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As filed with the Securities and Exchange Commission on November 23, 1999
File No. 33-75708
File No. 811-8370
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
[X] Post-Effective Amendment No. __9_
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 13
McM FUNDS
(Exact Name of Registrant as Specified on Charter)
One Bush Street, Suite 800
San Francisco, CA 94104
(Address of Principal Executive Offices)
(800) 788-9485
(Registrant's Telephone Number)
Deane A. Nelson, CPA
Vice President
McMorgan & Company
One Bush Street, Suite 800
San Francisco, CA 94104
-----------------------
(Name and Address of Agent for Service)
Copies to:
Julie Allecta, Esq. Carolyn F. Mead, Esq.
Paul, Hastings, Janofsky & Walker LLP First Data Investor
345 California Street Services Group, Inc.
San Francisco, CA 941-4-2635 3200 Horizon Drive
King of Prussia, PA 19406-0903
It is proposed that this filing will become effective (check appropriate box).
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
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McM FUNDS
McM S&P 500 Index Fund
PROSPECTUS
Broker Shares Class B
November 23, 1999
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Table of Contents
The McM S&P 500 Index Fund
Fees and Expenses of the Fund
Management of the Fund
Your Account
Buying Shares
Selling Your Shares
Additional Information on Buying and Selling Fund Shares
Distributions and Taxes
Other Investment Strategies and Risks
Financial Highlights
Additional Information Back Cover
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McM S&P 500 Index Fund
Type of Fund: An S&P 500 Index Fund
Ticker Symbol: N/A
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Investment Goal
Investment returns that correspond to the performance of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500 Index").
Principal Investment Strategies
The Fund invests substantially all of its assets in securities listed in
the S&P 500 Index, which is an unmanaged index of 500 common stocks. In
managing the portfolio, the Fund's advisor determines which securities will
be purchased or sold to replicate, to the extent feasible, the investment
characteristics of the S&P 500 Index. Under normal market conditions, at
least 90% of the value of the Fund's total assets will be invested in
securities comprising the S&P 500 Index.
[Definition of the S&P 500 Index: The S&P 500 Index consists of 500
stocks chosen by Standard & Poor's for market size, liquidity and
industry group representation. It is a market-value weighted unmanaged
index (stock price times number of shares outstanding), with each
stock's weight in the S&P 500 Index proportionate to its market value.
The Fund is neither sponsored by, nor affiliated with, Standard &
Poor's. "Standard & Poor's (reg. tm)," "S&P (reg. tm)," "Standard &
Poor's 500" and "SP 500 (reg.tm)" are trademarks of The McGraw-Hill
Companies, Inc., and have been licensed for use by the Fund. The Fund
is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Fund.]
The Fund's ability to replicate the performance of the S&P 500 Index will
depend to some extent on the size and timing of cash flows into and out of
the Fund, as well as on the level of the Fund's expenses. The Fund attempts
to have a high correlation between its performance and that of the S&P 500
Index. Because the Fund has operating expenses and transaction costs, its
performance will tend to be slightly lower than that of the target
benchmark.
The Fund's advisor also may engage in futures and options transactions and
other derivative securities transactions and may lend its portfolio
securities to broker-dealers and other institutions to earn income for the
Fund. These investment strategies involve certain risks and, if they do not
work as intended, the Fund may not achieve its objective.
Principal Risks
The Fund's total return will fluctuate, which means that you may lose money
by investing in this Fund. Additional risks associated with an investment
in the Fund include:
o stock market risk - the risk that the price of a security will rise or
fall due to various unpredictable market conditions.
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o investment style risk- the risk that returns from large-capitalization
stocks will trail returns from other asset classes or the overall stock
market. The Fund is also subject to the risk that the performance of the
Fund may not correlate to that of the S&P 500 Index. The correlation
between the Fund's and the S&P 500 Index's performance may be affected
by the Fund's expenses, changes in securities markets, changes in the
composition of the index and the timing of purchases and redemptions of
Fund shares.
o derivative risk - The Fund may invest in futures and options, which are
derivatives. Derivatives may involve additional risks such as losses due
to unanticipated market price movements and also may reduce the
opportunity for gain. The risks inherent in the use of options, futures
contracts and options on futures contracts include:
(i) inability of the advisor to predict correctly movements
in the direction of interest rates and securities
prices;
(ii) imperfect correlation between the price of options and
futures contracts and options thereon and movements in
the prices of the securities being hedged;
(iii) absence of a liquid secondary market for any particular
instrument at any time;
(iv) possible inability of the Fund to purchase or sell a
portfolio security at an advantageous time due to the
requirement that the Fund maintain "cover" or
collateral securities in connection with hedging
transactions.
The loss from investing in derivative transactions is
potentially unlimited.
[Definition of Derivatives: Derivatives are financial instruments that
derive their value, at least in part, from the value of an underlying
asset or index. While derivatives can effectively enhance the Fund's
performance, under certain market conditions, they can increase the
volatility of the Fund's net asset value.]
Suitability
The Fund may be appropriate for investors with who desire long-term growth and
are willing to accept the risk of occasional volatile returns similar to the
returns of the S&P 500 Index. The Fund is not suitable for investors who are
looking for absolute principal stability.
Past Fund Performance
Although past performance of a fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risks of
investing in a mutual fund. Performance demonstrates how a mutual fund's returns
have varied over time. The Fund is recently organized and therefore has no
performance history. Once the Fund has performance for at least one calendar
year, a bar chart and performance table will be included in the prospectus. The
Fund's annual returns also will be compared to the returns of its benchmark
index.
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Fees and Expenses of the Fund
The following table shows the fees and expenses you may pay if you buy and hold
shares of the Fund. The Fund does not impose any front-end loads, deferred sales
loads, or Rule 12b-1 distribution fees. Shareholders are not charged for
exchanging shares or reinvesting dividends.
McM
S&P 500
Index Fund
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Annual Fund Operating Expenses:
(expenses that are deducted
from Fund assets)
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Management Fees 0.15%
Other Expenses* 0.25%
Total Annual Operating Expenses 0.35%
=====
*"Other expenses" for the S&P 500 Index Fund are based on the estimated expenses
that the Fund expects to incur in its initial fiscal year.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that:
o you invest $10,000 in the Fund for the time periods indicated;
o you redeem all of your shares at the end of each time period;
o your investment has a 5% return each year;
o all distributions are reinvested; and
o operating expenses of the Fund remain the same.
This example is for comparison only. Actual return and expenses will be
different and the Fund's performance and expenses may be higher or lower. The
one-year number is based on net-operating expenses; longer-term numbers are
based on total fund operating expenses. Based on the above assumptions, your
costs for the Fund would be:
1 year 3 years
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McM S&P 500 Index Fund* $36 $113
*Since the McM S&P 500 Index Fund has not yet commenced operations, cost data
is only provided for the one and three year periods.
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Management of the Fund
The advisor for the Fund is:
McMorgan & Company
One Bush Street, Suite 800
San Francisco, California 94104
The advisor is responsible for selecting, purchasing, monitoring and selling
securities in the Fund's investment portfolio. The advisor also arranges for the
transfer agency, custody and all other services necessary to operate the Fund.
McMorgan & Company was founded in 1969. McMorgan & Company also manages private
accounts, consisting primarily of retirement plans and health and welfare funds
for jointly trusteed plans. As of June 1999, the advisor had approximately $28
billion of assets under management, including investment company assets of
approximately $625 million.
Portfolio Management
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An investment management team at McMorgan & Company manages the Fund's
investments. No member of the investment management team is solely responsible
for making recommendations for portfolio purchases and sales.
Management Fees
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The Fund pays the advisor a monthly fee of 0.15% for providing investment
advisory services.
Year 2000 Compliance
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McMorgan & Company is taking steps that it believes are reasonably designed to
address Year 2000 compliance issues with respect to its computer systems. The
Fund's major service providers have informed the advisor that they have taken
comparable steps.
Year 2000 issues may adversely affect companies in which the fund invests where,
for example, such companies incur substantial costs to address year 2000 issues
or suffer losses caused by the failure to do so adequately and in a timely
manner.
Your Account
Buying Shares
You may buy shares in the Fund with an initial investment of $5,000 or more.
Additional investments may be made for as little as $250. The Fund has the right
to waive the minimum investment requirements for employees of the advisor and
its affiliates. The Fund also has the right to reject any purchase order.
Shares of the Fund are available for purchase only through broker-dealers and
other financial intermediaries with which the Fund has either a broker-dealer or
servicing agreement. Broker-dealers or financial intermediaries may charge
transaction fees for the purchase of Fund shares.
Pricing of Fund Shares (Purchase Price) The price of the Fund's shares is based
on the Net Asset Value (NAV) of the Fund's portfolio. The Fund calculates NAV by
adding the total market value of a Fund's investments and other assets,
subtracting any liabilities, and then dividing that figure by the total number
of outstanding shares of the Fund. The Fund's NAV is calculated at the close of
regular trading of the New York Stock
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Exchange ("NYSE"), normally 4:00 p.m. Eastern time. There is no sales charge in
connection with the purchase of shares.
The portfolio securities of the Fund are valued at market value. If market
quotations are not available, securities are valued at fair value as determined
in good faith by the Board of Trustees.
Timing of Requests
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All requests received by the transfer agent, First Data Investor Services Group,
Inc., before 4:00 p.m. Eastern time will be executed at that day's NAV. Orders
received after 4:00 p.m. will be executed the following day at that day's NAV.
The Fund does not price shares on days when the NYSE is closed, which currently
includes New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas.
To Purchase Shares:
<TABLE>
<CAPTION>
<S> <C> <C>
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Initial Investment Subsequent Investments
- -------------------- ---------------------------------------------------- ----------------------------------------------------
o Complete and sign the Account o Make your check payable to the "McM S&P
Registration Form. 500 Index Fund."
o Make your check payable to the "McM S&P o Fill out an investment slip from an
By Mail 500 Index Fund." account statement, include your name and
o Mail the Account Registration Form and account number. Mail to:
your check to: First Data Investor Services
First Data Investor Services Group, Inc.
Group, Inc. 211 South Gulph Road
211 South Gulph Road P.O. Box 61767
P.O. Box 61767 King of Prussia, PA 19406
King of Prussia, PA 19406 o Minimum subsequent investment for all
o Minimum Initial Investment is $5,000 accounts is $250.
- -------------------- ---------------------------------------------------- ----------------------------------------------------
o Call (800) 831-1146 to arrange for a wire o Call (800) 831-1146 to arrange for a
wire purchase. For same day purchase. For same day
By Wire purchase, the wire must be received purchase, the wire must be received
before 4:00 p.m. Eastern time. by 4:00 p.m. Eastern time.
o Wire federal funds to: o Wire federal funds to:
Boston Safe Deposit & Trust Boston Safe Deposit & Trust
ABA#: 011001234 ABA#: 011001234
For: First Data Investor Services Group, Inc. For: First Data Investor Services Group, Inc.
Credit: McM S&P 500 index Fund Credit: McM S&P 500 index Fund
Acct#: 004502 Acct#: 004502
FBO: (Insert Shareholder name FBO: (Insert Shareholder name
and account number). and account number).
o Mail completed Account Registration Form o Note: Your bank may charge a wire fee.
to the address above.
o Note: Your bank may charge a wire fee.
- -------------------- ---------------------------------------------------- ----------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------- ---------------------------------------------------- ----------------------------------------------------
o You may open an account by making an o You may add to an existing account by
By Exchange exchange of Broker Shares Class B shares from making an exchange from Broker Shares Class B
another series of the McM Funds. Exchanges shares of another series of the McM Funds.
can be made by mail, fax or telephone. Call Exchanges can be made by mail, fax or
(800) 831-1146 for help. telephone. Call (800) 831-1146 for help.
o Note: No fee or charge will apply, but o Completed authorization form must be on
there may be a capital gain or loss. file in advance.
o Note: No fee or charge will apply, but there
may be a capital gain or loss.
- -------------------- ---------------------------------------------------- ----------------------------------------------------
o You must open a regular fund account with o Call (800) 831-1146 to request the form.
By Automatic $5,000 minimum prior to participating in this o Complete and return the form and any
Investment plan. other required materials.
Plan o Subsequent investments will be drawn from
your bank account.
- -------------------- ---------------------------------------------------- ----------------------------------------------------
</TABLE>
Banks, brokers, 401(k) plans, financial advisors or financial supermarkets may
charge additional transaction fees, which would not be charged if shares were
purchased directly from the Funds.
The Fund may accept telephone orders. Unless you decline telephone privileges on
your account application, you may be responsible for any fraudulent telephone
orders as long as the Fund takes reasonable measures to verify the orders.
Other Account Options
- ---------------------
Direct Deposit Program: You may buy 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 in your
fund account. The minimum investment under this program is $250. To participate,
call (800) 831-1146 for an enrollment form.
Retirement Accounts: Tax deferred retirement programs such as 401(k) plans and
IRAs may invest in the Fund. Accounts established under such plans must have all
dividends reinvested in the Fund. For more information about these plans or for
an IRA application, please call 800-831-1146.
Selling Your Shares
You may sell your shares at any time. Your shares will be sold at the NAV
calculated after the Fund's transfer agent receives and accepts your order.
Timing of Requests
- ------------------
Redemption requests received in good order by the transfer agent, First Data
Investor Services Group, Inc., before 4:00 p.m. Eastern time on any day that the
NYSE is open for business will be executed at that day's NAV. Requests received
after 4:00 p.m. will be processed on the next business day.
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<PAGE>
Selling Recently Purchased Shares
- ---------------------------------
The Fund will redeem shares that were recently purchased by check, but may delay
mailing the proceeds for up to 8 business days to allow the purchase check to
clear.
Signature Guarantees
A signature guarantee protects you against fraud by guaranteeing your signature
is authentic. A guarantee is required on all redemption requests over $10,000 or
when the redemption proceeds are to be sent to someone other than the owner of
record or to an address or bank account other than those of record. Most banks
or financial institutions, but not a notary public, can provide you with a
signature guarantee.
To Sell Shares:
<TABLE>
<CAPTION>
<S> <C>
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o Submit a written request for redemption with:
|X| The Fund's name;
|X| Your Fund account number;
By Mail |X| The dollar amount or number of shares or percentage of the
account to be redeemed; and
|X| Signatures of all persons required to sign for transactions,
exactly as the shares are registered.
o Mail your request to:
First Data Investor Services Group, Inc.
211 South Gulph Road
P.O. Box 61767
King of Prussia, PA 19406
o A check will be mailed to the name and address in which the account is
registered.
- ----------------------------------------------------------------------------------------------------------------------------
o This option must be elected either on the initial Account Registration
Form or subsequently in writing.
o Call (800) 831-1146.
By Wire o Wire redemption requests must be received before 4:00 p.m.
for money to be wired the next business day.
- ----------------------------------------------------------------------------------------------------------------------------
o This service must be elected in advance, either on the initial Account
Registration Form or subsequently in writing.
o Call (800) 831-1146 with your request.
By Telephone o The Fund will use reasonable procedures to confirm that the request is
genuine.
o Written confirmation will be provided.
- ----------------------------------------------------------------------------------------------------------------------------
o Complete the appropriate section on the Account Registration Form
or call (800) 831-1146 to request a form to add the plan.
By Systematic o To participate, you must own or purchase shares with a value of at least
Withdrawal $10,000.
Plan o Withdrawals can be monthly, quarterly, semi-annually or annually. The
minimum amount is $100.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Please note that if you use a broker-dealer or financial institution to assist
you in any of these transactions, they may charge a fee for this service, which
the Fund would not charge.
Additional Information on Buying and Selling Fund Shares
General Policies
- ----------------
The Fund reserves the right to:
o reject any purchase order when the Fund determines that it is not in
the best interest of the Fund or its shareholders to accept such
order.
o make redemptions-in-kind (payments in portfolio securities rather
than cash) if the amount to be redeemed is large enough to affect
Fund operations (for example, if it represents more than 1% of the
Fund's assets).
o change the minimum investment amounts.
o cancel any purchase order and impose a $20 returned check fee if the
purchase check does not clear.
o reject checks drawn on banks outside the United States or endorsed
over by a third party. All investments must be made in U.S. dollars.
Minimum Balances
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The Fund may redeem your remaining shares at net asset value if the balance of
your account falls below $500 due to redemptions. The Fund will notify you if
your balance has fallen below $500 and you will have 60 days to increase your
account balance before your shares are redeemed. The Fund may close any account
without notice if the account is inactive and the value of the account is $0.
Exchange Privileges
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Shares of the Fund may be exchanged for Broker Shares Class B shares of any of
the other Series of the Trust. Exchanges are treated as a sale of Fund shares
and are subject to the minimum investment requirements. Exchanges may be made by
mail or telephone if authorized on the Account Registration Form. Telephone
exchanges may be difficult to implement in times of drastic economic or market
changes.
An exchange may result in a capital gain or loss for tax purposes. The Fund may
change or discontinue its exchange privilege, or temporarily suspend this
privilege during unusual market conditions.
Mailings to Shareholders
- ------------------------
The Fund mails monthly statements summarizing the activity in your account and
confirmations following each purchase or sale of your Fund shares. To reduce
expenses, the Fund will limit mailings of most financial reports, prospectuses
and account statements to one copy for each address that lists one or more
shareholders with the same last name. If you would like additional copies of
financial reports and prospectuses or separate mailings of account statements,
please call 800-831-1146.
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<PAGE>
Distributions and Taxes
The Fund generally pays dividends and distributions of its net investment income
and net capital gains, as described in the table below.
Reinvestment Option
- -------------------
Dividend and capital gain distributions will be automatically reinvested in the
Fund unless you elect to receive them by check. You may change your dividend
option at any time by requesting a change in writing. You must have your
dividends reinvested if you participate in the Systematic Withdrawal Plan or any
Retirement Plan. Dividends are reinvested at the ex-dividend date at the NAV
determined at the close of business that day. There are no fees or charges on
reinvestments.
Taxes on Dividends and Distributions
- ------------------------------------
Dividends you receive from the Fund, whether reinvested or taken in cash, are
generally taxable as ordinary income. Capital gains distributions may be taxable
at different rates depending on how long the Fund held the assets that generated
the capital gain. This is true no matter how long you have owned your shares or
whether you reinvest your distributions or receive them in cash.
The sale of Fund shares or the exchange of shares between two Funds is
considered a taxable event; you may realize a capital gain or loss on these
transactions. You should consult your own tax advisor for more specific
information about federal, state and local tax consequences.
Type of Distribution Declared & Paid Federal Tax Status
================================================================================
Dividends from Net Investment Income quarterly ordinary income
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
Distributions from the Fund are expected to be primarily ordinary income.
Shareholders will receive an annual statement on the source and tax status of
all distributions for federal income tax purposes. There will also be
information showing which portion of the distributions are not taxable in
certain states.
Backup Withholding
- ------------------
Shareholders may have 31% of their distributions and proceeds withheld if the
Fund does not have complete, correct taxpayer information on file as required by
law.
Other Investment Strategies and Risks
The Fund's main investment strategies are set out in the front of the
prospectus. The Fund may also use other investment strategies and invest in
securities that are not discussed in this prospectus, but which are described in
detail in the Fund's Statement of Additional Information (SAI). You may obtain a
copy of the SAI without charge by calling 800-788-9485.
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<PAGE>
Defensive Investing
- -------------------
The Fund may occasionally take temporary defensive positions that are
inconsistent with the Fund's principal investment strategies when the advisor
deems it necessary to respond to adverse economic, political or other
conditions. At such time, the Fund may invest temporarily and without limitation
in U.S. government obligations, money market instruments and repurchase
agreements. When the Fund takes a temporary investment position, it may not
achieve its investment goals.
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<PAGE>
Additional Information
For investors who want more information about the Fund, the following documents
are available free upon request:
Annual and Semiannual Reports: Additional information about the Fund's
investments will be available in the Fund's annual and semiannual reports to
shareholders. In the annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Fund and is incorporated by reference into this
prospectus.
You can get free copies of these reports and the SAI, request other information
and ask questions about the Fund by contacting:
McM Funds
One Bush Street, Suite 800
San Francisco, CA 94104
Telephone: 800-788-9485
You can review the Fund's reports and SAI at the Public Reference Room of the
Securities and Exchange Commission (SEC). To get paper copies, write or call the
Public Reference Room of the SEC, Washington, D.C. 20549-6009. Telephone:
800-SEC-0330. Note: The SEC charges a duplicating fee for paper copies.
You may also download a copy of these documents from the SEC's Internet website
for no charge at http://www.sec.gov
The Trust's SEC File No. is 811-8370
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
November 23, 1999
- --------------------------------------------------------------------------------
McM FUNDS
McM S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
This Statement of Additional Information dated November 23, 1999 is not a
prospectus. It should be read in conjunction with the McM S&P 500 Index Fund's
Prospectus dated November 23, 1999, which is incorporated by reference herein. A
copy of the Prospectus may be obtained without charge by contacting either the
Advisor or the Distributor at the addresses and telephone numbers below.
Underwriter: Advisor:
First Data Distributors, Inc. McMorgan & Company
4400 Computer Drive One Bush Street, Suite 800
Westborough, MA 01581 San Francisco, CA 94104
(800) 831-1146 (800) 788-9485
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 1
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
McM Funds............................................................ 3
Investment Policies and Related Risks ............................... 3
Investment Restrictions ............................................. 8
Trustees and Officers................................................ 9
Investment Advisory and Other Services............................... 11
Portfolio Transactions and Brokerage Commissions .................... 12
Shares of Beneficial Interest........................................ 13
Purchases, Redemptions and Pricing of Shares......................... 13
Taxes................................................................ 14
Performance Information ............................................. 16
Other Information.................................................... 17
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 2
<PAGE>
McM FUNDS
McM Funds (the "Trust"), One Bush Street, Suite 800, San Francisco, California,
94104, is an open-end, diversified management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). McM Funds
offers shares of beneficial interest (the "Shares") in the following series: 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"),
McM Equity Investment Fund (the "Equity Investment Fund") and McM S&P 500 Index
Fund (the "S&P 500 Index Fund") (each a "Fund" and collectively the "Funds").
The Intermediate Fixed Income Fund, Fixed Income Fund, Balanced Fund and Equity
Investment Fund offer two classes of shares: McM Funds shares and Broker Shares
Class B shares (referred to individually as a "class" and collectively as the
"classes"). The Principal Preservation Fund only offers the McM Funds class of
shares and the S&P 500 Index Fund only offers Broker Shares Class B Shares.
Each Fund is a separate series of McM Funds, a Delaware business trust organized
by a Trust Instrument dated February 3, 1994, as amended May 9, 1994. 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.
INVESTMENT POLICIES AND RELATED RISKS
The following supplements the information contained in the Prospectus for the
S&P 500 Index Fund concerning the investment policies and related risks of the
Fund. The investment practices described below, except for the discussion of
portfolio loan transactions and borrowing, are not fundamental and may be
changed by the Board of Trustees without the approval of shareholders.
Common Stock
- ------------
Common stock represents an equity (ownership) interest in a company or other
entity. This ownership interest often gives the Fund the right to vote on
measures affecting the company's organization and operations. Although common
stocks generally have had a history of long-term growth in value, their prices
are often volatile in the short-term and can be influenced by not only general
market risk but specific corporate risks as well.
Futures Contracts and Related Options
- -------------------------------------
The Fund also may enter into futures contracts, options, warrants, options on
futures contracts, convertible securities and swap agreements for the purpose of
simulating full investment and reducing transaction costs. The Fund does not use
futures or options for speculative purposes. The Fund may use futures and
options to simulate full investment in the underlying index while retaining a
cash balance for fund management purposes.
The Fund also may invest in futures contracts and options on futures contracts
for hedging purposes or to maintain liquidity. However, the 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 the Fund to take or make delivery of
certain securities or the cash value of a securities index. The 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. The 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, the Fund may purchase a futures
contract in anticipation of purchases of securities. In addition, the Fund may
utilize futures contracts in anticipation of changes in the composition of its
portfolio holdings.
The Fund may purchase and sell call and put options on futures contracts traded
on an exchange or board of trade. In connection with the Fund's position in a
futures contract or option thereon, the 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 the 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;
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 3
<PAGE>
(iii) losses, which are potentially unlimited, due to unanticipated market
movements; and (iv) the advisor's ability to predict correctly the direction of
security prices, interest rates and other economic factors.
Options
- -------
The 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 the 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. The 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. The 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.
The Fund may use options traded on U.S. exchanges and, to the extent permitted
by law, options traded over-the-counter. The Fund will invest in such options
only to the extent consistent with its 10% limit on investments in illiquid
securities. The 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 the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, liquid assets, such as cash, U.S. government
securities or other liquid high-grade debt obligations, in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if the Fund maintains with its custodian a diversified stock portfolio
or liquid assets equal to the contract value. A call option is also covered if
the Fund holds a call on the same security or index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written; or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Fund in liquid assets such
as cash, U.S. government securities and other high-grade debt obligations in a
segregated account with its custodian. The 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.
The 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
- -----------------------
The Fund may purchase call options to the extent that premiums paid by the Fund
do not aggregate more than 20% of the Fund's total assets. When the 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 the Fund may alter portfolio characteristics and modify
portfolio maturities without incurring the cost associated with transactions.
The 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 4
<PAGE>
Although the 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 the 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 the Fund may expire without any value to the Fund, in which event
the Fund would realize a capital loss that would be characterized as short-term
unless the option was held for more than one year.
Covered Call Writing
- --------------------
The Fund may write covered call options from time to time on such portions of
its portfolio, without limit, as the Advisor determines is appropriate in
seeking to obtain the Fund's investment objective. The advantage to the Fund of
writing covered calls is that the Fund receives a premium that is additional
income. However, if the security rises in value, the Fund may not fully
participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing purchase transaction. A closing purchase transaction,
in which the 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 the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The 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, the 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, the
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security and the proceeds
of the sale of the security plus the amount of the premium on the option less
the commission paid.
The Fund will write call options only on a covered basis, which means that the
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, the
Fund would be required to continue to hold a security which it might otherwise
wish to sell or deliver a security it would want to hold. The exercise price of
a call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
Purchasing Put Options
- ----------------------
The Fund may invest up to 20% of its total assets in the purchase of put
options. The 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 the Fund gives it the right to sell one of its
securities for an agreed-upon price up to an agreed date. The 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 the
Fund to protect unrealized gains in an appreciated security in its portfolio
without actually selling
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 5
<PAGE>
the security. If the security does not drop in value, the Fund will lose the
value of the premium paid. The Fund may sell a put option which it has
previously purchased prior to the sale of the securities underlying such option.
Such sale will result in a net gain or loss depending upon whether the amount
received on the sale is more or less than the premium and other transaction
costs paid on the put option which is sold.
The Fund may sell a put option purchased on individual portfolio securities.
Additionally, the Fund may enter into closing sale transactions. A closing sale
transaction is one in which the 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
- -------------------
The Fund may also write put options on a secured basis, which means that the
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
the Fund's portfolio at a price lower than the current market price of the
security. In such event, the Fund would write a secured put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay. With regard to the writing of put options,
the 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, the 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.
Swaps
- -----
To help enhance the value of its portfolio or manage its exposure to different
types of investments, the Fund may enter into swap agreements and may purchase
and sell interest rate "caps", "floors" and "collars". The potential loss from
investing in swap agreements is much greater than the amount initially invested.
This would protect the 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. The 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 the 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, the 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 the 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.
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions
- -----------------------------------------------------------------------------
The 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 the Fund would generally purchase securities
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 6
<PAGE>
on a when-issued, delayed delivery or a forward commitment basis with the
intention of acquiring the securities, the Fund may dispose of such securities
prior to settlement if the Advisor deems it appropriate to do so.
The Fund may dispose of or negotiate a when-issued or forward commitment. The
Fund will normally realize a capital gain or loss in connection with these
transactions. For purposes of determining the Fund's average dollar-weighted
maturity, the maturity of when-issued or forward commitment securities will be
calculated from the commitment date.
When the 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.
Repurchase Agreements
- ---------------------
The Fund may enter into repurchase agreements to earn income. The Fund may only
enter into repurchase agreements with financial institutions that are deemed to
be creditworthy by the Advisor pursuant to guidelines established by the Trust's
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, the 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 the Fund's
net assets will be invested in illiquid securities, including repurchase
agreements that have a maturity of longer than seven days.
The repurchase price under the repurchase agreements generally equals the price
paid by the 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 the Fund under the Investment Company Act of 1940, as amended (the
"1940 Act").
The 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.
Reverse Repurchase Agreements
- -----------------------------
The 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 the Fund of portfolio assets concurrently with an
agreement by the 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
- ---------
The 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, the 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. The
Fund will not lend portfolio securities in
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 7
<PAGE>
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.
Rule 144A Securities
- --------------------
The 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 the Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities.
Illiquid Securities
- -------------------
The 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 these percentage limits (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).
Temporary Defensive Measures
- ----------------------------
For temporary and defensive purposes, the Fund may invest up to 100% of its
total assets in investment grade short-term fixed income securities (including
short-term U.S. government securities, money market instruments, including
negotiable certificates of deposit, non-negotiable fixed time deposits, bankers'
acceptances, commercial paper and floating rate notes) and repurchase
agreements. The Fund may also hold significant amounts of its assets in cash,
subject to the applicable percentage limitations for short-term securities.
Other Investments
- -----------------
The Board of Trustees may, in the future, authorize the 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 the Fund.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may not
be changed as to the Fund without the approval of a majority of the outstanding
voting shares (as defined in the 1940 Act) of the Fund. Unless otherwise
indicated, all percentage limitations listed below apply to the 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 the
Fund's total assets will not be considered a violation.
Except as set forth under "Investment Objectives" and "Investment Strategies" in
the Prospectus, the Fund may not:
(1) As to 75% of its total assets, purchase the securities of any one
issuer (other than securities issued by the U.S. government or its
agencies or instrumentalities), if immediately after such purchase
more than 5% of the value of the Fund's total assets would be
invested in securities of such issuer;
(2) Purchase or sell real estate (but this restriction shall not prevent
the 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 the
Fund may enter into futures contracts and options thereon in
accordance with the 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, the Fund would own more than 10% of the outstanding
voting securities of such issuer;
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 8
<PAGE>
(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 the 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 the
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 the 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. The Fund will not
purchase securities when borrowings exceed 5% of the Fund's total
assets;
(9) Purchase the securities of issuers conducting their principal
business activities in the same industry (other than obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities) if immediately after such purchase the value of
the 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, the 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 otherwise disclosed in the Prospectus; and
(12) Invest more than 5% of its total assets in securities of companies
less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.
TRUSTEES AND OFFICERS
McM Funds has a Board of Trustees that establishes the Fund's policies and
supervises and reviews the management of the Fund. The officers of McM Funds and
the Advisor administer the day-to-day operations of the Fund pursuant to the
terms of the Investment Advisory Agreement with the Fund.
Information pertaining to the Trustees and executive officers of McM Funds is
set forth below.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 9
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Principal Compensation From Total Compensation
Position(s) Occupation(s) Trust 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, 1999 to Trustees
- ----------------------- ----------- -------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Terry A. O'Toole, CPA* 52 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 58 Trustee Independent $6,750 $6,750
1299 Ocean Avenue Consultant
Suite 333
Santa Monica, CA 90401
Walter B. Rose 53 Trustee President, Venture $6,750 $6,750
Venture Consulting Corp. Consulting Corp.
355 South Grand Avenue (1998-Present);
Suite 4295 prior thereto,
Los Angeles, CA 90071 President, McBain,
Rose Partners
S.D. Sicotte 68 Trustee Retired; prior $6,750 $6,750
2047 Byron Street thereto Chairman
Palo Alto, CA 94301 and Chief
Executive Officer,
Hemming Morse, Inc.
Robert R. Barron * 54 Trustee, Executive Vice N/A N/A
McMorgan & Company Vice President, McMorgan
3500 W. Olive Avenue President & Company.
Suite 690 &
Burbank, CA 91505 Treasurer
Mark R. Taylor * 40 Trustee Vice President, N/A N/A
McMorgan & Company McMorgan &
One Bush Street, Suite 800 Company
San Francisco, CA 94104
Gregory L. Watson, CFA * 54 Trustee Executive Vice N/A N/A
McMorgan & Company President, McMorgan
8955 E. Pinnacle Peak Rd & Company
Suite 101
Scottsdale, AZ 85255
Deane A. Nelson, CFA* 53 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 * 45 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 1940 Act.
The non-interested Trustees of McM Funds each receive a fee of $6,000 per year,
plus $500 per meeting and expenses for each meeting of the Board of Trustees
they attend. No officer or employee of McMorgan & Company receives any
compensation from McM Funds for acting as a Trustee of McM Funds. The officers
of the Trust receive no compensation directly from McM Funds for performing the
duties of their offices.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 10
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreement
- -----------------------------
The Fund has entered into an investment advisory agreement with McMorgan &
Company (the "Advisor"), One Bush Street, Suite 800, San Francisco, CA 94104.
For providing investment advisory services, the Fund pays McMorgan & Company a
monthly fee at an annual rate of 0.15% based on the Fund's average daily net
assets.
Thomas A. Morton, Chairman of the Board of McMorgan & Company, is deemed a
control person by reason of his ownership interest in the Advisor.
Under the advisory agreement on behalf of the Fund (the "Advisory Agreement"),
the Advisor is not liable for any error of judgment or mistake of law or for any
loss suffered by McM Funds or the Fund in connection with the performance of the
Advisory Agreement, 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 Agreement is terminable with respect to the 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 the Fund on 60 days' written notice to McM Funds. The Advisory
Agreement terminates automatically in the event of its assignment.
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 that relate exclusively to a particular
Fund, such as certain registration fees, brokerage commissions and other
portfolio expenses, will be borne directly by that Fund. Expenses that relate
exclusively to a particular class of shares will be borne directly by that
class.
Transfer Agent.
- ---------------
First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly-owned subsidiary of First Data Corporation and an affiliate of the
Trust's principal underwriter, First Data Distributors, Inc., which has its
principal business address at 4400 Computer Drive, Westborough, MA 01581,
provides transfer agency and dividend disbursing agent services for the Fund. As
part of these services, Investor Services Group maintains records pertaining to
the sale and redemption of Fund shares and will distribute the Fund's cash
dividends to shareholders.
Administrative Services Agent.
- ------------------------------
Investor Services Group also serves as the administrator for the Fund. The
services include the day-to-day administration of matters necessary to the
Fund's operations, maintenance of records and books, preparation of reports, and
compliance monitoring. For providing administrative services to the Fund,
Investor Services Group receives from the Fund a basic fee, computed daily and
paid monthly, at the annual rate of 0.15% of the first $50 million of average
daily net assets of the Fund, 0.10% of the next $50 million of average daily net
assets, and 0.05% of average daily net assets over $100 million (with a minimum
annual fee of $55,000).
McM Funds paid the following administration fees for the fiscal years ended June
30, 1999, 1998 and 1997 :
<TABLE>
<CAPTION>
Series Fiscal Year End 1999 Fiscal Year End 1998 Fiscal Year End 1997
<S> <C> <C> <C>
McM Principal
Preservation Fund $53,963 $39,466 $25,844
McM Intermediate Fixed
Income Fund $53,391 $39,144 $25,348
McM Fixed Income Fund $53,871 $38,314 $24,948
McM Balanced Fund $54,540 $39,088 $25,728
McM Principal
Preservation Fund $55,958 $40,160 $26,161
</TABLE>
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 11
<PAGE>
Accounting Services Agent.
- --------------------------
Investor Services Group also serves as the accounting agent for the Fund and
maintains the accounting books and records of the Fund, calculates each Fund's
net asset value in accordance with the provisions of that Fund's current
Prospectus and prepares for Fund approval and use various government reports,
tax returns, and proxy materials. For providing accounting services to the Fund,
Investor Services Group receives from the Fund an annual fee, computed daily and
paid monthly, based on a minimum of $24,000 for the first $10 million of average
daily net assets per portfolio, 0.0002 of combined assets to $500 million,
0.0001 over $500 million. In addition, the Fund pays $12,000 per additional
class per portfolio.
Custodian and Custody Administrator.
- ------------------------------------
The Bank of New York, 48 Wall Street, New York, New York 10286, is custodian of
the Fund's assets pursuant to a custodian agreement. Under the custodian
agreement, The Bank of New York (i) maintains a separate account or accounts in
the name of the Funds (ii) holds and transfers portfolio securities on account
of the Funds, (iii) accepts receipts and make disbursements of money on behalf
of the Funds, (iv) collects and receives all income and other payments and
distributions on account of the Funds' securities and (v) makes periodic reports
to the Trustees concerning the Funds' operations. Investor Services Group will
act as custody administrator and has agreed to pay the fees and expenses of the
custodian. For those services, Investor Services Group receives an annual fee of
.00015 on the first $500 million of average net assets; .0001 on the next $1.5
billion of average net assets; .00009 over $2 billion of average net assets and
a minimum of $3,600 per portfolio per year. Certain transaction fees and
out-of-pocket expenses may also be charged.
Underwriter
- -----------
First Data Distributors, Inc. ("FDDI"), 4400 Computer Drive, Westborough,
Massachusetts 01581, serves as underwriter pursuant to an underwriting agreement
for the limited purpose of acting as underwriter to facilitate the registration
of shares of the Fund under state securities laws and to assist in the sale of
shares.
FDDI has agreed at its own expense to qualify as a broker-dealer under all
applicable federal or state laws in those states which the Trust shall from time
to time identify to FDDI as states in which it wishes to offer its shares for
sale, in order that state registrations may be maintained for the Trust.
FDDI 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 underwriting services provided to McM Funds under the Underwriting
Agreement, the Advisor pays FDDI an annual fixed fee of $21,000. These fees are
fixed for a one (1) 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 FDDI. The Fund also reimburses FDDI for certain out-of-pocket
expenses.
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.
Independent Accountants
- -----------------------
The accounting firm of Tait, Weller & Baker, Two Penn Center, Suite 700,
Philadelphia, PA 19102-1707, has been designated as independent accountant for
each Fund. Tait, Weller & Baker performs annual audits of the Fund and is
periodically called upon to provide accounting and tax advice.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Advisor is responsible for decisions to buy and sell securities for the Fund
and for the placement of its portfolio business and the negotiation of
commissions, if any, paid on such transactions. Brokerage commissions are paid
on transactions in listed securities, futures contracts and options thereon. The
Advisor is responsible for effecting portfolio transactions and will do so in a
manner deemed fair and reasonable to the 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 12
<PAGE>
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 the
Fund and others whenever concurrent decisions are made to purchase or sell
securities by the 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.
SHARES OF BENEFICAL INTEREST
Each share of the Fund represents an equal proportionate interest in the assets
belonging to the Fund. When issued, shares are fully paid and non-assessable. In
the event of liquidation of the Fund, shareholders are entitled to share pro
rata in the net assets of the Fund available for distribution to its
shareholders. Shares of the Fund are freely transferable and have no preemptive,
subscription or conversion rights.
In accordance with the provisions of the Trust Instrument, the Trustees have
initially determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The Trustees may determine
in the future, without the vote or consent of shareholders, that each dollar of
net asset value (number of shares owned times net asset value per share) will be
entitled to one vote on any matter on which such shares are entitled to vote.
Unless otherwise required by the 1940 Act or the Trust Instrument, the Fund has
no intention of holding annual meetings of shareholders. Shareholders may remove
a Trustee by the affirmative vote of at least two-thirds of the Trust's
outstanding shares. At any time that less than a majority of the Trustees
holding office were elected by the shareholders, the Trustees will call a
special meeting of shareholders for the purpose of electing Trustees.
Under Delaware law, shareholders of a Delaware business trust are protected from
liability for acts or obligations of the Trust to the same extent as
shareholders of a private, for-profit Delaware corporation. In addition, the
Trust Instrument expressly provides that the Trust has been organized under
Delaware law and that the Trust Instrument will be governed by Delaware law. It
is possible that the Trust might become a party to an action in another state
whose courts refused to apply Delaware law, in which case the Trust's
shareholders could be subject to personal liability. The Trust Instrument
provides for the indemnification of any shareholders held personally liable for
any obligations of the Trust or the Fund.
PURCHASES, REDEMPTONS AND PRICING OF SHARES
Purchase of Shares
Shares of the S&P 500 Index Fund are offered in one class only, Broker Shares
Class B shares, with no sales charge or Rule 12b-1 fees. The Intermediate Fixed
Income Fund, Intermediate Fixed Income Fund, Balanced Fund and Equity Investment
Fund offer both McM Funds shares and Broker Shares Class B shares. Shares of the
Principal Preservation Fund are offered only in McM Funds Shares. The McM Funds
shares have no sales charge or Rule 12b-1 fees. With the exception of the S&P
500 Index Fund, Broker Shares Class B shares have no sales charge, but are
subject to a 0.40% Rule 12b-1 distribution fee.
Net Asset Value
The net asset value per share of the Fund is computed as of the close of regular
trading on the NYSE. 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 the 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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 13
<PAGE>
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.
Debt securities with maturities of 60 days or less held by the Fund, 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.
Transfer of Securities
At the discretion of McM Funds, investors may be permitted to purchase the
Fund's shares by transferring securities to the Fund that meet the Fund's
investment objectives and policies. Securities transferred to the 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 the 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 the 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.
Redemptions
Pursuant to McM Funds' Trust Instrument, 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 1940 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 the 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 the Fund not reasonably
practicable.
TAXES
The Fund intends 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, the 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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 14
<PAGE>
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 the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and have no more than 25% of its assets invested in the securities (other than
those of the government or other regulated investment companies) of any one
issuer or of two or more issuers which the Fund controls and which are engaged
in the same, similar or related trades and businesses. To the extent the Fund
qualifies 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 the
Fund's "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of the Fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The 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 the 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 the 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 the Fund has written expires on its stipulated expiration date, the Fund
recognizes a short-term capital gain. If the 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 the 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 the 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 the 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
the 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 the Fund at the end of each fiscal year on a
broad-based stock index will be required to be "marked-to-market" for federal
income tax purposes. Sixty percent of any net gain or loss recognized on such
deemed sales or on any actual sales will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss
("60/40 gain or loss"). Futures contracts and options on futures contracts
utilized by McM Funds are also "Section 1256 contracts." Any gains or losses on
Section 1256 contracts held by the Fund at the end of each taxable year (and on
October 31 of each year for purposes of the 4% excise tax) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as a
60/40 gain or loss.
Shareholders will be subject to federal income taxes on distributions made by
the Fund whether received in cash or additional shares of the 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 the
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 the 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 15
<PAGE>
The 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 the Fund. 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 the Fund, 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, the Fund may include general comparative information, such as
statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. The Fund 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 the Fund.
From time to time, the yield and total return of the Fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Total Return Calculations
- -------------------------
The Fund computes its average annual total returns 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:
Average Annual Total Return = [ (ERV)1/n - 1 ]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
The Fund computes its aggregate total return 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.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 16
<PAGE>
Since performance will fluctuate, performance data for the 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.
Yields
- ------
The yield of the Fund is calculated by dividing the net investment income per
share (as described below) earned by the Fund during a 30-day (or one-month)
period by the maximum offering price per share on the last day of the period and
annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. The 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 the
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 the 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 the 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.
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
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 17
<PAGE>
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 this Statement of Additional
Information 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.
Reports to Shareholders. Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants. Inquiries regarding the
Fund may be directed to the Advisor at (800) 788-9485.
- --------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 18
<PAGE>
MCM FUNDS
FORM N-1A
PART C OTHER INFORMATION
Part C. Other Information
Item 23. Exhibits.
- -----------------------
(a) Copies of Charter -- Amended Trust Instrument dated May
9, 1994 is incorporated by reference to Exhibit No. (1)
of Post-Effective No. 3.
(b) Copies of existing By-Laws --By-laws are incorporated by
reference to Exhibit No. (2) of Post-Effective No. 3.
(c) Copies of all instruments defining the rights of holders
of the securities -- Not Applicable. Registrant proposes
to maintain investments as non-certificated book entry
shares.
(d) Copies of all investment advisory contracts --
(1) Investment Advisory contracts for the McM Principal
Prservation Fund, the McM Fixed Income Fund, the
McM Intermediate Fixed Income Fund and the McM
Equity Investment Fund are incorporated by
reference to Exhibit (5) of Post-Effective No.3
(2) Investment Advisory conract for the McM S&P 500
Index Fund - filed herewith.
(e) Copies of each underwriting or distribution contract --
Underwriting Agreement among Registrant, McMorgan &
Company and First Data Distributors, Inc. dated January
1, 1999 -- is incorporated by reference to Exhibit No.
99.B.23 (e) of Post-Effective No. 6.
(f) Copies of all bonus, profit sharing, pension or other
similar contracts -- Not Applicable.
(g) Copies of all custodian agreements --
(1) Custodian Agreement is incorporated by reference
to Exhibit No. (8)(b) of Post-Effective No. 3.
(h) Copies of all other material contracts not made in the
ordinary course of business which are to be performed.
(1) Services Agreement between the Registrant and First
Data Investor Services Group, Inc. -- filed
herewith.
(i) 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.
(j) Copies of any other opinions, appraisals or rulings --
Consent of Independent Auditors - not applicable.
(k) All financial statements omitted from Item 23. -- Not
Applicable.
(l) 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.
(m) Copies of any plan entered into by Registrant pursuant
to Rule 12b-1 -- Rule 12b-1 Distribution Plan for Broker
Shares - Class B is incorporated by reference to Exhibit
(23)(m) of Post-Effective No. 8.
(n) Financial Data Schedules on behalf of McM S&P 500 Index
Fund-- not applicable.
- --------------------------------------------------------------------------------
-1-
<PAGE>
(o) Rule 18f-3 Plan --Rule 18f-3 Plan is incorporated by
reference to Exhibit 99.B.23(o) of Post-Effective No. 6.
(p) Power of Attorney--Power of Attorney is incorporated by
reference to Exhibit 99.B.23(p) of Post-Effective No. 6.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. 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.
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:
- --------------------------------------------------------------------------------
-2-
<PAGE>
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 26. 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, 1999 had approximately $28 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 advisor 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 27. Principal Underwriter.
(a) First Data Distributors, Inc., the principal underwriter
for the Registrant's securities, currently acts as
principal underwriter for the following entities:
The Galaxy Fund
Galaxy Fund II
The Galaxy VIP Fund
Alleghany Funds (f/k/a CT&T Funds)
Wilshire Target Funds, Inc.
Panorama Trust
First Choice Funds Trust
Undiscovered Managers Fund
LKCM Funds
BT Insurance Funds Trust
ABN AMRO Funds (f/k/a Rembrandt Funds)
IBJ Funds Trust
ICM Series Trust
Forward Funds, Inc.
Light Index Funds, Inc.
McM Funds
New Covenant Funds, Inc.
Northern Trust Institutional Funds
WorldWide Index Funds
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth Fund
WPG Growth and Income Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The Govett Funds, Inc.
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
Matthews International Funds
Metropolitan West Funds
Smith Breeden Series Fund
Smith Breeden Trust
-3-
<PAGE>
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
Trainer Wortham First Mutual Funds
(b) The table below sets forth certain information as to the
Underwriter's Trustees, Officers and Control Persons:
<TABLE>
<CAPTION>
Position Position
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C> <C>
Robert Guillocheau Director None
4400 Computer Drive
Westborough, MA 01581
Jack Kutner Director None
4400 Computer Drive
Westborough, MA 01581
Francis Koudelka Director, President and CEO None
4400 Computer Drive
Westborough, MA 01581
Scott Hacker, Esq. Vice President, Treasurer None
4400 Computer Drive and Chief Compliance Officer
Westborough, MA 01581
Bruno DiStefano Vice President None
4400 Computer Drive
Westborough, MA 01581
Sue Moscaritolo Vice President None
4400 Computer Drive
Westborough, MA 01581
Bernard Rothman Vice President-Tax None
4400 Computer Drive
Westborough, MA 01581
Christine Ritch, Esq. Chief Legal Officer and Clerk None
4400 Computer Drive
Westborough, MA 01581
Bradley Stearns Assistant Clerk None
4400 Computer Drive
Westborough, MA 01581
</TABLE>
(c) Not Applicable.
Item 28. 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.
-4-
<PAGE>
Item 29. Management Services.
There are no management-related service contracts not
discussed in Part A or Part B.
Item 30. 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, 1999, 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.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "Securities
Act") and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all the requirements for effectiveness of this
requistration statement under rule 485(b) under the Securities Act and it 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 23rd day of November, 1999.
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Capacity Date
- --------- -------- ----
/s/ Terry A. O'Toole* Chairman of the Board of Trustees 11/23/99
- --------------------------- and President and Principal
Terry O'Toole Executive Officer
11/23/99
/s/ Kenneth I. Rosenblum* Trustee
- ---------------------------
Kenneth I. Rosenblum
11/23/99
/s/ Walter B. Rose* Trustee
- ---------------------------
Walter B. Rose
11/23/99
/s/ Robert R. Barron* Treasurer, Vice President
- --------------------------- Principal Accounting & Financial
Robert R. Barron Officer & Trustee
11/23/99
/s/ Gregory L. Watson* Trustee
- ---------------------------
Gregory L. Watson
11/23/99
/s/ Mark R. Taylor* Trustee
- ---------------------------
Mark R. Taylor
11/23/99
/s/ S.D. Sicotte* Trustee
- ---------------------------
</TABLE>
*By:/s/ Carolyn F. Mead, as Attorney-in-Fact
and Agent pursuant to Power of Attorney
-6-
<PAGE>
McM FUNDS
99.B Index to Exhibits to Form N-1A
Exhibit Description of
Number Exhibit
99.B.23(d)(2) Investment Advisory Contract for the McM S&P 500
Index Fund
99.B.23(h)(1) Services Agreement between the Registrant and first Data
Invester Services Group, Inc.
-7-
<PAGE>
INVESTMENT ADVISORY AGREEMENT
FOR
S&P 500 INDEX FUND
AGREEMENT made this 22 day of November , 1999 by and between McM Funds,
a Delaware Business Trust (the "Trust") on behalf of the S&P 500 Index Fund (the
"Fund") and McMorgan & Company, a California corporation and registered
investment adviser (the "Adviser").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company.
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to furnish such
services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Fund for the periods on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Duties of Adviser. The Trust hereby appoints the Adviser to act as
investment adviser to the S&P 500 Index Fund, a separate series of shares of the
Trust, for the period and on such terms set forth in this Agreement. The Trust
employs the Adviser to manage the investment and reinvestment of the assets of
the Fund, to continuously review, supervise and administer the investment
program of the Fund, to determine in its discretion the assets to be held
uninvested, to provide the Trust with records concerning the Adviser's
activities which the Trust is required to maintain, and to render regular
reports to the Trust's officers and Board of Trustees concerning the Adviser's
discharge of the foregoing responsibilities. The Adviser shall discharge the
foregoing responsibilities subject to the control of the officers and the Board
of Trustees of the Trust, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus and statement of additional
information and applicable law. The Adviser accepts such employment and agrees
to render the services and to provide, at its own expense, the office space,
furnishings, equipment and the personnel required by it to perform the services
on the terms and for the compensation provided herein.
<PAGE>
3. Portfolio Transactions. The Adviser shall select and monitor the
selection of the brokers or dealers that will execute the purchases and sales of
securities for the Fund and is directed to use its best efforts to ensure that
the best available price and most favorable execution of securities transactions
for the Fund are obtained. Subject to policies established by the Board of
Trustees of the Fund and communicated to the Adviser, it is understood that the
Adviser will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Fund, or be in breach of any
obligation owing to the Trust or in respect of the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Adviser determines in reasonable good faith that the commission paid was
reasonable in relation to the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Adviser's overall responsibilities with respect to the accounts, including the
Fund, as to which it exercises investment discretion. The Adviser will promptly
communicate to the officers and Trustees of the Trust such information relating
to Fund transactions as they may reasonably request.
<PAGE>
4. Compensation of the Adviser. For the services to be rendered by the
Adviser as provided in Section 2 and 3 of this Agreement, the Fund shall pay to
the Adviser within five business days after the end of each calendar month, a
monthly fee of one twelfth of 0.10% of the Fund's average daily net assets for
the month. In the event the Adviser is engaged for a period of less than one
month, it shall receive the same monthly fee paid on a pro rata basis.
The Adviser may reduce any portion of the compensation or reimbursement
of expenses due to it pursuant to this Agreement and may agree to make payments
to limit the expenses which are not the responsibility of the Adviser under this
Agreement. Any such reduction or payment shall be applicable only to such
specific reduction or payment and shall not constitute an agreement to reduce
any future compensation or reimbursement due to the Adviser hereunder or to
continue future payments. Any fee withheld pursuant to this paragraph from the
Adviser shall be reimbursed by the Fund to the Adviser in the first, second or
third (or all) fiscal year next succeeding the fiscal year of the withholding to
the extent permitted by the applicable state law if the aggregate expenses for
the applicable succeeding fiscal year do not exceed the applicable state
limitation or any more restrictive limitation to which the Adviser has agreed.
In the event of termination of this Agreement, the fee provided in this
Section 4 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
5. Reports. The Fund and the Adviser agree to furnish to each other
such information regarding their operations with regard to their affairs as each
may reasonably request.
6. Status of Adviser. The services of the Adviser to the Fund are not
to be deemed exclusive, and the Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. The
Trust's employment of the Adviser is not an exclusive arrangement, and the Trust
may from time to time employ other individuals or entities to furnish it with
the services provided for herein.
7. Liability of Adviser. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
The Fund shall indemnify and hold harmless the Adviser, its general
partner and the shareholders, directors, officers and employees of each of them
(any such person, an "Indemnified Party") against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating and defending
any alleged loss, liability, claim, damage or expenses and reasonable counsel
fees incurred in connection therewith) arising out of the Indemnified Party's
performance or non-performance of any duties under this Agreement provided,
however, that nothing herein shall be deemed to protect any Indemnified Party
against any liability to which such Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of reckless disregard of obligations and duties
under this Agreement.
No provision of this Agreement shall be construed to protect any
Trustee or Officer of the Trust, or Director or Officer of the Adviser from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
8. Duration and Termination. This Agreement shall become effective on
August __, 1999, provided that first it is approved by the Board of Trustees of
the Fund, including a majority of those Trustees who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Fund; and shall continue in
effect until May 31, 2001. Thereafter, this Agreement may continue in effect
only if such continuance is approved at least annually by, (i) the Fund's Board
of Trustees or, (ii) by the vote of a majority of the outstanding voting
securities of the Fund; and in either event by a vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party in the manner provided in section 15(c) of the
Investment Company Act of 1940. Notwithstanding the foregoing, this Agreement
may be terminated: (a) at any time without penalty by the Fund upon the vote of
a majority of the Trustees or by vote of the majority of the Fund's outstanding
voting securities, upon sixty (60) days' written notice to the Adviser or (b) by
the Adviser at any time without penalty, upon sixty (60) days' written notice to
the Fund. This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered or mailed postpaid, to the other
party at the principal office of such party.
As used in this Section 8, the terms "assignment", "interested person",
and "a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
9. Severability. If any provisions of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby, provided that the basic agreement
is not thereby impaired and the Agreement continues to conform with applicable
law.
10. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Trustees, including a
majority of Trustees who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this 22 day of November , 1999.
ATTEST S&P 500 INDEX FUND
/s/ Ashanti Loggins By: /s/ Terry A. O'Toole
------------------------------
Terry A. O'Toole, President
ATTEST McMORGAN & COMPANY
/s/ Deane A. Nelson By: /s/ Thomas A. Morton
------------------------------
Thomas Morton, Treasurer
<PAGE>
SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 22 day of November, 1999 (the "Effective Date")
between MCM FUNDS (the "Fund"), a Delaware business trust having its principal
place of business at One Bush Street, Suite 800, San Francisco, California 94104
and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor Services Group"), a
Massachusetts corporation with principal offices at 4400 Computer Drive,
Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Schedule A, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
Investor Services Group as its administrator, fund accounting agent, transfer
agent, dividend disbursing agent and agent in connection with certain other
activities and Investor Services Group desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of
the governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
1
<PAGE>
(e) "Commencement Date" shall mean the date on which Investor
Services Group commences providing services to the Fund pursuant to
this Agreement.
(f) "Commission" shall mean the Securities and Exchange
Commission.
(g) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement. (a) "Investor
Services Group Secure Net Gateway" shall mean the system of computer
hardware and software and network established by Investor Services
Group to provide access between Investor Services Group recordkeeping
system and the Internet.
(h) "Fund Home Page" shall mean the Fund's proprietary web
site on the Internet used by the Fund to provide information to its
shareholders and potential shareholders.
(i) "Investor Services Group Web Transaction Engine" shall
mean the system of computer hardware and software created and
established by Investor Services Group in order to enable Shareholders
of the Fund to perform the transactions contemplated hereunder.
(j) "Internet" shall mean the communications network comprised
of multiple communications networks linking education, government,
industrial and private computer networks.
(k) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(l) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(m) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(n) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets;
(o) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
2
<PAGE>
(p) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(q) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(r) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of Investor Services Group.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as its sole and exclusive transfer agent and dividend
disbursing agent for Shares of each respective Portfolio of the Fund and as
administrator, fund accounting agent, shareholder servicing agent for the Fund
and Investor Services Group hereby accepts such appointments and agrees to
perform the duties hereinafter set forth. This Agreement shall be effective as
of the Effective Date.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and in accordance with the terms of
the Prospectus of the Fund on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time between
Investor Services Group and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. Investor Services Group
shall provide the Fund on a regular basis with the total number of
Shares of each Portfolio which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take cognizance
of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Fund.
3
<PAGE>
(c) Investor Services Group shall be responsible for the
following: performing the customary services of an administrator,
including corporate secretarial, treasury and blue sky services, and
fund accounting agent for the Fund, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and subject to the supervision and
direction of the Board of Directors of the Fund.
(d) In addition to providing the foregoing services, the Fund
hereby engages Investor Services Group as its exclusive service
provider with respect to the Print/Mail Services as set forth in
Schedule C for the fees also identified in Schedule C. Investor
Services Group agrees to perform the services and its obligations
subject to the terms and conditions of this Agreement.
(e) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of any Shares,
or the propriety of the amount to be paid therefor; (iii) the legality
of the declaration of any dividend by the Board of Directors, or the
legality of the issuance of any Shares in payment of any dividend; or
(iv) the legality of any recapitalization or readjustment of the
Shares.
3.2 In addition, the Fund shall (i) identify to Investor Services Group
in writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of Investor Services Group for the
Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
3.3. IMPRESSNet Services. Investor Services Group agrees to provide the
following services:
(a) in accordance with the written procedures established
between the Fund and Investor Services Group, enable the Fund and its
Shareholders to utilize the Internet in order to access Fund
information maintained by Investor Services Group through the use of
the Investor Services Group Web Transaction Engine and Secure Net
Gateway;
(b) allow the Shareholders to perform account inquiries and
transactions; and
(c) maintenance of the Investor Services Group Secure Net
Gateway and the Investor Services Group Web Transaction Engine.
In connection with the services provided by Investor Services Group
hereunder, the Fund shall be responsible for the following:
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(a) establishment and maintenance of the Fund Home Page on
the Internet;
(b) services and relationships between the Fund and any third
party on-line service providers to enable the Shareholders to access
the Fund Home Page; and
(c) provide Investor Services Group with access to and
information regarding the Fund Home Page in order to enable Investor
Services Group to provide the services contemplated hereunder.
3.4 In performing its duties under this Agreement, Investor Services
Group: (a) will act in accordance with the Articles of Incorporation, By-Laws,
Prospectuses and with the Oral Instructions and Written Instructions of the Fund
and will conform to and comply with the requirements of the 1940 Act and all
other applicable federal or state laws and regulations; and (b) will consult
with legal counsel to the Fund, as necessary and appropriate. Furthermore,
Investor Services Group shall not have or be required to have any authority to
supervise the investment or reinvestment of the securities or other properties
which comprise the assets of the Fund or any of its Portfolios and shall not
provide any investment advisory services to the Fund or any of its Portfolios.
3.5 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule B
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, Investor Services Group will endeavor to notify
the Fund of such request and secure Written Instructions as to the handling of
such request. Investor Services Group reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its counsel that
it may be held liable for the failure to comply with such request.
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Article 5 Fund Instructions.
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund. Investor Services Group will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of the Fund and the proper
countersignature of Investor Services Group.
5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for the Fund,
or its own legal counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate
Investor Services Group for the performance of its obligations hereunder in
accordance with the fees and other charges set forth in the written Fee Schedule
annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by Investor Services Group in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule D and incorporated herein.
Schedule D may be modified by written agreement between the parties. Unspecified
out-of-pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by Investor Services Group in the performance of its
obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios hereby authorizes
Investor Services Group to collect its fees, other charges and related
out-of-pocket expenses by debiting the Fund's or Portfolio's custody account for
invoices which are rendered for the services performed for the applicable
function. Invoices for the services performed will be sent to the Fund after
such debiting with an indication that payment has been made.
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6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Fund acknowledges that the fees and charges that Investor
Services Group charges the Fund under this Agreement reflect the allocation of
risk between the parties, including the disclaimer of warranties in Section 9.3
and the limitations on liability and exclusion of remedies in Section 11.2 and
Article 12. Modifying the allocation of risk from what is stated here would
affect the fees that Investor Services Group charges, and in consideration of
those fees, the Fund agrees to the stated allocation of risk.
6.6 Investor Services Group will from time to time employ or associate
with itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Fund. The compensation of such person or persons
shall be paid by Investor Services Group and no obligation shall be incurred on
behalf of the Fund in such respect.
6.7 Investor Services Group shall not be required to pay any of the
following expenses incurred by the Fund: membership dues in the Investment
Company Institute or any similar organization; investment advisory expenses;
costs of printing and mailing stock certificates, prospectuses, reports and
notices; interest on borrowed money; brokerage commissions; stock exchange
listing fees; taxes and fees payable to Federal, state and other governmental
agencies; fees of Board Members of the Fund who are not affiliated with Investor
Services Group; outside auditing expenses; outside legal expenses; Blue Sky
registration or filing fees; or other expenses not specified in this Section 6.7
which may be properly payable by the Fund. Investor Services Group shall not be
required to pay any Blue Sky registration or filing fees unless and until it has
received the amount of such fees from the Fund.
Article 7 Documents.
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for Investor Services Group to prepare to
perform its duties hereunder, deliver or caused to be delivered to Investor
Services Group the documents set forth in the written schedule of Fund Documents
annexed hereto as Schedule E.
Article 8 Investor Services Group System.
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor Services
Group in connection with the services provided by Investor Services Group to the
Fund herein (the "Investor Services Group System").
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8.2 Investor Services Group hereby grants to the Fund a limited license
to the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of
on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized, existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
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(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of each of the Portfolios is
currently effective and will remain effective, and all appropriate
state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale;
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable; and
(f) as of the date hereof, each Portfolio is duly registered
and lawfully eligible for sale in each jurisdiction indicated for such
Portfolio on the list furnished to Investor Services Group pursuant to
Article 7 of this Agreement and that it will notify Investor Services
Group immediately of any changes to the aforementioned list.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE
SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 Investor Services Group shall not be responsible for and the Fund
on behalf of each Portfolio shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable (a "Claim") arising out
of or attributable to any of the following:
(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, including but
not limited to the prior transfer agent for the Fund, in the
performance of Investor Services Group's duties and obligations
hereunder;
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(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 The Fund agrees and acknowledges that Investor Services Group has
not prior to the date hereof assumed, and will not assume, any obligations or
liabilities arising out of the conduct by the Company prior to the date hereof
of those duties which Investor Services Group has agreed to perform pursuant to
this Agreement. The Fund further agrees to indemnify Investor Services Group
against any losses, claims, damages or liabilities to which Investor Services
Group may become subject in connection with the conduct by the Fund or its agent
of such duties prior to the date hereof.
10.3 In any case in which the Fund may be asked to indemnify or hold
Investor Services Group harmless, Investor Services Group will notify the Fund
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Fund although the
failure to do so shall not prevent recovery by Investor Services Group and shall
keep the Fund advised with respect to all developments concerning such
situation. The Fund shall have the option to defend Investor Services Group
against any Claim which may be the subject of this indemnification, and, in the
event that the Fund so elects, such defense shall be conducted by counsel chosen
by the Fund and satisfactory to Investor Services Group, and thereupon the Fund
shall take over complete defense of the Claim and Investor Services Group shall
sustain no further legal or other expenses in respect of such Claim. Investor
Services Group will not confess any Claim or make any compromise in any case in
which the Fund will be asked to provide indemnification, except with the Fund's
prior written consent. The obligations of the parties hereto under this Article
10 shall survive the termination of this Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Investor Services Group becomes aware
of the event for which indemnification is claimed; or
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(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
11.2 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES.
As used in the preceding paragraph "incidental, indirect or
consequential damages" means damages which do not flow directly from the act of
the party or which arise from the intervention of special circumstances not
ordinarily predictable, and does not include direct damages which arise
naturally or ordinarily from a breach of contract.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written
above and shall continue until June 30, 2000 (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive one year periods ending on June 30 ("Renewal
Terms") each, unless the Fund or Investor Services Group provides written notice
to the other of its intent not to renew. Such notice must be received not more
than ninety (90) days following the expiration of the Initial Term or the then
current Renewal Term.
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13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary, should the Fund desire to move any of the services provided by
Investor Services Group hereunder to a successor service provider prior to the
expiration of the then current Initial or Renewal Term, or should the Fund or
any of its affiliates take any action which would result in Investor Services
Group ceasing to provide transfer agency, administration or fund accounting
services to the Fund prior to the expiration of the Initial or any Renewal Term,
Investor Services Group shall make a good faith effort to facilitate the
conversion on such prior date, however, there can be no guarantee that Investor
Services Group will be able to facilitate a conversion of services on such prior
date. In connection with the foregoing, should services be converted to a
successor service provider or should the Fund or any of its affiliates take any
action which would result in Investor Services Group ceasing to provide transfer
agency, administration or fund accounting services to the Fund prior to the
expiration of the Initial or any Renewal Term, the payment of fees to Investor
Services Group as set forth herein shall be accelerated to a date prior to the
conversion or termination of services and calculated as if the services had
remained with Investor Services Group until the expiration of the then current
Initial or Renewal Term and calculated at the asset and/or Shareholder account
levels, as the case may be, on the date notice of termination was given to
Investor Services Group.
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the Fund
desires to have Investor Services Group render services as transfer agent under
the terms hereof, the Fund shall so notify Investor Services Group in writing,
and if Investor Services Group agrees in writing to provide such services,
Schedule A shall be amended to include such additional Portfolios.
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Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and Investor Services Group shall exercise at least the same degree of care, but
not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and Investor Services
Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and Investor Services Group may also disclose
the Confidential Information to independent contractors, auditors, and
professional advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
Investor Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or Investor
Services Group, their respective subsidiaries and affiliated companies
and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors;
and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
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15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
Article 16 Force Majeure; Excused Non-Performance.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In addition, no party shall be liable for
any default or delay in the performance of its obligations under this Agreement
if and to the extent that such default or delay is caused, directly or
indirectly, by the actions or inactions of the other party. In any such event,
the non-performing party shall be excused from any further performance and
observance of the obligations so affected only for as long as such circumstances
prevail and such party continues to use commercially reasonable efforts to
recommence performance or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. Investor Services Group may,
in its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group.
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Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
Attention: __________________
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
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Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and the Fund hereby submit themselves to the exclusive
jurisdiction of those courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither Investor Services Group nor the Fund shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without the prior
review and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
the Fund shall not recruit, solicit, employ or engage, for the Fund or others,
Investor Services Group's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
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25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
Article 26 Miscellaneous.
The Fund and Investor Services Group agree that the obligations of the
Fund under the Agreement shall not be binding upon any of the Board Members,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Fund individually, but are binding only upon the assets and
property of the Fund, as provided in the Articles of Incorporation. The
execution and delivery of this Agreement have been authorized by the Board
Members of the Fund, and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Board Members nor such execution
and delivery by such officer shall be deemed to have been made by any of them or
any shareholder of the Fund individually or to impose any liability on any of
them or any shareholder of the Fund personally, but shall bind only the assets
and property of the Fund as provided in the Articles of Incorporation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
MCM FUNDS
By: /s/ Deane A. Nelson
-------------------------------------
Title: Vice President
-------------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Kenneth J. Kempf
-------------------------------------
Title: Senior Vice President
-------------------------------------
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SCHEDULE A
LIST OF PORTFOLIOS
McM Principal Preservation Fund
McM Intermediate Fixed Income Fund
McM Fixed Income Fund
McM Balanced Fund
McM Equity Investment Fund
McM S&P 500 Index Fund
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SCHEDULE B
DUTIES OF INVESTOR SERVICES GROUP
I. TRANSFER AGENCY SERVICES
(a) Shareholder Information. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
(b) Shareholder Services. Investor Services Group shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Fund.
(c) Share Certificates.
o At the expense of the Fund, the Fund shall supply Investor
Services Group with an adequate supply of blank share certificates
to meet Investor Services Group requirements therefor. Such Share
certificates shall be properly signed by facsimile. The Fund
agrees that, notwithstanding the death, resignation, or removal of
any officer of the Fund whose signature appears on such
certificates, Investor Services Group or its agent may continue to
countersign certificates which bear such signatures until
otherwise directed by Written Instructions.
o Investor Services Group shall issue replacement Share certificates
in lieu of certificates which have been lost, stolen or destroyed,
upon receipt by Investor Services Group of properly executed
affidavits and lost certificate bonds, in form satisfactory to
Investor Services Group, with the Fund and Investor Services Group
as obligees under the bond.
o Investor Services Group shall also maintain a record of each
certificate issued, the number of Shares represented thereby and
the Shareholder of record. With respect to Shares held in open
accounts or uncertificated form (i.e., no certificate being issued
with respect thereto) Investor Services Group shall maintain
comparable records of the Shareholders thereof, including their
names, addresses and taxpayer identification. Investor Services
Group shall further maintain a stop transfer record on lost and/or
replaced certificates.
(d) Mailing Communications to Shareholders; Proxy Materials. Investor
Services Group will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
Investor Services Group will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
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(e) Sales of Shares.
o Investor Services Group shall not be required to issue any Shares
of the Fund where it has received a Written Instruction from the
Fund or official notice from any appropriate authority that the
sale of the Shares of the Fund has been suspended or discontinued.
The existence of such Written Instructions or such official notice
shall be conclusive evidence of the right of Investor Services
Group to rely on such Written Instructions or official notice.
o In the event that any check or other order for the payment of
money is returned unpaid for any reason, Investor Services Group
will endeavor to: (i) give prompt notice of such return to the
Fund or its designee; (ii) place a stop transfer order against all
Shares issued as a result of such check or order; and (iii) take
such actions as Investor Services Group may from time to time deem
appropriate.
(f) Transfer and Repurchase.
o Investor Services Group shall process all requests to transfer or
redeem Shares in accordance with the transfer or repurchase
procedures set forth in the Fund's Prospectus.
o Investor Services Group will transfer or repurchase Shares upon
receipt of Oral or Written Instructions or otherwise pursuant to
the Prospectus and Share certificates, if any, properly endorsed
for transfer or redemption, accompanied by such documents as
Investor Services Group reasonably may deem necessary.
o Investor Services Group reserves the right to refuse to transfer
or repurchase Shares until it is satisfied that the endorsement on
the instructions is valid and genuine. Investor Services Group
also reserves the right to refuse to transfer or repurchase Shares
until it is satisfied that the requested transfer or repurchase is
legally authorized, and it shall incur no liability for the
refusal, in good faith, to make transfers or repurchases which
Investor Services Group, in its good judgement, deems improper or
unauthorized, or until it is reasonably satisfied that there is no
basis to any claims adverse to such transfer or repurchase.
o When Shares are redeemed, Investor Services Group shall, upon
receipt of the instructions and documents in proper form, deliver
to the Custodian and the Fund or its designee a notification
setting forth the number of Shares to be repurchased. Such
repurchased shares shall be reflected on appropriate accounts
maintained by Investor Services Group reflecting outstanding
Shares of the Fund and Shares attributed to individual accounts.
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o Investor Services Group shall upon receipt of the monies provided
to it by the Custodian for the repurchase of Shares, pay such
monies as are received from the Custodian, all in accordance with
the procedures described in the written instruction received by
Investor Services Group from the Fund.
o Investor Services Group shall not process or effect any repurchase
with respect to Shares of the Fund after receipt by Investor
Services Group or its agent of notification of the suspension of
the determination of the net asset value of the Fund.
(g) Dividends.
o Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to
Shares of the Fund, the Fund shall furnish or cause to be
furnished to Investor Services Group Written Instructions setting
forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof,
the record date as of which Shareholders entitled to payment shall
be determined, the amount payable per Share to the Shareholders of
record as of that date, the total amount payable on the payment
date and whether such dividend or distribution is to be paid in
Shares at net asset value.
o On or before the payment date specified in such resolution of the
Board of Directors, the Fund will provide Investor Services Group
with sufficient cash to make payment to the Shareholders of record
as of such payment date.
o If Investor Services Group does not receive sufficient cash from
the Fund to make total dividend and/or distribution payments to
all Shareholders of the Fund as of the record date, Investor
Services Group will, upon notifying the Fund, withhold payment to
all Shareholders of record as of the record date until sufficient
cash is provided to Investor Services Group.
(h) Retirement Plans. In connection with the individual retirement
account, simplified employee pension plan, rollover individual retirement plan,
educational IRA and ROTH individual retirement account (each hereinafter
referred to as an "IRA" and, collectively, the "IRAs") within the meaning of
Section 408 of the Internal Revenue Code of 1986, as amended (the "Code")
offered by the Fund for which contributions of the Funds' shareholders (the
"Participants") in the IRA's are invested in shares of the Fund, Investor
Services Group shall provide the following administrative services in addition
to those services described herein:
o Establish a record of types and reasons for distributions (i.e.,
attainment of age 59-1/2, disability, death, return of excess
contributions, etc.);
o Record method of distribution requested and/or made;
o Receive and process designation of the beneficiary forms;
o Examine and process requests for direct transfers between
custodians/trustees, transfer and pay over to the successor assets
in the account and records pertaining thereto as requested;
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o Prepare any annual reports or returns required to be prepared
and/or filed by a custodian of an IRA, including, but not limited
to, an annual fair market value report, Forms 1099R and 5498 and
file with the IRS and provide to Participant/Beneficiary; and
o Perform applicable federal withholding and send
Participants/Beneficiaries an annual TEFRA notice regarding
required federal tax withholding.
(i) Cash Management Services.
(a) Investor Services Group shall establish demand deposit accounts
(DDA's) with a cash management provider to facilitate the receipt of purchase
payments and the processing of other Shareholder-related transactions. Investor
Services Group shall retain any excess balance credits earned with respect to
the amounts in such DDA's ("Balance Credits") after such Balance Credits are
first used to offset any banking service fees charged in connection with banking
services provided on behalf of the Fund. Balance Credits will be calculated and
applied toward the Fund's banking service charges regardless of the withdrawal
of DDA balances described in Section (b) below.
(b) DDA balances which cannot be forwarded on the day of receipt may be
withdrawn on a daily basis and invested in U.S. Treasury and Federal Agency
obligations, money market mutual funds, repurchase agreements, money market
preferred securities (rated A or better), commercial paper (rated A1 or P1),
corporate notes/bonds (rated A or better) and/or Eurodollar time deposits
(issued by banks rated A or better). Investor Services Group bears the risk of
loss on any such investment and shall retain any earnings generated thereby.
Other similarly rated investment vehicles may be used, provided however,
Investor Services Group shall first notify the Fund of any such change.
(c) Investor Services Group may facilitate the payment of distributions
from the Fund which are made by check ("Distributions") through the "IPS
Official Check" program. "IPS Official Check" is a product and service provided
by Investor Services Group's affiliate, Integrated Payment Systems ("IPS"). IPS
is licensed and regulated as an "issuer of payment instruments". In the event
the IPS Official Check program is utilized, funds used to cover such
Distributions shall be forwarded to and held by IPS. IPS may invest such funds
while awaiting presentment of items for payment. In return the services provided
by IPS, IPS imposes a per item charge which is identified in the Schedule of
Out-of-Pocket Expenses attached hereto and shall retain, and share with Investor
Services Group, the benefit of the revenue generated from its investment
practices.
(j) Lost Shareholders. Investor Services Group shall perform such
services as are required in order to comply with Rules 17a-24 and 17Ad-17 of the
34 Act (the Lost Shareholder Rules"), including, but not limited to those set
forth below. Investor Services Group may, in its sole discretion, use the
services of a third party to perform the some or all such services.
o documentation of electronic search policies and procedures;
o execution of required searches;
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o creation and mailing of confirmation letters;
o taking receipt of returned verification forms;
o providing confirmed address corrections in batch via electronic
media;;
o tracking results and maintaining data sufficient to comply with
the Lost Shareholder Rules; and
o preparation and submission of data required under the Lost
Shareholder Rules.
II. ADMINISTRATION SERVICES
(a) Maintaining office facilities (which may be in the offices of
Investor Services Group or a corporate affiliate) and furnishing corporate
officers for the Fund;
(b) Furnishing data processing services, clerical services, and
executive and administrative services and standard stationery and office
supplies;
(c) Performing all functions ordinarily performed by the office of a
corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, as follows:
o Expense Accrual Monitoring
o Determination of Dividends
o Preparation materials for review by the Board, e.g., Rules
2a-7,10f-3, 17a-7, 17e-1 and 144A
o Tax and Financial Counsel
o Creation of expense pro formas for new Portfolios/classes
o Reporting to investment company reporting agencies (i.e., Lipper)
o Compliance Testing including Section 817(h) (daily, weekly or
monthly)
(d) Preparing reports to the Fund's Shareholders and the SEC including,
but not necessarily limited to, Annual Reports and Semi-Annual Reports on Form
N-SAR;
(e) Preparing and filing the Fund's tax returns and providing
shareholder tax information to the Fund's transfer agent;
(f) Assisting the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Fund which will include, among other
matters, procedures to assist the Adviser in monitoring compliance with each
Portfolio's investment objective, policies, restrictions, tax matters and
applicable laws and regulations;
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(g) Performing "Blue Sky" compliance functions, as follows:
o Effecting and maintaining, as the case may be, the registration of
Shares of the Fund for sale under the securities laws of the
jurisdictions listed in the Written Instructions of the Fund,
which instructions will include the amount of Shares to be
registered as well as the warning threshold to be maintained. Any
Written Instructions not received at least 45 days prior to the
date the Fund intends to offer or sell its Shares cannot be
guaranteed a timely notification to the states. In addition,
Investor Services Group shall not be responsible for providing to
any other service provider of the Fund a list of the states in
which the Fund may offer and sell its Shares.
o Filing with each appropriate jurisdiction the appropriate
materials relating to the Fund. The Fund shall be responsible for
providing such materials to Investor Services Group, and Investor
Services Group shall make such filings promptly after receiving
such materials.
o Providing to the Fund quarterly reports of sales activity in each
jurisdiction in accordance with the Written Instructions of the
Fund. Sales will be reported by shareholder residence. NSCC trades
and order clearance will be reported by the state provided by the
dealer at the point of sale. Trades by omnibus accounts will be
reported by trustee state of residence in accordance with the
Written Instructions of the Fund outlining the entities which are
permitted to maintain omnibus positions with the Fund.
o In the event sales of Shares in a particular jurisdiction reach or
exceed the warning levels provided in the Written Instructions of
the Fund, Investor Services Group will promptly notify the Fund
with a recommendation of the amount of Shares to be registered in
such jurisdiction and the fee for such registration. Investor
Services Group will not register additional Shares in such
jurisdiction unless and until Investor Services Group shall have
received written instructions from the Fund to do so.
o If Investor Services Group is instructed by the Fund not to
register Shares in a particular jurisdiction, Investor Services
Group will use its best efforts to cause any sales in such
jurisdictions to be blocked, and such sales will not be reported
to Investor Services Group as sales of Shares of the Fund.
(h) Performing corporate secretarial services including the
following:
o Assist in maintaining corporate records and good standing status
of Fund in its state of organization
o Develop and maintain calendar of annual and quarterly board
approvals and regulatory filings
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o Prepare notice, agenda, memoranda, resolutions and background
materials for legal approvals at quarterly board meetings and
committee meetings; attend meetings; make presentations where
appropriate; prepare minutes; follow up on issues
o Provide support for one special in person board meeting per year
and written consent votes where needed
(i) Performing the following legal services:
o Prepare and file annual Post-Effective Amendment
o Prepare and file Rule 24f-2 Notice
o Review and file Form N-SAR
o Review, Edgarize and file Annual and Semi-Annual Financial Reports
o Communicate significant regulatory or legislative developments to
Fund management and directors and provide related planning
assistance where needed
o Consult with Fund management regarding portfolio compliance and
Fund corporate and regulatory issues as needed
o Maintain effective communication with outside counsel and review
legal bills of outside counsel
o Coordinate the printing and mailing process with outside printers
for all shareholder publications
o Arrange D&O/E&O insurance and fidelity bond coverage for Fund
o Assist in monitoring Fund Code of Ethics reporting and provide
such reports to the person designated under the Fund's Code
(j) Performing, in accordance with the Written Instructions of the
Fund, the following Special Legal Services in accordance with the pricing
structure listed on the Fee Schedule attached to this Agreement as Schedule C:
o Assist in managing SEC audit of the Fund at the Adviser's
principal place of business
o Review sales material and advertising for Fund Prospectus
compliance
o Assist in new Portfolio start-up (to the extent requested)
Coordinate time and responsibility schedules Prepare Fund
corporate documents (MTA/by-laws)
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Draft/file registration statement (including investment
objectives/policies and prospectuses)
Respond to and negotiate SEC comments
Draft notice, agenda and resolutions for organizational
meeting; attend board meeting; make presentations where
appropriate; prepare minutes and follow up on issues
o Assist in developing compliance guidelines and procedures to
improve overall compliance by Fund and service providers
o Prepare notice, agenda, memoranda and background materials for
special board meetings, make presentations where appropriate,
prepare minutes and follow up on issues
o Prepare proxy material for special meetings (including fund merger
documents)
o Prepare Post-Effective Amendments for special purposes (e.g., new
funds or classes, changes in advisory relationships, mergers,
restructurings)
o Prepare special Prospectus supplements where needed
o Assist in extraordinary non-recurring projects, including
providing consultative legal services, e.g.,
Arrange CDSC financial programs
Prospectus simplification
Profile prospectuses
Exemptive order applications
III. FUND ACCOUNTING SERVICES
Performing fund accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Fund as may be required
by Section 31(a) of the 1940 Act) as follows:
o Daily, Weekly, and Monthly Reporting
o Portfolio and General Ledger Accounting
o Daily Valuation of all Portfolio Securities
o Daily Valuation and NAV Calculation
o Comparison of NAV to market movement
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o Review research of price tolerance/fluctuation report to market
movements and events
o Research of items appearing on the price exception report
o Weekly cost monitoring along with market-to-market valuations in
accordance with Rule 2a-7
o Security trade processing
o Daily cash and position reconciliation with the custodian bank
o Daily updating of price and distribution rate information to the
Transfer Agent/Insurance Agent
o Daily support and report delivery to Portfolio Management
o Daily calculation of Portfolio adviser fees and waivers
o Daily calculation of distribution rates
o Daily investable cash call
o Monitor and research aged receivables
o Collect aged income items and perform reclaims
o Update NASDAQ reporting
o Daily maintenance of each Portfolio's general ledger including
expense accruals
o Daily NAV per share notification to other vendors as required
o Calculation of 30-day SEC yields and total returns
o Preparation of month-end reconciliation package
o Monthly reconciliation of Portfolio expense records
o Application of monthly pay down gain/loss
o Preparation of all annual and semi-annual audit work papers
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IV. CUSTODY ADMINISTRATION
Performing custody administration services as follows:
o Assign a custody administrator to accept, control and process the
Fund's daily portfolio transactions through direct computer link
with the Custodian
o Match and review DTC eligible ID's and trade information with the
Fund's instructions for accuracy and coordinating with the
Custodian and the Fund's accounting agent for recording and
affirmation processing with the depository
o Systematically settle all depository eligible issues
o Assist the Fund in placing cash management trades through the
Custodian, such as commercial paper, CD's and repurchase
agreements
o Provide the Fund with daily custodian statements reflecting all
prior day cash activity on behalf of each Portfolio by 8:30 a.m.
Eastern time. Complete description of any posting, inclusive of
Sedol/CUSIP numbers, interest/dividend payment date, capital stock
details, expense authorizations, beginning/ending cash balances,
etc., will be provided by the Custodian's reports or systems.
o Provide monthly activity statements combining both cash changes
and security trades, and a full portfolio listing.
o Communicate to the Fund on any corporate actions, capital changes
and interest rate changes supported by appropriate supplemental
reports received from the Custodian. Follow-up will be made with
the Custodian to ensure all necessary actions and/or paperwork is
complete.
o Coordinate and resolve unsettled dividends, interest, paydowns and
capital changes. Assist in resolution of failed transactions and
any settlement problems.
o Provide broker interface ensuring trade settlement with failed
trade follow-up.
o Provide the Fund's auditor with trade documentation to help
expedite the Fund's audit.
o Investor Services Group shall be entitled to retain any excess
balance credits or fee reductions or other concessions or benefits
earned or generated by or associated with the Fund's custodial
accounts or made available by the institution at which such
accounts are maintained after such benefits are first applied
towards banking service fees charged to the Fund by such
institution.
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SCHEDULE C
FEE SCHEDULE
1. Standard Fees
Transfer Agency Fees:
Annual Fees:
$18.00 Per Account Per Year
$12.00 Maintenance Fee Per Year- IRA's, 403B's, DC/
Benefit Plans
$24,000.00 Annual Minimum Per Portfolio
$15,000.00 Per Additional Class Per Portfolio
NSCC Fees: $8,000.00 Set Up Fee Per Management Company for
FundServ and Networking plus: $0.15 a Transaction,
$0.10/ Same Day Trade
Fund Administration Fees:
Annual Fees:
.0008 On First $100 Million of Average Net Assets
.0005 On The Next $500 Million of Average Net Assets
.0003 Over $600 Million of Average Net assets
Annual Minimum Fee of $50,000 For Initial series
Issued by the trust And $12,000 for each additional
separate series
Fund Accounting Fees:
Annual Fees: $24,000.00 On the First $10 Million of Average Net
Assets Per Portfolio, then
.0002 Of Combined Assets to $500 Million, and
.0001 Over $500 Million
$12,000 Per Additional Class Per Portfolio
Custody Administration Fees:
Annual Fees:
.00015 On First $500 Million of Average Net Assets
.0001 On Next $1.5 Billion of Average Net Assets
.00009 Over $2.0 Billion of Average Net Assets
Minimum $3,600.00 Per Portfolio Per Year
Custody Domestic Securities Transactions Charge:
$12.00 Book Entry DTC, Federal Book Entry, PTC
$20.00 Physical/Options/Futures
$7.00 Mortgage Backed Securities-Principal Pay Down
Per Pool
$24.00 RICs, GICs
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$4.00 Wire Transfer in/out not related to Securities
Transaction
Note: A transaction includes, Buys, Sells,
Maturities or
Free Security Movement
When Issued, Securities Lending, Index Futures:
Should any of these investment vehicles require a
separate segregated custody Account, a fee of
$250.00 per account per month will apply.
2. Lost Shareholder Search/Reporting: $2.75 per account search*
* The per account search fee shall be waived until June 2000
so long as the Fund retains Keane Tracers, Inc. ("KTI") to
provide the Fund with KTI's "In-Depth Research Program"
services.
3. Print/Mail Fees.
Implementation Fee:
$ 5000.00
$150.00/hr. Multi-check and non-standard
Testing Application or Data Requirements: $3.00/fax
Work Order: $15.00 per workorder
Daily Work (Confirms):
Hand: $71/K with $75.00 minimum (includes 1 insert)
$0.07/each additional insert
Machine: $42/K with $50.00 minimum (includes 1 insert)
$0.01/each additional insert
Daily Checks*:
Hand: $91/K with $30.00 minimum daily (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $20.00 minimum (includes 1 insert)
$0.01/each additional insert
* There is a $3.00 charge for each 3606 Form sent.
Statements:
Hand: $78/K with $20.00 minimum (includes 1 insert)
$0.08/each additional insert
$125/K for intelligent inserting
Machine: $52/K with $20.00 minimum (includes 1 insert)
$0.01 each additional insert
$58/K for intelligent inserting
Periodic Checks:
Hand: $91/K with $30.00 minimum (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $30.00 minimum (includes 1 insert)
$0.01/each additional insert
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12B1/Dealer Commission Checks/Statements:
$0.78/each envelope with $30.00 minimum
Spac Reports/Group Statements: $78/K with $20.00 minimum
Listbills: $0.78 per envelope with $20.00 minimum
Printing Charges: (price ranges dependent on volumes)
$0.08/per confirm/statement/page
$0.115/per check
Folding (Machine): $18/K
Folding (Hand): $.12 each
Presort Charge: postage rate
$0.035 per piece
Courier Charge: $25.00 for each on call courier trip/or actual cost
for on demand
Overnight Charge: $3.50 per package service charge plus Federal
Express/Airborne charge
Inventory Storage: $20.00 for each inventory location as of the 15th
of the month
Inventory Receipt: $20.00 for each SKU / Shipment
Hourly work; special projects, opening envelopes, etc...:
$24.00 per hour
Special Pulls: $2.50 per account pull
Boxes/Envelopes: Shipping boxes $0.85 each
Oversized Envelopes $0.45 each
Forms Development/Programming Fee: $100/hr
Systems Testing: $110/hr
Cutting Charges: $10.00/K
4. IMPRESSNet Fees
One-Time Set-Up $15,000
Annual Maintenance Fee $10,500
Usage: Inquiry Fee $0.10 per inquiry
Inquiry/Monthly Minimum* $1,200
Usage: Transaction Fee $0.50 per transaction
Transaction/Monthly Minimum $120
PIN Registration Fee $2.50 per PIN
Billable Fee for any Fund
Specific Customization $150/hr
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* Inquiry Volume Discount Fee
>100,000 $0.10
100-000 - 200,000 $0.08
200-000 - 300,000 $0.05
<300,000 $0.03
5. Investor Services Group shall be entitled to the following fee for the
performance of any Special Legal Services as described in Schedule B in
accordance with the Written Instructions of the Fund: $185 per hour subject to
certain project caps as may be agreed to by Investor Services Group and the
Fund. Services and charges may vary based on volume.
6. Miscellaneous Charges. The Fund shall be charged for the following products
and services as applicable:
o Ad hoc reports
o Ad hoc SQL time
o COLD Storage o Digital Recording
o Banking Services, including incoming and outgoing wire charges
o Microfiche/microfilm production
o Magnetic media tapes and freight
o Manual Pricing
o Materials for Rule 15c-3 Presentations
o Pre-Printed Stock, including business forms, certificates,
envelopes, checks and stationary
7. Fee Adjustments. After the one year anniversary of the effective date of this
Agreement, Investor Services Group may adjust the fees described in the above
sections once per calendar year, upon thirty (30) days prior written notice in
an amount not to exceed the cumulative percentage increase in the Consumer Price
Index for All Urban Consumers (CPI-U) U.S. City Average, All items (unadjusted)
- - (1982-84=100), published by the U.S. Department of Labor since the last such
adjustment in the Client's monthly fees (or the Effective Date absent a prior
such adjustment).
8. Programming Costs. The following programming rates are subject to an annual
5% increase after the one year anniversary of the effective date of this
Agreement.
(a) Dedicated Team: Programmer: $100,000 per annum
BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements
(Non Dedicated Team): $150.00 per/hr per programmer
4
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SCHEDULE D
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
o Postage - direct pass through to the Fund
o Telephone and telecommunication costs, including all lease, maintenance and
line costs
o Proxy solicitations, mailings and tabulations
o Shipping, Certified
and Overnight mail and insurance
o Terminals, communication lines, printers and
other equipment and any expenses incurred in connection
with such terminals and lines
o Duplicating services
o Distribution and Redemption Check Issuance - $.07 per item
o Courier services
o Overtime, as approved by the Fund
o Temporary staff, as approved by the Fund
o Travel and entertainment, as approved by the Fund
o Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
o Third party audit reviews (SAS 70)
o Insurance
o Pricing services (or services used to determine Fund NAV)
o Vendor set-up charges for Blue Sky and other services
o Blue Sky filing or registration fees
o EDGAR filing fees o Vendor pricing comparison
o Such other expenses as are agreed to by Investor Services Group
and the Fund
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In addition,
the Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
5
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SCHEDULE E
FUND DOCUMENTS
o Certified copy of the Articles of Incorporation of the Fund, as
amended
o Certified copy of the By-laws of the Fund, as amended
o Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement
o Copies of all agreements between the Fund and its service
providers
o Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of the
Fund, with a certificate of the Secretary of the Fund as to such
approval
o All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by
the Fund
o Certified list of Shareholders of the Fund with the name, address
and taxpayer identification number of each Shareholder, and the
number of Shares of the Fund held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any
accounts against which stop transfer orders have been placed,
together with the reasons therefore, and the number of Shares
redeemed by the Fund
o All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation or
By-laws of the Fund or as required by law and shall perform such
other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
o A listing of all jurisdictions in which each Portfolio is
registered and lawfully available for sale as of the date of this
Agreement and all information relative to the monitoring of sales
and registrations of Fund shares in such jurisdictions
o Each Fund's most recent post-effective amendment to its
Registration Statement
o Each Fund's most recent prospectus and statement of additional
information, if applicable, and all amendments and supplements
thereto
