
or country. Once the Adviser has identified attractive regions, countries
and industries for emphasis through the top down approach, fundamental
security analysis research is used to evaluate the merits of individual
companies being considered for investment. By utilizing this investment
strategy, the Adviser strives to anticipate and act upon economic and stock
market changes, thereby generating consistent, competitive investment
results over the long-term.
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, Finland,
France, Germany, Italy, Ireland, India, Korea, The Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, Australia, Hong
Kong, Japan, New Zealand, Singapore, Canada, Thailand and Mexico.
The value of the International Stock Fund is measured 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 speculation.
When required by the Investment Company Act or the SEC, the Fund will
"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
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<PAGE>
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 securities
designed for use in the U.S. securities markets. ADRs are sponsored and
issued by domestic banks and represent and may be converted into underlying
foreign securities deposited with the domestic bank or a correspondent
bank. ADRs do not eliminate the risks inherent in investing in the
securities of foreign issuers. By investing in ADRs rather than directly in
the foreign security, however, the Fund may avoid currency risks during the
settlement period for either purchases or sales. There is a large, liquid
market in the United States for most ADRs. GDRs are receipts representing
an arrangement with a European bank similar to that for ADRs. GDRs are not
necessarily denominated in the currency of the underlying security.
Changes to Investment Objective and Temporary Investments
---------------------------------------------------------
The investment objective of either Fund 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.
Portfolio Turnover
------------------
Each Fund is actively managed, which means the Fund's manager may
frequently buy and sell securities. Frequent trading increases a Fund's
turnover rate and may increase transaction costs, such as brokerage
commissions. Increased transaction costs could detract from a Fund's
performance.
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 companies located in developing countries or in countries with new
or developing capital markets, such as countries in Eastern Europe and South
America or
17
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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 more developed
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. In the past many computer
software systems could not distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated. This condition 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 completed all necessary changes to its computer systems to
prepare for the year 2000 and expects the Funds' systems, and those of the
Funds' 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")
introduced a new single currency, the Euro, to replace the national currencies
of the participating member nations. The eleven member nations are Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands,
Portugal and Spain. It is expected that other countries will be added in the
future. The International Stock Fund currently holds investments in countries
with currencies which were replaced by the Euro. This change to a single
currency was new and untested, and resulted in market volatility. It is not
possible to confidently predict the long term 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
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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 accountant's report.
A current SAI for the Fund is on file with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference, which means it
is considered 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
Information about the Fund (including the SAI) can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information about the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Reports and other information regarding the Fund are also on the
SEC's Internet website at http://www.sec.gov, and copies of this information may
be obtained, after paying a duplicating fee, by electronic request at the SEC's
E-mail address at [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
SEC file number: 811-5857
19
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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 S.W. Sixth Avenue
P.O. 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 20, 1999 (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 Funds...................................................... 2
Management....................................................................10
Investment Advisory and Other Fees Paid to Affiliates.........................13
Portfolio Transactions........................................................14
Capital Stock and Other Securities............................................16
Purchase, Redemption and Pricing of Shares....................................17
Custodians....................................................................19
Independent Accountants.......................................................20
Taxes.........................................................................20
Performance...................................................................24
Financial Statements..........................................................25
December 20, 1999
<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 its total asset value in common stocks or securities convertible
into common stock of companies with market capitalizations of less than 250% of
the dollar weighted median market capitalization of the S&P Small Cap 600 index.
The S&P Small Cap 600 index is a capitalization weighted index that measures the
performance of selected U.S. stocks with small market capitalization. As of
November 30, 1999, under the above definition, companies with a market
capitalization of $1.9 billion or less would be considered small cap. 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% 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.
2
<PAGE>
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.
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% 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
3
<PAGE>
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.
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
4
<PAGE>
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 either of 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 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
5
<PAGE>
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.
Investments in Small and Unseasoned Companies
- ---------------------------------------------
The Funds may invest in companies that are unseasoned; that is, companies
that have limited or unprofitable operating histories, limited financial
resources, and inexperienced management. In addition, small and unseasoned
companies 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
6
<PAGE>
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.
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 HELD BY 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
7
<PAGE>
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
may, at the time, be held as collateral for such sales.
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
8
<PAGE>
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 HELD BY 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.
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
9
<PAGE>
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 National Municipal
Bond Fund, Inc. since January 1999; Columbia Small Cap Fund, Inc. since August
1996; 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 National 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 68, Chairman, President, and Trustee of the Trust;
Chairman, President, and Director of each of the Columbia Funds; Consultant with
Fleet Boston Corporation (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.
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<PAGE>
JAMES C. GEORGE, Age 67, 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 72, 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, civil and structural
engineering). Mr. Mackenzie's address is 0690 S.W. Bancroft Street, Portland,
Oregon 97201.
ROBERT J. MOORMAN,* Age 48, 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 58, Trustee of the Trust; Director of each of the
Columbia Funds; Chairman of Regence Blue Cross Blue Shield of Oregon; and
Chairman and Chief Executive Officer of the Regence Group, health insurers.
Mr. Woolworth's address is 200 S.W. Market Street, Suite 1500, 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, 1999.
Total Compensation from the
Trustee Compensation From Trust Trust and Columbia Funds
- ------- ----------------------- ---------------------------
Richard L. Woolworth $ 9,000 $ 32,000
Thomas R. Mackenzie $ 9,000 $ 31,000
James C. George $ 9,000 $ 31,000
At November 30, 1999, 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:
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<PAGE>
Shares Beneficially Owned
Name and Address at November 30, 1999
- ---------------- -------------------------
CMC Small Cap Fund
Hanford Operations and Engineering 5,067,880 (24.45%)
Pension Plan
PO Box 1970, H36-08
Richland, WA 99352
JELD-WEN, Inc. Pension Trust 1,167,137 (5.63%)
P.O. Box 1329
Klamath Falls, OR 97601
Legacy Health System 1,407,356 (6.79%)
Employees Retirement Plan-Small Cap
Legacy Portland Hospitals
1919 N.W. Lovejoy
Portland, OR 97209
Locals 302 & 612 Operating Engineers 1,119,973 (5.40%)
Employers Retirement Fund
Welfare & Pension Administration Services, Inc.
P.O. Box 34203
Seattle, WA 98124
CMC International Stock Fund
AECOM Technology Corp. Pension Plan 173,948 (9.18%)
3250 Wilshire Blvd., 5th Floor
Los Angeles, CA 90010
Freightliner Corporation Pension Plan 268,106 (14.15%)
4747 North Channel Avenue
Portland, OR 97217
Lumber Industry Pension Fund 377,856 (19.94%)
Associated Administrators, Inc.
2929 N.W. 31st Avenue
Portland, OR 97205
Oregon Community Foundation 621,268 (32.79%)
621 S.W. Morrison St., Suite 725
Portland, OR 97205
12
<PAGE>
Washington-Idaho-Montana 116,780 (8.80%)
Carpenters Employers Retirement Trust Fund
P.O. Box 5434
Spokane, WA 99205
As defined by SEC rules and regulations, the Oregon Community Foundation,
is a "control person" of the International Stock Fund since it owns over 25% of
the voting securities of the Fund. The fact that the Oregon Community Foundation
owns over 25% of the Fund's voting securities means it may be able to impact the
outcome of any matter in which shareholders are asked to vote.
- --------------------------------------------------------------------------------
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 Boston
Corporation ("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, 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
$1,784,355, $2,429,552 and $3,462,393 for fiscal year 1999, fiscal year 1998,
and fiscal year 1997, respectively. Advisory fees paid by the International
Stock Fund to the Adviser were $139,065, $395,072 and $686,166 for fiscal year
1999, fiscal year 1998, and fiscal year 1997, respectively.
13
<PAGE>
The Trust Company acts as transfer agent and dividend crediting agent for
each Fund. Its address is 1301 S.W. 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 1999 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.
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
14
<PAGE>
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.
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 for research services and products 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 $802,523, $1,136,316 and $1,285,537 for fiscal year 1999, fiscal year 1998,
and for fiscal year 1997, respectively. Total brokerage commissions paid by the
International Stock Fund for the last three fiscal years were $100,706, $307,219
and $577,355 for fiscal year 1999, fiscal year 1998, and fiscal year 1997,
respectively. Of the commissions paid in the fiscal year ended in 1999, the
Small Cap Fund paid $94,943 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. In addition, the Fund may purchase securities from an
underwriting syndicate in which an affiliate is a member of the underwriting
syndicate. In any agency transaction or purchase from an underwriting syndicate
of which an affiliate is a member, the trade will be accomplished in accordance
with the rules and regulations of the Investment Company Act of 1940.
15
<PAGE>
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 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 Code does not prohibit employees
from purchasing securities that may be held or purchased by the Funds, but is
intended 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
16
<PAGE>
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.
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 a reduced, or in the case
of an employee benefit plan, 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
17
<PAGE>
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 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.
18
<PAGE>
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
available 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 materially affect
the value of a portfolio security occurs between the time the foreign price is
determined and the time the Fund's NAV is calculated, it may be necessary to
revalue the security in light of that event.
- --------------------------------------------------------------------------------
CUSTODIANS
- --------------------------------------------------------------------------------
U S Bank N.A., 321 S.W. Sixth Avenue, Portland, Oregon 97208, acts as
general custodian of the Trust (a "Custodian"). The Chase Manhattan Bank
("Chase" or a "Custodian"), 3 Chase Metrotech Center, Brooklyn, New York 11245,
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.
19
<PAGE>
- --------------------------------------------------------------------------------
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 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
20
<PAGE>
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. 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
21
<PAGE>
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.
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
22
<PAGE>
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. While the Fund generally does not expect to
incur foreign income taxes on gains from the sale of foreign stocks and
securities, for the fiscal year ended October 31, 1999, the Fund did incur a tax
of $7,582 for securities held in India.
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 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.
23
<PAGE>
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:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
24
<PAGE>
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1,
5, and 10-year periods (or a fractional portion
thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods (or a fractional portion thereof) where the total return figures
represent the percentage return for the 1, 5, and 10-year periods that would
equate the initial amount invested to the ending redeemable value. If the
Trust's registration statement under the 1940 Act with respect to 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, 1999, the
average annual return for the Small Cap Fund for the 1, 5 and 10 year periods
was 36.70%, 18.28% and 15.46%, respectively. For the period ended October 31,
1999, the average annual return for the International Stock Fund for the 1 year,
5 year periods and since inception (February 1, 1994) was 42.44%, 12.32% and
10.49, 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 The
Dow Jones Business and Financial Weekly, 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, Australasia, 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, 1999, together with the Independent Accountant's Report of
PricewaterhouseCoopers LLP, are attached hereto and incorporated by reference
into this Statement of Additional Information.
25
<PAGE>
CMC SMALL CAP FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
We are pleased to provide you with an investment review of the CMC Small Cap
Fund. The Fund rebounded after two consecutive years of underperformance in the
small cap market to report a total return of 36.70% for the fiscal year ended
October 31, 1999. For the same period, the Fund's benchmark, the Russell 2000
Index, returned 14.88%.
Sharply falling equity prices and a sell-off of small cap names characterized
the fiscal year's beginning in late 1998. In an effort to thwart fears of an
economic slowdown, the Federal Reserve reduced interest rates in November, the
third reduction in 1998. As a result, the market rebounded, with small cap
stocks leading the charge. This comeback was short-lived, however, and a
"correction" followed in the second quarter. The portfolio's performance lagged
behind its benchmark since holdings did not include stocks of several Internet
companies that engaged in initial public offerings and performed well during the
quarter. While media and retail holdings benefited the Fund, software stocks
suffered and technology stocks provided mixed results. In addition, health care
holdings hurt performance and were greatly reduced.
As prospects for world recovery improved, smaller stocks picked up momentum
again and economically sensitive stocks staged a rebound in April. With
technology playing an ever-increasing role in productivity and economic growth,
the sector remained the largest weighting in the portfolio. In addition, the
Fund increased exposure to the energy sector in response to positive forecasts
about drilling and production services. The fourth fiscal quarter witnessed
greater market volatility as the Fed raised interest rates a second time since
June in an effort to contain inflationary pressures and manage economic
expansion. A narrow group of stocks, principally from the technology and energy
sectors, led the market expansion. Stocks with exposure to the explosive growth
of the Internet also performed well.
Because small cap valuations relative to large caps reached near historic lows
during the fiscal year, the future environment for small cap stocks appears
favorable.
The Fund's top ten holdings (as a percentage of net assets) as of October 31,
1999 were:
Cymer, Inc. (2.2%)
Radisys Corp. (2.2%)
CSG Systems International, Inc. (2.1%)
Symantec Corp. (1.9%)
Integrated Device Technology, Inc. (1.9%)
Powerwave Technologies, Inc. (1.9%)
Entercom Communications Corp. (1.9%)
Intelligent Polymers Ltd. (1.8%)
Atmel Corp. (1.8%)
Macromedia, Inc. (1.7%)
We appreciate your continued confidence in CMC Small Cap Fund.
The Investment Team
December 3, 1999
26
<PAGE>
Graphic line chart depicting "Growth of $10,000 Over 10 Years" showing the
growth in dollar amounts ($5,000-$55,000) of CMC Small Cap, Russell 2000 and S&P
500 for the period 10/31/89 to 10/31/99 to $42,118, $30,130 and $51,548,
respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------------
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
CMC Small Cap 36.70% 18.28% 15.46%
Russell 2000 14.88% 12.57% 11.66%
S&P 500 25.67% 26.01% 17.82%
</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, 1999. The S&P 500 and Russell 2000 are unmanaged stock indices.
27
<PAGE>
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
We are pleased to provide you with an investment review of the CMC International
Stock Fund. After a year of turmoil due to the Asian financial crisis,
international markets began to show signs of improvement late in 1998 and gained
momentum over the course of 1999. For the fiscal year ended October 31, 1999,
the Fund posted a total return of 42.44%, well ahead of its benchmark index, the
MSCI/EAFE, which returned 23.38% for the same period.
The Fund's substantial presence in Japan benefited overall portfolio
performance. CMC International Stock Fund began the fiscal year with a
surprisingly strong rise in the Japanese Yen, which had a positive impact on the
value of the Fund's Japanese holdings. In the second fiscal quarter, measures
implemented by the Japanese government to rejuvenate the stagnant economy --
including adoption of fiscal spending, banking reform and corporate
restructuring programs -- resulted in favorable stock market performance. As a
result, during fiscal year 1999, the Japanese stock market was the top performer
among the world's developed markets.
As the year progressed, smaller Asian markets recovered as financial pressures
dissipated. Investor confidence gained ground, and the Fund made a gradual
return to this region, which began posting gains by the end of the reporting
period.
The portfolio's performance was also enhanced by a large exposure to European
markets. Positions in telecommunications, technology and pharmaceuticals
continued to prove particularly rewarding. In the United Kingdom, in particular,
the telecommunications and cable sector performed well. Elsewhere, the Euro made
a surprisingly feeble introduction in January 1999 and remained consistently
weak throughout the remainder of the period, hampering Fund results.
Nonetheless, European economies began experiencing accelerating growth as the
fiscal year drew to a close, and we maintain an optimistic outlook for the
coming fiscal year.
CMC International Stock Fund portfolio composition as of October 31, 1999, was:
% of Net Assets % of Net Assets
--------------- ---------------
Japan 28.7 Singapore 1.5
United Kingdom 17.1 Spain 1.5
Netherlands 5.0 United States 1.2
Germany 4.3 Thailand 1.1
France 3.9 Ireland 1.1
Canada 3.8 Italy 0.9
India 3.0 Korea 0.8
Sweden 2.2 Mexico 0.3
Australia 2.1 Malaysia 0.3
Switzerland 2.0 Brazil 0.2
Finland 1.5 Other Assets less
liabilities 17.5
28
<PAGE>
The Fund's top ten holdings (as a percentage of net assets) as of October 31,
1999, were:
Mannesmann AG (Germany) 2.5%
NTT Mobile Comm Network (Japan) 2.1%
Fujitsu Ltd. (Japan) 2.0%
Ryohin Keikaku Co., Ltd. (Japan) 1.9%
Asahi Bank Ltd. (Japan) 1.8%
WPP Group plc (United Kingdom) 1.8%
Equant NV (Netherlands) 1.7%
Fancl Corp. (Japan) 1.6%
British Telecommunications plc (United Kingdom) 1.5%
Infosys Technologies Ltd. (India) 1.3%
We appreciate your continued confidence in CMC International Stock Fund.
The Columbia Investment Team
December 3, 1999
Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($5,000-$35,000) of CMC International Stock Fund,
FT/S&P Euro Pacific, S&P 500, and MSCI EAFE Index for the period 2/1/94 to
10/31/99 to $17,655, $15,965, $31,975 and $16,376, respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
----------------------------------------
1 Year 5 Years Since Inception
------ ------- ---------------
<S> <C> <C> <C>
CMC International Stock Fund 42.44% 12.32% 10.49%
FT/S&P Euro Pacific 26.48% 9.08% 8.55%
S&P 500 25.67% 26.01% 22.62%
MSCI EAFE Index 23.38% 9.52% 9.04%
</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, 1999. 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.
29
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CMC SMALL CAP FUND
------------------
Year Ended October 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $ 9.96 $ 13.60 $ 13.01 $ 14.00 $ 12.34
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss)...................... (0.04) (0.03) (0.01) (0.02) 0.06
Net realized and unrealized gains (losses)
on investments.................................. 3.69 (2.21) 3.52 4.20 2.71
---------- ---------- ---------- ---------- ----------
Total from investment operations.............. 3.65 (2.24) 3.51 4.18 2.77
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income.............. - - - - (0.04)
Distributions from net capital gains.............. (0.02) (1.40) (2.92) (5.17) (1.07)
---------- ---------- ---------- ---------- ----------
Total distributions........................... (0.02) (1.40) (2.92) (5.17) (1.11)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ....................... $ 13.59 $ 9.96 $ 13.60 $ 13.01 $ 14.00
========== ========== ========== ========== ==========
Total return........................................ 36.70% -16.49% 26.98% 30.30% 22.55%
Ratios/Supplemental data
Net assets, end of year (in thousands).............. $ 240,129 $ 267,789 $ 521,770 $ 522,408 $ 537,167
Ratio of expenses to average net assets............. 0.79% 0.77% 0.76% 0.78% 0.77%
Ratio of net income (loss) to average net assets.... (0.33)% (0.20)% (0.08)% (0.14)% 0.43%
Portfolio turnover rate............................. 186.07% 158.98% 168.72% 147.77% 125.80%
NOTE: Per share amounts have been adjusted to retroactively reflect a 4 for 1
share split effective September 1, 1999.
See Accompanying Notes to Financial Statements
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
CMC INTERNATIONAL STOCK FUND
----------------------------
Year Ended October 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $ 12.54 $ 42.71 $ 42.46 $ 37.06 $ 39.51
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss)..................... (0.02) 0.25 0.41 0.32 0.39
Net realized and unrealized gains (losses)
on investments................................. 5.34 (0.78) 6.16 5.86 (2.64)
---------- ---------- ---------- ---------- ----------
Total from investment operations............. 5.32 (0.53) 6.57 6.18 (2.25)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income............. - - (0.46) (0.78) (0.20)
Distributions from net capital gains............. (0.00)* (29.64) (5.86) - -
---------- ---------- ---------- ---------- ----------
Total distributions.......................... (0.00) (29.64) (6.32) (0.78) (0.20)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year....................... $ 17.86 $ 12.54 $ 42.71 $ 42.46 $ 37.06
========== ========== ========== ========== ==========
Total return....................................... 42.44% -1.24% 15.47% 16.67% -5.69%
Ratios/Supplemental data
Net assets, end of year (in thousands)............. $ 30,492 $ 15,377 $ 81,471 $ 73,542 $ 68,758
Ratio of expenses to average net assets............ 1.31% 1.04% 1.05% 1.00% 0.98%
Ratio of net income (loss) to average net assets... (0.14)% 0.60% 0.88% 0.78% 0.99%
Portfolio turnover rate............................ 96.34% 52.68% 126.56% 119.98% 158.32%
* Amount represents less than $0.01 per share.
See Accompanying Notes to Financial Statements
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
OCTOBER 31, 1999
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (95.3%)
BASIC INDUSTRIES & MFG. (1.7%)
BUILDING & FORESTRY PRODUCTS (0.2%)
SOUTHDOWN, INC. 10,200 $ 492,787
-------------
CHEMICALS (0.4%)
AIRGAS, INC. * 104,500 992,750
-------------
MACHINERY CAPITAL SPENDING (0.8%)
TEREX CORP. * 70,900 1,874,419
-------------
METALS & MINING (0.3%)
NS GROUP, INC. * 29,500 298,688
STILLWATER MINING CO. * 19,300 388,412
-------------
687,100
-------------
TOTAL BASIC INDUSTRIES & MFG. 4,047,056
-------------
BUSINESS & CONSUMER SERVICES (16.2%)
MEDIA & ENTERTAINMENT (6.1%)
CUMULUS MEDIA, INC. * 63,500 2,278,062
ENTERCOM COMMUNICATIONS CORP. * 90,020 4,484,121
RADIO ONE, INC. * 34,820 1,736,648
SALEM COMMUNICATIONS CORP. (CLASS A) * 81,500 2,027,312
SFX ENTERTAINMENT, INC. (CLASS A) * 74,600 2,606,338
YOUNG BROADCASTING, INC. (CLASS A) * 31,900 1,479,363
-------------
14,611,844
-------------
POLLUTION CONTROL (0.7%)
TETRA TECH, INC. * 1,807,766
-------------
SERVICES & PUBLISHING (9.4%)
APOLLO GROUP, INC. * 113,875 2,981,206
CHEMDEX CORP. * 8,700 331,688
CSG SYSTEMS INTERNATIONAL, INC. * 148,840 5,107,072
G & K SERVICES, INC. (CLASS A) 40,000 1,502,500
NATIONAL DATA CORP. 46,100 1,106,400
NCO GROUP, INC. * 35,000 1,483,125
NOVA CORP. * 140,770 3,660,020
PROFESSIONAL DETAILING, INC. * 51,530 1,288,250
PROFIT RECOVERY GROUP INTERNATIONAL, INC. * 69,050 2,843,997
RENT-WAY, INC. * 25,300 420,612
WHITTMAN-HART, INC. * 47,300 1,818,094
-------------
22,542,964
-------------
TOTAL BUSINESS & CONSUMER SERVICES 38,962,574
-------------
See Accompanying Notes to Financial Statements
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER CYCLICAL (8.5%)
CONSUMER DURABLE (0.8%)
FURNITURE BRANDS INTERNATIONAL, INC. * 75,700 $ 1,466,688
MODTECH HOLDINGS, INC. * 85,524 454,346
-------------
1,921,034
-------------
CONSUMER NON-DURABLE (7.7%)
AMES DEPARTMENT STORES, INC. * 66,100 2,094,544
BED, BATH & BEYOND, INC. * 23,800 792,838
CALLAWAY GOLF CO. 174,500 2,344,844
CHEESECAKE FACTORY, INC. (THE) * 54,100 1,656,812
HOLLYWOOD ENTERTAINMENT CORP. * 89,700 1,267,012
INTERTAN, INC. * 55,100 1,239,750
MICHAELS STORES, INC. * 78,000 2,617,875
P. F. CHANGS CHINA BISTRO, INC. * 81,900 1,760,850
STEINER LEISURE LTD. * 66,000 1,249,875
TWEETER HOME ENTERTAINMENT GROUP, INC. * 33,500 1,432,125
WET SEAL, INC. (CLASS A) * 32,000 448,000
WILLIAMS-SONOMA, INC. * 30,300 1,628,625
-------------
18,533,150
-------------
TOTAL CONSUMER CYCLICAL 20,454,184
-------------
CONSUMER STAPLES (9.9%)
FOOD & HOUSEHOLD PRODUCTS (0.7%)
U.S. FOODSERVICE, INC. * 93,400 1,792,112
-------------
HEALTH (9.2%)
ALKERMES, INC. * 41,200 1,454,875
ANESTA CORP. * 66,000 734,250
BIOVAIL CORP. INTERNATIONAL * 16,700 921,631
FIRST HEALTH GROUP CORP. * 85,800 1,994,850
INTELLIGENT POLYMERS LTD. * 139,000 4,248,188
NOVOSTE CORP. * 122,600 2,107,188
OXFORD HEALTH PLANS, INC. * 169,500 2,002,219
PROTEIN DESIGN LABS, INC. * 41,600 1,666,600
RESMED, INC. * 76,700 2,655,737
SHIRE PHARMACEUTICALS GROUP PLC ADR * 63,180 2,005,965
SPIROS DEVELOPMENT CORP. II (UNITS) * 62,300 354,331
TRANSKARYOTIC THERAPIES, INC. * 41,200 1,915,800
-------------
22,061,634
-------------
TOTAL CONSUMER STAPLES 23,853,746
-------------
See Accompanying Notes to Financial Statements
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ENERGY (8.3%)
DOMESTIC & INTERNATIONAL INTEGRATED (3.0%)
DEVON ENERGY CORP. 74,800 $ 2,907,850
OCEAN ENERGY, INC. * 179,500 1,649,156
PENNACO ENERGY, INC. * 33,300 368,381
WESTERN GAS RESOURCES, INC. 144,500 2,375,219
-------------
7,300,606
-------------
ENERGY SERVICES (5.3%)
GLOBAL INDUSTRIES LTD. * 138,500 1,108,000
HANOVER COMPRESSOR CO. * 89,900 3,326,300
MARINE DRILLING COS., INC. * 105,600 1,709,400
NOBLE DRILLING CORP. * 50,400 1,118,250
PATTERSON ENERGY, INC. * 134,500 1,723,281
PRECISION DRILLING CORP. * 129,900 3,012,057
R & B FALCON CORP. * 55,100 685,306
-------------
12,682,594
-------------
TOTAL ENERGY 19,983,200
-------------
FINANCIAL (0.9%)
CITY NATIONAL CORP. 33,100 1,282,625
COMMUNITY FIRST BANKSHARES, INC. 38,500 732,703
-------------
2,015,328
-------------
TECHNOLOGY (49.3%)
ACCRUE SOFTWARE, INC. * 24,500 1,316,875
ACXIOM CORP. * 152,700 2,519,550
ADAPTIVE BROADBAND CORP. * 43,300 1,599,394
ADVANCED DIGITAL INFORMATION CORP. * 47,100 1,754,475
ADVANCED FIBRE COMMUNICATIONS, INC. * 98,000 2,143,750
AETHER SYSTEMS, INC. * 9,800 681,712
ALLAIRE CORP. * 25,100 1,830,731
AMDOCS LTD. * 139,300 3,874,281
ANTEC CORP. * 63,000 3,055,500
ARTESYN TECHNOLOGIES, INC. * 83,700 1,653,075
ASYST TECHNOLOGIES, INC. * 31,600 1,224,500
ATMEL CORP. * 109,700 4,237,162
BINDVIEW DEVELOPMENT CORP. * 110,200 3,306,000
BSQUARE CORP. * 13,400 530,137
CAREINSITE, INC. * 10,250 448,437
COMMSCOPE, INC. * 93,600 3,732,300
CONCURRENT COMPUTER CORP. * 32,900 378,350
CREDENCE SYSTEMS CORP. * 53,900 2,459,187
CROSSROADS SYSTEMS, INC. * 6,600 469,425
CYMER, INC. * 142,100 5,248,819
See Accompanying Notes to Financial Statements
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DAVOX CORP. * 38,700 $ 498,262
DOCUMENTUM, INC. * 132,500 3,759,687
DSET CORP. * 78,900 1,380,750
ELECTRO SCIENTIFIC INDUSTRIES, INC. * 50,000 2,700,000
EMULEX CORP. * 22,500 3,508,594
ETEC SYSTEMS, INC. * 63,300 2,417,269
GENESYS TELECOMMUNICATIONS LABORATORIES, INC. * 33,400 1,640,775
HARMONIC, INC. * 22,600 1,341,875
INTEGRATED DEVICE TECHNOLOGY, INC. * 223,700 4,599,831
INTERACTIVE PICTURES CORP. * 72,100 1,698,856
INTERVOICE-BRITE, INC. * 11,600 143,550
JNI CORP. * 8,800 470,250
KULICKE & SOFFA INDUSTRIES, INC. * 79,800 2,349,112
LATTICE SEMICONDUCTOR CORP. * 101,000 3,572,875
MACROMEDIA, INC. * 64,800 4,175,550
MARIMBA, INC. * 3,800 107,350
MICROS SYSTEMS, INC. * 82,900 3,836,716
MIPS TECHNOLOGIES, INC. (CLASS A) * 29,500 851,813
MMC NETWORKS, INC. * 40,900 1,303,688
MTI TECHNOLOGY, CORP. * 180,800 3,062,300
OPTICAL COATING LABORATORY, INC. 20,100 2,148,188
PERKINELMER, INC. 28,600 1,167,238
POWER-ONE, INC. * 100,400 2,008,000
POWERWAVE TECHNOLOGIES, INC. * 70,300 4,573,894
PRIMUS KNOWLEDGE SOLUTIONS, INC. * 33,500 1,009,188
RADISYS CORP. * 97,900 5,188,700
RAVISENT TECHNOLOGIES, INC. * 74,700 1,199,869
REMEDY CORP. * 46,400 1,995,200
SANDISK CORP. * 29,800 1,806,625
SPECTRIAN CORP. * 48,900 1,638,150
SYMANTEC CORP. * 97,200 4,641,300
TELETECH HOLDINGS, INC. * 100,600 1,427,263
TIBCO SOFTWARE, INC. * 4,000 156,000
USINTERNETWORKING, INC. * 2,900 96,606
VIADOR, INC. * 101,000 1,805,375
WEBTRENDS CORP. * 25,300 1,562,275
-------------
118,306,634
-------------
TRANSPORTATION (0.5%)
EXPEDITORS INTERNATIONAL OF WASHINGTON, INC. 31,700 1,184,788
-------------
TOTAL COMMON STOCKS
(COST $180,207,471) 228,807,510
-------------
See Accompanying Notes to Financial Statements
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
WARRANT (1.5%)
BIOVAIL CORP. INTERNATIONAL (EXPIRE 09/30/2002) *
(COST $1,390,000) 139,000 $ 3,683,500
-------------
TOTAL INVESTMENTS, EXCLUDING TEMPORARY INVESTMENTS
(COST $181,597,471) 232,491,010
-------------
REPURCHASE AGREEMENT (3.9%)
J.P. MORGAN SECURITIES, INC.
5.282% DATED 10/29/1999,
DUE 11/01/1999 IN THE
AMOUNT OF $9,255,887.
COLLATERALIZED BY
U.S. TREASURY BONDS
6.125% TO 10.375%
DUE 11/15/2009 TO 8/15/2029
U.S. TREASURY NOTES
5.875% TO 6.250%
DUE 5/31/2000 TO 6/30/2000
(COST $9,254,548) $ 9,254,548 9,254,548
-------------
TOTAL INVESTMENTS (100.7%)
(COST $190,852,019) 241,745,558
OTHER ASSETS LESS LIABILITIES (-0.7%) (1,616,795)
-------------
NET ASSETS (100.00%) $ 240,128,763
=============
* Non-Income Producing
See Accompanying Notes to Financial Statements
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
OCTOBER 31, 1999
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (82.0%)
AUSTRALIA (2.1%)
BROKEN HILL PROPRIETARY CO., LTD. (MINING-METAL/MINERALS) 11,000 $ 113,606
CABLE & WIRELESS OPTUS LTD. (UTILITIES/COMMUNICATION) * 39,000 89,220
PASMINCO LTD. (MINING-METAL/MINERALS) * 155,000 148,159
TELSTRA CORP., LTD. (INSTALLMENT RECEIPTS) (UTILITIES/
COMMUNICATION) * 31,650 101,449
WMC LTD. (MINING-METALS/MINERALS) 46,000 197,278
-------------
649,712
-------------
BRAZIL (0.2%)
CIA TECIDOS DO NORTE DE MINAS SA (TEXTILES) 1,100,000 50,716
-------------
CANADA (3.8%)
ABITIBI-CONSOLIDATED, INC. (FORESTRY/PAPER PRODUCTS) 14,300 174,023
ALCAN ALUMINIUM LTD. (MINING-METAL/MINERALS) 2,900 95,129
ANDERSON EXPLORATION LTD. (OIL) * 17,500 225,457
MANULIFE FINANCIAL CORP. (INSURANCE) * 27,000 324,903
NORTEL NETWORKS CORP. (OFFICE EQUIP./COMP./COMM.) 2,600 160,059
SHAW COMMUNICATIONS, INC. (CLASS B) (MEDIA) 6,000 182,541
-------------
1,162,112
-------------
FINLAND (1.5%)
SONERA OYJ (UTILITIES/COMMUNICATION) 8,000 240,060
STORA ENSO OYJ (FORESTRY/PAPER PRODUCTS) 18,000 236,486
-------------
476,546
-------------
FRANCE (3.9%)
ALSTOM SA (ELECTRICAL EQUIPMENT) 3,500 105,946
AXA SA (INSURANCE) 1,100 155,041
BANQUE NATIONALE DE PARIS (BANKS) 1,000 87,763
CAP GEMINI SA (BUSINESS SERVICES) 1,100 166,486
FRANCE TELECOM SA, ADR (UTILITIES/COMMUNICATION) 1,700 164,475
LAFARGE SA (CONSTRUCTION/BUILDING MATERIALS) 1,200 115,405
SODEXHO ALLIANCE SA (BUSINESS SERVICES) 600 98,378
TOTAL FINA SA (CLASS B) (OIL) 600 81,036
USINOR SA (STEEL) 8,400 116,629
VIVENDI SA (UTILITIES) 1,500 113,592
-------------
1,204,751
-------------
GERMANY (3.8%)
DEUTSCHE BANK AG (BANKS) 1,500 107,176
EPCOS AG (ELECTRONICS) * 7,000 286,716
MANNESMANN AG (MACHINERY/CAPITAL SPENDING) 4,800 756,252
-------------
1,150,144
-------------
INDIA (3.0%)
BANK OF BARODA LTD. (BANKS) 100 150
BHARAT HEAVY ELECTRICALS LTD. (HEAVY ENG./SHIPBUILDING) 30,000 185,296
CASTROL (INDIA) LTD. (CHEMICALS) 20,000 157,179
See Accompanying Notes to Financial Statements
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INDIAN HOTELS CO., LTD. (ENTERTAINMENT/LEISURE) 12,900 $ 109,140
INFOSYS TECHNOLOGIES LTD. (BUSINESS SERVICES) 2,500 400,322
SATYAM INFOWAY LTD. ADR (BUSINESS SERVICES) * 1,500 58,125
-------------
910,212
-------------
IRELAND (1.1%)
BANK OF IRELAND PLC (BANKS) 18,000 140,378
CRH PLC (CONSTRUCTION/BUILDING MATERIALS) 4,300 81,126
IRISH LIFE & PERMANENT PLC (INSURANCE) 11,257 114,767
-------------
336,271
-------------
ITALY (0.9%)
ASSICURAZIONI GENERALI S.P.A (INSURANCE) 4,200 134,640
UNICREDITO ITALIANO S.P.A (BANKS) 30,000 140,315
-------------
274,955
-------------
JAPAN (28.7%)
ASAHI BANK LTD. (BANKS) 63,000 559,007
AVEX, INC. (ENTERTAINMENT/LEISURE) 1,500 316,213
DAIMEI TELECOM ENGINEERING CORP. (ENGINEERING) 7,000 82,905
DEODEO CORP. (RETAIL) 4,000 49,827
DRAKE BEAM MORIN-JAPAN, INC. (BUSINESS SERVICES) 1,000 289,383
EIDEN CO., LTD. (RETAIL) 5,000 55,625
FANCL CORP. (HEALTH/PERSONAL CARE) 1,700 488,693
FUJI BANK LTD. (BANKS) 25,000 342,564
FUJI MACHINE MFG. CO., LTD. (MACHINERY/CAPITAL SPENDING) 5,000 232,369
FUJITSU LTD. (OFFICE EQUIP./COMP./COMM.) 20,000 601,763
HAPPINET CORP. (RETAIL) 2,000 114,987
HIROSE ELECTRIC CO., LTD. (ELECTRONICS) 2,000 348,601
JAPAN LIFELINE CO., LTD. (HEALTH/PERSONAL CARE) 3,900 85,952
KATOKICHI CO., LTD. (FOOD/BEVERAGES) 3,000 53,612
KEYENCE CORP. (ELECTRONICS) 300 80,347
MARUBENI CORP. (CONSTRUCTION/BUILDING MATERIALS) 50,000 159,065
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. (ELECTRONICS) 9,000 189,297
MURATA MANUFACTURING CO., LTD. (ELECTRONICS) 1,000 128,402
NEC CORP. (ELECTRONICS) 8,000 161,748
NIDEC CORP. (ELECTRICAL EQUIPMENT) 1,000 194,040
NIKKO SECURITIES CO., LTD. (FINANCIAL SERVICES) 15,000 140,858
NIPPON KANZAI CO., LTD.
(CONSTRUCTION/BUILDING MATERIALS) 5,000 167,689
NIPPON TELEGRAPH & TELEPHONE CORP. (UTILITIES/
COMMUNICATION) 21 321,962
NTT MOBILE COMMUNICATIONS NETWORK, INC.
(UTILITIES/COMMUNICATION) 24 637,025
OBIC CO., LTD. (BUSINESS SERVICES) 360 169,030
OJI PAPER CO., LTD. (FORESTRY/PAPER PRODUCTS) 14,000 98,601
RYOHIN KEIKAKU CO., LTD. (RETAIL) 3,000 576,657
See Accompanying Notes to Financial Statements
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SAIZERIYA CO., LTD. (RESTAURANTS) 1,300 $ 103,392
SANWA BANK LTD., THE (BANKS) 20,000 297,240
SHIMAMURA CO., LTD. (RETAIL) 2,000 287,466
SONY CORP. (ELECTRONICS) 2,000 311,614
TAIYO INK MFG. CO., LTD. (ELECTRONICS) 1,000 134,151
TAKEDA CHEMICAL INDS., LTD. (PHARMACEUTICALS) 4,000 229,590
THK CO., LTD. (MACHINERY/CAPITAL SPENDING) 7,000 228,727
TRANS COSMOS, INC. (BUSINESS SERVICES) 1,500 190,446
WORLD CO., LTD. (RETAIL) 1,800 181,966
YAMADA DENKI CO., LTD. (RETAIL) 2,000 142,392
-------------
8,753,206
-------------
KOREA (0.8%)
SAMSUNG ELECTRONICS, GDR (ELECTRONICS) 4,000 234,000
-------------
MALAYSIA (0.3%)
STAR CRUISES PLC (ENTERTAINMENT/LEISURE) 10,000 85,000
-------------
MEXICO (0.3%)
TELEFONOS DE MEXICO SA, ADR (UTILITIES/COMMUNICATION) 1,000 85,500
-------------
NETHERLANDS (5.0%)
ASM LITHOGRAPHY HOLDING NV (ELECTRONICS) * 1,700 123,463
EQUANT NV (BUSINESS SERVICES) * 5,200 504,400
ING GROEP NV (INSURANCE) 2,200 129,674
KONINKLIJKE PHILIPS ELECTRONICS NV (ELECTRICAL EQUIPMENT) 1,200 122,973
LAURUS NV (RETAIL) 3,900 86,696
STMICROELECTRONICS NV (ELECTRONICS) 1,200 109,050
UNITED PAN-EUROPE COMMUNICATIONS NV, ADR (MEDIA) * 3,400 263,500
VENDEX KBB NV (RETAIL) 6,000 175,000
-------------
1,514,756
-------------
SINGAPORE (1.5%)
DATACRAFT ASIA LTD. (OFFICE EQUIP./COMP./COMM.) 56,000 257,600
GES INTERNATIONAL LTD. (OFFICE EQUIP./COMP./COMM.) 180,000 156,866
OVERSEA-CHINESE BANKING CORP., LTD. (BANKS) 5,250 39,442
-------------
453,908
-------------
SPAIN (1.5%)
ARGENTARIA SA (BANKS) 4,700 104,233
SOGECABLE SA (MEDIA) * 4,100 112,731
TELEFONICA SA, ADR (UTILITIES/COMMUNICATION) * 4,680 233,708
-------------
450,672
-------------
SWEDEN (2.2%)
ASSA ABLOY AB (CLASS B) (DIVERSIFIED INDS./MANUFACTURING) 11,880 131,949
MUNTERS AB (DIVERSIFIED CONSUMER MANUFACTURING) 17,400 204,874
SKANDIA INSURANCE CO., LTD. (INSURANCE) 14,800 328,760
-------------
665,583
-------------
SWITZERLAND (2.0%)
JULIUS BAER HOLDING LTD. (BEARER) (BANKS) 30 90,272
See Accompanying Notes to Financial Statements
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
SHARES VALUE
------------- -------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NOVARTIS AG (REGISTERED) (PHARMACEUTICALS) 90 $ 134,669
ROCHE HOLDING AG (GENUSSSHEINE) (PHARMACEUTICALS) 19 228,189
ZURICH ALLIED AG (REGISTERED) (INSURANCE) 300 169,911
-------------
623,041
-------------
THAILAND (1.1%)
BANGKOK BANK PUBLIC CO., LTD. (FOREIGN) (BANKS) * 38,000 88,601
COGENERATION PUBLIC CO., LTD. (FOREIGN)
(UTILITIES/ELECTRIC & GAS) * 55,000 24,579
NATIONAL PETROCHEMICAL PUBLIC CO., LTD. PCL (FOREIGN)
(CHEMICALS) * 100,000 90,026
SIAM MAKRO PUBLIC CO., LTD. (FOREIGN) (WHOLESALE TRADE) 25,000 41,774
THAI FARMERS BANK PUBLIC CO., LTD. (FOREIGN) (BANKS) * 76,000 107,306
-------------
352,286
-------------
UNITED KINGDOM (17.1%)
BARCLAYS PLC (BANKS) 6,600 201,762
BILLITON PLC (MINING-METAL/MINERALS) 69,200 298,638
BP AMOCO PLC, ADR (OIL) 4,400 254,099
BRITISH TELECOMMUNICATIONS PLC
(UTILITIES/COMMUNICATION) 24,500 443,630
COLT TELECOM GROUP PLC (UTILITIES/COMMUNICATION) * 6,600 196,997
COMPASS GROUP PLC (ENTERTAINMENT/LEISURE) 37,200 397,991
GLAXO WELLCOME PLC (PHARMACEUTICALS) 6,000 176,824
GRANADA GROUP PLC (ENTERTAINMENT/LEISURE) 38,092 300,650
HAYS PLC (BUSINESS SERVICES) 18,500 211,434
HSBC HOLDINGS PLC (BANKS) 17,000 209,076
NATIONAL WESTMINSTER BANK PLC (BANKS) 6,700 151,058
NEXT PLC (RETAIL) 22,500 242,013
ORANGE PLC (UTILITIES/COMMUNICATION) * 9,000 224,032
PEARSON PLC (MEDIA) 13,000 291,605
SHELL TRANSPORT & TRADING CO. PLC (OIL) 11,000 84,203
SHELL TRANSPORT & TRADING CO., ADR (OIL) 3,500 160,562
SMITHKLINE BEECHAM PLC (PHARMACEUTICALS) 19,861 255,505
TELEWEST COMMUNICATIONS PLC (MEDIA) * 48,100 209,354
TESCO PLC (FOOD/BEVERAGES) 37,000 109,891
VODAFONE AIRTOUCH PLC (UTILITIES/COMMUNICATION) 52,170 242,265
WPP GROUP PLC (MEDIA) 51,500 558,165
-------------
5,219,754
-------------
UNITED STATES (1.2%)
NTL, INC. (MEDIA) * 2,500 188,437
SCHLUMBERGER LTD. (OIL) 2,800 169,575
-------------
358,012
-------------
TOTAL COMMON STOCKS
(COST $19,629,989) 25,011,137
-------------
See Accompanying Notes to Financial Statements
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMC INTERNATIONAL STOCK FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
PREFERRED STOCK (0.5%)
GERMANY
PORSCHE AG (AUTOMOBILES)
(COST $56,832) 50 $ 136,636
-------------
TOTAL INVESTMENTS, EXCLUDING TEMPORARY
CASH INVESTMENTS
(COST $19,686,821) 25,147,773
-------------
U.S. TREASURY BILL (6.5%)
4.460% 12/16/1999
(COST $1,988,850) 2,000,000 1,988,850
-------------
REPURCHASE AGREEMENTS (15.2%)
J.P. MORGAN SECURITIES, INC.
5.282% DATED 10/29/1999,
DUE 11/01/1999 IN THE
AMOUNT OF $3,129,497.
COLLATERALIZED BY
U.S. TREASURY BONDS
6.125% TO 10.375%
DUE 11/15/2009 TO 8/15/2029
U.S. TREASURY NOTES
5.875% TO 6.250%
DUE 5/31/2000 TO 6/30/2000 3,129,044 3,129,044
MERRILL LYNCH
5.272% DATED 10/29/1999,
DUE 11/01/1999 IN THE
AMOUNT OF $1,500,217
COLLATERALIZED BY
U.S. TREASURY STRIPS
DUE 11/15/2009 TO 02/15/17 1,500,000 1,500,000
-------------
TOTAL REPURCHASE AGREEMENTS
(COST $4,629,044) 4,629,044
-------------
TOTAL INVESTMENTS (104.2%)
(COST $26,304,715) 31,765,667
OTHER ASSETS LESS LIABILITIES (-4.2%) (1,274,019)
-------------
NET ASSETS (100.0%) $ 30,491,648
=============
* Non-Income Producing
See Accompanying Notes to Financial Statements
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
October 31, 1999
CMC Small CMC International
Cap Fund Stock Fund
------------------ ------------------
<S> <C> <C>
ASSETS:
Investments at identified cost .................................. $ 181,597,471 $ 19,686,821
Investments at identified cost - federal income tax purposes..... $ 182,917,712 $ 19,686,821
- ------------------------------------------------------------------- ------------------ ------------------
Investments at value............................................. $ 232,491,010 $ 25,147,773
Temporary cash investments, at value............................. 9,254,548 6,617,894
Cash............................................................. - 68,653
Cash denominated in foreign currencies (cost $233,775) .......... - 233,948
Receivable for:
Investments sold............................................... 4,966,269 275,672
Interest....................................................... 90,652 19,845
Dividends...................................................... 7,225 60,576
------------------ ------------------
Total assets..................................................... 246,809,704 32,424,361
------------------ ------------------
LIABILITIES:
Payable for:
Investments purchased.......................................... 6,484,595 1,842,331
Investment management fee ..................................... 143,621 17,737
Accrued expenses .............................................. 39,265 34,332
Foreign capital gains tax...................................... - 38,313
Capital stock redeemed......................................... 13,460 -
------------------ ------------------
Total liabilities............................................... 6,680,941 1,932,713
------------------ ------------------
NET ASSETS......................................................... $ 240,128,763 $ 30,491,648
================== ==================
NET ASSETS consist of:
Unrealized appreciation (depreciation) on:
Investments.................................................. $ 50,893,539 $ 5,456,572
Translation of assets and liabilities in foreign currencies.. - (7,666)
Undistributed net realized gain from investment transactions... 29,885,983 2,822,061
Capital paid in................................................ 159,349,241 22,220,681
------------------ ------------------
NET ASSETS......................................................... $ 240,128,763 $ 30,491,648
================== ==================
Shares of capital stock outstanding................................ 17,668,929 1,707,360
================== ==================
Net asset value, offering and
redemption price per share...................................... $ 13.59 $ 17.86
================== ==================
See Accompanying Notes to Financial Statements
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Year Ended October 31, 1999
CMC CMC
Small International
Cap Fund Stock Fund
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest........................................................... $ 740,749 $ 76,419
Dividends.......................................................... 367,347 158,561
Foreign withholding tax on dividend income ........................ - (17,880
------------- -------------
Total income.................................................... 1,108,096 217,100
------------- -------------
Expenses:
Investment management fees ........................................ 1,784,355 139,065
Custodian fees..................................................... 38,267 33,915
Legal, insurance and audit fees.................................... 32,743 32,267
Transfer agent fees................................................ 18,000 18,000
Trustees' fees..................................................... 9,454 1,131
Other expenses .................................................... 6,835 19,678
------------- -------------
Total expenses.................................................. 1,889,654 244,056
------------- -------------
Net investment loss................................................... (781,558) (26,956)
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain(loss) from:
Investment transactions............................................ 33,791,649 2,975,930
Foreignncurrency transactions...................................... - (110,239)
------------- -------------
Net realized gain .............................................. 33,791,649 2,865,691
------------- -------------
Change in net unrealized appreciation or depreciation on:
Investments........................................................ 37,005,516 3,545,846
Translation of assets and liabilities in foreign currencies........ - (9,281)
------------- -------------
Change in net unrealized appreciation........................... 37,005,516 3,536,565
------------- -------------
Net realized and unrealized gain on investments....................... 70,797,165 6,402,256
------------- -------------
NET INCREASE RESULTING FROM OPERATIONS................................... $ 70,015,607 $ 6,375,300
============= =============
See Accompanying Notes to Financial Statements
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31,
CMC Small CMC International
Cap Fund Stock Fund
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss)......................... $ (781,558) $ (669,344) $ (26,956) $ 307,230
Net realized gain (loss) from:
Investment transactions............................ 33,791,649 29,537,972 2,975,930 10,857,469
Futures contracts.................................. - 1,770,502 - -
Foreign currency transactions...................... - - (110,239) (691,668)
Change in net unrealized appreciation or
depreciation on:
Investments........................................ 37,005,516 (61,700,383) 3,545,846 (4,831,185)
Translation of assets and liabilities
in foreign currencies............................ - - (9,281) 77,019
-------------- -------------- -------------- --------------
Net increase (decrease)
resulting from operations.......................... 70,015,607 (31,061,253) 6,375,300 5,718,865
Distributions to shareholders:
From net realized gain from
investment transactions............................ (384,566) (31,308,474) (3,136) (10,805,915)
In excess of net realized gain from
investment transactions............................ - (1,826,187)* - -
Net capital share transactions.......................... (97,292,620) (189,785,414) 8,742,456 (61,006,570)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets................... (27,660,400) (253,981,328) 15,114,620 (66,093,620)
NET ASSETS:
Beginning of year ................................... 267,789,163 521,770,491 15,377,028 81,470,648
-------------- -------------- -------------- --------------
End of year ......................................... $ 240,128,763 $ 267,789,163 $ 30,491,648 $ 15,377,028
============== ============== ============== ==============
* On a tax basis, there was no return of capital.
See Accompanying Notes to Financial Statements
</TABLE>
44
<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. 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. Portfolio securities are valued based on the last sales
prices reported by the principal securities exchanges on which the investments
are traded or, on the absence of recorded sales, at the closing bid prices on
such exchanges or over-the-counter markets. Investment securities with less than
60 days to maturity when purchased are valued at amortized cost, which
approximates market value. Investment securities not currently quoted as
described above will be priced at fair market value as determined in good faith
in a manner prescribed by the Board of Trustees.
Repurchase agreements. The Funds may engage in repurchase agreement
transactions. The Funds, through their custodians, receive delivery of
underlying securities collateralizing repurchase agreements (included in
temporary cash investments). The Funds' investment advisor 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.
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, US 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 has not entered into futures contracts during
the year ending October 31, 1999.
Forward currency exchange contracts. The CMC International Stock Fund may enter
into forward currency contracts in connection with planned purchases or sales of
securities or to hedge the US dollar value of the portfolio securities
denominated in a foreign currency. Contracts are recorded at the prevailing
forward exchange rate of the underlying currencies. The gain or loss arising
from the difference between the original contract price and the closing price of
such contract is included in the net realized gains or losses from foreign
currency transactions. Fluctuations in the value of forward currency contracts
are recorded for financial reporting purposes as unrealized gains or losses. The
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 corresponding change (resulting from a
change in exchange rates) in value of the securities denominated in that
currency. During the year ending October 31, 1999, the Fund did not enter into
any such forward currency contracts.
45
<PAGE>
- --------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant accounting policies, continued:
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 US dollars on the market value of investment securities, other
assets, and liabilities at the daily rates of exchange on the valuation date,
and purchases and sales of investment securities, dividend and interest income
and certain expenses at the rates of exchange prevailing on the respective dates
of such transactions.
The CMC International Stock Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices on 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 sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the US dollar equivalents of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities, other than investments in securities, resulting
from changes in the exchange rate.
Interest and dividend income. Interest income is recorded on the accrual basis
and dividend income is recorded on the ex-dividend date. Amortization of
discounts or accretion of premiums is recorded over the life of the instrument.
Dividends and distributions to shareholders. Dividends from net investment
income and distributions from any net realized gains are declared and paid
annually.
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 realized gains from sales of investment 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.
Foreign capital gains taxes. Realized gains in countries may be subject to
foreign taxes at rates ranging from approximately 10% to 30%. The Funds'
provides for such foreign taxes on net realized and unrealized gains at the
appropriate rate for each jurisdiction.
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. Realized gains and losses from investments are reported on the basis
of identified costs.
46
<PAGE>
- --------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Investment transactions:
Aggregate purchases, sales and maturities, net realized gain and net unrealized
appreciation on investments, excluding short-term investments, as of and for the
year ended October 31, 1999 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....................... $ 415,105,260 $ 21,281,419
================= =================
Sales and Maturities:
Investment securities other than U.S.
Government obligations....................... $ 490,372,422 $ 16,074,686
================= =================
Net Realized Gain:
Investment securities other than U.S.
Government obligations....................... $ 33,791,649 $ 2,975,930
================= =================
Unrealized Appreciation (Depreciation) for
federal income tax purposes:
Appreciation................................... $ 59,951,171 $ 6,280,416
Depreciation................................... (10,377,873) (823,844)
----------------- -----------------
Net unrealized appreciation ................. $ 49,573,298 $ 5,456,572
================= =================
</TABLE>
3. Capital Stock:
<TABLE>
<CAPTION>
CMC Small Cap Fund CMC International Stock Fund
Year Ended October 31, Year Ended October 31,
------------------------------- -------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares:
Shares sold.......................... 1,948,298 3,526,101 869,316 140,622
Shares issued for reinvestment
of dividends....................... 28,298 795,793 181 861,716
Shares issued for share split*....... 13,253,670 - - -
-------------- -------------- -------------- --------------
15,230,266 4,321,894 869,497 1,002,338
Less shares redeemed................. (4,284,571) (7,189,299) (388,425) (1,683,481)
-------------- -------------- -------------- --------------
Net increase (decrease) in shares.... 10,945,695 (2,867,405) 481,072 (681,143)
============== ============== ============== ==============
Amounts:
Sales................................ $ 69,448,331 $ 166,362,699 $ 14,220,602 $ 6,648,396
Reinvestment of dividends............ 384,566 31,696,418 3,243 10,805,915
-------------- -------------- -------------- --------------
69,832,897 198,059,117 14,223,845 17,454,311
Less redemptions..................... (167,125,517) (387,844,531) (5,481,389) (78,460,881)
-------------- -------------- -------------- --------------
Net increase (decrease).............. $ (97,292,620) $ (189,785,414) $ 8,742,456 $ (61,006,570)
============== ============== ============== ==============
Capital stock authorized (shares) 100,000,000 100,000,000
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
CMC SMALL CAP FUND
CMC INTERNATIONAL STOCK FUND
Portfolios of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. Transactions with affiliates and related parties:
<TABLE>
<CAPTION>
CMC Small CMC International
Cap Fund Stock Fund
------------ -----------------
<S> <C> <C>
Investment management fees incurred........................ $ 1,784,355 $ 139,065
Investment management fee computation basis
(percentage of daily net assets per annum).............. 0.75 of 1% 0.75 of 1%
Transfer agent fee......................................... $ 18,000 $ 18,000
Fees earned by trustees not affiliated with the
Fund's investment adviser or transfer agent.............. $ 9,454 $ 1,131
</TABLE>
The investment adviser of the Funds is Columbia Management Co. (CMC). CMC is an
indirect subsidiary of Fleet Boston Corporation (Fleet), a publicly owned
multi-bank holding company registered under the Bank Holding Company Act of
1956.
The transfer agent for the Funds is Columbia Trust Company (CTC), an affiliate
of CMC and indirect subsidiary of Fleet. CTC 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.
J. Jerry Inskeep, Jr., an officer and trustee of the Trust, is affiliated with
Fleet but receives no compensation or other payments from the Trust.
48
<PAGE>
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers
1300 SW Fifth Avenue
Portland OR 97201-5638
Telephone (503) 478 6000
Facsimile (503) 478 6099
Report of Independent Accountants
To the Trustees and Shareholders of CMC Fund Trust
In our opinion, the accompanying statements of assets and liabilities, including
the schedules 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 (the Funds), two of the portfolios of CMC Fund Trust,
at October 31, 1999, and the results of each of their operations for the year
then ended, the changes in each of their net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, 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 at October 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
December 3, 1999
<PAGE>
Part A-II
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[Logo]
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
approved or disapproved these securities or passed on the adequacy of this
Prospectus. Any representation to the contrary is a criminal offense.
December 20, 1999
<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
- --------------------------------------------------------------------------------
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
2
<PAGE>
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 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.
3
<PAGE>
|----------------------------------------------------|
| 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.
You could lose money as a result of your investment in the Fund.
Additionally, the Fund could underperform 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.
4
<PAGE>
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 and the Lipper High Yield Bond Fund Index, which reflects
equally-weighted performance of the 30 largest mutual funds within its
category. 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":
Year Total Return Percentage
---- -----------------------
1995 19.86%
1996 9.70%
1997 12.12%
1998 7.33%
Best Quarter: 2Q '95 5.72%
Worst Quarter: 3Q '98 -0.25%
---------------------------------------------------------
Average Annual Total Returns As Of 12/31/98
Inception
1 Year (7/6/94)
----------------------------------------------------------------------
CMC High Yield Fund 7.33% 11.02%
Lehman Aggregate Bond Index 8.69% 9.00%
Lipper High Yield Bond Fund Index -0.08% 9.09%*
The Fund's year-to-date total return as of 9/30/99 was 0.06%.
* Performance for the Lipper High Yield Bond Index begins on 7/1/94.
5
<PAGE>
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 (fees paid directly None
from your investment)
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 0.03%
Total Fund Operating Expenses 0.43%
-------------------------------------------------------------------
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 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
------ ------- ------- --------
$ 44 $ 138 $ 241 $ 542
6
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five years. 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,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............. $ 8.95 $ 9.21 $ 8.99 $ 9.06 $ 8.62
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .......................... 0.74 0.76 0.80 0.81 0.83
Net realized and unrealized gains (losses)
on investments................................ (0.41) (0.21) 0.32 0.03 0.53
-------- -------- -------- -------- --------
Total from investment operations........... 0.33 0.55 1.12 0.84 1.36
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income............ (0.74) (0.76) (0.80) (0.81) (0.83)
Distributions from net capital gains............ (0.00)* (0.05) (0.10) (0.10) (0.09)
-------- -------- -------- -------- --------
Total distributions........................ (0.74) (0.81) (0.90) (0.91) (0.92)
-------- -------- -------- -------- --------
Net asset value, end of year.................... $ 8.54 $ 8.95 $ 9.21 $ 8.99 $ 9.06
======== ======== ======== ======== ========
Total return.................................... 3.75% 6.00% 12.90% 9.61% 16.49%
Ratios/Supplemental data
Net assets, end of year (in thousands).......... $271,551 $263,912 $119,196 $ 69,614 $ 42,192
Ratio of expenses to average net assets......... 0.43% 0.45% 0.45% 0.50% 0.54%
Ratio of net income to average net
assets ...................................... 8.39% 8.28% 8.60% 8.90% 9.36%
Portfolio turnover rate......................... 62.27% 70.56% 68.96% 56.06% 45.64%
* Amount represents less than $0.01 per share.
NOTE: Per share amounts have been adjusted to retroactively reflect a 4 for 1
share split effective September 1, 1999.
</TABLE>
- --------------------------------------------------------------------------------
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.
7
<PAGE>
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, 1999, 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
-------------
Shares in the Fund are available for purchase by clients of CMC
enabling them 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. CMC may, at its discretion also use the Fund as a way to
diversify the portfolios of its separately managed accounts. If the
separately managed account is governed by the rules and regulations
promulgated under the Employee Retirement Income Security Act of 1974, any
investment in the Fund will only be made after the investment has been
approved by an independent fidicuary and certain conditions are satisfied.
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
8
<PAGE>
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
9
<PAGE>
your shares in the Fund are redeemed, the undistributed dividends on the
redeemed shares will be paid at that time. The Fund generally distributes
substantially all of its net realized capital gains to shareholders once a
year, usually in December. The amount distributed 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 |
| |
| Type of Tax Rate for Tax Rate for 28% |
| Distribution 15% Bracket Bracket or Higher |
| ------------ ------------ ----------------- |
| |
| Income Dividends Ordinary Ordinary |
| Income Rate Income Rate |
| |
| Short Term Capital Gains Ordinary Ordinary |
| Income Rate Income Rate |
| |
| Long Term Capital Gains 10% 20% |
|------------------------------------------------------------|
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 a company's:
o financial condition
o quality of management
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 yield 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 political conditions. When a Fund
assumes a temporary
11
<PAGE>
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. In the past
many computer software systems could not distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated. This
condition 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 completed
all 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>
- --------------------------------------------------------------------------------
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 accountant's report.
A current SAI for the Fund is on file with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference, which means it
is considered 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.
Information about the Fund (including the SAI) can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information about the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Reports and other information regarding the Fund are also on the
SEC's Internet website at http://www.sec.gov, and copies of this information may
be obtained, after paying a duplicating fee, by electronic request at the SEC's
E-mail address at [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
SEC file number: 811-5857
13
<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 S.W. Sixth Avenue
P.O. 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 20, 1999 (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....................................22
Custodians....................................................................25
Independent Accountants.......................................................25
Taxes.........................................................................25
Yield and Performance.........................................................29
Financial Statements..........................................................31
December 20, 1999
<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 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 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 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 HELD BY 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 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
2
<PAGE>
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 addition to current yield, in making investment decisions, the
Fund will consider factors, 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 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.
3
<PAGE>
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.
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.
4
<PAGE>
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.
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
5
<PAGE>
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 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
6
<PAGE>
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.
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.
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.
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
11
<PAGE>
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. The Fund may write such options on up to 25 percent of its net
assets.
The Fund may engage in financial futures transactions, including interest
rate futures transactions. Financial futures contracts are commodity contracts
that obligate the long or short holder to take or make delivery of a specified
quantity of a financial instrument, such as a security or the cash value of a
securities index, during a specified future period at a specified price. The
Fund's investment restrictions do not limit the percentage of the Fund's assets
that may be invested in financial futures transactions. The Fund, however, does
not intend to enter into financial futures transactions for which the aggregate
initial margin exceeds 5 percent of the net assets of the Fund after taking into
account unrealized profits and unrealized losses on any such transactions it has
entered into. The Fund may engage in futures transactions only on commodities
exchanges or boards of trade.
The Fund will not engage in transactions in index options, financial
futures contracts, or related options for speculation, but only as an attempt to
hedge against market conditions affecting the values of securities that the Fund
owns or intends to purchase. When the Fund purchases a put on a stock index or
on a stock index future not held by the Fund, the put protects the Fund against
a decline in the value of all securities held by it to the extent that the stock
index moves in a similar pattern to the prices of the securities held. The
correlation, however, between indices and price movements of the securities in
which the Fund will generally invest may be imperfect. The Fund expects,
nonetheless, that the use of put options that relate to such indices will, in
certain circumstances, protect against declines in values of specific portfolio
securities or the Fund's portfolio generally. Although the purchase of a put
option may partially protect the Fund from a decline in the value of a
particular security or its portfolio generally, the cost of a put will reduce
the potential return on the security or the portfolio if either increases in
value.
Upon entering into a futures contract, the Fund will be required to deposit
with its custodian in a segregated account cash or certain U.S. government
securities, 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
12
<PAGE>
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.
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
13
<PAGE>
realizing upon the collateral. The Fund will enter into repurchase agreements
only with those banks or securities dealers who are deemed creditworthy pursuant
to criteria adopted by the Trustees of the Trust. There is no limit on the
portion of the Fund's assets that may be invested in repurchase agreements with
maturities of seven days or less.
Illiquid Securities
- -------------------
No illiquid securities will be acquired by the Fund if upon the purchase
more than 10 percent of the value of the Fund's net assets would consist of
these securities. "Illiquid securities" are securities that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price used to determine the Fund's net asset value. Under
current interpretations of the Staff of the SEC, the following instruments in
which the Fund may invest will be considered illiquid: (1) repurchase agreements
maturing in more than seven days; (2) restricted securities (securities whose
public resale is subject to legal restrictions); (3) options, with respect to
specific securities, not traded on a national securities exchange that are not
readily marketable; and (4) any other securities in which the Fund may invest
that are not readily marketable.
The Fund may purchase without limit, however, certain restricted securities
that can be resold to qualifying institutions pursuant to a regulatory exemption
under Rule 144A ("Rule 144A securities"). If a dealer or institutional trading
market exists for Rule 144A securities, such securities are deemed to be liquid
and thus not subject to the Fund's 10 percent limitation on the investment in
restricted or other illiquid securities. Under the supervision of the Trustees
of the Trust, the Adviser determines the liquidity of Rule 144A securities and,
through reports from the Adviser, the Trustees monitor trading activity in these
securities. In reaching liquidity decisions, the Adviser will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of 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
14
<PAGE>
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 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
15
<PAGE>
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 HELD BY 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.
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
<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.
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 National Municipal
Bond Fund, Inc. since January 1999; Columbia Small Cap Fund, Inc. since August
1996; 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 National 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 68, Chairman, President, and Trustee of the Trust;
Chairman, President, and Director of each of the Columbia Funds; Consultant with
Fleet Boston Corporation (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 67, 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 72, 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, civil and structural
engineering). Mr. Mackenzie's address is 0690 S.W. Bancroft Street, Portland,
Oregon 97201.
17
<PAGE>
ROBERT J. MOORMAN, * Age 48, 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 58, Trustee of the Trust; Director of each of the
Columbia Funds; Chairman of Regence Blue Cross Blue Shield of Oregon; and
Chairman and Chief Executive Officer of the Regence Group, health insurers.
Mr. Woolworth's address is 200 S.W. Market Street, Suite 1500, 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, 1999.
Total Compensation from the
Trustee Compensation From Trust Trust and Columbia Funds
- ------- ----------------------- ---------------------------
Richard L. Woolworth $ 9,000 $ 32,000
Thomas R. Mackenzie $ 9,000 $ 31,000
James C. George $ 9,000 $ 31,000
At November 30, 1999, 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, 1999
- ---------------- -------------------------
Carpenters Pension Trust Fund 4,083,708 (12.98%)
For Southern California
So. Calif.-Nevada Regional Council of Carpenters
520 South Virgil Avenue
Los Angeles, CA 90020
Legacy Fixed Income Investment Fund 4,605,693 (14.64%)
Legacy Health Systems
Corporate Financial Administrative Services
1919 N.W. Lovejoy
Portland, OR 97209
Lumber Industry Pension Fund 1,579,340 (5.02%)
Associated Administrators, Inc.
2929 N.W. 31st Avenue
Portland, OR 97210
18
<PAGE>
- --------------------------------------------------------------------------------
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 Boston
Corporation ("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 0.40 of 1 percent of its daily net assets. Advisory fees paid
by the Fund to the Adviser were $1,140,751, $853,566 and $354,620 for fiscal
year 1999, fiscal year 1998, and fiscal year 1997, respectively.
The Trust Company acts as transfer agent and dividend crediting agent for
the Fund. Its address is 1301 S.W. 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 1999 under the transfer agent agreement relating to the Fund.
19
<PAGE>
- --------------------------------------------------------------------------------
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 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
20
<PAGE>
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. In addition, the Fund may purchase securities from an
underwriting syndicate in which an affiliate is a member of the underwriting
syndicate. In any agency transaction or purchase from an underwriting syndicate
of which an affiliate is a member, the trade will be accomplished in accordance
with the rules and regulations of the Investment Company Act of 1940.
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 Code does not prohibit employees
from purchasing securities that may be held or purchased by the Fund, but is
intended 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
21
<PAGE>
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 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 a reduced, or in the case of an
employee benefit plan, 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
22
<PAGE>
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. 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
23
<PAGE>
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 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 which the Adviser believes are not accurately valued, 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.
24
<PAGE>
- --------------------------------------------------------------------------------
CUSTODIANS
- --------------------------------------------------------------------------------
U S Bank N.A., 321 S.W. Sixth Avenue, Portland, Oregon 97208, acts as
general custodian of the Trust (a "Custodian"). The Chase Manhattan Bank
("Chase" or a "Custodian"), 3 Chase Metrotech Center, Brooklyn, New York 11245,
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.
- --------------------------------------------------------------------------------
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:
25
<PAGE>
(a) derive at least 90 percent of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities, or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies (the "90 Percent Test"); and
(b) diversify its holdings so that at the end of each quarter (i) 50
percent or more of the value of the assets of the Fund is represented by cash,
government securities, and other securities limited, in respect of any one
issuer of such other securities, to an amount not greater than 5 percent of the
value of the assets of the Fund and 10 percent of the outstanding voting
securities of such issuer, and (ii) not more than 25 percent of the value of the
assets of the Fund is invested in the securities (other than government
securities) of any one issuer or of two or more issuers that the Fund "controls"
within the meaning of Section 851 of the Code and that meet certain
requirements. In addition, the Fund must file, or have filed, a proper election
with the Internal Revenue Service.
Part I of Subchapter M of the Code will apply to the Fund during a taxable
year only if it meets certain additional requirements. Among other things, the
Fund must: (a) have a deduction for dividends paid (without regard to capital
gain dividends) at least equal to the sum of 90 percent of its investment
company taxable income (computed without any deduction for dividends paid) and
90 percent of its tax-exempt interest in excess of certain disallowed deductions
(unless the Internal Revenue Service waives this requirement) and (b) either (i)
have been subject to Part I of Subchapter M for all taxable years ending after
November 8, 1983 or (ii) as of the close of the taxable year have no earnings
and profits accumulated in any taxable year to which Part I of Subchapter M did
not apply.
The Trust currently has four portfolios, including the Fund. The Trust may
establish additional funds in the future. Federal income tax laws generally will
treat each fund as a separate corporation (provided that each fund consists of a
segregated portfolio of assets the beneficial interests in which are owned by
the holders of a class or series of stock that is preferred over all other
classes or series in respect of that portfolio of assets).
A regulated investment company that meets the requirements described above
is taxed only on its "investment company taxable income," which generally equals
the undistributed portion of its ordinary net income and any excess of net
short-term capital gain over net long-term capital loss. In 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
26
<PAGE>
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.
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.
27
<PAGE>
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.
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.
28
<PAGE>
- --------------------------------------------------------------------------------
YIELD AND PERFORMANCE
- --------------------------------------------------------------------------------
The Trust may from time to time advertise or quote current yield and total
return performance for the Fund. These figures represent historical data and are
calculated according to SEC rules standardizing such computations. The
investment return on and the value of shares of the Fund will fluctuate so that
the shares when redeemed may be worth more or less than their original cost.
Current yield of the Fund is calculated by dividing the net investment
income per share earned during an identified 30-day period by the maximum
offering price per share on the last day of the same period, according to the
following formula:
Yield = 2 [( a-b + 1)6 -1]
----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of 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, 1999 was 9.00%.
The Trust may publish average annual total return quotations for recent 1,
5, and 10-year periods (or a fractional portion thereof) computed by finding the
average annual compounded rates of return over the 1, 5, and 10-year periods
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
29
<PAGE>
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1,
5, and 10-year periods (or a fractional portion
thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods (or a fractional portion thereof) where the total return figures
represent the percentage return for the 1, 5, and 10-year periods that would
equate the initial amount invested to the ending redeemable value. If the
Trust's registration statement under the 1940 Act with respect to 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, 1999, the
average annual return for the Fund for the 1 year, 5 year periods and since
inception (July 6, 1994) was 3.75%, 9.65%, and 9.33%, respectively.
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 The
Dow Jones Business and Financial Weekly, 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.
30
<PAGE>
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,
1999, together with the Independent Accountant's Report of
PricewaterhouseCoopers LLP, are attached hereto and incorporated by reference
into this Statement of Additional Information.
31
<PAGE>
CMC HIGH YIELD FUND
A Portfolio of CMC Trust
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
We are pleased to provide you with an investment review of the CMC High Yield
Fund. For the fiscal year ended October 31, 1999, the Fund had a total return of
3.75%. In comparison, the Lipper High Yield Bond Index had a total return of
7.38%, and the Lehman Aggregate Index reported a return of 0.53% for the same
period.
The high yield market began the fiscal year on a positive note thanks to a sound
U.S. economy and strong stock market performance. Treasury yields rose at the
close of 1998, narrowing the difference in yields between Treasuries and high
yield bonds, and prices for high yield bonds rose. The favorable environment
continued into 1999 as persistent economic growth steered investors away from
U.S. Treasuries and toward riskier, more aggressive investments, such as junk
bonds. High yield bonds became the best performing securities of all domestic
fixed income assets in the second quarter of the reporting period and maintained
their momentum through the third fiscal quarter, outperforming the
investment-grade market. Higher energy prices prompted an increase in the
portfolio's energy weighting, which allowed the Fund to maintain its steady
performance.
In the final fiscal quarter, greater volatility in the stock and bond markets
elevated investor nervousness. Yields rose modestly, driving down bond prices.
Furthermore, high yield bonds significantly underperformed investment-grade
alternatives. In a strong economy, the lowest quality junk bonds tend to perform
the best. Keeping with its more conservative nature, the CMC High Yield Fund
focuses on the "upper tier" of non-investment-grade bonds; while the Fund
outperformed investment-grade bonds during the fiscal year, it did not perform
as well as the broader junk bond market. During this challenging time, the Fund
benefited from its holdings in the telecommunications, broadcasting, cable TV
and energy sectors.
In addition to a positive economic outlook, yields on high yield bonds are above
historical averages compared to Treasuries. We believe that high yield bonds
will continue to offer substantial return potential for investors with a higher
risk tolerance.
On October 31, 1999, the Fund had a duration of 4.15 years and a weighted
average maturity of 6.58 years. The Fund's top ten holdings (as a percentage of
net assets) as of October 31, 1999 were:
Unisys Corp. (2.5%)
Healthsouth Corp. (2.5%)
Lenfest Communications, Inc. (2.4%)
Westpoint Stevens, Inc. (2.4%)
Outdoor Systems, Inc. (2.3%)
Newpark Resources, Inc. (2.3%)
Adelphia Communications Corp. (2.3%)
Lamar Media Corp. (2.2%)
Fox/Liberty Networks L.L.C. (2.2%)
Comcast Corp. (2.2%)
We appreciate your continued confidence in CMC High Yield Fund.
The Columbia Investment Team
December 3, 1999
32
<PAGE>
Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($9,000-$17,000) of CMC High Yield Fund, Lipper High
Yield Bond and Lehman Aggregate Bond for the period 7/6/94 to 10/31/99 to
$16,044, $15,055 and $14,683, respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------
1 Year 5 Years Since Inception
------ ------- ---------------
<S> <C> <C> <C>
CMC High Yield 3.75% 9.65% 9.33%
Lipper Current High Yield 7.38% 8.53% 8.02%
Lehman Aggregate Bond 0.53% 7.94% 7.52%
</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
7/1/94. Total return performance is illustrated for the periods ended October
31, 1999. 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.
33
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Year)
- --------------------------------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
-------------------
Year Ended October 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................ $ 8.95 $ 9.21 $ 8.99 $ 9.06 $ 8.62
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.......................... 0.74 0.76 0.80 0.81 0.83
Net realized and unrealized gains (losses)
on investments............................... (0.41) (0.21) 0.32 0.03 0.53
---------- ---------- ---------- ---------- ----------
Total from investment operations........... 0.33 0.55 1.12 0.84 1.36
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income........... (0.74) (0.76) (0.80) (0.81) (0.83)
Distributions from net capital gains........... (0.00)* (0.05) (0.10) (0.10) (0.09)
---------- ---------- ---------- ---------- ----------
Total distributions........................ (0.74) (0.81) (0.90) (0.91) (0.92)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year...................... $ 8.54 $ 8.95 $ 9.21 $ 8.99 $ 9.06
========== ========== ========== ========== ==========
Total return...................................... 3.75% 6.00% 12.90% 9.61% 16.49%
Ratios/Supplemental data
Net assets, end of year (in thousands)............ $ 271,551 $ 263,912 $ 119,196 $ 69,614 $ 42,192
Ratio of expenses to average net assets........... 0.43% 0.45% 0.45% 0.50% 0.54%
Ratio of net income to average net assets......... 8.39% 8.28% 8.60% 8.90% 9.36%
Portfolio turnover rate........................... 62.27% 70.56% 68.96% 56.06% 45.64%
* Amount represents less than $0.01 per share.
NOTE: Per share amounts have been adjusted to retroactively reflect a 4 for 1
share split effective September 1, 1999.
See Accompanying Notes to Financial Statements
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
OCTOBER 31, 1999
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (96.3%)
INDUSTRIAL (77.0%)
BASIC INDUSTRY & MANUFACTURING (7.9%)
FOREST PRODUCTS (0.6%)
STONE CONTAINER CORP.
SENIOR NOTES
11.500% 10/01/2004 $ 1,600,000 $ 1,672,000
-------------
MANUFACTURING (6.5%)
BALL CORP.
SENIOR NOTES
7.750% 08/01/2006 2,450,000 2,388,750
BALL CORP.
SENIOR SUBORDINATED NOTES
8.250% 08/01/2008 4,340,000 4,231,500
SILGAN HOLDINGS, INC.
SENIOR SUBORDINATED DEBENTURES
9.000% 06/01/2009 2,715,000 2,572,462
TITAN WHEEL INTERNATIONAL, INC.
SENIOR SUBORDINATED NOTES
8.750% 04/01/2007 2,075,000 1,867,500
WESTPOINT STEVENS, INC.
SENIOR NOTES
7.875% 06/15/2005 6,950,000 6,463,500
-------------
17,523,712
-------------
METALS/MINING (0.8%)
RYERSON TULL, INC.
NOTES
8.500% 07/15/2001 2,250,000 2,301,640
-------------
TOTAL BASIC INDUSTRY & MANUFACTURING 21,497,352
-------------
BUSINESS & CONSUMER SERVICES (30.5%)
SERVICES & PUBLISHING (8.0%)
ALLIED WASTE NORTH AMERICA, INC.
SENIOR NOTES, SERIES B
7.625% 01/01/2006 2,800,000 2,446,500
AVIATION SALES CO.
SENIOR SUBORDINATED NOTES
8.125% 02/15/2008 1,185,000 948,000
IRON MOUNTAIN, INC.
SENIOR SUBORDINATED NOTES
10.125% 10/01/2006 5,000,000 5,125,000
See Accompanying Notes to Financial Statements
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
PIERCE LEAHY CORP.
SENIOR SUBORDINATED NOTES
11.125% 07/15/2006 $ 3,112,000 $ 3,290,940
UNITED STATIONERS SUPPLY CO.
SENIOR SUBORDINATED NOTES
8.375% 04/15/2008 5,065,000 4,571,162
USA WASTE SERVICES, INC.
NOTES
6.125% 07/15/2001 5,500,000 5,166,865
-------------
21,548,467
-------------
ENTERTAINMENT & MEDIA (22.5%)
ADELPHIA COMMUNICATIONS CORP.
SENIOR NOTES, SERIES B
10.500% 07/15/2004 5,965,000 6,114,125
CAPSTAR BROADCASTING CORP.
SENIOR SUBORDINATED NOTES, SERIES B
10.750% 05/15/2006 1,442,000 1,600,620
CENTURY COMMUNICATIONS CORP.
SENIOR DISCOUNT NOTES
0.000% 03/15/2003 6,985,000 4,915,694
CINEMARK USA, INC.
SENIOR SUBORDINATED NOTES, SERIES B
9.625% 08/01/2008 3,075,000 2,690,625
COMCAST CORP.
SENIOR SUBORDINATED DEBENTURES
9.500% 01/15/2008 5,825,000 6,037,263
CSC HOLDINGS, INC.
SENIOR SUBORDINATED NOTES
9.250% 11/01/2005 700,000 701,750
FOX/LIBERTY NETWORKS L.L.C.
SENIOR NOTES
8.875% 08/15/2007 5,975,000 6,064,625
HOLLINGER INTERNATIONAL PUBLISHING, INC.
SENIOR NOTES
8.625% 03/15/2005 4,160,000 4,056,000
JACOR COMMUNICATIONS CO.
SENIOR SUBORDINATED NOTES, SERIES B
8.750% 06/15/2007 5,225,000 5,251,125
LAMAR MEDIA CORP.
SENIOR SUBORDINATED NOTES
9.625% 12/01/2006 5,960,000 6,079,200
LENFEST COMMUNICATIONS, INC.
SENIOR NOTES
8.375% 11/01/2005 6,200,000 6,463,810
See Accompanying Notes to Financial Statements
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
NEWS CORPORATION LTD.
SENIOR SUBORDINATED NOTES
8.750% 02/15/2006 $ 2,250,000 $ 2,311,875
OUTDOOR SYSTEMS, INC.
SENIOR SUBORDINATED NOTES
9.375% 10/15/2006 5,990,000 6,259,550
PRIMEDIA, INC.
SENIOR NOTES
10.250% 06/01/2004 2,600,000 2,639,000
-------------
61,185,262
-------------
TOTAL BUSINESS & CONSUMER SERVICES 82,733,729
-------------
CONSUMER CYCLICAL (14.1%)
AUTO & AUTO PARTS (4.7%)
AMERICAN AXLE & MANUFACTURING, INC.
SENIOR SUBORDINATED NOTES
9.750% 03/01/2009 3,000,000 2,970,000
FEDERAL MOGUL CORP.
NOTES
7.750% 07/01/2006 1,960,000 1,837,422
HAYES WHEELS INTERNATIONAL, INC.
SENIOR SUBORDINATED NOTES, SERIES B
9.125% 07/15/2007 4,465,000 4,252,912
LEAR CORP. (144A)
SENIOR NOTES
7.960% 05/15/2005 3,800,000 3,719,250
-------------
12,779,584
-------------
HOTELS & GAMING (4.2%)
HARRAHS OPERATING, INC.
SENIOR SUBORDINATED NOTES
7.875% 12/15/2005 5,700,000 5,429,250
INTERNATIONAL GAME TECHNOLOGY
SENIOR NOTES
7.875% 05/15/2004 3,950,000 3,792,000
STATION CASINOS, INC.
SENIOR SUBORDINATED NOTES
9.750% 04/15/2007 2,175,000 2,207,625
-------------
11,428,875
-------------
HOUSING RELATED (1.0%)
WEBB (DEL) CORP.
SENIOR SUBORDINATED DEBENTURES
9.000% 02/15/2006 2,990,000 2,631,200
-------------
See Accompanying Notes to Financial Statements
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
RETAIL (3.0%)
MAXIM GROUP, INC.
SENIOR SUBORDINATED NOTES, SERIES B
9.250% 10/15/2007 $ 3,100,000 $ 2,573,000
ZALE CORP.
SENIOR NOTES, SERIES B
8.500% 10/01/2007 5,650,000 5,480,500
-------------
8,053,500
-------------
OTHER (1.2%)
TRICON GLOBAL RESTAURANTS, INC.
SENIOR NOTES
7.450% 05/15/2005 3,500,000 3,381,875
-------------
TOTAL CONSUMER CYCLICAL 38,275,034
-------------
CONSUMER STAPLES (7.6%)
HEALTH CARE (6.2%)
CONMED CORP.
SENIOR SUBORDINATED NOTES
9.000% 03/15/2008 4,110,000 3,719,550
HEALTHSOUTH CORP.
SENIOR SUBORDINATED NOTES
9.500% 04/01/2001 6,843,000 6,654,818
QUORUM HEALTH GROUP, INC.
SENIOR SUBORDINATED NOTES
8.750% 11/01/2005 1,325,000 1,212,375
TENET HEALTHCARE CORP.
SENIOR NOTES
8.625% 12/01/2003 2,250,000 2,193,750
TENET HEALTHCARE CORP.
SENIOR SUBORDINATED NOTES, SERIES B
8.125% 12/01/2008 3,500,000 3,132,500
-------------
16,912,993
-------------
HOUSEHOLD PRODUCTS (1.4%)
THE SCOTTS CO. (144A)
SENIOR SUBORDINATED NOTES
8.625% 01/15/2009 3,950,000 3,732,750
-------------
TOTAL CONSUMER STAPLES 20,645,743
-------------
ENERGY (12.0%)
GULF CANADA RESOURCES LTD.
SENIOR SUBORDINATED DEBENTURES
9.625% 07/01/2005 5,750,000 5,821,875
See Accompanying Notes to Financial Statements
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
NEWPARK RESOURCES, INC.
SENIOR SUBORDINATED NOTES, SERIES B
8.625% 12/15/2007 $ 6,630,000 $ 6,165,900
PRIDE INTERNATIONAL, INC.
SENIOR NOTES
10.000% 06/01/2009 3,975,000 3,984,938
R&B FALCON CORP.
SENIOR NOTES, SERIES B
6.500% 04/15/2003 1,500,000 1,338,750
RBF FINANCE CO.
SENIOR SECURED NOTES
11.000% 03/15/2006 2,000,000 2,120,000
SANTA FE SNYDER CORP.
SENIOR NOTES
8.050% 06/15/2004 6,000,000 5,895,000
VINTAGE PETROLEUM, INC.
SENIOR SUBORDINATED NOTES
9.750% 06/30/2009 3,000,000 3,015,000
WESTERN GAS RESOURCES, INC. (144A)
SENIOR SUBORDINATED NOTES
10.000% 06/15/2009 4,250,000 4,356,250
-------------
TOTAL ENERGY 32,697,713
-------------
TECHNOLOGY (2.5%)
UNISYS CORP.
SENIOR NOTES
11.750% 10/15/2004 6,050,000 6,715,500
-------------
TRANSPORTATION (2.4%)
ALLIED HOLDING, INC.
SENIOR NOTES, SERIES B
8.625% 10/01/2007 3,500,000 3,045,000
TEEKAY SHIPPING CORP.
GTD. 1ST PFD. SHIP. MTG. NOTES
8.320% 02/01/2008 3,925,000 3,414,750
-------------
TOTAL TRANSPORTATION 6,459,750
-------------
TOTAL INDUSTRIAL 209,024,821
-------------
FINANCIAL - REIT'S (1.5%)
COLONIAL REALTY L.P.
MEDIUM TERM NOTES
7.160% 01/17/2003 2,425,000 2,350,116
7.050% 12/15/2003 2,000,000 1,908,200
-------------
See Accompanying Notes to Financial Statements
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TOTAL FINANCIAL - REIT'S $ 4,258,316
-------------
UTILITIES (17.8%)
ELECTRIC (7.4%)
AES CORP.
SENIOR SUBORDINATED NOTES
10.250% 07/15/2006 $ 4,700,000 4,747,000
AES CORP.
SENIOR SUBORDINATED EXCHANGE NOTES
8.375% 08/15/2007 1,500,000 1,365,000
CALPINE CORP.
SENIOR NOTES
7.625% 04/15/2006 3,500,000 3,310,510
8.750% 07/15/2007 2,500,000 2,483,550
CMS ENERGY X-TRAS (144A)
PASS THRU TRUST I
SENIOR UNSECURED NOTES
7.000% 01/15/2005 6,235,000 5,885,528
NIAGARA MOHAWK POWER CORP.
SENIOR NOTES, SERIES D
7.250% 10/01/2002 2,268,293 2,272,081
-------------
20,063,669
-------------
TELECOMMUNICATIONS (10.4%)
CROWN CASTLE INTERNATIONAL CORP.
SENIOR NOTES
9.000% 05/15/2011 4,500,000 4,286,250
FLAG LTD.
SENIOR NOTES
8.250% 01/30/2008 5,710,000 5,053,350
LEVEL 3 COMMUNICATIONS, INC.
SENIOR NOTES
9.125% 05/01/2008 3,465,000 3,222,450
LEVEL 3 COMMUNICATIONS, INC.
SENIOR DISCOUNT NOTES
0.000% TO 12/01/2003 THEN 10.50% TO 12/01/2008 3,700,000 2,164,500
MCLEODUSA, INC.
SENIOR NOTES
9.500% 11/01/2008 5,000,000 4,987,500
METROMEDIA FIBER NETWORK, INC.
SENIOR NOTES, SERIES B
10.000% 11/15/2008 3,000,000 2,940,000
See Accompanying Notes to Financial Statements
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
NEXTLINK COMMUNICATIONS, INC.
SENIOR DISCOUNT NOTES
0.000% TO 04/15/03 THEN 9.45% TO 04/15/08 $ 3,450,000 $ 2,052,750
NEXTLINK COMMUNICATIONS, INC.
SENIOR NOTES
10.750% 11/15/2008 3,500,000 3,543,750
28,250,550
TOTAL UTILITIES 48,314,219
TOTAL CORPORATE BONDS
(COST $274,101,710) 261,597,356
REPURCHASE AGREEMENT (3.3%)
J.P. MORGAN SECURITIES, INC.
5.282% DATED 10/29/1999,
DUE 11/01/1999 IN THE
AMOUNT OF $8,937,929.
COLLATERALIZED BY
U.S. TREASURY BONDS
6.125% TO 10.375%
DUE 11/15/2009 TO 8/15/2029
U.S. TREASURY NOTES
5.875% TO 6.250%
DUE 5/31/2000 TO 6/30/2000
(COST $8,936,637) 8,936,637 8,936,637
-------------
TOTAL INVESTMENTS (99.6%)
(COST $283,038,347 ) 270,533,993
OTHER ASSETS LESS LIABILITIES (0.4%) 1,016,587
-------------
NET ASSETS (100.0%) $ 271,550,580
=============
See Accompanying Notes to Financial Statements
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------
October 31, 1999
<S> <C>
ASSETS:
Investments at identified cost ............................................. $ 274,101,710
Investments at identified cost - federal income tax purposes................ $ 274,126,235
- ------------------------------------------------------------------------------ --------------
Investments at value ....................................................... $ 261,597,356
Temporary cash investment, at value ........................................ 8,936,637
Receivable for:
Interest.................................................................. 6,540,076
Investments sold.......................................................... 15,000
--------------
Total assets................................................................ 277,089,069
--------------
LIABILITIES:
Payable for:
Investments purchased..................................................... 5,175,930
Dividends and distributions............................................... 245,259
Investment management fee................................................. 87,288
Accrued expenses ......................................................... 30,012
--------------
Total liabilities........................................................... 5,538,489
--------------
NET ASSETS ................................................................... $ 271,550,580
==============
NET ASSETS consist of:
Unrealized depreciation on investments.................................... $ (12,504,354)
Accumulated net realized loss from investment transactions................ (8,220,593)
Capital paid in .......................................................... 292,275,527
--------------
NET ASSETS ................................................................... $ 271,550,580
==============
Shares of capital stock outstanding .......................................... 31,812,170
==============
Net asset value, offering and
redemption price per share ................................................ $ 8.54
==============
See Accompanying Notes to Financial Statements
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------
Year Ended October 31, 1999
<S> <C>
INVESTMENT INCOME:
Interest income ......................................................... $ 24,949,219
--------------
Expenses:
Investment management fees........................................... 1,140,751
Legal, insurance and audit fees...................................... 27,301
Transfer agent fees.................................................. 18,000
Custodian fees....................................................... 12,978
Trustees' fees....................................................... 9,065
Other expenses ...................................................... 12,359
--------------
Total expenses................................................... 1,220,454
--------------
Net investment income ................................................... 23,728,765
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss from investment transactions........................... (8,196,069)
Change in net unrealized appreciation or depreciation on investments..... (5,232,093
--------------
Net realized and unrealized loss on investments.......................... (13,428,162
--------------
NET INCREASE RESULTING FROM OPERATIONS........................................ $ 10,300,603
==============
See Accompanying Notes to Financial Statements
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Year Ended October 31, 1999
1999 1998
-------------- --------------
<S> <C> <C>
Operations:
Net investment income .............................................. $ 23,728,765 $ 17,447,259
Net realized gain (loss) from investment transactions .............. (8,196,069) 1,542,274
Change in net unrealized appreciation or depreciation
on investments................................................... (5,232,093) (9,721,765)
-------------- --------------
Net increase resulting from operations.............................. 10,300,603 9,267,768
Distributions to shareholders:
From net investment income.......................................... (23,728,765) (17,447,259)
From net realized gain from investment transactions................. (66,855) (1,530,874)
Net capital share transactions......................................... 21,134,041 154,425,524
-------------- --------------
Net increase in net assets............................................. 7,639,024 144,715,159
NET ASSETS:
Beginning of year .................................................. 263,911,556 119,196,397
-------------- --------------
End of year ........................................................ $ 271,550,580 $ 263,911,556
============== ==============
See Accompanying Notes to Financial Statements
</TABLE>
44
<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. 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. Portfolio securities are valued based on market value as
quoted by dealers who are market makers in these securities or by independent
pricing services. 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. Investment securities with less than 60 days to maturity when
purchased are valued at amortized cost, which approximates market value.
Investment securities not currently quoted as described above will be priced at
fair market value as determined in good faith in a manner prescribed by the
Board of Trustees.
Repurchase agreements. The Fund may engage in repurchase agreement transactions.
The Fund, through their custodians, receives delivery of underlying securities
collateralizing repurchase agreements (included in temporary cash investments).
The Fund's investment advisor 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.
Interest and dividend income. Interest income is recorded on the accrual basis
and dividend income is recorded on the ex-dividend date. Amortization of
discounts or accretion of premiums is recorded over the life of the instrument.
Dividends and distributions to shareholders. Dividends from net investment
income are declared daily and paid monthly. Distributions from any net realized
gains are declared and paid annually.
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 provision for federal income taxes on
net investment income or 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 them
from substantially all federal income taxes.
As of October 31, 1999, the Fund had $8,196,069 in capital loss carryovers
available to offset future capital gains. These capital loss carryovers expire
in the year 2007. To the extent that the capital loss carryovers are used to
offset any capital gains, it is unlikely that the gains so offset will be
distributed to shareholders.
45
<PAGE>
- --------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant accounting policies, continued:
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. Realized gains and losses from investments are reported on the basis
of identified costs.
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 claim of other senior lenders,
and uncertainties exist as to an issuer's ability to meet principal and interest
payments. As of October 31, 1999, 100% of the Fund's portfolio was invested in
securities rated Baa (3%), Ba (54%), B (42%), or Caa (1%), by Moody's Investor
Services, Inc.
46
<PAGE>
- --------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Investment transactions:
Aggregate purchases, sales and maturities, net realized loss and net unrealized
depreciation on investments, excluding short-term investments, as of and for the
year ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases:
Investment securities other than U.S. Government obligations........... $ 155,883,968
U.S. Government obligations............................................ 18,698,750
---------------
Total purchases................................................... $ 174,582,718
===============
Sales and Maturities:
Investment securities other than U.S. Government obligations........... $ 140,163,575
U.S. Government obligations............................................ 18,521,406
---------------
Total sales and maturities........................................ $ 158,684,981
===============
Net Realized Loss:
Investment securities other than U.S. Government obligations........... $ (8,018,725)
U.S. Government obligations............................................ (177,344)
---------------
Total net realized loss .......................................... $ (8,196,069)
===============
Unrealized Appreciation (Depreciation) for
federal income tax purposes:
Appreciation............................................................ $ 780,815
Depreciation............................................................ (13,309,694)
---------------
Net unrealized depreciation........................................... $ (12,528,879)
===============
</TABLE>
3. Capital Stock:
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Shares:
Shares sold................................................ 5,902,583 5,056,688
Shares issued for reinvestment of dividends................ 857,664 449,779
Shares issued for share split*............................. 21,102,520 -
-------------- --------------
27,862,767 5,506,467
Less shares redeemed....................................... (3,424,068) (1,367,967)
-------------- --------------
Net increase in shares..................................... 24,438,699 4,138,500
============== ==============
Amounts:
Sales...................................................... $ 104,966,000 $ 188,362,556
Reinvestment of dividends.................................. 20,865,739 16,572,230
-------------- --------------
125,831,739 204,934,786
Less redemptions........................................... (104,697,698) (50,509,262)
-------------- --------------
Net increase............................................... $ 21,134,041 $ 154,425,524
============== ==============
Capital stock authorized (shares) 100,000,000
* 4 for 1 stock split effective September 1, 1999.
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
CMC HIGH YIELD FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. Transactions with affiliates and related parties:
Investment management fees incurred............................. $ 1,140,751
Investment management fee computation basis
(percentage of daily net assets per annum).................... 0.40 of 1%
Transfer agent fee.............................................. $ 18,000
Fees earned by trustees not affiliated with the Fund's
investment adviser or transfer agent.......................... $ 9,065
The investment adviser of the Fund is Columbia Management Co. (CMC). CMC is an
indirect subsidiary of Fleet Boston Corporation (Fleet), a publicly owned
multi-bank holding company registered under the Bank Holding Company Act of
1956.
The transfer agent for the Fund is Columbia Trust Company (CTC), an affiliate of
CMC and indirect subsidiary of Fleet. CTC 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.
J. Jerry Inskeep, Jr., an officer and trustee of the Trust, is affiliated with
Fleet but receives no compensation or other payments from the Trust.
48
<PAGE>
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers
1300 SW Fifth Avenue
Portland OR 97201-5638
Telephone (503) 478 6000
Facsimile (503) 478 6099
Report of Independent Accountants
To the Trustees and Shareholders 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 (the Fund), one
of the portfolios of CMC Fund Trust, at October 31, 1999, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, 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 at October 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
December 3, 1999
<PAGE>
Part A-III
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
[Logo]
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
approved or disapproved these securities or passed on the adequacy of this
Prospectus. Any representation to the contrary is a criminal offense.
December 20, 1999
<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...................................................10
Income and Capital Gains Distributions...................................10
Tax Effect of Distributions and Transactions.............................10
More About the Fund...........................................................11
Investment Strategy......................................................11
Other Risks..............................................................13
Mortgage Related Securities and CMOs................................13
Asset Backed Securities.............................................13
Year 2000...........................................................13
For More Information..........................................................15
- --------------------------------------------------------------------------------
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:
2
<PAGE>
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. |
|----------------------------------------------------|
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.
3
<PAGE>
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.
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 lower-rated securities, primarily 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.
4
<PAGE>
|----------------------------------------------------|
| 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, are generally less liquid. |
| 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 FUND" 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 (fees paid directly None
from your investment)
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 0.27% (1)
Total Fund Operating Expenses 0.52%
Expenses Reimbursement 0.07% (2)
Net Expenses 0.45%
5
<PAGE>
(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 0.20% has been included in the Fee Table.
(2) For the fiscal period ended October 31, 1999, 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, 2000, 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 $ 160 $ 284 $ 646
- --------------------------------------------------------------------------------
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 report, along with the Fund's financial statements, are included in the
Statement of Additional Information under "Financial Statements."
6
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31,
--------------------
1999 1998 (1)
-------- --------
<S> <C> <C>
Net asset value, beginning of period ................. $ 12.09 $ 12.00
-------- --------
Income from investment operations:
Net investment income ................................ 0.72 0.54
Net realized and unrealized gains (losses)
on investments...................................... (0.37) 0.09
-------- --------
Total from investment operations................. 0.35 0.63
-------- --------
Less distributions:
Dividends from net investment income.................. (0.72) (0.54)
Distributions from net capital gains.................. (0.00)* -
-------- --------
Total distributions (0.72) (0.54)
-------- --------
Net asset value, end of period........................ $ 11.72 $ 12.09
======== ========
Total return.......................................... 2.96% 5.38% (2)
Ratios/supplemental data
Net assets, end of period (in thousands).............. $144,821 $ 42,692
Ratio of expenses to average net assets (3)........... 0.25% 0.25%
Ratio of net income to average net
assets ............................................. 6.22% 5.97%
Portfolio turnover rate............................... 128.17% 132.09%
Ratio of gross expenses to average net assets(3)...... 0.32% 0.38%
* Amount represents less than $0.01 per share.
(1) From inception of operations. Ratios and portfolio turnover rates are
annualized.
(2) Not annualized.
(3) The investment adviser has voluntarily agreed to reimburse 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 daily net assets.
Expenses do not include an administrative fee, ranging from between 0.05%
and 0.20%, paid to the investment 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, 1999, the Fund paid CMC a management fee,
expressed as a percentage of average net assets, of 0.25%.
7
<PAGE>
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 a 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 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
-------------
Shares in the Fund are available for purchase by clients of CMC
enabling them 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, CMC, in its role as
discretionary investment adviser, may allocate a portion of a client's
investment portfolio into the Fund. If such investment is for the benefit
of an employee benefit plan, 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,
must 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, 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 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).
9
<PAGE>
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 December. 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.
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 |
| |
| Type of Tax Rate for Tax Rate for 28% |
| Distribution 15% Bracket Bracket or Higher |
| ------------ ------------ ----------------- |
| |
| Income Dividends Ordinary Ordinary Income |
| Income Rate Rate |
| |
| Short Term Capital Gains Ordinary Ordinary Income |
| Income Rate Rate |
| |
| Long Term Capital Gains 10% 20% |
|------------------------------------------------------------|
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.
10
<PAGE>
|---------------------------------------------------|
| 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).
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
11
<PAGE>
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 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 a company's:
12
<PAGE>
o financial condition
o quality of management
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 risks stated in the "RISK/RETURN SUMMARY", there are
other risks of investing in the Fund which are described below:
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 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. In the past many computer software
systems
13
<PAGE>
could not distinguish the year 2000 from the year 1900 because of the way dates
are encoded and calculated. This condition 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 completed all 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.
14
<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 accountant's report.
A current SAI for the Fund is on file with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference, which means it
is considered 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
Information about the Fund (including the SAI) can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Information about the operation
of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Reports and other information regarding the Fund are also on the
SEC's Internet website at http://www.sec.gov, and copies of this information may
be obtained, after paying a duplicating fee, by electronic request at the SEC's
E-mail address at [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
SEC file number: 811-5857
15
<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 S.W. Sixth Avenue
P.O. 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 20, 1999 (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....................................................................16
Investment Advisory and Other Fees Paid to Affiliates.........................18
Portfolio Transactions........................................................19
Capital Stock and Other Securities............................................21
Purchase, Redemption and Pricing of Shares....................................22
Custodians....................................................................24
Independent Accountants.......................................................25
Taxes.........................................................................25
Yield and Performance.........................................................28
Financial Statements..........................................................30
December 20, 1999
<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
circumstances, of retaining any security whose credit rating drops below Baa or
BBB after its purchase by the Fund. Finally, up to 10% 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
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believes these securities present attractive investment opportunities despite
their speculative characteristics. Bond ratings are described below under
"INVESTMENTS HELD BY 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. The Fund may invest in high quality foreign government and foreign
corporate fixed income securities. 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:
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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 conditions that could lead to inadequate capacity to meet
timely interest and principal payment.
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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.
Commercial Paper Ratings. A1 and Prime 1 are the highest commercial paper
ratings issued by S&P and Moody's respectively.
5
<PAGE>
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, 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
7
<PAGE>
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
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<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
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<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.
13
<PAGE>
Additionally, the Fund may be required to purchase securities in connection with
a dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security which the Fund is
required to buy under the dollar roll may be worth less than an identical
security.
Foreign Fixed Income Securities
- -------------------------------
The Fund may invest in high quality foreign government and foreign
corporate fixed income securities. Foreign fixed income securities involve
greater risks than investing in U.S. securities which arise due to the greater
political and economic uncertainty associated with foreign issues, increased
market and trading risk, lack of publicly available information about foreign
issuers, and risk that the change in the value of foreign currencies against the
U.S. dollar could result in losses to the Fund.
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.
14
<PAGE>
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 such illiquid securities. See
"DESCRIPTION OF THE FUND, INVESTMENTS HELD BY 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 the Fund and of its
adviser together own beneficially more than 5 percent of any class of securities
of the issuer.
9. Purchase securities of other open-end investment companies, except as
permitted by Section 12(d)(1)(A) of the 1940 Act.
10. Issue senior securities, bonds, or debentures.
11. Underwrite securities of other issuers, except the Fund may acquire
portfolio securities in circumstances where, if the securities are later
publicly offered or sold by the Fund, it might be deemed to be an underwriter
for purposes of the 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 of the Fund valued at cost.
15
<PAGE>
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.
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 National Municipal
Bond Fund, Inc. since January 1999; Columbia Small Cap Fund, Inc. since August
1996; 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 National 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 68, Chairman, President, and Trustee of the Trust;
Chairman, President, and Director of each of the Columbia Funds; Consultant with
Fleet Boston Corporation (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 67, 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.
16
<PAGE>
THOMAS R. MACKENZIE, Age 72, 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, civil and structural
engineering). Mr. Mackenzie's address is 0690 S.W. Bancroft Street, Portland,
Oregon 97201.
ROBERT J. MOORMAN, * Age 48, 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.
RICHARD L. WOOLWORTH, Age 58, Trustee of the Trust; Director of each of the
Columbia Funds; Chairman of Regence Blue Cross Blue Shield of Oregon; and
Chairman and Chief Executive Officer of the Regence Group, health insurers.
Mr. Woolworth's address is 200 S.W. Market Street, Suite 1500, 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, 1999.
Total Compensation from the
Trustee Compensation From Trust Trust and Columbia Funds
- ------- ----------------------- ---------------------------
Richard L. Woolworth $ 9,000 $ 32,000
Thomas R. Mackenzie $ 9,000 $ 31,000
James C. George $ 9,000 $ 31,000
At November 30, 1999, 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, 1999
- ---------------- -------------------------
Honzel Ltd. Partnership 675,854 (5.49%)
12929 S.W. Forest Meadows
Lake Oswego, OR 97034
Legacy Fixed Income Investment Fund 6,613,012 (53.74%)
Corporate Financial Admin. Services
1919 N.W. Lovejoy
Portland, OR 97209
17
<PAGE>
Oregon Health Sciences Foundation 3,171,276 (25.77%)
1121 S.W. Salmon Street, Suite 200
Portland, OR 97205
As defined by SEC rules and regulations, the Legacy Income Investment Fund
and the Oregon Health Sciences Foundation are "control persons" of the Fund,
since they each own over 25% of the voting securities of the Fund. The fact that
they each own over 25% of the Fund's voting securities means each may be able to
impact the outcome of any matter in which shareholders are asked to vote. In
fact, the Legacy Fixed Income Investment Fund holds enough of the Fund's voting
securities to actually control the outcome of any matter presented to the
shareholders for a vote.
- --------------------------------------------------------------------------------
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 Boston Corporation ("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 $259,716 and $67,403 for fiscal year 1999 and
the period from inception, February 2, 1998, through October 31, 1998,
respectively. 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 0.32%.
18
<PAGE>
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 S.W. 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 the fiscal year ended October 31, 1999 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,
19
<PAGE>
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 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. In addition, the Fund may purchase securities from an
underwriting syndicate in which an affiliate is a member of the underwriting
syndicate. In any agency transaction or purchase from an underwriting syndicate
of which an affiliate is a member, the trade will be accomplished in accordance
with the rules and regulations of the Investment Company Act of 1940.
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 Code does not prohibit employees
from purchasing securities that may be held or purchased by the Fund, but is
intended to ensure that all employees conduct their personal transactions in a
manner that does not interfere with the portfolio transactions of the
20
<PAGE>
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 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
21
<PAGE>
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 pay a reduced, or
in the case of an employee benefit plan, 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
22
<PAGE>
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 (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
23
<PAGE>
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 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 S.W. Sixth Avenue, Portland, Oregon 97208, acts as
general custodian of the Trust (a "Custodian"). The Chase Manhattan Bank
("Chase" or a "Custodian"), 3 Chase Metrotech Center, Brooklyn, New York 11245,
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.
24
<PAGE>
- --------------------------------------------------------------------------------
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 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
25
<PAGE>
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 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.
26
<PAGE>
Distributions properly designated by the Fund as representing the excess of
net long-term capital gain over net short-term capital loss are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Fund have been held by shareholders. For noncorporate taxpayers,
the highest rate that applies to long-term capital gains is lower than the
highest rate that applies to ordinary income. Any loss that is realized and
allowed on redemption of shares of the Fund less than six months from the date
of purchase of the shares and following the receipt of a capital gain dividend
will be treated as a long-term capital loss to the extent of the capital gain
dividend. For this purpose, Section 852(b)(4) of the Code contains special rules
on the computation of a shareholder's holding period.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether paid in shares or in cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. Within 60 days after the close of each taxable
year (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:
Yield = 2 [(a-b + 1)6 -1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of the period.
The Fund uses generally accepted accounting principles in determining 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, 1999 was 6.46%.
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
28
<PAGE>
compounded rates of return over the 1, 5, and 10-year periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1,
5, and 10-year periods (or a fractional portion
thereof)
Total return figures may also be published for recent 1, 5, and 10-year
periods (or a fractional portion thereof) where the total return figures
represent the percentage return for the 1, 5, and 10-year periods that would
equate the initial amount invested to the ending redeemable value. If the
Trust's registration statement under the 1940 Act with respect to 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, 1999, the
total return for the Fund for the 1 year period and since inception (February 2,
1998) was 2.96% and 4.91%, respectively.
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 The
Dow Jones Business and Financial Weekly, 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
29
<PAGE>
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,
1999, together with the Independent Accountant's Report of
PricewaterhouseCoopers LLP, are attached hereto and incorporated by reference
into 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 you with an investment review of the CMC Short Term
Bond Fund. For the fiscal year ended October 31, 1999, the Fund returned 2.96%.
This performance compares favorably to the Merrill Lynch 1-5 Gov't/Corp. Index
return of 2.21% and the Lipper Short/Intermediate Investment Grade Fund Index
return of 1.67% for the same period.
The Fund's average duration was maintained at just over two years throughout the
period. Given this relatively short duration, the Fund is expected to have less
risk of price fluctuation during periods of interest rate volatility than fixed
income funds with a longer duration.
During the Fund's fiscal year, the market experienced a trend of rising interest
rates and declining prices on short-term bonds. Higher interest rates enhanced
the portfolio's income return, but much of the gains were offset by a
corresponding fall in bond prices. Nonetheless, the Fund offered favorable
performance due to its overweighted positions in mortgage-backed, corporate and
asset-backed securities. Yields on these investments were higher than
traditionally safe Treasuries.
As always, all eyes were on the Federal Reserve as the U.S. continued what will
become its longest period of economic expansion in history. In the calendar year
1998, fears of an economic slowdown prompted the Fed to lower interest rates.
Rates were reduced by a total of 0.75% in three moves, with the final move
coming in November, to keep the economy growing at a healthy pace. The Fed's
policy was effective, but unexpectedly strong economic performance in early 1999
created new fears of inflation. Market forces drove up interest rates as
investors waited for the Fed to intervene. However, the Fed took no action until
the end of June, when rates were raised by 0.25%. Although inflation, in
general, remained low, rising energy and commodity prices continued to generate
some concern. Sustained economic strength and strong consumer spending prompted
Fed intervention again in August as inflationary pressures continued to pose a
threat. Interest rates were raised another 0.25%, reversing much of the Fed's
1998 reduction, and the Fed vowed to remain vigilant for the remainder of the
year, reserving the right to act again if inflationary pressures accelerated.
The Fund seeks 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. The Fund is managed to minimize credit risk and market
value fluctuations while striving to maintain liquidity for shareholders.
Thank you for your continued confidence in CMC Short Term Bond Fund.
The Columbia Investment Team
December 3, 1999
31
<PAGE>
Graphic line chart depicting "Growth of $10,000 Since Inception" showing the
growth in dollar amounts ($10,000-$10,900) of CMC Short Term Bond Fund, Merrill
1-5 Gov't/Corp. Index and Lipper Short Int. Grade Fund Index for the period
2/2/98 to 10/31/99 to $10,849, $10,852, and $10,704, respectively:
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1 Year Since Inception
------ ---------------
<S> <C> <C>
CMC Short Term Bond Fund 2.96% 4.91%
Merrill 1-5 Gov't Corp. Index 2.21% 4.93%
Lipper Short Inv. Grade Fund Index 1.67% 4.08%
</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, 1999. 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>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
------------------------
February 2,
Year Ended to
October 31, October 31,
1999 1998 (1)
---------- ----------
<S> <C> <C>
Net asset value, beginning of period.................. $ 12.09 $ 12.00
---------- ----------
Income from investment operations:
Net investment income............................ 0.72 0.54
Net realized and unrealized gains (losses)
on investments................................. (0.37) 0.09
---------- ----------
Total from investment operations....... 0.35 0.63
---------- ----------
Less distributions:
Dividends from net investment income............ (0.72) (0.54)
Distributions from net capital gains............ (0.00)* -
---------- ----------
Total distributions.................... (0.72) (0.54)
---------- ----------
Net asset value, end of period........................ $ 11.72 $ 12.09
========== ==========
Total return.......................................... 2.96% 5.38% (2)
Ratios/Supplemental data
Net assets, end of period (in thousands).............. $ 144,821 $ 42,692
Ratio of net expenses to average net assets (3)...... 0.25% 0.25%
Ratio of net income to average net assets............. 6.22% 5.97%
Portfolio turnover rate............................... 128.17% 132.09%
Ratio of total expenses to average net assets (3)..... 0.32% 0.38%
* Amount represents less than $0.01 per share.
(1) From inception of operations. Ratios and portfolio turnover rates are
annualized.
(2) Not annualized.
(3) The investment adviser has voluntarily agreed to reimburse 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 daily net assets.
Expenses do not include an administrative fee, which is charged to the
shareholder account, ranging between 0.05% and 0.20%, paid to the
investment adviser.
See Accompanying Notes to Financial Statements
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
OCTOBER 31, 1999
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (22.7%)
U.S. TREASURY NOTE (1.9%)
7.125% 02/29/2000 $ 2,700,000 $ 2,716,453
-------------
U.S. AGENCY BOND (0.6%)
FEDERAL HOME LOAN BANK
6.000% 08/15/2002 875,000 868,438
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) (11.0%)
6.500% 10/15/2029 370,000 353,350
7.000% 11/15/2027 - 08/15/2029 4,480,261 4,392,056
7.500% 04/15/2029 - 10/15/2029 11,101,559 11,125,844
-------------
15,871,250
-------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) (0.2%)
8.750% 02/01/2001 - 04/01/2002 239,899 242,298
-------------
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (6.3%)
FHLMC (1.5%)
FHLMC GNMA MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES G40 CL. N
6.500% 05/17/2021 575,985 557,986
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1570 CL. D
0.000% 03/15/2000 83,761 82,662
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1767 CL. H
7.500% 09/15/2022 900,000 917,694
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 1543 CL. XN
7.000% 07/15/2023 265,000 257,357
FHLMC MULTICLASS MTG. PARTN. CTFS.
GTD. SERIES 2057 CL. PD
6.750% 11/15/2026 350,000 337,231
-------------
2,152,930
-------------
FNMA (1.5%)
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1994-10 CL. KC
6.500% 10/25/2010 400,000 385,988
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1993-87 CL. H
6.500% 10/25/2021 1,300,000 1,278,459
See Accompanying Notes to Financial Statements
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (CONTINUED)
FNMA GTD. REMIC PASS THRU CTF.
REMIC TR. 1997-63 CL. PH
7.000% 07/18/2026 $ 480,000 $ 470,697
-------------
2,135,144
-------------
GNMA (3.2%)
GNMA GTD. REMIC PASS THRU SECS.
REMIC TR. 1999-13 CL. PC
6.000% 03/20/2028 2,610,000 2,394,571
GNMA GTD. REMIC PASS THRU SECS.
REMIC TR. 1999-28 CL. PG
6.500% 05/20/2028 2,430,000 2,313,579
-------------
4,708,150
-------------
OTHER AGENCY COLLATERALIZED MORTGAGE
OBLIGATIONS (0.1%)
WESTAM MORTGAGE FINANCIAL CORP.
SERIES 10 CL. C
0.000% 02/26/2002 152,786 149,872
-------------
TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS 9,146,096
-------------
OTHER GOVERNMENT AGENCY (2.7%)
A.I.D., MOROCCO FLOATING RATE
6.125% 05/01/2023 400,000 389,000
SMALL BUSINESS ADMINISTRATION
5.875% 10/25/2021 - 06/25/2022 1,722,904 1,731,711
6.000% 07/25/2021 - 11/25/2021 387,138 389,316
6.375% 01/25/2017 1,450,033 1,459,095
-------------
3,969,122
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(COST $32,949,458) 32,813,657
-------------
OTHER SECURITIZED LOANS (30.6%)
ASSET BACKED SECURITIES (23.5%)
ABFS MORTGAGE LOAN TRUST
SERIES 1997-2 CL. A-5
7.125% 01/15/2029 300,000 295,566
AFC HOME EQUITY LOAN TRUST
SERIES 1993-1 CL. A
5.900% 05/20/2008 450,192 444,121
See Accompanying Notes to Financial Statements
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
OTHER SECURITIZED LOANS (CONTINUED)
ASSET BACKED SECURITIES CORP.
HOME EQUITY LOAN TRUST
SERIES 1999-LB1 CL. A4A
5.777% 06/21/2029 $ 1,194,887 $ 1,194,529
CITYSCAPE HOME EQUITY LOAN TRUST
SERIES 1996-3 CL. A-8
7.650% 09/25/2025 1,470,000 1,478,412
CITYSCAPE HOME EQUITY LOAN TRUST
SERIES 1997-B CL. A-7
7.410% 05/25/2028 320,000 316,747
CITYSCAPE HOME LOAN OWNER TRUST
SERIES 1997-3 CL. A-5
7.890% 07/25/2018 850,000 851,200
CITYSCAPE HOME LOAN OWNER TRUST
SERIES 1997-4 CL. A-4
7.440% 10/25/2018 2,000,000 1,965,776
CONTIMORTGAGE HOME EQUITY LOAN TRUST
SERIES 1997-3 CL. A-8
7.580% 08/15/2028 2,000,000 2,021,031
CONTIMORTGAGE HOME EQUITY LOAN TRUST
SERIES 1999-3 CL. A-6
7.680% 12/25/2029 1,600,000 1,586,582
CROWN HOME EQUITY LOAN TRUST
SERIES 1996-1 CL. A-5
7.300% 04/25/2027 450,000 456,755
FIRST UNION STUDENT LOAN TRUST
SERIES 1997-1 CL. A-1
5.647% 07/25/2004 1,430,076 1,419,882
FIRSTPLUS HOME LOAN OWNER TRUST
SERIES 1996-4 CL. A-5
6.530% 07/10/2011 1,000,000 999,405
FIRSTPLUS HOME LOAN OWNER TRUST
SERIES 1997-3 CL. A-6
7.080% 07/10/2017 2,305,000 2,311,281
FIRSTPLUS HOME LOAN OWNER TRUST
SERIES 1997-3 CL. A-7
7.220% 11/10/2020 1,000,000 1,003,105
GE CAPITAL MORTGAGE SERVICES, INC.
SERIES 1995-HE1 CL. A-6
7.500% 09/25/2010 128,732 129,593
GREEN TREE FINANCIAL CORP.
SERIES 1995-5 CL. A-4
6.600% 09/15/2026 354,526 354,931
See Accompanying Notes to Financial Statements
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
OTHER SECURITIZED LOANS (CONTINUED)
GREEN TREE FINANCIAL CORP.
SERIES 1996-4 CL. A-7
7.900% 06/15/2027 $ 1,215,000 $ 1,243,033
IMC HOME EQUITY LOAN TRUST
SERIES 1995-3 CL. A-5
7.500% 04/25/2026 300,000 300,672
IMC HOME EQUITY LOAN TRUST
SERIES 1997-3 CL. A-6
7.520% 08/20/2028 830,000 840,533
METRIS MASTER TRUST
SERIES 1999-1 CL. A
5.758% 10/22/2007 1,500,000 1,502,700
NEW CENTURY HOME EQUITY LOAN TRUST
SERIES 1997-NC5 CL. A-4
6.780% 08/25/2025 1,450,000 1,443,381
OAKWOOD MORTGAGE INVESTORS, INC.
SERIES 1996-C CL. A-3
6.750% 04/15/2027 241,063 240,871
SALOMON BROTHERS MORTGAGE SECURITIES VII, INC.
SERIES 1998-AQ1 CL. A-4
6.740% 06/25/2028 1,810,000 1,795,728
SLM STUDENT LOAN TRUST
SERIES 1998-1 CL. A-1
5.775% 01/25/2007 3,592,201 3,571,313
SLM STUDENT LOAN TRUST
SERIES 1998-2 CL. A-1
5.745% 04/25/2007 918,383 913,832
SOUTHERN PACIFIC SECURED ASSETS CORP.
SERIES 1996-2 CL. A-5
7.690% 04/25/2025 250,000 252,319
UACSC AUTO TRUST
SERIES 1998-A CL. A-3
6.050% 06/10/2002 1,300,000 1,299,812
UCFC FUNDING CORP.
SERIES 1997-1 CL. A-3
7.055% 09/15/2013 1,010,000 1,012,813
UCFC HOME EQUITY LOAN TRUST
SERIES 1994-B1 CL. A-5
7.900% 08/10/2015 2,134,000 2,150,677
UCFC HOME EQUITY LOAN TRUST
SERIES 1998-D CL. AF-7
6.315% 04/15/2030 750,000 690,041
-------------
34,086,641
-------------
See Accompanying Notes to Financial Statements
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
OTHER SECURITIZED LOANS (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (4.3%)
CMC SECURITIES CORP. IV
SERIES 1997-2 CL. 1A-12
7.250% 11/25/2027 $ 450,000 $ 437,708
FIRST NATIONWIDE TRUST
SERIES 1999-1 CL. 2A6
6.500% 03/25/2029 988,538 955,450
PNC MORTGAGE SECURITIES CORP.
SERIES 1997-4 CL. 2PP-2
7.500% 07/25/2027 440,000 439,167
RESIDENTIAL ASSET SECURITIZATION TRUST
SERIES 1998-A3 CL. A
6.500% 04/25/2013 2,802,364 2,745,070
STRUCTURED ASSET SECURITES CORP.
SERIES 1999-ALS2 CL. A2
6.750% 07/25/2029 1,658,135 1,608,235
-------------
6,185,630
-------------
COMMERCIAL MORTGAGE BACKED SECURITIES (2.8%)
FDIC REMIC TRUST
SERIES 1994-C1 CL. 2-A2
7.850% 09/25/2025 28,677 28,755
LB COMMERCIAL CONDUIT MORTGAGE TRUST
SERIES 1995-C2 CL. A
6.971% 08/25/2004 443,137 447,544
MORGAN STANLEY CAPITAL I, INC.
SERIES 1997-C1 CL. A-1C
7.630% 02/15/2020 1,092,500 1,114,634
NATIONSLINK FUNDING CORP.
SERIES 1999-SL CL. A2
6.096% 12/10/2001 400,000 396,538
NOMURA ASSET SECURITIES CORP.
SERIES 1994-MD1 CL. A-1B
7.462% 03/15/2018 1,495,795 1,507,467
NOMURA ASSET SECURITIES CORP.
SERIES 1996-MD5 CL. A-1B
7.120% 04/13/2036 530,000 526,523
-------------
4,021,461
-------------
TOTAL OTHER SECURITIZED LOANS
(COST $44,553,229) 44,293,732
-------------
See Accompanying Notes to Financial Statements
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (34.6%)
INDUSTRIAL (17.5%)
CATERPILLAR FINANCIAL SERVICES CORP.
6.875% 08/01/2004 $ 2,000,000 $ 1,993,740
CHRYSLER FINANCIAL CORP.
MEDIUM TERM NOTES, SERIES S
5.250% 10/19/2000 900,000 891,414
COCA-COLA ENTERPRISES, INC.
6.375% 08/01/2001 800,000 798,008
CONOCO, INC.
5.900% 04/15/2004 2,000,000 1,929,700
COX COMMUNICATIONS, INC.
7.000% 08/15/2001 1,350,000 1,352,416
DEERE (JOHN) CAPITAL CORP.
5.350% 10/23/2001 450,000 438,912
DIAGEO CAPITAL PLC
6.625% 06/24/2004 1,500,000 1,486,875
DISNEY (WALT) CO.
MEDIUM TERM NOTES
5.600% 01/13/2000 1,500,000 1,499,565
FEDERATED DEPARTMENT STORES, INC.
6.125% 09/01/2001 425,000 419,930
FORD MOTOR CREDIT CO.
6.500% 02/28/2002 300,000 298,728
5.750% 02/23/2004 2,100,000 2,002,875
GENERAL ELECTRIC CAPITAL CORP.
MEDIUM TERM NOTES
5.650% 03/31/2003 750,000 727,395
GENERAL MOTORS ACCEPTANCE CORP.
MEDIUM TERM NOTES
5.330% 10/20/2000 500,000 494,980
GENERAL MOTORS ACCEPTANCE CORP.
6.850% 06/17/2004 1,400,000 1,393,854
KROGER CO., SERIES B
6.340% 06/01/2001 1,400,000 1,390,508
MCDONALD'S CORP.
6.000% 06/23/2002 750,000 739,515
PEPSI BOTTLING HOLDINGS, INC. (144A)
5.375% 02/17/2004 1,000,000 946,720
PHILIP MORRIS COS., INC.
8.750% 06/01/2001 1,300,000 1,327,872
PROCTER & GAMBLE CO.
5.250% 09/15/2003 1,000,000 955,560
See Accompanying Notes to Financial Statements
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
RAYTHEON CO.
5.700% 11/01/2003 $ 450,000 $ 423,450
SERVICE CORP. INTERNATIONAL
6.300% 03/15/2003 300,000 259,518
TRW, INC. (144A)
6.625% 06/01/2004 1,025,000 994,250
TYCO INTERNATIONAL GROUP S.A.
6.125% 06/15/2001 750,000 739,928
6.250% 06/15/2003 500,000 480,560
USA WASTE SERVICES, INC.
6.125% 07/15/2001 1,400,000 1,315,202
-------------
25,301,475
-------------
FINANCIAL (11.5%)
AMERICAN EXPRESS CREDIT CORP.
6.125% 06/15/2000 2,000,000 1,999,700
ASSOCIATES CORP. N.A.
6.375% 06/15/2000 1,000,000 1,001,890
BANK OF AMERICA CORP.
6.625% 06/15/2004 2,800,000 2,775,360
5.875% 02/15/2009 480,000 437,078
BANK ONE CORP.
6.400% 08/01/2002 1,125,000 1,115,550
BEAR STEARNS COS., INC.
6.450% 08/01/2002 750,000 740,618
6.125% 02/01/2003 250,000 242,682
CIT GROUP, INC.
MEDIUM TERM NOTES
6.375% 11/15/2002 525,000 519,241
EOP OPERATING L.P.
6.376% 02/15/2002 700,000 685,468
HOUSEHOLD FINANCE CORP.
5.875% 11/01/2002 400,000 388,564
INTERNATIONAL LEASE FINANCE CORP.
6.000% 06/15/2003 525,000 511,250
LEHMAN BROTHERS, INC.
7.000% 10/01/2002 1,100,000 1,097,118
MORGAN STANLEY DEAN WITTER DISCOVER & CO.
MEDIUM TERM NOTES
5.750% 02/15/2001 550,000 544,698
MORGAN STANLEY DEAN WITTER DISCOVER & CO.
MEDIUM TERM NOTES, SERIES C
6.090% 03/09/2001 1,000,000 996,730
See Accompanying Notes to Financial Statements
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
SALOMON SMITH BARNEY HOLDINGS, INC.
6.750% 02/15/2003 $ 450,000 $ 446,220
SIMON PROPERTY GROUP L.P.
6.625% 06/15/2003 350,000 335,983
WACHOVIA CORP.
6.700% 06/21/2004 2,750,000 2,745,600
-------------
16,583,750
-------------
UTILITIES (5.2%)
ARIZONA PUBLIC SERVICE CO.
5.875% 02/15/2004 950,000 901,312
MCI WORLDCOM, INC.
6.250% 08/15/2003 1,800,000 1,765,998
MIDAMERICAN FUNDING CORP. (144A)
5.850% 03/01/2001 2,000,000 1,980,000
SPRINT CAPITAL CORP.
5.875% 05/01/2004 1,050,000 1,007,129
TCI COMMUNICATIONS, INC.
7.250% 08/01/2005 500,000 505,260
TRANSCANADA PIPELINES LTD.
MEDIUM TERM NOTES
6.490% 01/21/2009 450,000 423,648
TXU EASTERN FUNDING CO. (144A)
6.450% 05/15/2005 1,000,000 948,830
-------------
7,532,177
-------------
YANKEE (0.4%)
KOREA DEVELOPMENT BANK
6.500% 11/15/2002 150,000 144,114
7.125% 04/22/2004 500,000 484,351
-------------
628,465
-------------
TOTAL CORPORATE BONDS
(COST $50,926,003) 50,045,867
-------------
MUNICIPAL BOND (0.4%)
MULTNOMAH COUNTY SCHOOL DISTRICT
#1J PORTLAND
5.750% 06/15/2005
(COST $650,000) 650,000 615,875
-------------
TOTAL INVESTMENTS, EXCLUDING TEMPORARY
CASH INVESTMENTS
(COST $129,078,690) 127,769,131
-------------
See Accompanying Notes to Financial Statements
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
SCHEDULE OF INVESTMENTS
- ------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
------------- -------------
<S> <C> <C>
REPURCHASE AGREEMENTS (10.7%)
J.P. MORGAN SECURITIES, INC.
5.282% DATED 10/29/1999,
DUE 11/01/1999 IN THE
AMOUNT OF $8,453,171.
COLLATERALIZED BY
U.S. TREASURY BONDS
6.125% TO 10.375%
DUE 11/15/2009 TO 8/15/2029
U.S. TREASURY NOTES
5.875% TO 6.250%
DUE 5/31/2000 TO 6/30/2000 $ 8,451,948 $ 8,451,948
MERRILL LYNCH
5.272% DATED 10/29/1999,
DUE 11/01/1999 IN THE
AMOUNT OF $7,101,026.
COLLATERALIZED BY
U.S. TREASURY STRIPS
DUE 11/15/2009 TO 02/15/17 7,100,000 7,100,000
-------------
TOTAL REPURCHASE AGREEMENTS
(COST $15,551,948) 15,551,948
-------------
TOTAL INVESTMENTS (99.0%)
(COST $144,630,638) 143,321,079
OTHER ASSETS LESS LIABILITIES (1.0%) 1,499,878
-------------
NET ASSETS (100.0%) $ 144,820,957
See Accompanying Notes to Financial Statements
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------
October 31, 1999
<S> <C>
ASSETS:
Investments at identified cost ............................................. $ 129,078,690
Investments at identified cost - federal income tax purposes................ $ 129,078,690
- ------------------------------------------------------------------------------ --------------
Investments at value ....................................................... $ 127,769,131
Temporary cash investment, at value......................................... 15,551,948
Receivable for:
Interest.................................................................. 1,465,568
Investments sold.......................................................... 1,168,954
Expense reimbursement..................................................... 28,859
--------------
Total assets................................................................ 145,984,460
--------------
LIABILITIES:
Payable for:
Investments purchased..................................................... 1,104,604
Investment management fee ................................................ 30,040
Accrued expenses.......................................................... 28,859
--------------
Total liabilities........................................................... 1,163,503
--------------
NET ASSETS.................................................................... $ 144,820,957
==============
NET ASSETS consist of:
Unrealized depreciation on investments.................................... $ (1,309,559)
Accumulative net realized loss from investment transactions............... (1,474,258)
Capital paid in .......................................................... 147,604,774
--------------
NET ASSETS ................................................................... $ 144,820,957
==============
Shares of capital stock outstanding .......................................... 12,358,791
==============
Net asset value, offering and
redemption price per share ................................................ $ 11.72
==============
See Accompanying Notes to Financial Statements
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------
Year Ended October 31, 1999
INVESTMENT INCOME:
<S> <C>
Interest income ......................................................... $ 6,553,733
--------------
Expenses:
Investment management fees .......................................... 259,716
Legal, insurance and audit fees...................................... 26,739
Transfer agent fees.................................................. 18,000
Custodian fees....................................................... 9,612
Trustees' fees....................................................... 6,078
Other expenses ...................................................... 10,675
--------------
Total expenses................................................... 330,820
Expenses reimbursed by investment adviser ........................... (71,104)
--------------
Net expenses..................................................... 259,716
--------------
Net investment income ................................................... 6,294,017
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss from investment transactions........................... (1,466,380)
Change in net unrealized appreciation or depreciation on investments .... (1,625,941)
--------------
Net realized and unrealized loss on investments.......................... (3,092,321)
--------------
NET INCREASE RESULTING FROM OPERATIONS......................................... $ 3,201,696
==============
See Accompanying Notes to Financial Statements
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------
February 2,
Year Ended to
October 31, October 31,
1999 1998*
-------------- --------------
<S> <C> <C>
Operations:
Net investment income ........................................... $ 6,294,017 $ 1,624,895
Net realized gain (loss) from investment transactions............ (1,466,380) 15,207
Change in net unrealized appreciation or depreciation
on investments................................................ (1,625,941) 316,382
-------------- --------------
Net increase resulting from operations........................... 3,201,696 1,956,484
Distributions to shareholders:
From net investment income....................................... (6,294,017) (1,624,895)
From net realized gain from investment transactions.............. (23,085) -
Net capital share transactions ........................................ 105,244,125 42,360,649
-------------- --------------
Net increase in net assets............................................. 102,128,719 42,692,238
NET ASSETS:
Beginning of period.............................................. 42,692,238 -
-------------- --------------
End of period ................................................... $ 144,820,957 $ 42,692,238
============== ==============
* From inception of operations.
See Accompanying Notes to Financial Statements
</TABLE>
45
<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. 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. Portfolio securities are valued based on market value as
quoted by dealers who are market makers in these securities or by independent
pricing services. 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. Investment securities with less than 60 days to maturity when
purchased are valued at amortized cost, which approximates market value.
Investment securities not currently quoted as described above will be priced at
fair market value as determined in good faith in a manner prescribed by the
Board of Trustees.
Repurchase agreements. The Fund may engage in repurchase agreement transactions.
The Fund, through their custodians, receives delivery of underlying securities
collateralizing repurchase agreements (included in temporary cash investments).
The Fund's investment advisor 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.
Interest and dividend income. Interest income is recorded on the accrual basis
and dividend income is recorded on the ex-dividend date. Amortization of
discounts or accretion of premiums is recorded over the life of the instrument.
Dividends and distributions to shareholders. Dividends from net investment
income are declared daily and paid monthly. Distributions from any net realized
gains are declared and paid annually.
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 provision for federal income taxes on
net investment income or 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 them
from substantially all federal income taxes.
As of October 31, 1999, the Fund had $1,470,297 in capital loss carryovers
available to offset future capital gains. These capital loss carryovers expire
in the year 2007. To the extent that the capital loss carryovers are used to
offset any capital gains, it is unlikely that the gains so offset will be
distributed to shareholders.
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. Realized gains and losses from investments are reported on the basis
of identified costs.
46
<PAGE>
- --------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Investment transactions:
Aggregate purchases, sales and maturities, net realized loss and net unrealized
depreciation on investments, excluding short-term investments, as of and for the
year ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases:
Investment securities other than U.S. Government obligations........... $ 98,475,530
U.S. Government obligations............................................ 104,555,595
-------------
Total purchases................................................... $ 203,031,125
=============
Sales and Maturities:
Investment securities other than U.S. Government obligations........... $ 25,566,698
U.S. Government obligations............................................ 87,530,568
-------------
Total sales and maturities........................................ $ 113,097,266
=============
Net Realized Loss:
Investment securities other than U.S. Government obligations........... $ (129,784)
U.S. Government obligations............................................ (1,336,596)
-------------
Total net realized loss........................................... $ (1,466,380)
=============
Unrealized Appreciation (Depreciation) for
federal income tax purposes:
Appreciation............................................................ $ 289,557
Depreciation............................................................ (1,599,116)
-------------
Net unrealized depreciation........................................... $ (1,309,559)
=============
</TABLE>
3. Capital Stock:
<TABLE>
<CAPTION>
February 2,
to
Year ended October 31,
October 31, 1999 1998*
---------------- ----------------
<S> <C> <C>
Shares:
Shares sold............................................ 9,524,355 4,541,453
Shares issued for reinvestment of dividends............ 533,140 135,212
---------------- ----------------
10,057,495 4,676,665
Less shares redeemed................................... (1,229,286) (1,146,083)
---------------- ----------------
Net increase in shares................................. 8,828,209 3,530,582
================ ================
Amounts:
Sales.................................................. $ 113,449,649 $ 54,437,600
Reinvestment of dividends.............................. 6,311,455 1,624,895
---------------- ----------------
119,761,104 56,062,495
Less redemptions....................................... (14,516,979) (13,701,846)
---------------- ----------------
Net increase........................................... $ 105,244,125 $ 42,360,649
================ ================
Capital stock authorized (shares) 100,000,000
* From inception of operations.
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
CMC SHORT TERM BOND FUND
A Portfolio of CMC Fund Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. Transactions with affiliates and related parties:
Investment management fees incurred............................ $ 259,716
Investment management fee computation basis
(percentage of daily net assets per annum)................... 0.25 of 1%
Expenses reimbursed by investment adviser ..................... $ 71,104
Transfer agent fee ............................................ $ 18,000
Fees earned by trustees not affiliated with the Fund's
investment adviser or transfer agent ....................... $ 6,078
The investment adviser of the Fund is Columbia Management Co. (CMC). CMC is an
indirect subsidiary of Fleet Boston Corporation (Fleet), a publicly owned
multi-bank holding company registered under the Bank Holding Company Act of
1956. 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 reports regarding the Fund's
portfolio and performance, market conditions and economic indicators.
CMC has voluntarily agreed to reimburse 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 daily net assets.
The transfer agent for the Fund is Columbia Trust Company (CTC), an affiliate of
CMC and indirect subsidiary of Fleet. CTC 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.
J. Jerry Inskeep, Jr., an officer and trustee of the Trust, is affiliated with
Fleet but receives no compensation or other payments from the Trust.
48
<PAGE>
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers
1300 SW Fifth Avenue
Portland OR 97201-5638
Telephone (503) 478 6000
Facsimile (503) 478 6099
Report of Independent Accountants
To the Trustees and Shareholders 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 (the
Fund), one of the portfolios of CMC Fund Trust, at October 31, 1999, and the
results of its operations for the year then ended, the changes in its net assets
and the financial highlights for the year then ended and for the period February
2, 1998 (commencement of operations) through October 31, 1998, 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 at October 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
December 3, 1999
<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.
(n) Rule 18f-3 Plan - Not Applicable.
(o) Not Applicable.
(p) Code of Ethics.*
(q) 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 Boston Corporation ("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.
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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
The Chase Manhattan Bank, 3 Chase Metrotech Center, Brooklyn, New York 11245.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
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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 20th day of
December, 1999.
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 20th day of December, 1999
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
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* 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
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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)
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(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.
(n) Rule 18f-3 Plan - Not Applicable.
(o) Not Applicable.
(p) Code of Ethics.*
(q) 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
1300 SW Fifth Avenue
Portland OR 97201-5638
Telephone (503) 478 6000
Facsimile (503) 478 6099
Consent of Independent Accountants
We hereby consent to the use in Post-Effective Amendment No. 16 to the
Registration Statement of CMC Fund Trust on Form N-1A (File No. 33-30394) of our
reports dated December 3, 1999, relating to 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 appear in such Registration Statement. We also consent to the references
to us under the headings "Independent Accountants" and "Financial Highlights" in
such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
December 3, 1999
Exhibit (p)
CODE OF ETHICS
--------------
Effective: November 1, 1999
The following Code of Ethics (the "Code") is designed to comply with
Section 17(j) of the Investment Company Act of 1940 (the "1940 Act") and the
Insider Trading and Securities Fraud Enforcement Act of 1988 and has been
adopted by Columbia Management Co., Columbia Funds Management Company, Columbia
Trust Company, Columbia Financial Center Incorporated, and CMC Fund Trust and
each investment company managed by Columbia Funds Management Company
(collectively, "Columbia"). CMC Fund Trust and each investment company managed
by Columbia Funds Management Company are referred to in this Code as a "Columbia
Fund."
1. Statement of General Principles
The specific standards and guidelines set forth in the Code must be applied
and followed in the context of the following general fiduciary principles that
govern personal investment activities. The Code is based on the principle that
officers, directors and employees of Columbia owe a fiduciary duty to conduct
their personal securities transactions in a manner that does not interfere with
portfolio transactions or take unfair advantage of their relationship with
Columbia. This fiduciary duty is owed to both Columbia advisory clients and
shareholders of the Columbia Funds. Columbia personnel must adhere to this
general principle as well as the specific requirements set forth in this Code.
Columbia officers, directors and employees should understand, however, that
technical compliance with the specific requirements of the Code does not
automatically insulate them from liability or a review of trades that show a
pattern of a breach of an individual's fiduciary duty.
Personnel should avoid situations that present actual as well as potential
conflicts of interest. As a general principle, it is imperative that Columbia's
officers, directors and employees also avoid any situation that might compromise
or call into question their exercise of independent judgment in the interest of
Columbia Fund shareholders and Columbia advisory clients. Areas of concerns
relating to independent judgment include, among others, unusual investment
opportunities, perks, and gifts of more than "de minimus" value from persons
doing or seeking to do business with Columbia.
Purchases or sales of securities shall be made only in accordance with this
Code and Columbia's Policy and Procedures Designed to Detect and Prevent Insider
Trading (the "Insider Trading Policy"). Although all employees and disinterested
directors/trustees of Columbia are covered by this Code and the Insider Trading
Policy, certain employees deemed under the Code to be "access persons" are
subject to greater trading restrictions and reporting obligations. Disinterested
directors/trustees, however, are generally subject to fewer trading restrictions
and reporting obligations because of their limited access to current investment
information.
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2. Definitions
(a) "Access person" means (i) any director or officer of Columbia, (ii) any
employee of Columbia who, in connection with his or her regular functions
or duties, makes, participates in, or obtains information regarding the
purchase or sale of a security by Columbia or whose functions relate to the
making of any recommendations with respect to such purchases or sales; and
(iii) any natural person in a control relationship to Columbia who obtains
information concerning recommendations made to Columbia with regard to the
purchase or sale of a security. The Ethics Committee shall maintain a list
of employees deemed to be access persons for purposes of this Code. "Access
person" does not include a disinterested director/trustee of a Columbia
Fund.
(b) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated or, with respect to the person making the recommendation, when
such person seriously considers making such a recommendation.
(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, which states that the term "beneficial owner" means
"any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in" a security. The term "pecuniary interest"
is further defined to mean "the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the subject
securities." "Beneficial ownership" includes accounts of a spouse, minor
children and relatives resident in the home of the access person, as well
as accounts of another person if the employee obtains therefrom benefits
substantially equivalent to those of ownership. For additional information,
see appendix A.
(d) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act.
(e) "Disinterested director/trustee" means a director/trustee of a Columbia
Fund who is not an "interested person" of the Columbia Fund within the
meaning of Section 2(a)(19) of the 1940 Act.
(f) "Employee" means any employee or officer of Columbia or any Columbia
Fund. Employee does not include a disinterested director/trustee of a
Columbia Fund.
(g) "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security.
2
<PAGE>
(h) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Investment Company Act, except that it shall not include shares of
registered open-end investment companies, securities issued by the U.S.
Government or an instrumentality thereof, short-term debt securities that
are government securities within the meaning of Section 2(a)(16) of the
1940 Act, bankers' acceptances, bank certificates of deposit, commercial
paper and other money market instruments. Any prohibition or reporting
obligation relating to a security shall also apply to any option, warrant
or right to purchase or sell such security and to any security convertible
or exchangeable for such security.
3. Pre-Clearance of Transactions
All employees shall have all purchases or sales of any security in which
they have, or by reason of such purchase acquire, any direct or indirect
beneficial ownership approved in writing by the Columbia Trading Department or a
member of the Ethics Committee prior to effecting the transaction. Members of
the Ethics Committee are attached hereto as Appendix B.
NOTE: See the definition of security in Section 2(h) and the exemptions in
Section 5 to determine whether a transaction is subject to the pre-clearance
requirement. For example, transactions in an account over which an employee does
not have direct or indirect influence or control are exempt from this
pre-clearance requirement.
4. Prohibited Transactions
(a) General Restrictions:
(i) Prohibited Purchases and Sales. No employee or disinterested
director/trustee shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transactions
acquires, any direct or indirect beneficial ownership and which to his or
her knowledge at the time of such purchase or sale (i) is being considered
for purchase or sale by Columbia or (ii) is being purchased or sold by
Columbia. In addition, all employees and disinterested directors/trustees
shall comply with the Insider Trading Policy, which prohibits any person
from purchasing or selling a security while in possession of material
non-public information or communicating such information in connection with
a transaction.
(ii) Initial Public Offerings. No employee shall purchase or sell
directly or indirectly, any equity security issued in an initial public
offering without the written approval by the Columbia Trading Department or
a member of the Ethics Committee prior to the transaction. A transaction by
an access person in an initial public offering will not be approved in any
circumstances.
(b) Restrictions Applicable only to Access Persons:
3
<PAGE>
(i) Private Placements. No access person shall purchase any securities
issued in a private placement (as that term is generally recognized as an
exempt transaction from registration under the federal securities laws)
except pursuant to the prior written approval of the Ethics Committee,
which approval shall take into consideration, among other factors, whether
the investment opportunity should be reserved for a Columbia Fund or
Columbia advisory client and whether the opportunity is being offered to
the access person by virtue of his or her position with Columbia. In
addition, any access person who owns or has been authorized to acquire
securities in a private placement is required to disclose that ownership if
he or she plays a material role in Columbia's subsequent investment
decision regarding the same issuer of the security. In that circumstance,
Columbia's decision to purchase such securities must be subject to an
independent review by members of the Columbia Investment Team with no
personal interest in the issuer.
(ii) 7-Day Blackout Period. No access person shall purchase or sell,
directly or indirectly, any security in which he or she has, or by reason
of the transaction acquires, any direct or indirect beneficial ownership
within a period of seven calendar days before and after a purchase or sale
by a Columbia Fund or advisory client over which the access person
exercises investment discretion. For example, if a Columbia Fund trades a
security on day one (e.g., on Monday), the access person may not trade
until day nine (e.g., the following Tuesday). Any profits realized on
trades within the proscribed periods shall be disgorged to Columbia for the
benefit of the appropriate Columbia Fund or advisory client or,
alternatively, to a charitable organization (qualified under Section 501(c)
of the Internal Revenue Code) of the access person's choice.
The black-out period restriction under this Section 4(b)(ii) should
not operate to the detriment of any Columbia Fund or advisory client.
Therefore, if an access person has executed a transaction in a security for
his or her account and within seven days thereafter desires to purchase or
sell that security for a Columbia Fund or advisory client over which he or
she exercises investment discretion, the access person shall submit a
written explanation to the Trading Desk or Ethics Committee describing the
circumstances relating to the decision to trade the security for the Fund
or client account. Based on the specific circumstances and a determination
that the access person has not otherwise violated the Code of Ethics,
including the Statement of General Principles in Section 1, the Trading
Desk or Ethics Committee may approve the trade by the Fund or advisory
client and, in that case, the prior personal transaction by the access
person shall not be considered a violation of the seven day black-out
period restriction. A written record of the approval by the Trading Desk or
the Ethics Committee, as the case may be, shall be maintained by the Ethics
Committee.
(iii) Short-Term Trading. For the purpose of preventing the unfair use
of information that may be obtained by an access person, any profit
realized by an access person from any purchase and sale, or any sale and
purchase, of any security in which
4
<PAGE>
he or she has, or by reason of the transaction acquires, any direct or
indirect beneficial ownership (other than an exempted security under this
Code), within any period of less than 60 days shall inure to and be
recoverable by Columbia for the benefit of a charitable organization
(qualified under Section 501(c) of the Internal Revenue Code) of his or her
choice. This prohibition shall not apply unless such access person was the
beneficial owner of the security or of an interest in the security both at
the time of the purchase and sale, or sale and purchase.
Exceptions to the short-term trading ban may be approved in advance by
the Ethics Committee where it is determined that no abuse is involved and
the equities of the situation strongly support an exception to the ban.
Circumstances that could provide the basis for an exception under this
paragraph may include for example, among other things, an involuntary
transaction that is the result of unforeseen corporate activity, the
disclosure of a previously nonpublic, material corporate, economic or
political event or activity that could cause a reasonable person in like
circumstances to sell a security even if originally purchased as a long
term investment, or the access person's economic circumstances materially
change in such a manner that enforcement of the short-term trading ban
would cause an extreme hardship on the access person.
(iv) Exemption for Large Cap Trades. The prohibitions in subsections
4(b)(ii) and (iii) shall not apply to the purchase or sale by the access
person of a security issued by a company with a market capitalization
greater than $10 billion if the number of shares in the transaction is less
than 1% of the average daily trading volume for the security for the 20-day
trading period immediately prior to the transaction. This exception to the
black-out period and short-term trading prohibitions recognizes that
transactions by the access person or Columbia which involve securities of
companies with high market capitalizations and high average daily trading
volumes are not likely to materially affect the price of the security
involved.
5. Exempted Transactions
In addition to any other exemptions in this Code and except as otherwise
noted below, the prohibitions of Section 4 and the pre-clearance required by
Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the employee has
no direct or indirect influence or control. Pre-approval of these accounts
may, at times, be required by the Ethics Committee. For additional
information see appendix A.
(b) Purchases or sales of securities that are not eligible for purchase or
sale by Columbia.
(c) Purchases or sales which are non-volitional on the part of either the
employee, or Columbia.
5
<PAGE>
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired.
(f) Purchases and sales of financial futures or option contracts on
securities indexes traded on a national securities or commodities exchange.
(g) Purchases and sales approved by the Ethics Committee if it is
determined after appropriate inquiry that the transaction is not
potentially harmful to a Columbia Fund or advisory client because it would
be very unlikely to affect a highly institutional market, or because it
clearly is not related economically to the securities to be purchased, sold
or held by Columbia, and that the purchase or sale does not violate the
Insider Trading and Securities Fraud Enforcement Act of 1988.
6. Prohibited Activities by Employees and Access Persons
(a) Gifts. Employees are prohibited from receiving, either directly or
indirectly, anything of value in excess of a "de minimus" amount from any
person or any employee of an entity that does or seeks to do business with
Columbia.
(b) Service as a Director. Access persons are prohibited from serving on
the boards of directors of publicly traded companies, absent a prior
authorization from the Ethics Committee based on a determination that the
board service would not be inconsistent with the interests of Columbia or
Columbia's advisory clients. This restriction shall not apply to access
persons serving on the board of directors or as a trustee of any Columbia
Fund.
7. Reporting
(a) Duplicate Confirmations and Account Statements. All employees shall
cause every broker with whom he or she maintains an account to provide
duplicate confirmations to Columbia for all securities transactions by the
employee. In addition, all access persons (excluding disinterested
directors/trustees) shall cause every such broker to send all monthly,
quarterly and annual statements of their accounts to Columbia. The
quarterly statements must be provided no later than 10 days after the end
of a calendar quarter. The quarterly statements must contain with respect
to any transaction during the calendar quarter in a security beneficially
owned by the access person (1) the date of the transaction, the title, the
interest rate and maturity date (if applicable), the number of shares and
the principal amount of each security involved; (2) the nature of the
transaction (i.e., purchase, sale or any other type of acquisition or
disposition); (3) the price of the security at which the transaction was
effected; (4) the name of the broker, dealer or bank with or through which
the transaction was
6
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effected; and (5) the date that the report is submitted by the access
person. The Trading Department will obtain duplicate brokerage
confirmations for all purchases and sales of a security by employees (other
than disinterested directors/trustees) and shall compile summaries of all
trades entered and all transactions completed. Such reports shall include
the name of the security, date of transaction, quantity, price and the
broker-dealer through which the transaction was effected. The obligation to
provide duplicate confirmations and account statements applies to all
brokerage accounts even if a transaction is exempt from the prohibitions
under this Code.
(b) Disclosure of All Personal Holdings. Within 10 days of commencement of
employment or becoming an access person and on an annual basis thereafter
(which information must be current as of a date no more than 30 days before
the report is submitted), each access person shall provide Columbia the
following information: (1) the title, number of shares and principal amount
of each security beneficially owned by the access person; (2) the name of
any broker, dealer or bank from whom the access person maintains an account
in which any securities were beneficially owned by the access person; and
(3) the date the report is submitted by the access person.
(c) Disinterested Director/Trustee. A disinterested director/trustee is
required to report a purchase or sale transaction in a security only if the
director/trustee, at the time of the transaction, knew or, in the ordinary
course of fulfilling his or her duties as a director/trustee of a Columbia
Fund, should have known that, during the 15-day period immediately
preceding or after the date of the transaction, such security is or was
purchased or sold by the Columbia Fund or is or was being considered for
purchase or sale.
(d) Review of Securities Transactions and Holding Reports. Columbia shall
establish procedures to ensure that all securities transactions and
holdings reports submitted by access persons are reviewed by appropriate
management or compliance personnel.
8. Certification of Compliance
All employees and disinterested directors/trustees shall certify annually
(except that access persons shall certify on a quarterly basis) that they have
read and understood the Code and are subject thereto, have complied with the
requirements of the Code and have disclosed or reported all personal securities
transactions as required by the Code.
9. Sanctions
Upon discovering a violation of this Code, Columbia may impose such
sanctions as it deems appropriate, including, among other things, a letter of
censure or suspension or termination of the employment of the violator.
7
<PAGE>
10. Report to the Board of Directors.
On an annual basis, the Ethics Committee shall prepare a written report to
the management of Columbia and the Boards of Directors/Trustees of the Columbia
Funds and the other Columbia companies that (1) describes any issues arising
under the Code since the last report including, but not limited to, information
about material violations of the Code and sanctions imposed in response to the
material violations; and (2) certifies that Columbia has adopted procedures
reasonably necessary to prevent violations of the Code. Columbia shall present
any material change to the Code to the Board of Directors/Trustees no later than
six months after adoption of the material change.
8
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APPENDIX A - Beneficial Ownership
For purposes of the Code of Ethics, the term "beneficial ownership" shall
be interpreted in accordance with the definition of "beneficial owner" set forth
in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which
states that the term "beneficial owner" means "any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary interest in" a security.
The term "pecuniary interest" is further defined to mean "the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the subject securities."
The pecuniary interest standard looks beyond the record owner of
securities. As a result, the definition of beneficial ownership is extremely
broad and encompasses many situations which might not ordinarily be thought to
confer a "pecuniary interest" in or "beneficial ownership" of securities.
Securities Deemed to be "Beneficially Owned"
Securities owned "beneficially" would include not only securities held by
you for your own benefit, but also securities held (regardless of whether or how
they are registered) by others for your benefit in an account over which you
have influence or control, such as, for example, securities held for you by
custodians, brokers, relatives, executors, administrators, or trustees. The term
also includes securities held for your account by pledgees, securities owned by
a partnership in which you are a general partner, and securities owned by any
corporation that you control.
Set forth below are some examples of how beneficial ownership may arise in
different contexts.
Family Holdings. Securities held by members of your immediate family
sharing the same household are presumed to be beneficially owned by you. Your
"immediate family" includes any child, step-child, grandchild, parent,
step-parent, grandparent, spouse, significant other, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law
(but does not include aunts and uncles, or nieces and nephews). The definition
also includes adoptive relationships. You may also be deemed to be the
beneficial owner of securities held by an immediate family member not living in
your household if the family member is economically dependent upon you.
Partnership and Corporate Holdings. A general partner of a general or
limited partnership will generally be deemed to beneficially own securities held
by the partnership, as long as the partner has direct or indirect influence or
control over the management and affairs of the partnership. A limited partner
will generally not be deemed to beneficially own securities held by a limited
partnership, provided he or she does not own a controlling voting
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<PAGE>
interest in the partnership. If a corporation is your "alter ego" or "personal
holding company", the corporation's holdings of securities are attributable to
you.
Trusts. Securities held by a trust of which you are a beneficiary and over
which you have any direct or indirect influence or control would be deemed to be
beneficially owned by you. An example would be where you as settlor have the
power to revoke the trust without the consent of another person, or have or
share investment control over the trust.
Estates. Ordinarily, the term "beneficial ownership" would not include
securities held by executors or administrators in estates in which you are a
legatee or beneficiary unless there is a specific bequest to you of such
securities, or you are the sole legatee or beneficiary and there are other
assets in the estate sufficient to pay debts ranking ahead of such bequest.
Securities Deemed Not to be "Beneficially Owned"
For purposes of the Code of Ethics, the term "beneficial ownership"
excludes securities or securities accounts held by you for the benefit of
someone else if you do not have a pecuniary interest in such securities or
accounts. For example, securities held by a trust would not be considered
beneficially owned by you if neither you nor an immediate family member is a
beneficiary of the trust. Another example illustrating the absence of pecuniary
interest, and therefore also of beneficial ownership, would be securities held
by an immediate family member not living in the same household with you, and who
is not economically dependent upon you.
"Influence or Control"
Transactions over which you have "no direct or indirect influence or
control" are not subject to the pre-clearance requirements or prohibited
transaction rules in Sections 3 and 4 of the Code of Ethics. See Section 5(a).
To have "influence or control", you must have an ability to prompt, induce or
otherwise affect transactions in the account. Like "beneficial ownership, the
concept of influence or control encompasses a wide variety of factual
situations. An example of where influence or control exists would be where you,
as a beneficiary of a revocable trust, have significant ongoing business and
social relationships with the trustee of the trust. Examples of where influence
or control does not exist would be a true blind trust, or securities held by a
limited partnership in which your only participation is as a non-controlling
limited partner. The determining factor in each case will be whether you have
any direct or indirect influence or control over the securities account.
Employees with such blind trust or third party discretionary accounts shall have
their account agreement and/or governing documents forwarded to Ethics Committee
for review prior to trading pursuant to this exemption. The account will only be
exempt if the employee initially, and on an annual basis thereafter, certifies
that he or she maintains no control or influence over the account.
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APPENDIX B - Members of Ethics Committee
Thomas A. Thomsen
Alexander S. Macmillan
Jeff B. Curtis
Mark A. Wentzien
Rich S. Mettler
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