<PAGE>
UNITED STATES File No. 33-75708
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 File No. 811-8370
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post Effective Amendment No. 3 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 7 X
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McM Funds
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(Exact name of Registrant as Specified in Charter)
One Bush Street, Suite 800
San Francisco, CA 94104
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 415-788-9300
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Deane A. Nelson, CFA
Vice President
McMorgan & Company
One Bush Street, Suite 800
San Francisco, California 94104
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(Name and Address of Agent for Service)
COPIES TO:
Julie Allecta, Esq. Joseph M. O'Donnell, Esq.
Heller, Ehrman, White & McAuliffe Fund/Plan Services, Inc.
333 Bush Street 2 West Elm Street
San Francisco, California 94104-2878 Conshohocken, Pennsylvania 19428
Approximate date of proposed public offering:
As soon as practical after the effective date of this Registration Statement.
It is proposed that this filing become effective:
[ ] immediately upon filing pursuant to Paragraph (b) of Rule 485.
[X] on November 1, 1996, pursuant to Paragraph (b).
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[ ] 60 days after filing pursuant to paragraph (a)(1).
[ ] on (date) pursuant to paragraph (a) of Rule 485.
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[ ] 75 days after filing pursuant to paragraph (a)(ii).
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
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If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has previously registered an indefinite number of shares of
beneficial interest of McM Funds under the Securities Act of 1933 pursuant to
Rule 24f-2 of the Investment Company Act of 1940, as amended. Registrant filed a
Notice pursuant to Rule 24f-2 for the fiscal year ended June 30, 1996 on August
26, 1996.
As filed with the U.S. Securities and Exchange
Commission on October 28, 1996
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PEA 3/7 McM Funds Cover Page 1
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MCM FUNDS
Cross Reference Sheet Pursuant to Rule 481(b)
<TABLE>
<CAPTION>
Form N-1A Item Caption in Prospectus
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<S> <C>
Part A INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives; Investment Philosophies;
Investment Strategies
5. Management of the Fund Management of the Funds
5A. Management's Discussion of Fund Performance *Included in Registrant's Annual Report to Shareholders
6. Capital Stock and Other Securities General Information; Dividends and Taxes; Net
Asset Value
7. Purchase of Securities Being Offered How to Invest in the Funds; Exchange of Shares;
Distribution Plan; Shareholder Services
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Covered in Part A
13. Investment Objectives and Policies Investment Policies; Investment Restrictions;
Portfolio Transactions and Brokerage Commissions
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders of Control Persons and Principal Holders of Securities
Securities
16. Investment Advisory and Other Services Investment Advisory and Other Services
17. Brokerage Allocation Portfolio Transactions and Brokerage Commissions;
18. Capital Stock and Other Securities Other Information
</TABLE>
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PEA 3/7 McM Funds Cover Page 2
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<TABLE>
<CAPTION>
<S> <C>
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION (continued)
19. Purchase, Redemption and Pricing of Purchases; Redemptions
Securities Being Offered
20. Tax Status Taxes
21. Underwriters Underwriter
22. Calculations of Performance Data Performance Information
23. Financial Statements Audited Financial Statements
Part C OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
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* Item inapplicable at this time or answer negative.
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PEA 3/7 McM Funds Cover Page 3
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McM FUNDS PROSPECTUS
One Bush Street, Suite 800
San Francisco, CA 94104 November 1, 1996
McM Funds (the "Company") is a no-load, open-end management investment company.
The Company was organized as a Delaware business trust and currently offers
shares of five separate series or funds (each a "Fund" and collectively, the
"Funds"), each having its own investment objectives and policies. Each of the
Funds is diversified and individually advised by McMorgan & Company (the
"Advisor").
Money Market Fund
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McM Principal Preservation Fund (the "Principal Preservation Fund")
seeks to realize maximum current income, consistent with preservation
of capital. The Fund seeks to achieve its investment objective by
investing in short-term, high quality, U.S. dollar-denominated money
market instruments having expected maturities of thirteen months or
less. This Fund attempts to maintain a stable net asset value of $1.00.
Fixed Income Funds
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McM Intermediate Fixed Income Fund (the "Intermediate Fixed Income
Fund") seeks to achieve above-average total return over a market cycle
of three to five years. The Fund invests in a diversified portfolio of
short to intermediate-term debt securities. Average weighted maturity
is expected to be between three and ten years. This Fund is designed
for investors wishing a greater return than the Principal Preservation
Fund and less risk than the Equity Investment Fund, Balanced Fund and
Fixed Income Fund.
McM Fixed Income Fund (the "Fixed Income Fund") seeks to achieve
above-average total return consistent with what the Advisor believes to
be prudent risk to principal over a market cycle of three to five
years. The Fund invests in a diversified portfolio of intermediate and
long-term debt securities. Average weighted maturity is expected to be
between three and fifteen years. This Fund is designed for those
investors wishing to receive a high level of income with protection of
principal.
An investment in the Principal Preservation Fund is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Balanced Fund
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McM Balanced Fund (the "Balanced Fund") seeks to achieve a balance of
capital appreciation, income and preservation of capital over a market
cycle of three to five years. The Fund invests in common stocks and
fixed income securities. This Fund is designed for investors willing to
accept the risks associated with a combination of investments in equity
and fixed income securities.
Equity Fund
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McM Equity Investment Fund (the "Equity Investment Fund") seeks to
achieve above-average total return over a market cycle of three to five
years consistent with reasonable risk. The Fund invests primarily in
common stocks of companies which are deemed by the Advisor to have
earnings growth, dividend growth and capital appreciation potential.
This Fund is designed for investors wishing long-term growth and who
are willing to accept the risk of occasional volatile returns.
Above-average total return may be difficult to achieve in all market
conditions.
Shares of each Fund are purchased and redeemed without any purchase or
redemption charge imposed by the Company, although the Advisor and other
institutions may charge their customers for services provided in connection with
their investments.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in any of the above Funds. Investors should read
this Prospectus and retain it for future reference. Additional information about
the Funds, contained in the Statement of Additional Information, has been filed
with the U.S. Securities and Exchange Commission and is available upon request
without charge by writing to the Advisor at the address below. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference into the Prospectus.
Underwriter: Advisor:
FPS Broker Services, Inc. McMorgan & Company
3200 Horizon Drive One Bush Street, Suite 800
King of Prussia, PA 19406-0903 San Francisco, CA 94104
(800) 831-1146 (800) 788-9485
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TABLE OF CONTENTS
Page
----
Prospectus Summary.................................................
Expense Information................................................
Financial Highlights...............................................
Investment Philosophies............................................
Investment Objectives
Principal Preservation Fund...................................
Intermediate Fixed Income Fund................................
Fixed Income Fund.............................................
Balanced Fund.................................................
Equity Investment Fund .......................................
Investment Strategies..............................................
Management of the Funds............................................
How to Invest in the Funds.........................................
Exchange of Shares.................................................
How to Redeem Shares...............................................
Account Options....................................................
Net Asset Value....................................................
Dividends and Taxes................................................
Performance Information............................................
General Information................................................
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED
IN ANY JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE FUNDS TO MAKE SUCH AN OFFER OR SOLICITATION. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS.
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PEA 3/7 McM Funds Page 3
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PROSPECTUS SUMMARY
The Funds
The Company is an open-end, management investment company commonly known as a
mutual fund. The Company was established as a Delaware business trust on
February 3, 1994. The Company is currently comprised of five diversified series
of shares which offer a variety of investment opportunities -- Principal
Preservation Fund, Intermediate Fixed Income Fund, Fixed Income Fund, Balanced
Fund and Equity Investment Fund.
Investment Objectives of the Funds
The Principal Preservation Fund, a money market fund, seeks to realize maximum
current income, consistent with preservation of capital. The Intermediate Fixed
Income Fund and Fixed Income Fund both seek to achieve above-average total
return by investing in diversified portfolios of debt securities. The average
weighted portfolio maturity of the Intermediate Fixed Income Fund is expected to
be between three and ten years, and the average weighted portfolio maturity of
the Fixed Income Fund is expected to be between three and fifteen years. The
Balanced Fund seeks to achieve a balance of capital appreciation, income and
preservation of capital. The Equity Investment Fund seeks to achieve
above-average total return by investing primarily in common stocks.
Due to the inherent risks of investments, there can be no assurance that the
objective of a Fund will be achieved. See "Investment Objectives" on pageX and
"Investment Strategies" on page 13.
Risk Factors of Investing in the Funds
There is no assurance that the investment objective of any Fund will be
achieved, and investment in each Fund includes risks, which vary in kind and
degree depending upon the investment policies of the Fund. The returns and net
asset value of a Fund will fluctuate, except that the Principal Preservation
Fund seeks to maintain a net asset value of $1.00 per share (although there is
no assurance that the Principal Preservation Fund will maintain a net asset
value of $1.00 per share). The securities contained in the Intermediate Fixed
Income Fund and Fixed Income Fund are subject to market and credit risk. See
"Risk Factors of Fixed Income Investing" on page 13.
How to Purchase Shares
The minimum initial investment for all accounts is $5,000 for each Fund. The
minimum for additional investments is $250. The Funds do not impose any sales
load, distribution plans (12b-1), redemption or exchange fees. The public
offering price for shares of each of the Funds is the net asset value per share
next determined after receipt of a purchase order. See "How to Invest in the
Funds" on page 21.
How to Redeem Shares
Shares of each Fund may be redeemed at the net asset value per share of the Fund
next determined after receipt by the transfer agent of a redemption request in
proper form. Signature guarantees may be required. See "How to Redeem Shares" on
page 23.
Dividends
Each Fund intends to distribute substantially all of its net investment income
and net realized capital gains, if any, to shareholders. Distributions of net
capital gains, if any, will be made annually. All distributions are reinvested
at net asset value in additional full and fractional shares of the respective
Fund unless and until the shareholder notifies the transfer agent in writing
requesting payments in cash.
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The Principal Preservation Fund's net investment income is declared daily and
paid monthly. It is expected that the Intermediate Fixed Income Fund and Fixed
Income Fund will declare and pay dividends (other than net capital gains)
monthly, and the Balanced Fund and Equity Investment Fund will declare and pay
dividends (other than net capital gains) quarterly. See "Dividends and Taxes" on
page 26.
Management of the Funds
McMorgan & Company, One Bush Street, Suite 800, San Francisco, California 94104,
a California corporation and registered investment advisor, is the Funds'
investment advisor. As of June 30, 1996, the Advisor managed approximately $15
billion in assets primarily for employee benefit plans such as retirement plans
and health and welfare funds. FPS Broker Services, Inc., 3200 Horizon Drive,
King of Prussia, Pennsylvania 19406-0903 serves as the Funds' underwriter. The
Bank of New York, 48 Wall Street, New York, New York 10286 serves as the
custodian of the Funds' assets. FPS Services, Inc., 3200 Horizon Drive, King of
Prussia, Pennsylvania 19406-0903 serves as the Funds' administrator, transfer
agent and fund accounting agent.
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PEA 3/7 McM Funds Page 5
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EXPENSE INFORMATION
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<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses for Each Fund:
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) .................... 0.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) ......... 0.00%
Deferred Sales Load (as a percentage of original purchase price)................................ 0.00%
Redemption Fees (as a percentage of amount redeemed)............................................ 0.00%
</TABLE>
There is a fee of $9.00 for each wire redemption.
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Principal Intermediate Fixed
Preservation Fixed Income Income
Fund Fund Fund
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<S> <C> <C> <C>
Management Fees (after fee waiver): 0.00% 0.00% 0.00%
Other Expenses
(after expense reimbursement): 0.30% 0.50% 0.50%
Total Fund Operating
Expenses (after expense
reimbursement): 0.30% 0.50% 0.50%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Equity
Balanced Investment
Fund Fund
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<S> <C> <C>
Management Fees (after fee waiver): 0.00% 0.00%
Other Expenses
(after expense reimbursement): 0.60% 0.75%
Total Fund Operating
Expenses (after expense
reimbursement): 0.60% 0.75%
===== =====
</TABLE>
Pursuant to the terms of the investment advisory agreements between the Advisor
and the Principal Preservation Fund, Intermediate Fixed Income Fund, Fixed
Income Fund, Balanced Fund and Equity Investment Fund, the Advisor receives a
monthly fee at an annual rate of 0.25%, 0.35%, 0.35%, 0.45% and 0.50%,
respectively, of the respective Fund's average daily net assets. The above table
reflects the Advisor's voluntary undertaking to waive its fees and reimburse
expenses so that the Total Operating Expenses for the Principal Preservation
Fund, Intermediate Fixed Income Fund, Balanced Fund and Equity Investment Fund
will not exceed 0.30%, 0.50%, 0.50%, 0.60% and
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PEA 3/7 McM Funds Page 6
<PAGE>
0.75%, respectively. Had the Advisor not agreed to this fee waiver and
reimbursement, Total Fund Operating Expenses for the fiscal year ended June 30,
1996 would have been 0.93%, 0.69%, 1.82%, 2.21% and 1.72%, respectively.
Example
Based on the level of expenses listed above, the total expenses relating to an
investment of $1,000 would be as follows, assuming a 5% annual return and
redemption at the end of each time period.
<TABLE>
<CAPTION>
Name of Fund 1 Year 3 Years 5 Years 10 Years
------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Principal Preservation Fund $ 3 $ 10 $ 17 $ 38
Intermediate Fixed Income Fund $ 5 $ 16 $ 28 $ 63
Fixed Income Fund $ 5 $ 16 $ 28 $ 63
Balanced Fund $ 6 $ 19 $ 33 $ 75
Equity Investment Fund $ 8 $ 24 $ 42 $ 93
</TABLE>
The foregoing tables are designed to assist an investor in understanding the
various costs and expenses that a shareholder will bear directly or indirectly.
While the example assumes a 5% annual return, the Funds' actual performance will
vary and may result in actual returns greater or less than 5%. The example
should not be considered a representation of past or future expenses and actual
expenses or returns may be greater or less than those shown, and may change if
expense reimbursements change.
FINANCIAL HIGHLIGHTS
The following financial highlights were derived from the Funds' financial
statements for the fiscal year ended June 30, 1996 and for the period ended June
30, 1995, respectively, which were audited by Tait, Weller & Baker, independent
auditors, whose unqualified report thereon may be found in the Funds' Annual
Report to Shareholders dated June 30, 1996 and is incorporated by reference into
the Funds' Statement of Additional Information. The Funds' Statement of
Additional Information may be obtained upon request without charge and is
incorporated by reference into this Prospectus.
The tables below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
McM Principal McM Intermediate McM Fixed
Preservation Fund Fixed Income Fund Income Fund
------------------------- -------------------------- ------------------------
For the For the For the For the For the For the
Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended
06/30/96 06/30/95* 06/30/96 06/30/95** 06/30/96 06/30/95**
----------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period ........... $ 1.00 $ 1.00 $ 10.37 $ 10.00 $10.58 $ 10.00
-------- -------- -------- -------- ------ --------
Income from investment operations
Net investment income ........................ 0.05 0.05 0.57 0.54 0.64 0.55
Net realized and unrealized gain (loss) on
investments ................................ 0.00 0.00 (0.10) 0.34 (0.20) 0.56
-------- -------- -------- -------- ------ --------
Total from investment operations ........... 0.05 0.05 0.47 0.88 0.44 1.11
-------- -------- -------- -------- ------ --------
Less Distributions:
From net investment income ................... (0.05) (0.05) (0.57) (0.51) (0.63) (0.53)
From capital gains ........................... 0.00 0.00 (0.10) 0.00 (0.06) 0.00
-------- -------- -------- -------- ------ --------
Total distributions ........................ (0.05) (0.05) (0.67) (0.51) (0.69) (0.53)
-------- -------- -------- -------- ------ --------
Net Asset Value, end of period ................. $ 1.00 $ 1.00 $ 10.17 $ 10.37 $10.33 $ 10.58
======== ======== ======== ======== ====== ========
Total return ................................... 5.39% 5.10%(2) 4.61% 9.19%(2) 4.16% 11.55%(2)
Ratios/Supplemental Data
Net assets, end of period (in (000's) ........ $ 24,195 $ 11,813 $ 76,045 $ 29,936 $7,992 $ 6,599
Ratio of expenses to average net assets
before reimbursement of expenses by
Advisor .................................... 0.93% 2.77%(1) 0.69% 1.72%(1) 1.82% 7.29%(1)
Ratio of expenses to average net assets after
reimbursement of expenses by Advisor ....... 0.30% 0.30%(1) 0.50% 0.50%(1) 0.50% 0.50%(1)
Ratio of net investment income to average
net assets before reimbursement of
expenses by Advisor ........................ 4.60% 2.91%(1) 5.52% 5.01%(1) 4.70% -0.47%(1)
Ratio of net investment income after
reimbursement of expenses by Advisor ....... 5.23% 5.38%(1) 5.71% 6.24%(1) 6.02% 6.33%(1)
Portfolio turnover ........................... N/A N/A 75.26% 227.09%(2) 37.62% 150.77%(2)
Average commission rate paid ................. N/A N/A N/A N/A N/A N/A
</TABLE>
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PEA 3/7 McM Funds Page 7
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<TABLE>
<CAPTION>
McM Balanced Fund McM Equity Investment Fund
------------------------- --------------------------
For the For the For the For the
Year Ended Period Ended Year Ended Period Ended
06/30/96 06/30/95** 06/30/96 06/30/95**
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period ........... $ 11.35 $ 10.00 $ 11.95 $ 10.00
-------- -------- -------- --------
Income from investment operations
Net investment income ........................ 0.40 0.36 0.21 0.19
Net realized and unrealized gain (loss) on
investments ................................ 1.49 1.33 2.94 1.94
-------- -------- -------- --------
Total from investment operations ........... 1.89 1.69 3.15 2.13
-------- -------- -------- --------
Less Distributions:
From net investment income ................... (0.40) (0.34) (0.21) (0.18)
From capital gains ........................... (0.09) 0.00 (0.04) 0.00
-------- -------- -------- --------
Total distributions ........................ (0.49) (0.34) (0.25) (0.18)
-------- -------- -------- --------
Net Asset Value, end of period ................. $ 12.75 $ 11.35 $ 14.85 $ 11.95
======== ======== ======== ========
Total return ................................... 16.86% 17.31%(2) 26.53% 21.57%(2)
Ratios/Supplemental Data
Net assets, end of period (in (000's) ........ $ 11,915 $ 3,070 $ 23,913 $ 4,866
Ratio of expenses to average net assets
before reimbursement of expenses by
Advisor .................................... 2.21% 8.41%(1) 1.72% 8.48%(1)
Ratio of expenses to average net assets after
reimbursement of expenses by Advisor ....... 0.60% 0.60%(1) 0.75% 0.75%(1)
Ratio of net investment income to average
net assets before reimbursement of
expenses by Advisor ........................ 1.81% -3.54%(1) 0.80% -5.50%(1)
Ratio of net investment income after
reimbursement of expenses by Advisor ....... 3.43% 4.28%(1) 1.77% 2.24%(1)
Portfolio turnover ........................... 26.16% 81.05%(2) 0.92% 1.81%(2)
Average commission rate paid ................. $0.0600 N/R $ 0.0600 N/R
</TABLE>
* McM Principal Preservation Fund commenced investment operations on July 13,
1994.
** McM Intermediate Fixed Income Fund, McM Fixed Income Fund, McM Balanced
Fund and McM Equity Investment Fund commenced investment operations on July
14, 1994.
1) Annualized.
2) Not Annualized.
INVESTMENT PHILOSOPHIES
Portfolio Management
Investment decisions for the Funds are made by an investment management team at
McMorgan & Company. No member of the investment management team is solely
responsible for making recommendations for portfolio purchases.
Fixed Income Philosophy
The Advisor uses a risk-control process to analyze the possible changes in value
caused by interest rate fluctuations. For the fixed income funds, a market
target risk level is established. Adjustments to this target risk level are made
based on the expected real return of the fixed income investments. As the
expected real rate of return in fixed income investments rises, duration (a
measure of risk) may be increased; and as the expected return decreases,
duration may be decreased on a gradual basis. Interest rate anticipation is kept
to low levels.
After the portfolio duration is established, issue selection is addressed to
purchase an "efficient group" of bonds, purchasing a diversified portfolio of
securities that have the following attributes: good quality, price inefficiency,
yield advantage versus the market and protection against call risk. Transactions
will occur in a portfolio for two major reasons: (1) assets will be sold and
replaced with another if call protection, quality or yield can be increased
without sacrificing any of the other factors; (2) assets will also be sold or
purchased to maintain the targeted portfolio duration, without diminishing any
of the four major factors.
<PAGE>
Equity Philosophy
The Advisor uses a market oriented "top-down" multi-factor approach to control
the risk at the portfolio level, quantifying and controlling the risk parameters
that affect the investment return of particular issues, while using a
"bottom-up" issue selection process. "Bottom-up" refers to an analytical
approach to securities selection which first focuses on the company and
company-related matters. The Advisor monitors many risk factors including Beta,
market capitalization, yield, historic growth, expected growth, balance sheet
strength, and industry and economic sector. While the Advisor uses the
"top-down" approach to control risk, it uses a "bottom-up" approach to select
specific securities.
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<PAGE>
Particular securities are selected for addition to the portfolio when they
contribute positively to total portfolio characteristics and the "Risk Adjusted
Expected Return" premium in excess of the market. The Advisor starts with
financial community consensus of earnings expectations and uses a dividend
discount model to determine a "Risk Adjusted Expected Return," selecting issues
that, collectively, have a "Risk Adjusted Expected Return" premium compared to
the market. The "Risk Adjusted Expected Return" of the portfolio is the
difference between the absolute expected return of the portfolio and the market,
plus or minus an amount computed to compensate for the degree to which the
historical volatility of the portfolio has exceeded or fallen short of the
overall market.
An issue will be added or increased to balance or rebalance any of the factors
determined at the portfolio level. If an individual security's "Risk Adjusted
Expected Return" has decreased significantly, either through price appreciation,
or other dynamic factors, its position may be reduced or eliminated, and other
securities with a higher "Risk Adjusted Expected Return" may be purchased.
Purchases and sales will also be made to maintain the desired portfolio
characteristics.
INVESTMENT OBJECTIVES
The investment objective of each Fund is fundamental and may not be changed
without a vote of the holders of the majority of the voting securities of the
Fund. Unless otherwise stated in this Prospectus, each Fund's investment
policies are not fundamental and may be changed without shareholder approval.
While a non-fundamental policy or restriction may be changed by the Trustees of
the Company without shareholder approval, the Funds intend to notify
shareholders before making any such material change. Fundamental policies may
not be changed without shareholder approval. Additional investment policies and
restrictions are described in the Statement of Additional Information.
When in the opinion of the Advisor a defensive investment posture is warranted,
the Funds are permitted to invest temporarily and without limitation in U.S.
Government obligations, money market instruments (such as U.S. Treasury bills,
commercial paper, certificates of deposit and bankers' acceptances) and
repurchase agreements. The Funds are permitted to enter into repurchase
agreements with respect to U.S. Government securities; purchase portfolio
securities on a when-issued basis; and purchase or sell portfolio securities for
delayed delivery. See INVESTMENT STRATEGIES.
PRINCIPAL PRESERVATION FUND
The Principal Preservation Fund is a money market fund which seeks to earn a
rate of return equal to short-term interest rates while maintaining liquidity
and stability of principal. The Fund will seek to achieve its objective by
investing in a diversified portfolio of high quality debt instruments having a
remaining maturity of 397 days or less. It is the policy of the Fund to maintain
a net asset value of $1.00 per share for purposes of purchases and redemptions,
although there can be no assurance that it will do so. The dollar weighted
average maturity of the portfolio can be no greater than 90 days. The Fund's
shares are neither insured nor guaranteed by the U.S. Government.
The securities in which the Fund may invest include, but are not limited to: (1)
certificates of deposit of banks and federal savings banks, (2) bankers'
acceptances, (3) commercial paper, (4) U.S. Government and agency securities and
(5) repurchase agreements and variable or floating rate securities with respect
to any of the foregoing securities. The Fund may not invest more than 5% of its
total assets in the securities of a single issuer, except U.S. Government
securities. The Fund's portfolio of investment securities must be denominated in
United States dollars and must present minimal credit risks in accordance with
standards established by the Funds' Trustees. At least 95% of the Fund's assets
must be invested in either U.S. Government securities or First-Tier Securities.
First-Tier Securities are securities that are rated (or a comparable security of
the same issuer is rated) by at least two nationally recognized statistical
rating agencies within the highest rating assigned to short-term debt securities
or, if not rated or rated by only one agency, is determined to be of comparable
quality. The remaining 5% must be invested in either First-Tier or Second-Tier
Securities. A Second-Tier Security is a security that is rated (or a comparable
security by the same issuer is rated) by at least two such agencies within the
two highest ratings assigned to short-term debt securities or, if not rated or
rated by only one agency, is determined to be of comparable quality. Although
the Fund may invest in securities that are determined to be of comparable
quality to other First and Second-Tier securities, no more than 20% of the
Fund's assets may be invested in unrated securities (any Second-Tier Securities,
whether or not rated, are counted in this 20%). The
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purchase of unrated and single-rated securities by the Fund must be ratified by
the Board of Trustees. Determinations of comparable quality shall be made in
accordance with procedures established by the Board of Trustees.
Because of the high quality and short maturity of the Fund's investments, the
Fund's yield may be lower than that of funds that invest in lower rated
securities and securities of longer maturities.
Money market instruments are generally described as short-term debt obligations
having maturities of one year or less. The yield on such instruments is very
sensitive to short-term lending conditions. In addition, there is an element of
risk in such money market instruments since an issuer may become insolvent and
default in meeting interest and principal payments. A repurchase agreement
results in a fixed rate of return during a specified period. Thus, during
periods of rising interest rates, the rate of return on such agreements could be
less than that which could be obtained by direct purchases of the underlying
securities. In addition, the Fund could experience some delay in obtaining
direct ownership of the underlying collateral in the event of failure of the
executing bank or securities dealer.
INTERMEDIATE FIXED INCOME FUND
The Intermediate Fixed Income Fund seeks to achieve above-average total return
consistent with low risk to principal and liquidity over a market cycle of three
to five years. The Fund primarily invests in a broad range of short to
intermediate-term bonds and other debt securities. While the Fund may purchase
securities with average remaining maturities of up to fifteen years, during
normal market conditions its average weighted portfolio maturity is expected to
be between three and ten years.
Specific emphasis is placed on finding lower coupon mortgage-backed and
asset-backed bonds to create incremental returns, while government coupon bonds
may be used extensively to control portfolio duration. See "Collateralized
Mortgage Obligations" under INVESTMENT STRATEGIES.
See "Investment Policies Applicable to the Balanced Fund, Fixed Income Fund and
Intermediate Fixed Income Fund."
FIXED INCOME FUND
The Fixed Income Fund seeks to achieve above average total return consistent
with low risk to principal and liquidity over a market cycle of three to five
years. The Fund primarily invests in a broad range of intermediate and long-term
debt securities and the portfolio will normally contain between fifty and one
hundred securities. While the Fund may purchase securities with maturities of
average lives of up to thirty years, during normal market conditions its average
weighted portfolio is expected to be between three and fifteen years.
Specific emphasis is placed on finding lower coupon mortgage-backed and
asset-backed securities to create incremental returns, while government bonds
may be used extensively to control portfolio duration. See "Collateralized
Mortgage Obligations" under INVESTMENT STRATEGIES.
See "Investment Policies Applicable to the Balanced Fund, Fixed Income Fund and
Intermediate Fixed Income Fund."
BALANCED FUND
The Balanced Fund seeks to achieve a balance of capital appreciation, income and
preservation of capital over a market cycle of three to five years. The Fund
invests in a diversified portfolio of common stocks and fixed income securities.
This Fund may be appropriate for investors willing to accept the risks
associated with a combination of investments in equity and fixed income
securities.
In seeking capital appreciation, the Fund may invest in common stocks of a broad
range of capitalized companies believed to have a potential for long-term
capital growth, with an emphasis on dividend paying common stocks. The equity
securities in which the Fund invests will be traded on a national securities
exchange or traded in the over-the-counter market. The Fund will have a
strategic target allocation of equity positions between 50% and 70% of net
assets, but for temporary defensive purposes the Fund may reduce the actual
equity commitment to 25% of net assets. The
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Advisor may alter the actual percentage of equities invested within the targeted
equity ranges in 5% increments. The change is determined by developing an
expected return on equities. Once the expected return on equities is determined,
it is compared against the expected return on short-term cash, cash equivalents
and fixed income investments. If equities are relatively more attractive, the
percentage invested in equities will be increased. If fixed income and cash
equivalent securities are relatively more attractive, the equity position will
be reduced.
The changes in equity commitment will usually be cumulative in nature and based
on risk-reward factors and not market-timing factors. The Advisor will usually
not make a commitment that is anticipated to change over the near term. The
commitment is based on a four to eight quarter outlook.
The Advisor believes that common stocks will generally offer the greatest
potential for growth of capital and preservation of purchasing power. The "top
down" analysis described under "Equity Philosophy" is developed to assist in
identifying specific business sectors for emphasis or deemphasis.
In seeking income, at least 25% of the Balanced Fund's assets will be invested
at all times in fixed income securities. The fixed income portion of the
portfolio will be comprised of U.S. Government securities, investment grade debt
securities, preferred stock and securities convertible into common stock. To the
extent that the Fund invests in convertible issues, only that portion of their
value attributable to their fixed income characteristics will be used in
calculating the 25% fixed income allocation. There are no maturity restrictions
on the fixed income securities in which the Fund will invest. The fixed income
portion of the Balanced Fund will consist of the same type of securities that
may form the portfolio for the Fixed Income Fund. For information on these
securities, see "Investment Objectives - Fixed Income Fund." For a discussion of
investment grade debt securities see "Investment Policies Applicable to the
Balanced Fund, Fixed Income Fund and Intermediate Fixed Income Fund." Also see
"Risk Factors of Fixed Income Investing."
The Fund may write (sell) covered call options to enhance investment returns and
may both purchase and sell options on stock indices for hedging purposes. The
Fund may also enter into futures contracts and options on futures contracts, as
described under INVESTMENT STRATEGIES.
EQUITY INVESTMENT FUND
The Equity Investment Fund seeks to achieve above-average total return over a
market cycle of three to five years consistent with reasonable risk. The Fund
invests primarily in common stocks of companies which are deemed by the Advisor
to have earnings growth, dividend growth and capital appreciation potential.
Above-average total return may be difficult to achieve in all market conditions.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in equity securities. Up to 35% of the Fund's assets may be invested in
U.S. Government securities, short-term money market instruments (such as U.S.
Treasury bills, commercial paper, certificates of deposit and bankers'
acceptances) and repurchase agreements.
The Advisor intends to select portfolio securities using what is sometimes
referred to as a "bottom-up" approach. The Advisor will monitor risk factors
using a "top-down" approach. See "Equity Philosophy" under INVESTMENT
PHILOSOPHIES.
The Fund's investment strategy will emphasize companies that, in the opinion of
the portfolio management team, offer prospects for capital growth and growth of
earnings and dividends. The Fund expects to invest primarily in securities of
any size company in any industry currently paying dividends although it may buy
securities that are not paying dividends but offer prospects for growth of
capital or future income. The equity securities in which the Fund invests will
be traded on a national securities exchange or traded in the over-the-counter
market. Up to 15% of the Fund's net assets may be invested in foreign securities
in the form of American Depository Receipts ("ADRs") or European Depository
Receipts ("EDRs"). The Fund does not expect to invest in unsponsored ADRs and
EDRs (that is, ADRs and EDRs if the depositor has no agreement with the issuer
and, among other things, may receive less information from the issuer).
The Advisor expects the Fund's net asset value to exhibit fluctuation similar to
the stock market in general, as measured by the S&P 500, and thus, the Fund may
or may not be suitable for all investors. The Fund is designed
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for long-term investors who can accept the risk described in these investment
policies and is not meant to provide a vehicle for playing short-term swings in
the stock market.
The Fund may write (sell) covered call options to enhance investment returns and
may both purchase and sell options on stock indices for hedging purposes. The
Fund may also enter into futures contracts and options on futures contracts, as
described under INVESTMENT STRATEGIES.
INVESTMENT POLICIES APPLICABLE TO THE INTERMEDIATE FIXED INCOME FUND, FIXED
INCOME FUND AND BALANCED FUND
In pursuing their respective investment objectives, the Intermediate Fixed
Income Fund, Fixed Income Fund and Balanced Fund may invest in a broad range of
investment grade debt securities in any industry. These securities include fixed
and variable rate bonds, debentures, notes, and securities convertible into or
exchangeable for common stock, collateralized mortgage obligations and other
mortgage related securities and other asset-backed securities. Investment grade
debt securities are considered to be those which at the time of investment are
rated Baa or higher by Moody's Investors Service ("Moody's"), rated BBB or
higher by Standard & Poor's Ratings Group ("S&P") or are unrated, but believed
by the Advisor to be equivalent to securities with those ratings. Although bonds
rated Baa by Moody's or BBB by S&P are believed to have adequate capacity to pay
principal and interest, they have speculative characteristics because they lack
certain protective elements and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. In addition, the
prices of bonds rated Baa by Moody's or BBB by S&P may be more sensitive to
adverse economic changes or individual corporate developments than bonds with a
higher investment rating.
In the event a security held by the Intermediate Fixed Income Fund, Fixed Income
Fund or Balanced Fund is downgraded below a BBB or Baa after its purchase, the
Advisor shall promptly reassess the risks involved and take such actions as it
determines is in the best interests of the respective Fund and its shareholders.
The Intermediate Fixed Income Fund may purchase securities with average
remaining maturities of up to fifteen years, during normal market conditions,
and its average weighted portfolio maturity is expected to be between three and
ten years. While the Fixed Income Fund may purchase securities with maturities
of average lives of up to thirty years, during normal market conditions, its
average weighted portfolio is expected to be between three and fifteen years.
In pursuing their respective investment objectives, the Intermediate Fixed
Income Fund, Fixed Income Fund and Balanced Fund may invest in the following
securities: (i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, (ii) corporate, bank and commercial obligations,
(iii) mortgage-backed securities, and (iv) securities representing interests in
pools of assets such as motor vehicle installment purchase obligations and
credit card receivables. Investments include fixed and variable rate bonds, zero
coupon bonds, debentures, and various types of demand instruments. Obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
may include mortgage-backed securities, as well as "stripped securities" (both
interest-only and principal-only). Each Fund may also invest in high quality
short-term obligations issued by state and local government issuers which carry
yields that are competitive with those of other types of high quality money
market instruments. For more information on (iii) and (iv) above, see
"Mortgage-Backed Securities" and "Asset-Backed Securities" under INVESTMENT
STRATEGIES.
The Intermediate Fixed Income Fund and Fixed Income Fund invest at least 65% of
the total value of their assets in fixed income securities, including
mortgage-backed securities, which are investment grade or are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Up to 35%
of each of the Fund's assets may be invested in U.S. Government securities,
short-term money market instruments (including repurchase agreements) or cash.
The Funds may also enter into futures contracts and options on futures
contracts, as described under INVESTMENT STRATEGIES. Any gain derived by the
Funds from the use of such instruments will be treated as a combination of
short-term and long-term capital gain and, if not offset by realized capital
losses incurred by the Fund, will be distributed to shareholders and may be
taxable to shareholders as a combination of ordinary income and long-term
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capital gain. The Funds may invest in interest rate swaps for hedging purposes,
which could subject the Funds to increased risks (See INVESTMENT STRATEGIES).
The Advisor manages the Intermediate Fixed Income Fund, Fixed Income Fund and
fixed income portion of the Balanced Fund based primarily on an expected real
basis, and minimally on anticipated interest rate changes. See "Fixed
Income Philosophy" under INVESTMENT PHILOSOPHIES.
Risk Factors of Fixed Income Investing
Securities held by the Intermediate Fixed Income Fund, Fixed Income Fund and
Balanced Fund may be subject to several types of investment risk. Market or
interest rate risk relates to the change in market value caused by fluctuations
in prevailing interest rates. Credit risk relates to the ability of the issuer
to make timely interest payments and to repay the principal upon maturity. Call
or income risk relates to the possibility that securities with higher interest
coupons will be prepaid or "called" by the issuer prior to maturity. Such an
event would require a Fund to invest the resulting proceeds elsewhere, possibly
at lower interest rates, which could cause fluctuations in a Fund's net income.
A Fund may also be exposed to event risk, which is the possibility that
corporate fixed income securities held by a Fund may suffer a substantial
decline in credit quality and market value due to a corporate restructuring.
The value of debt securities will normally increase in periods of falling
interest rates; conversely, the value of these instruments will normally decline
in periods of rising interest rates. In an effort to maximize income consistent
with its investment objective, the Funds may, at times, change the average
remaining maturity of their investment portfolio, consistent with their
respective weighted average maturity ranges. This can be done by investing a
larger portion of assets in relatively longer term obligations when periods of
declining interest rates are anticipated and, conversely, emphasizing shorter
and intermediate term maturities when a rise in interest rates is indicated.
INVESTMENT STRATEGIES
Shareholders should understand that all investments involve risk and that there
can be no guarantee against loss resulting from an investment in the Funds, nor
can there be any assurance that the Funds' investment objectives will be
attained.
To the extent consistent with the respective Fund's stated investment objectives
and policies, it is likely that the respective Funds may include the following
in their portfolio of investments:
Asset-Backed Securities (all Funds except Principal Preservation Fund):
Asset-backed securities represent interests in, or are secured by and payable
from, pools of government, government-related and private organizations' assets,
such as consumer loans, credit card receivable securities and installment loan
contracts. Although these securities may be supported by letters of credit or
other credit enhancements, payment of interest and principal ultimately depends
upon individuals paying the underlying loans. The risk that recovery on
repossessed collateral might be unavailable or inadequate to support payments on
asset-backed securities is greater than in the case for mortgage-backed
securities. Falling interest rates generally result in an increase in the rate
of prepayments of mortgage loans while rising interest rates generally decrease
the rate of prepayments. An acceleration of prepayments in response to sharply
falling interest rates will shorten the security's average maturity and limit
the potential appreciation in the security's value relative to a conventional
debt security.
Collateralized Mortgage Obligations ("CMOs") (all Funds except Principal
Preservation Fund): CMOs are debt obligations issued generally by finance
subsidiaries or trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by government-related guarantors,
such as GNMA, FNMA and FHLMC, together with certain funds and other collateral.
Although payment of the principal of, and interest on, the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed by a U.S. Government
agency or instrumentality, such as the Federal Home Loan Mortgage Corporation,
the CMOs represent obligations solely of the CMO issuer and are not insured or
guaranteed by a U.S. Government agency or instrumentality. The issuers of CMOs
typically have no significant assets other than those pledged as collateral for
the obligations. The Funds will not invest in any new
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types of collateralized mortgage obligations without prior disclosure to the
shareholders.
Government Obligations (all Funds): Each Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities. These
obligations, including those issued by the U.S. Treasury, may be fixed or
floating rate obligations. Obligations of certain agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
are backed by the full faith and credit of the U.S. Treasury. Others are backed
by the right of the issuer to borrow from the U.S. Treasury (such as obligations
of the Federal Home Loan Bank), by the discretionary authority of the U.S.
Government to purchase the agency's obligations (such as obligations of the
Federal National Mortgage Association), or only by the credit of the agency or
instrumentality issuing the obligation (such as the Student Loan Marketing
Association). Securities issued or guaranteed by the U.S. Government and its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the U.S.
Government would provide financial support to any agency or instrumentality if
it is not obligated to do so.
Money Market Securities (all Funds): The Funds may invest from time to time in
money market instruments, a term that includes, among other things, bank
obligations, commercial paper and corporate bonds with remaining maturities of
13 months or less.
Bank obligations include bankers' acceptances and negotiable certificates of
deposit issued by a U.S. bank, savings bank or savings association that is a
member of the Federal Reserve System or insured by the Federal Deposit Insurance
Corporation. Investments in bank obligations are limited to the obligations of
financial institutions having $1 billion or more in total assets at the time of
purchase.
Investments by the Funds in commercial paper will consist of issues that are
rated "A-1" or better by S&P or "Prime-1" by Moody's, and regarding up to 20%
of the Principal Preservation Fund, commercial paper rated "A-2" by S&P or
"Prime-2" by Moody's. In addition, the Funds may acquire unrated commercial
paper that is determined by the Advisor at the time of purchase to be of
comparable quality to rated instruments that may be acquired by the Funds.
Commercial paper may include variable and floating rate instruments. While there
may be no active secondary market with respect to a particular variable or
floating rate instrument purchased by the Funds, the Funds may, from time to
time as specified in the instrument, demand payment of the principal or may
resell the instrument to a third party. The absence of an active secondary
market, however, could make it difficult for the Funds to dispose of an
instrument if the issuer defaulted on its payment obligation or during periods
that the Funds are not entitled to exercise their demand rights, and the Funds
could, for these or other reasons, suffer a loss. Substantial holdings of
variable and floating rate instruments could reduce portfolio liquidity.
Mortgage-Backed Securities (all Funds except Principal Preservation Fund).
Mortgage-backed securities represent interests in, or are secured by and payable
from, pools of mortgage loans, including collateralized mortgage obligations
(See "Collateralized Mortgage Obligations" above). These securities may be U.S.
Government mortgage-backed securities, which are issued or guaranteed by a U.S.
Government agency or instrumentality (though not necessarily backed by the full
faith and credit of the United States), such as GNMA, FNMA, and FHLMC
certificates. Other mortgage-backed securities are issued by private issuers
such as commercial banks, savings and loan institutions, mortgage bankers and
private mortgage insurance companies. These private mortgage-backed securities
may be supported by U.S. Government mortgage-backed securities or some form of
non-governmental credit enhancement. Mortgage-backed securities have either
fixed or adjustable interest rates. The rate of return on mortgage-backed
securities may be affected by prepayments of principal on the underlying loans,
which generally increase as interest rates decline; as a result, when interest
rates decline, holders of these securities normally do not benefit from
appreciation in market value to the same extent as holders of other non-callable
debt securities. In addition, like other debt securities, the values of
mortgage-related securities, including government and government- related
mortgage pools, generally will fluctuate in response to market interest rates.
Portfolio Turnover Rates: The portfolio turnover rates for the Intermediate
Fixed Income Fund and Fixed Income Fund are not expected to exceed 60%. The
portfolio turnover rate for the equity portion of the Balanced Fund is not
expected to exceed 50%, while the turnover rate for the fixed income portion is
not expected to exceed 60%. It is currently estimated that under normal market
conditions the annual portfolio turnover rate for the Equity Investment
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Fund will not exceed 50%. Portfolio turnover rates may vary greatly from year to
year as well as within a particular year. High portfolio turnover rates (i.e.
over 100%) will generally result in higher transaction costs to a Fund and also
may result in a higher level of taxable gain for a shareholder.
Repurchase Agreements (all Funds): Each Fund may enter into repurchase
agreements to earn income. The Funds may only enter into repurchase agreements
with financial institutions that are deemed to be creditworthy by the Advisor,
pursuant to guidelines established by the Funds' Board of Trustees. During the
term of any repurchase agreement, the Advisor will continue to monitor the
creditworthiness of the seller. Repurchase agreements are considered under the
Investment Company Act of 1940, as amended (the"Act"), to be collateralized
loans by a Fund to the seller secured by the securities transferred to the Fund.
Repurchase agreements under the Act will be fully collateralized by securities
in which the Fund may invest directly. Such collateral will be marked-to-market
daily. If the seller of the underlying security under the repurchase agreement
should default on its obligation to repurchase the underlying security, a Fund
may experience delay or difficulty in exercising its right to realize upon the
security and, in addition, may incur a loss if the value of the security should
decline, as well as disposition costs in liquidating the security. No more than
10% of each of the Funds' net assets will be invested in illiquid securities,
including repurchase agreements that have a maturity of longer than seven days.
The Funds must treat each repurchase agreement as a security for tax
diversification purposes and not as cash, a cash equivalent or receivable.
Reverse Repurchase Agreements (all Funds): Each Fund may obtain funds for
temporary purposes by entering into reverse repurchase agreements with banks and
broker-dealers. Reverse repurchase agreements involve sales by a Fund of
portfolio assets concurrently with an agreement by that Fund to repurchase the
same assets at a later date at a fixed price. During the reverse repurchase
agreement period, the Fund continues to receive principal and interest payments
on these securities. During the time a reverse repurchase agreement is
outstanding, the Fund will maintain a segregated custodial account consisting of
cash, U.S. Government securities or other high-grade liquid debt obligations
having a value at least equal to the repurchase price. Reverse repurchase
agreements are considered borrowings by the Fund, and as such are subject to the
investment limitations discussed above in the section entitled "Borrowing."
Securities of Other Investment Companies (all Funds): Each of the Funds may
invest in securities issued by other investment companies which invest in
securities in which the Fund is permitted to invest. In addition, each Fund may
invest in securities of other investment companies within the limits prescribed
by the Act, which include limits to its investments in securities issued by
other investment companies so that, as determined immediately after a purchase
of such securities is made: (i) not more than 5% of the value of the Fund's
total assets will be invested in the securities of any one investment company;
(ii) not more than 10% of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the Fund
or Funds as a whole. As a shareholder of another investment company, each Fund
would bear along with other shareholders its pro rata portion of the investment
company's expenses, including advisory fees. In accordance with applicable state
regulatory provisions, the Advisor has agreed to waive its management fee with
respect to the portion of any Fund's assets invested in shares of other open-end
investment companies. In the case of closed-end investment companies, these
expenses would be in addition to the advisory and other expenses that the Funds
bear directly in connection with their own operations.
Short-Term Trading (Intermediate Fixed Income Fund and Fixed Income Fund):
Intermediate Fixed Income Fund and Fixed Income Fund may engage in short-term
trading. Securities may be sold in anticipation of a market decline (a rise in
interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what the Fund
believes to be a temporary disparity in the normal yield relationship between
the two securities.
Such trading may be expected to increase the Fund's portfolio turnover rate and
the expenses incurred in connection with such trading. (See "Portfolio Turnover
Rates").
Stripped Mortgage Backed Securities (all Funds except Principal Preservation
Fund): These Funds may purchase participations in trusts that hold U.S. Treasury
and agency securities and may also purchase zero coupon U.S. Treasury
obligations, Treasury receipts and other stripped mortgage-backed securities
that evidence ownership in
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either the future interest payments or the future principal payments on U.S.
Government obligations. These participations are issued at a discount to their
face value and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. The Advisor will consider liquidity needs of a Fund when
any investment in zero coupon obligations is made. A decline in interest rates
may lead to a faster rate of repayment of the underlying mortgages and expose a
Fund to a lower rate of return upon reinvestment. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, the Funds
may fail to fully recoup their initial investment in these securities even if
the securities are rated in the highest rating categories. Although stripped
mortgage-backed securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
markets have not yet been fully developed and, accordingly, these securities may
generally be illiquid. Until further clarification of this matter is provided by
the staff of the U.S. Securities and Exchange Commission, the Funds' investment
in stripped mortgage-backed securities will be treated as illiquid and will,
together with any other illiquid investments, not exceed 10% of a Fund's net
assets.
While the identified Funds are authorized to purchase or enter into certain
investments, the Funds do not have the current intention to purchase or enter
into any of the following investments in the foreseeable future:
Borrowing (all Funds except Principal Preservation Fund): Each of the Funds has
a fundamental policy that it may not borrow money, except that it may (1) borrow
money from banks for temporary or emergency purposes and not for leveraging or
investment and (2) enter into reverse repurchase agreements for any purpose, so
long as the aggregate amount of borrowings and reverse repurchase agreements
does not exceed one-third of the Fund's total assets less liabilities (other
than borrowings). No Fund will purchase securities while borrowings in excess of
5% of its total assets are outstanding.
Foreign Securities (all Funds except Principal Preservation Fund): The Funds may
only invest indirectly in foreign securities through American Depository
Receipts and European Depository Receipts ("ADR's and EDR's"). For many foreign
securities, there are United States dollar denominated ADR's, which are bought
and sold in the United States and are issued by domestic banks. ADR's represent
the right to receive securities of foreign issuers deposited in the domestic
bank or a correspondent bank. In general, there is a large, liquid market in the
United States for most ADR's. The Funds may also invest in EDR's which are
receipts evidencing an arrangement with a European bank similar to that for
ADR's and are designed for use in the European securities markets. EDR's are not
necessarily denominated in the currency of the underlying security. The Funds do
not invest in unsponsored ADR's and EDR's.
Investments made in foreign securities, whether made directly or indirectly,
involve certain inherent risks, such as those related to future political and
economic developments, the possible imposition of foreign withholding tax on the
interest or dividend income payable on such instruments, the possible
establishment of foreign controls, the possible seizure or nationalization of
foreign deposits or assets, or the adoption of other foreign government
restrictions that might adversely affect the foreign securities held by the
Funds.
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions
(all Funds except Principal Preservation Fund): The Funds may purchase or sell
securities on a when-issued or delayed delivery basis and make contracts to
purchase or sell securities for a fixed price at a future date beyond customary
settlement time. Debt securities are often issued on this basis. No income will
accrue on securities purchased on a when-issued or delayed delivery basis until
the securities are delivered. Each Fund will establish a segregated account in
which it will maintain cash and U.S. Government securities or other high-grade
debt obligations at least equal in value to commitments for when-issued
securities. Securities purchased or sold on a when-issued, delayed delivery or
forward commitment basis involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date. Although the Funds would
generally purchase securities on a when-issued, delayed delivery or a forward
commitment basis with the intention of acquiring the securities, the Funds may
dispose of such securities prior to settlement if the Advisor deems it
appropriate to do so.
Futures Contracts and Related Options (all Funds except Principal Preservation
Fund): A Fund may invest in futures contracts and options on futures contracts
for hedging purposes or to maintain liquidity. However, a Fund may not purchase
or sell a futures contract unless immediately after any such transaction the sum
of the aggregate amount of
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margin deposits on its existing futures positions and the amount of premiums
paid for related options is 20% or less of its total assets.
At maturity, a futures contract obligates a Fund to take or make delivery of
certain securities or the cash value of a securities index. A Fund may sell a
futures contract in order to offset a decrease in the market value of its
portfolio securities that might otherwise result from a market decline. A Fund
may do so either to hedge the value of its portfolio of securities as a whole,
or to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, a Fund may purchase a futures
contract in anticipation of purchases of securities. In addition, a Fund may
utilize futures contracts in anticipation of changes in the composition of its
portfolio holdings.
A Fund may purchase and sell call and put options on futures contracts traded on
an exchange or board of trade. When a Fund purchases an option on a futures
contract, it has the right to assume a position as a purchaser or seller of a
futures contract at a specified exercise price at any time during the option
period. When a Fund sells an option on a futures contract, it becomes obligated
to purchase or sell a futures contract if the option is exercised. In
anticipation of a market advance, a Fund may purchase call options on futures
contracts as a substitute for the purchase of futures contracts to hedge against
a possible increase in the price of securities which a Fund intends to purchase.
Similarly, if the market is expected to decline, a Fund might purchase put
options or sell call options on futures contracts rather than sell futures
contracts. In connection with a Fund's position in a futures contract or option
thereon, a Fund will create a segregated account of liquid assets, such as cash,
U.S. Government securities or other liquid high-grade debt obligations, or will
otherwise cover its position in accordance with applicable requirements of the
U.S. Securities and Exchange Commission.
Risk Factors of Options, Futures and Forward Contracts (all Funds except
Principal Preservation Fund): The primary risks associated with the use of
futures contracts and options are: (i) imperfect correlation between the change
in market value of the securities held by a Fund and the price of futures
contracts and options; (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures contract when
desired; (iii) losses, which are potentially unlimited, due to unanticipated
market movements; and (iv) the Advisor's ability to predict correctly the
direction of security prices, interest rates and other economic factors. For
further discussion, see "Additional Investment Information" in the Statement of
Additional Information.
Illiquid Securities (all Funds): The Funds will not invest more than 10% of the
value of their net assets in securities that are illiquid because of
restrictions on transferability or other reasons. Repurchase agreements with
deemed maturities in excess of seven days and securities that are not registered
under the Securities Act of 1933, as amended (the "Securities Act") but that may
be purchased by institutional buyers pursuant to Rule 144A under the Securities
Act are subject to this 10% limit (unless such securities are variable amount
master demand notes with maturities of nine months or less or unless the Board
determines that a liquid trading market exists). Rule 144A allows for a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public by establishing a "safe harbor" from the
registration requirements of the Securities Act for resales of certain
securities to qualified institutional buyers.
Interest Rate Swaps (Balanced Fund, Intermediate Fixed Income Fund and Fixed
Income Fund): To help enhance the value of its portfolio or manage its exposure
to different types of investments, each of these Funds may enter into interest
rate, currency and mortgage swap agreements and may purchase and sell interest
rate "caps", "floors" and "collars". The potential loss from investing in swap
agreements is much greater than the amount initially invested. In a typical
interest rate swap agreement, one party agrees to make regular payments equal to
a floating interest rate on a specified amount in return for payments equal to a
fixed interest rate on the same amount for a specified period. Swaps involve the
exchange between a Fund and another party of its respective rights to receive
interest, such as an exchange of fixed rate payments for floating rate payments.
For example, if a Fund holds an interest-paying security with an interest rate
which is reset once a year, it may swap the right to receive interest at this
fixed rate for the right to receive interest at a rate that is reset daily. Such
a swap position would offset changes in the value of the underlying security
because of subsequent changes in interest rates. This would protect a Fund from
a decline in the value of the underlying security due to rising rates, but would
also limit its ability to benefit from falling interest rates. A Fund will enter
into interest rate swaps only on a net basis (i.e. the two payment streams will
be netted out, with
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the Fund receiving or paying as the case may be, only the net amount of the two
payments). The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis and an amount of cash or liquid high-grade debt securities having an
aggregate value at least equal to the accrued excess will be maintained in a
segregated account by the Company's custodian bank. Interest rate swaps do not
involve the delivery of securities or other underlying assets or principal.
Thus, if the other party to an interest rate swap defaults, a Fund's risk of
loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive.
Options (all Funds except Principal Preservation Fund): The Funds may purchase
put and call options listed on a national securities exchange and issued by the
Options Clearing Corporation to the extent that premiums paid on all outstanding
call options do not exceed 20% of a Fund's total assets. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to the writer of the option.
A call option enables the purchaser, in return for the premium paid, to purchase
securities from the writer of the option at an agreed-upon price during the
option period. The advantage is that the purchaser may hedge against an increase
in the price of securities it ultimately wishes to buy or may take advantage of
a rise in a particular index. A Fund will only write call options on a covered
basis (options on securities owned by a Fund). A Fund will receive premium
income from writing call options, which may offset the cost of purchasing put
options and may also contribute to a Fund's total return. A Fund may lose
potential market appreciation if the Advisor's judgment is incorrect with
respect to interest rates, security prices or the movement of indices.
A put option enables the purchaser of the option, in return for the premium
paid, to sell the security underlying the option to the writer at the exercise
price during the option period, and the writer of the option has the obligation
to purchase the security from the purchaser of the option. The advantage is that
the purchaser can be protected should the market value of the security decline
or should a particular index decline. A Fund will only write put options on a
covered basis. A Fund will receive premium income from writing put options,
although it may be required, when the put is exercised, to purchase securities
at higher prices than the current market price.
An option on a securities index gives the purchaser of the option, in return for
the premium paid, the right to receive cash from the seller equal to the
difference between the closing price of the index and the exercise price of the
option.
Closing transactions essentially let a Fund offset put options or call options
prior to exercise or expiration. If a Fund cannot effect a closing transaction,
it may have to hold a security it would otherwise sell or deliver a security it
might want to hold.
A Fund may use options traded on U.S. exchanges, and to the extent permitted by
law, options traded over-the-counter. A Fund will invest in such
options only to the extent consistent with its 10% limit on investments in
illiquid securities.
Securities Lending (all Funds except Principal Preservation Fund): To increase
return on portfolio securities, the Funds may lend their portfolio securities on
a short-term basis to banks, broker-dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. The Funds will not lend portfolio securities in excess of
one-third of the value of their respective total assets. There may be risks of
delay in receiving additional collateral or in recovering the securities loaned
or even a loss of rights in the collateral should the borrower of the securities
fail financially. However, loans are made only to borrowers deemed by the
Advisor to be of good standing and when, in their judgment, the income to be
earned from the loan justifies the attendant risks.
MANAGEMENT OF THE FUNDS
The Board of Trustees
The Company has a Board of Trustees that establishes each Fund's policies and
supervises and reviews the
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management of each Fund. The day-to-day operations of the Funds are administered
by the officers of the Company and by the Advisor pursuant to the terms of the
Investment Advisory Agreement with each Fund. The Statement of Additional
information contains the name of each Trustee and background information
regarding the Trustees.
The Advisor
McMorgan & Company, which has its offices at One Bush Street, Suite 800, San
Francisco, California 94104, serves as investment advisor for each of the Funds
and is an investment advisor registered as such under the Investment Advisers
Act of 1940, as amended. The Advisor advises private accounts as well as the
Funds. McMorgan & Company managed approximately $15 billion in assets at June
30, 1996 consisting primarily of retirement plans and health and welfare funds
for jointly trusteed funds. McMorgan & Company was organized in 1969.
Pursuant to an investment advisory agreement with the Company, McMorgan &
Company provides the Funds with advice on buying and selling securities in
accordance with each Fund's respective investment policies, limitations and
restrictions. McMorgan & Company also furnishes the Funds with office space and
certain administrative services, and provides the personnel needed by the Funds
with respect to the Advisor's responsibilities under the investment advisory
agreement.
For providing investment advisory services, each Fund pays McMorgan & Company a
monthly fee at the following annual rates based on each Fund's average daily net
assets before any fee waiver as follows: Principal Preservation Fund - 0.25%,
Intermediate Fixed Income Fund - 0.35%, Fixed Income Fund - 0.35%, Balanced Fund
- - 0.45% and Equity Investment Fund - 0.50%. The Advisor has voluntarily
undertaken to reduce some or all of its management fee to keep total annual
operating expenses at or below the following percentages of each Fund's average
net assets: Principal Preservation Fund (0.30%), Intermediate Fixed Income Fund
(0.50%), Fixed Income Fund (0.50%), Balanced Fund (0.60%) and Equity Investment
Fund (0.75%). Such fee reimbursements may be terminated at any time at the
discretion of the Advisor. The Advisor has agreed to waive that portion of its
advisory fee equal to the total expenses of a Fund for any fiscal year which
exceeds the permissible limits applicable to a Fund in any state in which its
shares are then qualified for sale. Any fee reductions or expense reimbursements
made by the Advisor in its fees are subject to reimbursement by the appropriate
Fund within the following three years provided the Fund is able to effect such
reimbursement and remain in compliance with applicable expense limitations. The
Advisor generally seeks reimbursement for the oldest reductions and waivers
before payment by the Funds for fees and expenses for the current year.
The terms of the Funds' investment advisory agreement permit the Advisor, at its
own expense, to obtain statistical and other factual information and advice as
it deems necessary or desirable to fulfill its investment responsibilities under
the contract.
Expenses
Each Fund is responsible for its own operating expenses, including, but not
limited to: management fees; printing and mailing of prospectuses and reports to
shareholders; brokerage fees and commissions; fees for the registration or
qualification of Fund shares under federal or state securities laws; expenses of
the organization of the Trust or of additional Funds; transfer agent, custodian,
administration, legal and auditing fees; the expenses of obtaining quotations of
portfolio securities and of pricing the Funds' shares; trade association dues;
all costs associated with shareholder meetings and the preparation and
dissemination of proxy materials; and other expenses relating to that Fund's
operations; costs of liability insurance and fidelity bonds; and any
extraordinary and nonrecurring expenses which are not expressly assumed by the
Advisor. General expenses which are not associated directly with any particular
Fund within the Company (e.g., insurance premiums, directors fees, expenses of
maintaining the Company's legal existence and of shareholders' meetings, and
fees and expenses of industry organizations) are allocated between the various
Funds on an equitable basis.
The Underwriter
FPS Broker Services,
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Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, Pennsylvania
19406-0903 serves as underwriter pursuant to an underwriting agreement for the
limited purpose of acting as underwriter to facilitate the registration of
shares of each of the Funds under state securities laws and to assist in the
sale of shares.
The Administrator
The Company, on behalf of the Funds, serves as administrator pursuant to an
administrative services agreement with FPS Services, Inc. ("FPS"), 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903. The services
FPS provides to the Funds including: the coordination and monitoring of any
third parties furnishing services to the Funds; providing the necessary office
space, equipment and personnel to perform administrative and clerical functions
for the Funds; preparing, filing and distributing proxy materials, periodic
reports to shareholders, registration statements and other documents; and
responding to shareholder inquiries.
The Custodian, Transfer Agent and Fund Accounting/Pricing Agent
The Bank of New York, 48 Wall Street, New York, New York 10286 is custodian for
the securities and cash of each Fund.
FPS Services, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania 19406-0903
serves as each Fund's transfer agent. As transfer agent, it maintains the
records of each shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of the Funds' shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. Shareholder inquiries should be addressed to the transfer
agent, FPS Services, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania
19406-0903, (800) 831-1146.
FPS performs certain accounting and pricing services for the Company, including
the daily calculation of the Funds' net asset values.
HOW TO INVEST IN THE FUNDS
The Funds' shares are offered directly to the public at their respective net
asset values next determined after receipt of the order in proper form by the
transfer agent. There is no sales load or charge in connection with the purchase
of shares. The Funds' shares are offered for sale by FPS Broker Services, Inc.,
the Funds' underwriter, 3200 Horizon Drive, King of Prussia, PA 19406-0903,
(800) 831-1146.
The minimum initial investment in each Fund is $5,000, including investments for
individual investors, IRAs, 403(b)(7) plans and other retirement plans.
Subsequent investments for all Funds must be at least $250. Each Fund reserves
the right to vary the initial and additional investment minimums. In addition,
the Advisor may waive the minimum initial investment requirement for any
investor. The Funds reserve the right to reject any purchase order and to
suspend the offering of shares of any Fund.
Purchase orders for shares of any Fund, except the Principal Preservation Fund,
that are received by FPS in proper form by 4:00 p.m., New York time, on any day
that the New York Stock Exchange (NYSE) is open for trading, will be purchased
at the Fund's next determined net asset value. Orders and payment for the
Principal Preservation Fund must be received by 1:00 p.m. New York time. Orders
for Fund shares received after 4:00 p.m. New York time, and for the Principal
Preservation Fund after 1:00 p.m. New York time, will be purchased at the
next-determined net asset value determined the business day following receipt of
the order. Shares of the Principal Preservation Fund may only be purchased on
days when banks are open for business.
At the discretion of the Funds, investors may be permitted to purchase a Fund's
shares by transferring securities to the Fund that meet the Fund's investment
objectives and policies. Securities transferred to a Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination
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of net asset value after such acceptance. Shares issued by a Fund in exchange
for securities will be issued at the net asset value determined as of the same
time. All dividends, interest, subscription, or other rights pertaining to such
securities shall become the property of the Fund and must be delivered to the
Fund by the investor upon receipt from the issuer. Investors who are permitted
to transfer such securities will be required to recognize a gain or loss on such
transfer and pay tax thereon, if applicable, measured by the difference between
the fair market value of the securities and the investor's basis therein.
Securities will not be accepted in exchange for shares of a Fund unless: (1)
such securities are, at the time of the exchange, eligible to be included in the
Fund's portfolio and current market quotations are readily available for such
securities; (2) the investor represents and warrants that all securities offered
to be exchanged are not subject to any restrictions upon their sale by the Fund
under the Securities Act; and (3) the value of any such security, (except U.S.
Government securities), being exchanged together with other securities of the
same issuer owned by the Fund, will not exceed 5% of the Fund's net assets
immediately after the transaction.
Each Fund, except the Principal Preservation Fund, may accept telephone orders
from brokers, financial institutions or service organizations which have been
previously approved by that Fund. It is the responsibility of such brokers,
financial institutions or service organizations promptly to forward purchase
orders and payments for same to the Company. Shares of a Fund may be purchased
through brokers, financial institutions, service organizations, banks, and bank
trust departments, each of which may charge the investor a transaction fee or
other fee for its services at the time of purchase. Such fees would not
otherwise be charged if the shares were purchased directly from the Company.
Purchases may be made in one of the following ways:
Purchases by Mail
Shares of each Fund may be purchased initially by completing the application
accompanying this Prospectus and mailing it to the transfer agent, together with
a check payable to the respective Fund, c/o FPS Services, Inc., 3200 Horizon
Drive, King of Prussia, PA 19406-0903.
Subsequent investments in an existing account in the Funds may be made at any
time by sending a check payable to the respective Fund c/o FPS Services, Inc.,
P.O. Box 412797, Kansas City, MO 64141-2797. Please enclose the stub of your
account statement and include the amount of the investment, the name of the
account for which the investment is to be made and the account number.
Purchases by Wire
Purchases of any of the Funds may be made by federal funds wire. Initial
investors should first call the transfer agent at (800) 831-1146 to advise the
transfer agent that you intend to make an initial investment by wire and to
receive an account number. The Fund must have a social security number or
other tax identification number. Following notification to the transfer agent,
wire instructions to the transfer agent's affiliated bank as follows:
UNITED MISSOURI BANK KC NA
ABA # 10-10-00695
FOR: FPS SERVICES, INC.
A/C 98-7037-071-9
FBO "McM Funds (Name of Fund)"
"SHAREHOLDER NAME AND ACCOUNT NUMBER"
A completed application with signature(s) of registrant(s) must be mailed to the
transfer agent immediately subsequent to the initial wire. Investors should be
aware that banks generally impose a wire service fee. The Funds will not be
responsible for the consequence of delays, including delays in the banking or
Federal Reserve wire systems.
Subsequent Investments
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After an account has been opened, subsequent purchases may be made by mail, bank
wire, exchange, direct deposit or automatic investing. The minimum for
subsequent investments is $250 for all Funds.
The remittance portion of a previous confirmation of investment can be used to
make additional investments. The check should be made payable to the particular
Fund and mailed to the Fund c/o FPS Services, Inc., P.O. Box 412797, Kansas
City, MO 64141-2797. Orders to purchase shares are effective on the day FPS
receives your check or money order.
If an order, together with payment in proper form, is received by FPS by 4:00
p.m. New York time, on any day that the NYSE is open for trading, Fund shares,
except the Principal Preservation Fund, will be purchased at each Fund's next
determined net asset value. The orders and payment for the Principal
Preservation Fund must be received by 1:00 p.m. New York time for same day
transactions. Orders for Fund shares received after 4:00 p.m. New York time, and
for Principal Preservation Fund after 1:00 p.m. New York time, will be purchased
at the net asset value determined on the business day following receipt of the
order.
All investments must be made in U.S. dollars, and, to avoid fees and delays,
checks must be drawn only on banks located in the United States. A charge
(minimum of $20) will be imposed if any check used for the purchase of shares is
returned. The Funds and FPS each reserve the right to reject any purchase order
in whole or in part.
EXCHANGE OF SHARES
Shares of any of the Funds within the Company may be exchanged for shares of any
of the other Funds within the Company, provided such other shares may be sold
legally in the state of the investor's residence. The Company currently consists
of the following Funds: Principal Preservation Fund, Intermediated Fixed Income
Fund, Fixed Income Fund, Balanced Fund and Equity Investment Fund.
Exchanges are subject to the minimum initial investment requirement. Requests
for telephone exchanges must be received by FPS by the close of regular trading
on the NYSE (currently 4:00 p.m. New York time) on any day that the NYSE is open
for regular trading; with respect to the Principal Preservation Fund, telephone
exchanges may be received on any day that the NYSE is open for trading and that
is not a national bank holiday. Shares may be exchanged by: (1) written request;
or (2) telephone, if a special authorization form has been completed and is on
file with the transfer agent in advance.
The exchange privilege is a convenient way to respond to changes in investment
goals or in market conditions. This privilege is not designed for frequent
trading in response to short-term market fluctuations. Exchanges by mail or by
telephone may be made if authorized on the application form. The telephone
exchange privilege may be difficult to implement during times of drastic
economic or market changes. The purchase of shares for any Fund through an
exchange transaction is accepted immediately. For tax purposes an exchange is
treated as a redemption, which may result in taxable gain or loss, and a new
purchase, each at net asset value of the appropriate Fund. The Funds and FPS
reserve the right to limit, amend, impose charges upon, terminate or otherwise
modify the exchange privilege on 60 days' prior written notice to shareholders.
HOW TO REDEEM SHARES
Shareholders may redeem shares of their respective Fund without charge on any
business day that the New York Stock Exchange is open for business; with respect
to the Principal Preservation Fund, telephone exchanges may be received on any
day that the NYSE is open for trading and that is not a national bank holiday.
Redemptions will be effective at the net asset value per share next
determined after the receipt by the transfer agent of a redemption request
meeting the requirements described below. Each Fund normally sends redemption
proceeds on the next business day, but in any event redemption proceeds are
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sent within seven calendar days of receipt of a redemption request in proper
form. Payment may also be made by wire directly to any bank previously
designated by the shareholder on a shareholder account application. There is a
$9 charge for redemptions made by wire. Please note that the shareholder's bank
may also impose a fee for wire service. There may be fees for redemptions made
through brokers, financial institutions and service organizations.
Except as noted below, redemption requests received in proper form by the
transfer agent prior to the close of regular trading hours on the NYSE on any
business day that the Fund calculates its per share net asset value are
effective that day. Redemption requests after the close of the NYSE will be
effected at the net asset value per share determined on the next business day
following receipt. No redemption will be processed until the transfer agent has
received a completed application with respect to the account.
The Funds will satisfy redemption requests in cash to the fullest extent
feasible, so long as such payments would not, in the opinion of the Board of
Trustees, result in the necessity of a Fund to sell assets under disadvantageous
conditions or to the detriment of the remaining shareholders of the Fund.
Pursuant to the Company's Declaration of Trust, payment for shares redeemed may
be made either in cash or in kind, or partly in cash and partly in-kind.
However, the Company has elected, pursuant to Rule 18f-1 under the Act to redeem
its shares solely in cash up to the lesser of $250,000 or 1% of the net asset
value of the Fund, during any 90-day period for any one shareholder. Payments
in excess of this limit will also be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a
practice detrimental to the best interests of any of the Funds. Any portfolio
securities paid or distributed in-kind would be valued as described under "Net
Asset Value." In the event that an in-kind distribution is made, a shareholder
may incur additional expenses, such as the payment of brokerage commissions, on
the sale or other disposition of the securities received from a Fund. In-kind
payments need not constitute a cross-section of the Fund's portfolio. If a
shareholder has requested redemption of all or a part of the shareholder's
investment, and the Fund completes such redemption in-kind, the Fund will not
recognize gain or loss for federal tax purposes, on the securities used to
complete the redemption but the shareholder will recognize gain or loss equal to
the difference between the fair market value of the securities received and the
shareholder's basis in the Fund shares redeemed.
The Funds may suspend the right of redemption or postpone the date of payment
for more than seven days during any period when (1) trading on the NYSE is
restricted or the NYSE is closed, other than customary weekend and holiday
closings; (2) the U.S. Securities and Exchange Commission has by order permitted
such suspension; (3) an emergency, as defined by rules of the U.S. Securities
and Exchange Commission, exists making disposal of portfolio investments or
determination of the value of the net assets of the Funds not reasonably
practicable.
Minimum Balances
Each Fund reserves the right to make involuntary redemption of shares in any
account at its then-current net asset value (which will be promptly paid to the
shareholder) if at any time the total investment does not have a value of at
least $500 due to market fluctuations or redemptions. The shareholder will be
notified that the value of his or her account is less than the required minimum
and will be allowed at least 60 days to bring the value of the account up to at
least $500 before the redemption is processed. Each Fund may close any account
without notice to the shareholder of the account if the account is inactive and
the value of the account is $0.
Shares may be redeemed in one of the following ways:
Redemption by Mail
Shares may be redeemed by submitting a written request for redemption to
FPS Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903.
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A written request must be in good order, which means that it must: (i) identify
the shareholder's account name; (ii) state the number of shares or dollar amount
to be redeemed; and (iii) be signed by each registered owner exactly as the
shares are registered. To prevent fraudulent redemptions, a signature guarantee
for the signature of each person in whose name the account is registered is
required on all written redemption requests over $10,000. A guarantee may be
obtained from any commercial bank, trust company, savings and loan association,
federal savings bank, broker-dealer, or a member firm of a national securities
exchange or other eligible financial institution. Credit unions must be
authorized to issue signature guarantees. Broker-dealers guaranteeing signatures
must be members of a clearing corporation or maintain net capital of at least
$100,000. Notary public endorsement will not be accepted. The transfer agent may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians and retirement plans.
A redemption request will not be deemed to be properly received until the
transfer agent receives all required documents in proper form. The Funds will
honor redemption requests of shareholders who recently purchased shares by
check, but will not mail redemption proceeds until the Funds are reasonably
satisfied that the checks (including certified checks or cashier's checks)
received for the shares purchased have cleared, which can be as long as fifteen
days from the purchase date. The Funds will not accept a check endorsed over by
a third-party. Questions with respect to the proper form for redemption requests
should be directed to the transfer agent at (800) 831-1146.
Redemption by Telephone
Shareholders who have so indicated on the application, or have subsequently
arranged in writing to do so, may redeem shares by instructing the transfer
agent by telephone. In order to arrange for redemption by wire or telephone
after an account has been opened, or to change the bank or account designated to
receive redemption proceeds, a written request must be sent to the transfer
agent with a signature guarantee at the address listed under "Redemption by
Mail."
The Funds reserve the right to refuse a wire or telephone redemption if it is
believed advisable to do so. Procedures for redeeming Fund shares by wire or
telephone may be modified or terminated at any time by any of the Funds.
Neither the Funds nor any of their service contractors will be liable for any
loss or expense in acting upon telephone instructions that are reasonably
believed to be genuine. In attempting to confirm that telephone instructions are
genuine, the Funds will use such procedures that are considered reasonable,
including requesting a shareholder to correctly state his or her Fund account
number, the name in which his or her account is registered, his or her social
security number, banking institution, bank account number and the name in which
his or her bank account is registered. To the extent that the Funds fail to use
reasonable procedures to verify the genuineness of telephone instructions, they
and/or their service contractors may be liable for any such instructions that
prove to be fraudulent or unauthorized.
Shares of the Funds may be redeemed through certain brokers, financial
institutions or service organizations who may charge the investor a transaction
fee or other fee for their services at the time of redemption. Such fees would
not otherwise be charged if the shares were redeemed from the Company.
Redemption by Automated Clearing House ("ACH")
A shareholder may elect to have redemption proceeds, cash distributions or
systematic cash withdrawal payments transferred to a bank, savings and loan
association or credit union that is an on-line member of the ACH system. There
are no fees charged by the Funds associated with the use of the ACH service.
ACH redemption requests must be received by the Funds' transfer agent before
4:00 p.m. New York time (1:00 p.m. New York time for the Principal Preservation
Fund) to receive that day's closing net asset value. ACH redemptions will be
sent on the day following the shareholder's request. The funds from the ACH
redemption will normally be available two days after the redemption has been
processed.
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ACCOUNT OPTIONS
The following special account options are available to shareholders. There are
no charges for the programs noted below, and an investor may change or stop
these plans at any time by written notice to the Funds.
Systematic Withdrawal Plan: This service enables an investor who wishes to
withdraw funds from his or her account on a regular basis. To participate in
this option, an investor must either own or purchase shares having a value of
$10,000 or more. Automatic payments by check will be mailed to the investor on
either a monthly, quarterly, semi-annual or annual basis in amounts of $100 or
more. All withdrawals are processed on the 25th of the month or, if such day is
not a business day, on the next business day and paid promptly thereafter. This
is done by completing the appropriate section on the New Account Application
indicating the amount of the distribution and the desired frequency.
Direct Deposit Program: This service enables a shareholder to purchase
additional shares by having certain payments from the federal government ONLY
(i.e., federal salary, Social Security and certain veterans, military or other
payments) automatically deposited into the shareholder's account in the Fund.
The minimum investment under this program is $250.
This is done by completing a Direct Enrollment Form for each type of payment
desired. The form may be obtained by contacting the Funds at (800) 831-1146. A
shareholder may terminate his or her participation by notifying, in writing, the
appropriate federal agency. In addition, the Fund may terminate participation
upon 30 days' notice to the shareholder.
Automatic Investing: This service allows a shareholder to make regular
investments once an account is established. A shareholder authorizes the
automatic withdrawal of funds from a bank account into the Funds. The minimum
initial and subsequent investment pursuant to this plan is $100 per month. The
initial fund account must be opened first with the $5,000 minimum prior to
participating in this plan. This is done by completing the appropriate section
on the New Account Application indicating the amount of the automatic
investment.
Retirement Plans: The Funds are available for investment by pension and profit
sharing plans, including Individual Retirement Accounts, Defined Contribution
Plans, and 403(b)(7) Retirement Plans. The Fund, however, does not sponsor
Defined Contribution Plans and 403(b)(7) Retirement Plans. For details
concerning any of the retirement plans, please call the Funds at (800) 788-9485.
NET ASSET VALUE
The net asset value per share of each Fund is computed as of the close of
regular trading on the NYSE; provided that, for the Principal Preservation Fund,
it is also not a national bank holiday. The NYSE is currently closed on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas.
The net asset value per share is computed by adding the value of all securities
and other assets in the portfolio, deducting any liabilities (expenses and fees
are accrued daily) and dividing by the number of shares outstanding. The equity
securities of each Fund listed or traded on a stock exchange are valued at the
last sale price on its principal exchange. If no sale price is reported, the
mean of the last bid and asked prices is used. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices. When
market quotations are not readily available, securities and other assets are
valued at fair value as determined in good faith by the Board of Trustees.
Fixed income securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices provided
by investment dealers in accordance with procedures established by the Board of
Trustees. Options, futures and options on futures are valued at the price as
determined by the appropriate
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<PAGE>
clearing corporation.
All securities held in the portfolio of the Principal Preservation Fund, and
debt securities with maturities of 60 days or less held by the other Funds, are
valued at amortized cost. When a security is valued at amortized cost, it is
valued at its cost when purchased, and thereafter by assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.
DIVIDENDS AND TAXES
Dividends
The Principal Preservation Fund's net investment income is declared daily and
paid monthly as a dividend to shareholders of record at the close of business on
the day of declaration. In order to receive the dividend for that day, the
shareholder's purchase of shares must be effective as of 1:00 p.m. (New York
time). Income dividends, when available, are expected to be declared and paid
monthly for the Intermediate Fixed Income Fund and Fixed Income Fund. It is
expected that dividends from net investment income will be declared and paid
quarterly and at year end by the Equity Investment Fund and Balanced Fund. Any
net realized gains from the sale of portfolio securities are distributed at
least once each year unless they are used to offset losses carried forward from
prior years, in which case no such gains will be distributed. Such income
dividends and capital gain distributions are reinvested automatically in
additional shares at net asset value, unless a shareholder elects to receive
them in cash. Distribution options may be changed at any time by requesting a
change in writing.
Any check in payment of dividends or other distributions which cannot be
delivered by the Post Office or which remains uncashed for a period of more than
one year may be reinvested in the shareholder's account at the then current net
asset value and the dividend option may be changed from cash to reinvest.
Dividends are reinvested on the ex-dividend date (the "ex-date") at the net
asset value determined at the close of business on that date. Dividends and
distributions are treated the same for tax purposes whether received in cash or
reinvested in additional shares. Please note that dividends and distributions on
shares purchased shortly before the record date for a dividend or distribution
may have the effect of returning capital although such dividends and
distributions are subject to taxes.
Taxes
Each Fund has elected and intends to continue to qualify to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification relieves a Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code. Each Fund is treated as a separate
corporate entity for federal tax purposes.
An investment in the Funds has certain tax consequences, depending on the type
of account. Distributions are subject to federal income tax and may also be
subject to state and local income taxes. Distributions are generally taxable
when they are paid, whether in cash or by reinvestment in additional shares,
except that distributions declared in October, November or December and paid in
the following January are taxable as if they were paid on December 31. If you
have a qualified retirement account, taxes are generally deferred until
distributions are made from the retirement account.
For federal income tax purposes, income dividends and short-term capital gain
distributions are taxed as ordinary income. Distributions of net capital gains
(the excess of net long-term capital gain over net short-term capital loss) are
usually taxed as long-term capital gains, regardless of how long a shareholder
has held the Fund's shares. The tax treatment of distributions of ordinary
income or capital gains will be the same whether the shareholder reinvests the
distributions or elects to receive them in cash.
Redemptions of Fund shares, and the exchange of shares between two Funds of the
Company, are taxable events and, accordingly, shareholders may realize capital
gains or losses on these transactions.
Shareholders may be subject to a 31 percent back-up withholding on reportable
dividend and redemption payments ("back-up withholding") if a certified taxpayer
identification number is not on file with the Fund, or if to the Fund's
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<PAGE>
knowledge, an incorrect number has been furnished. An individual's taxpayer
identification number is his/her social security number.
Shareholders will be advised annually of the source and tax status of all
distributions for federal income tax purposes. Information accompanying a
shareholder's statement will show the portion of those distributions that are
not taxable in certain states. Further information regarding the tax
consequences of investing in the Funds is included in the Statement of
Additional Information. The above discussion is intended for general information
only. Investors should consult their own tax advisers for more specific
information on the tax consequences of particular types of distributions.
PERFORMANCE INFORMATION
Yield and total return information may be useful in reviewing the performance of
the Funds and for providing a basis for comparison with other investment
alternatives. Net investment return of these Funds changes in response to
fluctuations in market conditions, interest rates and Fund expenses, any given
performance quotation should not be considered representative of the Fund's
performance for any future period. The value of an investment in a Fund will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost. The Funds may compare their investment performance to
the following benchmarks: Principal Preservation Fund - Merrill Lynch Index
90-day Treasury Index; Intermediate Fixed Income Fund -Lehman Brothers
Intermediate (1-10 year) Government/Corporate Index; Fixed Income Fund -Lehman
Brothers Aggregate Index; and Equity Investment Fund and Balanced Fund - S&P 500
and the Lehman Brothers Aggregate Index. The Funds may also be compared to other
market indices such as the S&P 500 and to appropriate mutual fund indices.
Current performance information about each Fund can be obtained by calling the
Funds at (800) 788-9485.
Total Return. Total Return is defined as the change in value of an investment in
a Fund over a particular period, assuming that all distributions have been
reinvested. Thus, total return reflects not only income earned, but also
variations in share prices at the beginning and end of the period. Average
annual return reflects the average percentage change per year in the value of an
investment in a particular Fund. Aggregate total return reflects the total
percentage change over the stated period.
Yield. Yield refers to the net investment income generated by an investment over
a particular period of time, which is annualized (assumed to have been generated
for one year) and expressed as an annual percentage rate. Effective yield is
yield assuming that all distributions are reinvested. Effective yield will be
slightly higher than the yield because of the compounding effect of the assumed
investment. Yield for the Principal Preservation Fund over a seven-day period is
called current yield. For Intermediate Fixed Income Fund and Fixed Income Fund,
yield is calculated by dividing the net investment income per share earned
during a 30-day period by the maximum offering price per share on the last day
of the period, and annualizing the result.
GENERAL INFORMATION
Organization: Each Fund is a separate series of McM Funds, a Delaware business
trust organized pursuant to a Trust Instrument dated February 3, 1994, as
amended May 9, 1994. The Trust is registered under the Act as a diversified,
open-end management investment company, commonly known as a mutual fund. The
Trustees of the Company may establish additional series or classes of shares
without the approval of shareholders. The assets of each series belong only to
that series, and the liabilities of each series are borne solely by that series
and no other.
Trustees and Officers: The Trustees of the Company have overall responsibility
for the operations of each Fund. The Statement of Additional Information
contains general background information about each Trustee and officer of the
Company. The officers of the Company who are employees or officers of McMorgan &
Company serve without compensation from the Funds.
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<PAGE>
Description of Shares: Each Fund is authorized to issue an unlimited number of
shares of beneficial interest with a par value of $0.001. Shares of each Fund
represent equal proportionate interests in the assets of that Fund only and have
identical voting, dividend, redemption, liquidation, and other rights. All
shares issued are fully paid and non-assessable, and shareholders have no
preemptive or other right to subscribe to any additional shares. Currently,
there is only one class of shares issued by the Company. The validity of shares
of beneficial interest offered by this prospectus has been passed on by Heller,
Ehrman, White & McAuliffe, 333 Bush Street, San Francisco, California 94104.
Voting Rights: Each issued and outstanding full and fractional share of each
Fund is entitled to one full and fractional vote in dollar-weighted proportion
to the shares of the other Funds, and all shares of each Fund participate
equally in regard to dividends, distributions, and liquidations with respect to
that Fund. Shareholders do not have preemptive, conversion or cumulative voting
rights. On any matter submitted to a vote of shareholders, shares of each Fund
will vote separately except when a vote of shareholders in the aggregate is
required by law, or when the Trustees have determined that the matter affects
the interests of more than one Fund, in which case the shareholders of all such
Funds shall be entitled to vote thereon.
Pursuant to the definitions set forth in the Act, as of October 7, 1996, the
following persons are deemed "control persons" by nature of their significant
holdings in the respective Funds listed below. This does not mean, however, that
these persons manage the affairs of the Company. The Advisor maintains sole
responsibility over the affairs of the Company pursuant to its Investment
Advisory Agreement with the Company. Industrial Carpenters Pension Fund and
Industrial Carpenters and Precast Industry Pension Fund - McM Fixed Income Fund.
Shareholder Meetings: The Trustees of the Company do not intend to hold annual
meetings of shareholders of the Funds. The Trustees have undertaken to the U.S.
Securities and Exchange Commission, however, that they will promptly call a
meeting for the purpose of voting upon the question of removal of any Trustees
when requested to do so by not less than 10% of the outstanding shareholders of
the respective Fund. In addition, subject to certain conditions, shareholders of
each Fund may apply to the Fund to communicate with other shareholders to
request a shareholders' meeting to vote upon the removal of a Trustee or
Trustees.
Certain Provisions of Trust Instrument: Under Delaware law, the shareholders of
the Funds will not be personally liable for the obligations of any Fund; a
shareholder is entitled to the same limitation of personal liability extended to
shareholders of corporations.
Shareholder Reports and Inquiries: Shareholders will receive annual financial
statements which are examined by the Funds' independent accounts, as well as
unaudited semiannual financial statements. Shareholder inquiries should be
addressed to the Fund c/o McM Funds, One Bush Street, Suite 800, San Francisco,
CA 94104, (800) 788-9485.
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<PAGE>
INVESTMENT ADVISOR
McMorgan & Company
One Bush Street, Suite 800
San Francisco, CA 94104
UNDERWRITER
FPS Broker Services, Inc.
3200 Horizon Drive
King of Prussia, Pennsylvania 19406-0903
SHAREHOLDER SERVICES
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, Pennsylvania 19406-0903
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10286
LEGAL COUNSEL
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104-2878
AUDITORS
Tait, Weller & Baker
2 Penn Center Plaza, Suite 700
Philadelphia, PA 19102-1707
For Additional Information about McM Funds call:
(800) 788-9485
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1996
- -------------------------------------------------------------------------------
McM FUNDS
- -------------------------------------------------------------------------------
MONEY MARKET FUND BALANCED FUND
McM Principal Preservation Fund McM Balanced Fund
FIXED INCOME FUNDS EQUITY FUND
McM Intermediate Fixed Income Fund McM Equity Investment Fund
McM Fixed Income Fund
- --------------------------------------------------------------------------------
This Statement of Additional Information dated November 1, 1996 is not a
prospectus but should be read in conjunction with the Prospectus for the McM
Funds (the "Company") dated November 1, 1996, as may be amended or supplemented
from time to time. No investment in shares should be made without first reading
the Prospectus. A copy of the Prospectus may be obtained without charge from the
Company at the addresses and telephone numbers below.
Underwriter: Advisor:
FPS Broker Services, Inc. McMorgan & Company
3200 Horizon Drive One Bush Street, Suite 800
King of Prussia, PA 19406-0903 San Francisco, CA 94104
(800) 831-1146 (800) 788-9485
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information
or in the Prospectus in connection with the offering made by the
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or its
distributor. The Prospectus does not constitute an offering by the
Company or by the distributor in any jurisdiction in which such offering
may not lawfully be made.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
McM Funds..........................................................................................................
Investment Policies
Futures.......................................................................................................
Loans of Portfolio Securities.................................................................................
Options.......................................................................................................
Repurchase Agreements.........................................................................................
Reverse Repurchase Agreements.................................................................................
Securities of Other Investment Companies......................................................................
Purchasing Call Options.......................................................................................
Covered Call Writing..........................................................................................
Purchasing Put Options........................................................................................
Writing Put Options...........................................................................................
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions.................................
Variable and Floating Rate Instruments........................................................................
Mortgage-Backed Securities and Mortgage Pass-Through Securities...............................................
Collateralized Mortgage Obligations, Real Estate Mortgage Investment Conduits
and Multi-Class Pass-Throughs...............................................................................
Resets........................................................................................................
Caps and Floors...............................................................................................
Stripped Mortgage-Backed Securities...........................................................................
Risks of Mortgage-Backed Securities...........................................................................
Other Mortgage-Backed Securities..............................................................................
Asset-Backed Securities.......................................................................................
Interest Rate Swaps...........................................................................................
Restricted Securities.........................................................................................
Rule 144A Securities..........................................................................................
Convertible Securities........................................................................................
Loan Participations..........................................................................................
Money Market Instruments......................................................................................
Other Investments.............................................................................................
Investment Restrictions............................................................................................
Trustees and Officers..............................................................................................
Control Persons and Principal Holders of Securities................................................................
Investment Advisory and Other Services
Investment Advisory Agreement.................................................................................
Administrator.................................................................................................
Underwriter...................................................................................................
Portfolio Transactions and Brokerage Commissions...................................................................
Portfolio Turnover............................................................................................
Taxes..............................................................................................................
Performance Information
General.......................................................................................................
Total Return Calculations.....................................................................................
Yield of Principal Preservation Fund..........................................................................
Yields of Intermediate Fixed Income Fund and Fixed Income Fund................................................
Other Information..................................................................................................
Custodian
Reports to Shareholders
Audited Financial Statements
</TABLE>
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McM FUNDS
McM Funds, One Bush Street, Suite 800, San Francisco, CA 94104, is a no-load,
open-end management investment company, which currently offers five diversified
series of common stock representing separate portfolios of investments: McM
Principal Preservation Fund (the "Principal Preservation Fund"),McM Intermediate
Fixed Income Fund (the "Intermediate Fixed Income Fund"), McM Fixed Income Fund
(the "Fixed Income Fund"), McM Balanced Fund (the "Balanced Fund") and McM
Equity Investment Fund (the "Equity Investment Fund") (collectively referred to
as "Funds" or individually, as a "Fund").
INVESTMENT POLICIES
The following supplements the information contained in the Prospectus concerning
the investment policies of the Funds. The Prospectus specifies which Funds may
invest in the portfolio investments included in this section.
The investment practices described below, except for the discussion of portfolio
loan transactions, are not fundamental and may be changed by the Board of
Trustees without the approval of the shareholders.
Futures
- -------
The Funds (all Funds except Principal Preservation Fund) may enter into
contracts for the purchase or sale for future delivery of securities, including
index contracts. While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into offsetting transactions.
The Funds may enter into such futures contracts to protect against the adverse
effects of fluctuations in security prices or interest rates without actually
buying or selling the securities underlying the contract. For example, if
interest rates are expected to increase, a Fund might enter into futures
contracts for the sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities owned by the Fund.
If interest rates did increase, the value of the debt securities in the
portfolio would decline, but the value of the futures contracts to the Fund
would increase at approximately the same rate, thereby keeping the net asset
value of the Fund from declining as much as it otherwise would have. Similarly,
when it is expected that interest rates may decline, futures contracts may be
purchased to hedge in anticipation of subsequent purchases of securities at
higher prices. Since the fluctuations in the value of futures contracts should
be similar to those of debt securities, the Fund could take advantage of the
anticipated rise in value of debt securities without actually buying them until
the market had stabilized. At that time, the futures contracts could be
liquidated and the Fund could then buy debt securities on the cash market.
A stock index futures contract obligates the seller to deliver, and the
purchaser to receive an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement was made.
Open futures contracts are valued on a daily basis and a Fund may be obligated
to provide or receive cash reflecting any decline or increase in the contract's
value. No physical delivery of the underlying stocks in the index is made in the
future.
With respect to options on futures contracts, when a Fund is temporarily not
fully invested, it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates. The purchase of a call
option on a futures contract is similar in some respects to the purchase of a
call option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based, or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Fund is not fully invested, it may
purchase a call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial hedge
against the declining price of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at the
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium
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<PAGE>
which provides a partial hedge against any decline that may have occurred in the
value of the Fund's portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against the increasing price of the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at the expiration of the option is higher than
the exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Fund intends to purchase.
Call and put options on stock index futures are similar to options on securities
except that, rather than the right to purchase or sell stock at a specified
price, options on a stock index future give the holder the right to receive
cash. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the futures contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing price of the futures contract on the expiration date.
If a put or call option which a Fund has written is exercised, the Fund may
incur a loss which will be reduced by the amount of the premium it received.
Depending upon the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options positions, the
Fund's losses from existing options on futures may, to some extent, be reduced
or increased by changes in the value of portfolio securities. The purchase of a
put option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities, and for federal tax purposes will be
considered a "short sale". For example, a Fund will purchase a put option on a
futures contract to hedge the Fund's portfolio against the risk of rising
interest rates.
To the extent that market prices move in an unexpected direction, a Fund may not
achieve the anticipated benefits of futures contracts or options on futures
contracts or may realize a loss. For example, if the Fund is hedged against the
possibility of an increase in interest rates that would adversely affect the
price of securities held in its portfolio and interest rates decrease instead,
the Fund would lose part or all of the benefit of the increased value that it
has because it would have offsetting losses in its futures position. In
addition, in such situations, if the Fund had insufficient cash, it may be
required to sell securities from its portfolio to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. A Fund may be required to sell
securities at a time when it may be disadvantageous to do so.
Further, with respect to options on futures contracts, a Fund may seek to close
out an option position by writing or buying an offsetting position covering the
same securities or contracts and having the same exercise price and expiration
date. The ability to establish and close out positions on options will be
subject to the maintenance of a liquid secondary market, which cannot be
assured.
Loans of Portfolio Securities
- -----------------------------
The Funds (all Funds except Principal Preservation Fund) may lend portfolio
securities to broker-dealers and financial institutions provided: (1) the loan
is secured continuously by collateral marked-to-market daily and maintained in
an amount at least equal to the current market value of the securities loaned;
(2) the relevant Fund may call the loan at any time and receive the securities
loaned; (3) the relevant Fund will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of securities loaned will
not at any time exceed one-third of the total assets of the relevant Fund.
Collateral will consist of U.S. Government securities, cash equivalents or
irrevocable letters of credit. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to maintain the proper
amount of collateral. Therefore, a Fund will only enter into portfolio loans
after a review of all pertinent facts by the McMorgan & Company (the "Advisor"),
under the supervision of the Board of Trustees, including the creditworthiness
of the borrower. Such reviews will be monitored on an ongoing basis.
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<PAGE>
Options
- -------
The Funds (all Funds except Principal Preservation Fund) may buy put and call
options and write covered call and secured put options. Such options may relate
to particular securities, stock indices, or financial instruments and may or may
not be listed on a national securities exchange and issued by the Options
Clearing Corporation. Options trading is a highly specialized activity that
entails greater than ordinary investment risk. Options on particular securities
may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than a direct investment in the underlying securities.
The Funds will write call options only if they are "covered." In the case of a
call option on a security, the option is "covered" if a Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional cash
consideration is required, liquid assets, such as cash, U.S. Government
securities or other liquid high-grade debt obligations, in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified stock portfolio, or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written; or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets such as cash,
U.S. Government securities and other high-grade debt obligations in a segregated
account with its custodian. The Funds will write put options only if they are
"secured" by liquid assets maintained in a segregated account by the Funds'
custodian in an amount not less than the exercise price of the option at all
times during the option period.
A Fund's obligation to sell a security subject to a covered call option written
by it, or to purchase a security subject to a secured put option written by it,
may be terminated prior to the expiration date of the option by the Fund's
execution of a closing purchase transaction, which is effected by purchasing on
an exchange an option of the same series as the previously written option. Such
a purchase does not result in the ownership of an option. A closing purchase
transaction will ordinarily be effected to realize a profit on an outstanding
option, to prevent an underlying security from being called, to permit the sale
of the underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. There is no assurance that a liquid secondary market will exist for
any particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying security (in the case of a
covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option expires or the optioned security is
delivered upon exercise with the result that the writer in such circumstances
will be subject to the risk of market decline or appreciation in the security
during such period.
Repurchase Agreements
- ---------------------
The repurchase price under the repurchase agreements described in the Prospectus
generally equals the price paid by a Fund plus interest negotiated on the basis
of current short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). Repurchase agreements are
considered to be collateralized loans by a Fund under the Investment Company Act
of 1940, as amended (the "Act").
The financial institutions with which a Fund may enter into repurchase
agreements are banks and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers and
banks, if such banks and non-bank dealers are deemed creditworthy by the
Advisor. The Advisor will continue to monitor the creditworthiness of the seller
under a repurchase agreement, and will require the seller to maintain during the
term of the agreement the value of the securities subject to the agreement at
not less than the repurchase price.
Each Fund will only enter into a repurchase agreement where the market value of
the underlying security, including interest accrued, will at all times be equal
to or exceed the value of the repurchase agreement. The securities held subject
to a repurchase agreement by Principal Preservation Fund may have stated
maturities exceeding 13 months, provided the repurchase agreement itself matures
in less than 13 months.
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<PAGE>
Reverse Repurchase Agreements
- -----------------------------
Reverse repurchase agreements involve the sale of securities held by a Fund
pursuant to a Fund's agreement to repurchase the securities at an agreed-upon
price, date and rate of interest. Such agreements are considered to be
borrowings under the Act, and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Fund will maintain in a segregated account cash, U.S. Government securities or
other liquid, high-grade debt securities in an amount at least equal to the
market value of the securities, plus accrued interest, subject to the agreement.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by the Fund may decline below the price of the securities the
Fund is obligated to repurchase.
Securities of Other Investment Companies
- ----------------------------------------
Each Fund currently intends to limit its investments in securities issued by
other investment companies so that, as determined immediately after a purchase
of such securities is made: (i) not more than 5% of the value of the Fund's
total assets will be invested in the securities of any one investment company;
(ii) not more than 10% of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the Fund
or Funds as a whole.
Purchasing Call Options
- -----------------------
The Funds (all Funds except Principal Preservation Fund) may purchase call
options to the extent that premiums paid by a Fund do not aggregate more than
20% of that Fund's total assets. When a Fund purchases a call option, in return
for a premium paid by the Fund to the writer of the option, the Fund obtains the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium upon writing the option, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. The advantage of purchasing call options is that a Fund may
alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with transactions.
A Fund may, following the purchase of a call option, liquidate its position by
effecting a closing sale transaction. This is accomplished by selling an option
of the same series as the option previously purchased. The Fund will realize a
profit from a closing sale transaction if the price received on the transaction
is more than the premium paid to purchase the original call option; the Fund
will realize a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call option.
Although the Funds will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that a Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by a Fund may expire without any value to the Fund, in which event the
Fund would realize a capital loss that would be characterized as short-term
unless the option was held for more than one year.
Covered Call Writing
- --------------------
The Funds (all Funds except Principal Preservation Fund) may write covered call
options from time to time on such portions of their portfolios, without limit,
as the Advisor determines is appropriate in seeking to obtain a Fund's
investment objective. The advantage to a Fund of writing covered calls is that
the Fund receives a premium that is additional income. However, if the security
rises in value, the Fund may not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing
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purchase transaction. A closing purchase transaction, in which a Fund, as writer
of an option, terminates its obligation by purchasing an option of the same
series as the option previously written, cannot be effected with respect to an
option once the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option less the commission paid. Such a
gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security and the proceeds
of the sale of the security plus the amount of the premium on the option less
the commission paid.
The Funds will write call options only on a covered basis, which means that a
Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell or deliver a security it would want to hold. The exercise price of
a call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
Purchasing Put Options
- ----------------------
The Funds (all Funds except Principal Preservation Fund) may invest up to 20% of
their total assets in the purchase of put options. A Fund will, at all times
during which it holds a put option, own the security covered by such option. The
purchase of the put on substantially identical securities held will constitute a
short sale for tax purposes, the effect of which is to create short-term capital
gain on the sale of the security and to suspend running of its holding period
(and treat it as commencing on the date of the closing of the short sale) or
that of a security acquired to cover the same if, at the time the put was
acquired, the security had not been held for more than one year.
A put option purchased by a Fund gives it the right to sell one of its
securities for an agreed-upon price up to an agreed date. The Funds intend to
purchase put options in order to protect against a decline in the market value
of the underlying security below the exercise price less the premium paid for
the option ("protective puts"). The ability to purchase put options will allow
the Funds to protect unrealized gains in an appreciated security in their
portfolios without actually selling the security. If the security does not drop
in value, a Fund will lose the value of the premium paid. A Fund may sell a put
option which it has previously purchased prior to the sale of the securities
underlying such option. Such sale will result in a net gain or loss depending
upon whether the amount received on the sale is more or less than the premium
and other transaction costs paid on the put option which is sold.
The Funds may sell a put option purchased on individual portfolio securities.
Additionally, the Funds may enter into closing sale transactions. A closing sale
transaction is one in which a Fund, when it is the holder of an outstanding
option, liquidates its position by selling an option of the same series as the
option previously purchased.
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Writing Put Options
- -------------------
The Funds (all Funds except Principal Preservation Fund) may also write put
options on a secured basis, which means that a Fund will maintain, in a
segregated account with its custodian, cash or U.S. Government securities in an
amount not less than the exercise price of the option at all times during the
option period. The amount of cash or U.S. Government securities held in the
segregated account will be adjusted on a daily basis to reflect changes in the
market value of the securities covered by the put option written by the Fund.
Secured put options will generally be written in circumstances where the Advisor
wishes to purchase the underlying security for a Fund's portfolio at a price
lower than the current market price of the security. In such event, that Fund
would write a secured put option at an exercise price which, reduced by the
premium received on the option, reflects the lower price it is willing to pay.
With regard to the writing of put options, each Fund will limit the aggregate
value of the obligations underlying such put options to 50% of its total net
assets.
Following the writing of a put option, a Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions
- -----------------------------------------------------------------------------
The Funds (all Funds except Principal Preservation Fund) may dispose of or
negotiate a when-issued or forward commitment. The Funds will normally realize a
capital gain or loss in connection with these transactions. For purposes of
determining a Fund's average dollar-weighted maturity, the maturity of
when-issued or forward commitment securities will be calculated from the
commitment date.
When a Fund purchases securities on a when-issued, delayed delivery or forward
commitment basis, the Fund's custodian will maintain in a segregated account
cash, U.S. Government securities or other high-grade liquid debt obligations
having a value (determined daily) at least equal to the amount of the Fund's
purchase commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio securities in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases, forward commitments and delayed
delivery transactions.
Variable and Floating Rate Instruments
- --------------------------------------
With respect to the variable and floating rate instruments that may be acquired
by Intermediate Fixed Income Fund and Fixed Income Fund, the Advisor will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and, if the instruments are subject to demand
features, will monitor their financial status to meet payment on demand. Where
necessary to ensure that a variable or floating rate instrument meets the Funds'
quality requirements, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend.
Mortgage-Backed Securities and Mortgage Pass-Through Securities
- ---------------------------------------------------------------
The Funds (all Funds except Principal Preservation 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 Funds may also invest in
debt securities which are secured with collateral consisting of mortgage-backed
securities (see "Collateralized Mortgage Obligations").
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. Also,
securities issued by GNMA and other mortgage-backed securities may be purchased
at a premium over the maturity value of the underlying mortgages. This premium
is not guaranteed and would be lost if prepayment occurs. Mortgage-backed
securities issued by U.S. Government agencies or instrumentalities other than
GNMA are not "full faith and credit" obligations. Certain obligations, such as
those issued by the Federal Home Loan Bank, are supported by the issuer's right
to borrow from the U.S. Treasury; while others, such
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as those issued by the Federal National Mortgage Association, are supported only
by the credit of the issuer. Unscheduled or early payments on the underlying
mortgages may shorten the securities' effective maturities and reduce returns.
The Funds may agree to purchase or sell these securities with payment and
delivery taking place at a future date.
For federal income tax purposes other than diversification under Subchapter M,
mortgage-backed securities are not considered to be separate securities but
rather "grantor trusts" conveying to the holder an individual interest in each
of the mortgages constituting the pool.
The mortgage securities which are issued or guaranteed by GNMA, FHLMC or FNMA
("Certificates") are called pass-through Certificates because a prorata share of
both regular interest and principal payments (less GNMA's, FHLMC's, or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., theFund). The yields provided by these mortgage
securities have historically exceeded the yields on other types of U.S.
Government securities with comparable maturities in large measure due to the
risks associated with prepayment features. (See "Risks of Mortgage Securities").
The Funds may also invest in pass-through certificates issued by
non-governmental issuers. Pools of conventional residential mortgage loans
created by such issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payment. Timely payment of interest and principal of
these pools is, however, generally supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurance
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 quality standards. The Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers, the investment
manager determines that the securities meet the Fund's quality standards.
Collateralized Mortgage Obligations ("CMOs"), Real Estate Mortgage Investment
Conduits ("REMICs") and Multi-Class Pass-Throughs. The Funds (all Funds except
Principal Preservation Fund) may also invest in certain debt obligations which
are collateralized by mortgage loans or mortgage pass-through securities. Such
securities may be issued or guaranteed by U.S. Government agencies or issued by
certain financial institutions and other mortgage lenders. CMOs and REMICs are
debt instruments issued by special purpose entities which are secured by pools
or mortgage loans or other mortgage-backed securities. Multi-class pass-through
securities are equity interests in a trust composed of mortgage loans or other
mortgage-backed securities. Payments of principal and interest on underlying
collateral provides the Funds to pay debt service on the CMO or REMIC or make
scheduled distributions on the multi-class pass-through securities. CMOs, REMICs
and multi-class pass-through securities (collectively CMOs unless the context
indicates otherwise) may be issued by agencies or instrumentalities of the U.S.
Government or by private organizations.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate or adjustable rate tranche (to be discussed in the next paragraph) and has
a stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may
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cause it to be retired substantially earlier than the stated maturities or final
distribution dates. Interest is paid or accrues on all classes of a CMO on a
monthly, quarterly or semi-annual basis. The principal and interest on the
underlying mortgages may be allocated among several classes of a series of a CMO
in many ways. In a common structure, payments of principal, including any
principal prepayments, on the underlying mortgages are applied to the classes of
a series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
a CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index such as the London Interbank Offered Rate
("LIBOR"). These adjustable rate tranches, known as "floating rate CMOs," will
be considered as adjustable rate mortgage securities ("ARMS") by the Funds.
Floating rate CMOs may be backed by fixed-rate or adjustable rate mortgages; to
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating rate CMOs are typically issued with lifetime "caps" on the coupon rate
thereon. These "caps," similar to the "caps" on adjustable rate mortgages,
represent a ceiling beyond which the coupon rate on a floating rate CMO may not
be increased regardless of increases in the interest rate index to which the
floating rate CMO is geared.
REMICs are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities. As with CMOs, the mortgages
which collateralize the REMICs in which the Funds may invest include mortgages
backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or issued by private
entities, which are not guaranteed by any government agency.
Yields on privately issued CMOs as described above have been historically higher
than the yields on CMOs issued or guaranteed by U.S. Government agencies.
However, the risk of loss due to default on such instruments is higher since
they are not guaranteed by the U.S. Government. The Funds will not invest in
subordinated privately-issued CMOs.
Resets
- ------
The interest rates paid on the ARMS and CMOs in which the Funds may invest
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are three main categories of
indices: those based on U.S. Treasury securities; those derived from a
calculated measure such as a cost of funds index; or moving average of mortgage
rates. Commonly utilized indices include the one-year, three-year and five-year
constant maturity Treasury rates, the three-month Treasury bill rate, the
six-month Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year LIBOR, the prime rate
of a specific bank, or commercial paper rates. Some indices, such as the
one-year constant maturity Treasury rate, closely mirror changes in market
interest rate levels. Others, such as the 11th District Home Loan Bank Cost of
Funds index, tend to lag behind changes in market rate levels and tend to be
somewhat less volatile.
Caps and Floors
- ---------------
The underlying mortgages which collateralize the ARMS and CMOs in which the
Funds invest will frequently have caps and floors that limit the maximum amount
by which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization.
Stripped Mortgage-Backed Securities
- -----------------------------------
The Funds (all Funds except Principal Preservation Fund) may also invest in
stripped mortgage-backed securities, which are derivative multi-class mortgage
securities. The stripped mortgage-backed securities in which the Funds may
invest will only be issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Stripped mortgage-backed securities have greater market
volatility than other types of mortgage securities in which the Funds invest.
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Stripped mortgage-backed securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage-backed security will
have one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the yield to maturity
of any such IOs held by the Fund. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to recoup
fully its initial investment in these securities even if the securities are
rated in the highest rating categories, AAA or Aaa, by S&P or Moody's,
respectively.
Although stripped mortgage-backed securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet been fully developed and, accordingly,
these securities may generally be illiquid. The staff of the U.S. Securities and
Exchange Commission has indicated that it views such securities as illiquid.
Until further clarification of this matter is provided by the staff, the Funds'
investment in stripped mortgage securities will be treated as illiquid and will,
together with any other illiquid investments, not exceed 10% of a Fund's net
assets.
Risks of Mortgage-Backed Securities
- -----------------------------------
The mortgage-backed securities in which a Fund invests differ from conventional
bonds in that principal is paid back over the life of the mortgage security
rather than at maturity. As a result, the holder of the mortgage-backed
securities (i.e., the Fund) receives monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the holder reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest that is lower than the rate on the existing mortgage securities. For
this reason, mortgage-backed securities may be less effective than other types
of U.S. Government securities as a means of "locking in" long-term interest
rates.
A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages and expose a Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by a
Fund, the prepayment right of mortgagors may decrease or limit the increase in
net asset value of the Fund because the value of the mortgage-backed securities
held by the Fund may decline more than or may not appreciate as much as the
price of noncallable debt securities. To the extent market interest rates
increase beyond the applicable cap or maximum rate on a mortgage security, the
market value of the mortgage-backed security would likely decline to the same
extent as a conventional fixed rate security.
In addition, to the extent mortgage-backed securities are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holder's principal investment to the extent of the premium
paid. On the other hand, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which, when distributed to shareholders, will be taxable
as ordinary income.
With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities can meet their obligations under the policies. Although the market
for such non-governmental issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to each Fund's
limit with respect to investment in illiquid securities.
Other Mortgage-Backed Securities
- --------------------------------
The Advisor 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 investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage
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instruments, that is, mortgage instruments the principal or interest payments of
which may vary or the terms to maturity of which may differ from customary
long-term fixed rate mortgages. As new types of mortgage-related securities are
developed and offered to investors, the Advisor will, consistent with a Fund's
investment objective, policies and quality standards, consider making
investments in such new types of mortgage-related securities. The Funds will not
invest in any new types of mortgage-related securities without prior disclosure
to the shareholders of the respective Fund.
Asset-Backed Securities
- -----------------------
Asset-backed securities are securities backed by installment contracts, credit
card and other receivables, or other assets of a financial character.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments. An asset-backed security's
stated maturity may be shortened, and the security's total return may be
difficult to predict precisely.
Interest Rate Swaps
- -------------------
The Intermediate Fixed Income Fund and Fixed Income Fund may enter into interest
rate swaps for hedging purposes and not for speculation. A Fund will typically
use interest rate swaps to preserve a return on a particular investment or
portion of its portfolio or to shorten the effective duration of its portfolio
investments. Interest rate swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed-rate payments for floating rate payments. The Funds will only
enter into interest rate swaps on a net basis, i.e. the two payment streams are
netted out, with a Fund receiving or paying, as the case may be, only the net
amount of the two payments. Inasmuch as these transactions are entered into for
good faith hedging purposes, the Advisor believes that such obligations do not
constitute senior securities as defined in the Act and, accordingly, will not
treat them as being subject to the Funds' borrowing restrictions. The net amount
of the excess, if any, of the Funds' obligations over their entitlements with
respect to each interest rate swap will be accrued on a daily basis and an
amount of liquid assets, such as cash, U.S. Government securities or other
liquid high grade debt securities having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Fund's custodian.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed-upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed level. A collar entitles the purchaser to receive payments
to the extent a specified interest rate falls outside an agreed-upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on a Fund's performance.
Swap agreements involve risks depending upon the other party's creditworthiness
and ability to perform, as judged by the Advisor, as well as the Fund's ability
to terminate its swap agreements or reduce its exposure through offsetting
transactions.
Restricted Securities
- ---------------------
Each Fund will limit investments in securities of issuers which the Fund is
restricted from selling to the public without registration under the Securities
Act of 1933, as amended (the "Securities Act"), to no more than 10% of the
Fund's total assets, excluding restricted securities eligible for resale
pursuant to Rule 144A that have been determined to be liquid by the Company's
Board of Trustees.
Rule 144A Securities
- --------------------
The Funds may purchase securities which are not registered under the Securities
Act but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the Securities Act. In some cases, such securities are
classified as "illiquid securities", however, any such security will not be
considered illiquid so long as it is determined by the Advisor, under guidelines
approved by the Company's Board of Trustees, that an adequate trading market
exists for that security. This investment practice could have the effect of
increasing the
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<PAGE>
level of illiquidity in the Funds during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities. The
ability to sell to qualified institutional buyers under Rule 144A is a recent
development, and it is not possible to predict how this market will develop.
Convertible Securities
- ----------------------
Common stock occupies the most junior position in a company's capital structure.
Convertible securities entitle the holder to exchange those securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to convert. The provisions of any convertible
security determine its ranking in a company's capital structure. In the case of
subordinated convertible debentures, the holder's claims on assets and earnings
are subordinated to the claims of other creditors, and are senior to the claims
of preferred and common shareholders. In the case of preferred stock and
convertible preferred stock, the holder's claims on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.
Loan Participations
- -------------------
Loan participations are sold by the lending bank to an investor. The loan
participant borrower may be a company with highly rated commercial paper that
finds it can obtain cheaper funding through a loan participation than with
commercial paper and can also increase the company's name recognition in the
capital markets. Loan Particpations often generate greater yield than commercial
paper.
Money Market Instruments
- ------------------------
Money market instruments in which the Funds may invest include, but are not
limited to, the following: short-term corporate obligations, letters of credit
backed commercial paper, time deposits, loan participations, variable and
floating rate notes and master demand notes.
Time Deposits usually trade at a spread over Treasuries of the same maturity.
Investors regard such deposits as carrying some credit risk, which Treasuries do
not; also, investors regard time deposits as being sufficiently less liquid than
Treasuries; hence, investors demand some extra yield for buying time deposits
rather than Treasuries. The investor in a loan participation has a dual credit
risk to both the borrower and also the selling bank. The second risk arises
because it is the selling bank that collects interest and principal and sends it
to the investor.
Because Variable and Floating Rate Notes are direct lending arrangements between
the lender and the borrower, it is not contemplated that such instruments will
generally be traded, and there is generally no established secondary market for
these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand.
The same credit research must be done for Master Demand Notes as in accepted
names for potential commercial paper issuers to eliminate the chances of a
borrower getting into serious financial difficulties.
Other Investments
- -----------------
Subject to prior disclosure to shareholders, the Board of Trustees may, in the
future, authorize a Fund to invest in securities other than those listed here
and in the prospectus, provided that such investment would be consistent with
that Fund's investment objective and that it would not violate any fundamental
investment policies or restrictions applicable to that Fund.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may not
be changed as to a Fund without the approval of a majority of the outstanding
voting shares (as defined in the Act) of the Fund. Unless otherwise indicated,
all percentage limitations listed below apply to the Funds and apply only at the
time of the transaction. Accordingly, if a percentage restriction is adhered to
at the time of investment, a later increase or decrease in the
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percentage that results from a relative change in values or from a change in a
Fund's total assets will not be considered a violation.
Except as set forth under "Investment Objectives" and "Investment Strategies" in
the Prospectus, each Fund may not:
(1) As to 75% of its total assets, purchase the securities of any one
issuer (other than securities issued by the U.S. Government or its
agencies or instrumentalities) if immediately after such purchase
more than 5% of the value of the Fund's total assets would be
invested in securities of such issuer;
(2) Purchase or sell real estate (but this restriction shall not prevent
the Funds from investing directly or indirectly in portfolio
instruments secured by real estate or interests therein or acquiring
securities of real estate investment trusts or other issuers that
deal in real estate), interests in oil, gas and/or mineral
exploration or development programs or leases;
(3) Purchase or sell commodities or commodity contracts, except that a
Fund may enter into futures contracts and options thereon in
accordance with such Fund's investment objectives and policies;
(4) Make investments in securities for the purpose of exercising control;
(5) Purchase the securities of any one issuer if, immediately after such
purchase, a Fund would own more than 10% of the outstanding voting
securities of such issuer;
(6) Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of
transactions. For this purpose, the deposit or payment by a Fund for
initial or maintenance margin in connection with futures contracts is
not considered to be the purchase or sale of a security on margin;
(7) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of debt instruments in accordance with a Fund's
investment objectives and policies, (b) the lending of portfolio
securities, or (c) entry into repurchase agreements with banks or
broker-dealers;
(8) Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the total assets of the Fund at the
time of its borrowing. All borrowings will be done from a bank and
asset coverage of at least 300% is required. A Fund will not purchase
securities when borrowings exceed 5% of that Fund's total assets;
(9) Purchase the securities of issuers conducting their principal
business activities in the same industry (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if immediately after such purchase the value of a
Fund's investments in such industry would exceed 25% of the value of
the total assets of the Fund;
(10) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Fund may be deemed to be an
"underwriter" as that term is defined in the Securities Act;
(11) Invest in puts, calls, straddles or combinations thereof except to
the extent disclosed in the Prospectus; and
(12) Invest more than 5% of its total assets in securities of companies
less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
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<PAGE>
Although not considered fundamental, in order to comply with certain state "blue
sky" restrictions, the Funds will not invest: (1) more than 5% of their
respective net assets in warrants, including within that amount no more than 2%
in warrants which are not listed on the New York or American Stock Exchanges,
except warrants acquired as a result of their holdings of common stocks; and (2)
purchase or retain the securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund or of its investment manager owns
beneficially more than 1/2 of 1% of the outstanding securities of such issuer,
and such officers and directors of the Fund or of its investment manager who own
more than 1/2 of 1%, own in the aggregate, more than 5% of the outstanding
securities of such issuer.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and executive officers of the Company is
set forth below.
<TABLE>
<CAPTION>
Aggregate
Principal Compensation From Total Compensation
Position(s) Occupation(s) Trust to Date for From Trust and
Name, Address Held with During Past Fiscal Year Ended Fund Complex Paid
and Age Registrant Five Years June 30, 1996 to Trustees
------------- ---------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Terry A. O'Toole, CPA* 49 Chairman President and CEO, N/A N/A
McMorgan & Company and McMorgan &
One Bush Street, Suite 800 President Company.
San Francisco, CA 94104
Kenneth I. Rosenblum 55 Trustee Independent $4,800 $4,800
1299 Ocean Avenue Consultant; President
Suite 333 and Chief Operations
Santa Monica, CA 90401 Officer, Dimension
Fund Advisors,Inc.
Walter B. Rose 50 Trustee Partner, McBain, $4,600 $4,600
McBain, Rose Partners Rose Partners.
355 S. Grand Avenue
Suite 4295
Los Angeles, CA 90071
S.D. Sicotte 65 Trustee Retired; prior thereto N/A N/A
2047 Byron Street Chairman and Chief
Palo Alto, CA 94301 Executive Officer
Hemming Morse, Inc.
Robert R. Barron* 51 Trustee, Executive Vice N/A N/A
McMorgan & Company Vice President, McMorgan
101 N. Brand Boulevard, President & & Company
#1220 Treasurer
Glendale, CA 91203
</TABLE>
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PEA 3/7 McM Funds
Page 44
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Mark R. Taylor* 37 Trustee Vice President N/A N/A
McMorgan & Company McMorgan &
One Bush Street, Suite 800 Company
San Francisco, CA 94104
Gregory L. Watson, CFA* 51 Trustee Executive Vice N/A N/A
McMorgan & Company President, McMorgan
One Bush Street, Suite 800 & Company
San Francisco, CA 94104
Deane A. Nelson, CFA* 50 Vice Vice President N/|A N/A
McMorgan & Company President McMorgan &
One Bush Street, Suite 800 and Company; prior
San Francisco, CA 94104 Secretary thereto Vice
President, Security
Pacific Bank.
Robert M. Hirsch* 42 Compliance General Counsel, N/A N/A
McMorgan & Company Officer McMorgan &
One Bush Street, Suite 800 Company; prior
San Francisco, CA 94104 thereto Partner, Van
Bourg, Weinberg
Roger & Rosenfeld
</TABLE>
- ------------------------------------------------------------------------------
PEA 3/7 McM Funds
* These Trustees and officers are considered "interested persons" of the Funds
as defined under the Act.
The Trustees of the Funds receive a fee of $4,000 per year, plus $200 per
meeting and expenses for each meeting of the Board of Trustees they attend.
However, no officer or employee of McMorgan & Company receives any compensation
from the Funds for acting as a Trustee of the Funds. The officers of the Funds
receive no compensation directly from the Funds for performing the duties of
their offices.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 7, 1996, the Trustees and officers of the Trust, individually,
owned less than 1% of the outstanding shares of the Principal Preservation Fund,
Intermediate Fixed Income Fund, Fixed Income Fund and Balanced Fund. As a group,
the Trustees and officers owned 1.51% of Fixed Income Fund, 1.33% of Balance
Fund and 3.01% of Equity Investment Fund.
As of October 7, 1996, the following persons owned of record or beneficially
more than 5% of the outstanding voting shares of the:
McM PRINCIPAL PRESERVATION FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Cement Masons Vacation Holiday 22.75%
Trust Fund
Suisun, CA
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PEA 3/7 McM Funds
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<PAGE>
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
McMorgan & Company 18.98%
San Francisco, CA
Trust U.A. 350 Supplemental Annuity Plan 16.05%
Los Angeles, CA
Northern California Pipe Trades 5.05%
Health & Welfare Trust Fund
Oakland, CA
McM INTERMEDIATE FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Northern California Pipe Trades 12.36%
Health & Welfare Trust Fund
Oakland, CA
Stationary Engineers No.39 10.54%
Health & Welfare Trust Fund
Calabasas, CA
Cement Masons Health & Welfare 10.49%
Trust Fund
Suisun, CA
Bay Counties District Council 7.15%
of Carpenters
Oakland, CA
Northern Nevada Operating Eng. 6.74%
Health & Welfare Trust Fund
Los Angeles, CA
- -------------------------------------------------------------------------------
PEA 3/7 McM Funds
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<PAGE>
McM FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Industrial Carpenters Pension Fund * 43.34%
Oakland, CA
Industrial Carpenters & 34.97%
Precast Industry Pension Fund*
Oakland, CA
McM BALANCED FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
UA Local 290 Plumber Steamfitter & 22.73%
Shipfitter Retiree Health Trust
Portland, OR
IBEW Local 48 General Fund 11.62%
Portland, OR
UA Local 38 Pipe Trades Defined 9.40%
Contribution Plan
San Francisco, CA
Sheet Metal Production Workers of Northern 8.11%
California Beneficial Trust Fund
Oakland, CA
Vanbourg Weinberg Roger & Rosenfeld 6.74%
Oakland, CA
UA 350 Supplemental Annuity Plan 5.20%
Los Angeles, CA
McM EQUITY INVESTMENT FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
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PEA 3/7 McM Funds
Page 47
<PAGE>
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Operating Engineers Health & Welfare
Trust Fund 21.25%
Calabasas, CA
Wendel & Co. 12.80%
New York, NY
Pensioned Operating Engineers Health & 12.50%
Welfare Fund
Calabasas, CA
* Controlling person as defined under the Act. Note that a controlling person
possesses the ability to control the outcome of matters submitted for
shareholder vote.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreement The advisory services provided by McMorgan &
Company (the "Advisor"), and the fees received by it for such services, are
described in the Prospectus. As stated in the Prospectus, the Advisor may from
time to time voluntarily waive its advisory fees with respect to any Fund. In
addition, if the total expenses borne by any Fund in any fiscal year exceed the
expense limitations imposed by applicable state securities regulations, the
Advisor will bear the amount of such excess to the extent required by such
regulations. Any fee reductions or expense reimbursements made by the Advisor in
its fees are subject to reimbursement by the appropriate Fund within the
following three years provided the Fund is able to effect such reimbursement and
remain in compliance with applicable expense limitations. The Advisor generally
seeks reimbursement for the oldest reduction and waivers before payment by the
Funds for fees and expenses for the current year.
The Advisor has agreed to waive its advisory fee in an amount equal to the total
expenses of a Fund for any fiscal year which exceeds the permissible limits
applicable to that Fund in any state in which its shares are then qualified for
sale. At the present time, the most restrictive state expense limitation limits
a fund's annual expenses (excluding interest, taxes, distribution expense,
brokerage commissions and extraordinary expenses, and other expenses subject to
approval by state securities administrators) to 2.5% of the first $30 million of
its average daily net assets, 2.0% of the next $70 million of its average daily
net assets and 1.5% of its average daily net assets in excess of $100 million.
Under an advisory agreement on behalf of each Fund (the "Advisory Agreements"),
the Advisor is not liable for any error of judgment or mistake of law or for any
loss suffered by the Company or a Fund in connection with the performance of the
Advisory Agreements, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard of its duties and obligations thereunder.
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PEA 3/7 McM Funds
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<PAGE>
The Advisory Agreements are terminable with respect to a Fund by vote of the
Board of Trustees or by the holders of a majority of the outstanding voting
securities of the Fund, at any time without penalty, on 60 days' written notice
to the Advisor. The Advisor may also terminate its advisory relationship with
respect to a Fund on 60 days' written notice to the Company. The Advisory
Agreements terminate automatically in the event of their assignment.
Under the Advisory Agreements, each Fund pays the following expenses: (1) the
fees and expenses of the Company's disinterested Trustees; (2) the salaries and
expenses of any of the Company's officers or employees who are not affiliated
with the Advisor; (3) interest expenses; (4) taxes and governmental fees; (5)
brokerage commissions and other expenses incurred in acquiring or disposing of
portfolio securities; (6) the expenses of registering and qualifying shares for
sale with the Securities and Exchange Commission and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Company's custodian, administrative and transfer
agent and any related services; (10) expenses of obtaining quotations of the
Funds' portfolio securities and of pricing the Funds' shares; (11) expenses of
maintaining the Company's legal existence and of any legally mandated
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of reports, proxies and prospectuses; and (13) fees and
expenses of membership in industry organizations.
For the fiscal year ended June 30, 1996, advisory fees accrued by the Advisor
for the Principal Preservation Fund, Intermediate Fixed Income Fund, Fixed
Income Fund, Balanced Fund and Equity Investment were $47,458, $201,896,
$25,566, $28,436 and $50,631 respectively. Advisory fees accrued by McMorgan &
Company for Principal Preservation Fund, for the period July 13, 1994
(commencement of operations) through June 30, 1995, were $10,541. For the period
July 14, 1994 (commencement of operations) through June 30, 1995, advisory fees
accrued by the Advisor for the Intermediate Fixed Income Fund, Fixed Income
Fund, Balanced Fund and Equity Investment Fund were $26,243, $4,631, $5,636 and
$6,353, respectively. However, the advisory fees noted above, for each Fund,
were waived by the Advisor.
General expenses of the Company (such as costs of maintaining corporate
existence, legal fees, insurance, etc.) will be allocated among the Funds in
proportion to their relative net assets. Expenses which relate exclusively to a
particular Fund, such as certain registration fees, brokerage commissions and
other portfolio expenses, will be borne directly by that Fund.
For the fiscal year ended June 30, 1996 and the period July 14, 1994 (July 13,
1994 for the Principal Preservation Fund) (commencement of operations) through
June 30, 1995, the Advisor absorbed expenses as follows: Principal Preservation
Fund - $119,404 and $104,476; Intermediate Fixed Income Fund - $111,101 and
$94,352; Fixed Income Fund - $96,325 and $92,388; Balanced Fund - $102,016 and
$99,141; and Equity Investment Fund - $98,217 and $100,321, respectively.
From July 14, 1994 (July 13, 1994 for the Principal Preservation Fund) through
June 30, 1996, the Advisor has reduced its management fee and otherwise absorbed
Fund expenses for each Fund in the following amounts: Principal Preservation
Fund $148,630, Intermediate Fixed Income Fund $205,453, Fixed Income Fund
$119,492, Balanced Fund $126,817 and Equity Investment Fund $123,504.
Administrator
FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406-0903 (the
"Administrator"), provides certain administrative services to the Company
pursuant to an administrative services agreement (the "Administrative Services
Agreement"). The Administrator receives a fee at the annual rate of 0.08% of the
first $100 million of average daily net assets of the Company, 0.05% of the next
$500 million of such average daily net assets, and 0.03% on assets in excess of
$600 million.
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PEA 3/7 McM Funds
Page 49
<PAGE>
Under the Administrative Services Agreement, the Administrator: (1) coordinates
with the custodian and transfer agent and monitors the services they provide to
the Funds; (2) coordinates with and monitors any other third parties furnishing
services to the Funds; (3) provides the Funds with necessary office space,
telephones and other communications facilities and personnel competent to
perform administrative and clerical functions; (4) supervises the maintenance by
third parties of such books and records of the Funds as may be required by
applicable federal or state law; (5) prepares or supervises the preparation by
third parties of all federal, state and local tax returns and reports of the
Funds required by applicable law; (6) prepares and, after approval by the
Company, files and arranges for the distribution of proxy materials and periodic
reports to shareholders of the Funds as required by applicable law; (7) prepares
and, after approval by the Company, arranges for the filing of such registration
statements and other documents with the U.S. Securities and Exchange Commission
and other federal and state regulatory authorities as may be required by
applicable law; (8) reviews and submits to the officers of the Company for their
approval invoices or other requests for payment of the Funds' expenses and
instructs the Custodian to issue checks in payment thereof; and (9) takes such
other action with respect to the Company or the Funds as may be necessary in the
opinion of the Administrator to perform its duties under the agreement.
As compensation for services performed under the Administrative Services
Agreement, the Administrator receives a fee payable monthly at an annual rate
(as described in the Prospectus) multiplied by the average daily net assets of
the Company.
Administration fees paid to FPS Services, Inc. for the fiscal year ended June
30, 1996 and the period July 13, 1994 (commencement of operations) through June
30, 1995, for the Principal Preservation Fund were $21,704 and $16,874,
respectively, Administration fees for the fiscal year ended June 30, 1996 and
the period July 14, 1994 (commencement of operations) through June 30, 1995,
were: Intermediate Fixed Income Fund - $20,112 and $16,705; Fixed Income Fund -
$19,747 and $16,732; Balanced Fund - $20,563 and $16,751 and Equity Investment
Fund - $20,987 and $16,787, respectively.
Underwriter
FPS Broker Services, Inc. ("FPSB"), 3200 Horizon Drive, King of Prussia, PA
19406-0903, acts as an underwriter of the Funds' shares for the purpose of
facilitating the registration of shares of the Funds under state securities laws
and to assist in sales of shares pursuant to an underwriting agreement (the
"Underwriting Agreement") approved by the Company's Trustees.
In this regard, ("FPSB") has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Company shall from time to time identify to ("FPSB") as states in which it
wishes to offer its shares for sale, in order that state registrations may be
maintained for the Funds.
("FPSB") is a broker-dealer registered with the U.S. Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
For the services to be provided to the Company under the Underwriting Agreement,
("FPSB") is entitled to receive an annual fixed fee of $15,000. These fees are
fixed for a two (2) year period from the date of the Underwriting Agreement and
may be increased or decreased in future years by an amendment signed by both the
Company and ("FPSB").
The Underwriting Agreement may be terminated by either party upon 60 days' prior
written notice to the other party, and if so terminated, the prorata portion of
the unearned fee will be returned to the Advisor.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Advisor is responsible for decisions to buy and sell securities for each
Fund and for the placement of its portfolio business and the negotiation of
commissions, if any, paid on such transactions. Fixed income securities
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PEA 3/7 McM Funds
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<PAGE>
in which the Funds invest are traded in the over-the-counter market. These
securities are generally traded on a net basis with dealers acting as principal
for their own accounts without a stated commission. In over-the-counter
transactions, orders are placed directly with a principal market-maker unless a
better price and execution can be obtained by using a broker. Brokerage
commissions are paid on transactions in listed securities, futures contracts and
options thereon. The Advisor is responsible for effecting portfolio transactions
and will do so in a manner deemed fair and reasonable to the Funds. The primary
consideration in all portfolio transactions will be prompt execution of orders
in an efficient manner at the most favorable price. In selecting and monitoring
broker-dealers and negotiating commissions, the Advisor considers the firm's
reliability, the quality of its execution services on a continuing basis and its
financial condition.
The Advisor effects portfolio transactions for other investment companies and
advisory accounts. Research services furnished by dealers through whom the Funds
effect securities transactions may be used by the Advisor in servicing all of
its accounts; not all such services may be used in connection with the Funds. In
the opinion of the Advisor, it is not possible to measure separately the
benefits from research services to each of the accounts (including the Funds).
The Advisor will attempt to allocate equitably portfolio transactions among the
Funds and others whenever concurrent decisions are made to purchase or sell
securities by the Funds and other accounts. In making such allocations between
the Funds and others, the main factors to be considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for recommending investments to the Funds and the others. In some
cases, this procedure could have an adverse effect on the Funds. In the opinion
of the Advisor, however, the results of such procedures will, on the whole, be
in the best interests of each of the clients.
For the fiscal year ended June 30, 1996 and the period ended June 30, 1995, the
Funds incurred brokerage commission as follows: Principal Preservation Fund - $0
and $0; Intermediate Fixed Income Fund - $0 and $0; Fixed Income Fund - $0 and
$0; Balanced Fund - $5,196 and $1,956; and Equity Investment Fund - $18,928 and
$3,927, respectively.
Portfolio Turnover
The portfolio turnover rate for the Funds is calculated by dividing the lesser
of purchases or sales of portfolio investments for the reporting period by the
monthly average value of the portfolio investments owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. The portfolio turnover rates for the Intermediate Fixed Income Fund
and Fixed Income Fund are not expected to exceed 60%. The portfolio turnover
rate for the equity portion of the Balanced Fund is not expected to exceed 50%,
while the turnover rate for the fixed-income portion is not expected to exceed
60%. It is currently estimated that under normal market conditions the annual
portfolio turnover rate for the Equity Investment Fund will not exceed 50%. A
high rate of portfolio turnover (i.e., over 100%) may result in the realization
of substantial capital gains and involves correspondingly greater transaction
costs.
For the fiscal year ended June 30, 1996 and the period ended June 30, 1995, the
Funds' portfolio turnover rates were as follows: Intermediate Fixed Income Fund
- - 75.26% and 227.09%; Fixed Income Fund - 37.62% and 150.77%; Balanced Fund -
26.16% and 81.05%; and Equity Investment Fund - 0.92% and 1.81%, respectively.
TAXES
Each Fund has elected and intends to continue to qualify to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
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PEA 3/7 McM Funds
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<PAGE>
In order to so qualify for any taxable year, a fund must, among other things,
(i) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, gains from the sale of 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; (ii) derive less than 30% of
its gross income from gains from the sale or other disposition of securities or
certain futures and options thereon held for less than three months; (iii)
distribute at least 90% of its dividend, interest and certain other taxable
income each year; and (iv) at the end of each fiscal quarter maintain at least
50% of the value of its total assets in cash, government securities, securities
of other regulated investment companies, and other securities of issuers which
represent, with respect to each issuer, no more than 5% of the value of a fund's
total assets and 10% of the outstanding voting securities of such issuer, and
have no more than 25% of its assets invested in the securities (other than those
of the government or other regulated investment companies) of any one issuer or
of two or more issuers which the fund controls and which are engaged in the
same, similar or related trades and businesses.
To the extent the Funds qualify for treatment as a regulated investment company,
they will not be subject to federal income tax on income paid to shareholders in
the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of the
Funds' "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The Funds intend to make distributions sufficient to avoid imposition of
the excise tax. For a distribution to qualify as such with respect to a calendar
year under the foregoing rules, it must be declared by the Funds during October,
November or December to shareholders of record during such month and paid by
January 31 of the following year. Such distributions will be taxable in the year
they are declared, rather than the year in which they are received.
When a Fund writes a call, or purchases a put option, an amount equal to the
premium received or paid by it is included in the Fund's accounts as an asset
and as an equivalent liability.
In writing a call, the amount of the liability is subsequently
"marked-to-market" to reflect the current market value of the option written.
The current market value of a written option is the last sale price on the
principal exchange on which such option is traded or, in the absence of a sale,
the mean between the last bid and asked prices. If an option which a Fund has
written expires on its stipulated expiration date, the Fund recognizes a
short-term capital gain. If a Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a
short-term gain (or loss if the cost of the closing transaction exceeds the
premium received when the option was sold) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such option is
extinguished. If a call option which a Fund has written is exercised, the Fund
realizes a capital gain or loss from the sale of the underlying security and the
proceeds from such sale are increased by the premium originally received.
The premium paid by a Fund for the purchase of a put option is recorded in the
Fund's assets and liabilities as an investment and subsequently adjusted daily
to the current market value of the option. For example, if the current market
value of the option exceeds the premium paid, the excess would be unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess would be unrealized depreciation. The current market value of a
purchased option is the last sale price on the principal exchange on which such
option is traded or, in the absence of a sale, the mean between the last bid and
asked prices. If an option which a Fund has purchased expires on the stipulated
expiration date, the Fund realizes a short-term or long-term capital loss for
federal income tax purposes in the amount of the cost of the option. If a Fund
exercises a put option, it realizes a capital gain or loss (long-term or
short-term, depending on the holding period of the underlying security) from the
sale which will be decreased by the premium originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Fund at the end of each fiscal year on a
broad-based stock index will
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PEA 3/7 McM Funds
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<PAGE>
be required to be "marked-to-market" for federal income tax purposes. Sixty
percent of any net gain or loss recognized on such deemed sales or on any actual
sales will be treated as long-term capital gain or loss, and the remainder will
be treated as short-term capital gain or loss ("60/40 gain or loss"). Futures
contracts and options on futures contracts utilized by the Funds are also
"Section 1256 contracts." Any gains or losses on Section 1256 contracts held by
a Fund at the end of each taxable year (and on October 31 of each year for
purposes of the 4% excise tax) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as a 60/40 gain or loss.
Shareholders will be subject to federal income taxes on distributions made by
the Funds whether received in cash or additional shares of the Funds.
Distributions of net investment income and net short-term capital gains, if any,
will be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains, if any, will be taxable to shareholders as long-term
capital gains, without regard to how long a shareholder has held shares of the
Funds. A loss on the sale of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gain dividend
paid to the shareholder with respect to such shares. Dividends paid by a Fund
may qualify in part for the 70% dividends received deduction for corporations,
provided, however, that those shares have been held for at least 45 days.
The Funds will notify shareholders each year of the amount of dividends and
distributions, including the amount of any distribution of long-term capital
gains, and the portion of its dividends which qualify for the 70% deduction.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Funds. The law firm of Heller, Ehrman, White & McAuliffe
has expressed no opinion in respect thereof. Dividends and distributions also
may be subject to state and local taxes. Shareholders are urged to consult their
tax advisors regarding specific questions as to federal, state and local taxes.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisors concerning the tax consequences of
ownership of shares of the Funds, including the possibility that distributions
may be subject to a 30% United States withholding tax (or a reduced rate of
withholding provided by treaty).
PERFORMANCE INFORMATION
General
From time to time, the Company may include general comparative information, such
as statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. The Company may also include calculations, such as
hypothetical compounding examples or tax-free compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any Fund.
From time to time, the yield and total return of a Fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Total Return Calculations
The Funds that compute their average annual total returns do so by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
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<PAGE>
1/n
Average Annual Total Return = [ (ERV) - 1 ]
---
P
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
The Funds that compute their aggregate total returns do so by determining the
aggregate compounded rate of return during specified period that likewise equate
the initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ (ERV) - 1 ]
---
P
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Based upon the foregoing calculations, the average annual total return for the
Principal Preservation Fund for the one year period ended June 30, 1996 and the
period July 13, 1994 (commencement of operations) through June 30, 1996 was
5.39% and 5.34%, respectively. The average annual total returns for the one year
period ended June 30, 1996 and for the period July 14, 1994 (commencement of
operations) through June 30, 1996 were as follows: Intermediate Fixed Income
Fund - 4.61% and 7.00%; Fixed Income Fund - 4.16% and 7.94%; Balanced Fund -
16.86% and 17.42%; and Equity Investment Fund - 26.53% and 24.51%, respectively.
Since performance will fluctuate, performance data for the Funds should not be
used to compare an investment in the Funds' shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
Yield of Principal Preservation Fund
As summarized in the Prospectus, the yield of the Principal Preservation Fund
for a seven-day period (the "base period") will be computed by determining the
net change in value (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by 365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include the value
of additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares,
but will
- --------------------------------------------------------------------------------
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<PAGE>
not include realized gains or losses or unrealized appreciation or depreciation
on portfolio investments. Yield may also be calculated on a compound basis (the
"effective yield"), which assumes that net income is reinvested in shares of the
Fund at the same rate as net income is earned for the base period.
The yield and effective yield of Principal Preservation Fund will vary in
response to fluctuations in interest rates and in the expenses of the Fund. For
comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for the
same base period and calculated by the methods described above. For the seven
day period ended June 30, 1996 , the Principal Preservation Fund had a yield of
5.01% and an effective yield of 5.03%.
Yields of Intermediate Fixed Income Fund and Fixed Income Fund
The yield of each of these Funds is calculated by dividing the net investment
income per share (as described below) earned by the Fund during a 30-day (or
one-month) period by the maximum offering price per share on the last day of the
period and annualizing the result on a semi-annual basis by adding one to the
quotient, raising the sum to the power of six, subtracting one from the result
and then doubling the difference. A Fund's net investment income per share
earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
YIELD = 2 [ ( a - b + 1)6 - 1 ]
-------
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on any debt obligations held by a Fund is calculated by computing the
yield to maturity of each obligation held by that Fund based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of the month, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held by that Fund. For purposes of this
calculation, it is assumed that each month contains 30 days, and that the
maturity date is the date on which the obligation reasonably may be expected to
be called or, if none, the stated maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount premium. The amortization schedule will be adjusted
monthly to reflect changes in the market values of such debt obligations.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).
The interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current
- --------------------------------------------------------------------------------
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<PAGE>
market value that exceed the then-remaining portion of the original discount
(market discount), the yield to maturity is the imputed rate based on the
original issue discount calculation. On the other hand, in the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that are less than the
then-remaining portion of the original discount (market premium), the yield to
maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest
("pay-downs") (i) gain or loss attributable to actual monthly paydowns are
accounted for as an increase or decrease to interest income during the period
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the U.S.
Securities and Exchange Commission under the Securities Act with respect to the
securities offered by the Prospectus. Certain portions of the Registration
Statement have been omitted from the Prospectus and this Statement of Additional
Information pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. The Registration Statement including the exhibits filed
therewith may be examined at the office of the U.S. Securities and Exchange
Commission in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Statement of Additional Information forms a part. Each such
statement is qualified in all respects by such reference.
Custodian. The Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the Company's assets pursuant to a custodian agreement. Under the
custodian agreement, The Bank of New York (i) maintains a separate account or
accounts in the name of each Fund (ii) holds and transfers portfolio securities
on account of each Fund, (iii) accepts receipts and make disbursements of money
on behalf of each Fund, (iv) collects and receives all income and other payments
and distributions on account of each Fund's securities and (v) makes periodic
reports to the Board of Trustees concerning each Fund's operations.
Reports to Shareholders. Shareholders will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by independent certified public accountants. Inquiries regarding the
Funds may be directed to the Advisor at (800) 788-9485.
Audited Financial Statements: The Funds' financial statements, including the
notes thereto, dated as of June 30, 1996, which have been audited by Tait,
Weller & Baker, are incorporated by reference from the Funds' 1996 Annual Report
to Shareholders.
- --------------------------------------------------------------------------------
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<PAGE>
MCM FUNDS
FORM N-1A
PART C OTHER INFORMATION
Part C. Other Information
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
Included in Part A: Financial Highlights
McM Equity Investment Fund, McM Balanced Fund, McM Fixed
Income Fund, McM Intermediate Fixed Income Fund and McM
Principal Preservation Fund.
Incorporated by reference in Part B:
(1) Schedule of Investments as of June 30, 1996 (audited).
(2) Statement of Operations for the fiscal year ended June
30, 1996 (audited).
(3) Statement of Changes in Net Assets for the fiscal year
ended June 30,1996 (audited).
(4) Financial Highlights as of June 30, 1996 (audited).
(5) Notes to Financial Statements
(b) Exhibits:
Exhibits filed pursuant to Form N-1A:
(1) Copies of Charter -- Amended Trust Instrument dated May
9, 1994 is filed herewith electronically, previously
filed as Exhibit No. (1) of Registration Statement No.
33-75708 filed January 30, 1995.
(2) Copies of existing By-Laws --By-laws are filed herewith
electronically, previously filed as Exhibit No. (2) of
Registration Statement No. 33-75708 filed February 24,
1994.
(3) Copies of any voting trust agreement -- Not Applicable.
(4) Copies of all instruments defining the rights of holders
of the securities -- Not Applicable - Registrant
proposes to maintain investments as non-certificated
book entry shares.
(5) Copies of all investment advisory contracts --
Investment Advisory contracts are filed herewith
electronically, previously filed as Exhibit No. (5) of
Registration Statement No. 33-75708 filed May 25, 1994.
(6) Copies of each underwriting or distribution contract --
Underwriting contract is filed herewith electronically,
previously filed as Exhibit No. (6) of Registration
Statement No. 33-75708 filed May 25, 1994.
(7) Copies of all bonus, profit sharing, pension or other
similar contracts -- Not Applicable.
(8) Copies of all custodian agreements --
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<PAGE>
(a) Amendment to Custodian and Custody Administration
Agreement is filed herewith electronically.
(b) Custodian Agreement is filed herewith
electronically.
(b) Custody Administration Agreement is filed herewith
electronically.
(9) Copies of all other material contracts not made in the
ordinary course of business which are to be performed.
(a) Transfer Agent Services Agreement between the
Registrant and Fund/Plan Services, Inc. -- Transfer
Agent Services Agreement is filed herewith
electronically, previously filed as Exhibit No.
(9)(a) of Registration Statement No. 33-75708 filed
May 25, 1994.
(b) Administration Agreement between the Registrant and
Fund/Plan Services, Inc. -- Administration
Agreement is filed herewith electronically,
previously filed as Exhibit No. (9)(b) of
Registration Statement No. 33- 75708 filed May 25,
1994.
(c) Accounting Services Agreement between the
Registrant and Fund/Plan Services, Inc. --
Accounting Services Agreement is filed herewith
electronically, previously filed as Exhibit No.
(9)(c) of Registration Statement No. 33-75708 filed
May 25, 1994.
(10) (a) Opinion and Consent of Counsel as to the legality
of the securities to be issued -- Opinion and
Consent of Counsel is filed herewith
electronically, previously filed as Exhibit No.
(10)(a) of Registration Statement No. 33-75708
filed May 25, 1994.
(b) An opinion of Counsel will be filed each fiscal
year end with Registrant's Rule 24F-2 Notice.
(11) Copies of any other opinions, appraisals or rulings --
Consent of Independent Auditors -- Filed herewith
electronically.
(12) All financial statements omitted from Item 23. -- Not
Applicable.
(13) Copies of any agreements or understandings made in
consideration for providing the initial capital between
or among the Registrant is filed herewith
electronically, previously filed as Exhibit No. (13) of
Registration Statement No. 33-75708 filed July 7, 1994.
(14) Copies of the model plan -- Not Applicable.
(15) Copies of any plan entered into by Registrant pursuant
to Rule 12b-1 -- Not Applicable.
(16) Schedule for Computation of Performance Quotations --
Filed herewith electronically on behalf of McM Equity
Investment Fund, McM Balanced Fund, McM Fixed Income
Fund, McM Intermediate Fixed Income Fund and McM
Principal Preservation Fund.
(18) Powers of Attorney - Powers of Attorney for Terry A.
O'Toole, Deane A. Nelson, Walter B. Rose, Gregory L.
Watson, Mark R. Taylor, Kenneth I. Rosenblum and Robert
R. Barron are filed herewith electronically..
(27) Electronic Filers -- Financial Data Schedules on behalf
of McM
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<PAGE>
Principal Preservation Fund, McM Intermediate Fixed
Income Fund, McM Fixed Income Fund, McM Balanced Fund
and McM Equity Investment Fund are filed herewith
electronically.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of October 7, 1996
-------------- ---------------------------
Shares of Beneficial
Interest par value $0.001 of:
McM Equity Investment Fund 169
McM Balanced Fund 134
McM Intermediate Fixed Income Fund 79
McM Fixed Income Fund 35
McM Principal Preservation Fund 125
Item 27. Indemnification.
Registrant intends to obtain from a major insurance carrier a
trustees' and officers' liability policy covering certain types of
errors and omissions. In addition, Section 10.2 of the Registrant's
Trust Instrument provides as follows:
10.2 Indemnification. The Trust shall indemnify each of
its Trustees against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be
threatened, while as a Trustee or thereafter, by reason of his
being or having been such a Trustee except with respect to any
matter as to which he shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties, provided that as to any
matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the
Trustees to the effect that if either the matter of willful
misfeasance, gross negligence or reckless disregard of duty,
or the matter of bad faith had been adjudicated, it would in
the opinion of such counsel have been adjudicated in favor of
such person. The rights accruing to any person under these
provisions shall not exclude any other right to which he may
be lawfully entitled, provided that no person may satisfy any
right of indemnity or reimbursement hereunder except out of
the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this
Section 10.2, provided that the indemnified person shall have
given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled to
such indemnification.
The Trust shall indemnify officers, and shall have the
power to indemnify representatives and employees of the Trust,
to the same extent that Trustees are entitled to
indemnification pursuant to this Section 10.2.
Insofar as indemnification for liability arising under
the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of Registrant pursuant to the
foregoing
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<PAGE>
provisions, or otherwise, Registrant has been advised that in
the opinion of the SEC such indemnification is against public
policy as expressed in that Act and is, therefore,
enforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of
any action, suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the
securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in that Act and will be
governed by the final adjudication of such issue.
Section 10.3 of the Registrant's Trust Instrument, filed
herein as Exhibit 1, also provides for the indemnification of
shareholders of the Registrant. Section 10.3 states as
follows:
10.3 Shareholders. In case any Shareholder or former
Shareholder of any Series shall be held to be personally
liable solely by reason of his being or having been a
shareholder of such Series and not because of his acts or
omissions or for some other reason, the Shareholder or former
Shareholder (or his heirs, executors, administrators or other
legal representatives or, in the case of a corporation or
other entity, its corporate or other general successor) shall
be entitled out of the assets belonging to the applicable
Series to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, on
behalf of the affected Series, shall, upon request by the
Shareholder, assume the defense of any claim made against the
Shareholder for any act or obligation of the Trust and satisfy
any judgment thereon from the assets of the Series.
Item 28. Business and Other Connections of Advisor.
McMorgan & Company provides investment advisory services consisting
of portfolio management for retirement plans and health and welfare
funds, and as of June 30, 1996 had approximately $15 billion in
assets under management primarily for employee benefit plans such as
retirement plans and health and welfare funds.
For information as to any other business, vocation or employment of
a substantial nature in which each Trustee or officer of the
Registrant's investment has been engaged for his own account or in
the capacity of Trustee, officer, employee, partner or trustee,
reference is made to the Form ADV (File #801-10448) filed by it
under the Investment Advisers Act of 1940.
Item 29. Principal Underwriter.
(a) FPS Broker Services, Inc. ("FPSB"), the principal
underwriter for the Registrant's securities, currently
acts as principal underwriter for the following
entities:
America Asia Allocation Growth Fund
The Brinson Funds
CT&T Funds
Farrell Alpha Strategies
Focus Trust, Inc.
IAA Trust Mutual Funds
Matthews International Funds
McM Funds
Polynous Growth Fund
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<PAGE>
Smith Breeden Series Fund
Smith Breeden Short Duration U.S. Government Fund
Smith Breeden Trust
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend Shares, Inc.
Stratton Small Cap Yield Fund
The Timothy Plan
Trainer Wortham First Mutual Funds
(b) The table below sets forth certain information as to the
Underwriter's Directors, Officers and Control Persons:
Position Position and
Name and Principal and Offices Offices with
Business Address with Underwriter Registrant
---------------- ---------------- ----------
Kenneth J. Kempf Director and None
2 W. Elm Street President
Conshohocken, PA 19428-0874
Lynne M. Cannon Vice President None
2 W. Elm Street and Principal
Conshohocken, PA 19428-0874
Rocco C. Cavalieri Director and None
2 W. Elm Street Vice President
Conshohocken, PA 19428-0874
Gerald J. Holland Director, None
2 W. Elm Street Vice President
Conshohocken, PA 19428-0874 and Principal
Joseph M. O'Donnell, Esq. Director and None
2 W. Elm Street Vice President
Conshohocken, PA 19428-0874
Sandra L. Adams Assistant Vice None
2 W. Elm Street President and
Conshohocken, PA 19428-0874 Principal
Mary P. Efstration Secretary None
2 W. Elm Street
Conshohocken, PA 19428
John H. Leven Treasurer None
2 W. Elm Street
Conshohocken, PA 19428
James W. Stratton may be considered a control person of the Underwriter due to
his direct or indirect ownership of Fund/Plan Services, Inc., the parent of the
Underwriter.
(c) Not Applicable.
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<PAGE>
Item 30. Location of Accounts and Records.
All records described in Section 31(a) of the Act and the Rules 17
CFR 270.31a-1 to 31a-31 promulgated thereunder, are maintained by
the Fund's Investment Advisor, McMorgan & Company, One Bush Street,
Suite 800, San Francisco, CA 94104, except for those maintained by
the Fund's Custodian, ,The Bank of New York and the Fund's
Administrator, Transfer Agent and Fund Account Services Agent, FPS
Services Inc. 3200 Horizon Drive, P.O. Box 61503, King of Prussia,
Pennsylvania 19406-0903.
Item 31. Management Services.
There are no management-related service contracts not
discussed in Part A or Part B.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report for the fiscal year
ended June 30, 1996, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon
the question of removal of any director or directors
when requested in writing to do so by the record holders
of not less than 10 percent of the Registrant's
outstanding shares and to assist its shareholders in
accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940, as amended relating to
shareholder communications.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Francisco, and State of California on the
28th day of October, 1996.
McM Funds
---------
Registrant
By /s/ Terry A. O'Toole*
-------------------------------
Terry A. O'Toole,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement of McM Funds has been signed below by the following
persons in the capacities and on the date indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Terry A. O'Toole* Chairman of the Board of Trustees 10/26/96
- -------------------------- and President and Principal
Terry O'Toole Executive Officer
/s/ Kenneth I. Rosenblum* Trustee 10/26/96
- --------------------------
Kenneth I. Rosenblum
/s/ Walter B. Rose* Trustee 10/26/96
- --------------------------
Walter B. Rose
/s/ Robert R. Barron* Treasurer, Vice President 10/26/96
- -------------------------- Principal Accounting & Financial
Robert R. Barron Officer & Trustee
/s/ Gregory L. Watson* Trustee 10/26/96
- --------------------------
Gregory L. Watson
/s/ Mark R. Taylor* Trustee 10/26/96
- --------------------------
Mark R. Taylor
/s/ Gretchen B. Zepernick
- --------------------------------------------------
*By /s/ Gretchen B. Zepernick, as Attorney-in-Fact
and Agent pursuant to Power of Attorney
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<PAGE>
McM FUNDS
Index to Exhibits to Form N-1A
Exhibit Description of
Number Exhibit
99.B.1. Amended Trust Instrument
99.B.2. By-Laws
99.B.5.a Investment Advisory Agreement - Principal Preservation Fund
99.B.5.b Investment Advisory Agreement - Intermediate Fixed Income Fund
99.B.5.c. Investment Advisory Agreement - Fixed Income Fund
99.B.5.d. Investment Advisory Agreement - Balanced Fund
99.B.5.e. Investment Advisory Agreement - Equity Investment Fund
99.B.6. Underwriting Agreement
99.B.8.a. Amendment to Custodian and Custody Administration Agreement
99.B.8.b. Custodian Agreement
99.B.8.c. Custody Administration Agreement
99.B.9.a. Transfer Agent Agreement
99.B.9.b. Administration Agreement
99.B.9.c. Accounting Services Agreement
99.B.10.a. Opinion and Consent of Counsel as to the legality of the
securities issued
99.B.11 Consent of Independent Auditors
99.B.13. Agreements made in consideration for providing the initial
capital
99.B.16. Schedule for Computation of Performance Quotations
99.B.18. Powers of Attorney
99.B.27. Fianancial Data Schedules on behalf of each Fund
<PAGE>
Exhibit 99.B.1
McM FUNDS
TRUST INSTRUMENT
DATED FEBRUARY 3, 1994
As Amended May 9, 1994
Principal Place of Business:
One Bush Street, Suite 800
San Francisco, CA 94104
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - NAME AND DEFINITIONS......................................................................................5
Section 1.1 Name...................................................................................5
Section 1.2 Definitions............................................................................5
ARTICLE II - BENEFICIAL INTEREST......................................................................................6
Section 2.1 Shares of Beneficial Interest..........................................................6
Section 2.2 Issuance of Shares.....................................................................6
Section 2.3 Register of Shares and Share Certificates..............................................7
Section 2.4 Transfer of Shares.....................................................................7
Section 2.5 Treasury Shares........................................................................7
Section 2.6 Establishment of Series................................................................7
Section 2.7 Investment in the Trust................................................................8
Section 2.8 Assets and Liabilities of Series.......................................................8
Section 2.9 No Preemptive Rights...................................................................9
Section 2.10 Personal Liability of Shareholders.....................................................9
Section 2.11 Assent to Trust Instrument.............................................................9
ARTICLE III - THE TRUSTEES...........................................................................................10
Section 3.1 Management of the Trust...............................................................10
Section 3.2 Initial Trustee.......................................................................10
Section 3.3 Term of Office of Trustees............................................................10
Section 3.4 Vacancies and Appointment of Trustees.................................................10
Section 3.5 Temporary Absence of Trustee..........................................................11
Section 3.6 Number of Trustees....................................................................11
Section 3.7 Effect of Death, Resignation, Etc. of a Trustee.......................................11
Section 3.8 Ownership of Assets of the Trust......................................................11
ARTICLE IV - POWERS OF THE TRUSTEES..................................................................................12
Section 4.1 Powers................................................................................12
Section 4.2 Issuance and Repurchase of Shares.....................................................14
Section 4.3 Trustees and Officers as Shareholders.................................................14
Section 4.4 Action by the Trustees and Committees.................................................15
Section 4.5 Chairman of the Trustees..............................................................15
Section 4.6 Principal Transactions................................................................15
ARTICLE V - EXPENSES OF THE TRUST....................................................................................15
Section 5.1 General...............................................................................15
Section 5.2 Expenses of Series....................................................................16
<PAGE>
ARTICLE VI - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR
AND TRANSFER AGENT.................................................................................16
Section 6.1 Investment Adviser....................................................................16
Section 6.2 Principal Underwriter.................................................................16
Section 6.3 Administrator.........................................................................17
Section 6.4 Transfer Agent........................................................................17
Section 6.5 Parties to Contract...................................................................17
ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS...............................................................17
Section 7.1 Voting Powers.........................................................................17
Section 7.2 Meetings..............................................................................18
Section 7.3 Quorum and Required Vote..............................................................18
Section 7.4 Action by Written Consent.............................................................18
ARTICLE VIII - CUSTODIAN.............................................................................................19
Section 8.1 Appointment and Duties................................................................19
Section 8.2 Central Certificate System............................................................19
ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS...........................................................................20
Section 9.1 Distributions.........................................................................20
Section 9.2 Redemptions...........................................................................20
Section 9.3 Determination of Net Asset Value and
Valuation of Portfolio Assets.........................................................20
Section 9.4 Suspension of the Right of Redemption.................................................21
Section 9.5 Redemption of Shares in Order to Qualify as
Regulated Investment Company..........................................................21
ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION..............................................................22
Section 10.1 Limitation of Liability...............................................................22
Section 10.2 Indemnification.......................................................................22
Section 10.3 Shareholders..........................................................................23
ARTICLE XI - MISCELLANEOUS...........................................................................................23
Section 11.1 Trust Not a Partnership...............................................................23
Section 11.2 Trustees' Good Faith Action, Expert
Advice, No Bond or Surety.............................................................23
Section 11.3 Establishment of Record Dates.........................................................23
Section 11.4 Termination of Trust or Series........................................................24
Section 11.5 Reorganization........................................................................25
Section 11.6 Filing of Copies, References, Heading.................................................25
Section 11.7 Applicable Law........................................................................25
Section 11.8 Amendments............................................................................26
Section 11.9 Fiscal Year...........................................................................26
Section 11.10 Use of Name "McM".....................................................................26
Section 11.11 Provisions in Conflict with Law.......................................................26
</TABLE>
<PAGE>
McM FUNDS
TRUST INSTRUMENT, made this 3rd day of February, 1994 by Deane Nelson
(the "Trustee").
WHEREAS, the Trustee desires to establish a business trust under the
Delaware Business Trust Act for the investment and reinvestment of funds
contributed thereto;
NOW, THEREFORE, the Trustee declares that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. The name of the trust created hereby is the
"McM Funds".
Section 1.2 Definitions. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) "By-laws" means the by-laws referred to in Article IV,
Section 4.1(e) hereof, as from time to time amended;
(b) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person" and "Principal Underwriter" shall have the meanings given
them in the 1940 Act. "Majority Shareholder Vote" shall have the same meaning as
the term "vote of a majority of the outstanding voting securities" is given in
the 1940 Act;
(c) "Net Asset Value" means the net asset value of each Series
of the Trust determined in the manner provided in Article IX, Section 9.3
hereof;
(d) "Outstanding Shares" means those Shares recorded from time
to time in the books of the Trust or its Transfer Agent as then issued and
outstanding, but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in the treasury of the
Trust;
(e) "Series" means a series (or class) of Shares of the Trust
established in accordance with the provisions of Article II, Section 2.6 hereof;
(f) "Shareholder" means a record owner of Outstanding Shares
of the Trust;
(g) "Shares" means the equal proportionate transferable units
of beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(h) The "Trust" refers to McM FUNDS and reference to the
Trust, when applicable to one or more Series of the Trust, shall refer to any
such Series;
(i) The "Trustee" or "Trustees" means the person or persons
who has or have signed this Trust Instrument, so long as such person or persons
shall continue in office in accordance with the terms hereof, and all other
persons who may from time to time be duly qualified and serving as Trustees in
accordance with the provisions of Article III hereof and reference herein to a
Trustee or to the Trustees shall refer to the individual Trustees in their
capacity as Trustees hereunder;
<PAGE>
(j) "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of one or more of the Trust or any Series, or the Trustees on behalf of the
Trust or any Series.
(k) The "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.1 Shares of Beneficial Interest. The beneficial interest in
the Trust shall be divided into such transferable Shares of one or more separate
and distinct Series or classes of a Series as the Trustees shall from time to
time create and establish. The number of Shares of each Series, and class
thereof, authorized hereunder is unlimited. Each Share shall have a par value of
$0.001. All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend in Shares or a split or reverse split of
Shares, shall be fully paid and nonassessable.
Section 2.2 Issuance of Shares. The Trustees in their discretion may,
from time to time, without vote of the Shareholders, issue Shares to such party
or parties and for such amount and type of consideration, subject to applicable
law, including cash or securities (including Shares of a different Series), at
such time or times and on such terms as the Trustees may deem appropriate, and
may in such manner acquire other assets (including the acquisitions of assets
subject to, and in connection with, the assumption of liabilities). In
connection with any issuance of Shares, the Trustees may issue fractional Shares
and Shares held in the treasury. The Trustees may from time to time divide or
combine the Shares of any Series or class into a greater or lesser number
without thereby changing the proportionate beneficial interests in the Trust.
Section 2.3 Register of Shares and Share Certificates. A register shall
be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. As to
Shares for which no certificate has been issued, such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or other distributions or otherwise to exercise or enjoy the
rights of Shareholders. No Shareholder shall be entitled to receive payment of
any dividend or other distribution, nor to have notice given to him as herein or
in the By-laws provided, until he has given his address to the transfer agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. The Trustees, in their discretion, may authorize the issuance of
share certificates and promulgate appropriate rules and regulations as to their
use. In the event that one or more certificates are issued, whether in the name
of a shareholder or a nominee, such certificate or certificates shall constitute
evidence of ownership of Shares for all purposes, including transfer, assignment
or sale of such Shares, subject to such limitations as the Trustees may, in
their discretion, prescribe.
Section 2.4 Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer, together with a Share certificate, if one is
outstanding, and such evidence of the genuineness of each such execution and
authorization and of such other matters as may be required by the Trustees. Upon
such delivery the transfer shall be recorded on the register of the Trust. Until
such record is made, the Shareholder of record shall be deemed to be the holder
of such Shares for all purposes hereunder and neither the Trustees nor the
Trust, nor any transfer agent or registrar nor any officer, employee or agent of
the Trust shall be affected by any notice of the proposed transfer.
Section 2.5 Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 2.2 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.6 Establishment of Series. The Trust created hereby shall
consist of one or more Series and separate
<PAGE>
and distinct records shall be maintained by the Trust for each Series and the
assets associated with any such Series shall be held and accounted for
separately from the assets of the Trust or any other Series. The Trustees shall
have full power and authority, in their sole discretion, and without obtaining
any prior authorization or vote of the Shareholders of any Series of the Trust,
to establish and designate and to change in any manner any such Series of Shares
or any classes of initial or additional Series and to fix such preferences,
voting powers, rights and privileges of such Series or classes thereof as the
Trustees may from time to time determine, to divide or combine the Shares or any
Series or classes thereof into a greater or lesser number, to classify or
reclassify any issued Shares or any Series or classes thereof into one or more
Series or classes of Shares, and to take such other action with respect to the
Shares as the Trustees may
deem desirable. The establishment and designation of any Series shall be
effective upon the adoption of a resolution by the Trustees setting forth such
establishment and designation and the relative rights and preferences of the
Shares of such Series. A Series may issue any number of Shares and need not
issue shares.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive distributions of income and capital gains, if any,
which are made with respect to such Series and which are attributable to such
Shares. Upon redemption of Shares, such Shareholder shall be paid solely out of
the funds and property of such Series of the Trust.
Section 2.7 Investment in the Trust. The Trustees shall accept
investments in any Series of the Trust from such persons and on such terms as
they may from time to time authorize. At the Trustees' discretion, such
investments, subject to applicable law, may be in the form of cash or securities
in which the affected Series is authorized to invest, valued as provided in
Article IX, Section 9.3 hereof. Investments in a Series shall be credited to
each Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received; provided, however, that
the Trustees may, in their sole discretion, (a) fix the Net Asset Value per
Share of the initial capital contribution, or (b) impose sales or other charges
upon investments in the Trust.
Section 2.8 Assets and Liabilities of Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, subject only to
the rights of creditors of that Series. In addition, any assets, income,
earnings, profits or funds, or payments and proceeds with respect thereto, which
are not readily identifiable as belonging to any particular Series shall be
allocated by the Trustees between and among one or more of the Series in such
manner as the Trustees, in their sole discretion, deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes, and such assets, income, earnings, profits or funds, or
payments and proceeds with respect thereto shall be assets belonging to that
Series. The assets belonging to a particular Series shall be so recorded upon
the books of the Trust, and shall be held by the Trustees in trust for the
benefit of the holders of Shares of that Series. The assets belonging to each
particular Series shall be charged with the liabilities of that Series and all
expenses, costs, charges and reserves attributable to that Series. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees between or among any one or more of the Series in
such manner as the Trustees in their sole discretion deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes. Without limitation of the foregoing provisions of
this Section 2.8, but subject to the right of the Trustees in their discretion
to allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust
<PAGE>
generally. Notice of this contractual limitation on inter-Series liabilities
shall be set forth in the certificate of trust of the Trust (whether originally
or by amendment) as filed or to be filed in the Office of the Secretary of State
of the State of Delaware pursuant to the Delaware Business Trust Act (the
"Act"), and upon the giving of such notice in the certificate of trust, the
statutory provisions of the Delaware Business Trust Act relating to limitations
on inter-Series liabilities (and the statutory effect under the Act of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series. Any person extending credit to, contracting with or
having any claim against any Series may satisfy or enforce any debt, liability,
obligation or expense incurred, contracted for or otherwise existing with
respect to that Series from the assets of that Series only. No Shareholder or
former Shareholder of any Series shall have a claim on or any right to any
assets allocated or belonging to any other Series.
Section 2.9 No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust or the Trustees, whether of the same or other Series.
Section 2.10 Personal Liability of Shareholders. Each Shareholder of
the Trust and of each Series shall not be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for, or otherwise
existing with respect to, the Trust or by or on behalf of any Series. The
Trustees shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise. Every note, bond, contract or
other undertaking issued by or on behalf of the Trust or the Trustees relating
to the Trust or to a Series shall include a recitation limiting the obligation
represented thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not operate to bind any
Shareholder or Trustee of the Trust).
Section 2.11 Assent to Trust Instrument. Every Shareholder, by virtue
of having purchased or otherwise acquired a Share, shall become a Shareholder
and shall be held to have expressly assented and agreed to be bound by the terms
hereof.
ARTICLE III
THE TRUSTEES
Section 3.1 Management of the Trust. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustee named herein or Trustees appointed to fill
vacancies pursuant to Section 3.4 of this Article III, the Trustees shall be
elected by the Shareholders owning of record a plurality of the Shares voting at
a meeting of Shareholders.
<PAGE>
Section 3.2 Initial Trustee. The initial Trustee shall be the person
named herein.
Section 3.3 Term of Office of Trustees. The Trustees shall hold office
during the existence of this Trust, and until its termination as herein
provided; except (a) that any Trustee may resign his trust by written instrument
signed by him and delivered to the Chairman, President, Secretary, or other
Trustees of the Trust, which shall take effect upon such delivery or upon such
later date as is specified therein; (b) that any Trustee may be removed at any
time by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date when such removal shall
become effective; (c) that any Trustee who requests in writing to be retired or
who has died, become physically or mentally incapacitated by reason of disease
or otherwise, or is otherwise unable to serve, may be retired by written
instrument signed by a majority of the other Trustees, specifying the date of
his retirement; and (d) that a Trustee may be removed at any meeting of the
Shareholders of the Trust by a vote of Shareholders owning at least two-thirds
of the outstanding Shares.
Section 3.4 Vacancies and Appointment of Trustees. In case of the
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise of a Trustee, or a Trustee
is otherwise unable to serve, or an increase in the number of Trustees, a
vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of an existing vacancy, the remaining Trustees shall
fill such vacancy by appointing such other person as they in their discretion
shall see fit consistent with the limitations under the 1940 Act.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.4 shall have accepted this trust,
he shall be deemed a Trustee hereunder.
Section 3.5 Temporary Absence of Trustee. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
Section 3.6 Number of Trustees. The number of Trustees shall be one, or
such other number as shall be fixed from time to time by the Trustees.
Section 3.7 Effect of Death, Resignation, Etc. of a Trustee. The
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate
the Trust or to revoke any existing agency created pursuant to the terms of this
Trust Instrument.
Section 3.8 Ownership of Assets of the Trust. Legal title in and
beneficial ownership of all of the assets of the Trust shall at all times be
considered as vested in the Trust, except that the Trustees may cause legal
title in and beneficial ownership of any Trust Property to be held by, or in the
name of one or more of the Trustees acting for and on behalf of the Trust, or in
the name of any person as nominee acting for and on behalf of the Trust. No
Shareholder shall be deemed to have a severable ownership interest in any
individual asset of the Trust or of any Series or any right of partition or
possession thereof, but each Shareholder shall have, except as otherwise
provided for herein, a proportionate undivided beneficial interest in the Trust
or Series. The Shares shall be personal property giving only the rights
specifically set forth in this Trust Instrument. The Trust, or at the
determination of the Trustees one or more of the Trustees or a nominee acting
for and on behalf of the Trust, shall be deemed to hold legal title and
beneficial ownership of any income earned on securities of the Trust issued by
any business entities formed, organized, or existing under the laws of any
jurisdiction, including the laws of any foreign country.
<PAGE>
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.1 Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall have full authority and power to make any and all investments
which they, in their sole discretion, shall deem proper to accomplish the
purpose of this Trust. Subject to any applicable limitation in this Trust
Instrument, the Trustees shall have power and authority:
(a) To invest and reinvest cash and other property, and to
hold cash or other property uninvested, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
(b) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the conduct of
such operators;
(c) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust
either through a Principal Underwriter in the manner hereinafter provided for or
by the Trust itself, or both, or otherwise pursuant to a plan of distribution of
any kind;
(e) To adopt By-laws not inconsistent with this Trust
Instrument providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to the
Shareholders, which By-laws shall be deemed a part of this Trust Instrument and
are incorporated herein by reference;
(f) To elect and remove such officers and appoint and
terminate such agents as they consider appropriate;
(g) To appoint custodians of any assets of the Trust, subject
to the 1940 Act and to any conditions set forth in this Trust Instrument;
(h) To retain one or more transfer agents and shareholder
servicing agents, or both;
(i) To set record dates in the manner provided herein or in
the By-laws;
(j) To delegate such authority (which delegation may include
the power to subdelegate) as they consider desirable to any officers of the
Trust and to any investment adviser, manager, administrator, custodian,
underwriter or other agent or independent contractor;
(k) To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business of the Trust, including insurance policies insuring the Trust Property
and payment of distributions and principal on its investments, and insurance
policies insuring the Shareholders, Trustees, officers, representatives,
employees, agents, investment advisers, managers, administrators, custodians,
underwriters, or independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person in such capacity, including any
action taken or omitted that may be determined to constitute negligence, whether
or not the Trust would have the power to indemnify such person against such
liability.
<PAGE>
(l) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XI, Section 11.4(b) hereof;
(m) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to execute
and deliver powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(n) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(o) To hold any security or property in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable form;
or either in the name of the Trust or in the name of a custodian or a nominee or
nominees;
(p) To establish separate and distinct Series with separately
defined investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(q) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern, and to
pay calls or subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees composed of one or
more of the Trustees, and to delegate any of the powers of the Trustees to said
committees, subject to the provisions of the 1940 Act;
(v) To interpret the investment policies, practices or
limitations of any Series;
(w) To establish a registered office and have a registered
agent in the state of Delaware; and
(x) In general to carry on any other business in connection
with or incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment of
any object or the furtherance of any power hereinbefore set forth, either alone
or in association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees. Any action by one or
more of the Trustees in their capacity as such hereunder shall be deemed an
action on behalf of the Trust or the applicable Series, and not an action in an
individual capacity.
No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
<PAGE>
Section 4.2 Issuance and Repurchase of Shares. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, exchange, and otherwise deal in Shares and, subject
to the provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
Section 4.3 Trustees and Officers as Shareholders. Any Trustee, officer
or other agent of the Trust may acquire, own and dispose of Shares to the same
extent as if such person were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which such person is interested,
subject to the general limitations herein contained as to the sale and purchase
of such Shares.
Section 4.4 Action by the Trustees and Committees. The Trustees (and
any committee thereof) may act at a meeting held in person or in whole or in
part by conference telephone equipment or other communications technology.
One-third, but (except at such times as there is only one Trustee) no less than
two, of the Trustees shall constitute a quorum at any meeting. Except as the
Trustees may otherwise determine, one-third of the members of any committee
shall constitute a quorum at any meeting. The vote of a majority of the Trustees
(or committee members) present at a meeting at which a quorum is present shall
be the act of the Trustees (or any committee thereof). The Trustees (and any
committee thereof) may also act by written consent signed by a majority of the
Trustees (or committee members). Regular meetings of the Trustees may be held at
such places and at such times as the Trustees may from time to time determine.
Special meetings of the Trustees (and meetings of any committee thereof) may be
called orally or in writing by the Chairman of the Board of Trustees (or the
chairman of any committee thereof) or by any two other Trustees. Notice of the
time, date and place of all meetings of the Trustees (or any committee thereof)
shall be given by the party calling the meeting to each Trustee (or committee
member) by telephone, telefax, or telegram sent to the person's home or business
address at least twenty-four hours in advance of the meeting or by written
notice mailed to the person's home or business address at least seventy-two
hours in advance of the meeting. Notice of all proposed written consents of
Trustees (or committees thereof) shall be given to each Trustee (or committee
member) by telephone, telefax, telegram, or first class mail sent to the
person's home or business address. Notice need not be given to any person who
attends a meeting without objecting to the lack of notice or who executes a
written consent or a written waiver of notice with respect to a meeting. Written
consents or waivers may be executed in one or more counterparts. Execution of a
written consent or waiver and delivery thereof may be accomplished by telefax.
Section 4.5 Chairman of the Trustees. The Trustees shall appoint one of
their number to be Chairman of the Board of Trustees. The Chairman shall preside
at all meetings of the Trustees at which he is present and may be (but is not
required to be) the chief executive officer of the Trust.
Section 4.6 Principal Transactions. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, distributor or transfer agent for the Trust or with any Interested
Person of such person; and the Trust may employ any such person, or firm or
company in which such person is an Interested Person, as broker, legal counsel,
registrar, investment adviser, distributor, transfer agent, dividend disbursing
agent, custodian or in any other capacity upon customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Section 5.1 General. The Trustees shall have the power to incur and pay
or be reimbursed from the assets of the Trust or the assets of the appropriate
Series any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Trust or such Series, and to
pay reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers, employees and
Trustees, and
<PAGE>
shall be reimbursed from the assets of the Trust or the assets of the
appropriate Series for expenses reasonably incurred by themselves on behalf of
the Trust.
Section 5.2 Expenses of Series. The Trustees shall have the power to
allocate and charge all expenses which are not readily identifiable as belonging
to any particular Series between or among any one or more of the Series as set
forth in Article II, Section 2.8 of this Trust Instrument.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR
AND TRANSFER AGENT
Section 6.1 Investment Adviser. The Trustees may in their discretion,
from time to time, enter into an investment advisory or management contract or
contracts with respect to the Trust or any Series whereby the other party or
parties to such contract or contracts shall undertake to furnish the Trust with
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions, as the Trustees may in their discretion determine; provided,
however, that the initial approval and entering into of such contract or
contracts shall be subject to a Majority Shareholder Vote. Notwithstanding any
other provision of this Trust Instrument, the Trustees may authorize any
investment adviser (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales or exchanges of
portfolio securities, other investment instruments of the Trust, or other Trust
Property on behalf of the Trustees, or may authorize any officer, agent, or
Trustee to effect such purchases, sales or exchanges pursuant to recommendations
of the investment adviser (and all without further action by the Trustees). Any
such purchases, sales and exchanges shall be deemed to have been authorized by
the Trustees.
The Trustees may authorize, subject to applicable requirements of the
1940 Act, the investment adviser to employ, from time to time, one or more
sub-advisers to perform such of the acts and services of the investment adviser,
and upon such terms and conditions, as may be agreed upon between the investment
adviser and sub-adviser. Any reference in this Trust Instrument to the
investment adviser shall be deemed to include such sub-advisers, unless the
context otherwise requires.
Section 6.2 Principal Underwriter. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of Shares, whereby the Trust may either
agree to sell Shares to the other party to the contract or appoint such other
party its sales agent for such Shares. In either case, the contract may also
provide for the repurchase or sale of Shares by such other party as principal or
as agent of the Trust.
Section 6.3 Administrator. The Trustees may in their discretion from
time to time enter into one or more contracts whereby the other party or parties
shall undertake to furnish the Trust with administrative services. The contract
or contracts shall be on such terms and conditions as the Trustees may in their
discretion determine.
Section 6.4 Transfer Agent. The Trustees may in their discretion from
time to time enter into one or more transfer agency and Shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and Shareholder services. The contract or
contracts shall be on such terms and conditions as the Trustees may in their
discretion determine.
Section 6.5 Parties to Contract. Any contract described in this Article
VI or any contract described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any relationship, nor shall any person holding such relationship be disqualified
from voting on or executing the same in his capacity as Shareholder and/or
Trustee, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit
<PAGE>
realized directly or indirectly therefrom, provided that the contract when
entered into was not inconsistent with the provisions of this Article VI or
Article VIII hereof. The same person (including a firm, corporation,
partnership, trust, or association) may be the other party to contracts entered
into pursuant to this Article VI or pursuant to Article VIII hereof, and any
individual may be financially interested or otherwise affiliated with persons
who are parties to any or all of the contracts mentioned in this Section 6.5.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 7.1 Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article III, Section 3.1
hereof, (ii) for the removal of Trustees as provided in Article III, Section
3.3(d) hereof, and (iii) with respect to such additional matters relating to the
Trust as may be required by law, by this Trust Instrument, or as the Trustees
may consider desirable. On any matter submitted to a vote of the Shareholders,
all Shares shall be voted separately by individual Series, except (i) when
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (ii) when the Trustees have determined that the matter
affects the interests of more than one Series, then the Shareholders of all such
Series shall be entitled to vote thereon. The Trustees may also determine that a
matter affects only the interests of one or more classes of a Series, in which
case any such matter shall be voted on by such class or classes. Each whole
Share shall be entitled to one vote in dollar weighted proportion to the other
classes or series as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate dollar weighted fractional
vote. There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy or in any manner provided for in the By-laws.
A proxy may be given in writing, by telefax, or in any other manner provided for
in the By-laws. Anything in this Trust Instrument to the contrary
notwithstanding, in the event a proposal by anyone other than the officers or
Trustees of the Trust is submitted to a vote of the Shareholders of one or more
Series or of the Trust, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the By-laws of the Trust to be taken by Shareholders.
Section 7.2 Meetings. Meetings of Shareholders may be held within or
without the State of Delaware. Special meetings of the Shareholders of any
Series may be called by the Trustees and shall be called by the Trustees upon
the written request of Shareholders owning at least one-tenth of the Outstanding
Shares entitled to vote. Whenever ten or more Shareholders meeting the
qualifications set forth in Section 16(c) of the 1940 Act seek the opportunity
of furnishing materials to the other Shareholders with a view to obtaining
signatures on such a request for a meeting, the Trustees shall comply with the
provisions of said Section 16(c) with respect to providing such Shareholders
access to the list of the Shareholders of record of the Trust or the mailing of
such materials to such Shareholders of record, subject to any rights provided to
the Trust or any Trustees provided by said Section 16(c). Notice shall be sent,
by mail or such other means determined by the Trustees, at least 15 days prior
to any such meeting.
Section 7.3 Quorum and Required Vote. One-third of Shares entitled to
vote in person or by proxy shall be a quorum for the transaction of business at
a Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held without the necessity of further
notice. Except when a larger vote is required by law or by any provision of this
Trust Instrument, a majority of the Shares voted in person or by proxy shall
decide any questions and a plurality shall elect a Trustee, provided that where
any provision of law or of this Trust Instrument permits or requires that the
holders of any Series shall vote as a Series (or that the holders of any class
shall vote as a class), then a majority of the Shares present in person or by
proxy of that Series or, if required by law, a Majority Shareholder Vote of that
Series (or class), voted on the matter in person or by proxy shall decide that
matter insofar as that Series (or class) is concerned.
Section 7.4 Action by Written Consent. Any action which may be taken by
the Shareholders of the Trust or of a Series may be taken without a meeting if
Shareholders holding more than a majority of the Shares entitled to vote,
<PAGE>
except when a larger vote is required by law or by any provision of this Trust
Instrument, shall consent to the action in writing. If the consents of all
Shareholders entitled to vote have not been solicited in writing and if the
unanimous written consent of all such Shareholders shall not have been received,
the Secretary shall give prompt notice to all Shareholders of actions approved
by the Shareholders without a meeting.
ARTICLE VIII
CUSTODIAN
Section 8.1 Appointment and Duties. The Trustees shall at all times
employ a bank, a company that is a member of a national securities exchange, or
a trust company, each having capital, surplus and undivided profits of at least
two million dollars ($2,000,000) as custodian with authority as its agent:
(1) to hold the securities owned by the Trust and deliver the same upon
written order or oral order confirmed in writing;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may direct;
and
(3) to disburse such funds upon orders or vouchers; and the Trust may
also employ such custodian as its agent:
(4) to keep the books and accounts of the Trust or of any Series or
class and furnish clerical and accounting services; and
(5) to compute, if authorized to do so by the Trustees, the Net Asset
Value of any Series, or class thereof, in accordance with the provisions hereof;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian.
In accordance with the 1940 Act, the Trustees may also authorize the
custodian to employ one or more sub-custodians from time to time to perform such
of the acts and services of the custodian, and upon such terms and conditions,
as may be agreed upon between the custodian and such sub-custodian and approved
by the Trustees.
Section 8.2 Central Certificate System. Subject to the 1940 Act, the
Trustees may direct the custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, subcustodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
Section 9.1 Distributions.
(a) The Trustees may from time to time declare and pay
dividends or other distributions with respect to any Series, or class thereof.
The amount of such dividends or distributions and the payment of them and
whether they are in cash or any other Trust property shall be wholly in the
discretion of the Trustees.
<PAGE>
(b) Dividends and other distributions may be paid or made to
the Shareholders of record at the time of declaring a dividend or other
distribution or among the Shareholders of record at such other date or time or
dates or times as the Trustees shall determine, which dividends or
distributions, at the election of the Trustees, may be paid pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine. All dividends and other distributions on Shares of a
particular Series shall be distributed pro rata to the Shareholders of that
Series in proportion to the number of Shares of that Series they held on the
record date established for such payment, except that such dividends and
distributions shall reflect expenses allocated to a particular class of such
Series. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees may at any time declare and distribute a stock
dividend pro rata among the Shareholders of a particular Series, or class
thereof, as of the record date of that Series fixed as provided in Section (b)
hereof.
Section 9.2 Redemptions. In case any holder of record of Shares of a
particular Series desired to dispose of his Shares or any portion thereof, he
may deposit at the office of the transfer agent or other authorized agent of
that Series a written request or such other form of request as the Trustees may
from time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.2; and the Shareholder so requesting shall be
entitled to require the Series to purchase, and the Series or the Principal
Underwriter of the Series shall purchase his said Shares, but only at the Net
Asset Value thereof (as described in Section 9.3 of this Article IX). The Series
shall make payment for any such Shares to be redeemed, as aforesaid, in cash or
property from the assets of that Series and payment for such Shares shall be
made by the Series or the Principal Underwriter of the Series to the Shareholder
of record within seven (7) days after the date upon which the request is
effective. Upon redemption, shares shall become Treasury shares and may be
re-issued from time to time.
Section 9.3 Determination of Net Asset Value and Valuation of Portfolio
Assets. The term "Net Asset Value" of any Series shall mean that amount of which
the assets of that Series exceed its liabilities, all as determined by or under
the direction of the Trustees. Such value shall be determined separately for
each Series and shall be determined on such days and at such times as the
Trustees may determine. Such determination shall be made with respect to
securities for which market quotations are readily available, at the market
value of such securities; and with respect to other securities and assets, at
the fair value as determined in good faith by the Trustees; provided, however,
that the Trustees, without Shareholder approval, may alter the method of valuing
portfolio securities consistent with the 1940 Act. The Trustees may delegate any
of their powers and duties under this Section 9.3 with respect to valuation of
assets and liabilities. The resulting amount, which shall represent the total
Net Asset Value of the particular Series, shall be divided by the total number
of shares of that Series outstanding at the time and the quotient so obtained
shall be the Net Asset Value per Share of that Series. At any time the Trustees
may cause the Net Asset Value per Share last determined to be determined again
in similar manner and may fix the time when such redetermined value shall become
effective. If, for any reason, the net income of any Series, determined at any
time, is a negative amount, the Trustees shall have the power with respect to
that Series (i) to offset each Shareholder's pro rata share of such negative
amount from the accrued dividend account of such Shareholder, or (ii) to reduce
the number of Outstanding Shares of such Series by reducing the number of Shares
in the amount of each Shareholder by a pro rata portion of that number of full
and fractional Shares which represents the amount of such excess negative net
income, or (iii) to cause to be recorded on the books of such Series an asset
account in the amount of such negative net income (provided that the same shall
thereupon become the property of such Series and shall not be paid to any
Shareholder), which account may be reduced by the amount, of dividends declared
thereafter upon the Outstanding Shares of such Series on the day such negative
net income is experienced, until such asset account is reduced to zero; (iv) to
combine the methods described in clauses (i) and (ii) and (iii) of this
sentence; or (v) to take any other action they deem appropriate, in order to
cause (or in order to assist in causing) the Net Asset Value per Share of such
Series to remain at a constant amount per Outstanding Share immediately after
each such determination and declaration. The Trustees shall also have the power
not to declare a dividend out of net income for the purpose of causing the Net
Asset Value per Share to be increased. The Trustees shall not be required to
adopt, but may at any time adopt, discontinue or amend the practice of
maintaining the Net Asset Value per Share of the Series at a constant amount.
Section 9.4 Suspension of the Right of Redemption. The Trustees may
declare a suspension of the right of
<PAGE>
redemption or postpone the date of payment as permitted under the 1940 Act. Such
suspension shall take effect at such time as the Trustees shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment until the Trustees shall declare the suspension at an end. In the
case of a suspension of the right of redemption, a Shareholder may either
withdraw his request for redemption or receive payment based on the Net Asset
Value per Share next determined after the termination of the suspension. In the
event that any Series is divided into classes, the provisions of this Section
9.4, to the extent applicable as determined in the discretion of the Trustees
and consistent with applicable law, may be equally applied to each such class.
Section 9.5 Redemption of Shares in Order to Qualify as Regulated
Investment Company. If the Trustees shall be of the opinion that direct or
indirect ownership of Shares of any Series has or may become concentrated in any
Person to an extent which would disqualify any Series as a regulated investment
company under the Internal Revenue Code, then the Trustees shall have the power
(but not the obligation) by lot or other means deemed equitable by them (i) to
call for redemption by any such person of a number, or principal amount, of
Shares sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification and (ii) to
refuse to transfer or issue Shares to any person whose acquisition of the Shares
in question would result in such disqualification. The redemption shall be
effected at the redemption price and in the manner provided in this Article IX.
The holders of Shares shall upon demand disclose to the Trustees in writing such
information with respect to direct and indirect ownership of Shares as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other taxing authority.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 10.1 Limitation of Liability. A Trustee, when acting in such
capacity, shall not be personally liable to any person other than the Trust or a
beneficial owner for any act, omission or obligation of the Trust or any
Trustee. A Trustee shall not be liable for any act or omission in his capacity
as Trustee, or for any act or omission of any officer or employee of the Trust
or of any other person or party, provided that nothing contained herein or in
the Delaware Business Trust Act shall protect any Trustee against any liability
to the Trust or to Shareholders to which he would otherwise be subject by reason
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee hereunder.
Section 10.2 Indemnification. The Trust shall indemnify each of its
Trustees against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as counsel
fees) reasonably incurred by him in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while as a Trustee or
thereafter, by reason of his being or having been such a Trustee except with
respect to any matter as to which he shall have been adjudicated to have acted
in bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties, provided that as to any matter disposed of by a compromise payment by
such person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless the
Trust shall have received a written opinion from independent legal counsel
approved by the Trustees to the effect that if either the matter of willful
misfeasance, gross negligence or reckless disregard of duty, or the matter of
bad faith had been adjudicated, it would in the opinion of such counsel have
been adjudicated in favor of such person. The rights accruing to any person
under these provisions shall not exclude any other right to which he may be
lawfully entitled, provided that no person may satisfy any right of indemnity or
reimbursement hereunder except out of the property of the Trust. The Trustees
may authorize advance payments in connection with the indemnification under this
Section 10.2, provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently determined
that he is not entitled to such indemnification.
The Trust shall indemnify officers, and shall have the power to
indemnify representatives and employees of the
<PAGE>
Trust, to the same extent that Trustees are entitled to indemnification pursuant
to this Section 10.2.
Section 10.3 Shareholders. In case any Shareholder or former
Shareholder of any Series shall be held to be personally liable solely by reason
of his being or having been a Shareholder of such Series and not because of his
acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Trust, on behalf of the affected
Series, shall, upon request by the Shareholder, assume the defense of any claim
made against the Shareholder for any act or obligation of the Series and satisfy
any judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust's officers or any
Shareholder. All persons extending credit to, contracting with or having any
claim against the Trust or the Trustees may satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or otherwise existing
with respect to the Trust from the assets of the Trust only; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor.
Section 11.2 Trustees' Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Article
X hereof, the Trustees shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Trust Instrument, and subject to
the provisions of Article X hereof, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is obtained.
Section 11.3 Establishment of Record Dates. The Trustees may close the
Share transfer books of the Trust for a period not exceeding ninety (90) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributors, or the date for the allotment of rights,
or the date when any change or conversion or exchange of Shares shall go into
effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or other distribution,
or to receive such allotment or rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any Shares on the books of the Trust
after any such record date fixed as aforesaid.
Section 11.4 Termination of Trust or Series.
(a) This Trust shall continue without limitation of time but
subject to the provisions of sub-section (b) of this Section 11.4.
(b) The Trustees may
(i) sell and convey all or substantially all of the
assets of the Trust or any Series to another trust,
partnership, association or corporation, or to a separate
series of shares thereof, organized under the laws of any
state, for adequate consideration which may include the
assumption of
<PAGE>
all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust or any Series, and which
may include shares of beneficial interest, stock or other
ownership interests of such trust, partnership, association or
corporation or of a series thereof; or
(ii)at any time sell and convert into money all of
the assets of the Trust or any Series.
Upon making reasonable provision, in the determination of the Trustees,
for the payment of all such liabilities in either (i) or (ii), by such
assumption or otherwise, the Trustees shall distribute the remaining proceeds or
assets (as the case may be) of each Series (or class) ratably among the holders
of Shares of that Series then outstanding.
(c) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in subsection (b), the Trust or any
affected Series shall terminate and the Trustees and the Trust shall be
discharged of any and all further liabilities and duties hereunder and the
right, title and interest of all parties with respect to the Trust or Series
shall be cancelled and discharged.
Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Delaware
Business Trust Act, which certificate of cancellation may be signed by any one
Trustee.
Section 11.5 Reorganization. Anything in this Trust Instrument to the
contrary notwithstanding, the Trustees, in order to change the form of
organization and/or domicile of the Trust, may, without prior Shareholder
approval, (i) cause the Trust to merge or consolidate with or into one or more
trusts, partnerships, associations or corporations which is formed, organized or
existing under the laws of a state, commonwealth possession or colony of the
United States or (ii) cause the Trust to incorporate under the laws of Delaware.
Any agreement of merger or consolidation or certificate of merger may be signed
by a majority of the Trustees. Pursuant to and in accordance with the provisions
of Section 3815(f) of the Delaware Business Trust Act, and notwithstanding
anything to the contrary contained in this Trust Instrument, an agreement of
merger or consolidation approved by the Trustees in accordance with this Section
11.5 may effect any amendment to the Trust Instrument or effect the adoption of
a new trust instrument of the Trust if it is the surviving or resulting trust in
the merger or consolidation. Any merger or consolidation of the Trust other than
as described in the foregoing provisions of this Section 11.5 shall, in addition
to the approval of the Trustees, require the approval of the holders of a
majority of the Outstanding Shares.
Section 11.6 Filing of Copies, References, Headings. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of -this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions like "his", "he" and "him", shall be deemed to include the feminine
and neuter, as well as masculine, genders. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
Trust Instrument rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
Section 11.7 Applicable Law. The trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Business
Trust Act and the laws of said State; provided, however, that there shall not be
applicable to the Trust, the Trustees or this Trust Instrument (a) the
provisions of Section 3540 of Title 12 of the Delaware Code or (b) any
provisions of the laws (statutory or common) of the State of Delaware (other
than the Delaware Business Trust Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or agency of trustee
accounts or schedules of trustee fees and charges, (ii) affirmative requirements
to post bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
<PAGE>
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards or responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a "business trust",
and without limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust under Delaware law. The Trust
specifically reserves the right to exercise any of the powers or privileges
afforded to trusts or actions that may be engaged in by trusts under the
Delaware Business Trust Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 11.8 Amendments. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(i) on any amendment which would affect their right to vote granted in Section
7.1 of Article VII hereof, (ii) on any amendment to this Section 11.8, (iii) on
any amendment as may be required by law and (iv) on any amendment submitted to
them by the Trustees. Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by vote of the Shareholders of each
Series affected and no vote of shareholders of a Series not affected shall be
required. Anything in this Trust Instrument to the contrary notwithstand ing,
any amendment to Article X hereof shall not limit the rights to indemnification
or insurance provided therein with respect to action or omission of Covered
Persons prior to such amendment.
Section 11.9 Fiscal Year. The fiscal year of the Trust shall end on a
specified date as determined from time to time by the Trustees.
Section 11.10 Use of the Name "McM". The name "McM", and all rights to
the use thereof belong to McMorgan & Company ("McMorgan"), the investment
adviser of the Trust. McMorgan has consented to the use by the Trust of such
name.
Section 11.11 Provisions in Conflict with Law. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provisions is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provisions in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the
Trust, has executed this instrument this 3rd day of February, 1994.
/s/ Deane A. Nelson
---------------------------
Initial Trustee
<PAGE>
Exhibit 99.B.2
McM Funds
BY-LAWS
These By-laws of McM Funds (the "Trust"), a Delaware business
trust, are subject to the Trust Instrument of the Trust dated February 3, 1994,
as from time to time amended, supplemented or restated (the "Trust Instrument").
Capitalized terms used herein which are defined in the Trust Instrument are used
as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in such
location as the Trustees may from time to time determine. The Trust may
establish and maintain such other offices and places of business as the Trustees
may from time to time determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
Section 2.1 Officers. The officers of the Trust shall be a
President, a Treasurer, a Secretary, and such other officers as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a holder of Shares in the Trust.
Section 2.2 Election of Officers. Two or more offices may be
held by a single person. Subject to the provisions of Section 2.3 hereof, the
officers shall hold office until their successors are chosen and qualified and
serve at the pleasure of the Trustees.
Section 2.3 Resignations. Any officer of the Trust may resign
by filing a written resignation with the President, the Secretary or the
Trustees, which resignation shall take effect on being so filed or at such later
time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
Section 3.1 Chief Executive Officer. Unless the Trustees have
designated the Chairman as the chief executive officer of the Trust, the
President shall be the chief executive officer of the Trust. Subject to the
direction of the Trustees, the chief executive officer shall have general
administration of the business and policies of the Trust. Except as the Trustees
may otherwise order, the chief executive officer shall have the power to grant,
issue, execute or sign such powers of attorney, proxies, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series thereof. He shall also have the power to
employ attorneys, accountants and other advisers and agents and counsel for the
Trust. If the President is not the chief executive officer, he shall perform
such duties as the Trustees or the chief executive officer may from time to time
designate and, at the request or in the absence or disability of the chief
executive officer, may perform all the duties of the chief executive officer
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the chief executive officer.
Section 3.2 Treasurer. The Treasurer shall be the principal
financial and accounting officer of the
<PAGE>
Trust. He shall deliver all funds and securities of the Trust which may come
into his hands to such company as the Trustees shall employ as Custodian in
accordance with the Trust Instrument and applicable provisions of law. He shall
make annual reports regarding the business and condition of the Trust, which
reports shall be preserved in Trust records, and he shall furnish such other
reports regarding the business and condition of the Trust as the Trustees may
from time to time require. The Treasurer shall perform such additional duties as
the Trustees or the chief executive officer may from time to time designate.
Section 3.3 Secretary. The Secretary shall record in books
kept for the purpose all votes and proceedings of the Trustees and the
Shareholders at their respective meetings. He shall have the custody of the seal
of the Trust. The Secretary shall perform such additional duties as the Trustees
or the chief executive officer may from time to time designate.
Section 3.4 Vice President. Any Vice President of the Trust
shall perform such duties as the Trustees or the chief executive officer may
from time to time designate. At the request or in the absence or disability of
the President, the most senior Vice President present and able to act may
perform all the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President.
Section 3.5 Assistant Treasurer. Any Assistant Treasurer of
the Trust shall perform such duties as the Trustees or the Treasurer may from
time to time designate, and, in the absence of the Treasurer, the most senior
Assistant Treasurer present and able to act may perform all the duties of the
Treasurer.
Section 3.6 Assistant Secretary. Any Assistant Secretary of
the Trust shall perform such duties as the Trustees or the Secretary may from
time to time designate, and, in the absence of the Secretary, the most senior
Assistant Secretary present and able to act my perform all the duties of the
Secretary.
Section 3.7 Subordinate Officers. The Trustees from time to
time may appoint such other officers or agents as they may deem advisable, each
of whom shall have such title, hold office for such period, have such authority
and perform such duties as the Trustees may determine.
Section 3.8 Surety Bonds. The Trustees may require any officer
or agent of the Trust to execute a bond (including, without limitation, any bond
required by the 1940 Act) in such sum and with such surety or sureties as the
Trustees may determine, conditioned upon the faithful performance of his duties
to the Trust including responsibility for negligence and for the accounting of
any of the Trust's property, funds or securities that may come into his hands.
Section 3.9 Removal. Any officer may be removed from office at
any time by the Trustees.
Section 3.10 Remuneration. The salaries or other compensation,
if any, of the officers of the Trust shall be fixed from time to time by
resolution of the Trustees.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 4.1 Notices. Notices of any meeting of the
Shareholders shall be given by the Secretary by delivering or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least fifteen days before the meeting,
to such address as may be registered with the Trust by the Shareholder. Notice
of any Shareholder meeting need not be given to any Shareholder if a written
waiver of notice, executed before or after such meeting, is filed with the
record of such meeting, or to any Shareholder who shall attend such meeting in
person or by proxy. Notice of adjournment of a Shareholders' meeting to another
time or place need not be given, if such time and place are announced at the
meeting or reasonable notice is given to persons present at the meeting.
2
<PAGE>
Section 4.2 Voting-Proxies. Subject to the provisions of the
Trust Instrument, Shareholders entitled to vote may vote either in person or by
proxy, provided that either (i) an instrument authorizing such proxy to act is
executed by the Shareholder in writing and dated not more than eleven months
before the meeting, unless the instrument specifically provides for a longer
period or (ii) the Trustees adopt by resolution an electronic, telephonic,
computerized or other alternative to execution of a written instrument
authorizing the proxy to act, which authorization is received not more than
eleven months before the meeting. Proxies shall be delivered to the Secretary of
the Trust or other person responsible for recording the proceedings before being
voted. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by one of them unless at or prior to exercise of such
proxy the Trust receives a specific written notice to the contrary from any one
of them. Unless otherwise specifically limited by their terms, proxies shall
entitled the holder thereof to vote at any adjournment of a meeting. A proxy
purporting to be exercised by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior too its exercise and the burden or proving
invalidity shall rest on the challenger. At all meetings of the Shareholders,
unless the voting is conducted by inspectors, all questions relating to the
qualifications of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting. Except as
otherwise provided herein or in the Trust Instrument, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and the
Shareholders were shareholders of a Delaware corporation.
Section 4.5 Place of Meeting. All meetings of the Shareholders
shall be held at such places as the Trustees may designate.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1 Share Certificate. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
authorize. The Trustees may issue certificates to a Shareholder of any Series or
class thereof for any purpose and the issuance of a certificate to one or more
Shareholders shall not require the issuance of certificates generally. In the
event that the Trustees authorize the issuance of Share certificates, such
certificate shall be in the form prescribed from time to time by the Trustees
and shall be signed by the President or a Vice President and by the Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary. Such signatures may be
facsimiles if the certificate is signed by a transfer or shareholder services
agent or by a registrar, other than a Trustee, officer or employee of the Trust.
In case any officer who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Trust with the same effect as if he or she
were such officer at the time of its issue.
Section 5.2 Loss of Certificate. In case of the alleged loss
or destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
Section 5.3 Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of Share certificates and may,
by written notice to each Shareholder, require the surrender of Share
certificates to the Trust for cancellation. Such surrender and cancellation
shall not affect the ownership of Shares of the Trust.
ARTICLE VI
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Trust or any of them shall be open to
the inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document
3
<PAGE>
of the Trust except as conferred by law or otherwise by the Trustees.
ARTICLE VII
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"McM FUNDS -- 1994
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the
Trustees and the seal may be used by causing it or a facsimile to be impressed
or affixed or printed or otherwise reproduced.
Any officer or Trustee of the Trust shall have authority to
affix the seal of the Trust to any document, instrument or other paper executed
and delivered by or on behalf of the Trust; however, unless otherwise required
by the Trustees, the seal shall not be necessary to be placed on and its absence
shall not impair the validity of any document, instrument, or other paper
executed by or on behalf of the Trust.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended from time to time by the
Trustees.
ARTICLE IX
HEADINGS
Headings are placed in these By-laws for convenience of
reference only and, in case of any conflict, the text of these By-laws rather
than the headings shall control.
4
<PAGE>
Exhibit 99.B.5.a
INVESTMENT ADVISORY AGREEMENT
FOR
PRINCIPAL PRESERVATION FUND
AGREEMENT made this day of , 1994 by and between McM Funds,
a Delaware Business Trust (the "Trust") on behalf of the Principal Preservation
Fund Fund (the "Fund") and McMorgan & Company, a California corporation and
registered investment adviser (the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company.
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund for the periods on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Duties of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to the Principal Preservation Fund, a separate series of
shares of the Trust, for the period and on such terms set forth in this
Agreement. The Trust employs the Adviser to manage the investment and
reinvestment of the assets of the Fund, to continuously review, supervise and
administer the investment program of the Fund, to determine in its discretion
the assets to be held uninvested, to provide the Trust with records concerning
the Adviser's activities which the Trust is required to maintain, and to render
regular reports to the Trust's officers and Board of Trustees concerning the
Adviser's discharge of the foregoing responsibilities. The Adviser shall
discharge the foregoing responsibilities subject to the control of the officers
and the Board of Trustees of the Trust, and in compliance with the objectives,
policies and limitations set forth in the Fund's prospectus and statement of
additional information and applicable law. The Adviser accepts such employment
and agrees to render the services and to provide, at its own expense, the office
space, furnishings, equipment and the personnel required by it to perform the
services on the terms and for the compensation provided herein.
3. Portfolio Transactions. The Adviser shall select and monitor the
selection of the brokers or dealers that will execute the purchases and sales of
securities for the Fund and is directed to use its best efforts to ensure that
the best available price and most favorable execution of securities transactions
for the Fund are obtained. Subject to policies established by the Board of
Trustees of the Fund and communicated to the Adviser, it is understood that the
Adviser will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Fund, or be in breach of any
obligation owing to the Trust or in respect of the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Adviser determines in reasonable good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Adviser's overall responsibilities with respect to the accounts, including the
Fund, as to which it exercises investment discretion. The Adviser will promptly
communicate to the officers and directors of the Trust such information relating
to Fund transactions as they may reasonably request.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 2 and 3 of this Agreement, the Fund shall pay to
the Adviser within five business days after the end of each calendar month, a
monthly fee of one twelfth of 0.25% of the Fund's average daily net assets for
the month. In the event the Adviser is engaged for a period of less than one
month, it shall receive the same monthly fee paid on a pro rata basis.
The Adviser may reduce any portion of the compensation or reimbursement
of expenses due to it pursuant to this Agreement and may agree to make payments
to limit the expenses which are not the responsibility of the Adviser under this
Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any fee withheld pursuant to this paragraph from the
Adviser shall be reimbursed by the Fund to the Adviser in the first, second or
third (or all) fiscal year next succeeding the
<PAGE>
fiscal year of the withholding to the extent permitted by the applicable state
law if the aggregate expenses for the applicable succeeding fiscal year do not
exceed the applicable state limitation or any more restrictive limitation to
which the Adviser has agreed.
In the event of termination of this Agreement, the fee provided in this
Section 4 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
5. Reports. The Fund and the Adviser agree to furnish to each other
such information regarding their operations with regard to their affairs as each
may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Trust's employment of the Adviser is not an exclusive arrangement, and the Trust
may from time to time employ other individuals or entities to furnish it with
the services provided for herein.
7. Liability of Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
The Fund shall indemnify and hold harmless the Adviser, its general
partner and the shareholders, directors, officers and employees of each of them
(any such person, an "Indemnified Party") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating and defending
any alleged loss, liability, claim, damage or expenses and reasonable counsel
fees incurred in connection therewith) arising out of the Indemnified Party's
performance or non-performance of any duties under this Agreement provided,
however, that nothing herein shall be deemed to protect any Indemnified Party
against any liability to which such Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or director or officer of the Adviser from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
8. Duration and Termination. This Agreement shall become effective on
May , 1994, provided that first it is approved by the Board of Trustees of
the Fund, including a majority of those trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Fund; and shall continue in
effect until May , 1996. Thereafter, this Agreement may continue in effect
only if such continuance is approved at least annually by, (i) the Fund's Board
of Trustees or, (ii) by the vote of a majority of the outstanding voting
securities of the Fund; and in either event by a vote of a majority of those
trustees of the Trust who are not parties to this Agreement or interested
persons of any such party in the manner provided in section 15(c) of the
Investment Company Act of 1940. Notwithstanding the foregoing, this Agreement
may be terminated: (a) at any time without penalty by the Fund upon the vote of
a majority of the Trustees or by vote of the majority of the Fund's outstanding
voting securities, upon sixty (60) days' written notice to the Adviser or (b) by
the Adviser at any time without penalty, upon sixty (60) days' written notice to
the Fund. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act). Any notice under this Agreement shall
be given inwriting, addressed and delivered or mailed postpaid, to the other
party at the principal office of such party.
As used in this Section 8, the terms "assignment", "interested person",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
9. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, provided that the basic agreement
is not thereby impaired and the Agreement continues to conform with applicable
law.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this day of , 1994.
<PAGE>
ATTEST PRINCIPAL PRESERVATION FUND
By:
- ------------------------- ------------------------
Thomas Morton, President
ATTEST McMORGAN & COMPANY
By:
- ------------------------- ------------------------
<PAGE>
Exhibit 99.B.5.b
INVESTMENT ADVISORY AGREEMENT
FOR
INTERMEDIATE FIXED INCOME FUND
AGREEMENT made this day of , 1994 by and between McM Funds, a
Delaware Business Trust (the "Trust") on behalf of the Intermediate Fixed Income
Fund (the "Fund") and McMorgan & Company, a California corporation and
registered investment adviser (the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company.
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund for the periods on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Duties of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to the Intermediate Fixed Income Fund, a separate series of
shares of the Trust, for the period and on such terms set forth in this
Agreement. The Trust employs the Adviser to manage the investment and
reinvestment of the assets of the Fund, to continuously review, supervise and
administer the investment program of the Fund, to determine in its discretion
the assets to be held uninvested, to provide the Trust with records concerning
the Adviser's activities which the Trust is required to maintain, and to render
regular reports to the Trust's officers and Board of Trustees concerning the
Adviser's discharge of the foregoing responsibilities. The Adviser shall
discharge the foregoing responsibilities subject to the control of the officers
and the Board of Trustees of the Trust, and in compliance with the objectives,
policies and limitations set forth in the Fund's prospectus and statement of
additional information and applicable law. The Adviser accepts such employment
and agrees to render the services and to provide, at its own expense, the office
space, furnishings, equipment and the personnel required by it to perform the
services on the terms and for the compensation provided herein.
3. Portfolio Transactions. The Adviser shall select and monitor the
selection of the brokers or dealers that will execute the purchases and sales of
securities for the Fund and is directed to use its best efforts to ensure that
the best available price and most favorable execution of securities transactions
for the Fund are obtained. Subject to policies established by the Board of
Trustees of the Fund and communicated to the Adviser, it is understood that the
Adviser will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Fund, or be in breach of any
obligation owing to the Trust or in respect of the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Adviser determines in reasonable good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Adviser's overall responsibilities with respect to the accounts, including the
Fund, as to which it exercises investment discretion. The Adviser will promptly
communicate to the officers and directors of the Trust such information relating
to Fund transactions as they may reasonably request.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 2 and 3 of this Agreement, the Fund shall pay to
the Adviser within five business days after the end of each calendar month, a
monthly fee of one twelfth of 0.35% of the Fund's average daily net assets for
the month. In the event the Adviser is engaged for a period of less than one
month, it shall receive the same monthly fee paid on a pro rata basis.
The Adviser may reduce any portion of the compensation or reimbursement
of expenses due to it pursuant to this Agreement and may agree to make payments
to limit the expenses which are not the responsibility of the Adviser under this
Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any fee withheld pursuant to this paragraph from the
Adviser shall be reimbursed by the Fund to the Adviser in the first, second or
third (or all) fiscal year next succeeding the fiscal year of the withholding to
the extent permitted by the applicable state law if the aggregate expenses for
the
<PAGE>
applicable succeeding fiscal year do not exceed the applicable state limitation
or any more restrictive limitation to which the Adviser has agreed.
In the event of termination of this Agreement, the fee provided in this
Section 4 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
5. Reports. The Fund and the Adviser agree to furnish to each other
such information regarding their operations with regard to their affairs as each
may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Trust's employment of the Adviser is not an exclusive arrangement, and the Trust
may from time to time employ other individuals or entities to furnish it with
the services provided for herein.
7. Liability of Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
The Fund shall indemnify and hold harmless the Adviser, its general
partner and the shareholders, directors, officers and employees of each of them
(any such person, an "Indemnified Party") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating and defending
any alleged loss, liability, claim, damage or expenses and reasonable counsel
fees incurred in connection therewith) arising out of the Indemnified Party's
performance or non-performance of any duties under this Agreement provided,
however, that nothing herein shall be deemed to protect any Indemnified Party
against any liability to which such Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or director or officer of the Adviser from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
8. Duration and Termination. This Agreement shall become effective on
May , 1994, provided that first it is approved by the Board of Trustees of the
Fund, including a majority of those trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Fund; and shall continue in
effect until May , 1996. Thereafter, this Agreement may continue in effect only
if such continuance is approved at least annually by, (i) the Fund's Board of
Trustees or, (ii) by the vote of a majority of the outstanding voting securities
of the Fund; and in either event by a vote of a majority of those trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party in the manner provided in section 15(c) of the Investment Company Act
of 1940. Notwithstanding the foregoing, this Agreement may be terminated: (a) at
any time without penalty by the Fund upon the vote of a majority of the Trustees
or by vote of the majority of the Fund's outstanding voting securities, upon
sixty (60) days' written notice to the Adviser or (b) by the Adviser at any time
without penalty, upon sixty (60) days' written notice to the Fund. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered or mailed postpaid, to the other party at the
principal office of such party.
As used in this Section 8, the terms "assignment", "interested person",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
9. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, provided that the basic agreement
is not thereby impaired and the Agreement continues to conform with applicable
law.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this day of , 1994.
ATTEST INTERMEDIATE FIXED INCOME FUND
<PAGE>
By:
- ------------------------ ---------------------------
Thomas Morton, President
ATTEST McMORGAN & COMPANY
By:
- ------------------------ ---------------------------
<PAGE>
Exhibit 99.B.5.c
INVESTMENT ADVISORY AGREEMENT
FOR
FIXED INCOME FUND
AGREEMENT made this day of , 1994 by and between McM Funds,
a Delaware Business Trust (the "Trust") on behalf of the Fixed Income Fund (the
"Fund") and McMorgan & Company, a California corporation and registered
investment adviser (the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company.
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund for the periods on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Duties of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to the Fixed Income Fund, a separate series of shares of the
Trust, for the period and on such terms set forth in this Agreement. The Trust
employs the Adviser to manage the investment and reinvestment of the assets of
the Fund, to continuously review, supervise and administer the investment
program of the Fund, to determine in its discretion the assets to be held
uninvested, to provide the Trust with records concerning the Adviser's
activities which the Trust is required to maintain, and to render regular
reports to the Trust's officers and Board of Trustees concerning the Adviser's
discharge of the foregoing responsibilities. The Adviser shall discharge the
foregoing responsibilities subject to the control of the officers and the Board
of Trustees of the Trust, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus and statement of additional
information and applicable law. The Adviser accepts such employment and agrees
to render the services and to provide, at its own expense, the office space,
furnishings, equipment and the personnel required by it to perform the services
on the terms and for the compensation provided herein.
3. Portfolio Transactions. The Adviser shall select and monitor the
selection of the brokers or dealers that will execute the purchases and sales of
securities for the Fund and is directed to use its best efforts to ensure that
the best available price and most favorable execution of securities transactions
for the Fund are obtained. Subject to policies established by the Board of
Trustees of the Fund and communicated to the Adviser, it is understood that the
Adviser will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Fund, or be in breach of any
obligation owing to the Trust or in respect of the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Adviser determines in reasonable good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Adviser's overall responsibilities with respect to the accounts, including the
Fund, as to which it exercises investment discretion. The Adviser will promptly
communicate to the officers and directors of the Trust such information relating
to Fund transactions as they may reasonably request.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 2 and 3 of this Agreement, the Fund shall pay to
the Adviser within five business days after the end of each calendar month, a
monthly fee of one twelfth of 0.35% of the Fund's average daily net assets for
the month. In the event the Adviser is engaged for a period of less than one
month, it shall receive the same monthly fee paid on a pro rata basis.
The Adviser may reduce any portion of the compensation or reimbursement
of expenses due to it pursuant to this Agreement and may agree to make payments
to limit the expenses which are not the responsibility of the Adviser under this
Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any fee withheld pursuant to this paragraph from the
Adviser shall be reimbursed by the Fund to the Adviser in the first, second or
third (or all) fiscal year next succeeding the fiscal year of the withholding to
the extent permitted by the applicable state law if the aggregate expenses for
<PAGE>
the applicable succeeding fiscal year do not exceed the applicable state
limitation or any more restrictive limitation to which the Adviser has agreed.
In the event of termination of this Agreement, the fee provided in this
Section 4 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
5. Reports. The Fund and the Adviser agree to furnish to each other
such information regarding their operations with regard to their affairs as each
may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Trust's employment of the Adviser is not an exclusive arrangement, and the Trust
may from time to time employ other individuals or entities to furnish it with
the services provided for herein.
7. Liability of Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
The Fund shall indemnify and hold harmless the Adviser, its general
partner and the shareholders, directors, officers and employees of each of them
(any such person, an "Indemnified Party") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating and defending
any alleged loss, liability, claim, damage or expenses and reasonable counsel
fees incurred in connection therewith) arising out of the Indemnified Party's
performance or non-performance of any duties under this Agreement provided,
however, that nothing herein shall be deemed to protect any Indemnified Party
against any liability to which such Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or director or officer of the Adviser from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
8. Duration and Termination. This Agreement shall become effective on
May , 1994, provided that first it is approved by the Board of Trustees of the
Fund, including a majority of those trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Fund; and shall continue in
effect until May , 1996. Thereafter, this Agreement may continue in effect only
if such continuance is approved at least annually by, (i) the Fund's Board of
Trustees or, (ii) by the vote of a majority of the outstanding voting securities
of the Fund; and in either event by a vote of a majority of those trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party in the manner provided in section 15(c) of the Investment Company Act
of 1940. Notwithstanding the foregoing, this Agreement may be terminated: (a) at
any time without penalty by the Fund upon the vote of a majority of the Trustees
or by vote of the majority of the Fund's outstanding voting securities, upon
sixty (60) days' written notice to the Adviser or (b) by the Adviser at any time
without penalty, upon sixty (60) days' written notice to the Fund. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered or mailed postpaid, to the other party at the
principal office of such party.
As used in this Section 8, the terms "assignment", "interested person",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
9. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, provided that the basic agreement
is not thereby impaired and the Agreement continues to conform with applicable
law.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this day of ____________, 1994.
ATTEST FIXED INCOME FUND
<PAGE>
By:
- ----------------------------- ------------------------
Thomas Morton, President
ATTEST McMORGAN & COMPANY
By:
- ----------------------------- ------------------------
<PAGE>
Exhibit 99.B.5.d
INVESTMENT ADVISORY AGREEMENT
FOR
BALANCED FUND
AGREEMENT made this day of , 1994 by and between McM Funds,
a Delaware Business Trust (the "Trust") on behalf of the Balanced Fund (the
"Fund") and McMorgan & Company, a California corporation and registered
investment adviser (the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company.
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund for the periods on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Duties of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to the Balanced Fund, a separate series of shares of the
Trust, for the period and on such terms set forth in this Agreement. The Trust
employs the Adviser to manage the investment and reinvestment of the assets of
the Fund, to continuously review, supervise and administer the investment
program of the Fund, to determine in its discretion the assets to be held
uninvested, to provide the Trust with records concerning the Adviser's
activities which the Trust is required to maintain, and to render regular
reports to the Trust's officers and Board of Trustees concerning the Adviser's
discharge of the foregoing responsibilities. The Adviser shall discharge the
foregoing responsibilities subject to the control of the officers and the Board
of Trustees of the Trust, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus and statement of additional
information and applicable law. The Adviser accepts such employment and agrees
to render the services and to provide, at its own expense, the office space,
furnishings, equipment and the personnel required by it to perform the services
on the terms and for the compensation provided herein.
3. Portfolio Transactions. The Adviser shall select and monitor the
selection of the brokers or dealers that will execute the purchases and sales of
securities for the Fund and is directed to use its best efforts to ensure that
the best available price and most favorable execution of securities transactions
for the Fund are obtained. Subject to policies established by the Board of
Trustees of the Fund and communicated to the Adviser, it is understood that the
Adviser will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Fund, or be in breach of any
obligation owing to the Trust or in respect of the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Adviser determines in reasonable good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Adviser's overall responsibilities with respect to the accounts, including the
Fund, as to which it exercises investment discretion. The Adviser will promptly
communicate to the officers and directors of the Trust such information relating
to Fund transactions as they may reasonably request.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 2 and 3 of this Agreement, the Fund shall pay to
the Adviser within five business days after the end of each calendar month, a
monthly fee of one twelfth of 0.45% of the Fund's average daily net assets for
the month. In the event the Adviser is engaged for a period of less than one
month, it shall receive the same monthly fee paid on a pro rata basis.
The Adviser may reduce any portion of the compensation or reimbursement
of expenses due to it pursuant to this Agreement and may agree to make payments
to limit the expenses which are not the responsibility of the Adviser under this
Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any fee withheld pursuant to this paragraph from the
Adviser shall be reimbursed by the Fund to the Adviser in the first, second or
third (or all) fiscal year next succeeding the fiscal year of the withholding to
the extent permitted by the applicable state law if the aggregate expenses for
<PAGE>
the applicable succeeding fiscal year do not exceed the applicable state
limitation or any more restrictive limitation to which the Adviser has agreed.
In the event of termination of this Agreement, the fee provided in this
Section 4 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
5. Reports. The Fund and the Adviser agree to furnish to each other
such information regarding their operations with regard to their affairs as each
may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Trust's employment of the Adviser is not an exclusive arrangement, and the Trust
may from time to time employ other individuals or entities to furnish it with
the services provided for herein.
7. Liability of Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
The Fund shall indemnify and hold harmless the Adviser, its general
partner and the shareholders, directors, officers and employees of each of them
(any such person, an "Indemnified Party") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating and defending
any alleged loss, liability, claim, damage or expenses and reasonable counsel
fees incurred in connection therewith) arising out of the Indemnified Party's
performance or non-performance of any duties under this Agreement provided,
however, that nothing herein shall be deemed to protect any Indemnified Party
against any liability to which such Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or director or officer of the Adviser from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
8. Duration and Termination. This Agreement shall become effective on
May , 1994, provided that first it is approved by the Board of Trustees of the
Fund, including a majority of those trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Fund; and shall continue in
effect until May , 1996. Thereafter, this Agreement may continue in effect only
if such continuance is approved at least annually by, (i) the Fund's Board of
Trustees or, (ii) by the vote of a majority of the outstanding voting securities
of the Fund; and in either event by a vote of a majority of those trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party in the manner provided in section 15(c) of the Investment Company Act
of 1940. Notwithstanding the foregoing, this Agreement may be terminated: (a) at
any time without penalty by the Fund upon the vote of a majority of the Trustees
or by vote of the majority of the Fund's outstanding voting securities, upon
sixty (60) days' written notice to the Adviser or (b) by the Adviser at any time
without penalty, upon sixty (60) days' written notice to the Fund. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered or mailed postpaid, to the other party at the
principal office of such party.
As used in this Section 8, the terms "assignment", "interested person",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
9. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, provided that the basic agreement
is not thereby impaired and the Agreement continues to conform with applicable
law.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this day of , 1994.
ATTEST BALANCED FUND
<PAGE>
By:
- -------------------------- ------------------------
Thomas Morton, President
ATTEST McMORGAN & COMPANY
By:
- -------------------------- ------------------------
<PAGE>
Exhibit 99.B.5.e
INVESTMENT ADVISORY AGREEMENT
FOR
EQUITY INVESTMENT FUND
AGREEMENT made this ____day of _____, 1994 by and between McM Funds,
a Delaware Business Trust (the "Trust") on behalf of the Equity Investment Fund
(the "Fund") and McMorgan & Company, a California corporation and registered
investment adviser (the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company.
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund for the periods on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Duties of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to the Equity Investment Fund, a separate series of shares of
the Trust, for the period and on such terms set forth in this Agreement. The
Trust employs the Adviser to manage the investment and reinvestment of the
assets of the Fund, to continuously review, supervise and administer the
investment program of the Fund, to determine in its discretion the assets to be
held uninvested, to provide the Trust with records concerning the Adviser's
activities which the Trust is required to maintain, and to render regular
reports to the Trust's officers and Board of Trustees concerning the Adviser's
discharge of the foregoing responsibilities. The Adviser shall discharge the
foregoing responsibilities subject to the control of the officers and the Board
of Trustees of the Trust, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus and statement of additional
information and applicable law. The Adviser accepts such employment and agrees
to render the services and to provide, at its own expense, the office space,
furnishings, equipment and the personnel required by it to perform the services
on the terms and for the compensation provided herein.
3. Portfolio Transactions. The Adviser shall select and monitor the
selection of the brokers or dealers that will execute the purchases and sales of
securities for the Fund and is directed to use its best efforts to ensure that
the best available price and most favorable execution of securities transactions
for the Fund are obtained. Subject to policies established by the Board of
Trustees of the Fund and communicated to the Adviser, it is understood that the
Adviser will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Fund, or be in breach of any
obligation owing to the Trust or in respect of the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Adviser determines in reasonable good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Adviser's overall responsibilities with respect to the accounts, including the
Fund, as to which it exercises investment discretion. The Adviser will promptly
communicate to the officers and directors of the Trust such information relating
to Fund transactions as they may reasonably request.
4. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 2 and 3 of this Agreement, the Fund shall pay to
the Adviser within five business days after the end of each calendar month, a
monthly fee of one twelfth of 0.50% of the Fund's average daily net assets for
the month. In the event the Adviser is engaged for a period of less than one
month, it shall receive the same monthly fee paid on a pro rata basis.
The Adviser may reduce any portion of the compensation or reimbursement
of expenses due to it pursuant to this Agreement and may agree to make payments
to limit the expenses which are not the responsibility of the Adviser under this
Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any fee withheld pursuant to this paragraph from the
Adviser shall be reimbursed by the Fund to the Adviser in the first, second or
third (or all) fiscal year next succeeding the fiscal year of the withholding to
the extent permitted by the applicable state law if the aggregate expenses for
the applicable succeeding fiscal year do not exceed the applicable state
limitation or any more restrictive limitation to which the Adviser has agreed.
<PAGE>
In the event of termination of this Agreement, the fee provided in this
Section 4 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
5. Reports. The Fund and the Adviser agree to furnish to each other
such information regarding their operations with regard to their affairs as each
may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Trust's employment of the Adviser is not an exclusive arrangement, and the Trust
may from time to time employ other individuals or entities to furnish it with
the services provided for herein.
7. Liability of Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
The Fund shall indemnify and hold harmless the Adviser, its general
partner and the shareholders, directors, officers and employees of each of them
(any such person, an "Indemnified Party") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating and defending
any alleged loss, liability, claim, damage or expenses and reasonable counsel
fees incurred in connection therewith) arising out of the Indemnified Party's
performance or non-performance of any duties under this Agreement provided,
however, that nothing herein shall be deemed to protect any Indemnified Party
against any liability to which such Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or director or officer of the Adviser from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
8. Duration and Termination. This Agreement shall become effective on
May , 1994, provided that first it is approved by the Board of Trustees of the
Fund, including a majority of those trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Fund; and shall continue in
effect until May , 1996. Thereafter, this Agreement may continue in effect only
if such continuance is approved at least annually by, (i) the Fund's Board of
Trustees or, (ii) by the vote of a majority of the outstanding voting securities
of the Fund; and in either event by a vote of a majority of those trustees of
the Trust who are not parties to this Agreement or interested persons of any
such party in the manner provided in section 15(c) of the Investment Company Act
of 1940. Notwithstanding the foregoing, this Agreement may be terminated: (a) at
any time without penalty by the Fund upon the vote of a majority of the Trustees
or by vote of the majority of the Fund's outstanding voting securities, upon
sixty (60) days' written notice to the Adviser or (b) by the Adviser at any time
without penalty, upon sixty (60) days' written notice to the Fund. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act). Any notice under this Agreement shall be given in
writing, addressed and delivered or mailed postpaid, to the other party at the
principal office of such party.
As used in this Section 8, the terms "assignment", "interested person",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
9. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, provided that the basic agreement
is not thereby impaired and the Agreement continues to conform with applicable
law.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this day of , 1994.
ATTEST EQUITY INVESTMENT FUND
<PAGE>
By:
- -------------------------- ------------------------
Thomas Morton, President
ATTEST McMORGAN & COMPANY
By:
- -------------------------- ------------------------
<PAGE>
Exhibit 99.B.6
UNDERWRITING AGREEMENT
This Agreement, dated as of the ___ day of ____, 1994, made by and
between McM Funds, a Delaware business trust (the "Trust") operating as a
registered investment company under the Investment Company Act of 1940, as
amended (the "Act"), duly organized and existing under the laws of the State of
Delaware; McMorgan & Company, ("the Advisor"), a registered investment adviser
existing as a corporation duly organized and existing under the laws of the
State of California; and Fund/Plan Broker Services, Inc. ("Fund/Plan"), a
corporation duly organized and existing under the laws of the State of Delaware
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is authorized by its Trust Instrument to issue
separate series of shares representing interests in separate investment
portfolios (the "Series"), which Series are identified on Schedule "C" attached
hereto, and which Schedule "C" may be amended from time to time by mutual
agreement among the Parties; and
WHEREAS, the Advisor has been appointed investment adviser to the
Trust; and
WHEREAS, Fund/Plan is a broker-dealer registered with the U.S.
Securities and Exchange Commission and a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Parties are desirous of entering into an agreement
providing for the distribution by Fund/Plan of shares of the Series of the Trust
(the "Shares"), and that Fund/Plan be compensated by the Advisor for providing
such services.
NOW, THEREFORE, in consideration of the promises and agreements of the
Parties contained herein, the Parties agree as follows:
1. Appointment.
The Trust hereby appoints Fund/Plan as its exclusive agent for the
distribution of the Shares, and Fund/Plan hereby accepts such
appointment under the terms of this Agreement. The Trust agrees that it
will not sell any shares to any person except to fill orders for the
shares received through Fund/Plan; provided, however, that the
foregoing exclusive right shall not apply: (a) to shares issued or sold
in connection with the merger or consolidation of any other investment
company with the Trust or the acquisition by purchase or otherwise of
all or substantially all of the assets of any investment company or
substantially all of the outstanding shares of any such company by the
Trust; (b) to shares which may be offered by the Trust to its
stockholders for reinvestment of cash distributed from capital gains or
net investment income of the Trust; or (c) to shares which may be
issued to shareholders of other funds who exercise any exchange
privilege set forth in the Trust's Prospectus. Notwithstanding any
other provision hereof, the Trust may terminate, suspend, or withdraw
the offering of the Shares whenever, in its sole discretion, it deems
such action to be desirable.
2. Sale and Repurchase of Shares.
(a) Fund/Plan is hereby granted the right as agent for the Trust,
to sell Shares to the public against orders therefor at the
public offering price (as defined in sub-paragraph 2.(c)
hereof).
(b) Fund/Plan will also have the right to take, as agent for the
Trust, all actions which, in Fund/Plan's judgment, are
necessary to carry into effect the distribution of the Shares.
(c) The public offering price shall be the net asset value of the
Shares then in effect.
<PAGE>
(d) The net asset value of the Shares shall be determined in the
manner provided in the then current prospectus, and statement
of additional information relating to the Shares and when
determined shall be applicable to all transactions as provided
in the prospectus. The net asset value of the Shares shall be
calculated by the Trust or by another entity on behalf of the
Trust. Fund/Plan shall have no duty to inquire into or
liability for the accuracy of the net asset value per Share as
calculated.
(e) On every sale, the Trust shall receive the applicable net
asset value of the Shares promptly.
(f) Upon receipt of purchase instructions, Fund/Plan will transmit
such instructions to the Trust or its transfer agent for
registration of the Shares purchased.
(g) Nothing in this Agreement shall prevent Fund/Plan or any
affiliated person (as defined in the Act) of Fund/Plan from
acting as underwriter or distributor for any other person,
firm or corporation (including other investment companies) or
in any way limit or restrict Fund/Plan or such affiliated
person from buying, selling or trading any securities for its
or their own account or for the accounts of others for whom it
or they may be acting; provided, however, that Fund/Plan
expressly agrees that it will not for its own account purchase
any shares of the Trust except for investment purposes and
that it will not for its own account sell any such shares
except by redemption of such shares by the Trust, and that it
will not undertake in any activities which, in its judgment,
will adversely affect the performance of its obligations to
the Trust under this Agreement.
(h) Fund/Plan may repurchase Shares at such prices and upon such
terms and conditions as shall be specified in the Prospectus.
3. Rules of Sale of Shares.
Fund/Plan does not agree to sell any specific number of Shares.
Fund/Plan, as Underwriter for the Trust, undertakes to sell Shares on a
best efforts basis and only against orders received therefor. The Trust
reserves the right to refuse at any time or times to sell any of its
Shares for any reason deemed adequate by it.
4. Rules of NASD.
(a) Fund/Plan will conform to the Rules of Fair Practice of the
NASD and the securities laws of any jurisdiction in which it
directly or indirectly sells any Shares.
(b) Fund/Plan will require each dealer with whom Fund/Plan has a
selling agreement to conform to the applicable provisions of
the Prospectus, with respect to the public offering price of
the Shares, and Fund/Plan shall not cause the Trust to
withhold the placing of purchase orders so as to make a profit
thereby.
(c) The Trust agrees to furnish to Fund/Plan sufficient copies of
any agreements, plans, communications with the public or other
materials it intends to use in connection with any sales of
Shares in adequate time for Fund/Plan to file and clear
(unless Fund/Plan and the Trust agree that any such material
may be filed subsequent to distribution) such materials with
the proper authorities before they are put in use unless
Fund/Plan and the Trust agree that any such material may be
filed subsequent to distribution. In addition,
<PAGE>
the Trust agrees not to use any such materials until so filed
and cleared for use by appropriate authorities and Fund/Plan.
(d) Fund/Plan, at its own expense, will qualify as a dealer or
broker, or otherwise, under all applicable state or federal
laws required in order that the Shares may be sold in such
states as may be mutually agreed upon by the parties.
(e) Fund/Plan shall not, in connection with any sale or
solicitation of a sale of the Shares, make or authorize any
representative, Service Organization, broker or dealer to
make, any representations concerning the Shares except those
contained in the Prospectus covering the Shares and in
communications with the public or sales materials approved by
Fund/Plan and the Trust as information supplemental to such
Prospectus. Copies of the Prospectus will be supplied by the
Trust to Fund/Plan in reasonable quantities upon request.
5. Records to be Supplied by the Trust.
The Trust shall furnish to Fund/Plan copies of all information,
financial statements and other papers which Fund/Plan may reasonably
request for use in connection with the distribution of the Shares
including, but not be limited to, one certified copy of all financial
statements prepared for the Trust by its independent public
accountants.
6. Expenses.
(a) The Trust will bear the following expenses:
(i) preparation, setting in type, and printing of
sufficient copies of the prospectuses and statements
of additional information for distribution to
shareholders, and the distribution of same to the
shareholders;
(ii) preparation, printing and distribution of reports and
other communications to shareholders;
(iii) registration of the Shares under the federal
securities laws;
(iv) qualification of the Shares for sale in the
jurisdictions mutually agreed upon by the Trust and
Fund/Plan;
(v) maintaining facilities for the issue and transfer of
the Shares;
(vi) supplying information, prices and other data to be
furnished by the Trust under this Agreement; and
(vii) any original issue taxes or transfer taxes applicable
to the sale or delivery of the Shares or certificates
therefor.
(b) the Advisor will pay all other expenses incident to the sale
and distribution of the Shares sold hereunder.
7. Term and Compensation.
(a) The term of this Agreement shall commence on the date which
the Trust's registration statement becomes effective (the
"Effective Date"), with the U.S. Securities and Exchange
Commission.
(b) This Agreement shall remain in effect for two (2) years from
the Effective Date. The Agreement shall continue thereafter
for periods not exceeding one (1) year if approved at least
annually (i) by a vote of a majority of the outstanding voting
securities of each Series or by a vote of the Trustees
<PAGE>
of the Trust, and (ii) by a vote of a majority of the trustees
of the Trust who are not interested persons or parties to this
Agreement (other than as Trustees of the Trust), cast in
parson at a meeting called for the purpose of voting on such
approval.
(c) Fees payable to Fund/Plan shall by paid by the Advisor as set
forth in Schedule "B" attached and shall be fixed for the two
(2) years period commencing on the Effective Date of this
Agreement. Thereafter, the fee schedule will be subject to
annual review and adjustment.
(d) This Agreement (i) may at any time be terminated without the
payment of any penalty, either by a vote of the Trustees of
the Trust or by a vote of a majority of the outstanding voting
securities of each Series with respect to such Series, on
sixty (60) days' written notice to Fund/Plan; and (ii) may be
terminated by Fund/Plan on sixty (60) days' written notice to
the Trust with respect to any Series.
(e) This Agreement shall automatically terminate in the event of
its assignment.
8. Indemnification of Fund/Plan by Advisor.
The Advisor will indemnify and hold Fund/Plan harmless for the actions
of its employees registered with the NASD as Fund/Plan representatives
and will undertake to maintain compliance with all rules and
regulations concerning any and all sales presentations made by such
employees.
9. Liability of Fund/Plan.
(a) Fund/Plan, its directors, officers, employees, shareholders
and agents shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in
connection with the performance of this Agreement, except a
loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence on the
part of Fund/Plan in the performance of its obligations and
duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
(b) The Trust agrees to indemnify and hold harmless Fund/Plan
against any and all liability, loss, damages, costs or
expenses (including reasonable counsel fees) which Fund/Plan
may incur or be required to pay hereafter, in connection with
any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative
body, in which Fund/Plan may be involved as a party or
otherwise or with which Fund/Plan may be threatened, by reason
of the offer or sale of the Trust shares prior to the
execution of this Agreement.
(c) Any person, even though also a director, officer, employee,
shareholder or agent of Fund/Plan, who may be or become an
officer, director, trustee, employee or agent of the Trust,
shall be deemed, when rendering services to the Trust or
acting on any business of the Trust (other than services or
business in connection with Fund/Plan's duties hereunder), to
be rendering such services to or acting solely for the Trust
and not as a director, officer, employee, shareholder or
agent, or one under the control or direction of Fund/Plan even
though receiving a salary from Fund/Plan.
(d) The Trust agrees to indemnify and hold harmless Fund/Plan, and
each person, who controls Fund/Plan within the meaning of
Section 15 of the Securities Act of 1933, as amended (the
"Securities Act"), or Section 20 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any and
all losses, claims, damages and liabilities, joint or several
<PAGE>
(including any reasonable investigative, legal and other
expenses incurred in connection therewith) to which they, or
any of them, may become subject under the Act, the Securities
Act, the Exchange Act or other federal or state law or
regulation, at common law or otherwise insofar as such losses,
claims, damages or liabilities (or actions, suits or
proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material
fact contained in a prospectus, statement of additional
information, supplement thereto, sales literature or other
written information prepared by the Trust and furnished by the
Trust to Fund/Plan for Fund/Plan's use hereunder, disseminated
by the Trust or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading. Such indemnity shall not, however, inure to
the benefit of Fund/Plan (or any person controlling Fund/Plan)
on account of any losses, claims, damages or liabilities (or
actions, suits or proceedings in respect thereof) arising from
the sale of the shares of the Trust to any person by Fund/Plan
(i) if such untrue statement or omission or alleged untrue
statement or omission was made in the prospectus, statement of
additional information, or supplement, sales or other
literature, in reliance upon and in conformity with
information furnished in writing to the Trust by Fund/Plan
specifically for use therein or (ii) if such losses, claims,
damages or liabilities arise out of or are based upon an
untrue statement or omission or alleged untrue statement or
omission found in any prospectus, statement of additional
information, supplement, sales or other literature,
subsequently corrected, but, negligently distributed by
Fund/Plan and a copy of the corrected prospectus was not
delivered to such person at or before the confirmation of the
sale to such person.
Fund/Plan agrees to indemnify and hold harmless the Trust for such losses,
claims, damages or liabilities as a result of , and consistent with of (i) of
(ii) above.
10. Amendments.
No provision of this Agreement may be amended or modified, in any
manner whatsoever except by a written agreement properly authorized and
executed by the Parties.
11. Section Headings.
Section and Paragraph headings are for convenience only and shall not
be construed as part of this Agreement.
12. Reports.
Fund/Plan shall prepare reports for the Board of Trustees of the Trust
on a quarterly basis showing such information as from time to time
shall be reasonably requested by such Board.
13. Severability.
If any part, term or provision of this Agreement is held by any court
to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not
affected, and the rights and obligations of the parties shall be
construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid
provided that the basic agreement is not thereby substantially
impaired.
<PAGE>
14. Governing Law.
This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania and the venue of any action arising under this Agreement
shall be Montgomery County, Commonwealth of Pennsylvania if the suit is
instituted by the Trust or the Advisor. If a suit is instituted by
Fund/Plan, the venue of such action arising under this Agreement shall
be San Francisco, California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement consisting of
nine type written pages, together with Schedules "A", "B" and "C", to be signed
by their duly authorized officers, as of the day and year first above written.
McM Funds
------------------------------------
By: Deane A. Nelson, Vice President
McMorgan & Company
------------------------------------
By: Thomas Morton, President
Fund/Plan Broker Services, Inc.
- ------------------------------------
By: Nancy E. Kuhn,
President
<PAGE>
SCHEDULE "A"
UNDERWRITER/DISTRIBUTION SERVICES
FOR
McM FUNDS
FUND/PLAN BROKER SERVICES, INC.
Fund/Plan Broker Services, Inc. (FPBS), a fully registered Broker/Dealer and
member of the National Association of Securities Dealers (NASD) offers
Underwriter/Sponsor and Distribution/Marketing Services to our Mutual Fund
Clients.
UNDERWRITER/SPONSOR SERVICES
As Underwriter/Sponsor, FPBS assumes the responsibility for distribution of
Trust shares within the guidelines outlined by the Investment Company Act of
1940 of the Securities Exchange Commission as well as the NASD. This includes,
but is not limited to, submission of Trust literature to the NASD as well as
registration and licensing of Trust personnel.
Underwriter/Sponsor services include:
A) Compliance and maintenance of Trust share registration limits
B) Preparation and execution of Underwriter and 12B-1 Plan Agreements
Monitoring accruals
Monitoring expenses
Disbursements for expenses and trail commissions
C) Quarterly Reports to Board of Directors and/or Trustees
D) Literature review, recommendations and submission to the NASD
E) All NASD required files and bookkeeping
F) Initial NASD Licensing and Transfers of Registered Representatives
This includes: U-4 Form and Fingerprint Submission to NASD
Supplying Series 6 or 7 and 63 written study
material
Renewals and Terminations of Representatives
G) Written supervisory procedures and manuals for Registered
Representatives
H) Ongoing training and updates for Representatives regarding disbursement
of Trust literature, written correspondence and communications with the
public.
DISTRIBUTION/MARKETING SERVICES
As Distributor (a term often used interchangeable with Underwriter), FPBS offers
optional marketing services including, but not limited to, Inbound
Telemarketing.
I. Inbound Telemarketing Services
A) Receive and answer directly with name of the Trust
B) Input marketing inquiries on confidential database for Fund
C) Fax to Trust daily the names and addresses of prospects
requesting literature.
C) Fax to Trust daily the names and phone numbers of prospects
requesting verbal information.
<PAGE>
SCHEDULE "B"
UNDERWRITER AND DISTRIBUTION FEE SCHEDULE
FOR
McM FUNDS
I. UNDERWRITER/SPONSOR SERVICES
A) The annual fee to Fund/Plan Broker Services (FPBS) will be
$15,000 per year as primary Underwriter/Distributor of the
Funds and primary licensing/regulatory agent for Trust
personnel. Fund/Plan Broker Services will be required to
maintain the Funds' registration with FPBS as Broker/Dealer of
record.
B) FPBS will maintain annual NASD and state license renewals and
the monitoring required of representative activities as
follows:
Up to 2 States - $1,000 per Representative per Year
3 to 30 States - $2,000 per Representative per Year
31 to 50 States - $3,000 per Representative per Year
II. DISTRIBUTION/MARKETING SERVICES
Inbound Telemarketing Services $1.50 per call
Three Month Introductory Minimum Monthly Fee - $500
III. OUT-OF-POCKET EXPENSES
McM Funds will reimburse Fund/Plan Services monthly for all
out-of-pocket expenses, including postage, telecommunications
(telephone and fax), special reports, record retention, special
transportation costs as incurred.
<PAGE>
SCHEDULE "C"
Identification of Series
Below are listed the "Series" to which services under this Agreement are to be
performed as of the execution date of this Agreement:
"McM Funds"
1. Equity Investment Fund
2. Special Equity Fund
3. Balanced Fund
4. Intermediate Fixed Income Fund
5. Fixed Income Fund
6. Principal Preservation Fund
This Schedule "C" may be amended from time to time by agreement of the Parties.
McM Funds
------------------------------------
By: Deane A. Nelson, Vice President
McMorgan & Company
------------------------------------
By: Thomas Morton, President
Fund/Plan Broker Services, Inc.
- ------------------------------------
By: Nancy E. Kuhn,
President
<PAGE>
Exhibit 99.B.8.a
Amendment to the Custody Agreement between The Bank of New York and McM Funds
dated April __, 1996
o Indemnification - Page 39, Paragraph 14, "negligence or willful
misconduct" shall be changed to state "negligence, willful misconduct,
lack of good faith, or reckless disregard of its duties." In addition,
the Custodian agrees not settle any claim without the Fund's written
consent.
- -------------------------------- ------------------------------------
Deane A. Nelson, President Vincent M. Blazewicz, Vice President
McM Funds The Bank of New York
- -------------------------------- ------------------------------------
Attest Attest
<PAGE>
Amendment to the Custody Administration Agreement between Fund/Plan Services,
Inc and McM Funds dated April ____, 1996.
o Parallel Indemnifications - Page 4, Section 4 (c), Fund/Plan shall
indemnify and hold harmless the Fund from and against any and all
claims, demands, expenses and liabilities of any and every nature which
the Fund may sustain or incur or which may be asserted against the Fund
by any person by reason of, or as a result of, Fund/Plan's own
negligence or willful misconduct, lack of good faith, or reckless
disregard of its duties."
- -------------------------------- ------------------------------------
Deane A. Nelson, President Kenneth J. Kempf, President
McM Funds Fund/Plan Services, Inc.
- -------------------------------- ------------------------------------
Attest Attest
<PAGE>
Exhibit 99.B.8.b
CUSTODY AGREEMENT
Agreement made as of this ____ day of _______, 199____, between
McM FUNDS, a Delaware business trust organized and existing under the laws of
the State of Delaware, having its principal office and place of business at
One Bush Street, San Francisco, CA 94104 (hereinafter called the "Fund"), and
THE BANK OF NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at 48 Wall Street,
New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
WHEREAS, the Fund represents that pursuant to the Custody
Administration and Agency Agreement between Fund/Plan Services, Inc.
("Fund/Plan") and the Fund, Fund/Plan (a) has agreed to perform certain
administrative functions which may include the functions of administrator,
transfer agent and accounting services agent and (b) has been appointed by the
Fund to act as its agent in respect of certain transactions contemplated in this
Agreement; and
WHEREAS, the Fund represents that (a) Fund/Plan has agreed to
act as Fund's agent in respect of certain transactions contemplated in this
Agreement and (b) the Bank is authorized and directed to rely upon and follow
Certificates and instructions given by Fund/Plan, the Fund's agent, in respect
of transactions contemplated in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
1. "Administrator" shall mean Fund/Plan Services, Inc. and
such successors or permitted assigns as may succeed and perform its duties under
the Administration Agreement.
2. "Administration Agreement" shall mean that certain separate
agreement entitled "Custody Administration and Agency Agreement" dated as of
_______________, 199 between the Fund and the Fund/Plan Services, Inc.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
4. "Call Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from the writer thereof
the specified underlying Securities.
5. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions communicated to the Custodian by the Administrator by Terminal
Link.
6. "Clearing Member" shall mean a registered broker-dealer
which is a clearing member under the rules of O.C.C. and a member of a national
securities exchange qualified to act as a custodian for an investment company,
or any broker-dealer reasonably believed by the Custodian to be such a clearing
member.
<PAGE>
7. "Collateral Account" shall mean a segregated accountso
denominated which is specifically allocated to a Series and pledged to the
Custodian as security for, and in of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
8. "Covered Call Option" shall mean an exchange traded option
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
Securities (excluding Futures Contracts) which are owned by the writer thereof
and subject to appropriate restrictions.
9. "Depository" shall mean The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities andExchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including, without limitation,
U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank
certificates of deposit, and Eurodollar certificates of deposit, during a
specified month at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.
12. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
13. "Margin Account" shall mean a segregated account in the name
of a broker, dealer, futures commission merchant, or a Clearing Member, or in
the name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
14. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
15. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.
16. "Officers" shall be deemed to include the President any Vice
President, the Secretary, the Clerk, the Treasurer, the Controller, any
Assistant Secretary, any Assistant Clerk, any Assistant Treasurer, and any other
person or persons, including officers or employees of the Administrator, whether
or not any such other person is an officer of the Fund, duly authorized by the
Board of Trustees of the Fund to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
<PAGE>
17. "Option" shall mean a Call Option, Covered Call Option,
Stock Index Option and/or a Put Option.
18. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a person reasonably
believed by the Custodian to be an Officer.
19. "Put Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise and tender
of the specified underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
20. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
21. "Security" shall be deemed to include, without limitation,
Money Market Securities, Call Options, Put Options, Stock Index Options, Stock
Index Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
22. "Senior Security Account" shall mean an account maintained
and specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
23. "Series" shall mean the various portfolios, if any, of the
Fund as described from time to time in the current and effective prospectus for
the Fund and listed on Appendix B hereto as amended from time to time.
24. "Shares" shall mean the shares of beneficial interest of
the Fund, each of which is, in the case of a Fund having Series, allocated to a
particular Series.
25. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the value of a particular stock index at the close of the last business day of
the contract and the price at which the futures contract is originally struck.
26. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and the
value of the index on the date of exercise.
26. "Terminal Link" shall mean an electronic data transmission
link between the Administrator on behalf of the Fund and the Custodian requiring
in connection with each use of the Terminal Link by or on behalf of the
Administrator on behalf of the Fund use of an authorization code provided by the
Custodian and at least two access codes established by the Administrator on
behalf of the Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as
custodian of the Securities and moneys at
<PAGE>
any time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, the Fund will deliver or cause to be delivered to the
Custodian all Securities and all moneys owned by it, at any time during the
period of this Agreement, and shall specify with respect to such Securities and
money the Series to which the same are specifically allocated. The Custodian
shall segregate, keep and maintain the assets of the Series separate and apart.
The Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys deposited
in either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Trustees, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts,
in the name of each Series, and shall credit to the separate account for each
Series all moneys received by it for the account of the Fund with respect to
such Series. Money credited to a separate account for a Series shall be
disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the
Custodian shall furnish the Administrator with confirmations and a summary, on a
per Series basis, of all transfers to or from the account of the Fund for a
Series, either hereunder or with any co-custodian or sub-custodian appointed in
accordance with this Agreement
<PAGE>
during said day. Where Securities are transferred to the account of the Fund for
a Series, the Custodian shall also by book-entry or otherwise identify as
belonging to such Series a quantity of Securities in a fundian (or its nominee)
or shown on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Administrator with a detailed statement, on a per Series basis, of the
Securities and moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, all Securities held by the Custodian hereunder, which are
issued or issuable only in bearer form, except such Securities as are held in
the Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish or cause to be furnished to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in the name of
the Book-Entry System or the Depository any Securities which it may hold
hereunder and which may from time to time be registered in the name of the Fund.
The Custodian shall hold all such Securities specifically allocated to a Series
which are not held in the Book-Entry System or in the Depository in a separate
account in the name of such Series physically segregated at all times from those
of any other person or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by itself,
or through the use of the Book-Entry System or the Depository with respect to
Securities held hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix C annexed hereto, which may
beamended at any time by the Custodian without the prior notification or consent
of the Fund;
(c) Present for payment and collect the amount payable upon
all Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held by
the Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder
for the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
<PAGE>
(c) Deliver any Securities held by the Custodian hereunder
for the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the
Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures Contracts,
Options, or Futures Contract Options by making payments or deliveries specified
in Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin Account
and payments with respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other
than a purchase of an Option, a Futures Contract, or a Futures Contract Option,
the Fund shall deliver or cause the Administrator to deliver to the Custodian
(i) with respect to each purchase of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each purchase of Money
Market Securities, a Certificate or Oral Instructions, specifying with respect
to each such purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount purchased and
accrued interest, if any; (d) the date of purchase and settlement; (e) the
purchase price per unit; (f) the total amount payable upon such purchase; (g)
the name of the person from whom or the broker through whom the purchase was
made, and the name of the clearing broker, if any; and (h) the name of the
broker to whom payment is to be made. The Custodian shall, upon receipt of
Securities purchased by or for the Fund, pay to the broker specified in the
Certificate out of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in
<PAGE>
such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other
than a sale of any Option, Futures Contract, Futures Contract Option, or any
Reverse Repurchase Agreement, the Fund shall deliver or cause the Administrator
to deliver to the Custodian (i) with respect to each sale of Securities which
are not Money Market Securities, a Certificate, and (ii) with respect to each
sale of Money Market Securities, a Certificate or Oral Instructions, specifying
with respect to each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale; (e) the sale price per unit; (f) the
total amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the Securities
are to be delivered. The Custodian shall deliver the Securities specifically
allocated to such Series to the broker specified in the Certificate against
payment upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the
Fund shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to each Option purchased: (a) the Series to
which such Option is specifically allocated; (b) the type of Option (put or
call); (c) the name of the issuer and the title and number of shares subject to
such Option or, in the case of a Stock Index Option, the stock index to which
such Option relates and the number of Stock Index Options purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the total amount payable by the Fund in connection with such
purchase; (h) the name of the Clearing Member through whom such Option was
purchased; and (i) the name of the broker to whom payment is to be made. The
Custodian shall pay, upon receipt of a Clearing Member's statement confirming
the purchase of such Option held by such Clearing Member for the account of the
Custodian (or any duly appointed and registered nominee of the Custodian) as
custodian for the Fund, out of moneys held for the account of the Series to
which such Option is to be specifically allocated, the total amount payable upon
such purchase to the Clearing Member through whom the purchase was made,
provided that the same conforms to the total amount payable as set forth in such
Certificate.
2. Promptly after the sale of any Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to each such sale: (a) the Series to which such Option was specifically
allocated; (b) the type of Option (put or call); (c) the name of the issuer and
the title and number of shares subject to such Option or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Stock Index Options sold; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the Clearing Member through whom the sale was made. The Custodian
shall consent to the delivery of the Option sold by the Clearing Member which
previously supplied the confirmation described in preceding paragraph 1 of this
Article with respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same conforms to the total
amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Call Option: (a) the Series to which such Call Option was
specifically allocated; (b) the name of the issuer and the title and number of
shares subject to the Call Option; (c) the expiration date; (d) the date of
exercise and settlement; (e) the exercise price per share; (f) the total amount
to be paid by the Fund upon such exercise; and (g) the name of the Clearing
Member through whom such Call Option was exercised. The Custodian shall, upon
receipt of the Securities underlying the Call Option which was exercised, pay
out of the moneys held for the account of the Series to which such Call Option
was specifically allocated the total amount payable to the Clearing Member
through whom the Call Option was exercised, provided that the same conforms to
the total amount payable as set forth in such Certificate.
<PAGE>
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Put Option: (a) the Series to which such Put Option was
specifically allocated; (b) the name of the issuer and the title and number of
shares subject to the Put Option; (c) the expiration date; (d) the date of
exercise and settlement; (e) the exercise price per share; (f) the total amount
to be paid to the Fund upon such exercise; and (g) the name of the Clearing
Member through whom such Put Option was exercised. The Custodian shall, upon
receipt of the amount payable upon the exercise of the Put Option, deliver or
direct the Depository to deliver the Securities specifically allocated to such
Series, provided the same conforms to the amount payable to the Fund as set
forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index
Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver or cause the Administrator to deliver to the Custodian a Certificate
specifying with respect to such Stock Index Option: (a) the Series to which such
Stock Index Option was specifically allocated; (b) the type of Stock Index
Option (put or call); (c) the number of Options being exercised; (d) the stock
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the total amount to be received by the Fund in connection with such
exercise; and (h) the Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to such Covered Call Option: (a) the Series
for which such Covered Call Option was written; (b) the name of the issuer and
the title and number of shares for which the Covered Call Option was written and
which underlie the same; (c) the expiration date; (d) the exercise price; (e)
the premium to be received by the Fund; (f) the date such Covered Call Option
was written; and (g) the name of the Clearing Member through whom the premium is
to be received. The Custodian shall deliver or cause to be delivered, in
exchange for receipt of the premium specified in the Certificate with respect to
such Covered Call Option, such receipts as are required in accordance with the
customs prevailing among Clearing Members dealing in Covered Call Options and
shall impose, or direct the Depository to impose, upon the underlying Securities
specified in the Certificate specifically allocated to such Series such
restrictions as may be required by such receipts. Notwithstanding the foregoing,
the Custodian has the right, upon prior written notification to the Fund, at any
time to refuse to issue any receipts for Securities in the possession of the
Custodian and not deposited with the Depository underlying a Covered Call
Option.
7. Whenever a Covered Call Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct the Depository to
deliver, the Securities subject to such Covered Call Option and specifying: (a)
the Series for which such Covered Call Option was written; (b) the name of the
issuer and the title and number of shares subject to the Covered Call Option;
(c) the Clearing Member to whom the underlying Securities are to be delivered;
and (d) the total amount payable to the Fund upon such delivery. Upon the return
and/or cancellation of any receipts delivered pursuant to paragraph 6 of this
Article, the Custodian shall deliver, or direct the Depository to deliver, the
underlying Securities as specified in the Certificate against payment of the
amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall deliver
or cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Put Option: (a) the Series for which such Put Option was
written; (b) the name of the issuer and the title and number of shares for which
the Put Option is written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Put Option is written; (g) the name of the Clearing Member through whom the
premium is to be received and to whom a Put Option guarantee letter is to be
delivered; (h) the amount of cash, and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in the Senior
Security Account for such Series; and (i) the amount of cash and/or the amount
and kind of Securities specifically allocated to such Series to be deposited
into the Collateral Account for such Series. The Custodian shall, after making
the deposits into the Collateral Account specified in the Certificate, issue a
Put Option guarantee letter substantially in the form utilized by the Custodian
on the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium
<PAGE>
specified in said Certificate. Notwithstanding the foregoing, the Custodian
shall be under no obligation to issue any Put Option guarantee letter or similar
document if it is unable to make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in
the preceding paragraph is exercised, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying: (a) the
Series to which such Put Option was written; (b) the name of the issuer and
title and number of shares subject to the Put Option; (c) the Clearing Member
from whom the underlying Securities are to be received; (d) the total amount
payable by the Fund upon such delivery; (e) the amount of cash and/or the amount
and kind of Securities specifically allocated to such Series to be withdrawn
from the Collateral Account for such Series and (f) the amount of cash and/or
the amount and kind of Securities, specifically allocated to such Series, if
any, to be withdrawn from the Senior Security Account. Upon the return and/or
cancellation of any Put Option guarantee letter or similar document issued by
the Custodian in connection with such Put Option, the Custodian shall pay out of
the moneys held for the account of the Series to which such Put Option was
specifically allocated the total amount payable to the Clearing Member specified
in the Certificate as set forth in such Certificate against delivery of such
Securities, and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to such Stock Index Option: (a) the Series
for which such Stock Index Option was written; (b) whether such Stock Index
Option is a put or a call; (c) the number of options written; (d) the stock
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The Custodian shall, upon
receipt of the premium specified in the Certificate, make the deposits, if any,
into the Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among Clearing
Members in Stock Index Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to such Stock Index Option: (a) the Series
for which such Stock Index Option was written; (b) such information as may be
necessary to identify the Stock Index Option being exercised; (c) the Clearing
Member through whom such Stock Index Option is being exercised; (d) the total
amount payable upon such exercise, and whether such amount is to be paid by or
to the Fund; (e) the amount of cash and/or amount and kind of Securities, if
any, to be withdrawn from the Margin Account; and (f) the amount of cash and/or
amount and kind of Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account for such Series.
Upon the return and/or cancellation of the receipt, if any, delivered pursuant
to the preceding paragraph of this Article, the Custodian shall pay out of the
moneys held for the account of the Series to which such Stock Index Option was
specifically allocated to the Clearing Member specified in the Certificate the
total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a
previously written Option described in paragraphs, 6, 8 or 10 of this Article in
a transaction expressly designated as a "Closing Purchase Transaction" in order
to liquidate its position as a writer of an Option, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to the Option being purchased: (a) that the transaction is a
Closing Purchase Transaction; (b) the Series for which the Option was written;
(c) the name of the issuer and the title and number of shares subject to the
Option, or, in the case of a Stock Index Option, the stock index to which such
Option relates and the number of Options held; (d) the exercise price; (e) the
premium to be paid by
<PAGE>
the Fund; (f) the expiration date; (g) the type of Option (put or call); (h) the
date of such purchase; (i) the name of the Clearing Member to whom the premium
is to be paid; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium and the return and/or cancellation of any
receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to
the Option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing
Purchase Transaction with respect to any Option purchased or written by the Fund
and described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the
Fund shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to such Futures Contract, (or with respect
to any number of identical Futures Contract(s)): (a) the Series for which the
Futures Contract is being entered; (b) the category of Futures Contract (the
name of the underlying stock index or financial instrument); (c) the number of
identical Futures Contracts entered into; (d) the delivery or settlement date of
the Futures Contract(s); (e) the date the Futures Contract(s) was (were) entered
into and the maturity date; (f) whether the Fund is buying (going long) or
selling (going short) on such Futures Contract(s); (g) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in the Senior
Security Account for such Series; (h) the name of the broker, dealer, or futures
commission merchant through whom the Futures Contract was entered into; and (i)
the amount of fee or commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is to be paid. The
Custodian shall make the deposits, if any, to the Margin Account in accordance
with the terms and conditions of the Margin Account Agreement. The Custodian
shall make payment out of the moneys specifically allocated to such Series of
the fee or commission, if any, specified in the Certificate and deposit in the
Senior Security Account for such Series the amount of cash and/or the amount and
kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment required
to be made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder
is retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying: (a) the Futures Contract and the Series to
which the same relates; (b) with respect to a Stock Index Futures Contract, the
total cash settlement amount to be paid or received, and with respect to a
Financial Futures Contract, the Securities and/or amount of cash to be delivered
or received; (c) the broker, dealer, or futures commission merchant to or from
whom payment or delivery is to be made or received; and (d) the amount of cash
and/or Securities to be withdrawn from the Senior Security Account for such
Series. The Custodian shall make the payment or delivery specified in the
Certificate, and delete such Futures Contract from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to
offset a Futures Contract held by the Custodian hereunder, the Fund shall
deliver or cause the Administrator to deliver to the Custodian a Certificate
<PAGE>
specifying: (a) the items of information required in a Certificate described in
paragraph 1 of this Article, and (b) the Futures Contract being offset. The
Custodian shall make payment out of the money specifically allocated to such
Series of the fee or commission, if any, specified in the Certificate and delete
the Futures Contract being offset from the statements delivered to the Fund
pursuant to paragraph 3 of Article III herein, and make such withdrawals from
the Senior Security Account for such Series as may be specified in such
Certificate. The withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by
the Fund, the Fund shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying with respect to such Futures Contract Option:
(a) the Series to which such Option is specifically allocated; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option purchased; (d) the expiration date; (e)
the exercise price; (f) the dates of purchase and settlement; (g) the amount of
premium to be paid by the Fund upon such purchase; (h) the name of the broker or
futures commission merchant through whom such option was purchased; and (i) the
name of the broker, or futures commission merchant, to whom payment is to be
made. The Custodian shall pay out of the moneys specifically allocated to such
Series, the total amount to be paid upon such purchase to the broker or futures
commissions merchant through whom the purchase was made, provided that the same
conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to each such sale: (a) Series to which such Futures Contract Option
was specifically allocated; (b) the type of Future Contract Option (put or
call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option; (d) the date of sale; (e) the sale price; (f) the date of settlement;
(g) the total amount payable to the Fund upon such sale; and (h) the name of the
broker of futures commission merchant through whom the sale was made. The
Custodian shall consent to the cancellation of the Futures Contract Option being
closed against payment to the Custodian of the total amount payable to the Fund,
provided the same conforms to the total amount payable as set forth in such
Certificate.
3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying:
(a) the Series to which such Futures Contract Option was specifically allocated;
(b) the particular Futures Contract Option (put or call) being exercised; (c)
the type of Futures Contract underlying the Futures Contract Option; (d) the
date of exercise; (e) the name of the broker or futures commission merchant
through whom the Futures Contract Option is exercised; (f) the net total amount,
if any, payable by the Fund; (g) the amount, if any, to be received by the Fund;
and (h) the amount of cash and/or the amount and kind of Securities to be
deposited in the Senior Security Account for such Series. The Custodian shall
make, out of the moneys and Securities specifically allocated to such Series,
the payments, if any, and the deposits, if any, into the Senior Security Account
as specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to such Futures Contract Option: (a) the
Series for which such Futures Contract Option was written; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the expiration date; (e) the
exercise price; (f) the premium to be received by the Fund; (g) the name of the
broker or futures commission merchant through whom the premium is to be
received; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon receipt of the premium
<PAGE>
specified in the Certificate, make out of the moneys and Securities specifically
allocated to such Series the deposits into the Senior Security Account, if any,
as specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which
is a call is exercised, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying: (a) the Series to which such
Futures Contract Option was specifically allocated; (b) the particular Futures
Contract Option exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option was exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon its receipt of the
net total amount payable to the Fund, if any, specified in such Certificate make
the payments, if any, and the deposits, if any, cate. The deposits, if any, to
be made to the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the
Fund and which is a put is exercised, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying: (a) the
Series to which such Option was specifically allocated; (b) the particular
Futures Contract Option exercised; (c) the type of Futures Contract underlying
such Futures Contract Option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option is exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or deposited in, the Senior
Security Account for such Series, if any. The Custodian shall, upon its receipt
of the net total amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series, the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such Futures Contract
Option, the Fund shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying with respect to the Futures Contract Option
being purchased: (a) the Series to which such Option is specifically allocated;
(b) that the transaction is a closing transaction; (c) the type of Future
Contract and such other information as may be necessary to identify the Futures
Contract underlying the Futures Option Contract; (d) the exercise price; (e) the
premium to be paid by the Fund; (f) the expiration date; (g) the name of the
broker or futures commission merchant to whom the premium is to be paid; and (h)
the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account for such Series. The Custodian shall
effect the withdrawals from the Senior Security Account specified in the
Certificate. The withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Acwith the terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise
of a Futures Contract Option described in this Article shall be subject to
Article VI hereof.
<PAGE>
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the
Fund shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying: (a) the Series for which such short sale was made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or principal amount sold, and accrued interest or dividends, if any; (d) the
dates of the sale and settlement; (e) the sale price per unit; (f) the total
amount credited to the Fund upon such sale, if any, (g) the amount of cash
and/or the amount and kind of Securities, if any, which are to be deposited in a
Margin Account and the name in which such Margin Account has been or is to be
established; (h) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in a Senior Security Account, and (i) the name of the
broker through whom such short sale was made. The Custodian shall upon its
receipt of a statement from such broker confirming such sale and that the total
amount credited to the Fund upon such sale, if any, as specified in the
Certificate is held by such broker for the account of the Custodian (or any
nominee of the Custodian) as custodian of the Fund, issue a receipt or make the
deposits into the Margin Account and the Senior Security Account specified in
the Certificate.
2. In connection with the closing-out of any short sale, the
Fund shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to each such closing out: (a) the Series for
which such transaction is being made; (b) the name of the issuer and the title
of the Security; (c) the number of shares or the principal amount, and accrued
interest or dividends, if any, required to effect such closing-out to be
delivered to the broker; (d) the dates of closing-out and settlement; (e) the
purchase price per unit; (f) the net total amount payable to the Fund upon such
closing-out; (g) the net total amount payable to the broker upon such
closing-out; (h) the amount of cash and the amount and kind of Securities to be
withdrawn, if any, from the Margin Account; (i) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Senior Security
Account; and (j) the name of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net total amount payable
to the Fund upon such closing-out, and the return and/or cancellation of the
receipts, if any, issued by the Custodian with respect to the short sale being
closed-out, pay out of the moneys held for the account of the Fund to the broker
the net total amount payable to the broker, and make the withdrawals from the
Margin Account and the Senior Security Account, as the same are specified in the
Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions specifying: (a) the Series for
which the Reverse Repurchase Agreement is entered; (b) the total amount payable
to the Fund in connection with such Reverse Repurchase Agreement and
specifically allocated to such Series; (c) the broker or dealer through or with
whom the Reverse Repurchase Agreement is entered; (d) the amount and kind of
Securities to be delivered by the Fund to such broker or dealer; (e) the date of
such Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount
and kind of Securities, if any, specifically allocated to such Series to be
deposited in a Senior Security Account for such Series in connection with such
Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total
amount payable to the Fund specified in the Certificate or Oral Instructions
make the delivery to the broker or dealer, and the deposits, if any, to the
Senior Security Account, specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
described in preceding paragraph 1 of this Article, the Fund shall deliver or
cause the Administrator to deliver a Certificate or, in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate or Oral
Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement
being terminated and the Series for which same was entered; (b) the total amount
payable by the Fund in connection with such termination; (c) the amount and kind
of Securities to be received by the Fund and specifically allocated to such
Series in connection with such termination; (d) the date of termination; (e) the
name of the broker or dealer with or through whom the Reverse Repurchase
Agreement is to
<PAGE>
be terminated; and (f) the amount of cash and/or the amount and kind of
Securities to be withdrawn from the Senior Securities Account for such Series.
The Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate or Oral Instructions, make the
payment to the broker or dealer, and the withdrawals, if any, from the Senior
Security Account, specified in such Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to each such loan: (a) the Series to which the loaned Securities
are specifically allocated; (b) the name of the issuer and the title of the
Securities, (c) the number of shares or the principal amount loaned, (d) the
date of loan and delivery, (e) the total amount to be delivered to the Custodian
against the loan of the Securities, including the amount of cash collateral and
the premium, if any, separately identified, and (f) the name of the broker,
dealer, or financial institution to which the loan was made. The Custodian shall
deliver the Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the total amount
designated as to be delivered against the loan of Securities. The Custodian may
accept payment in connection with a delivery otherwise than through the
Book-Entry System or Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by
the Fund, the Fund shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying with respect to each such loan termination
and return of Securities: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities to be returned, (c) the number of shares or the principal amount to
be returned, (d) the date of termination, (e) the total amount to be delivered
by the Custodian (including the cash collateral for such Securities minus any
offsetting credits as described in said Certificate), and (f) the name of the
broker, dealer, or financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned from the broker,
dealer, or financial institution to which such Securities were loaned and upon
receipt thereof shall pay, out of the moneys held for the account of the Fund,
the total amount payable upon such return of Securities as set forth in the
Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits
to, or withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event the Certificate fails to specify the Series, the name of the
issuer, the title and the number of shares or the principal amount of any
particular Securities to be deposited by the Custodian into, or withdrawn from,
a Senior Securities Account, the Custodian shall be under no obligation to make
any such deposit or withdrawal and shall so notify the Administrator.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin Account shall
be dealt with in accordance with the terms and conditions of the Margin Account
Agreement.
<PAGE>
4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian in any
Collateral Account described herein. In accordance with applicable law the
Custodian may enforce its lien and realize on any such property whenever the
Custodian has made payment or delivery pursuant to any Put Option guarantee
letter or similar document or any receipt issued hereunder by the Custodian. In
the event the Custodian should realize on any such property net proceeds which
are less than the Custodian's obligations under any Put Option guarantee letter
or similar document or any receipt, such deficiency shall be a debt owed the
Custodian by the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund
with a statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind of
Securities held therein; and (c) the amount of money held therein. The Custodian
shall make available upon request to any broker, dealer, or futures commission
merchant specified in the name of a Margin Account a copy of the statement
furnished the Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in
which cash and/or Securities are maintained in a Collateral Account for any
Series, the Custodian shall furnish the Administrator with a statement with
respect to such Collateral Account specifying the amount of cash and/or the
amount and kind of Securities held therein. No later than the close of business
next succeeding the delivery to the Fund of such statement, the Fund shall
deliver or cause the Administrator to deliver to the Custodian a Certificate
specifying the then market value of the Securities described in such statement.
In the event such then market value is indicated to be less than the Custodian's
obligation with respect to any outstanding Put Option guarantee letter or
similar document, the Fund shall promptly specify or cause the Administrator to
promptly specify in a Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall deliver or cause the Administrator to deliver
to the Custodian a copy of the resolution of the Board of Trustees of the Fund,
certified by the Secretary, the Clerk, any Assistant Secretary or any Assistant
Clerk, either (i) setting forth with respect to the Series specified therein the
date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or
cause the Administrator to deliver to the Custodian a Certificate duly
specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically
<PAGE>
allocated to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the separate account in the name of the
Series for which such money was received.
3. Upon issuance of any Shares of any Series described in the
foregoing provisions of this Article, the Custodian shall pay, out of the money
held for the account of such Series, all original issue or other taxes required
to be paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting
forth the Series and number of Shares received by the Transfer Agent for
redemption and that such Shares are in good form for redemption, the Custodian
shall make payment to the Transfer Agent out of the moneys held in the separate
account in the name of the Series the total amount specified in the Certificate
delivered pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption
of any Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds
on behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted to the Custodian
with respect to a Series, including any indebtedness to The Bank of New York
under the Fund's Cash Management and Related Services Agreement, (except a
borrowing for investment or for temporary or emergency purposes using Securities
as collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in possession
or control of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repur- chase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing,
<PAGE>
shall specify the Series to which the same relates, and shall not incur any
indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any
bank (including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using Securities held by the Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will loan to
the Fund against delivery of a stated amount of collateral. The Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such borrowing: (a) the Series to which such borrowing relates; (b) the name of
the bank, (c) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrowing date, (g) the
market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act of
1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing
date specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to specify
in a Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be delivered as
collateral by the Custodian, the Custodian shall not be under any obligation to
deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Administrator
on behalf of the Fund be obligated to have or utilize the Terminal Link, and the
provisions of this Article shall apply if, but only if, the Fund in its sole and
absolute discretion directs the Administrator to utilize the Terminal Link to
transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Administrator on
behalf of the Fund only for the purpose of providing Certificates to the
Custodian with respect to transactions involving Securities or for the transfer
of money to be applied to the payment of dividends, distributions or redemptions
of Fund Shares, and shall be utilized by the Custodian only for the purpose of
providing notices to the Administrator. Such use shall commence only after the
Fund shall have delivered or caused the Administrator to have delivered to the
Custodian a Certificate substantially in the form of Exhibit D and shall have
established access codes. Each use of the Terminal Link by the Administrator
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established, and that such use does not contravene the Investment Company Act of
1940, as amended, or the rules or regulations thereunder.
3. The Administrator shall obtain and maintain at its own cost
and expense all equipment and services, including, but not limited to
communications services, necessary for it to utilize the Terminal Link, and the
Custodian shall not be responsible for the reliability or availability of any
such equipment or services.
4. The Fund and the Administrator each acknowledge that any data
bases made available as part of, or through the Terminal Link and any
proprietary data, software, processes, information and documentation (other
<PAGE>
than any such which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of the Custodian. The Fund and the
Administrator shall, and shall cause others to which either discloses the
Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, the Fund
and the Administrator shall return to the Custodian any and all copies of the
Information which are in its respective possession or under its respective
control, or which either distributed to third parties. The provisions of this
Article shall not affect the copyright status of any of the Information which
may be copyrighted and shall apply to all Information whether or not
copyrighted.
6. The Custodian reserves the right to modify the Terminal Link
from time to time without notice to the Fund or the Administrator except that
the Custodian shall give the Administrator notice not less than 75 days in
advance of any modification which would materially adversely affect the
Administrator's operation, and the Administrator agrees that the it shall not
modify or attempt to modify the Terminal Link without the Custodian's prior
written consent. The Fund acknowledges that any software or procedures provided
the Fund as part of the Terminal Link are the property of the Custodian and,
accordingly, the Administrator agrees that any modifications to the Terminal
Link, whether by the Administrator, or by the Custodian and whether with or
without the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes any
warranties or representations, express or implied, in fact or in law, including
but not limited to warranties of merchantability and fitness for a particular
purpose.
8. The Administrator will cause its officers and employees to
treat the authorization codes and the access codes applicable to Terminal Link
with extreme care, and the Fund and the Administrator irrevocably authorizes the
Custodian to act in accordance with and rely on Certificates received by it
through the Terminal Link. The Fund acknowledges that it is the Administrator's
responsibility to assure that only Officers use the Terminal Link, and that
Custodian shall notbe responsible nor liable for use of the Terminal Link by
persons other than such persons or Officers, or by only a single Officer, nor
for any alteration, omission, or failure to promptly forward.
9(a). Except as otherwise specifically provided in Section 9(b)
of this Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $100,000 provided, however, that the
Custodian shall have no liability under this Section 9 if the Administrator
fails to comply with the provisions of Section 11.
9(b). The Custodian's liability for its negligence in executing
or failing to execute in accordance with a Certificate received through Terminal
Link shall be only with respect to a transfer of funds which is not made in
accordance with such Certificate after such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon the Administrator
complying with the provisions of Section 12 of this Article, and shall be
limited to (i) restoration of the principal amount mistransferred, if and to the
extent that the Custodian would be required to make such restoration under
applicable law, and (ii) the lesser of (A) the Fund's actual pecuniary loss
incurred by reason of its loss of use of the mistransferred funds or the funds
which were not transferred, as the case may be, or (B) compensation for the loss
of the use of the mistransferred funds or the funds which were not transferred,
as the case may be, at a rate per annum equal to the average federal funds rate
as computed from the Federal Reserve Bank of New York's daily determination of
the effective rate for federal funds, for the period during which a Fund has
lost use of such funds. In no event shall the Custodian have any liability for
failing to execute in accordance with a Certificate a transfer of funds where
the Certificate is received by the Custodian through Terminal Link other than
through the applicable transfer module for the particular instructions
<PAGE>
contained in such Certificate.
10. Without limiting the generality of the foregoing, in no
event shall the Custodian or any manufacturer or supplier of its computer
equipment, software or services relating to the Terminal Link be responsible for
any special, indirect, incidental or consequential damages which the Fund or the
Administrator may incur or experience by reason of its use of the Terminal Link
even if the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computerbreakdown or malfunction, interruption or
malfunction of communication facilities, labor difficulties or any other similar
or dissimilar cause.
11. The Fund shall cause the Administrator to notify the
Custodian of any errors, omissions or interruptions in, or delay or
unavailability of, the Terminal Link as promptly as practicable, and in any
event within 24 hours after the earliest of (i) discovery thereof, (ii) the
Business Day on which discovery should have occurred through the exercise of
reasonable care and (iii) in the case of any error, the date of actual receipt
of the earliest notice which reflects such error, it being agreed that discovery
and receipt of notice may only occur on a business day. The Custodian shall
promptly advise the Fund whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
12. The Custodian shall verify to the Administrator, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such verification the Custodian shall
not be liable for any failure to act in accordance with such Certificate and
neither the Fund nor the Administrator may claim that such Certificate was
received by the Custodian. Such verification, which may occur after the
Custodian has acted upon such Certificate, shall be accomplished on the same day
on which such Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as
sub-custodian for each Series' Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of 1940, as
amended) and other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on Schedule I hereto
("Foreign Sub-Custodians") to carry out their respective responsibilities in
accordance with the terms of the sub-custodian agreement between each such
Foreign Sub-Custodian and the Custodian, copies of which have been previously
delivered to the Fund and receipt of which is hereby acknowledged (each such
agreement, a "Foreign Sub- Custodian Agreement"). Upon receipt of a Certificate,
together with a certified resolution substantially in the form attached as
Exhibit E of the Fund's Board of Trustees, the Fund may designate any additional
foreign sub-custodian with which the Custodian has an agreement for such entity
to act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a
Certificate from the Fund, the Custodian shall cease the employment of any one
or more Foreign Sub-Custodians for maintaining custody of the Fund's assets and
such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially
in the form previously delivered to the Fund and will not be amended in a way
that materially adversely affects the Fund without the Fund's prior written
consent.
3. The Custodian shall identify on its books as belonging to
each Series of the Fund the Foreign Securities of such Series held by each
Foreign Sub-Custodian. At the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims by the Fund
or any Series against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Fund or
any Series if and to the extent that the Fund or such Series has not been made
whole for any such loss, damage, cost, expense, liability or claim.
<PAGE>
4. Upon request of the Fund, the Custodian will, consistent with
the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable
efforts to arrange for the independent accountants of the Fund to be afforded
access to the books and records of any Foreign Sub-Custodian insofar as such
books and records relate to the performance of such Foreign Sub-Custodian under
its agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as
mutually agreed upon, statements in respect of the securities and other assets
of each Series held by Foreign Sub-Custodians, including but not limited to, an
identification of entities having possession of each Series' Foreign Securities
and other assets, and advices or notifications of any transfers of Foreign
Securities to or from each custodial account maintained by a Foreign
Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually
agreed upon, information concerning the Foreign Sub- Custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they are located and their ability to provide the
custodial services required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of securities not
materially different form those prevailing in the United States. The Custodian
shall monitor the general operating performance of each Foreign Sub-Custodian.
The Custodian agrees that it will use reasonable care in monitoring compliance
by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign
Sub-Custodian Agreement believed by the Custodian to have a material adverse
effect on the Fund or any Series it will promptly notify the Fund of such
breach. The Custodian also agrees to use reasonable and diligent efforts to
enforce its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the Fund all
notices, reports or other written information received pertaining to the Fund's
Foreign Securities, including without limitation, notices of corporate action,
proxies and proxy solicitation materials.
8. Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the account of any
Series and delivery of securities maintained for the account of such Series may
be effected in accordance with the customary or established securities trading
or securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation, delivery of
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
9. Notwithstanding any other provision in this Agreement to the
contrary, with respect to any losses or damages arising out of or relating to
any actions or omissions of any Foreign Sub-Custodian the sole responsibility
and liability of the Custodian shall be to take appropriate action at the Fund's
expense to recover such loss or damage from the Foreign Sub-Custodian. It is
expressly understood and agreed that the Custodian's sole responsibility and
liability shall be limited to amounts so recovered from the Foreign
Sub-Custodian.
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence, willful misconduct,
lack of good faith, or reckless disregard of its duties. The Custodian agrees to
indemnify and hold harmless the Trust and Trust's Trustees and officers to the
extent described above (including reasonable counsel fees) incurred or assessed
against any of them as a result of any
<PAGE>
breach or violation of this Agreement by the Custodian or its officers,
employees and agents or its nominees, resulting from their negligence, willful
misconduct, lack of good faith, or reckless disregard of its duties. The
Custodian may, with respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and opinion of counsel
to the Fund or of its own counsel, at the expense of the Fund, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence, willful misconduct, lack of
good faith, or reckless disregard of its duties on the part of the Custodian or
any of its employees or agents. Notwithstanding the foregoing, or any other
provision contained in this Agreement, in no event shall the Custodian be liable
to the Trust, its Trustees or officers, or any third party, for special,
indirect or consequential damages, or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action.
2. Without limiting the generality of the foregoing the
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares,
or the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
the Fund is sufficient collateral for the Fund, but such duty or obligation
shall be the sole responsibility of the Fund. In addition, the Custodian shall
be under no duty or obligation to see that any broker, dealer or financial
institution to which portfolio Securities of the Fund are lent pursuant to
Article XIV of this Agreement makes payment to it of any dividends or interest
which are payable to or for the account of the Fund during the period of such
loan or at the termination of such loan, provided, however, that the Custodian
shall promptly notify the Fund in the event that such dividends or interest are
not paid and received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be
the Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be
liable for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
<PAGE>
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a)
to ascertain whether any Securities at any time delivered to, or held by it or
by any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian all out-of-pocket expenses and such compensation
as may be agreed upon from time to time between the Custodian and the Fund. The
Fund represents that the Administrator has agreed to pay such compensation and
expenses promptly upon receipt of statements therefor, and hereby directs the
Custodian to (i) send all statements for compensation to its attention care of
Fund/Plan at the following address: Fund/Plan Services, Inc., 2 W. Elm Street,
Conshohocken, PA 19428, Attention: Mr. Elmer Gardner, Senior Vice President, and
(ii) accept all payments made by Fund/Plan in the Fund's name as if such
payments were made directly by the Fund. The Fund shall pay to Fund/Plan fees
for services (including custodian services provided by the Custodian) in
accordance with the Administration Agreement. The Custodian's compensation for
services rendered hereunder is set forth in a separate agreement between the
Custodian and Fund/Plan. Should Fund/Plan fail to pay or remit such compensation
to the Custodian within 20 days of the date the same is due and payable,
Custodian shall notify the Fund. If such payment or remittance is not received
from Fund/Plan within 15 days of such notice, then the Custodian will be
entitled to debit the Custody Account directly for such compensation. The
Custodian may charge compensation with respect to which it has properly sent a
notice to the Fund, as provided in the preceding sentence, and any expenses with
respect to a Series incurred by the Custodian in the performance of its duties
pursuant to such agreement against any money specifically allocated to such
Series. Unless and until the Fund or the Administrator instructs the Custodian
by a Certificate to apportion any loss, damage, liability or expense among the
Series in a specified manner, the Custodian shall also be entitled to charge
against any money held by it for the account of a Series such Series' pro rata
share (based on such Series net asset value at the time of the charge to the
aggregate net asset value of all Series at that time) of the amount of any loss,
damage, liability or expense, including counsel fees, for which it shall be
entitled to reimbursement under the provisions of this
<PAGE>
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by the Custodian and
reasonably believed by the Custodian to be a Certificate. The Custodian shall be
entitled to rely upon any Oral Instructions actually received by the Custodian.
The Fund agrees to forward or cause the Administrator to forward to the
Custodian a Certificate or facsimile thereof confirming such Oral Instructions
in such manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in
the possession of the Custodian shall be the property of the Fund. Such books
and records shall be prepared and maintained as required by the Investment
Company Act of 1940, as amended, and other applicable securities laws and rules
and regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting control of the
Book-Entry System, the Depository or O.C.C., and with such reports on its own
systems of internal accounting control as the Fund may reasonably request from
time to time.
14. The Fund agrees to indemnify the Custodian against and save
the Custodian harmless from all liability, claims, losses and demands
whatsoever, including attorney's fees, howsoever arising or incurred because of
or in connection with this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII as part of any
check redemption privilege program of the Fund, except for any such liability,
claim, loss and demand arising out of the Custodian's own negligence, willful
misconduct, lack of good faith, or reckless disregard of its duties. For any
legal proceeding giving rise to the indemnification set forth above in this
paragraph, the Fund shall be entitled to defend or prosecute any claim in the
name of the Custodian at its own expense and through counsel of its own choosing
reasonably acceptable to the Custodian if it gives written notice to the
Custodian within ten (10) Business days of receiving notice of such claim.
Notwithstanding the foregoing, the Custodian may participate in the litigation
at its own expense and with counsel of its own choosing.
15. Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Article XVI the Custodian may
deliver and receive Securities, and receipts with respect to such Securities,
and arrange for payments to be made and received by the Custodian in accordance
with the customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities
<PAGE>
against payment, delivery of such Securities and receipt of payment therefor may
not be completed simultaneously. The Fund assumes all responsibility and
liability for all credit risks involved in connection with the Custodian's
delivery of Securities pursuant to Certificates or instructions of the Fund or
the Administrator which responsibility and liability shall continue until final
payment in full has been received by the Custodian.
16. In the event the Custodian is advised by the Fund that the
Fund is no longer utilizing the services of the Administrator, then the
Custodian shall furnish or give to the Fund the statements or notices described
above as to be fur nished or given to the Administrator.
17. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Custodian. Without limiting the generality of the
foregoing, the Custodian shall have no duties or responsibilities by reason of
any terms or provisions in the Administration Agreement, and if such
Administration Agreement shall cease to be in effect the Custodian shall have no
additional duties hereunder.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice, provided, however, that if such notice is sent by theFund
and recites that it is being given contemporaneously with a termination of the
Custody Administration any Agency Agreement with Fund/Plan, such notice may
specify any date of termination selected by the Fund. In the event such notice
is given by the Fund, it shall be accompanied by a copy of a resolution of the
Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, electing to terminate this Agreement
and designating a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event such notice is given by the Custodian, the
Fund shall, on or before the termination date, deliver to the Custodian a copy
of a resolution of the Board of Trustees of the Fund, certified by the
Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk,
designating a successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a successor custodian which
shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian shall upon receipt of a notice
of acceptance by the successor custodian on that date deliver directly to the
successor custodian all Securities and moneys then owned by the Fund and held by
it as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two
of the present Officers of the Fund under its seal, setting forth the names and
the signatures of the present Officers. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that any such present
Officer ceases to be an Officer or in the event that other or additional
Officers are elected or appointed. Until such new Certificate shall be received,
the Custodian shall be fully protected in acting under the provisions of this
Agreement upon Oral Instructions or
<PAGE>
signatures of the present Officers as set forth in the last delivered
Certificate.
2. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its offices
at 90 Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address for the Fund first above written, or at such other place as the Fund may
from time to time designate in writing, and any notice or other instrument in
writing authorized or required to be given to the Administrator shall be
sufficiently given if addressed to the Administrator at such address as the
Administrator may from time to time designate in writing.
4. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same formality
as this Agreement and approved by a resolution of the Board of Trustees of the
Fund.
5. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of the
Fund, authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws
of the State of New York without giving effect to conflict of laws principles
thereof. Each party hereby consents to the jurisdiction of a state or federal
court situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers, thereunto duly authorized
and their respective seals to be hereunto affixed, as of the day and year first
above written.
McM FUNDS
[SEAL] By:_______________________
Attest:
-----------------------
THE BANK OF NEW YORK
[SEAL] By:_______________________
Attest:
-----------------------
<PAGE>
APPENDIX A
I, , President and I,
, of McM FUNDS,
a Delaware business trust (the "Fund"), do hereby certify
that:
The following individuals including officers and employees of
the Administrator have been duly authorized by the Board of Trustees
of the Fund in conformity with the Fund's Declaration of Trust and
By-Laws to give Certificates or Oral Instructions on behalf of the
Fund, and the signatures set forth opposite their respective names
are their true and correct signatures:
Name Signature
--------------------- -------------------------
<PAGE>
APPENDIX B
SERIES
McM Principal Preservation Fund
McM Intermediate Fixed Income Fund
McM Fixed Income Fund
McM Balanced Fund
McM Equity Investment Fund
<PAGE>
APPENDIX C
I, Vincent Blazewicz, a Vice President with THE BANK OF NEW YORK
do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times New
York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, ______, hereby certifies that he or she is the
duly elected and acting of McM FUNDS, a Delaware business trust (the
"Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held
on ______________, 199_, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of ____, 199_, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis to deposit in
the Book-Entry System, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated, and to
utilize the Book-Entry System to the extent possible in
connection with its performance thereunder, including, without
limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of McM FUNDS, as of the________day of____________________,
199__.
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned,________________________, hereby certifies
that he or she is the duly elected and acting _______________
of McM FUNDS, a Delaware business trust (the "Fund"), and further
certifies that the following resolution was adopted by the Board of
Trustees of the Fund at a meeting duly held on ___, 199_, at which a
quorum was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of___, 199__, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis until such time
as it receives a Certificate, as defined in the Custody
Agreement, to the contrary to deposit in the Depository, as
defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Depository to the
extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of McM FUNDS, as of the______day of________________,
199__.
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of McM FUNDS, a Delaware business trust
(the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held
on ___, 199_, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of ____, 199_, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis until such time
as it receives a Certificate, as defined in the Custody
Agreement, to the contrary to deposit in the Participants Trust
Company as Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated, and to
utilize the Participants Trust Company to the extent possible
in connection with its performance thereunder, including,
without limitation, in connection with settlements of purchases
and sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
McM FUNDS, as of the day of _____, 199_.
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he or she is the duly
elected and acting of McM FUNDS, a Delaware business trust (the
"Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held
on ____, 199_, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the Fund
dated as of _____, 199_, (the "Custody Agreement") is authorized
and instructed on a continuous and ongoing basis until such time
as it receives a Certificate, as defined in the Custody
Agreement, to the contrary, to accept, utilize and act with
respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which the
same are specifically allocated, as such terms are defined in
the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
McM FUNDS, as of the day of ____, 199_.
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, __________________________, hereby certifies
that he or she is the duly elected and acting _____________________
of McM FUNDS, a Delaware business trust (the "Fund"), further
certifies that the following resolutions were adopted by the Board of
Trustees of the Fund at a meeting duly held on ____, 199_, at which a
quorum was at all times present and that such resolutions have not
been modified or rescinded and are in full force and effect as of the
date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the Fund dated
as of _____, 199_ (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance
with, and to rely on Certificates (as defined in the Custody
Agreement) given by to the Custodian by a Terminal Link (as defined
in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant
us of such access codes only to Officers of the fund as defined in
the Custody Agreement, shall establish internal safekeeping
procedures to safeguard and protect the confidentiality and
availability of such access codes, shall limit its use of the
Terminal Link to those purposes permitted by the Custody Agreement,
shall require at least two such Officers to utilize their respective
access codes in connection with each such Certificate, and shall use
the Terminal Link only in a manner that does not contravene the
Investment Company Act of 1940, as amended, or the rules and
regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the
establishment of such access codes and such internal safekeeping
procedures, advise the Custodian that the same have been established
by delivering a Certificate, as defined in the Custody Agreement, and
the Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of McM FUNDS, as of the ______ day of _____________ ,
199_.
[SEAL]
<PAGE>
EXHIBIT E
The undersigned, , hereby certifies that he or she is
the duly elected and acting of McM FUNDS, a Delaware business trust (the
"Fund"), further certifies that the following resolutions were adopted by the
Board of Trustees of the Fund at a meeting duly held on , 199 , at
which a quorum was at all times present and that such resolutions have not been
modified or rescinded and are in full force and effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each
country listed in Schedule I hereto be, and hereby is, approved by the Board of
Trustees as consistent with the best interests of the Fund and its shareholders;
and further
RESOLVED, that the maintenance of the Fund's assets with the
foreign branches of The Bank of New York (the "Bank") listed in Schedule I
located in the countries specified therein, and with the foreign sub-custodians
and depositories listed in Schedule I located in the countries specified therein
be, and hereby is, approved by the Board of Trustees as consistent with the best
interest of the Fund and its shareholders; and further
RESOLVED, that the Subcustodian Agreements presented to this
meeting between the Bank and each of the foreign subcustodians and depositories
listed in Schedule I providing for the maintenance of the Fund's assets with the
applicable entity, be and hereby are, approved by the Board of Trustees as
consistent with the best interests of the Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby
authorized to place assets of the Fund with the aforementioned foreign branches
and foreign sub-custodians and depositories as hereinabove provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of
them, are authorized to do any and all other acts, in the name of the Fund and
on its behalf, as they, or any of them, may determine to be necessary or
desirable and proper in connection with or in furtherance of the foregoing
resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of McM
FUNDS, as of the day of , 199 .
[SEAL]
<PAGE>
Exhibit 99.B.8.c
CUSTODY ADMINISTRATION AND AGENCY AGREEMENT
This AGREEMENT, dated as of the day of , 1996 made by and
between McM Funds, a Delaware Business Trust (the "Trust") operating as an open
end management investment company registered under the Investment Company Act of
1940, as amended, duly organized and existing under the laws of the State of
Delaware and Fund/Plan Services, Inc. ("Fund/Plan"), a corporation duly
organized and existing under the laws of the State of Delaware (collectively,
the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is authorized by its Trust Instrument to issue
separate series of shares representing interests in separate investment
portfolios (the "Series"), which Series are identified on Schedule "B" attached
hereto and which Schedule "B" may be amended from time to time by mutual
agreement of the Trust and Fund/Plan; and
WHEREAS, the Trust desires to retain Fund/Plan to perform certain
custody administration services; and
WHEREAS, the Trust desires that Fund/Plan act as its agent for the
specific purpose of taking receipt of, and making payment for, custody services
performed on the Trust's behalf by The Bank of New York pursuant to an agreement
between The Bank of New York and the Trust; and
WHEREAS, Fund/Plan is willing to serve in such capacity and perform
such functions upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
APPOINTMENT OF FUND/PLAN AS AGENT
Section 1. The Trust hereby grants to Fund/Plan, and Fund/Plan hereby
accepts such grant, as an agent of the Trust for the limited purpose of: (i)
accepting invoices for custody services from The Bank of New York which invoices
reflect charges to the Trust for custody services performed by The Bank of New
York on the Trust's behalf, and (ii) remitting payment to The Bank of New York
for such services performed in amounts as set forth in Schedule "A" attached
hereto.
CUSTODY ADMINISTRATION SERVICES
Section 2. As Custody Administrator, Fund/Plan shall:
a) coordinate and process portfolio trades through client terminal
links with The Bank of New York
b) input and verify portfolio trades
c) monitor pending and failed security trades
d) coordinate communications between brokers and banks to resolve any
operational problems
e) advise the Trust of any corporate action information, address and
follow up on any dividend or interest discrepancies
f) process the Trusts' expenses
g) interface with the accounting services provider and the transfer
agent to research and resolve Custody cash problems
h) provide daily and monthly reports
<PAGE>
FEES
Section 3.
(a) Except to the extent there is material negligent
non-performance by Fund/Plan of its duties under this Agreement, the term of
this Agreement shall be for a period of two (2) years, commencing on the
effective date of the Trust's registration statement ("Effective Date") with the
U.S. Securities and Exchange Commission.
(b) The fee schedule set forth in Schedule "A" attached shall
be fixed for (2) years commencing on the Effective Date of this Agreement.
Thereafter, the fee schedule will be subject to annual review and adjustment.
(c) After the initial term of this Agreement, the Trust or
Fund/Plan may give written notice to the other of the termination of this
Agreement, such termination to take effect at the time specified in the notice,
which date shall not be less than ninety (90) days after the date of giving
notice. Upon the effective termination date, the Trust shall pay to Fund/Plan
such compensation as may be due as of the date of termination and shall likewise
reimburse Fund/Plan for any out-of-pocket expenses and disbursements reasonably
incurred by Fund/Plan to such date.
(d) If a successor to any of Fund/Plan's duties or
responsibilities under this Agreement is designated by the Trust by written
notice to Fund/Plan in connection with the termination of this Agreement,
Fund/Plan shall promptly upon such termination and at the expense of the Trust,
transfer all Required Records and shall cooperate in the transfer of such duties
and responsibilities.
For the purpose of determining fees payable to Fund/Plan, the value of
Fund's net assets shall be computed at the times and in the manner specified in
Fund's then current Prospectus and Statement of Additional Information.
During the term of this Agreement, should the Trust seek services or
functions in addition to those stated, a written amendment to this Agreement
specifying the additional services and corresponding compensation shall be
executed by both Fund/Plan and the Trust.
GENERAL PROVISIONS
Section 4.
(a) Fund/Plan, its directors, officers, employees,
shareholders and agents shall only be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement that results from willful misfeasance, bad faith,
negligence or reckless disregard on the part of Fund/Plan in the performance of
its obligations and duties under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Fund/Plan, who may be or become an officer,
trustee, employee, or agent of the Trust, shall be deemed, when rendering
services to such entity or acting on any business of the Trust, (other than
services or business in connection with Fund/Plan's duties hereunder), to be
rendering such services to or acting solely for the Trust and not as a director,
officer, employee, shareholder or agent of, or one under the control or
direction of Fund/Plan even though that person is being paid salary by
Fund/Plan.
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Fund/Plan, its directors, officers,
employees, shareholders and agents from and against any and all
<PAGE>
claims, demands, expenses and liabilities (whether with or without basis in fact
or law) of any and every nature which Fund/Plan may sustain or incur or which
may be asserted against Fund/Plan by any person by reason of, or as a result of
(i) any action taken or omitted to be taken by Fund/Plan in good faith hereunder
or (ii) any action taken or omitted to be taken by Fund/Plan in connection with
its appointment under this agreement, which action or omission was taken in good
faith in reliance upon any law, act, regulation or interpretation of the same
even though the same may thereafter have been altered, changed, amended, or
repealed. Indemnification under this subparagraph, however, shall not apply to
actions or omissions of Fund/Plan or its directors, officers, employees,
shareholders, or agents in cases of its or their own negligence, willful
misconduct, bad faith, or reckless disregard of its or their own duties
hereunder.
(d) Fund/Plan shall give written notice to the Trust within
ten (10) business days of receipt by Fund/Plan of a written assertion or claim
of any threatened or pending legal proceeding which may be subject to this
indemnification. The failure to notify the Trust of such written assertion or
claim shall not, however, operate in any manner whatsoever to relieve the Trust
of any liability arising under this Section or otherwise, except to the extent
that failure to give notice prejudices the Trust.
(e) For any legal proceeding giving rise to this
indemnification, the Trust shall be entitled to defend or prosecute any claim in
the name of Fund/Plan at its own expense and through counsel of its own choosing
if it gives written notice to Fund/Plan within ten (10) business days of
receiving notice of such claim. Notwithstanding the foregoing, Fund/Plan may
participate in the litigation at its own expense through counsel of its own
choosing. In the event the Trust chooses to defend or prosecute such claim, the
parties shall cooperate in the defense or prosecution thereof and shall furnish
such records and other information as are reasonably necessary.
(f) The Trust shall not settle any claim under (d) and (e)
above without Fund/Plan's express written consent, which consent shall not be
unreasonably withheld. Fund/Plan shall not settle any such claim under (d) and
(e) above without the Trust's express written consent which likewise shall not
be unreasonably withheld.
Section 5.
(a) The term of this Agreement shall be for a period of two
(2) years, commencing on the execution date ("effective date") of this
Agreement.
(b) The fee schedule set forth in Schedule "A" attached shall
be fixed for two (2) years after the effective date of this Agreement. At the
end of the first year, the fee schedule will be subject to annual review and
adjustment.
(c) After the initial two year term of this Agreement, the
Trust or Fund/Plan may give written notice to the other of the termination of
this Agreement, such termination to take effect at the time specified in the
notice, which date shall not be less than ninety (90) days after the date of
giving notice. Upon the effective termination date, the Trust shall pay to
Fund/Plan such compensation as may be due as of the date of termination and
shall likewise reimburse Fund/Plan for any out-of-pocket expenses and
disbursements reasonably incurred by Fund/Plan to such date.
(d) In the event that a successor to any of Fund/Plan's duties
or responsibilities under this Agreement is designated by the Trust by
appropriate and timely written notice to Fund/Plan, Fund/Plan shall,
<PAGE>
promptly upon such termination and at the expense of the Trust, transfer all
pertinent records and shall cooperate in the transfer of such duties and
responsibilities.
Section 6. This Agreement may be amended from time to time by a
supplemental agreement executed by the Trust and Fund/Plan.
Section 7. Except as otherwise provided in this Agreement, any notice
or other communication required by or permitted to be given in connection with
this Agreement shall be in writing, and shall be delivered in person or sent by
first class mail, postage prepaid, to the respective parties as follows: If to
McM Funds: If to Fund/Plan:
---------- ----------------
McM Funds Fund/Plan Services, Inc.
One Bush Street, Suite 800 2 West Elm Street
San Francisco, CA 94104 Conshohocken, PA 19428
Attention: Deane A. Nelson, Attention: Kenneth J. Kempf,
Vice President President
Copies to:
----------
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104-2878
Attention: Julie Allecta, Esquire
Section 8. The Trust represents and warrants to Fund/Plan that the
execution and delivery of this Agreement by the undersigned officers of the
Trust has been duly and validly authorized by resolution of the Board of
Trustees of the Trust.
Section 9. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 10. This Agreement shall extend to and shall be binding upon
the Parties and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust without the written consent
of Fund/Plan or by Fund/Plan without the written consent of the Trust,
authorized or approved by a resolution of their respective Boards of Directors.
Section 11. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania and the venue of any action arising under this
Agreement shall be Montgomery County, Commonwealth of Pennsylvania if the suit
is instituted by the Trust. If a suit is instituted by Fund/Plan, the venue of
such action arising under this Agreement shall be San Francisco, California.
Section 12. No provision of this Agreement may be amended or modified,
in any manner except in writing, properly authorized and executed by Fund/Plan
and the Trust.
Section 13. If any part, term or provision of this Agreement is held by
any court to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid provided that the basic Agreement is not thereby
substantially impaired.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement,
consisting in its entirety of six typewritten pages, together with Schedule "A"
and "B" to be signed by their duly authorized officers, as of the day and year
first above written.
McM Funds Fund/Plan Services, Inc.
- --------- ------------------------
- ------------------------------------ ------------------------------------
By: Deane A. Nelson, Vice President By: Kenneth J. Kempf, President
<PAGE>
SCHEDULE "A"
SCHEDULE OF FEES
I. Annual Custody Fee Schedule on Combined Assets: (1/12th payable
monthly)
.00015 On the First $500 Million of Average Net Assets
.0001 On the Next $1.5 Billion of Average Net Assets
.00009 Over $2.0 Billion of Average Net Assets
Minimum of $3,600 per Portfolio, per Year
II. Custody Domestic Securities Transactions Charge: (payable monthly)
Book Entry DTC, Federal Book Entry, PTC $12.00
Physical/Options/Futures $20.00
Mortgage Backed Securities - Principal Pay Down Per Pool $ 7.00
RICs GICs $24.00
Wire Transfer in/out not related to Securities Transaction $ 6.50
Note: A transaction includes, Buy, Sells, Maturities or
Free Security Movement.
III. When Issued, Securities Lending, Index Futures:
Should any of these investment vehicles require a separate segregated
custody account, a fee of $250 per account per month will apply.
OUT-OF-POCKET EXPENSES
The Funds will reimburse Fund/Plan Services monthly for all out-of-pocket
expenses, including telephone, postage, telecommunications, special reports,
record retention, special reports. The cost of copying and sending materials to
auditors for off-site audits will be an additional expense.
ADDITIONAL SERVICES
To the extent the Funds commence using investment techniques such as Security
Lending, Short Sales, Futures, Leveraging, Precious Metals and/or foreign
trading, additional fees will apply.
Activities of a non-recurring nature such as fund consolidations, mergers, or
reorganizations will be subject to negotiation. To the extent the Funds should
decide to issue multiple/separate classes of shares, additional fees will apply.
Any enhanced services or reports will be quoted upon request.
<PAGE>
SCHEDULE "B"
Identification of Series
Below are listed the "Series" to which services under this Agreement are to be
performed as of the execution date of this Agreement:
"McM Funds"
1. Equity Investment Fund
2. Balanced Fund
3. Intermediate Fixed Income Fund
4. Fixed Income Fund
5. Principal Preservation Fund
This Schedule "B" may be amended from time to time by agreement of the Parties.
<PAGE>
Exhibit 99.B.9.a
TRANSFER AGENT SERVICES AGREEMENT
This Agreement, dated as of the ___ day of _____, 1994, made by and
between McM Funds, a Delaware Business Trust (the "Trust") operating as a
registered investment company under the Investment Company Act of 1940, as
amended (the "Act"), and duly organized and existing under the laws of the State
of Delaware and Fund/Plan Services, Inc. ("Fund/Plan"), a corporation duly
organized and existing under the laws of the State of Delaware (collectively,
the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is authorized by its Trust Instrument to issue
separate series of shares representing interests in separate investment
portfolios (the "Series"), which Series are identified on Schedule "C" attached
hereto and which Schedule "C" may be amended from time to time by mutual
agreement of the Trust and Fund/Plan; and
WHEREAS, the Trust desires to retain Fund/Plan to perform share
transfer agency, redemption and dividend disbursing services as set forth in
this Agreement and in Schedule "A" attached hereto, and to perform certain other
functions in connection with these duties; and
WHEREAS, Fund/Plan is registered with the Securities and Exchange
Commission as a Transfer Agent as required under Section 17(A)(c) of the
Securities Exchange Act of 1934, as amended; and
WHEREAS, Fund/Plan is willing to serve in such capacity and perform
such functions upon the terms and conditions set forth below; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
Section 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have the meanings
herein specified unless the context otherwise requires.
Share Certificates shall mean the certificates representing shares of
stock of the Series.
Shareholders shall mean the registered owners of the Shares of the
Series in accordance with the share registry records maintained by Fund/Plan for
the Trust.
Shares shall mean the issued and outstanding shares of the Series.
Signature Guarantee shall mean the guarantee of signatures by an
"eligible guarantor institution" as defined in rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended. Eligible guarantor institutions include banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.
Broker-dealers guaranteeing signatures must be members of a clearing corporation
or maintain net capital of at least $100,000. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program.
Oral Instruction shall mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to Fund/Plan in
person or by telephone, telegram, telecopy or other mechanical or documentary
means lacking original signature, by a person or persons reasonably identified
to Fund/Plan to be a person or persons so authorized by a resolution of the
Board of Trustees of the Trust.
Written Instruction shall mean an authorization, instruction, approval,
item or set of data or information of any kind transmitted to Fund/Plan in an
original writing containing an original signature or a copy of such document
transmitted by telecopy including transmission of such signature reasonably
identified to Fund/Plan to be the signature of a person or persons so authorized
by a resolution of the Board of Trustees of the Trust to give
<PAGE>
Written Instructions to Fund/Plan.
TRANSFER AGENCY SERVICES
Section 2. Fund/Plan as Transfer Agent shall make original issues of
Shares in accordance with Section 9 and 10 below and with each Series'
Prospectus and Statement of Additional Information upon the written request of
the Trust, and upon being furnished with (i) a certified copy of a resolution or
resolutions of the Board of Trustees of the Trust authorizing such issue; (ii)
an opinion of counsel as to the validity of such Shares; and (iii) necessary
funds for the payment of any original issue tax applicable to such additional
Shares.
Section 3. Transfers of Shares shall be registered and new Shares
issued by Fund/Plan upon redemption of outstanding Shares, (i) in the form
deemed by Fund/Plan to be properly endorsed for transfer, (ii) with all
necessary endorser's signatures guaranteed pursuant to Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, accompanied by, (iii) such
assurances as Fund/Plan shall deem necessary or appropriate to evidence the
genuineness and effectiveness of each necessary endorsement, and (iv)
satisfactory evidence of compliance with all applicable laws relating to the
payment or collection of taxes.
Section 4. In registering transfers, Fund/Plan as Transfer Agent may
rely upon the applicable commercial code or any other applicable law which, in
the written opinion (a copy of which shall previously have been furnished to the
Trust) of counsel, protect Fund/Plan and the Trust in not requiring complete
documentation, in registering transfer without inquiry into adverse claims, in
delaying registration for purposes of such inquiry, or in refusing registration
where in its judgment an adverse claim requires such refusal.
Section 5. With respect to confirmed trades received by Fund/Plan as
Transfer Agent for the Series, Fund/Plan shall periodically notify the Trust of
the current status of outstanding confirmed trades. Fund/Plan is authorized to
cancel confirmed trades which have been outstanding for thirty (30) days. Upon
such cancellation, Fund/Plan shall instruct the accounting agent to adjust the
books of the Trust accordingly.
Section 6. Fund/Plan will maintain stock registry records in the usual
form in which it will note the issuance, transfer and redemption of Shares.
Fund/Plan is responsible to provide reports of Share purchases, redemptions, and
total Shares outstanding on the next business day after each net asset
valuation. Fund/Plan is authorized to keep records, which will be part of the
stock transfer records, in which it will note the names and registered address
of Shareholders and the number of Shares and fractions thereof owned by them.
Section 7. Fund/Plan in its capacity as Transfer Agent will, in
addition to the duties and functions above-mentioned, perform the usual duties
and functions of a stock transfer agent for an investment company as listed in
Schedule "A". Fund/Plan may rely conclusively and act without further
investigation upon any list, instruction, certification, authorization or other
instrument or paper believed by it in good faith to be genuine and unaltered,
and to have been signed, countersigned, or executed by duly authorized person or
persons, or upon the instructions of any officer of the Trust, or upon the
advice of counsel for the Trust or for Fund/Plan. Fund/Plan may record any
transfer of Shares which is reasonably believed by it to have been duly
authorized or may refuse to record any transfer of Shares if in good faith
Fund/Plan in its capacity as Transfer Agent deems such refusal necessary in
order to avoid any liability either of the Trust or Fund/Plan. The Trust agrees
to indemnify and hold harmless Fund/Plan from and against any and all losses,
costs, claims, and liability which it may suffer or incur by reason of so
relying or acting or refusing to act. Fund/Plan shall maintain and reconcile all
operating bank accounts necessary to facilitate all transfer agency processes;
including, but not limited to, distribution disbursements, redemptions and
payment clearance accounts.
<PAGE>
Section 8. In case of any request or demand for the inspection of the
Share records of the Series, Fund/Plan as Transfer Agent shall endeavor to
notify the Trust and to secure instructions as to permitting or refusing such
inspection. Fund/Plan may, however, exhibit such records to any person in any
case where it is advised by its counsel that it may be held liable for failure
to do so.
ISSUANCE OF SHARES
Section 9. Prior to the daily determination of net asset value in
accordance with the Series' Prospectus and Statement of Additional Information,
Fund/Plan shall process all purchase orders received since the last
determination of the Series' net asset value.
Fund/Plan shall calculate daily the amount available for investment in
Shares at the net asset value determined by the Series' pricing agent as of the
close of regular trading on the New York Stock Exchange, the number of Shares
and fractional Shares to be purchased and the net asset value to be deposited
with the Custodian. Fund/Plan as agent for the Shareholders shall place a
purchase order daily with the appropriate Series for the proper number of Shares
and fractional Shares to be purchased and confirm such number to the Trust, in
writing.
Section 10. Fund/Plan having made the calculations provided for in
Section 9, shall thereupon pay over the net asset value of Shares purchased to
the Custodian. The proper number of Shares and fractional Shares shall then be
issued daily and credited by Fund/Plan to the Shareholder Registration Records.
The Shares and fractional Shares purchased for each Shareholder will be credited
by Fund/Plan to that Shareholder's separate account. Fund/Plan shall mail to
each Shareholder a confirmation of each purchase, with copies to the Trust, if
requested. Such confirmations will show the prior Share balance, the new Share
balance, the amount invested and the price paid for the newly purchased Shares.
REDEMPTIONS
Section 11. Fund/Plan shall, prior to the daily determination of net
asset value in accordance with the Series' Prospectus and Statement of
Additional Information, process all requests from Shareholders to redeem Shares
and determine the number of Shares required to be redeemed to make monthly
payments, automatic payments or the like. Thereupon, Fund/Plan shall advise the
Trust of the total number of Shares available for redemption and the number of
Shares and fractional Shares requested to be redeemed. Fund/Plan as pricing
agent shall then determine the applicable net asset value, whereupon Fund/Plan
shall furnish the Trust with an appropriate confirmation of the redemption and
process the redemption by filing with the Custodian an appropriate statement and
make the proper distribution and application of the redemption proceeds in
accordance with each Series' Prospectus and Statement of Additional Information.
The stock registry books recording outstanding Shares, the Shareholder
Registration Records and the individual account of the Shareholder shall be
properly debited.
Section 12. The proceeds of redemption shall be remitted by Fund/Plan
in accordance with the appropriate Series' Prospectus and Statement of
Additional Information, by check mailed to the Shareholder at the Shareholder's
registered address or wired to an authorized bank account.
For the purposes of redemption of Shares which have been purchased
within 15 days of a redemption request, the Trust shall provide Fund/Plan, from
time to time, with Written Instructions concerning the time within which such
requests may be honored.
DIVIDENDS
Section 13. The Trust shall notify Fund/Plan of the date of each
dividend declaration or capital gains
<PAGE>
distribution and the record date for determining the Shareholders entitled to
payment. The per-share payment amount of any dividend or capital gain shall be
determined by the Trust after receipt of necessary information from and
consultation with Fund/Plan.
Section 14. On or before each payment date, the Trust will notify
Fund/Plan in its capacity as dividend disbursing agent of the total amount of
the dividend or distribution currently payable. Fund/Plan will, on the
designated payment date, automatically reinvest all dividends in additional
Shares except in cases where Shareholders have elected to receive distribution
in cash, in which case Fund/Plan will mail distribution checks to the
Shareholders for the proper amounts payable to them from monies transferred by
the Custodian to Fund/Plan for that purpose.
FEES
Section 15. The Trust agrees to pay Fund/Plan compensation for its
services and to reimburse it for expenses, at the rates and amounts as set forth
in Schedule "B" attached hereto, and as shall be set forth in any amendments to
such Schedule "B" approved by the Trust and Fund/Plan. The Trust agrees and
understands that Fund/Plan's compensation be comprised of two components:
(i) An annual Shareholder account maintenance fee calculated by
multiplying the monthly average number of accounts in each Series by one twelfth
(1/12th) the per account fee as stated in Schedule "B", subject to a minimum fee
per Series, which fee the Trust hereby authorizes Fund/Plan to collect by
debiting the Trust's custody account for invoices which are rendered for such
services performed. The invoices for the services performed will be sent to the
Trust after such debiting with the indication that payment has been made; and
(ii) reimbursement of any reasonable out-of-pocket expenses paid by
Fund/Plan on behalf of the Trust, which out-of-pocket expenses will be billed to
the Trust within the first ten calendar days of the month following the month in
which such out-of-pocket expenses were incurred. The Trust agrees to reimburse
Fund/Plan for such expenses within ten calendar days of receipt of such bill.
For the purpose of determining fees payable to Fund/Plan, the value of
each Series' net assets shall be computed at the times and in the manner
specified in each Series' Prospectus and Statement of Additional Information
then in effect.
During the term of this Agreement, should the Trust seek services or
functions in addition to those outlined above or in Schedule "A" attached, a
written amendment to this Agreement specifying the additional services and
corresponding compensation shall be executed by both Fund/Plan and the Trust.
GENERAL PROVISIONS
Section 16. Fund/Plan shall maintain records (which may be part of the
stock transfer records) in connection with the issuance and redemption of
Shares, and the disbursement of dividends and dividend reinvestments, in which
will be noted the transactions effected for each Shareholder and the number of
Shares and fractional Shares owned by each Shareholder. Fund/Plan agrees to make
available upon request and to preserve for the periods prescribed in Rule 31a-2
under the Investment Company Act of 1940, as amended, any records relating to
services provided under this Agreement which are required to be maintained by
Rule 31a-1 under the Act.
Section 17. In addition to the services as Transfer Agent and dividend
disbursing agent set forth above, Fund/Plan will perform other services for the
Trust as agreed upon from time to time, including but not limited to,
preparation of and mailing Federal Tax Information Forms and mailing semi-annual
reports to shareholders of the Trust.
<PAGE>
Section 18. Nothing contained in this Agreement is intended to or shall
require Fund/Plan in any capacity hereunder, to perform any functions or duties
on any holiday, day of special observance or any other day on which the
Custodian or the New York Stock Exchange are closed. Functions or duties
normally scheduled to be performed on such days shall be performed on, and as
of, the next business day on which both the New York Stock Exchange and the
Custodian are open.
Section 19.
(a) Fund/Plan, its directors, officers, employees,
shareholders and agents shall only be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust, in connection with the
performance of this Agreement that result from willful misfeasance, bad faith,
negligence or reckless disregard on the part of Fund/Plan in the performance of
its obligations and duties under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Fund/Plan, who may be or become an officer,
trustee, employee, or agent of the Trust, shall be deemed, when rendering
services to such entity or acting on any business of the Trust, (other than
services or business in connection with Fund/Plan's duties hereunder), to be
rendering such services to or acting solely for the Trust and not as a director,
officer, employee, shareholder or agent of, or one under the control or
direction of Fund/Plan even though that person is being paid salary by
Fund/Plan.
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Fund/Plan, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which Fund/Plan may sustain or incur or which may be asserted
against Fund/Plan by any person by reason of, or as a result of (i) any action
taken or omitted to be taken by Fund/Plan in good faith hereunder; (ii) any
action taken or omitted to be taken by Fund/Plan in good faith in reliance upon
any certificate, instrument, order, or stock certificate or other document
reasonably believed by it to be genuine and to be signed, countersigned or
executed by any duly authorized person, upon the Oral Instructions or Written
Instructions of an authorized person of the Trust or upon the opinion of legal
counsel to the Trust, or its own counsel; or (iii) any action taken or omitted
to be taken by Fund/Plan in connection with its appointment under this
agreement, which action or omission was taken in good faith in reliance upon any
law, act, regulation or interpretation of the same even though the same may
thereafter have been altered, changed, amended, or repealed. Indemnification
under this subparagraph, however, shall not apply to actions or omissions of
Fund/Plan or its directors, officers, employees, shareholders, or agents in
cases of its or their own negligence, willful misconduct, bad faith, or reckless
disregard of its or their own duties hereunder.
(d) Fund/Plan shall give written notice to the Trust within
ten (10) business days of receipt by Fund/Plan of a written assertion or claim
of any threatened or pending legal proceeding which may be subject to this
indemnification. The failure to notify the Trust of such written assertion or
claim shall not, however, operate in any manner whatsoever to relieve the Trust
of any liability arising under this Section or otherwise, except to the extent
that failure to give notice prejudices the Trust.
(e) For any legal proceeding giving rise to this
indemnification, the Trust shall be entitled to defend or prosecute any claim in
the name of Fund/Plan at its own expense and through counsel of its
<PAGE>
own choosing if it gives written notice to Fund/Plan within ten (10) business
days of receiving notice of such claim. Notwithstanding the foregoing, Fund/Plan
may participate in the litigation at its own expense through counsel of its own
choosing. In the event the Trust chooses to defend or prosecute such claim, the
parties shall cooperate in the defense or prosecution thereof and shall furnish
such records and other information as are reasonably necessary.
(f) The Trust shall not settle any claim under Section 19(d)
and 19(e) without Fund/Plan's express written consent, which consent shall not
be unreasonably withheld. Fund/Plan shall not settle any such claim without the
Trust's express written consent, which likewise shall not be unreasonably
withheld.
Section 20. Fund/Plan is authorized, upon receipt of Written
Instructions from the Trust, to make payment upon redemption of Shares without a
signature guarantee. The Trust hereby agrees to indemnify and hold Fund/Plan,
its successors and assigns, harmless of and from any and all expenses, damages,
claims, suits, liabilities, actions, demands, losses whatsoever arising out of
or in connection with a payment by Fund/Plan upon redemption of Shares pursuant
to Written Instructions and without a signature guarantee; upon the request of
Fund/Plan, the Trust shall assume the entire defense of any action, suit or
claim subject to the foregoing indemnity. Fund/Plan shall notify the Trust of
any such action, suit or claim within thirty (30) days after receipt by
Fund/Plan of notice thereof.
Section 21.
(a) Except to the extent there is material negligent
non-performance by Fund/Plan of its duties under this Agreement, the term of
this Agreement shall be for a period of two (2) years, commencing on the
effective date of the Trust's registration statement ("Effective Date") with the
U.S. Securities and Exchange Commission.
(b) The fee schedule set forth in Schedule "B" attached shall
be fixed for two (2) years commencing on the Effective Date of this Agreement.
Thereafter, the fee schedule will be subject to review and adjustment.
(c) After the initial term of this Agreement, the Trust or
Fund/Plan may give written notice to the other of the termination of this
Agreement, such termination to take effect at the time specified in the notice,
which date shall not be less than ninety (90) days after the date of giving
notice. Upon the effective termination date, the Trust shall pay to Fund/Plan
such compensation as may be due as of the date of termination and shall likewise
reimburse Fund/Plan for any out-of-pocket expenses and disbursements reasonably
incurred by Fund/Plan to such date.
(d) In the event that in connection with termination of this
Agreement a successor to any of Fund/Plan's duties or responsibilities under
this Agreement is designated by the Trust by written notice to Fund/Plan,
Fund/Plan shall promptly upon such termination and at the expense of the Trust,
transfer all Shareholder records and shall cooperate in the transfer of such
duties and responsibilities.
Section 22. The Trust shall file with Fund/Plan a certified copy of
each resolution of its Board of Trustees authorizing the execution of Written
Instructions or the transmittal of Oral Instructions, as provided in Section 1
of this Agreement.
Section 23. This Agreement may be amended from time to time by a
supplemental agreement executed by the Trust and Fund/Plan.
Section 24. Except as otherwise provided in this Agreement, any notice
or other communication required by or permitted to be given in connection with
this Agreement shall be in writing, and shall be delivered in person or sent by
first class mail, postage prepaid, to the respective parties as follows:
<PAGE>
If to McM Funds: If to Fund/Plan:
- ---------------- ----------------
McM Funds Fund/Plan Services, Inc.
One Bush Street, Suite 800 2 West Elm Street
San Francisco, CA 94104 Conshohocken, PA 19428
Attention: Deane A. Nelson, Attention: Kenneth J. Kempf,
Vice President President
Copies to:
- ----------
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104-2878
Attention: Julie Allecta, Esquire
Section 25. The Trust represents and warrants to Fund/Plan that the
execution and delivery of this Agreement by the undersigned officers of the
Trust has been duly and validly authorized by resolution of the Board of
Trustees of the Trust.
Section 26. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 27. This Agreement shall extend to and shall be binding upon
the Parties and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust without the written consent
of Fund/Plan or by Fund/Plan without the written consent of the Trust,
authorized or approved by a resolution of their respective Boards of Directors
or Trustees.
Section 28. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania and the venue of any action arising under this
Agreement shall be Montgomery County, Commonwealth of Pennsylvania if the suit
is instituted by the Trust. If a suit is instituted by Fund/Plan the venue of
any action arising under this Agreement shall be San Francisco, California.
Section 29. No provision of this Agreement may be amended or modified,
in any manner except in writing, properly authorized and executed by Fund/Plan
and the Trust.
Section 30. If any part, term or provision of this Agreement is held by
any court to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid, provided that the basic agreement is not thereby
substantially impaired.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
consisting in its entirety, of eleven type written pages, together with
Schedules "A", "B" and "C", to be signed by their duly authorized officers as
of the day and year first above written.
McM Funds
- ------------------------------------
By: Deane A. Nelson, Vice President
<PAGE>
Fund/Plan Services, Inc.
- ------------------------------------
By: Kenneth J. Kempf, President
<PAGE>
SCHEDULE "A"
The Following is a List of Transfer Agency Services to be Provided
o Opening new accounts and entering demographic data into shareholder
base.
o Real-time Customer Information File (CIF) to link accounts within the
Fund and across Funds. Facilitates account maintenance, lead tracking,
quality control, household mailings and combined statements.
o 100% Quality Control of new accounts opened on a same-day basis. All of
the above information is checked by separate individuals within a team
to identify and correct errors promptly.
o Account Maintenance with quality control.
o Processing all investments to include:
-initial investments
-subsequent investments through lock box computer interface
-pre-authorized investments through Automated Clearing House ("ACH")
-government allotments through ACH
o Processing tax ID certifications and NRA processing and handling
back-up withholding.
o Processing regular and legal transfers of accounts.
o Exchange processing via automated exchange system. Calls will be
automatically recorded.
o Responding to shareholder calls and written inquires.
o Processing reinvestment of dividends of one fund into another fund.
o Processing sweep purchases and redemptions for brokerage, bank, or
other accounts via tape or transmission.
o Generating account statements with copies to appropriate interested
parties.
o Redemption processing to include:
-complete and partial redemptions
-check redemption processing
-selected group redemptions
o Issuing and canceling of certificates.
o Replacement of certificates through surety bonds.
o Processing dividends from annual to daily dividend with monthly
payments.
o Maintain Blue Sky reporting and produce daily and monthly reports.
Daily reports reflect a "warning system" that informs the Fund when it
is within a certain percentage of shares registered in a state, or
within a certain time period for permit renewal.
o Producing daily, monthly or periodic reports of shareholder activity.
o Producing shareholder lists, labels, ad hoc reports to management,
etc.*
o Addressing, mailing, and tabulation of annual proxy cards, as
necessary.
o Preparation of federal tax information forms to include 1099-DIV's,
1099-B's, 1042's, etc. to shareholders with tape to IRS.
o Microfilming and indexing in Personal Computer system of all
application, correspondence and other pertinent
<PAGE>
shareholder documents to provide automated location of these records.
Also, all checks presented for payment or check redemptions are
microfilmed.
o System access by dedicated line.*
o Retirement Plan processing.
o Institutional Servicing
In addition to utilizing the expertise of the Retail Operations area,
institutional customers are also assigned a specific representative in
the Transfer Agent Control area to handle the special relationships
necessary to keep an institutional fund running smoothly. This
representative provides that daily availability and settlement
information as well as coordinating the sweep activity of the
institutions involved. Also, the representative interacts with the
Retail Operations areas to ensure that accounts are coded and handled
properly. This extra control makes us capable of producing a
consistent, high quality product that is most necessary in this type of
fund.
* Separate fees will apply for these services.
<PAGE>
SCHEDULE "B"
FEE SCHEDULE
FOR
McM Funds
(The Fee Schedule is fixed for a period of two (2) years from the Effective Date
of the Trust.)
I. SHAREHOLDER SERVICES AND TRANSFER AGENT FEES
A) Quarterly or Less Frequent Dividend Funds
$12.00 per Account per Year Annual Maintenance Fee
B) Monthly Dividend Funds
$14.00 per Account per Year Annual Maintenance Fee
C) Daily Dividend Funds
$18.00 per Account per Year Annual Maintenance Fee
II. IRA's, 403(b) Plans, Defined Contribution/Benefit Plans: (if
applicable)
$12.00 per Account per Year Annual Maintenance Fee
Minimum Monthly Fee per Portfolio - $2,000
III. OUT-OF-POCKET EXPENSES
McM Funds will reimburse Fund/Plan Services monthly for all reasonable
out-of-pocket expenses, including postage, stationery (statements),
telecommunications (telephone, fax, dedicated 800 line, on-line access), special
reports, transmissions, tapes, couriers and any pre-approved travel expenses.
================================================================================
IV. ADDITIONAL SERVICES
================================================================================
Activities of a non-recurring nature such as fund consolidations, mergers, or
reorganizations will be subject to negotiation. To the extent the Funds should
decide to issue multiple/separate classes of shares, additional fees will apply.
Any enhanced services, programming requests or reports will be quoted upon
request.
<PAGE>
SCHEDULE "C"
Identification of Series
Below are listed the "Series" to which services under this Agreement are to be
performed as of the execution date of the Agreement:
"McM Funds"
1. Equity Investment Fund
2. Special Equity Fund
3. Balanced Fund
4. Intermediate Fixed Income Fund
5. Fixed Income Fund
6. Principal Preservation Fund
This Schedule "C" may be amended from time to time by agreement of the Parties.
<PAGE>
Exhibit 99.B.9.b
ADMINISTRATION AGREEMENT
This Agreement, dated as of the ___day of ______, 1994, made by and
between McM Funds, a Delaware Business Trust (the "Trust") operating as a
registered investment company under the Investment Company Act of 1940, as
amended (the "Act"), duly organized and existing under the laws of the State of
Delaware and Fund/Plan Services, Inc. ("Fund/Plan"), a corporation duly
organized and existing under the laws of the State of Delaware (collectively,
the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is authorized by its Trust Instrument to issue
separate series of shares representing interests in separate investment
portfolios (the "Series"), which Series are identified on Schedule "C" attached
hereto, and which Schedule "C" may be amended from time to time by mutual
agreement of the Trust and Fund/Plan; and
WHEREAS, the Parties desire to enter into an agreement whereby
Fund/Plan will provide certain administration services to each of the Series on
the terms and conditions set forth in this Agreement; and
WHEREAS, Fund/Plan is willing to serve in such capacity and perform
such administrative services under the terms and conditions set forth below; and
WHEREAS, the Trust on behalf of each of the Series, will provide
certain information concerning the Series to Fund/Plan as set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
Section 1. Appointment The Trust hereby appoints, and Fund/Plan hereby
accepts such appointment, as administrator to each Series of the Trust. The
Trust further agrees to appoint Fund/Plan as administrator to any additional
series which, from time to time may be added to the Trust.
Section 2. Duties and Obligations of Fund/Plan
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Trustees of the Trust,
Fund/Plan shall provide to each of the Series all administrative services as set
forth in Schedule "A" attached hereto and incorporated by reference into this
Agreement. In addition to the obligations set forth in Schedule "A", Fund/Plan
shall (i) provide its own office space, facilities and equipment and personnel
for the performance of its duties under this Agreement; and (ii) take all
actions it deems necessary to properly execute administration on behalf of the
Series.
(b) So that Fund/Plan may perform its duties under the terms of this
Agreement, the Board of Trustees of the Trust shall direct the officers,
investment advisor, distributor, legal counsel, independent accountants and
custodian of the Trust to cooperate fully with Fund/Plan and to provide such
information, documents and advice relating to the Series as is within the
possession or knowledge of such persons. In connection with its duties,
Fund/Plan shall be entitled to rely, and shall be held harmless by the Trust
when acting in reasonable reliance upon the instruction, advice or any documents
relating to the Series as provided by the Trust to Fund/Plan by any of the
aforementioned persons. All fees charged by any such persons shall be deemed an
expense of the Trust.
(c) Any activities performed by Fund/Plan under this Agreement shall
conform to the requirements of:
<PAGE>
(1) the provisions of the Securities Act of 1933, as amended,
and of any rules or regulations in force thereunder;
(2) any other applicable provision of state and federal law;
(3) the provisions of the Declaration of Trust and By-Laws of
the Trust as amended from time to time;
(4) any policies and determinations of the Board of Trustees
of the Trust; and
(5) the fundamental policies of the Series as reflected in the
Trust's registration statement under the Act.
Fund/Plan agrees that all records that it maintains for the Trust are
the property of the Trust and will be surrendered promptly to the Trust upon
written request. Fund/Plan will preserve, for the periods prescribed under Rule
31a-2 under the Act, all such records required to be maintained under Rule 31a-1
of the Act.
(d) Nothing in this Agreement shall prevent Fund/Plan or any officer
thereof from acting as administrator for or with any other person, firm or
corporation. While the administrative services supplied to the Trust may be
different than those supplied to other persons, firms or corporations, Fund/Plan
shall provide the Trust equitable treatment in supplying services. The Trust
recognizes that it will not receive preferential treatment from Fund/Plan as
compared with the treatment provided to other Fund/Plan clients. Fund/Plan
agrees to maintain the records and all other information of the Trust in a
confidential manner and shall not use such information for any purpose other
than the performance of Fund/Plan's duties under this Agreement.
Section 3. Allocation of Expenses All costs and expenses of the Trust
shall be paid by the Trust including, but not limited to:
(a) fees paid to the investment adviser;
(b) interest and taxes;
(c) brokerage fees and commissions;
(d) insurance premiums;
(e) compensation and expenses of its Trustees who are not
affiliated persons of the Adviser;
(f) legal, accounting and audit expenses;
(g) custodian and transfer agent, or shareholder
servicing agent, fees and expenses;
(h) fees and expenses incident to the registration of the
shares of the Trust under Federal or state securities
laws;
(i) expenses related to preparing, setting in type,
printing and mailing prospectuses, statements of
additional information, reports and notices and proxy
material to shareholders of the Trust;
(j) all expenses incidental to holding meetings of
shareholders and Trustees of the Trust;
(k) such extraordinary expenses as may arise, including
litigation, affecting the Trust and the legal
obligations which the Trust may have regarding
indemnification of its officers and trustees; and
(l) fees and out-of-pocket expenses paid on behalf of the
Trust by Fund/Plan.
Section 4. Compensation of Fund/Plan The Trust agrees to pay Fund/Plan
compensation for its services and to reimburse it for expenses, at the rates and
amounts as set forth in Schedule "B" attached hereto, and as shall be set forth
in any amendments to such Schedule "B" approved by the Trust and Fund/Plan. The
Trust agrees and understands that Fund/Plan's compensation will be comprised of
two components and payable on a monthly basis as follows:
(i) A fixed fee for each Series, together with a combined asset-based
fee that the Trust hereby authorizes Fund/Plan to collect by debiting the
Trusts' custody account for invoices which are rendered for the services
performed. The invoices for the services performed will be sent to the Trust
after such debiting with the
<PAGE>
indication that payment has been made; and
(ii) reimbursement of any out-of-pocket expenses paid by Fund/Plan on
behalf of the Trust, which out-of-pocket expenses will be billed to the Trust
within the first ten calendar days of the month following the month in which
such out-of-pocket expenses were incurred. The Trust agrees to reimburse
Fund/Plan for such expenses within ten calendar days of receipt of such bill.
For the purpose of determining fees payable to Fund/Plan, the value of
Series' net assets shall be computed at the times and in the manner specified in
Series' Prospectuses and Statements of Additional Information then in effect.
During the term of this Agreement, should the Trust seek services or
functions in addition to those outlined above or in Schedule "A" attached, a
written amendment to this Agreement specifying the additional services and
corresponding compensation shall be executed by both Fund/Plan and the Trust.
Section 5. Duration and Termination
(a) Except to the extent there is material negligent non-performance by
Fund/Plan of its duties under this Agreement, the term of this Agreement shall
be for a period of two (2) years, commencing on the effective date of the
Trust's registration statement ("Effective Date") with the U.S. Securities and
Exchange Commission.
(b) The fee schedule set forth in Schedule "B" attached shall be fixed
for (2) years commencing on the Effective Date of this Agreement. Thereafter,
the fee schedule will be subject to review and adjustment.
(c) After the initial term of this Agreement, the Trust or Fund/Plan
may give written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice, which date shall
not be less than ninety (90) days after the date of giving notice. Upon the
effective termination date, the Trust shall pay to Fund/Plan such compensation
as may be due as of the date of termination and shall likewise reimburse
Fund/Plan for any out-of-pocket expenses and disbursements reasonably incurred
by Fund/Plan to such date.
(d) This Agreement shall extend to and shall be binding upon the
Parties and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust without the written consent
of Fund/Plan or by Fund/Plan without the written consent of the Trust,
authorized or approved by a resolution of its respective Board of Directors or
Board of Trustees.
Section 6. Amendment No provision of this Agreement may be amended or
modified, in any manner except by a written agreement properly authorized and
executed by Fund/Plan and the Trust.
Section 7. Applicable Law This Agreement shall be governed by the laws
of the Commonwealth of Pennsylvania and that the venue of any action arising
under this Agreement shall be Montgomery County, Commonwealth of Pennsylvania if
the suit is instituted by the Trust. If a suit is instituted by Fund/Plan the
venue of such action arising under this Agreement shall be San Francisco,
California.
Section 8. Limitation of Liability
(a) The execution and delivery of this contract has been duly
authorized by the Board of Trustees of the Trust and executed on behalf of the
Trust by the undersigned officer, in that officer's capacity as an officer of
the Trust. The obligations under this Agreement shall be binding upon the assets
and property of the Trust and shall not be binding upon any officer or
shareholder of the Series individually.
(b) Fund/Plan, its directors, officers, employees, shareholders and
agents shall only be liable for any error of judgment or mistake of law or for
any loss suffered by the Trust in connection with the performance of this
<PAGE>
Agreement that result from willful misfeasance, bad faith or negligence or
reckless disregard on the part of Fund/Plan in the performance of its
obligations and duties under this Agreement.
(c) Any person, even though also a director, officer, employee,
shareholder or agent of Fund/Plan, who may be or become an officer, trustee,
employee or agent of the Trust, shall be deemed when rendering services to such
entity or acting on any business of such entity (other than services or business
in connection with Fund/Plan's duties under the Agreement), to be rendering such
services to or acting solely for the Trust and not as a director, officer,
employee, shareholder or agent of, or one under the control or direction of
Fund/Plan even though such person may receive compensation from Fund/Plan.
(d) Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless Fund/Plan, its directors, officers, employees,
shareholders and agents from and against any and all claims, demands, expenses
and liabilities (whether with or without basis in fact or law) of any and every
nature which Fund/Plan may sustain or incur or which may be asserted against
Fund/Plan by any person by reason of, or as a result of (i) any action taken or
omitted to be taken by Fund/Plan in good faith, (ii) any action taken or omitted
to be taken by Fund/Plan in good faith in reliance upon any certificate,
instrument, order or stock certificate or other document reasonably believed by
Fund/Plan to be genuine and to be signed, countersigned or executed by any duly
authorized person, upon the oral instructions or written instruction of an
authorized person of the Trust or upon the opinion of legal counsel for the
Trust; or (iii) any action taken or omitted to be taken by Fund/Plan in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. Indemnification under this
subparagraph shall not apply, however, to actions or omissions of Fund/Plan or
its directors, officers, employees, shareholders or agents in cases of its or
their own negligence, misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
(e) Fund/Plan shall give written notice to the Trust within ten (10)
business days of receipt by Fund/Plan of a written assertion or claim of any
threatened or pending legal proceeding which may be subject to this
indemnification. The failure to notify the Trust of such written assertion or
claim shall not, however, operate in any manner whatsoever to relieve the Trust
of any liability arising under this Section or otherwise, unless such failure
prejudices the Trust.
(f) For any legal proceeding giving rise to this indemnification, the
Trust shall be entitled to defend or prosecute any claim in the name of
Fund/Plan at its own expense and through counsel of its own choosing if it gives
written notice to Fund/Plan within thirty (30) business days of receiving notice
of such claim. Notwithstanding the foregoing, Fund/Plan may participate in the
litigation at its own expense through counsel of its own choosing. If the Trust
does choose to defend or prosecute such claim, then the parties shall cooperate
in the defense or prosecution thereof and shall furnish such records and other
information as are reasonably necessary.
(g) The terms of this Section 8 shall survive the termination of this
Agreement.
Section 9. Notices Except as otherwise provided in this Agreement, any
notice or other communication required by or permitted to be given in connection
with this Agreement shall be in writing, and shall be delivered in person or
sent by first class mail, postage prepaid to the respective parties as follows:
If to the Trust: If to Fund/Plan:
- ---------------- ----------------
McM Funds Fund/Plan Services, Inc.
One Bush Street, Suite 800 2 West Elm Street
San Francisco, CA 94104 Conshohocken, PA 19428
<PAGE>
Attention: Deane A. Nelson, Attention: Kenneth J. Kempf,
Vice President President
Copies to:
- ----------
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104-2878
Attention: Julie Allecta, Esq.
Section 10. Severability If any part, term or provision of this
Agreement is held by any court to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall be considered
severable and not affected, and the rights and obligations of the parties shall
be construed and enforced as if the Agreement did not contain the particular
part, term or provision held to be illegal or invalid provided that the basic
agreement is not thereby substantially impaired.
Section 11. Section Headings Section and Paragraph headings are for
convenience only and shall not be construed as part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
consisting of seven type written pages, together with Schedules "A", "B" and
"C", to be signed by their duly authorized officers as of the day and year first
above written.
McM Funds Fund/Plan Services, Inc.
- --------- ------------------------
- ------------------------------------ ------------------------------------
By: Deane A. Nelson, Vice President By: Kenneth J. Kempf, President
<PAGE>
SCHEDULE "A"
FUND ADMINISTRATION SERVICES
FOR
McM Funds
I. Regulatory Compliance
A. Compliance - Federal Investment Company Act of 1940
1. Review, report and renew
a. investment advisory contracts
b. fidelity bond
c. underwriting contracts
d. distribution (12b-1) plans
e. administration contracts
f. accounting contracts
g. custody contracts
h. transfer agent and shareholder services
contracts
2. Filings
a. N-SAR (semi-annual report)
b. N-1A (prospectus), post-effective amendments
and supplements ("stickers")
c. proxy statement (when necessary)
d. 24f-2 indefinite registration of shares
e. filing fidelity bond under 17g-1
f. filing shareholder reports under 30b2-1
3. Annual up-dates of biographical information and
questionnaires for Trustees and Officers
B. Compliance - State "Blue Sky"
1. Blue Sky (state registration)
a. registration shares
b. registration issuer/dealer/agent (no loads)
c. monitor sale shares over/under
d. report shares sold
e. filing of federal prospectus and contracts
f. filing annual and semi-annual reports with
states
C. Compliance - Prospectus
1. Analyze and review portfolio reports from investment
adviser re:
a. compliance with investment objectives
b. maximum investment by company/industry size
D. Compliance - Other
1. Proxy when necessary
2. Applicable stock exchange rules
3. Applicable state tax laws
II. Corporate Business and Shareholder/Public Information
A. Trustees/Management
1. Preparation of meetings
a. agendas - all necessary items of compliance
b. arrange meetings
c. prepare minutes of same
d. keep attendance records
e. maintain corporate records/minute book
B. Coordinate Proposals
1. Printers
<PAGE>
2. Auditors
3. Literature fulfillment
4. Insurance
5. Underwriters
C. Maintain Corporate Calendars and Files
1. General
2. Blue sky
D. Shareholder Meetings
1. Preparation of proxy
2. Conduct meeting
3. Preparation of minutes and record ballot results
E. Release Corporate Information
1. To shareholders
2. To financial and general press
3. To industry publications
a. distributions (dividends and capital gains)
b. tax information
c. changes to prospectus
d. letters from management
e. funds' performance
4. Respond to:
a. financial press, as authorized
b. miscellaneous shareholders inquiries
c. industry questionnaires
<PAGE>
Fund Administration Services
5. Prepare, maintain and update monthly information
manual
F. Communications to Shareholders
1. Coordinate printing and distribution of annual,
semi-annual, quarterly reports, and prospectus
III. Financial and Management Reporting
A. Income and Expenses
1. Preparation of budgets
2. Expense figures calculated and accrual levels set
3. Monitoring of expenses
4. Approve and authorize payment of expenses
5. Projection of Income
B. Distributions to Shareholders
1. Projections of distribution amounts
a. compliance with income tax provisions
b. compliance with excise tax provisions
c. compliance with Investment Company Act of
1940
2. Compilation and reclassification of distributions,
where applicable, for year end tax reporting to
shareholders
C. Financial Reporting
1. Liaison between fund management and auditors
2. Preparation of unaudited and audited reports to
shareholders
3. 60-day delivery to SEC and shareholders
D. Subchapter M Compliance
1. Asset diversification test
2. Short/short test
3. Income qualification test
E. Other Financial Analyses
1. Upon request from fund management, other budgeting
and analyses can be constructed to meet a fund's
specific needs
F. Review and Monitoring Functions
1. Review NAV calculations
2. Coordinate and review transfer agent, accounting and
custody functions
3. Review 12b-1 accruals, expenditures and payment trail
commissions where applicable
G. 1. Preparation and distribution of periodic operational
and statistical reports to management.
<PAGE>
SCHEDULE "B"
FEE SCHEDULE
FOR
McM Funds
(The Fee Schedule is fixed for a period of two (2) years from the Effective Date
of the Trust.)
=============================================
I. FUND ADMINISTRATION
=============================================
(1/12th payable monthly)
.0008 On the First $100 Million of Average Net Assets
.0005 On the Next $500 Million of Average Net Assets
.0003 Over $600 Million of Average Net Assets
The rates stated in the above Administration fee schedule are
annualized and will be applied to the aggregate total net assets of the
Trust. In addition, there is a minimum fee of $50,000 per year for the
initial series of shares issued by the Trust and $10,000 per year for
each additional separate series of shares issued the Trust. The minimum
fees will be applied to each separate series of shares until such time
that all separate series within the Trust exceed the minimum fees.
Maximum annual fee for a family of funds is $500,000.
=============================================
II. OUT-OF-POCKET EXPENSES
=============================================
McM Funds will reimburse Fund/Plan Services monthly for all reasonable
out-of-pocket expenses, including postage, telecommunications
(telephone and fax), special reports, record retention, special
transportation costs as incurred. The cost of copying and sending
materials to auditors for off-site audits will be an additional
expense.
=============================================
III. ADDITIONAL SERVICES
=============================================
Activities of a non-recurring nature such as fund consolidations,
mergers or reorganizations will be subject to negotiation. To the
extent the Fund should decide to issue multiple/separate classes of
shares, additional fees will apply. Any additional/enhanced services or
reports will be quoted upon request.
<PAGE>
SCHEDULE "C"
IDENTIFICATION OF SERIES
Below are listed the "Series" to which services under this Agreement are to be
performed as of the execution date of this Agreement:
"McM Funds"
1. Equity Investment Fund
2. Special Equity Fund
3. Balanced Fund
4. Intermediate Fixed Income Fund
5. Fixed Income Fund
6. Principal Preservation Fund
This Schedule "C" may be amended from time to time by agreement of the Parties.
<PAGE>
Exhibit 99.B.9.c
ACCOUNTING SERVICES AGREEMENT
ACCOUNTING SERVICES AGREEMENT This Agreement, dated as of the ____ day
of ___, 1994 made by and between McM Funds, a Delaware Business Trust (the
"Trust") operating as an open end management investment company registered under
the Investment Company Act of 1940, as amended, duly organized and existing
under the laws of the State of Delaware and Fund/Plan Services, Inc.
("Fund/Plan"), a corporation duly organized and existing under the laws of the
State of Delaware (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust is authorized by its Trust Instrument to issue
separate series of shares representing interests in separate investment
portfolios (the "Series"), which Series are identified on Schedule "C" attached
hereto and which Schedule "C" may be amended from time to time by mutual
agreement of the Trust and Fund/Plan; and
WHEREAS, the Trust desires to appoint Fund/Plan as Accounting Services
Agent to maintain and keep current the books, accounts, records, journals or
other records of original entry relating to the business of the Trust (the
"Accounts and Records") and to perform certain other functions in connection
with such Accounts and Records; and
WHEREAS, Fund/Plan is willing to serve in such capacity and perform
such functions upon the terms and conditions set forth below; and
WHEREAS, the Trust will provide certain information concerning the
Series to Fund/Plan as set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
Section 1. For purposes of this Agreement:
Oral Instructions shall mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to Fund/Plan in
person or by telephone, telegram, telecopy, or other mechanical or documentary
means lacking a signature, by a person or persons reasonably identified to
Fund/Plan to be a person or persons authorized by a resolution of the Board of
Trustees of the Trust, to give such oral instructions on behalf of the Trust.
Written Instructions shall mean an authorization, instruction,
approval, item or set of data or information of any kind transmitted to
Fund/Plan in original writing containing original signatures or a copy of such
document transmitted by telecopy including transmission of such signature
reasonably identified to Fund/Plan to be the signature of a person authorized by
a resolution of the Board of Trustees of the Trust to give written instructions
on behalf of the Trust.
The Trust shall file with Fund/Plan a certified copy of each resolution
of its Board of Trustees authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 2. To the extent Fund/Plan receives the necessary information
from the Trust or its agents by Written or Oral Instructions, Fund/Plan shall
maintain and keep current the following Accounts and Records relating to the
business of the Trust in such form as may be mutually agreed upon between the
Trust and Fund/Plan:
(a) Cash Receipts Journal
(b) Cash Disbursements Journal
(c) Dividends Paid and Payable Schedule
<PAGE>
(d) Purchase and Sales Journals - Portfolio Securities
(e) Subscription and Redemption Journals
(f) Security Ledgers - Transaction Report and Tax Lot Holdings Report
(g) Broker Ledger - Commission Report
(h) Daily Expense Accruals
(i) Daily Interest Accruals
(j) Daily Trial Balance
(k) Portfolio Interest Receivable and Income Journal
(l) Portfolio Dividend Receivable and Income Register
(m) Listing of Portfolio Holdings - showing cost, market value and
percentage of portfolio comprised of each security.
(n) Average Daily Net assets provided on monthly basis.
The necessary information to perform the above functions and the
calculation of the net asset value of each Series as provided below, is to be
furnished by Written or Oral Instructions to Fund/Plan daily (in accordance with
the time frame identified in Section 7) prior to the close of regular trading on
the New York Stock Exchange.
Section 3. Fund/Plan shall perform the ministerial calculations
necessary to calculate each of the Series' net asset value each day that the New
York Stock Exchange is open for business, in accordance with (i) each Series'
current Prospectus and Statement of Additional Information and (ii) procedures
with respect thereto approved by the Board of Trustees of the Trust and supplied
in writing to Fund/Plan's Accounting Services Unit. Portfolio items for which
market quotations are available by Fund/Plan's use of an automated financial
information service (the "Service") shall be based on the closing prices of such
Service except where the Trust has given or caused to be given specific Written
or Oral Instructions to utilize a different value. All of the portfolio
securities shall be given such values as the Trust provides by Written or Oral
Instructions including all restricted securities and other securities requiring
valuation not readily ascertainable solely by such Service. Fund/Plan shall not
have any responsibility or liability for the accuracy of prices quoted by such
Service; for the accuracy of the information supplied by the Trust; or for any
loss, liability, damage, or cost arising out of any inaccuracy of such data.
Fund/Plan shall have no responsibility or duty to include information or
valuations to be provided by the Trust in any computation unless and until it is
timely supplied to Fund/Plan in usable form. Fund/Plan shall record corporate
action information as received from the Custodian, the Service, or the Trust.
Fund/Plan shall not have any duty to gather or record corporate action
information not supplied by these sources.
Fund/Plan will not assume any liability for price changes caused by:
the investment adviser(s), custodian, suppliers of security prices, corporate
action and dividend information, or any party other than Fund/Plan itself.
In the event an error is made by Fund/Plan which creates a price
change, consideration must be given to the effect of the price change as
described below:
Notwithstanding the provisions of Section 11, the following provisions
govern Fund/Plan's liability for errors in calculating the net asset value
("NAV") of the Series:
If the NAV should have been higher for a date or dates in the
past, the error would have the effect of having given more shares to
subscribers and less money to redeemers to which they were entitled.
Conversely, if the NAV should have been lower, the error would have the
effect of having given less shares to subscribers and overpaying
redeemers.
If the error affects the prior business day's NAV only, and
the prior day's work can be rerun before shareholder statements and
checks are mailed, the Trust hereby accepts this manner of correcting
the error.
If the error spans five (5) business days or less, Fund/Plan
shall reprocess shareholder
<PAGE>
purchases and redemptions where redeeming shareholders have been
underpaid. Fund/Plan shall assume liability to the Trust for
overpayments to shareholders who have redeemed.
If the error spans more than five (5) business days, Fund/Plan
would bear the liability to the Trust for, 1) buying in for excess
shares given to shareholders if the NAV should have been higher, or, 2)
funding overpayments to shareholders who have redeemed if the NAV
should have been lower. The cost of any reprocessing required for
shareholders who have been credited with fewer shares than appropriate,
or for redeeming shareholders who are due additional amounts of money
will also be borne by Fund/Plan.
Section 4. For all purposes under this Agreement, Fund/Plan is
authorized to act upon receipt of the first of any Written or Oral Instruction
it receives from the Trust or its agents on behalf of the Trust. In cases where
the first instruction is an Oral Instruction that is not in the form of a
document or written record, a confirmatory Written Instruction or Oral
Instruction in the form of a document or written record shall be delivered, and
in cases where Fund/Plan receives an Instruction, whether Written or Oral, to
enter a portfolio transaction on the records, the Trust shall cause the
broker/dealer to send a written confirmation to the Custodian. Fund/Plan shall
be entitled to rely on the first Instruction received, and for any act or
omission undertaken in compliance therewith shall be free of liability and fully
indemnified and held harmless by the Trust, provided however, that in the event
a Written or Oral Instruction received by Fund/Plan is countermanded by a timely
later Written or Oral Instruction received by Fund/Plan prior to acting upon
such countermanded Instruction, Fund/Plan shall act upon such later Written or
Oral Instruction. The sole obligation of Fund/Plan with respect to any follow-up
or confirmatory Written Instruction, Oral Instruction in documentary or written
form, shall be to make reasonable efforts to detect any such discrepancy between
the original Instruction and such confirmation and to report such discrepancy to
the Trust. The Trust shall be responsible, at the Trust's expense, for taking
any action, including any reprocessing, necessary to correct any discrepancy or
error, and to the extent such action requires Fund/Plan to act, the Trust shall
give Fund/Plan specific Written Instruction as to the action required.
Section 5. The Trust shall cause its Custodian (the "Custodian") to
forward to Fund/Plan a daily statement of cash and portfolio transactions and,
at the end of each month, the Trust shall cause the Custodian to forward to
Fund/Plan a monthly statement of portfolio positions, which Fund/Plan will
reconcile with its Accounts and Records maintained on behalf of the Trust.
Fund/Plan will report any discrepancies to the Custodian, and report any
unreconciled items to the Trust.
Section 6. Fund/Plan shall promptly supply daily and periodic reports
to the Trust as requested by the Trust and agreed upon by Fund/Plan.
Section 7. The Trust shall provide and shall require each of its agents
(including the Custodian) to provide Fund/Plan as of the close of each business
day, or on such other schedule as the Trust determines is necessary, with
Written or Oral Instructions (to be delivered to Fund/Plan by 11:00 a.m.,
Eastern time, the next following business day) containing all data and
information necessary for Fund/Plan to maintain the Trust's Accounts and
Records, and Fund/Plan may conclusively assume that the information it receives
by Written or Oral Instructions is complete and accurate. Fund/Plan, as Transfer
Agent, accepts responsibility for providing reports of share purchases,
redemptions, and total shares outstanding, on the next business day after each
net asset valuation.
Section 8. The Accounts and Records, in the agreed-upon format,
maintained by Fund/Plan shall be the property of the Trust and shall be made
available to the Trust promptly upon request and shall be maintained for the
<PAGE>
periods prescribed in Rules 31a-1 and 31a-2 under the Investment Company Act of
1940, as amended. Fund/Plan shall assist the Trust's independent auditors, or
upon approval of the Trust, or upon demand, any regulatory body, in any
requested review of the Trust's Accounts and Records but shall be reimbursed for
all expenses and employee time invested in any such review outside of routine
and normal periodic review and audits. Upon receipt from the Trust of the
necessary information, Fund/Plan shall supply the necessary data for the Trust
or an independent auditor's completion of any necessary tax returns,
questionnaires, periodic reports to Shareholders and such other reports and
information requests as the Trust and Fund/Plan shall agree upon from time to
time.
Section 9. In case of any request or demand for the inspection of the
Share records of the Trust, Fund/Plan, as Accounting Services Agent, shall
endeavor to notify the Trust and to secure instructions as to permitting or
refusing such inspection. Fund/Plan may however, exhibit such records to any
person in any case where it is advised by its counsel that it may be held liable
for failure to do so after notice to the Trust.
Section 10. Fund/Plan and the Trust may from time to time adopt such
procedures as agreed upon in writing, and Fund/Plan may conclusively assume that
any procedure approved by the Trust or directed by the Trust, does not conflict
with or violate any requirements of the Trust's Registration Statements, Trust
Instrument, ByLaws, or any rule or regulation of any regulatory body or
governmental agency. The Trust shall be responsible for notifying Fund/Plan of
any changes in regulations or rules which might necessitate changes in
Fund/Plan's procedures, and for working out with Fund/Plan such changes.
Section 11.
(a) Fund/Plan, its directors, officers, employees,
shareholders, and agents shall only be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of this Agreement that results from willful misfeasance, bad faith,
negligence or reckless disregard on the part of Fund/Plan in the performance of
its obligations and duties under this Agreement.
(b) Any person, even though also a director, trustee, officer,
employee, shareholder or agent of Fund/Plan, who may be or become an officer,
trustee, employee or agent of the Trust shall be deemed, when rendering services
to the Trust or acting on any business of the Trust (other than services or
business in connection with Fund/Plan's duties hereunder), to be rendering such
services to or acting solely for the Trust, and not as a director, officer,
employee, shareholder or agent of, or one under the control or direction of
Fund/Plan even though receiving a salary from Fund/Plan.
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Fund/Plan, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which Fund/Plan may sustain or incur or which may be asserted
against Fund/Plan by any person by reason of, or as a result of:
(i) any action taken or omitted to be taken by
Fund/Plan except matters resulting from willful misfeasance, bad faith,
negligence or reckless disregard on the part of Fund/Plan in the performance of
its obligations and duties under this Agreement; or
(ii) in reliance upon any certificate, instrument,
order or stock certificate or other document reasonably believed by it to be
genuine and to be signed, countersigned or executed by any duly authorized
person, upon the Oral Instructions or Written Instructions of an authorized
person of the Trust or upon the written opinion of legal counsel for the Trust
or Fund/Plan; or
<PAGE>
(iii) any action taken or omitted to be taken in good
faith by Fund/Plan in connection with its appointment, in reliance upon any law,
act, regulation or interpretation of the same even though the same may
thereafter have been altered, changed, amended, or repealed. Indemnification
under this subparagraph shall not apply, however, to actions or omissions of
Fund/Plan or its directors, officers, employees, shareholders, or agents in
cases of its or their own negligence, misconduct, bad faith, or reckless
disregard of its or their own duties hereunder.
(d) Fund/Plan shall give written notice to the Trust within
ten (10) business days of receipt by Fund/Plan of a written assertion or claim
of any threatened or pending legal proceeding which may be subject to this
indemnification. The failure to so notify the Trust of such written assertion or
claim shall not, however, operate in any manner whatsoever to relieve the Trust
of any liability arising from this Section or otherwise, except to the extent
failure to give notice prejudices the Trust.
(e) For any legal proceeding giving rise to this
indemnification, the Trust shall be entitled to defend or prosecute any claim in
the name of Fund/Plan at its own expense and through counsel of its own choosing
if it gives written notice to Fund/Plan within ten (10) business days of
receiving notice of such claim. Notwithstanding the foregoing, Fund/Plan may
participate in the litigation at its own expense through counsel of its own
choosing. If the Trust chooses to defend or prosecute such claim, then the
Parties shall cooperate in the defense or prosecution thereof and shall furnish
such records and other information as are reasonably necessary.
Section 12. All financial data provided to, processed by, and reported
by Fund/Plan under this Agreement shall be stated in United States dollars.
Fund/Plan shall have no obligation to convert to, equate, or deal in foreign
currencies or values, and expressly assumes no liability for any currency
conversion or non-U.S. dollar denominated computations relating to the affairs
of the Trust.
Section 13. The Trust agrees to pay Fund/Plan compensation for its
services, and to reimburse it for expenses, at the rates and amounts as set
forth in Schedule "B" attached hereto, and as shall be set forth in any
amendments to such Schedule "B" agreed upon in writing by the Trust and
Fund/Plan. The Trust agrees and understands that Fund/Plan's compensation be
comprised of two components and payable on a monthly basis as follows:
(i) A fixed fee for each Series, together with a
combined asset based fee which the Trust hereby authorizes Fund/Plan to collect
by debiting the Trust's custody account for invoices which are rendered for the
services performed for the applicable function. The invoices for the services
performed will be sent to the Trust after such debiting with the indication that
payment has been made; and
(ii) reimbursement of any reasonable out-of-pocket
expenses paid by Fund/Plan on behalf of the Trust, which out-of-pocket expenses
will be billed to the Trust within the first ten calendar days of the month
following the month in which such out-of-pocket expenses were incurred. The
Trust agrees to reimburse Fund/Plan for such expenses within ten calendar days
of receipt of such bill.
For the purpose of determining fees payable to Fund/Plan, the value of
the Series' net assets shall be computed at the times and in the manner
specified in Series' Prospectuses and Statement of Additional Information then
in effect.
During the term of this Agreement, should the Trust seek services or
functions in addition to those outlined above or in Schedule "A" attached, a
written amendment to this Agreement specifying the additional services and
corresponding compensation shall be executed by both Fund/Plan and the Trust.
Section 14. Nothing contained in this Agreement is intended to or shall
require Fund/Plan, in any capacity
<PAGE>
hereunder, to perform any functions or duties on any holiday, day of special
observance or any other day on which the New York Stock Exchange is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next succeeding business day on which the New York
Stock Exchange is open. Notwithstanding the foregoing, Fund/Plan shall compute
the net asset value of each Series on each day required pursuant to (i) Rule
22c-1 promulgated under the Investment Company Act of 1940, as amended, and (ii)
such Series' then-current Prospectus and Statement of Additional Information.
Section 15.
(a) Except to the extent there is material negligent
non-performance by Fund/Plan of its duties under this Agreement, the term of
this Agreement shall be for a period of two (2) years, commencing on the
effective date of the Trust's registration statement ("Effective Date") with the
U.S. Securities and Exchange Commission.
(b) The fee schedule set forth in Schedule "B" attached shall
be fixed for (2) years commencing on the Effective Date of this Agreement.
Thereafter, the fee schedule will be subject to annual review and adjustment.
(c) After the initial term of this Agreement, the Trust or
Fund/Plan may give written notice to the other of the termination of this
Agreement, such termination to take effect at the time specified in the notice,
which date shall not be less than ninety (90) days after the date of giving
notice. Upon the effective termination date, the Trust shall pay to Fund/Plan
such compensation as may be due as of the date of termination and shall likewise
reimburse Fund/Plan for any out-of-pocket expenses and disbursements reasonably
incurred by Fund/Plan to such date.
(d) If a successor to any of Fund/Plan's duties or
responsibilities under this Agreement is designated by the Trust by written
notice to Fund/Plan in connection with the termination of this Agreement,
Fund/Plan shall promptly upon such termination and at the expense of the Trust,
transfer all Required Records and shall cooperate in the transfer of such duties
and responsibilities.
Section 16. Except as otherwise provided in this Agreement, any notice
or other communication required by or permitted to be given in connection with
this Agreement shall be in writing, and shall be delivered in person or sent by
first class mail, postage prepaid to the respective parties as follows:
If to McM Funds: If to Fund/Plan:
---------------- ----------------
McM Funds Fund/Plan Services, Inc.
One Bush Street, Suite 800 2 West Elm Street
San Francisco, CA 94104 Conshohocken, PA 19428
Attention: Deane A. Nelson, Attention: Kenneth J. Kempf,
Vice President President
Copies to:
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104-2878
Attention: Julie Allecta, Esquire
Section 17. This Agreement may be amended from time to time by
supplemental agreement executed by the Trust and Fund/Plan and the compensation
stated in Schedule "B" attached hereto may be adjusted accordingly as mutually
agreed upon.
Section 18. The Trust represents and warrants to Fund/Plan that the
execution and delivery of this
<PAGE>
Agreement by the undersigned officers of the Trust has been duly and validly
authorized by resolution of the Board of Trustees of the Trust.
Section 19. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 20. This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Trust without the
written consent of Fund/Plan or by Fund/Plan without the written consent of the
Trust, authorized or approved by a resolution of its respective Boards of
Directors or Trustees.
Section 21. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania and the venue of any action arising under this
Agreement shall be Montgomery County, Commonwealth of Pennsylvania if the suit
is instituted by the Trust. If a suit is instituted by Fund/Plan, the venue of
such action arising under this Agreement shall be San Francisco, California.
Section 22. No provision of this Agreement may be amended or modified,
in any manner except by a written agreement properly authorized and executed by
Fund/Plan and the Trust.
Section 23. If any part, term or provision of this Agreement is held by
any court to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid, provided that the basic agreement is not thereby
substantially impaired.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
consisting of eleven type written pages, together with Schedules "A", "B" and
"C", to be signed by their duly authorized officers as of the day and year first
above written.
McM Funds Fund/Plan Services, Inc.
___________________________________ ___________________________________
By: Deane A. Nelson, Vice President By: Kenneth J. Kempf, President
<PAGE>
SCHEDULE "A"
FUND ACCOUNTING SERVICES
Daily Accounting Services
1) Calculate Net Asset Value (and Offering Price) Per Share:
o Update the daily market value of securities held by the Trust
using Fund/Plan Services' standard agent for pricing domestic
equity and bond securities. The standard equity pricing
service is Quotron Systems, Inc. Muller Data Corporation,
Telerate Systems or Interactive Data are used primarily for
bond, money market and/or equity prices.
o If necessary, enter manual prices supplied by the Trust and/or
brokers.
o Prepare NAV proof sheet. Review components of change in NAV
for reasonableness.
o Review variance reporting on-line and in hard copy for price
changes in individual securities using variance levels
established by McMorgan. Verify US dollar security prices
exceeding variance levels by notifying McMorgan and pric`ing
sources of noted variances.
o Review for ex-dividend items indicated by pricing sources;
trace to general ledger for agreement.
o Communicate required pricing information (NAV/POP) to the
Trust, Transfer Agent and, electronically, to NASDAQ.
2) Complete Money Market (Daily Dividend) Fund Requirements:
o Calculate net investment income available for distribution
daily.
o Calculate daily dividend rate, and 1, 7, 30-day yields.
o Supply Transfer Agent with distribution rates.
o Provide money market original and amortized cost schedules in
accordance with valuing the Fund based on amortized cost,
inclusive of all debt issues income accruals.
o Verify system calculated dollar weighted average maturity.
o Communicate required information electronically to NASDAQ, if
applicable.
3) Determine and Report Cash Availability to Fund by approximately
9:30 AM Eastern Time:
o Receive daily cash and transaction statements from the Custodian
by 8:30 AM Eastern time.
o Receive daily shareholder activity reports from the Fund's
Transfer Agent by 8:30 AM Eastern time.
o Fax hard copy Cash Availability calculations with all details
to McMorgan.
o Supply McMorgan with 5-day cash projection report.
o Prepare and complete daily bank cash reconciliations including
documentation of any reconciling items and notify the
custodian/McMorgan.
o Note that for Money Market Funds, the Fund's transfer agent
will support McMorgan in receipt of timely cash information.
4) Reconcile and Record All Daily Expense Accruals:
o Accrue expenses based on McMorgan-supplied budget either as
percentage of Fund's net assets or specific dollar amounts.
o If applicable, monitor expense limitations established by
the Trust.
o If applicable, accrue daily amortization of Organizational
Expense.
o If applicable, complete daily accrual of 12b-1 expenses.
5) Verify and Record All Daily Income Accruals for Debt Issues:
o Review and verify all system generated Interest and
Amortization reports.
o Establish unique security codes for bond issues to permit
segregated Trial Balance income reporting.
6) Monitor Domestic Securities Held for Cash Dividends, corporate actions
and capital changes such as splits, mergers, spinoffs, etc. and process
appropriately.
o Monitor electronically received information from Muller Data
Corporation for all domestic securities.
o Review current daily security trades for dividend activity.
o Interface with Custodian to monitor timely collection and
postings of corporate actions and dividends.
<PAGE>
7) Enter All Security Trades on Investment Accounting System (IAS) based
on written instructions from McMorgan.
o Review system verification of trade and interest calculations.
o Verify settlement through the Custodian statements.
o Maintain security ledger transaction reporting.
o Maintain tax lot holdings.
o Determine realized gains or losses on security trades.
o Provide complete broker commission reporting.
8) Enter All Fund Share Transactions on IAS:
o Process activity identified on the Transfer Agent reports.
o Verify settlement through the Custodian statements.
o Reconcile to the Fund/Plan Services' Transfer Agent report
balances.
9) Prepare and Reconcile/Prove Accuracy of the Daily Trial Balance
(listing all asset, liability, equity, income and expense accounts)
o Post manual entries to the general ledger.
o Post custodian bank activity.
o Post shareholder and security transactions.
o Post and verify system generated activity, i.e., income and
expense accruals.
o Prepare general ledger net cash proof used in NAV calculation.
10) Review and Reconcile With Custodian Statements:
o Verify all posted interest, dividends, expenses, and shareholder
and security payments/receipts, etc. (Discrepancies will be
reported to and resolved by the Custodian.)
o Post all cash settlement activity to the Trial Balance.
o Reconcile to ending cash balance accounts.
o Clear IAS subsidiary reports with settled amounts.
o Track status of past due items and failed trades handled by the
Custodian.
11) Submission of Daily Accounting Reports to McMorgan: (Additional reports
readily available.)
o Non-Money Market Series
- Trial Balance
- Portfolio Valuation (listing inclusive of holdings, costs,
market values, unrealized appreciation/depreciation and
percentage of portfolio comprised of each security).
- NAV Calculation Report
- Cash Availability
- 5-day Cash Projection Report
o Money Market Series
- Trial Balance
- NAV Calculation Report with Daily Distribution Rate
- Daily, 7-day and 30-day yield calculations
- Cash Availability
- Dollar Weighted Average Maturity
Weekly Accounting Services
If applicable, submit Money Market Fund Mark-to-Market Report and Interest and
Amortization schedule to McMorgan (based on client or vendor supplied money
market yields or prices).
Monthly Accounting Services
1) Full Financial Statement Preparation (automated Statements of Assets
and Liabilities, of Operations and of Changes in Net Assets) and
submission to McMorgan by 10th business day.
<PAGE>
2) Submission of Monthly Automated IAS Reports to Fund/McMorgan:
o Security Purchase/Sales Journal
o Interest and Maturity Report
o Brokers Ledger (Commission Report)
o Security Ledger Transaction Report with Realized Gains/Losses
o Security Ledger Tax Lot Holdings Report
o Additional reports available upon request
3) Reconcile Accounting Asset Listing to Custodian Asset Listing:
o Report any security balance discrepancies to the
custodian/McMorgan.
4) Provide Monthly Analysis and Reconciliation of Additional Trial Balance
Accounts, such as:
o Security cost and realized gains/losses
o Interest/dividend receivable and income
o Payable/receivable for securities purchased and sold
o Payable/receivable for fund shares; issued and redeemed
o Expense payments and accruals analysis
5) If Appropriate, Prepare and Submit to McMorgan:
o SEC yield reporting (non-money market funds with domestic and ADR
securities only).
o Income by state reporting
o Standard Industry Code Valuation Report
o Alternative Minimum Tax Income segregation schedule
Annual (and Semi-Annual) Accounting Services
1) Assist and supply auditors with schedules supporting securities and
shareholder transactions, income expense accruals, etc. during the year
in accordance with standard audit assistance requirements.
2) Provide NSAR Reporting (Accounting Questions):
If applicable, answer the following items:
2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 43, 53, 55, 62,
63, 64B, 71, 72, 73, 74, 75, 76
NOTE: Complete NSAR Reporting is done by Fund/Plan Services'
Administration when they are retained for Fund Administration
services.
<PAGE>
ACCOUNTING SERVICES UNIT BASIC ASSUMPTIONS FOR McM FUNDS
The Fund/Plan Accounting Services Unit (ASU) is pleased to offer the
McMorgan Funds (the "Funds") the comprehensive level of service necessary for
proper portfolio accounting and valuation.
The Accounting Fees as proposed, are based on certain assumptions
determined from meetings and conversations between Rich May of Fund/Plan
Services and Deane Nelson of McMorgan & Co. To the extent these assumptions and
requirements should change, fee revisions may be necessary.
Basic Assumptions:
1) Fund/Plan's Administration Group will complete all necessary compliance
reports (Sub-Chapter "M"), as well as monitoring of the various
prospectus limitations and restrictions.
2) McMorgan plans to establish six mutual funds with the following
first-year asset levels:
Money Intermediate
Market Bond Bond Stock
------- ------------ ------ ------
From Current Accounts $300 MM $250 MM $50 MM $25 MM
From Other Markets $100 MM $ 25 MM $ $
-------- -------- ------ ------
$400 MM $275 MM $50 MM $25 MM
Special
Balanced Equity
-------- --------
From Current Accounts $ 75 MM $ 10 MM
From Other Markets $ MM $ MM
-------- --------
$ 75 MM $ 10 MM
On the Intermediate Bond Fund funding would be expected to come from
"in kind" transfer of CMO's (2 to 4-year paper). To the extent this
occurs, mutually agreeable procedures must be documented in advance.
About $98 million would come from 20 accounts and $115 million from 44
other accounts. These would largely be Health & Welfare monies. Our
fees assume these asset levels will be attained by McMorgan during the
first year of operations.
3) Portfolios will have 80 issues or less and trading activity is expected
to be moderate with an annual turnover rate not to exceed 100%.
4) Each Fund has a tax year-end which coincides with its fiscal year-end.
No additional accounting requirements are necessary to identify or
maintain book-tax differences.
To the extent tax accounting for certain securities differs from the
book accounting, it will be done by Fund/Plan as Administrator or the
Funds' Independent Accountant. We would recommend book/tax differences
be minimized.
4) The Accounting Services Unit will supply segregated Trial Balance
account details to assist the administrator in proper identification by
category of all appropriate realized gains/losses.
5) The Funds foresee no difficulty in using Fund/Plan's standard current
pricing agents for domestic equity, Bond and ADR securities. We
currently use Quotron Systems, Inc. for domestic equities and listed
ADR's, and Muller Data Corporation, Telerate Systems or Interactive
Data Corporation ("IDC") for bonds, money markets and limited equity
support. To the extent Muller Data or IDC are unable to supply certain
security prices, they will be provided by the Fund's Adviser or a
McMorgan recommended pricing source.
It is assumed that the Accounting Unit will work closely with McMorgan
to ensure the accuracy of the Fund's NAV, Money Market Fund
distribution rates and to obtain the most satisfactory pricing sources
and specific methodologies prior to the actual start-up date.
6) To the extent the Funds require daily security prices (limited in
number) from specific brokers, these manual prices will be obtained by
the Funds' Investment Advisor (or brokers) and faxed to ASU by
approximately 4:00 PM Eastern time for inclusion in the NAV
calculations. McMorgan will supply ASU
<PAGE>
with the appropriate pricing contacts for these manual quotes.
Based on our current clients' experience, we believe the Funds'
Investment Advisor will have better success in obtaining accurate and
timely broker quotes on a more consistent basis than Fund/Plan
Services.
7) To the extent the Funds should ever purchase/hold open-end registered
investment companies (RIC's), procedural discussions should take place
between ASU and Fund management clarifying the appropriate pricing and
dividend rate sources. Depending on the methodologies selected by the
Funds, additional fees may apply.
8) ASU will supply daily Portfolio Valuation Reports to the Funds'
Investment Advisor or manager identifying current security positions,
original/amortized cost, security market values and changes in
unrealized appreciation/depreciation.
The Accounting Services Unit will submit weekly mark-to-market reports
and interest and amortization reports to the Administrator/McMorgan
(based on McMorgan or vendor-supplied money market yields or prices)
for the Money Market Fund. It is assumed that the stability of the
Fund's $1.00 NAV will be reviewed by the Advisor or Fund/Plan's
Administration Group.
It will be the responsibility of the Funds' Investment Advisor to
review these reports and to promptly notify ASU of any possible
problems, trade discrepancies, incorrect security prices or corporate
action/capital change information that could result in a misstated Fund
NAV or distribution rate adjustment.
9) The Funds do not expect to invest in Futures, Swaps, or Foreign (non-US
dollar denominated) Securities. To the extent these investment
strategies should change, additional fees will apply after the
appropriate procedural discussions have taken place between ASU and
Fund management. Advance notice is required should the Fund commence
trading in these investments.
10) It is assumed for all debt and hedge issues that the Advisor will
supply the Accounting Unit with critical income information such as
accrual methods, interest payment frequency details, coupon payment
dates, floating rate reset dates, and complete security descriptions
with issue types and CUSIP numbers. If applicable, for proper income
accrual accounting, ASU will look to the Fund's Advisor to supply
Y.T.M., PSA and related cash flow models for any mortgage/asset-backed
securities held in the Funds.
11) It is assumed that the Fund/Plan Custody Administrator will provide the
Accounting Unit with daily custodian statements (or on-line access to
the custody system) reflecting all prior day cash activity on behalf of
each portfolio by 8:30 AM Eastern time. Complete and clear descriptions
of any postings, inclusive of CUSIP numbers, interest/dividend payment
dates, capital stock details, expense authorizations, beginning/ending
balances, etc. will be provided by the custodian's reports or system.
12) It will be the responsibility of the Funds' custodian to supply capital
change information, and interest rate changes to Accounting in a timely
manner. The advisor will supplement and support as appropriate.
13) It is assumed that the custodian will handle and report on all
settlement problems, failed trades and resolve unsettled
dividends/interest/paydowns and capital changes. Additionally, the
custodian will process all applicable capital change paperwork based
upon advice from McMorgan. ASU will supply segregated Trial Balance
reporting and supplemental reports to assist in this process.
14) With respect to Mortgage/Asset-Backed securities such as GNMA's,
FHLMC's, FNMA's, CMO's, ARM's, etc., the Custodian (or a
McMorgan-supplied source) will provide ASU with current principal
repayment factors on a timely basis in accordance with the appropriate
securities' schedule. Income accrual adjustments (to the extent
necessary) based upon initial estimates will be completed by ASU when
actual principal/income payments are collected by the Custodian. Factor
services may also be available from Muller Data Corporation at an
additional cost, if applicable.
15) To the extent applicable, Accounting will maintain US
dollar-denominated qualified covered call options and index options
reporting on the daily Trial Balance and value the respective options
and underlying positions daily. To the extent tax classifications are
required, they will be done by Fund/Plan's Administration Group or the
Independent Accountant.
<PAGE>
The Funds do not currently expect to invest in domestic options or
designated hedges. Advance notice is requested should the Fund commence
trading in the above investments to clarify operational procedures
between ASU and the advisor.
16) To the extent the Funds establish a Line of Credit in segregated
accounts with the custodian for temporary administrative purposes,
and/or leveraging/hedging the portfolio, the investment advisor will
complete the appropriate paperwork/monitoring for segregation of assets
and adequacy of collateral. Accounting will reflect appropriate Trial
Balance account entries and interest expense accrual charges on the
daily Trial Balance adjusting as necessary at month-end.
17) The Funds do not expect to participate in Security Lending, Leveraging,
Precious Metals, Short Sales of Foreign Currency (non-US dollar
denominated) Futures and Options within their portfolio securities. To
the extent they do so in the future, additional fees will apply.
18) Fund management or Fund/Plan's Administration Group will supply ASU
with portfolio specific expense accrual procedures and monitor the
expense accrual balances for adequacy based on outstanding liabilities
monthly. The Fund/Plan's Administration Group will promptly communicate
to the Accounting Unit any adjustments needed.
19) Specific deadlines and complete Fund-supplied information will be
identified for all security trades in order to minimize any settlement
problems, NAV miscalculations or income accrual/daily distribution rate
adjustments.
Trade Authorization Forms, with the appropriate officer's signature,
should be supplied to the ASU on all security trades placed by the
Funds no later than settlement date by 12:30 PM Eastern time for money
market issues (it is assumed trade date equals settlement date for
money market issues), and by 11:00 AM Eastern time on trade date plus
one for non-money market securities. Receipt of trade information
within these identified deadlines may be via telex, fax, or on-line
system access. To the extent applicable, the investment advisor will
communicate all trade information directly to the Funds' Custody
Administrator who will then supply ASU with the trade details in
accordance with the above stated deadlines.
Money market trades will be communicated directly to the Fund/Plan
Custody Administrator by the investment advisor. The Advisor and/or
Custody Administrator will then supply ASU with the trade details in
accordance with the above stated deadlines.
CUSIP numbers and/or ticker symbols for all trades will be supplied by
the Investment Advisor via the Trade Authorization, telex or on-line
support. If appropriate, Accounting will supply the investment advisor
with recommended trade ticket documents to minimize receipt of
incomplete information. We would find it difficult to be responsible
for NAV changes or distribution rate adjustments that resulted from
incomplete information about a trade.
20) To the extent McMorgan utilizes Purchases In-Kind as a method for
shareholder subscriptions, ASU will provide McMorgan with recommended
procedures to properly handle and process security in-kinds. Should
McMorgan prefer procedures other than those provided by Fund/Plan
Services, additional fees will apply. Discussions must take place in
advance between Fund/Plan Services and McMorgan to clarify the
appropriate In-Kind operational procedures to be followed.
21) It is assumed that the Funds' Investment Advisor or Fund/Plan's
Administration Group will complete the applicable performance and rate
of return calculations as required by the SEC for the Fund.
22) With respect to amortization and accretion requirements for the debt
issues in the Funds, the ASU Investment Accounting System (IAS) offers
a very comprehensive and fully automated level of support. We are
capable of reflecting market discounts and acquisition premiums either
utilizing the straight-line or yield-to-maturity (scientific) method.
It is extremely important that the Funds' requirements and proper
amortization procedures be clarified prior to start up.
It is assumed that the Funds will not hold any issues with Original
Issue Discounts (OID). It is our position that OID is a tax requirement
and, as such, not necessarily reflected on the books of the Funds.
ASU's current clients have not required any OID support. To the extent
the Funds should, in the future, own securities with OID, it is
expected that the Fund's auditors will complete the necessary OID
adjustments for
<PAGE>
financial statements and/or tax reporting.
23) The Funds are not currently expected to issue separate classes of
shares. To the extent they do so, additional fees will be negotiated.
<PAGE>
STANDARD REPORTS LIST
Accounting Services Unit
The following reports are readily available on the Accounting Services'
Investment Accounting System (IAS) Report Request Screen and can be produced at
any time by the user.
Many reports are automatically produced each day by IAS. Other reports may be
submitted by the user for cumulative periods using flexible date parameters to
assist in fund-related research. The IAS Report writer feature also enhances the
capabilities of producing select reports.
Name of Report
----------------
Cash Receipts
Cash Disbursements
Cash Projection Report
Open Fails Report
Purchase Journal
Sales Journal
Principal Payment Journal
Maturity Journal
Broker Ledger
Interest & Amortization Report Dividend
Journal Capital Share Subscription Journal
Capital Share Redemption Journal Capital
Share Dividend Reinvestment Journal SEC
Yield Report Portfolio Valuation Report
Money Market Mark-to-Market Report Valuation
Comparison Report Open Sales Receivable
Report Open Subscription Receivable Report
Open Dividend Receivable Report Open
Purchase Payable Report Open Redemption
Payable Report Open Interest/Principal
Receivable Report General Ledger Daily
Activity Log Transaction Journal NAV
Calculation Report G/L Report - Before
Pricing G/L Report - After Pricing Principal
Transactions Report Option Expiration Report
Security Ledger - Transaction Report and Tax Lot Holdings
Financial Statements
Average Net Asset Report
<PAGE>
SCHEDULE "B"
FEE SCHEDULE
FOR
McM Funds
(The Fee Schedule is fixed for a period of two (2) years
from the Effective Date of the Trust.)
FUND ACCOUNTING & PORTFOLIO VALUATION FEES: (US Dollar-Denominated Securities
Only). All Accounting Services fees are quoted with the assumption that
Transfer Agent and Custody Administration Services are provided by Fund/Plan
Services,Inc.
I. Annual Fee Schedule Per Series of the Trust: (1/12th payable monthly)
$24,000 On the First $10 Million of Average Net Assets Per Portfolio,
then
.0002 Of Combined Assets to $500 Million, and
.0001 Over $500 Million
Fees are based upon the asset levels provided by McMorgan and
identified in the Basic Assumptions.
II. Pricing Service Quotation Fee: (Based on individual CUSIP or security
identification numbers.)
A) Muller Data Corporation * (if applicable)
* Based on current vendor costs, subject to change.
CMOs/ARMs/ABS $1.00 per Quote per Issue
Government/Mortgage-Backed/
Corporate Short & Long Term Quotes $ .50 per Quote per Issue
Tax-Exempt Short & Long Term Quotes $ .55 per Quote per Issue
Mortgage-Backed Factors $1.00 per Issue per Month
Minimum Weekly File Transmission is Assumed
There are currently no charges for the domestic dividend and
capital change information transmitted daily to Fund/Plan
Services from Muller Data Corporation.
B) Telerate Systems, Inc. * (if applicable)
* Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected
by McMorgan and will be billed monthly.
C) Quotron Systems, Inc.*
* Based on current vendor costs, subject to change.
There are currently no charges for the domestic security
prices supplied by Quotron Systems, Inc.
D) Interactive Data Corp. * (if applicable)
* Based on current vendor costs, subject to change.
Domestic Equities and Options $ .15 per Quote per Issue
Corporate/Government/Agency Bonds $ .50 per Quote per Issue
including
Mortgage-Backed Securities
(evaluated, seasoned,
and/or closing)
U.S. Municipal Bonds and $ .80 per Quote per Issue
Collateralized
Mortgage Obligations
Domestic Dividends and
Capitalization Changes $3.50 per Month per
Holding
Interactive Data also charges monthly transmission costs and
disk storage charges.
Specific costs will be identified based upon options selected
by McMorgan and will be billed monthly.
<PAGE>
E) Futures and/or Forward $2.00 per issue per day
Currency Contracts
III. SEC Yield Calculation: (if applicable)
Provide up to 12 reports per year to reflect the yield calculations for
non-money market funds required by the SEC. $1,000 per year per Series
(U.S. dollar denominated securities only).
II. OUT-OF-POCKET EXPENSES
The Trust will reimburse Fund/Plan Services monthly for all reasonable
out-of-pocket expenses, including postage, telecommunications (telephone and
fax), special reports, record retention, special transportation costs as
incurred, and unusual expenses incurred while establishing viable agreements
between the Trust and Fund/Plan Services. The cost of copying and sending
materials to auditors for off-site audits will be an additional expense.
III. ADDITIONAL SERVICES
To the extent the Trust commences using investment techniques such as security
lending, short sales, futures, leveraging, shareholder in-kinds, precious metals
and/or foreign trading, additional fees will apply. Activities of a
non-recurring nature such as fund consolidations, mergers, or reorganizations
will be subject to negotiation. To the extent the Trust should decide to issue
multiple/separate classes of shares, additional fees will apply. Any enhanced
services or reports will be quoted upon request.
The Schedules will be amended as necessary to reflect the
addition of other services or for additional Funds.
<PAGE>
SCHEDULE "C"
Identification of Series
Below are listed the "Series" to which services under this Agreement are to be
performed as of the execution date of this Agreement:
"McM Funds"
-------------
1. Equity Investment Fund
2. Special Equity Fund
3. Balanced Fund
4. Intermediate Fixed Income Fund
5. Fixed Income Fund
6. Principal Preservation Fund
This Schedule "C" may be amended from time to time by agreement of the Parties.
<PAGE>
EXHIBIT 99.B.10a
[LETTERHEAD]
HELLER EHRMAN WHITE & MCAULIFFE
ATTORNEYS
333 BUSH STREET
SAN FRANCISCO, CA 94104-2878
May 10, 1994
McM Funds
One Bush Street, Suite 800
San Francisco, California 94104
Registration Statement on Form N-1A
Dear Ladies and Gentlemen:
We have acted as counsel to McM Funds, a Delaware business trust (the
"Trust"), in connection with the Registration Statement on Form N-1A filed on
February 24, 1994 (as amended to the date hereof, the "Registration Statement"),
relating to the issuance of an indefinite number of shares (the "Shares") of
beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended (the "Act").
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of all natural persons and the conformity
to the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon the following:
(a) the Trust's Trust Instrument;
(b) the Bylaws of the Trust;
(c) resolutions of the Board of Trustees of the Trust relating to
the designation of series of the Trust and issuance of the
Shares; and
(d) the Registration Statement.
Our opinion below is limited to the federal law of the United States of
America and the business trust law of the State of Delaware. We are not licensed
to practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code and the case
law interpreting such Chapter as reported in Delaware Code Annotated (Michie Co.
1987 & 1992 Supp.). We have not undertaken
<PAGE>
McM Funds
May 10, 1994 Page 2
a review of other Delaware law or of any administrative or court decisions in
connection with rendering this opinion. We do~claim any opinion as to any law
other than that of the United State. of America and the business trust law of
the State of Delaware as described above, and we disclaim any opinion as to any
statute, rule, regulation, ordinance, order or other promulgation of any
regional or local governmental authority.
Based on the foregoing and our examination of such questions of law as
we have deemed necessary and appropriate for the purpose of this opinion, and
assuming that (i) all of the Shares will be issued and sold for cash or
securities at the per-share public offering price on the date of their issuance
in accordance with statements specified in the Trust's then-current Prospectus
and in accordance with the Trust's Trust Instrument, (ii) all consideration for
the Shares will be actually received by the Trust, (iii) such consideration will
be at least equal in value to the par value of the Shares, and (iv) all
applicable securities laws will be complied with, it is our opinion that, when
issued and sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
The opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any developments in areas covered by the opinion
that occur after the date of this opinion.
We hereby consent to (i) the reference to our firm under the caption
"General Information" in the Prospectus of the Trust included in the
Registration Statement, and (ii) the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
<PAGE>
Exhibit 99.B.11.
[Letterhead]
Tait, Weller & Baker
Certified Public Accountants
Two Penn Center Plaza, Suite 700
Philadelphia, Pennsylvania 19102-1707
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated July 21, 1996 on the
financial statements and the financial highlights of McM Principal Preservation
Fund, McM Intermediate Fixed Income Fund, McM Fixed Income Fund, McM Balanced
Fund, and McM Equity Investment Fund, each a series of shares of beneficial
interest of McM funds. Such financial statements and financial highlights appear
in the 1996 Annual Report to Shareholders which is incorporated by reference in
the Statement of Additional Information filed in the Post-Effective Amendment to
the Registration Statement on Form N-1A of McM Funds. We also consent to the
references to our Firm in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 25, 1996
<PAGE>
Exhibit 99.B.13
[LETTERHEAD]
McMorgan & Company
One Bush Street, Suite 800
San Francisco, CA 94104
July 6, 1994
Securities & Exchange Commission
Division of Investment Management
Judiciary Plaza, 450 Fifth Street, N.W.
Washington, DC 20549
RE: McM Funds
To whom it may concern:
McMorgan & Company proposes to acquire as a separate series of shares (for a
total of 100,000 shares):
90,000 shares of common stock (the "Shares") for McM Principal
Preservation Fund at a purchase price of $1.00 per share
200 shares of common stock (the "Shares") for McM Equity Investment
Fund at a purchase price of $10.00 per share
200 shares of common stock (the "Shares") for McM Special Equity Fund
at a purchase price of $10.00 per share
200 shares of common stock (the "Shares") for McM Balanced Fund at a
purchase price of $10.00 per share
200 shares of common stock (the "Shares") for McM Fixed Income Fund at
a purchase price of $10.00 per share
200 share of common stock (the "shares") for McM Intermediate Fixed
Income Fund at a purchase price of $10.00 per share
McMorgan & Company will purchase the Shares in a private offering prior to the
effectiveness of the Form N-1A Registration Statement filed by the Fund under
the Securities Act of 1933. The Shares are being purchased pursuant to Section
14 of the Investment Act of 1940 to serve as the seed money for the Fund prior
to the commencement of the public offering of its shares.
<PAGE>
Securities & Exchange Commission
July 6, 1994
Page Two
In connection with such purchase, we understand that :(i) as the purchaser,
McMorgan & Company, intends to acquire the Shares for our own account as the
sole beneficial owner thereof and have no present intention of redeeming or
reselling the Shares so acquired; and (ii) in the event any of the initial
100,000 Shares are redeemed during the first five years, the Fund may charge
against our redemption proceeds a pro rate portion of any unamortized
organizational expenses which would be borne by such Shares during the balance
of the initial five year period were they not to be redeemed.
We consent to the filing of this Investment Letter as an exhibit to the Form
N-1A Registration Statement of the Fund.
Sincerely,
/s/ Terry A. O'Toole
Terry A. O'Toole
McMorgan & Company
One Bush Street, Suite 800
San Francisco, CA 94104
<PAGE>
EXHIBIT 99.B.16
McM Funds
TOTAL RETURN FORMULA
N
ERV = P(1 + T)
WHERE:
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000
T = AVERAGE ANNUAL TOTAL RETURN
N = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE OF AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 PAYMENT ("P") MADE AT THE BEGINNING OF THAT PERIOD
OR FRACTIONAL PORTION THEREOF.
<TABLE>
<CAPTION>
<S> <C>
McM Principal Preservation Fund
Since inception (07/13/94) to 6/30/96 For the One Year Period 7/1/95 to 6/30/96
ERV = $1,107.76 ERV = $1,053.90
T = 5.34% T = 5.39%
N = 1.967123 years N = 1 year
McM Intermediate Income Fund
Since inception (07/14/94) to 6/30/96 For the One Year Period 7/1/95 to 6/30/96
ERV = $1,142.14 ERV = $1,046.10
T = 7.00% T = 4.61%
N = 1.964384 years N = 1 year
McM Fixed Income Fund
Since inception (07/14/94) to 6/30/96 For the One Year Period 7/1/95 to 6/30/96
ERV = $1,161.94 ERV = $1,041.60
T = 7.94% T = 4.16%
N = 1.964384 years N = 1 year
McM Balanced Fund
Since inception (07/14/94) to 6/30/96 For the One Year Period 7/1/95 to 6/30/96
ERV = $1,370.88 ERV = $1,168.60
T = 17.42% T = 16.86%
N = 1.964384 years N = 1 year
McM Equity Investment Fund
Since inception (07/14/94) to 6/30/96 For the One Year Period 7/1/95 to 6/30/96
ERV = $1,538.22 ERV = $1,265.30
T = 24.51% T = 26.53%
N = 1.964384 years N = 1 year
</TABLE>
<PAGE>
Exhibit 99.B.18
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Joseph M. O'Donnell, Gerald J. Holland, William J. Baltrus and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the U.S. Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the U.S. Securities
and Exchange Commission and to take any appropriate action to qualify or
register all or part of the securities of the Trust for sale in various states;
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act requisite and necessary to be
done in connection therewith, as fully as that person might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents or any of them, or any substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
3rd day of June, 1996.
---------------------
Mark R. Taylor
Trustee
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 3rd day of June, 1995,
by Mark R. Taylor, Trustee of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Joseph M. O'Donnell, Gerald J. Holland, William J. Baltrus and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the U.S. Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the U.S. Securities
and Exchange Commission and to take any appropriate action to qualify or
register all or part of the securities of the Trust for sale in various states;
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act requisite and necessary to be
done in connection therewith, as fully as that person might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents or any of them, or any substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
3rd day of June, 1996.
----------------------
Greg L. Watson
Trustee
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 3rd day of June, 1995,
by Greg L. Watson, Trustee of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints William J. Baltrus, Gerald J. Holland, Joseph M. O'Donnell and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and to take any appropriate action to qualify or register
all or part of the securities of the Trust for sale in various states; granting
to such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act requisite and necessary to be done in
connection therewith, as fully as that person might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents or
any of them, or any substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
4th day of December, 1995.
----------------------
Kenneth I. Rosenblum
Trustee
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 4th day of December,
1995, by Kenneth I. Rosenblum, Trustee of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints William J. Baltrus, Gerald J. Holland, Joseph M. O'Donnell and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and to take any appropriate action to qualify or register
all or part of the securities of the Trust for sale in various states; granting
to such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act requisite and necessary to be done in
connection therewith, as fully as that person might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents or
any of them, or any substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
4th day of December, 1995.
----------------------
Walter B. Rose
Trustee
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 4th day of December,
1995, by Walter B. Rose, Trustee of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints William J. Baltrus, Gerald J. Holland, Joseph M. O'Donnell and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and to take any appropriate action to qualify or register
all or part of the securities of the Trust for sale in various states; granting
to such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act requisite and necessary to be done in
connection therewith, as fully as that person might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents or
any of them, or any substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
4th day of December, 1995.
----------------------
Robert R. Barron
Trustee
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 4th day of December,
1995, by Robert R. Barron, Trustee of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints William J. Baltrus, Gerald J. Holland, Joseph M. O'Donnell and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and to take any appropriate action to qualify or register
all or part of the securities of the Trust for sale in various states; granting
to such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act requisite and necessary to be done in
connection therewith, as fully as that person might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents or
any of them, or any substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
4th day of December, 1995.
----------------------
Terry A. O'Toole
Vice President and Secretary
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 4th day of December,
1995, by Terry A. O'Toole, Vice President and Secretary of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints William J. Baltrus, Gerald J. Holland, Joseph M. O'Donnell and Gretchen
B. Zepernick and each of them, with full power to act without the other, as a
true and lawful attorney-in-fact and agent, with full and several power of
substitution, to sign any and all Amendments to Registration Statement No.
33-75708 of McM Funds (the "Trust") to be filed with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended; and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and to take any appropriate action to qualify or register
all or part of the securities of the Trust for sale in various states; granting
to such attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act requisite and necessary to be done in
connection therewith, as fully as that person might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents or
any of them, or any substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
4th day of December, 1995.
----------------------
Robert Hirsch
Compliance Officer
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco )
The foregoing instrument was acknowledged before me this 4th day of December,
1995, by Robert Hirsch, Compliance Officer of McM Funds.
- ----------------------------------------
Notary Public
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland and Gretchen B. Zepernick and each of
them, with full power to act without the other, as his true and lawful
attorney-in-fact and agent, with full and several power of substitution, to sign
any and all Amendments to Registration Statement No. 33-75708 of McM Funds (the
"Trust") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended; and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; granting to
such attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act requisite and necessary to be done in
connection therewith, as fully as he might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
18th day of September, 1995.
----------------------
Deane A. Nelson
Vice President and Secretary
ACKNOWLEDGEMENT
State of California )
) ss:
County of San Francisco)
The foregoing instrument was acknowledged before me this 18th day of September,
1995, by Deane A. Nelson, Vice President and Secretary of McM Funds.
- ----------------------------------------
Notary Public
In and for the County of San Francisco
State of California
My Commission Expires: _______________
(Notarial Seal)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
<NAME> MCM FUNDS
<SERIES>
<NUMBER> 1
<NAME> MCM EQUITY INVESTMENT FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 21,212,842
<INVESTMENTS-AT-VALUE> 23,604,411
<RECEIVABLES> 533,755
<ASSETS-OTHER> 297
<OTHER-ITEMS-ASSETS> 11,754
<TOTAL-ASSETS> 24,150,217
<PAYABLE-FOR-SECURITIES> 169,010
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,286
<TOTAL-LIABILITIES> 237,296
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,500,183
<SHARES-COMMON-STOCK> 1,609,826
<SHARES-COMMON-PRIOR> 407,305
<ACCUMULATED-NII-CURRENT> 10,916
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,253
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,391,569
<NET-ASSETS> 23,912,921
<DIVIDEND-INCOME> 239,861
<INTEREST-INCOME> 15,830
<OTHER-INCOME> 0
<EXPENSES-NET> 75,947
<NET-INVESTMENT-INCOME> 179,744
<REALIZED-GAINS-CURRENT> 18,284
<APPREC-INCREASE-CURRENT> 2,003,550
<NET-CHANGE-FROM-OPS> 2,201,578
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 171,896
<DISTRIBUTIONS-OF-GAINS> 19,520
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,249,130
<NUMBER-OF-SHARES-REDEEMED> 59,989
<SHARES-REINVESTED> 13,380
<NET-CHANGE-IN-ASSETS> 19,047,162
<ACCUMULATED-NII-PRIOR> 3,068
<ACCUMULATED-GAINS-PRIOR> 11,489
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 50,631
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 174,164
<AVERAGE-NET-ASSETS> 10,146,750
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 2.94
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 0.04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.85
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
<NAME> MCM FUNDS
<SERIES>
<NUMBER> 3
<NAME> MCM BALANCED FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 10,801,529
<INVESTMENTS-AT-VALUE> 11,705,294
<RECEIVABLES> 746,041
<ASSETS-OTHER> 2,373
<OTHER-ITEMS-ASSETS> 11,754
<TOTAL-ASSETS> 12,465,462
<PAYABLE-FOR-SECURITIES> 534,233
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,260
<TOTAL-LIABILITIES> 550,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,018,536
<SHARES-COMMON-STOCK> 934,284
<SHARES-COMMON-PRIOR> 270,583
<ACCUMULATED-NII-CURRENT> 15,143
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22,475)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 903,765
<NET-ASSETS> 11,914,969
<DIVIDEND-INCOME> 90,011
<INTEREST-INCOME> 164,706
<OTHER-INCOME> 0
<EXPENSES-NET> 37,914
<NET-INVESTMENT-INCOME> 216,803
<REALIZED-GAINS-CURRENT> (15,053)
<APPREC-INCREASE-CURRENT> 680,345
<NET-CHANGE-FROM-OPS> 882,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 206,101
<DISTRIBUTIONS-OF-GAINS> 33,641
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 662,596
<NUMBER-OF-SHARES-REDEEMED> 16,574
<SHARES-REINVESTED> 17,679
<NET-CHANGE-IN-ASSETS> 8,845,093
<ACCUMULATED-NII-PRIOR> 4,441
<ACCUMULATED-GAINS-PRIOR> 26,219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28,436
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 139,930
<AVERAGE-NET-ASSETS> 6,327,813
<PER-SHARE-NAV-BEGIN> 11.35
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 1.49
<PER-SHARE-DIVIDEND> 0.40
<PER-SHARE-DISTRIBUTIONS> 0.09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.75
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
<NAME> MCM FUNDS
<SERIES>
<NUMBER> 4
<NAME> MCM FIXED INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 7,882,042
<INVESTMENTS-AT-VALUE> 7,859,681
<RECEIVABLES> 129,698
<ASSETS-OTHER> 6,353
<OTHER-ITEMS-ASSETS> 11,754
<TOTAL-ASSETS> 8,007,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,841
<TOTAL-LIABILITIES> 15,841
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,982,873
<SHARES-COMMON-STOCK> 773,849
<SHARES-COMMON-PRIOR> 623,863
<ACCUMULATED-NII-CURRENT> 23,026
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,107
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (22,361)
<NET-ASSETS> 7,991,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 476,154
<OTHER-INCOME> 0
<EXPENSES-NET> 36,524
<NET-INVESTMENT-INCOME> 439,630
<REALIZED-GAINS-CURRENT> 16,664
<APPREC-INCREASE-CURRENT> (169,853)
<NET-CHANGE-FROM-OPS> 286,441
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 433,144
<DISTRIBUTIONS-OF-GAINS> 37,168
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 131,506
<NUMBER-OF-SHARES-REDEEMED> 25,846
<SHARES-REINVESTED> 44,326
<NET-CHANGE-IN-ASSETS> 1,393,006
<ACCUMULATED-NII-PRIOR> 16,516
<ACCUMULATED-GAINS-PRIOR> 28,635
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,566
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 132,849
<AVERAGE-NET-ASSETS> 7,298,847
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> (0.20)
<PER-SHARE-DIVIDEND> 0.63
<PER-SHARE-DISTRIBUTIONS> 0.06
<RETURNS-OF-CAPITAL> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
<NAME> MCM FUNDS
<SERIES>
<NUMBER> 5
<NAME> MCM INTERMEDIATE FIXED INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
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<PERIOD-END> JUN-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
<NAME> MCM FUNDS
<SERIES>
<NUMBER> 6
<NAME> MCM PRINCIPAL PRESERVATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 23,964,178
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<PER-SHARE-NAV-END> 1.00
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</TABLE>
