<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. 4 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 8 X
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McM Funds
--------------------------------------------------
(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
------------
Deane A. Nelson, CFA
Vice President
McMorgan & Company
One Bush Street, Suite 800
San Francisco, California 94104
--------------------------------------
(Name and Address of Agent for Service)
COPIES TO:
Julie Allecta, Esq. Joseph M. O'Donnell, Esq.
Paul, Hastings, Janofsky & Walker FPS Services, Inc.
345 California Street 3200 Horizon Drive
San Francisco, CA 94104-2635 King of Prussia, Pennsylvania 19406-0903
It is proposed that this filing become effective:
[X] on November 1, 1997 pursuant to Paragraph (b) of Rule 485.
As filed with the U.S. Securities and Exchange
Commission on October 30, 1997
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PEA 4/8 McM Funds - Cover Page
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MCM FUNDS
Cross Reference Sheet Pursuant to Rule 481(b)
Form N-1A Item Caption in Prospectus
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 Included in Registrant's
Performance 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 Control Persons and Principal
of Securities Holders of 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
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PEA 4/8 McM Funds - Cover Page
Last Edit: October 23, 1997 Page 2
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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.
___________
* Item inapplicable at this time or answer negative.
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PEA 4/8 McM Funds - Cover Page
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<PAGE>
McM FUNDS PROSPECTUS
One Bush Street, Suite 800
San Francisco, CA 94104 November 1, 1997
================================================================================
McM Funds is a no-load, open-end management investment company. McM Funds was
organized as a Delaware business trust and currently offers shares of five
separate series or funds (each a "Fund"), each having its own investment
objectives and policies. Each Fund is diversified and individually advised by
McMorgan & Company (the "Advisor").
Money Market Fund
-------------------------------------------
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
------------------------------------------------
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 NOR HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PEA 4/8 McM Funds - Prospectus
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Balanced Fund
------------------------------------
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
--------------------------------------
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 McM Funds, 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 McM 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. The Statement of
Additional Information, material incorporated by reference into this
Prospectus, and other information regarding the Fund are maintained
electronically with the U.S. Securities and Exchange Commission at its
Internet Web site (http: //www.sec.gov).
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
EMAIL: McM Funds @
McM Funds.com
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PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 2
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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 McM Funds.......................................................
How to Invest in McM 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
McM 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 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 3
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Prospectus Summary
McM Funds
McM Funds is an open-end, management investment company commonly known as a
mutual fund. McM Funds was established as a Delaware business trust on
February 3, 1994. McM Funds is currently comprised of five diversified series
of shares (Funds) 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 McM 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 page XX
and "Investment Strategies" on page XX.
Risk Factors of Investing in McM 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 XX.
How to Purchase Shares
The minimum initial investment for all accounts is $5,000 for each Fund. The
minimum for additional investments is $250. McM Funds does not impose any
sales load, distribution plans (12b-1), redemption or exchange fees. The
public offering price for shares of each Fund is the net asset value per
share next determined after receipt of a purchase order. See "How to Invest in
McM Funds" on page XX.
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 XX.
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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PEA 4/8 McM Funds - Prospectus
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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 XX.
Management of McM Funds
McMorgan & Company, One Bush Street, Suite 800, San Francisco, California
94104, a California corporation and registered investment advisor, is McM
Funds' investment advisor. As of June 30, 1997, the Advisor managed
approximately $18 billion in assets primarily for employee benefit plans
such as retirement plans and health and welfare plans. FPS Broker Services,
Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania 19406-0903, serves as
McM Funds' underwriter. The Bank of New York, 48 Wall Street, New York, New
York 10286, serves as the custodian of McM Funds' assets. FPS Services, Inc.,
3200 Horizon Drive, King of Prussia, Pennsylvania 19406-0903, serves as McM
Funds' administrator, transfer agent and fund accounting agent.
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PEA 4/8 McM Funds - Prospectus
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Expense Information
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses for Each Fund:
Maximum Sales Load Imposed on Purchases ..................... None
Maximum Sales Load Imposed on Reinvested Dividends .......... None
Deferred Sales Load ......................................... None
Redemption Fees ............................................. None
There is a fee of $9.00 for each wire redemption under $10,000.
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees Other Expenses Total Fund Operating Expenses
(after fee waiver) (after expense reimbursement) (after expense reimbursement)
<S> <C> <C> <C>
Principal Preservation Fund 0.00% 0.30% 0.30%
Intermediate Fixed Income Fund 0.25% 0.25% 0.50%
Fixed Income Fund 0.00% 0.50% 0.50%
Balanced Fund 0.04% 0.56% 0.60%
Equity Investment Fund 0.37% 0.38% 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, Fixed Income Fund Balanced
Fund and Equity Investment Fund will not exceed 0.30%, 0.50%, 0.50%, 0.60% and
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, 1997 would have been 0.77%, 0.59%, 1.57%, 1.01% and 0.88%,
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, each Fund's
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.
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PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 6
<PAGE>
Financial Highlights
The following financial highlights were derived from McM Funds' financial
statements for the fiscal years ended June 30, 1996 and 1997 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
McM Funds' Annual Report to Shareholders dated June 30, 1997 and is
incorporated by reference into McM Funds' Statement of Additional Information.
McM 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>
Income From Investment
Operations Less Distributions
----------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset Net realized Total Net asset
value, Net & unrealized from From net value,
beginning investment gain (loss)on investment investment From Total end of Total
Year of period income investments operations income capital gains Distributions period Return
===========================================================================================================
McM PRINCIPAL PRESERVATION FUND (Commencement of Operations July 13, 1994)
1995 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) $ 1.00 5.10%(2)
1996 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00 5.39%
1997 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05) 1.00 5.24%
McM INTERMEDIATE FIXED INCOME FUND (Commencement of Operations July 14, 1994)
1995 $10.00 0.54 0.34 0.88 (0.51) 0.00 (0.51) $10.37 9.19%(2)
1996 10.37 0.57 (0.10) 0.47 (0.57) (0.10) (0.67) 10.17 4.61%
1997 10.17 0.60 0.11 0.71 (0.60) (0.02) (0.62) 10.26 7.14%
McM FIXED INCOME FUND (Commencement of Operations July 14, 1994)
1995 $10.00 0.55 0.56 1.11 (0.53) 0.00 (0.53) $10.58 11.55%(2)
1996 10.58 0.64 (0.20) 0.44 (0.63) (0.06) (0.69) 10.33 4.16%
1997 10.33 0.65 0.12 0.77 (0.65) (0.01) (0.66) 10.44 7.72%
RATIOS/SUPPLEMENTAL DATA
---------------------------------------
Ratio of Net
Ratio of Expenses Investment Income
to Average Net to Average Net
Assets Assets
------------------ ------------------
Net assets, Before After Before After
end of expense expense expense expense Average
period reimburse- reimburse- reimburse- reimburse- Portfolio commission rate
Year (in 000s) ment ment ment ment turnover paid
===== ===================================================================================
McM
1995 $11,813 2.77%(1) 0.30%(1) 2.91%(1) 5.38%(1) N/A N/A
1996 $24,195 0.93% 0.30% 4.60% 5.23% N/A N/A
1997 $32,703 0.77% 0.30% 4.65% 5.12% N/A N/A
McM
1995 $29,936 1.72%(1) 0.50%(1) 5.01%(1) 6.24%(1) 227.09%(2) N/A
1996 $76,045 0.69% 0.50% 5.52% 5.71% 75.26% N/A
1997 $93,402 0.59% 0.50% 5.80% 5.89% 36.02% N/A
McM
1995 $6,599 7.29%(1) 0.50%(1) -0.47%(1) 6.33%(1) 150.77%(2) N/A
1996 $7,992 1.82% 0.50% 4.70% 6.02% 37.62% N/A
1997 $9,565 1.57% 0.50% 5.25% 6.32% 32.46% N/A
</TABLE>
1 Annualized
2 Non Annualized
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<TABLE>
<CAPTION>
Income From Investment
Operations Less Distributions
----------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset Net realized Total Net assets
value, Net & unrealized from From net Net asset end of
beginning investment gain(loss) on investment investment From Total value,end Total period
Year of period income investments operations income capital gains Distributions of period Return (in 000s)
===================================================================================================================================
McM BALANCED FUND (Commencement of Operations July 14, 1994)
1995 $10.00 0.36 1.33 1.69 (0.34) 0.00 (0.34) $11.35 17.31%(2) $3,070
1996 11.35 0.40 1.49 1.89 (0.40) (0.09) (0.49) 12.75 16.86% $11,915
1997 12.75 0.43 2.54 2.97 (0.42) 0.00 (0.42) 15.30 23.65% $40,941
McM EQUITY INVESTMENT FUND (Commencement of Operations July 14, 1994)
1995 $10.00 0.19 1.94 2.13 (0.18) 0.00 (0.18) $11.95 21.57%(2) $ 4,866
1996 11.95 0.21 2.94 3.15 (0.21) (0.04) (0.25) 14.85 26.53% $23,913
1997 14.85 0.24 4.87 5.11 (0.24) (0.01) (0.25) 19.71 34.68% $58,593
RATIOS/SUPPLEMENTAL DATA
---------------------------------------
Ratio of Net
Ratio of Expenses Investment Income
to Average Net to Average Net
Assets Assets
----------------- -----------------
Before After Before After
expense expense expense expense Average
reimburse- reimburse- reimburse- reimburse- Portfolio commission rate
Year ment ment ment ment turnover paid
==================================================================================
McM
1995 8.41%(1) 0.60%(1) -3.54%(1) 4.28%(1) 81.05%(2) N/R
1996 2.21% 0.60% 1.81% 3.43% 26.16% $0.06
1997 1.01% 0.60% 2.97% 3.38% 31.64% $0.06
McM
1995 8.48%(1) 0.75%(1) -5.50%(1) 2.24%(1) 1.81%(2) N/R
1996 1.72% 0.75% 0.80% 1.77% 0.92% $0.06
1997 0.88% 0.75% 1.36% 1.49% 0.88% $0.06
</TABLE>
1 Annualized
2 Non Annualized
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PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 8
<PAGE>
Investment Philosophies
Portfolio Management
Investment decisions for McM 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 and sales.
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 (current yield to maturity less
expected inflation) 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 minimal.
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, attractive
yields, yield to maturity advantage over the market and a high degree of
protection from 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 to maturity 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.
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. 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. "Bottom-up" refers to an analytical
approach to securities selection which first focuses on the company and
company-related matters.
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 McM Funds without shareholder approval, each Fund intends 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.
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PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 9
<PAGE>
When in the opinion of the Advisor a defensive investment posture is
warranted, McM 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. McM 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.
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 McM 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%(1) 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 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.
The Principal Preservation Fund will not invest in the following types of
instruments: asset-backed securities, collateralized mortgage obligations,
mortgage-backed securities, stripped mortgage-backed securities, foreign
securities, futures contracts and related options, and options. The Fund will
not engage in the following types of transactions: short-term trading,
borrowing, forward commitments, when issued and delayed delivery, swaps and
securities lending.
- --------------------------------------------------------------------------------
1 The Fund will not invest more than the greater of 1% of the Fund or
$1,000,000 in any single issuer that is unrated or a Second-Tier security.
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Last Edit:October 23, 1997 Page 10
<PAGE>
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 investing in 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 "Mortgage-
and Asset-Backed Securities and 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 investing in lower coupon mortgage-backed and
asset-backed securities to create incremental returns, while government bonds
may be used extensively to control portfolio duration. See "Mortgage- and
Asset-Backed Securities and 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 Advisor may alter the
actual percentage of equities invested within the targeted equity ranges up
to 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.
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<PAGE>
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 is described under "Equity Philosophy."
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."
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. 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.
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 not be suitable for all investors. The Fund is designed for long-term
investors who can accept the risk described in these investment policies and
is not meant to provide a vehicle for trading in short-term fluctuations in
the stock market.
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Last Edit:October 23, 1997 Page 12
<PAGE>
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
average maturities 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-and "Asset-Backed Securities
and Collateralized Mortgage Obligations" 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 Advisor manages the Intermediate Fixed Income Fund, Fixed Income Fund and
fixed income portion of the Balanced Fund based primarily on an expected real
return basis, and minimally on anticipated interest rate changes.
See "Fixed Income Philosophy" under INVESTMENT PHILOSOPHIES.
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PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 13
<PAGE>
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, each Fund 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
The following provides information about the types of instruments in which McM
Funds may invest and strategies employed by the Advisor in its attempt to
attain each Fund's investment objective. Shareholders should understand that
all investments involve risk and that there can be no guarantee against loss
resulting from an investment in a Fund, nor can there be any assurance that
each Fund's investment objectives will be attained. A complete list of McM
Funds' investment restrictions and more detailed information about McM Funds'
investments are contained in the Statement of Additional Information.
To the extent consistent with each Fund's stated investment objectives and
policies, it is likely that the respective Funds may include the following in
their portfolio of investments:
Mortgage- and Asset-Backed Securities and Collateralized Mortgage Obligations
(CMOs) (all Funds except Principal Preservation Fund): Each Fund may invest in
mortgage-backed securities which represent interests in, or are secured by and
payable from, pools of mortgage loans, including collateralized mortgage
obligations. 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.
CMOs are debt obligations 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. McM Funds will not invest in any new types of collateralized
mortgage obligations without prior disclosure to the shareholders.
The rate of return on mortgage-backed securities, including CMOs, and
asset-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,
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PEA 4/8 McM Funds - Prospectus
Last Edit: October 23, 1997 Page 14
<PAGE>
the values of mortgage-related securities, including government and
government-related mortgage pools, generally will fluctuate in response to
market interest rates.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather, they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
cards or other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
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.
Stripped Mortgage-Backed Securities (all Funds except Principal Preservation
Fund): Each Fund 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 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, a Fund may fail to fully recoup its
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. 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 of the U.S. Securities and Exchange Commission, a Fund's
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.
Money Market Securities (all Funds): Each Fund 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 McM 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, McM 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 McM 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 McM Funds, McM Funds
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<PAGE>
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 a Fund to
dispose of an instrument if the issuer defaulted on its payment obligation or
during periods that a Fund is not entitled to exercise its demand rights, and
a Fund could, for these or other reasons, suffer a loss. Substantial holdings
of variable and floating rate instruments could reduce portfolio liquidity.
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
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 result in higher transaction costs to a Fund and also in
a higher level of taxable gain for a shareholder.
Repurchase Agreements (all Funds): Each Fund may enter into repurchase
agreements to earn income. McM Funds may only enter into repurchase agreements
with financial institutions that are deemed to be creditworthy by the Advisor
pursuant to guidelines established by McM Funds' Board of Trustees. During the
term of any repurchase agreement, the Advisor will continue to monitor the
creditworthiness of the seller. Repurchase agreements 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 a Fund's
net assets will be invested in illiquid securities, including repurchase
agreements that have a maturity of longer than seven days.
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").
Other Investments: While the identified Funds are authorized to purchase or
enter into certain other investments or activities, McM Funds do not have the
current intention to purchase or enter into any of the following in the
foreseeable future. Each Fund may borrow funds for temporary purposes by
entering into reverse repurchase agreements with banks and broker/dealers,
invest in illiquid securities within the guidelines adopted by the Board of
Trustees, and invest in securities of other investment companies within the
limits permitted. Each Fund, except the Principal Preservation Fund, may borrow
money for temporary defensive purposes, invest indirectly in foreign securities,
enter into forward commitments, when-issued securities and delayed delivery
transactions, future contracts and options. The Balanced Fund, Intermediate
Fixed Income Fund and Fixed Income Fund may enter into interest rate, currency
and mortgage swap agreements.
For more detailed descriptions of these investment policies and techniques,
please refer to the Statement of Additional Information, which is available
without charge upon request by calling (800) 788-9485.
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<PAGE>
Management of McM Funds
The Board of Trustees
McM Funds has a Board of Trustees that establishes each Fund's policies and
supervises and reviews the management of each Fund. The day-to-day operations
of McM Funds are administered by the officers of McM Funds 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 Fund and
is an investment advisor registered as such under the Investment Advisers Act
of 1940, as amended. The Advisor manages private accounts as well as McM
Funds. McMorgan & Company managed approximately $18 billion in assets at
June 30, 1997 consisting primarily of retirement plans; and health and welfare
funds for jointly trusteed plans. McMorgan & Company was organized in 1969.
Pursuant to an investment advisory agreement with McM Funds, McMorgan &
Company provides McM Funds with advice on buying and selling securities in
accordance with each Fund's respective investment policies, limitations and
restrictions. McMorgan & Company also furnishes McM Funds with office space
and certain administrative services, and provides the personnel needed by McM
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. 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 each Fund for fees and expenses
for the current year.
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<PAGE>
The Underwriter
FPS Broker Services, 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 Fund under state securities
laws and to assist in the sale of shares.
The Administrator
FPS Services, Inc. ("FPS"), 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, Pennsylvania 19406-0903, serves as administrator pursuant to an
administrative services agreement with McM Funds. The services FPS provides to
McM Funds includes: the coordination and monitoring of any third parties
furnishing services to McM Funds; providing the necessary office space,
equipment and personnel to perform administrative and clerical functions for
McM 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 a
Fund's 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 McM Funds, including
the daily calculation of each Fund's net asset values.
How to Invest in McM Funds
Fund 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. Fund shares are offered for sale by FPS Broker Services,
Inc., McM 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. McM Funds 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. McM Funds reserves the right to reject any purchase order and to
suspend the offering of shares of any Fund. McM Funds will not accept a check
endorsed over by a third party. 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.
Purchases of the Principal Preservation Fund received by FPS in proper form
prior to 1:00 p.m. Eastern time will be invested at the net asset value
determined that day. Purchases received after 1:00 p.m. Eastern time will be
invested the business day following the receipt of the order. Shares of the
Principal Preservation Fund may only be purchased on days when banks are open
for business.
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<PAGE>
Purchases of all other Funds received by FPS in proper form at the close of the
New York Stock Exchange (NYSE), on any day that it is open for trading, will be
invested at the net asset value determined that day. Purchases received after
the close of the NYSE will be invested the business day following the receipt of
the order.
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 McM Funds. 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 McM Funds.
Purchases may be made in one of the following ways:
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
------------------------------------------------------ -----------------------------------------------------------------
<S> <C> <C>
Minimum $5,000 Minimum $250
By Mail o Complete and sign the Account Registration o Make a check payable to "McM ( )
(Envelope) accompanying this Prospectus. Fund."
o Make a check payable to "McM ( ) o Enclose the remittance portion of an account statement
Fund." and include the amount of investment, the account name
o Mail to the address indicated on the Account and number.
Registration. o Mail to the address indicated on the account
statement or enclose in the envelope provided.
By Wire o Call (800) 831-1146 to arrange for a wire o Call (800) 831-1146 to arrange for a wire
w purchase. purchase.
o Wire federal funds within 24 hours to: o Wire federal funds to:
UMB Bank KC NA UMB Bank KC NA
ABA # 10-10-00695 ABA # 10-10-00695
For: FPS Services, Inc. For: FPS Services, Inc.
A/C 98-7037-071-9 A/C 98-7037-071-9
"McM ( ) Fund" and include the "McM ( ) Fund" and include the
name and your new account number. name and account number.
o Complete and sign the Account Registration and
mail to the address indicated immediately
following the initial wire transaction.
Purchasing o You may open a new account by making an exchange o You may purchase additional shares by making an exchange
by Exchanges from an existing McM Funds account to any other from an existing McM Funds account of any other series of
(Tel) series of McM Funds. Exchanges may be made by McM Funds. Exchanges may be made by mail, facsimile or
mail, facsimile or telephone. Call (800) 831-1146 telephone. Call (800) 831-1146 for assistance.
for assistance.
Automatically o Please refer to "Automatic Investing" and "Direct o Please refer to "Automatic Investing" and "Direct Deposit
Deposit Program" under "Account Options" or call Program" under "Account Options" or call (800) 831-1146
(800) 831-1146 for assistance. for assistance.
</TABLE>
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
red
emption request meeting the requirements described below. Each Fund
normally sends redemption proceeds on the next business day, but in any event
redemption proceeds are sent within seven calendar days of receipt of a
redemption request in proper form. Payment
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 19
<PAGE>
may also be made by wire directly to any bank previously designated by the
shareholder on a shareholder account registration. There is a $9 charge for
redemptions under $10,000 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.
Each Fund 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 McM Funds' 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, McM Funds has elected, pursuant to Rule 18f-1 under the Investment
Company Act of 1940, as amended (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 each Fund. 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.
McM 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 a Fund 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:
--------------------------------------------------------------
By Mail o Submit a written request for redemption with:
(Envelope) o The Fund's name;
o Your Fund account number;
o The dollar amount or number of shares or percentage of
the account to be redeemed; and
o Signatures of all persons required to sign for transactions,
exactly as the shares are registered.
o 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 or when
redemption proceeds are to be mailed to an address other
than the address of record.
o Mail to the address indicated on the Account Registration.
Questions may be directed to the
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 20
<PAGE>
transfer agent at (800) 831-1146.
By Wire o This service must be elected either on the initial
application or subsequently in writing.
o Shares may be redeemed by instructing the transfer
agent by telephone at (800) 831-1146.
o Wire redemption requests must be received by the
transfer agent before the close of the NYSE (1:00 p.m.
EST for the Principal Preservation Fund) for money to
be wired the next business day.
By Telephone o This service must be elected in advance either on the
(800) 831-1146 initial application
(Tel) or subsequently arranged in writing.
o Shares may be redeemed by instructing the transfer
agent by telephone at (800) 831-1146.
o Shares will be sold at the next share price calculated
after the order is received and accepted.
Automatically o Please refer to "Systematic Withdrawal Plan" under
"Account Options" or call (800) 831-1146 for
assistance.
ACH o Redemption proceeds, cash distributions or systematic
cash withdrawal
payments can be 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 McM Funds
associated with the use of the ACH service.
o The funds from the ACH redemption will normally be
available two days after the redemption has been
processed.
o ACH redemption requests must be received before the
close of the NYSE (1:00 p.m. EST for the Principal
Preservation Fund) to receive that day's closing net
asset value.
Note: McM Funds reserves the right to refuse a wire or telephone redemption
if it is believed advisable to do so. Procedures for redeeming shares
of a Fund by wire or telephone may be modified or terminated by
McM Funds at any time.
McM Funds will honor redemption requests of shareholders who recently
purchased shares by check, but will not mail redemption proceeds until McM
Funds is 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.
Shares of a Fund may be redeemed through certain broker-dealers, banks and
bank trust departments which 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 directly from McM Funds.
Telephone Transactions:
Shareholders who wish to initiate purchase, exchange or redemption
transactions by telephone must elect the option, as described above. With
respect to such telephone transactions, McM Funds will ensure that
reasonable procedures are used to confirm that instructions communicated by
telephone are genuine (including verification of the shareholder's social
security number or mother's maiden name) and, if they do not, McM Funds or
the transfer agent may be liable for any losses due to unauthorized or
fraudulent transactions. Written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone.
Exchange of Shares:
Shares of a Fund within McM Funds may be exchanged for shares of any of the
other Funds within McM Funds, provided such other shares may be sold legally
in the state of the investor's residence. McM Funds 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 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 (1:00 p.m. Eastern time for the Principal Preservation Fund). Shares may
be exchanged by: (1) written request; or (2) telephone, if a special
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 21
<PAGE>
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. McM 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.
Transfer of Securities:
At the discretion of McM 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 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.
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 McM 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 Account Registration
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 McM 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 a Fund. The minimum
initial and subsequent investment pursuant to this plan is $250 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.
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 22
<PAGE>
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, Martin Luther King 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 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. ( Eastern
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
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 23
<PAGE>
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 a Fund 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
McM Funds, 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 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 a Fund 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 a 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. Each Fund 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. Each Fund 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 McM 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
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 24
<PAGE>
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 McM Funds 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 McM Funds have overall responsibility
for the operations of each Fund. The Statement of Additional Information
contains general background information about each Trustee and officer of McM
Funds. The officers of McM Funds who are employees or officers of McMorgan &
Company serve without compensation from McM Funds.
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 McM Funds. The validity of shares
of beneficial interest offered by this prospectus has been passed on by Paul,
Hastings, Janofsky & Walker, LLP, 345 California 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 3, 1997, 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 McM Funds. The Advisor maintains sole
responsibility over the affairs of McM Funds pursuant to its Investment
Advisory Agreement with McM Funds. Industrial Carpenters and Precast Industry
Pension Fund - Fixed Income Fund.
Shareholder Meetings: The Trustees of McM Funds do not intend to hold annual
meetings of shareholders. 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 a Fund 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 McM Funds' independent accounts, as well as
unaudited semiannual financial statements. Shareholder inquiries
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 25
<PAGE>
should be addressed to the Fund c/o McM Funds, One Bush Street, Suite 800, San
Francisco, California 94104, (800) 788-9485.
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 26
<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
AUDITORS
Tait, Weller & Baker
2 Penn Center Plaza, Suite 700
Philadelphia, PA 19102-1707
For Additional Information about McM Funds call:
(800) 788-9485
E-MAIL Address:
McM Funds @ McMFunds.com
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PEA 4/8 McM Funds - Prospectus
Last Edit:October 23, 1997 Page 27
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1997
----------------------------------------------------------------------------
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, 1997 is not a
prospectus but should be read in conjunction with the Prospectus for the McM
Funds dated November 1, 1997, 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 McM
Funds 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 McM Funds or its distributor. The Prospectus does
not constitute an offering by McM Funds or by the distributor in any
jurisdiction in which such offering may not lawfully be made.
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - SAI
Last Edit: October 22, 1997 Page 1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
McM Funds..........................................................................................................
Investment Policies
Futures Contracts and Related Options.........................................................................
Risk Factors of Options, Futures, and Forward Contracts......................................................
Options.......................................................................................................
Purchasing Call Options.......................................................................................
Covered Call Writing..........................................................................................
Purchasing Put Options........................................................................................
Writing Put Options...........................................................................................
Repurchase Agreements.........................................................................................
Reverse Repurchase Agreements.................................................................................
Borrowing.....................................................................................................
Securities Lending............................................................................................
Securities of Other Investment Companies......................................................................
Foreign Securities............................................................................................
Forward Contracts, When-Issued Securities and Delayed Delivery Transactions...................................
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 Conduit
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.......................................................................................
Swaps.........................................................................................................
Restricted Securities.........................................................................................
Rule 144A Securities..........................................................................................
Illiquid Securities...........................................................................................
Convertible Securities........................................................................................
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..............................................................................................................
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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..................................................................................
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McM FUNDS
McM Funds, One Bush Street, Suite 800, San Francisco, California, 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") (each a "Fund").
INVESTMENT POLICIES
The following supplements the information contained in the Prospectus
concerning the investment policies of McM 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.
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Futures Contracts and Related Options
Each Fund, except the Principal Preservation 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
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.
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A Fund may purchase and sell call and put options on futures contracts traded
on an exchange or board of trade. 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
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) McMorgan & Company's (the "Advisor") ability to predict correctly the
direction of security prices, interest rates and other economic factors.
Options
Each Fund, except Principal Preservation Fund, 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. Each Fund
(all Funds except Principal Preservation Fund) may 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. 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 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.
A Fund will write call and put 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
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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. A Fund will write put options
only if they are "secured" by liquid assets maintained in a segregated account
by McM 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.
Purchasing Call Options
Each Fund (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 a Fund 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
Each Fund (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.
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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 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.
A Fund 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
Each Fund (except Principal Preservation Fund) may invest up to 20% of its
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. A Fund may 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 a
Fund 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.
A Fund may sell a put option purchased on individual portfolio securities.
Additionally, a Fund 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
Each Fund (except the 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.
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.
Reverse Repurchase Agreements
Each Fund may obtain funds for temporary defensive 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, 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. Reverse repurchase agreements
are considered borrowings by the Fund, and as such are subject to the
investment limitations discussed in the section entitled "Borrowing."
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Borrowing
Each Fund, except the Principal Preservation Fund, 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.
Securities Lending
To increase return on portfolio securities, each Fund, except the Principal
Preservation Fund, 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. Collateral will consist of U.S. Government securities, cash
equivalents or irrevocable letters of credit. A Fund 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 its judgment, the income to be earned from the loan
justifies the attendant risks.
Securities of Other Investment Companies
Each Fund may invest in securities issued by other investment companies
that 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 a Fund
bear directly in connection with their own operations.
Foreign Securities
Each Fund, except the Principal Preservation Fund, 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 U.S. 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. Each Fund 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. McM Funds
will 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,
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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 a Fund.
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions
Each Fund 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 a Fund would generally purchase securities on a
when-issued, delayed delivery or a forward commitment basis with the intention
of acquiring the securities, a Fund may dispose of such securities prior to
settlement if the Advisor deems it appropriate to do so.
A Fund may dispose of or negotiate a when-issued or forward commitment. A
Fund 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 a Fund's 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
Each Fund (except the 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. A Fund 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 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. A Fund may agree to purchase or sell these securities with
payment and delivery taking place
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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 pro rata 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., the Fund). 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").
[TEXT MOVED TO PAGE 14]
Collateralized Mortgage Obligations ("CMOs"), Real Estate Mortgage Investment
Conduits ("REMICs") and Multi-Class Pass-Throughs. Each Fund (except the
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 allows the payment of 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 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 a Fund.
Floating rate CMOs may be backed by fixed-rate or adjustable rate mortgages.
Floating rate CMOs are typically issued with lifetime "caps" on the coupon rate.
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 based.
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 a Fund 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.
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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. The risk of loss due to default on such instruments is higher
because they are not guaranteed by the U.S. Government. McM Funds will not
invest in subordinated privately-issued CMOs.
Resets
The interest rates paid on the ARMS and CMOs in which a Fund 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.
Caps and Floors
The underlying mortgages which collateralize the ARMS and CMOs in which a
Fund invests 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 Securitie
Each Fund (except the 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 a Fund 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 a Fund may
invest.
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 IO
securities even if the securities are rated in the highest rating categories,
AAA or Aaa, by S&P or Moody's, respectively.
Stripped mortgage-backed securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or
dealers. The staff of the U.S. Securities and Exchange Commission has
indicated that it views such securities as illiquid. A Fund's 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
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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.
A Fund 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.
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 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. A Fund 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
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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.
Swaps
To help enhance the value of its portfolio or manage its exposure to different
types of investments, the Balanced Fund, Intermediate Fixed Income Fund and
Fixed Income Fund 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. 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 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 McM Funds'
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.
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 McM Funds' Board
of Trustees.
Rule 144A Securities
Each Fund 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
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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 McM Funds' Board of Trustees, that an adequate
trading market exists for that security. This investment practice could have
the effect of increasing the level of illiquidity in a Fund during any
period that qualified institutional buyers become uninterested in purchasing
these restricted securities.
Illiquid Securities
Each Fund will not invest more than 10% of the value of its 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).
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.
Money Market Instruments
Money market instruments in which a Fund may invest include, but are not
limited to, the following: short-term corporate obligations, letters of credit
backed commercial paper, time deposits, trading securities, variable and
floating rate notes and master demand notes.
Time Deposits carry 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.
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, if 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.
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
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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 each
Fund 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 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 a Fund 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;
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(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.
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and executive officers of McM Funds 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, 1997 to Trustees
<S> <C> <C> <C> <C> <C>
Terry A. O'Toole, CPA* 50 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 56 Trustee Independent $4,800 $4,800
1299 Ocean Avenue Consultant.
Suite 333
Santa Monica, CA 90401
Walter B. Rose 51 Trustee Partner, McBain, $4,800 $4,800
McBain, Rose Partners Rose Partners.
355 S. Grand Avenue
Suite 4295
Los Angeles, CA 90071
S.D. Sicotte 66 Trustee Retired; prior thereto $3,600 $3,600
Chairman and Chief
Executive Officer,
Hemming Morse, Inc.
2047 Byron Street
Palo Alto, CA 94301
Robert R. Barron * 53 Trustee, Executive Vice N/A N/A
McMorgan & Company Vice President, McMorgan
101 N. Brand Boulevard, President & & Company.
#1220 Treasurer
Glendale, CA
Mark R. Taylor * 38 Vice President N/A N/A
McMorgan & Company McMorgan &
One Bush Street, Suite 800 Company
San Francisco, CA 94104
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Gregory L. Watson, CFA * 52 Trustee Executive N/A N/A
McMorgan & Company Vice President,
One Bush Street, Suite 800 McMorgan
San Francisco, CA 94104 & Company
Deane A. Nelson, CFA* 51 Trustee, Vice N/A N/A
McMorgan & Company Vice President,
One Bush Street, Suite 800 President McMorgan
San Francisco, CA 94104 and & Company
Secretary
Robert M. Hirsch * 43 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
Weinberg,
Roger & Rosenfeld.
</TABLE>
* These Trustees and officers are considered "interested persons" of McM Funds
as defined under the Act.
The Trustees of McM Funds each 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 McM Funds for acting as a Trustee of McM Funds. The officers
of McM Funds receive no compensation directly from McM Funds for performing
the duties of their offices.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 3, 1997, the Trustees and officers of the Trust, individually
and as a group, owned beneficially 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 1.12% of
Equity Investment Fund.
As of October 3, 1997, the following persons owned beneficially more than 5% of
the outstanding voting shares of the:
McM PRINCIPAL PRESERVATION FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Directors Guild of America Trust 18.15%
San Diego, CA
Cement Masons Vacation Holiday 16.01%
Trust Fund
Suisun, CA
Directors Guild of America Trust 8.59%
San Diego, CA
IATSE Local 16 Health &
Welfare Trust Fund 8.40%
San Francisco, CA
U.A. 350 Supplemental Annuity Plan Trust 7.45%
Reno, NV
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<PAGE>
McM INTERMEDIATE FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Wendel & Company 12.88%
New York, NY
Cement Masons Health & Welfare 11.75%
Trust Fund
Suisun, CA
Northern California Pipe Trades 8.75%
Health & Welfare Trust Fund
Oakland, CA
Northern Nevada Operating Eng. 6.81%
Health & Welfare Trust Fund
Reno, NV
Northern California Carpenters Reg. Council 6.13%
Oakland, CA
Sheet Metal Workers Unemployment & 5.11%
Health Care Fund
San Ramon, CA
McM FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Industrial Carpenters & Precast * 71.04%
Industry Pension Fund
Oakland, CA
Office & Proffessional Employees Insurance 8.08%
Trust Fund
Oakland, CA
McM BALANCED FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
UA Local 290 Plumber Steamfitter & 16.11%
Shipfitter Retiree Health Trust
Portland, OR
Electical Ind. Advancement 9.39%
Trust Fund
Portland, OR
8.83%
UA Local 38 Pipe Trades Defined
Contribution Plan
San Francisco, CA
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<PAGE>
McM BALANCED FUND (continued)
International Brotherhood of Electrical 6.23%
Workers Local 48
Portland, OR
5.76%
Sheet Metal Production Workers of Northern
California Beneficial Trust Fund
Oakland, CA
5.02%
UA 350 Supplemental Annuity Plan
Reno, NV
McM EQUITY INVESTMENT FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Operating Engineers Health & Welfare 15.98%
Trust Fund
Calabasas, CA
BAC Local 3 Pension Trust 12.57%
Los Angeles, CA
Pensioned Operating Engineers Health & 7.29%
Welfare Fund
Calabasas, CA
6.97%
BAC Bricklayers Local 3
Los Angeles, CA
Wendel & Co. 6.32%
New York, NY
Ind. Carpenters & Precast Pension 5.44%
Trust Fund
Oakland, CA
McM FUNDS
Mill Cabinet Apprenticeship and Training 9.56%
Employee Benefit Trust Fund
Calabasas, CA
6.52%
Wedel & Company
New York, NY
* Pursuant to the definitions set forth in the Act, as of October 3, 1997,
these persons are deemed "control persons" by nature of their significant
holdings in the respective Fund. This does not mean, however, that these
persons manage the affairs of McM Funds. The Advisor maintains sole
responsibility over the affairs of McM Funds pursuant to its Investment
Advisory Agreement with McM Funds.
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<PAGE>
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 a Fund for fees and expenses for the current year.
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 McM Funds 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.
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 McM Funds.
The Advisory Agreements terminate automatically in the event of their
assignment.
For the fiscal years ended June 30, 1997 and 1996, advisory fees accrued by
the Advisor were as follows: Principal Preservation Fund - $62,891 and $47,458;
Intermediate Fixed Income Fund - $306,667 and $201,896; Fixed Income Fund -
$30,410 and $25,566; Balanced Fund - $111,590 and $28,436; and Equity
Investment Fund - $198,605 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.
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<PAGE>
General expenses of McM Funds (such as costs of maintaining corporate
existence, legal fees, insurance, etc.) will be allocated among a Fund in
proportion to its 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 years ended June 30, 1997 and 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 - $119,537, $119,404 and $104,476; Intermediate
Fixed Income Fund - $83,302, $111,101 and $94,352; Fixed Income Fund -
$93,006, $96,325 and $92,388; Balanced Fund - $101,913, $102,016 and $99,141;
and Equity Investment Fund - $52,492, $98,217 and $100,321, respectively.
From July 14, 1994 (July 13, 1994 for the Principal Preservation Fund) through
June 30, 1997, the Advisor has reduced its management fee and otherwise
absorbed Fund expenses for each Fund in the following amounts: Principal
Preservation Fund $268,167, Intermediate Fixed Income Fund $288,755, Fixed
Income Fund $212,498, Balanced Fund $228,730 and Equity Investment Fund
$175,996.
Administrator FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA
19406-0903 (the "Administrator"), provides certain administrative services to
McM Funds 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
McM Funds, 0.05% of the next $500 million of such average daily net assets,
and 0.03% on assets in excess of $600 million.
Under the Administrative Services Agreement, the Administrator: (1)
coordinates with the custodian and transfer agent and monitors the services
they provide to McM Funds; (2) coordinates with and monitors any other third
parties furnishing services to McM Funds; (3) provides McM 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 McM
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 McM Funds required by applicable law; (6) prepares
and, after approval by McM Funds, files and arranges for the distribution of
proxy materials and periodic reports to shareholders of a Fund as required by
applicable law; (7) prepares and, after approval by McM Funds, 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 McM Funds for their approval invoices or other requests for
payment of a Fund's expenses and instructs the Custodian to issue checks in
payment thereof; and (9) takes such other action with respect to McM Funds or
a Fund 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
McM Funds.
Administration fees paid to FPS Services, Inc. for the fiscal years ended June
30, 1997 and 1996 and the period July 13, 1994 (commencement of operations)
through June 30, 1995, for the Principal Preservation Fund were $25,844,
$21,704 and $16,874, respectively. Administration fees for the fiscal years
ended June 30, 1997 and 1996 and the period July 14, 1994 (commencement of
operations) through June 30, 1995, were: Intermediate Fixed Income Fund -
$25,348, $20,112 and $16,705; Fixed Income Fund - $24,948, $19,747 and
$16,732; Balanced Fund - $25,728, $20,563 and $16,751; and Equity Investment
Fund - $26,161, $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 McM Funds' shares for the purpose of
facilitating the registration of shares of McM Funds under state securities
laws and to assist in sales of shares pursuant to an underwriting agreement
(the "Underwriting
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Agreement") approved by McM Funds' 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
McM Funds 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 McM 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 McM Funds 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 McM Funds 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 in
which a Fund 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 each Fund. 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 McM
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 McM
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 each
Fund). The Advisor will attempt to allocate equitably portfolio transactions
among each Fund and others whenever concurrent decisions are made to purchase
or sell securities by a Fund and other accounts. In making such
allocations between McM 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 McM Funds
and the others. In some cases, this procedure could have an adverse effect on
McM 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 years ended June 30, 1997 and 1996 and the period ended June
30, 1995, McM Funds incurred brokerage commission as follows: Principal
Preservation Fund -$0, $0 and $0; Intermediate Fixed Income Fund - $0, $0 and
$0; Fixed Income Fund - $0, $0 and $0; Balanced Fund - $13,819, $5,196 and
$1,956; and Equity Investment Fund - $25,691 , $18,928 and $3,927,
respectively.
Portfolio Turnover
The portfolio turnover rate for McM 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
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within a particular year, and may be affected by cash requirements for
redemption of shares and by requirements which enable McM 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 years ended June 30, 1997 and 1996 and the period ended June
30, 1995, McM Funds' portfolio turnover rates were as follows: Intermediate
Fixed Income Fund - 36.02%, 75.26% and 227.09%; Fixed Income Fund - 32.46%,
37.62% and 150.77%; Balanced Fund - 31.64%, 26.16% and 81.05%; and Equity
Investment Fund - 0.88%, 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").
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) distribute at least
90% of its dividend, interest and certain other taxable income each year; and
(iii) 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. In addition, if necessary to satisfy
certain California State income tax requirements each Fund intends to 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.
To the extent McM Funds continues to qualify for treatment as a regulated
investment company, it 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 a
Fund's "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. Each Fund intends 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 each Fund 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
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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 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 McM 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
a Fund whether received in cash or additional shares of a Fund. 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 a Fund. 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.
Each Fund 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 McM Funds. The law firm of Paul, Hastings, Janofsky and
Walker, LLP 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 McM 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).
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PERFORMANCE INFORMATION
General
From time to time, McM Funds 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. McM Funds 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
Each Fund that computes its 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: 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.
Each Fund that computes its aggregate total returns does 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 ]
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, 1997 and
the period July 13, 1994 (commencement of operations) through June 30,1997 was
5.24% and 5.30%, respectively. The average annual total returns for the one
year period ended June 30, 1997 and for the period July 14, 1994 (commencement
of operations) through June 30, 1997 were as follows:
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Intermediate Fixed Income Fund - 7.14% and 7.05%; Fixed Income Fund - 7.72%
and 7.87%; Balanced Fund - 23.65% and 19.49%; and Equity Investment Fund -
34.68% and 27.85%, respectively.
Since performance will fluctuate, performance data for a Fund should not be
used to compare an investment in the Fund's 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 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, 1997, the Principal Preservation Fund had
a yield of 5.29% and an effective yield of 5.31%.
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
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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 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 McM Funds 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.
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Reports to Shareholders. Shareholders will receive unaudited semi-annual
reports describing McM Funds' investment operations and annual financial
statements audited by independent certified public accountants. Inquiries
regarding McM Funds may be directed to the Advisor at (800) 788-9485.
Audited Financial Statements. McM Funds' financial statements, including the
notes thereto, dated as of June 30, 1997, which have been audited by Tait,
Weller & Baker, are incorporated by reference from the Funds' 1997 Annual
Report to Shareholders.
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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 to McM Funds' Annual
Report dated June 30, 1997:
(1) Schedule of Investments as of June 30, 1997 (audited).
(2) Statement of Operations for the fiscal year ended June
30, 1997 (audited).
(3) Statement of Changes in Net Assets for the fiscal year
ended June 30, 1997 (audited).
(4) Financial Highlights as of June 30, 1997 (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 incorporated by reference to Exhibit No. (1)
of Post-Effective No. 3.
(2) Copies of existing By-Laws --By-laws are is incorporated
by reference to Exhibit No. (2) of Post-Effective No. 3.
(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 incorporated by
reference to Exhibit No. (5) of Post-Effective No. 3.
(6) Copies of each underwriting or distribution contract
-- Underwriting contract is incorporated by reference
to Exhibit No. (6) of Post-Effective No. 3.
(7) Copies of all bonus, profit sharing, pension or other
similar contracts -- Not Applicable.
(8) Copies of all custodian agreements --
(a) Amendment to Custodian and Custody Administration
Agreement is incorporated by reference to Exhibit
No. (8)(a) of Post-Effective No. 3.
(b) Custodian Agreement is incorporated by reference to
Exhibit No. (8)(b) of Post-Effective No. 3.
(c) Custody Administration Agreement is incorporated by
reference to Exhibit No. (8)(c) of Post-Effective
No. 3.
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(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 FPS Services, Inc. -- Transfer
Agent Services Agreement is incorporated by
reference to Exhibit No. (9)(a) of Post-Effective
No. 3.
(b) Administration Agreement between the Registrant and
FPS Services, Inc. -- Administration Agreement is
incorporated by reference to Exhibit No. (9)(b)
of Post-Effective No. 3.
(c) Accounting Services Agreement between the
Registrant and FPS Services, Inc. -- Accounting
Services Agreement is incorporated by reference
to Exhibit No.(9)(c) of Post-Effective No. 3.
(10) (a) Opinion and Consent of Counsel as to the
legality of the securities to be issued --
Opinion and Consent of Counsel is incorporated by
reference to Exhibit No. (10)(a) of
Post-Effective No. 3.
(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.
(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 incorporated by
reference to Exhibit No. (13) of Post-Effective No. 3.
(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 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 incorporated by reference to Exhibit No.
(18) Post-Effective No. 3.
(27) Electronic Filers -- Financial Data Schedules on
behalf of McM 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.
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<PAGE>
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of October 3, 1997
-------------- ------------------------
Shares of Beneficial Interest par value $0.001 of:
McM Equity Investment Fund 384
McM Balanced Fund 250
McM Intermediate Fixed Income Fund 95
McM Fixed Income Fund 45
McM Principal Preservation Fund 213
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 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
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Part C
Last Edit:October 21, 1997 Page 3
<PAGE>
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, 1997 had approximately $18
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:
Bjurman Funds
Farrell Alpha Strategies
Focus Trust, Inc.
Govett Funds
IAA Trust Mutual Funds
Matthews International Funds
McM Funds
Met West
Polynous Growth Fund
Sage/Tso Trust
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
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Part C
Last Edit:October 21, 1997 Page 4
<PAGE>
Trainer Wortham First Mutual Funds
(b) The table below sets forth certain information as to the
Underwriter's Directors, Officers and Control Persons:
<TABLE>
<CAPTION>
Position Position and
Name and Principal and Offices Offices with
Business Address with Underwriter Registrant
------------------ ---------------- ------------
Kenneth J. Kempf Director and None
3200 Horizon Drive President
King of Prussia, PA 19406-0903
<S> <C> <C>
Lynne M. Cannon Senior Vice President None
3200 Horizon Drive Director and Principal
King of Prussia, PA 19406-0903
Rocco C. Cavalieri Director and None
3200 Horizon Drive Vice President
King of Prussia, PA 19406-0903
Gerald J. Holland Director and None
3200 Horizon Drive Senior Vice President
King of Prussia, PA 19406-0903
Joseph M. O'Donnell, Esq. Director and None
3200 Horizon Drive Vice President
King of Prussia, PA 19406-0903
Sandra L. Adams Assistant Vice President None
3200 Horizon Drive and Principal
King of Prussia, PA 19406-0903
Mary P. Efstration Secretary None
3200 Horizon Drive
King of Prussia, PA 19406-0903
John H. Leven Treasurer None
3200 Horizon Drive
King of Prussia, PA 19406-0903
Bruno DiStefano Principal None
3200 Horizon Drive
King of Prussia, PA 19406-0903
</TABLE>
James W. Stratton may be considered a control person of the Underwriter due to
his direct or indirect ownership of FPS Services, Inc., the parent of the
Underwriter.
(c) Not Applicable.
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
McM Funds' Administrator, Transfer Agent and Fund Account
Services Agent, FPS Services Inc., 3200 Horizon Drive, P.O. Box
61503, King of Prussia, Pennsylvania 19406-0903.
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Part C
Last Edit:October 21, 1997 Page 5
<PAGE>
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, 1997, 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.
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Part C
Last Edit:October 21, 1997 Page 6
<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 30th day of October, 1997.
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 10/26/97
- -------------------------- and President and Principal
Terry O'Toole Executive Officer
/s/ Kenneth I. Rosenblum* Trustee 10/26/97
- --------------------------
Kenneth I. Rosenblum
/s/ Walter B. Rose* Trustee 10/26/97
- --------------------------
Walter B. Rose
/s/ Robert R. Barron* Treasurer, Vice President 10/26/97
- -------------------------- Principal Accounting & Financial
Robert R. Barron Officer & Trustee
/s/ Gregory L. Watson* Trustee 10/26/97
- --------------------------
Gregory L. Watson
/s/ Mark R. Taylor* Trustee 10/26/97
- --------------------------
Mark R. Taylor
/s/ S.D. Sicotte* Trustee 10/26/97
- --------------------------
- --------------------------------------------------
*By:/s/ Gretchen B. Zepernick, as Attorney-in-Fact
and Agent pursuant to Power of Attorney
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Part C
Last Edit:October 21, 1997 Page 7
<PAGE>
McM FUNDS
Index to Exhibits to Form N-1A
Exhibit Description of
Number Exhibit
99.B.11 Consent of Independent Auditors
99.B.27. Fianancial Data Schedules on behalf of each Fund
- --------------------------------------------------------------------------------
PEA 4/8 McM Funds - Part C
Last Edit:October 21, 1997 Page 8
<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 11, 1997 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 1997 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 28, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
<NAME> MCM FUNDS
<SERIES>
<NUMBER> 1
<NAME> MCM EQUITY INVESTMENT FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 43187875
<INVESTMENTS-AT-VALUE> 57693168
<RECEIVABLES> 128989
<ASSETS-OTHER> 10069
<OTHER-ITEMS-ASSETS> 987821
<TOTAL-ASSETS> 58820047
<PAYABLE-FOR-SECURITIES> 187021
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39843
<TOTAL-LIABILITIES> 226864
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43984660
<SHARES-COMMON-STOCK> 2972559
<SHARES-COMMON-PRIOR> 1609826
<ACCUMULATED-NII-CURRENT> 20224
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 83006
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14505293
<NET-ASSETS> 58593183
<DIVIDEND-INCOME> 855521
<INTEREST-INCOME> 34768
<OTHER-INCOME> 0
<EXPENSES-NET> 297908
<NET-INVESTMENT-INCOME> 592381
<REALIZED-GAINS-CURRENT> 88154
<APPREC-INCREASE-CURRENT> 12113724
<NET-CHANGE-FROM-OPS> 12794259
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 583073
<DISTRIBUTIONS-OF-GAINS> 15401
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1485441
<NUMBER-OF-SHARES-REDEEMED> 155758
<SHARES-REINVESTED> 33050
<NET-CHANGE-IN-ASSETS> 34680262
<ACCUMULATED-NII-PRIOR> 10916
<ACCUMULATED-GAINS-PRIOR> 10253
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 198605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 350400
<AVERAGE-NET-ASSETS> 39764650
<PER-SHARE-NAV-BEGIN> 14.85
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 4.87
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.71
<EXPENSE-RATIO> .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> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 34437247
<INVESTMENTS-AT-VALUE> 40423292
<RECEIVABLES> 349144
<ASSETS-OTHER> 9308
<OTHER-ITEMS-ASSETS> 249007
<TOTAL-ASSETS> 41030751
<PAYABLE-FOR-SECURITIES> 64878
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25150
<TOTAL-LIABILITIES> 90028
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34951650
<SHARES-COMMON-STOCK> 2675673
<SHARES-COMMON-PRIOR> 934284
<ACCUMULATED-NII-CURRENT> 56694
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (53666)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5986045
<NET-ASSETS> 40940723
<DIVIDEND-INCOME> 310313
<INTEREST-INCOME> 676936
<OTHER-INCOME> 0
<EXPENSES-NET> 148786
<NET-INVESTMENT-INCOME> 838463
<REALIZED-GAINS-CURRENT> (31191)
<APPREC-INCREASE-CURRENT> 5082280
<NET-CHANGE-FROM-OPS> 5889552
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 796912
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1730693
<NUMBER-OF-SHARES-REDEEMED> 43162
<SHARES-REINVESTED> 53858
<NET-CHANGE-IN-ASSETS> 29025754
<ACCUMULATED-NII-PRIOR> 15143
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (22475)
<GROSS-ADVISORY-FEES> 111590
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 250699
<AVERAGE-NET-ASSETS> 24821379
<PER-SHARE-NAV-BEGIN> 12.75
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> 2.54
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.3
<EXPENSE-RATIO> .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> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 9363145
<INVESTMENTS-AT-VALUE> 9428891
<RECEIVABLES> 107369
<ASSETS-OTHER> 8700
<OTHER-ITEMS-ASSETS> 44536
<TOTAL-ASSETS> 9589496
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24570
<TOTAL-LIABILITIES> 24570
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9460065
<SHARES-COMMON-STOCK> 915916
<SHARES-COMMON-PRIOR> 773849
<ACCUMULATED-NII-CURRENT> 29851
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9264
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 65746
<NET-ASSETS> 9564926
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 593428
<OTHER-INCOME> 0
<EXPENSES-NET> 43443
<NET-INVESTMENT-INCOME> 549985
<REALIZED-GAINS-CURRENT> 11263
<APPREC-INCREASE-CURRENT> 88107
<NET-CHANGE-FROM-OPS> 649335
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 543122
<DISTRIBUTIONS-OF-GAINS> 10144
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 136454
<NUMBER-OF-SHARES-REDEEMED> 47554
<SHARES-REINVESTED> 53167
<NET-CHANGE-IN-ASSETS> 1573281
<ACCUMULATED-NII-PRIOR> 23026
<ACCUMULATED-GAINS-PRIOR> 8107
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136449
<AVERAGE-NET-ASSETS> 8699616
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .65
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> .65
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 92249364
<INVESTMENTS-AT-VALUE> 92266713
<RECEIVABLES> 967831
<ASSETS-OTHER> 13976
<OTHER-ITEMS-ASSETS> 194091
<TOTAL-ASSETS> 93442611
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40723
<TOTAL-LIABILITIES> 40723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93214051
<SHARES-COMMON-STOCK> 9105244
<SHARES-COMMON-PRIOR> 7474348
<ACCUMULATED-NII-CURRENT> 275372
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (104884)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17349
<NET-ASSETS> 93401888
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5608507
<OTHER-INCOME> 0
<EXPENSES-NET> 438095
<NET-INVESTMENT-INCOME> 5170412
<REALIZED-GAINS-CURRENT> (72659)
<APPREC-INCREASE-CURRENT> 873998
<NET-CHANGE-FROM-OPS> 5971751
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5112892
<DISTRIBUTIONS-OF-GAINS> 164477
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3302865
<NUMBER-OF-SHARES-REDEEMED> 2172289
<SHARES-REINVESTED> 500320
<NET-CHANGE-IN-ASSETS> 17357163
<ACCUMULATED-NII-PRIOR> 214359
<ACCUMULATED-GAINS-PRIOR> 135745
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 306667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 521397
<AVERAGE-NET-ASSETS> 87729718
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .11
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 32142792
<INVESTMENTS-AT-VALUE> 32142792
<RECEIVABLES> 348770
<ASSETS-OTHER> 9956
<OTHER-ITEMS-ASSETS> 236562
<TOTAL-ASSETS> 32738080
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35238
<TOTAL-LIABILITIES> 35238
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32702842
<SHARES-COMMON-STOCK> 32702842
<SHARES-COMMON-PRIOR> 24193533
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32702842
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1363890
<OTHER-INCOME> 0
<EXPENSES-NET> 75470
<NET-INVESTMENT-INCOME> 1288420
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1288420
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1288657
<DISTRIBUTIONS-OF-GAINS> 1352
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 61451444
<NUMBER-OF-SHARES-REDEEMED> 54187112
<SHARES-REINVESTED> 1244977
<NET-CHANGE-IN-ASSETS> 8507720
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1589
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62891
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 195007
<AVERAGE-NET-ASSETS> 25168199
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
