<PAGE>
UNITED STATES File No. 33-75708
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 File No. 811-8370
FORM N-IA
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No.___ [ ]
Post Effective Amendment No. 5 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 9 [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. Carolyn F. Mead, Esq.
Paul, Hastings, Janofsky & Walker First Data Investor Services Group,
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 September 25, 1998 pursuant to Paragraph (b) of Rule 485.
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As filed with the U.S. Securities and Exchange
Commission on September 25, 1998
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Page 1
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MCM FUNDS
Cross Reference Sheet Pursuant to Rule 48 1 (b)
<TABLE>
<CAPTION>
Form N-IA Item Caption in Prospectus
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<S> <C>
Part A INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives; Investment
Investment Strategies
5. Management of the Fund Management of the Funds
5A. Management's Discussion of Fund Performance Included in Registrant's Annual Report to Shareholders
6. Capital Stock and Other Securities General Information; Dividends an
Asset Value
7. Purchase of Securities Being Offered How to Invest in the Funds; Exchange of Shares;
Distribution Plan; Shareholder Services
S. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings *
Part B INFORMATION REOUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Covered in Part A
13. Investment Objectives and Policies Investment Policies; Investment Restrictions;
Portfolio Transactions and Brokerage Commissions
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders of Control Persons and Principal Holders of Securities
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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Page 2
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<TABLE>
<CAPTION>
Part B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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<S> <C>
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
</TABLE>
Part C OTHER INFORMATION
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Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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*Item inapplicable at this time or answer negative.
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Page 3
<PAGE>
McM FUNDS PROSPECTUS
One Bush Street, Suite 800
[GRAPHIC OMITTED]
San Francisco, CA 94104 September 25, 1998
===============================================================================
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.
[GRAPHIC OMITTED]
<PAGE>
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: [email protected]
2
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TABLE OF CONTENTS
Page
Prospectus Summary........................................................ 4
Expense Information....................................................... 6
Financial Highlights...................................................... 7
Investment Philosophies................................................... 8
Investment Objectives
Principal Preservation Fund............................................. 9
Intermediate Fixed Income Fund.......................................... 10
Fixed Income Fund....................................................... 10
Balanced Fund........................................................... 10
Equity Investment Fund.................................................. 11
Investment Strategies..................................................... 12
Year 2000 Update.......................................................... 15
Management of McM Funds................................................... 15
How to Invest in McM Funds................................................ 16
How to Redeem Shares...................................................... 18
Account Options........................................................... 20
Net Asset Value........................................................... 21
Dividends and Taxes....................................................... 21
Performance Information................................................... 22
General Information....................................................... 23
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.
3
<PAGE>
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 8 and
"Investment Strategies" on page 12.
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 12.
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 16.
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 18.
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.
<PAGE>
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 21.
4
<PAGE>
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, 1998, the Advisor managed
approximately $23.3 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. First Data Investor
Services Group, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania
19406-0903, serves as McM Funds' administrator, transfer agent and fund
accounting agent.
5
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EXPENSE INFORMATION
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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>
Total Fund
Management Fees Other Expenses 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 0.03% 0.47% 0.50%
Fixed Income Fund 0.00% 0.50% 0.50%
Balanced Fund 0.00% 0.60% 0.60%
Equity Investment Fund 0.32% 0.43% 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,
reimbursement and recovery of expenses. Total Fund Operating Expenses for the
fiscal year ended June 30, 1998 would have been 0.67%, 0.55%, 1.17%, 0.74% and
0.75%, respectively.
Example
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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.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights were derived from McM Funds' financial
statements for the fiscal years ended June 30, 1998, 1997 and 1996 and for the
period ended June 30, 1995, respectively, which were audited by Tait, Weller &
Baker, independent auditors, whose unqualified report thereon may be found in
McM Funds' Annual Report to Shareholders dated June 30, 1998 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
-------------------------------------------- ----------------------------------------------
Net Asset Net realized Total
value, Net & unrealized from From net
beginning investment gain (loss) on investment investment From Total
Year or period income investments operations income capital gains Distributions
======== =========== ============ ================ ============ ============ =============== ===============
<S> <C> <C> <C> <C> <C> <C> <C>
McM PRINCIPAL PRESERVATION FUND
1995* $1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
1996 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
1997 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
1998 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
McM INTERMEDIATE FIXED INCOME FUND
1995** $10.00 0.54 0.34 0.88 (0.51) 0.00 (0.51)
1996 10.37 0.57 (0.10) 0.47 (0.57) (0.10) (0.67)
1997 10.17 0.60 0.11 0.71 (0.60) (0.02) (0.62)
1998 10.26 0.60 0.27 0.87 (0.60) 0.00 (0.60)
McM FIXED INCOME FUND
1995** $10.00 0.55 0.56 1.11 (0.53) 0.00 (0.53)
1996 10.58 0.64 (0.20) 0.44 (0.63) (0.06) (0.69)
1997 10.33 0.65 0.12 0.77 (0.65) (0.01) (0.66)
1998 10.44 0.62 0.47 1.09 (0.62) (0.02) (0.64)
McM BALANCED FUND
1995** $10.00 0.36 1.33 1.69 (0.34) 0.00 (0.34)
1996 11.35 0.40 1.49 1.89 (0.40) (0.09) (0.49)
1997 12.75 0.43 2.54 2.97 (0.42) 0.00 (0.42)
1998 15.30 0.47 2.82 3.29 (0.47) 0.00 (0.47)
McM EQUITY INVESTMENT FUND
1995** $10.00 0.19 1.94 2.13 (0.18) 0.00 (0.18)
1996 11.95 0.21 2.94 3.15 (0.21) (0.04) (0.25)
1997 14.85 0.24 4.87 5.11 (0.24) (0.01) (0.25)
1998 19.71 0.23 5.62 5.85 (0.23) (0.04) (0.27)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------
Ratio of Net
Ratio of Expenses Investment Income
to Average Net to Average Net
Assets Assets
----------------------------- ----------------------------
Net Asset Net assets, Before After Before After
value, end of reimbursement expense expense expense
end of Total period and recovery reimburse- reimburse- reimburse- Portfolio
Year period Return (in 000s) of expenses ment ment ment turnover
======== =========== ============ ============= =============== ============ ============== ============ ==============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
McM PRINCIPAL PRESERVATION FUND
1995* $1.00 5.10%(2) $11,813 2.77%(1) 0.30%(1) 2.91%(1) 5.38%(1) N/A
1996 1.00 5.39% 24,195 0.93% 0.30% 4.60% 5.23% N/A
1997 1.00 5.24% 32,703 0.77% 0.30% 4.65% 5.12% N/A
1998 1.00 5.41% 48,184 0.67% 0.30% 4.92% 5.29% N/A
McM INTERMEDIATE FIXED INCOME FUND
1995** $10.37 9.19%(2) $29,936 1.72%(1) 0.50%(1) 5.01%(1) 6.24%(1) 227.09%(2)
1996 10.17 4.61% 76,045 0.69% 0.50% 5.52% 5.71% 75.26%
1997 10.26 7.14% 93,402 0.59% 0.50% 5.80% 5.89% 36.02%
1998 10.53 8.68% 121,710 0.55% 0.50% 5.74% 5.79% 45.44%
McM FIXED INCOME FUND
1995** $10.58 11.55%(2) $ 6,599 7.29%(1) 0.50%(1) (0.47%)(1) 6.33%(1) 150.77%(2)
1996 10.33 4.16% 7,992 1.82% 0.50% 4.70% 6.02% 37.62%
1997 10.44 7.72% 9,565 1.57% 0.50% 5.25% 6.32% 32.46%
1998 10.89 10.71% 22,202 1.17% 0.50% 5.26% 5.93% 58.22%
McM BALANCED FUND
1995** $11.35 17.31%(2) $ 3,070 8.41%(1) 0.60%(1) (3.54%)(1) 4.28%(1) 81.05%(2)
1996 12.75 16.86% 11,915 2.21% 0.60% 1.81% 3.43% 26.16%
1997 15.30 23.65% 40,941 1.01% 0.60% 2.97% 3.38% 31.64%
1998 18.12 21.76% 93,201 0.74% 0.60% 2.87% 3.01% 20.73%
McM EQUITY INVESTMENT FUND
1995** $11.95 21.57%(2) $ 4,866 8.48%(1) 0.75%(1) (5.50%)(1) 2.24%(1) 1.81%(2)
1996 14.85 26.53% 23,913 1.72% 0.75% 0.80% 1.77% 0.92%
1997 19.71 34.68% 58,593 0.88% 0.75% 1.36% 1.49% 0.88%
1998 25.29 29.89% 128,541 0.75% 0.75% 1.05% 1.05% 0.57%
</TABLE>
* McM Principal Preservation Fund commenced investment operations on July 13,
1994.
** McM Intermediate Fixed Income Fund, McM Fixed Income Fund, McM Balanced Fund
and McM Equity Investment Fund commenced investment operations on July 14,
1994.
1 Annualized.
2 Not Annualized.
7
<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.
8
<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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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.
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."
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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 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 fluctuations 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.
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, Inc.
("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.
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<PAGE>
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.
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
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<PAGE>
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,
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
13
<PAGE>
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 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 80%. 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 80%. 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.
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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.
YEAR 2000 UPDATE
The Funds' operations depend on computer systems of the McMorgan & Company, the
custodian, fund accounting agent and the transfer agent. The failure of
computer systems to properly process date-related information after December
31, 1999 because of the method by which dates are encoded could adversely
affect the handling of securities trades, pricing and account servicing for the
Funds. McMorgan & Company has made Year 2000 compliance a high priority and is
taking steps that it believes are reasonably designed to address Year 2000
issues with respect to its computer systems. The Funds' other major service
providers have informed the Advisor that they have taken comparable steps. The
Advisor does not currently anticipate that Year 2000 issues will have a
material impact on its ability to fulfill its duties as investment advisor to
the Funds.
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 officers of McM Funds
and the Advisor administer the day-to-day operations of the Funds 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 $23.3 billion in assets at June 30,
1998, 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
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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. All reimbursements are reviewed by the Board of Trustees.
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
First Data Investor Services Group, Inc. (Investor Services Group), 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 Investor Services Group 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.
First Data Investor Services Group, 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, First Data Investor Services Group, Inc., 3200
Horizon Drive, King of Prussia, Pennsylvania 19406-0903, (800) 831-1146.
Investor Services Group performs certain accounting and pricing services for
McM Funds, including the daily calculation of each Fund's net asset value.
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.
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Purchases of the Principal Preservation Fund received by Investor Services
Group 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.
Purchases of all other Funds received by Investor Services Group 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 /// Complete and sign the Account Registra- /// Make a check payable to "McM
[GRAPHIC OMITTED] tion accompanying this Prospectus. ( ) Fund."
/// Make a check payable to "McM /// Enclose the remittance portion of an
( ) Fund." account statement and include the
amount of investment, the account
name and number.
/// Mail to the address indicated on the /// Mail to the address indicated on the
Account Registration. account statement or enclose in the
envelope provided.
By Wire /// Call (800) 831-1146 to arrange for a wire /// Call (800) 831-1146 to arrange for a
[GRAPHIC OMITTED] purchase. wire purchase.
/// Wire federal funds within 24 hours to: /// Wire federal funds to:
UMB Bank KC NA UMB Bank KC NA
ABA #10-10-00695 ABA #10-10-00695
For: First Data Investor Services For: First Data Investor Services
Group, Inc. Group, Inc.
A/C 98-7037-071-9 A/C 98-7037-071-9
"McM ( ) Fund" and include "McM ( ) Fund" and include
the name and your new account num- the name and account number.
ber.
/// Complete and sign the Account Registra-
tion and mail to the address indicated
immediately following the initial wire
installation.
Purchasing by /// You may open a new account by making /// You may purchase additional shares by
Exchanges an exchange from an existing McM Funds making an exchange from an existing
[GRAPHIC OMITTED] account to any other series of McM McM Funds account of any other series
Funds. Exchanges may be made by mail, of McM Funds. Exchanges may be
facsimile or telephone. Call (800) 831- made by mail, facsimile or telephone.
1146 for assistance. Call (800) 831-1146 for assistance.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
<S> <C> <C>
Automatically /// Please refer to "Automatic Investing" and /// Please refer to "Automatic Investing"
"Direct Deposit Program" under "Account and "Direct Deposit Program" under
Options" or call (800) 831-1146 for assis- "Account Options" or call (800) 831-
tance. 1146 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 redemption request
meeting the requirements described below. Each Fund normally sends redemption
proceeds on the next business day, but in any event redemption proceeds are
sent within seven calendar days of receipt of a redemption request in proper
form. Payment may also be made by wire directly to any bank previously
designated by the shareholder on a shareholder account 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.
<PAGE>
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.
18
<PAGE>
Shares may be redeemed in one of the following ways:
------------------------------------------------------------
<TABLE>
<S> <C>
By Mail /// Submit a written request for redemption with:
[GRAPHIC OMITTED] 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.
/// 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.
/// Mail to the address indicated on the Account Registration. Questions may be
directed to the transfer agent at (800) 831-1146.
By Wire /// This service must be elected either on the initial application or subsequently in
[GRAPHIC OMITTED] writing.
/// Shares may be redeemed by instructing the transfer agent by telephone at (800)
831-1146.
/// 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 /// This service must be elected in advance either on the initial application or subse-
[GRAPHIC OMITTED] quently arranged in writing.
Automatically /// Shares may be redeemed by instructing the transfer agent by telephone at (800)
831-1146.
/// Shares will be sold at the next share price calculated after the order is received and
accepted.
ACH /// Please refer to "Systematic Withdrawal Plan" under "Account Options" or call
(800) 831-1146 for assistance.
/// 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.
/// The funds from the ACH redemption will normally be available two days after the
redemption has been processed.
/// 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.
</TABLE>
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
19
<PAGE>
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, Intermediate 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 Investor Services Group 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. EST time for the Principal
Preservation Fund). Shares may be exchanged by: (1) written request; or (2)
telephone, if a special authorization form has been completed and is on file
with the transfer agent in advance. The exchange privilege is a convenient way
to respond to changes in investment goals or in market conditions. This
privilege is not designed for frequent trading in response to short-term market
fluctuations. Exchanges by mail or by telephone may be made if authorized on
the application form. The telephone exchange privilege may be difficult to
implement during times of drastic economic or market changes. The purchase of
shares for any Fund through an exchange transaction is accepted immediately.
For tax purposes an exchange is treated as a redemption, which may result in
taxable gain or loss, and a new purchase, each at net asset value of the
appropriate Fund. McM Funds and Investor Services Group 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.
20
<PAGE>
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 Account Registration indicating the amount of the automatic investment.
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, Jr. 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. Divi-
21
<PAGE>
dends and distributions are treated the same for tax purposes whether received
in cash or reinvested in additional shares. Please note that dividends and
distributions on shares purchased shortly before the record date for a dividend
or distribution may have the effect of returning capital although such
dividends and distributions are subject to taxes.
Taxes
Each Fund has elected and intends to continue to qualify to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification relieves a Fund of
liability for federal income taxes to the extent the Fund's earnings are
distributed in accordance with the Code. Each Fund is treated as a separate
corporate entity for federal tax purposes.
An investment in 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 Decem-ber 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 Fund 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.
22
<PAGE>
Yield. Yield refers to the net investment income generated by an investment
over a particular period of time, which is annualized (assumed to have been
generated for one year) and expressed as an annual percentage rate. Effective
yield is yield assuming that all distributions are reinvested. Effective yield
will be slightly higher than the yield because of the compounding effect of the
assumed investment. Yield for the Principal Preservation Fund over a seven-day
period is called current yield. For Intermediate Fixed Income Fund and Fixed
Income Fund, yield is calculated by dividing the net investment income per
share earned during a 30-day period by the maximum offering price per share on
the last day of the period, and annualizing the result.
GENERAL INFORMATION
Organization: Each Fund is a separate series of McM Funds, a Delaware business
trust organized pursuant to a Trust Instrument dated February 3, 1994, as
amended May 9, 1994. The Trust is registered under the Act as a diversified,
open-end management investment company, commonly known as a mutual fund. The
Trustees of 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 September 1, 1998,
Wendel & Company, and the Industrial Carpenters and Precast Industry Pension
Fund were deemed "control persons" of the McM Fixed Income Fund by nature of
their significant holdings in that 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.
Shareholder Meetings: The Trustees of McM Funds do not intend to hold annual
meetings of shareholders. The Trustees have assured 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 accountants, as well as
unaudited semiannual financial statements. Shareholder inquiries should be
addressed to the Fund c/o McM Funds, One Bush Street, Suite 800, San Francisco,
California 94104, (800) 788-9485.
23
<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
First Data Investor Services Group, 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:
[email protected]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 25, 1998
- --------------------------------------------------------------------------------
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 September 25, 1998 is not a
prospectus but should be read in conjunction with the Prospectus for the McM
Funds dated September 25, 1998, 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
McM Funds.........................................................................................................3
Investment Policies
Futures Contracts and Related Options........................................................................3
Risk Factors of Options, Futures, and Forward Contracts..................................................... 3
Options......................................................................................................3
Purchasing Call Options......................................................................................4
Covered Call Writing.........................................................................................4
Purchasing Put Options.......................................................................................5
Writing Put Options..........................................................................................5
Repurchase Agreements........................................................................................6
Reverse Repurchase Agreements................................................................................6
Borrowing....................................................................................................6
Securities Lending...........................................................................................6
Securities of Other Investment Companies.....................................................................6
Foreign Securities...........................................................................................7
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions................................7
Variable and Floating Rate Instruments.......................................................................7
Mortgage-Backed Securities and Mortgage Pass-Through Securities..............................................8
Collateralized Mortgage Obligations, Real Estate Mortgage Investment Conduit
and Multi-Class Pass-Throughs..............................................................................8
Resets.......................................................................................................9
Caps and Floors..............................................................................................9
Stripped Mortgage-Backed Securities..........................................................................9
Risks of Mortgage-Backed Securities..........................................................................9
Other Mortgage-Backed Securities............................................................................10
Asset-Backed Securities.....................................................................................10
Swaps.......................................................................................................10
Restricted Securities.......................................................................................11
Rule 144A Securities........................................................................................11
Illiquid Securities.........................................................................................11
Convertible Securities......................................................................................11
Money Market Instruments....................................................................................11
Other Investments...........................................................................................12
Investment Restrictions..........................................................................................12
Trustees and Officers............................................................................................13
Control Persons and Principal Holders of Securities..............................................................14
Investment Advisory and Other Services
Investment Advisory Agreement...............................................................................17
Administrator...............................................................................................18
Underwriter.................................................................................................19
Portfolio Transactions and Brokerage Commissions.................................................................20
Portfolio Turnover..........................................................................................20
Taxes............................................................................................................21
Performance Information
General.....................................................................................................22
Total Return Calculations...................................................................................22
Yield of Principal Preservation Fund........................................................................23
Yields of Intermediate Fixed Income Fund and Fixed Income Fund..............................................23
Other Information................................................................................................24
Custodian...................................................................................................25
Reports to Shareholders.....................................................................................25
Audited Financial Statements................................................................................25
</TABLE>
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 2
<PAGE>
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.
Futures Contracts and Related Options
Each Fund, (except 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.
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 (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
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securities or other liquid high-grade debt obligations, in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified stock portfolio or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written; or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets such as cash,
U.S. Government securities and other high-grade debt obligations in a segregated
account with its custodian. 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.
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
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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."
Borrowing
Each Fund (except 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 Principal
Preservation Fund) may lend its 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 its 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.
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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 bears directly in connection with its 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, 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
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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 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 are called pass-through certificates
("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").
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 of 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 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.
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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.
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 Securities
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 Standard & Poor's Ratings
Group or Moody's Investor Services, Inc., respectively.
Stripped mortgage-backed securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
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 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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 9
<PAGE>
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 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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 10
<PAGE>
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 relating to the other party's creditworthiness and
ability to perform, 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 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 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 by
commercial paper, time deposits, trading securities, variable and floating rate
notes and master demand notes.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 11
<PAGE>
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 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;
<PAGE>
(9) Purchase the securities of issuers conducting their principal
business activities in the same industry (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if immediately after such purchase the value of a
Fund's investments in such industry would exceed 25% of the value of
the total assets of the Fund;
(10) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Fund may be deemed to be an
"underwriter" as that term is defined in the Securities Act;
(11) Invest in puts, calls, straddles or combinations thereof except to
the extent disclosed in the Prospectus; and
(12) Invest more than 5% of its total assets in securities of companies
less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 12
<PAGE>
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) rust To Date for From Trust and Fund
Name, Address Held with During Past Fiscal Year Ended Complex Paid
and Age Registrant Five Years June 30, 1998 to Trustees
- ----------------------- ----------- -------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Terry A. O'Toole, CPA* 51 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 57 Trustee Independent $6,074 $6,074
1299 Ocean Avenue Consultant.
Suite 333 Consultant.
Santa Monica, CA 90401
Walter B. Rose 52 Trustee President, Venture $5,407 $5,407
Venture Consulting Corp. Consulting Corp.
355 S. Grand Avenue (1998-Present); prior
Suite 4295 thereto, President,
Los Angeles, CA 90071 McBain, Rose Partners
S.D. Sicotte 67 Trustee Retired; prior $5,100 $5,100
2047 Byron Street thereto Chairman
Palo Alto, CA 94301 and Chief
Executive Officer,
Hemming Morse, Inc.
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 91203
Mark R. Taylor * 39 Trustee Vice President, N/A N/A
McMorgan & Company McMorgan &
One Bush Street, Suite 800 Company
San Francisco, CA 94104
Gregory L. Watson, CFA * 53 Trustee Executive Vice N/A N/A
McMorgan & Company President, McMorgan
One Bush Street, Suite 800 & Company.
San Francisco, CA 94104
Deane A. Nelson, CFA* 52 Vice Vice President, N/A N/A
McMorgan & Company President McMorgan &
One Bush Street, Suite 800 and Company.
San Francisco, CA 94104 Secretary
Robert M. Hirsch * 44 Compliance General Counsel, N/A N/A
McMorgan & Company Officer McMorgan &
One Bush Street, Suite 800 Company; prior
San Francisco, CA 94104 thereto Partner, Van
Bourg, Weinberg,
Roger & Rosenfeld.
</TABLE>
* These Trustees and officers are considered "interested persons" of McM Funds
as defined under the Act.
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McM Funds - Statement of Additional Information Page 13
<PAGE>
The Trustees of McM Funds each receive a fee of $5,000 per year, plus $250 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 September 1, 1998, 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, Balanced Fund, Equity Investment Fund and McM Funds.
As of September 1, 1998, no person owned beneficially or of
record 5% or more of the Trust. As of September 1, 1998, 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
- ----------------------------------- ----------
Cement Masons Vacation Holiday 14.47%
Trust Fund
Suisun, CA
Perry G. Shinn and Vicki Shinn 9.59%
Jt. Tenants
Portland, Or
Directors Guild of America Trust 9.23%
San Diego, CA
U.A. Local 350 Supplemental 6.04%
Annuity Plan Trust
Reno, NV
Directors Guild of America Trust
San Diego, CA 5.22%
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 14
<PAGE>
McM INTERMEDIATE FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
- ------------------------------------ ----------
Cement Masons Health & Welfare 10.63%
Trust Fund
Suisun, CA
Wendel & Company 9.23%
New York, NY
Northern California Pipe Trades 7.49%
Health & Welfare Trust Fund
Oakland, CA
Northern California Carpenters Reg. Council 6.81%
Oakland, CA
Northern Nevada Operating Eng. 5.99%
Health & Welfare Trust Fund
Reno, NV
McM FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Wendel & Company* 37.53%
New York, NY
Industrial Carpenters & Precast 30.47%
Industry Pension Fund
Oakland, CA
McM BALANCED FUND
Name & Address of Beneficial Owners Percentage
- -----------------------------------
UA Local 290 Plumber Steamfitter & Shipfitter 12.90%
Retiree Health Trust
Portland, OR
Wendel & Company 12.83%
New York, NY
Electrical Ind. Advancement 8.81%
Trust Fund
Portland, OR
UA Local 38 Pipe Trades Defined 7.76%
Contribution Plan
San Francisco, CA
Sheet Metal Production Workers 6.01%
Local 104
Supplemental Unemployment & Health Care Fund
San Ramon, CA
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 15
<PAGE>
McM EQUITY INVESTMENT FUND
Name & Address of Beneficial Owners Percentage
- ----------------------------------- ----------
Wendel & Co. 11.87%
New York, NY
BAC Local 3 Pension Trust 8.88%
Los Angeles, CA
* Pursuant to the definitions set forth in the Act, as of September 1, 1998,
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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 16
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreement
The advisory services provided by McMorgan & Company 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. 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. All reimbursements
are reviewed by the Board of Trustees.
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, 1998, 1997 and 1996, advisory fees accrued
by the Advisor were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Series June 30, 1998 June 30, 1997 June 30, 1996
<S> <C> <C> <C>
Principal Preservation Fund $95,077 $62,891 $47,458
Intermediate Fixed Income $382,596 $306,667 $201,896
Fund
$53,188 $30,410 $25,566
Fixed Income Fund
$292,875 $111,590 $28,436
Balanced Fund
$471,723 $198,605 $50,631
Equity Investment Fund
</TABLE>
For the fiscal years ended June 30, 1998, 1997 and 1996, the Advisor was paid
the following advisory fees and expense recoveries after expense reimbursements
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Series June 30, 1998 June 30, 1997 June 30, 1996
<S> <C> <C> <C>
Principal Preservation Fund $0.00 $0.00 $0.00
Intermediate Fixed Income $323,908 $223,365 $90,795
Fund
Fixed Income Fund $0.00 $0.00 $0.00
Balanced Fund $202,084 $9,677 $0.00
Equity Investment Fund $480,813 $146,113 $0.00
</TABLE>
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 17
<PAGE>
General expenses of McM Funds (such as costs of maintaining corporate existence,
legal fees, insurance, etc.) will be allocated among the Funds in proportion to
their relative net assets. Expenses which relate exclusively to a particular
Fund, such as certain registration fees, brokerage commissions and other
portfolio expenses, will be borne directly by that Fund.
For the fiscal years ended June 30, 1998, 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 recoverable expenses as
follows:
<TABLE>
<CAPTION>
Fiscal Year End Fiscal Year End Fiscal Year End Period Ended
Series 1998 1997 1996 1995
<S> <C> <C> <C> <C>
Principal
Preservation Fund $140,922 $119,537 $119,404 $0
Intermediate Fixed
Income Fund $58,688 $83,302 $111,101 $94,352
Fixed Income Fund $101,633 $93,006 $96,325 $0
Balanced Fund $90,791 $101,913 $102,016 $24,801
Equity Investment Fund ($9,090) $52,492 $98,217 $16,197
</TABLE>
From July 1, 1995 through June 30, 1998, the Advisor has reduced its management
fee and otherwise absorbed Fund expenses for each Fund in the following amounts:
Series Amount
Principal Preservation Fund $379,863
Intermediate Fixed Income Fund $347,443
Fixed Income Fund $290,964
Balanced Fund $319,521
Equity Investment Fund $166,906
Administrator
First Data Investor Services Group, 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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 18
<PAGE>
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 Administratve Services Agreement.
McM Funds paid the following administration fees for the fiscal years ended June
30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Fiscal Year End Fiscal Year End Fiscal Year End
Series 1998 1997 1996
<S> <C> <C> <C>
Principal $39,466 $25,844 $21,704
Preservation Fund
$39,144 $25,348 $20,112
Intermediate Fixed
Income Fund
Fixed Income Fund $38,314 $24,948 $19,747
Balanced Fund $39,088 $25,728 $20,563
Equity Investment Fund $40,160 $26,161 $20,987
</TABLE>
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 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 provided to McM Funds under the Underwriting Agreement, the
Advisor pays FPSB 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 pro rata portion of
the unearned fee will be returned to the Advisor.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 19
<PAGE>
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 invests 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.
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 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 80%. 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
80%. 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, 1998 and 1997, McM Funds' portfolio turnover
rates were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
Series June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Principal Preservation Fund N/A N/A
Intermediate Fixed Income Fund 45.44% 36.02%
Fixed Income Fund 58.22% 32.46%
Balanced Fund 20.73% 31.64%
Equity Investment Fund 0.57% 0.88%
</TABLE>
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 20
<PAGE>
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.
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 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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 21
<PAGE>
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% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
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 does 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 22
<PAGE>
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]
-----
P
Where: ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Based upon the foregoing calculations, the average annual total return for the
Principal Preservation Fund for the one year period ended June 30, 1998 and the
period July 13, 1994 (commencement of operations) through June 30, 1998 was
5.41% and 5.33%, respectively. The average annual total returns for the one year
period ended June 30, 19978 and for the period July 14, 1994 (commencement of
operations) through June 30, 1998 were as follows: Intermediate Fixed Income
Fund - 8.68% and 7.46%; Fixed Income Fund - 10.71% and 8.58%; Balanced Fund -
21.76% and 20.06%; and Equity Investment Fund - 29.89% and 28.36%, 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, 1998, the Principal Preservation Fund had a yield of
5.22% and an effective yield of 5.36%.
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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 23
<PAGE>
and then doubling the difference. A Fund's net investment income per share
earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
YIELD = 2 [( a - b + 1)(6) - 1]
-----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on any debt obligations held by a Fund is calculated by computing the
yield to maturity of each obligation held by that Fund based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of the month, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held by that Fund. For purposes of this
calculation, it is assumed that each month contains 30 days, and that the
maturity date is the date on which the obligation reasonably may be expected to
be called or, if none, the stated maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount premium. The amortization schedule will be adjusted
monthly to reflect changes in the market values of such debt obligations.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).
The interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 24
<PAGE>
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.
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, 1998, which have been audited by Tait,
Weller & Baker, are incorporated by reference from the Funds' 1998 Annual
Report to Shareholders.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 25
<PAGE>
MCM FUNDS
FORM N-1A
PART C OTHER INFORMATION
Part C. Other Information
Item 24. Financial Statements and Exhibits.
(a) Financial Statements.
Included in Part A: Financial Highlights
McM Equity Investment Fund, McM Balanced Fund, McM Fixed
Income Fund, McM Intermediate Fixed Income Fund and McM
Principal Preservation Fund.
Incorporated by reference in Part B to McM Funds? Annual
Report dated June 30, 1998:
(1) Schedule of Investments as of June 30, 1998 (audited).
(2) Statement of Operations for the fiscal year ended June
30, 1998 (audited).
(3) Statement of Changes in Net Assets for the fiscal year
ended June 30, 1998 (audited).
(4) Financial Highlights as of June 30, 1998 (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 incorporated by
reference to Exhibit No. (2) of Post-Effective No. 3.
(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.
(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.
- --------------------------------------------------------------------------------
Page 1
<PAGE>
(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 First Data Investor Services Group,
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
First Data Investor Services Group, 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 First Data Investor Services Group,
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.
(11) Copies of any other opinions, appraisals or rulings --
Consent of Independent Auditors - Filed herewith.
(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.
. (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.
- --------------------------------------------------------------------------------
Page 2
<PAGE>
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of September 1, 1998
-------------- ------------------------
Shares of Beneficial Interest par value $0.001 of:
McM Equity Investment Fund 691
McM Balanced Fund 383
McM Intermediate Fixed Income Fund 132
McM Fixed Income Fund 70
McM Principal Preservation Fund 327
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 expressed in
that Act and will be governed by the final adjudication of
such issue.
- --------------------------------------------------------------------------------
Page 3
<PAGE>
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, 1998 had approximately $23.3 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
Govett Funds
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Taxable Fixed Income Series Fund, Inc.
Matthews International Funds
McM Funds
Metropolitan West Funds
Polynous Growth Fund
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
Trainer Wortham First Mutual Funds
- --------------------------------------------------------------------------------
Page 4
<PAGE>
(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
------------------ ---------------- -------------
<S> <C> <C> <C>
Kenneth J. Kempf Director and None
3200 Horizon Drive President
King of Prussia, PA 19406-0903
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
Sandra L. Adams Assistant Vice President None
3200 Horizon Drive and Principal
King of Prussia, PA 19406-0903
Carolyn F. Mead 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 FinDaSub, Inc., the parent of the
Underwriter.
(c) Not Applicable.
- --------------------------------------------------------------------------------
Page 5
<PAGE>
Item 30. Location of Accounts and Records.
All records described in Section 31(a) of the Act and the Rules 17
CFR 270.31a-1 to 31a-31 promulgated thereunder, are maintained by
the Fund's Investment Advisor, McMorgan & Company, One Bush Street,
Suite 800, San Francisco, CA 94104, except for those maintained by
the Fund's Custodian, The Bank of New York and McM Funds?
Administrator, Transfer Agent and Fund Accounting Services Agent,
First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O.
Box 61503, King of Prussia, Pennsylvania 19406-0903.
Item 31. Management Services.
There are no management-related service contracts not
discussed in Part A or Part B.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report for the fiscal year
ended June 30, 1998, 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.
- --------------------------------------------------------------------------------
Page 6
<PAGE>
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
25th day of September, 1998.
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 9/25/98
- ------------------------- and President and Principal
Terry O'Toole Executive Officer
/s/ Kenneth I. Rosenblum* Trustee 9/25/98
- -------------------------
Kenneth I. Rosenblum
/s/ Walter B. Rose* Trustee 9/25/98
- -------------------------
Walter B. Rose
/s/ Robert R. Barron* Treasurer, Vice President 9/25/98
- ------------------------- Principal Accounting & Financial
Robert R. Barron Officer & Trustee
/s/ Gregory L. Watson* Trustee 9/25/98
- -------------------------
Gregory L. Watson
/s/ Mark R. Taylor* Trustee 9/25/98
- -------------------------
Mark R. Taylor
/s/ S.D. Sicotte* Trustee 9/25/98
- -------------------------
/s/ Carolyn Mead
- -------------------------------------------
*By:Carolyn Mead, as Attorney-in-Fact
and Agent pursuant to Power of Attorney
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Page 8
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated July 21, 1998 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 1998
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
September 24, 1998
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<CIK> 0000919556
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<NUMBER> 3
<NAME> MCM BALANCED FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 75,747,542
<INVESTMENTS-AT-VALUE> 91,770,637
<RECEIVABLES> 925,826
<ASSETS-OTHER> 2,499
<OTHER-ITEMS-ASSETS> 547,655
<TOTAL-ASSETS> 93,246,617
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,663
<TOTAL-LIABILITIES> 45,663
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,721,058
<SHARES-COMMON-STOCK> 5,142,463
<SHARES-COMMON-PRIOR> 2,675,673
<ACCUMULATED-NII-CURRENT> 128,535
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 328,266
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,023,095
<NET-ASSETS> 93,200,954
<DIVIDEND-INCOME> 662,314
<INTEREST-INCOME> 1,684,779
<OTHER-INCOME> 0
<EXPENSES-NET> 390,500
<NET-INVESTMENT-INCOME> 1,956,593
<REALIZED-GAINS-CURRENT> 382,091
<APPREC-INCREASE-CURRENT> 10,037,050
<NET-CHANGE-FROM-OPS> 12,375,734
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,887,824
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,721,124
<NUMBER-OF-SHARES-REDEEMED> 362,674
<SHARES-REINVESTED> 108,340
<NET-CHANGE-IN-ASSETS> 52,260,231
<ACCUMULATED-NII-PRIOR> 56,694
<ACCUMULATED-GAINS-PRIOR> (53,666)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 292,875
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 481,291
<AVERAGE-NET-ASSETS> 65,080,750
<PER-SHARE-NAV-BEGIN> 15.30
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> 2.82
<PER-SHARE-DIVIDEND> .47
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 18.12
<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> 1
<NAME> MCM EQUITY INVESTMENT FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 90,141,841
<INVESTMENTS-AT-VALUE> 126,813,331
<RECEIVABLES> 526,789
<ASSETS-OTHER> 2,358
<OTHER-ITEMS-ASSETS> 1,387,431
<TOTAL-ASSETS> 128,729,909
<PAYABLE-FOR-SECURITIES> 88,518
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100,368
<TOTAL-LIABILITIES> 188,886
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,430,915
<SHARES-COMMON-STOCK> 5,083,201
<SHARES-COMMON-PRIOR> 2,972,559
<ACCUMULATED-NII-CURRENT> 18,262
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 420,356
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,671,490
<NET-ASSETS> 128,541,023
<DIVIDEND-INCOME> 1,617,129
<INTEREST-INCOME> 83,145
<OTHER-INCOME> 0
<EXPENSES-NET> 707,508
<NET-INVESTMENT-INCOME> 992,766
<REALIZED-GAINS-CURRENT> 514,315
<APPREC-INCREASE-CURRENT> 22,166,197
<NET-CHANGE-FROM-OPS> 23,673,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,004,580
<DISTRIBUTIONS-OF-GAINS> 176,965
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,496,173
<NUMBER-OF-SHARES-REDEEMED> 436,532
<SHARES-REINVESTED> 51,001
<NET-CHANGE-IN-ASSETS> 69,947,840
<ACCUMULATED-NII-PRIOR> 20,224
<ACCUMULATED-GAINS-PRIOR> 83,006
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 471,723
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 698,418
<AVERAGE-NET-ASSETS> 94,334,713
<PER-SHARE-NAV-BEGIN> 19.71
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> 5.62
<PER-SHARE-DIVIDEND> .23
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.29
<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> 4
<NAME> MCM FIXED INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 21,363,751
<INVESTMENTS-AT-VALUE> 21,865,607
<RECEIVABLES> 246,606
<ASSETS-OTHER> 304
<OTHER-ITEMS-ASSETS> 106,738
<TOTAL-ASSETS> 22,219,255
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,562
<TOTAL-LIABILITIES> 17,562
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,603,363
<SHARES-COMMON-STOCK> 2,039,637
<SHARES-COMMON-PRIOR> 915,916
<ACCUMULATED-NII-CURRENT> 72,059
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,415
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 501,856
<NET-ASSETS> 22,201,693
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 977,111
<OTHER-INCOME> 0
<EXPENSES-NET> 75,983
<NET-INVESTMENT-INCOME> 901,128
<REALIZED-GAINS-CURRENT> 44,111
<APPREC-INCREASE-CURRENT> 436,110
<NET-CHANGE-FROM-OPS> 1,381,349
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 858,916
<DISTRIBUTIONS-OF-GAINS> 28,964
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,161,982
<NUMBER-OF-SHARES-REDEEMED> 120,810
<SHARES-REINVESTED> 82,549
<NET-CHANGE-IN-ASSETS> 12,636,767
<ACCUMULATED-NII-PRIOR> 29,851
<ACCUMULATED-GAINS-PRIOR> 9,264
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 53,188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 177,616
<AVERAGE-NET-ASSETS> 15,196,265
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> .47
<PER-SHARE-DIVIDEND> .62
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.89
<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-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 117,717,006
<INVESTMENTS-AT-VALUE> 119,838,973
<RECEIVABLES> 1,622,635
<ASSETS-OTHER> 3,346
<OTHER-ITEMS-ASSETS> 313,845
<TOTAL-ASSETS> 121,778,799
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,378
<TOTAL-LIABILITIES> 68,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,728,566
<SHARES-COMMON-STOCK> 11,554,782
<SHARES-COMMON-PRIOR> 9,105,244
<ACCUMULATED-NII-CURRENT> 402,481
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 457,407
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,121,967
<NET-ASSETS> 121,710,421
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,876,226
<OTHER-INCOME> 0
<EXPENSES-NET> 546,548
<NET-INVESTMENT-INCOME> 6,329,678
<REALIZED-GAINS-CURRENT> 593,160
<APPREC-INCREASE-CURRENT> 2,104,618
<NET-CHANGE-FROM-OPS> 9,027,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,233,438
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,017,645
<NUMBER-OF-SHARES-REDEEMED> 2,149,379
<SHARES-REINVESTED> 581,272
<NET-CHANGE-IN-ASSETS> 28,308,533
<ACCUMULATED-NII-PRIOR> 275,372
<ACCUMULATED-GAINS-PRIOR> (104,884)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 382,596
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 605,236
<AVERAGE-NET-ASSETS> 109,309,538
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000919556
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<SERIES>
<NUMBER> 6
<NAME> MCM PRINCIPAL PRESERVATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 48,740,513
<INVESTMENTS-AT-VALUE> 48,740,513
<RECEIVABLES> 126,333
<ASSETS-OTHER> 1,436
<OTHER-ITEMS-ASSETS> 4,535
<TOTAL-ASSETS> 48,872,817
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 689,185
<TOTAL-LIABILITIES> 689,185
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,185,486
<SHARES-COMMON-STOCK> 48,185,486
<SHARES-COMMON-PRIOR> 32,702,842
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,854)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 48,183,632
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,125,254
<OTHER-INCOME> 0
<EXPENSES-NET> 114,092
<NET-INVESTMENT-INCOME> 2,011,162
<REALIZED-GAINS-CURRENT> (187)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,010,975
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,011,162
<DISTRIBUTIONS-OF-GAINS> 1,667
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 146,489,995
<NUMBER-OF-SHARES-REDEEMED> 132,945,072
<SHARES-REINVESTED> 1,937,721
<NET-CHANGE-IN-ASSETS> 15,480,790
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,077
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 255,014
<AVERAGE-NET-ASSETS> 38,043,344
<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>
