<PAGE>
As filed with the Securities and Exchange Commission on September 14, 2000
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. ____ [ ]
Post-Effective Amendment No._11_ [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 15 [X]
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:
Deborah Gatzek, Esq. Thomas Calabria, Esq.
Stradley, Ronan, Stevens & Young LLP PFPC Inc
1810 Gateway Dr. Suite 115 3200 Horizon Drive
San Mateo, CA 94404 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
<PAGE>
McM FUNDS
McM Principal Preservation Fund
McM Intermediate Fixed Income Fund
McM Fixed Income Fund
McM Balanced Fund
McM Equity Investment Fund
PROSPECTUS
September 14, 2000
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.
-1-
<PAGE>
Table of Contents
The Funds
McM Principal Preservation Fund
McM Intermediate Fixed Income Fund
McM Fixed Income Fund
McM Balanced Fund
McM Equity Investment Fund
Fees and Expenses of the Funds
Management of the Funds
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
-2-
<PAGE>
McM Principal Preservation Fund
Type of Fund: A Taxable Money Market Fund
Ticker Symbol: N/A
--------------------------------------------------------------------------------
Investment Goal
Maximum current income consistent with maintaining liquidity and preserving
capital.
Principal Investment Strategies
The Fund invests in short-term, high-quality, U.S. dollar-denominated
securities with remaining maturities of thirteen months or less. The Fund
maintains a dollar-weighted average portfolio maturity of 90 days or less
and seeks to maintain a stable $1.00 share price.
In managing the portfolio, the Fund's advisor looks for securities that
appear to offer the best relative value based on an analysis of:
o credit quality
o interest rate sensitivity
o yield
o price
The Fund invests at least 95% of its assets in either U.S. government
securities or short-term debt securities assigned the highest rating by at
least two nationally-recognized statistical rating agencies such as
Standard & Poor's Ratings Service (at least AA), Moody's Investors Service,
Inc. (at least Aa) or Fitch Investors Service, Inc. (at least AA). From
time to time, the Fund may also invest in unrated securities that the
advisor believes are comparable to high-quality, short-term debt
securities. The Fund may not invest more than 5% of its assets in unrated
securities and short-term debt securities assigned the second highest
rating.
The Fund principally invests in:
o securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities
o securities issued by U.S. banks, including bankers acceptances,
repurchase agreements and certificates of deposit
o commercial paper assigned the highest short-term debt rating by two
independent rating agencies or believed to be of comparable quality
by the advisor
Principal Risks
Although the Fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in this Fund. Additional
risks associated with an investment in the Fund include:
o an investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency
o an issuer may become insolvent and default in meeting interest and
principal payments
o the Fund's yield will fluctuate with changes in short-term interest
rates
-3-
<PAGE>
Suitability
The Fund may be appropriate for investors who wish to avoid fluctuations in
principal while earning interest income. Because of the high quality and
short maturity of the Fund's investments, the Fund's yield may be lower
than that of funds that invest in lower-rated securities or securities with
longer maturities.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund and how the Fund's total return has varied from year
to year. The Fund's past performance does not necessarily indicate how the
Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2.21% 5.72% 5.15% 5.38% 5.30% 4.92%
--------------------- ------------------ ------------------ ------------------ ------------------- ------------------
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 2.86% as of June 30, 2000
Best Quarter 1.42% in the third quarter of 1995
Worst Quarter 1.14% in the second quarter of 1999
Performance Table
(Average Annual Total Returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
======================================== ================= ============= ==================== =============
<S> <C> <C> <C> <C>
McM Principal Preservation Fund 4.92% 5.20% 5.29% 5.24%
</TABLE>
The seven-day yield as of 12/31/99 was 5.34%. Call 800-788-9485 between 10:30
a.m. and 7:30 p.m. Eastern time for the current yield.
* Inception date July 13, 1994.
[Definition of Commercial Paper: Negotiable short-term, unsecured
promissory notes generally sold at a discount with a maximum maturity of
nine months.]
[Definition of Liquidity: the ability to convert assets easily and quickly
into cash. High liquidity produces flexibility for a firm or an investor in
a low-risk position, but tends to decrease profitability.]
-4-
<PAGE>
McM Intermediate Fixed Income Fund
Type of Fund: An Intermediate Term Investment Grade Bond Fund
Ticker Symbol: MCMNX
-----------------------------------------------------------------------
Investment Goal
Above average total return consistent with maintaining liquidity and
preserving capital.
Principal Investment Strategies
The Fund invests in high quality, short to intermediate-term bonds, and
other debt securities with average remaining maturities of up to 15 years.
The average weighted portfolio maturity is generally between three and ten
years.
The Fund invests at least 65% of its assets in investment grade
fixed-income securities. These securities are investment grade or issued or
guaranteed by the U.S government, its agencies or instrumentalities. The
Fund intends to be fully invested under normal circumstances, but for
temporary and defensive purposes the Fund may invest up to 100% of its
assets in investment grade short-term fixed income securities (including
short-term U.S. government securities and 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 generally invests in 100-150
securities, with special emphasis on collateralized mortgage obligations
and corporate bonds to provide incremental returns.
The advisor generally establishes a target duration for the portfolio equal
to the Lehman Brothers Intermediate Government/Corporate Index. The advisor
may adjust the portfolio's duration on the basis of the expected real
return of the portfolio's fixed income investments. The advisor may
increase duration as the expected real rate of return increases and
decrease duration as the expected real rate of return decreases.
After target duration is selected, the advisor constructs a diversified
portfolio of fixed-income securities with the following attributes:
o call protection
o high quality
o undervalued
o higher yield than the market
The Fund principally invests in:
o securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities
o corporate, bank and commercial obligations
o mortgage-backed securities, including collateralized mortgage
obligations
o asset-backed securities representing interests in pools of assets
such as motor vehicle installment purchase obligations and credit
card receivables
-5-
<PAGE>
Principal Risks
By investing in bonds, the Fund may expose you to certain risks that could
cause you to lose money. These risks include:
o interest rate risk - the risk that securities held by the Fund will
increase or decrease in value as interest rates change. Debt
securities typically decrease in value as interest rates rise and
increase in value when interest rates fall. The share price of a fund
such as this one, that invests most of its assets in debt securities,
will exhibit similar responses to interest rate changes.
o credit risk - the risk that the issuer of a security may not make
timely interest payments or pay the principal upon maturity.
o call risk - the risk that a debt security might be redeemed prior to
maturity and thus the Fund will not receive the full benefit of the
investment as it originally intended.
o prepayment risk - the risk that the obligations underlying mortgage
and asset-backed securities may be prepaid, requiring the Fund to
reinvest the proceeds at lower interest rates. Rising interest rates
could cause prepayments to decrease, extending the life of mortgage
and asset-backed securities with lower than market interest rates.
Suitability
The Fund may be appropriate for investors who want higher returns than a
money market fund and less market fluctuation than the McM Fixed Income
Fund. The Fund attempts to achieve higher returns by investing in short to
intermediate-term securities that generally have higher yields and slightly
more interest rate risk than a money market fund. The Fund does not attempt
to maintain a $1.00 per share value as money market funds do, and thus is
not suitable for investors who are looking for absolute principal
stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund and how the Fund's total return has varied from year
to year. The Fund's past performance does not necessarily indicate how the
Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmark, the Lehman Brothers Intermediate Government/Corporate Index,
an unmanaged securities index. The figures assume reinvestment of all
dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-0.43% 14.95% 4.13% 7.91% 7.81% -0.31%
-------------------- ------------------ ------------------ ------------------ ------------------ ------------------
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 2.84% as of June 30, 2000
Best Quarter 5.00% in the second quarter of 1995
Worst Quarter -0.98% in the second quarter of 1999
-6-
<PAGE>
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
============================================ =============== =============== ============== ==============
<S> <C> <C> <C> <C>
McM Intermediate Fixed Income Fund -0.31% 5.06% 6.78% 6.10%
Lehman Brothers Intermediate 0.39% 5.50% 7.10% 6.47%
Government/Corporate Index
</TABLE>
* Inception date July 14, 1994.
[Definition of Investment Grade: An investment grade security is one
rated Baa or higher by Moody's Investor's Service, Inc., BBB or higher
by Standard & Poor's Ratings Group, or BBB or higher by Fitch Investors
Service Inc. The Fund may invest in unrated debt securities only if the
advisor believes they are comparable to investment grade rated
securities.]
[Definition of Duration: Duration is the average time needed to recover
an initial cash outlay. The duration of a bond or mutual fund portfolio
may be an indication of sensitivity to changes in interest rates. In
general, the longer a fund's duration, the more it will react to
changes in interest rates and the greater the risk and return
potential.]
[Definition of Expected Real Return: Expected real return is the
difference between the current yield to maturity of fixed income
investments and the expected inflation rate.]
-7-
<PAGE>
McM Fixed Income Fund
Type of Fund: An Investment Grade Bond Fund
Ticker Symbol: MCMFX
-----------------------------------------------------------------
Investment Goal
Above average total return consistent with maintaining liquidity and
preserving capital.
Principal Investment Strategies
The Fund invests in high quality, short to intermediate-term bonds, and
other debt securities with average remaining maturities of up to 30 years.
The average weighted portfolio maturity is generally between three and
fifteen years.
The Fund invests at least 65% of its assets in investment grade
fixed-income securities. These securities are investment grade or issued or
guaranteed by the U.S government, its agencies or instrumentalities. The
Fund intends to be fully invested under normal circumstances, but for
temporary and defensive purposes, the Fund may invest up to 100% of its
assets in investment grade short-term fixed income securities (including
short-term U.S. government securities and 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 generally invests in 100-150
securities, with special emphasis on collateralized mortgage obligations
and corporate bonds to provide incremental returns.
The advisor generally establishes a target duration for the portfolio equal
to the Lehman Brothers Aggregate Bond Index. The advisor may adjust the
portfolio's duration on the basis of the expected real return of the
portfolio's fixed income investments. The advisor may increase duration as
the expected real rate of return increases and decrease duration as the
expected real rate of return decreases.
Once a target duration is selected, the advisor constructs a diversified
portfolio of fixed income securities with the following attributes:
o call protection
o high quality
o undervalued
o higher yield than the market
The Fund principally invests in:
o securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities
o corporate, bank and commercial obligations
o mortgage-backed securities, with an emphasis on collateralized
mortgage obligations
o asset-backed securities representing interests in pools of assets
such as motor vehicle installment purchase obligations and credit
card receivables
-8-
<PAGE>
Principal Risks
By investing in bonds, the Fund may expose you to certain risks that could
cause you to lose money. These risks include:
o interest rate risk - the risk that securities held by the Fund will
increase or decrease in value as interest rates change. Debt
securities typically decrease in value as interest rates rise and
increase in value when interest rates fall. The share price of a fund
such as this one, that invests most of its assets in debt securities,
will exhibit similar responses to interest rate changes.
o credit risk - the risk that the issuer of a security may not make
timely interest payments or pay the principal upon maturity.
o call risk - the risk that a debt security might be redeemed prior to
maturity and thus the Fund will not receive the full benefit of the
investment as it originally intended.
o prepayment risk - the risk that obligations underlying mortgage and
asset-backed securities may be prepaid, requiring the Fund to
reinvest the proceeds at lower interest rates. Rising interest rates
could cause prepayments to decrease, extending the life of mortgage
and asset-backed securities with lower than market interest rates.
Suitability
The Fund may be appropriate for investors who want higher returns than a
money market fund. The Fund attempts to achieve higher returns by investing
in fixed income securities that generally have higher yields and slightly
more interest rate risk. The Fund does not attempt to maintain a $1.00 per
share value as money market funds do, and thus is not suitable for
investors who are looking for absolute principal stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund. The Fund's past performance does not necessarily
indicate how the Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmark, the Lehman Brothers Aggregate Index, an unmanaged securities
index. The figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-0.73% 19.29% 3.04% 9.53% 8.52% -2.18%
-------------------- ------------------ ------------------ ------------------ ------------------ ------------------
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 3.48% as of June 30, 2000
Best Quarter 6.65% in the second quarter of 1995
Worst Quarter -2.14% in the first quarter of 1996
-9-
<PAGE>
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
====================================== =================== ============== ================ ===============
<S> <C> <C> <C> <C>
McM Fixed Income Fund -2.18% 5.15% 7.40% 6.61%
Lehman Brothers Aggregate Index -0.82% 5.73% 7.73% 7.07%
</TABLE>
* Inception date July 14, 1994.
[Definition of Investment Grade: An investment grade security is one
rated Baa or higher by Moody's Investor's Service, Inc., BBB or higher
by Standard & Poor's Ratings Group, or BBB or higher by Fitch Investors
Service, Inc. The Fund may invest in unrated debt securities only if
the advisor believes they are comparable to investment grade rated
securities.]
[Definition of Duration: Duration is the average time needed to recover
an initial cash outlay. The duration of a bond or mutual fund portfolio
may be an indication of sensitivity to changes in interest rates. In
general, the longer a fund's duration, the more it will react to
changes in interest rates and the greater the risk and return
potential.]
-10-
<PAGE>
McM Balanced Fund
Type of Fund: A Balanced Fund
Ticker Symbol: MCMBX
------------------------------------------------------------------
Investment Goal
Balance of capital appreciation, income and preservation of capital
Principal Investment Strategies
The Fund's target asset allocation is 60% in equity securities and 40% in
debt securities over the long term. The Fund invests in a diversified
portfolio of equity and debt securities. The mix of securities will change
based on existing and anticipated market conditions. The Fund's asset
allocation is generally between 50% and 70% in common stocks and at least
25% in debt securities under normal market conditions.
Equities
--------
The Fund seeks capital appreciation and will invest in the common stocks of
companies believed to have the potential for long-term capital growth with
an emphasis on dividend paying common stocks. The advisor creates a
portfolio using a "top-down" approach to control risk at the portfolio
level. It uses an investment model to construct the desired portfolio
characteristics with respect to many characteristics, such as liquidity,
risk and yield. Once the desired portfolio characteristics are established,
the advisor uses a "bottom up" approach for selecting equity securities. An
investment return model is used to select those securities which have an
expected return equal to or greater than the market. In addition to seeking
securities having an expected return greater than the market, an emphasis
in selecting an individual security is its contribution to desired
portfolio characteristics.
Debt Securities
---------------
The Fund seeks to provide shareholders with income by investing in a broad
range of intermediate and long-term debt securities, including:
o securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities
o investment grade debt securities including fixed and variable rate
debt obligations, mortgage and asset-backed securities and
collateralized mortgage obligations
o preferred stock and securities convertible into common stock
In selecting debt securities for the Fund, the advisor first establishes a
targeted portfolio duration for the Fund equal to the Lehman Brothers
Aggregate Bond Index. The advisor may increase duration as the expected
real rate of return of the Fund increases and decrease duration as the
expected rate of return of the Fund decreases. The advisor then selects a
diversified portfolio of debt securities with the following attributes:
o high quality
o attractive yields
o yield to maturity advantage over the market
o high degree of protection from call risk
-11-
<PAGE>
Principal Risks
By investing in stocks and bonds, the Fund may expose you to certain risks
that could cause you to lose money. These risks include:
o interest rate risk - the risk that securities held by the Fund will
increase or decrease in value as interest rates change, causing the
Fund's value to change. Debt securities typically decrease in value
as interest rates rise, and when interest rates fall, a debt security
will typically increase in value. A fund such as this, that may
invest a significant percentage of its assets in debt securities, may
exhibit similar responses to interest rate changes.
o stock market risk - the risk that the price of a security will rise
or fall due to various unpredictable market conditions. The equity
portion of the Fund currently has, but may not always have,
weightings similar to that of the S&P 500 Index (but is not
necessarily invested in the same securities that are in the index).
At the present time, the technology sector represents about 30% of
the S&P 500 Index and the same portion of the equity investments of
the Fund. Technology stock prices tend to be more volatile than those
in other sectors and may increase the volatility of the equity
portion of the Fund and thus, its share price.
o credit risk - the risk that the issuer of a security may not make
timely interest payments or pay the principal upon maturity
o call risk - the risk that a debt security might be redeemed prior to
maturity
o prepayment risk - the risk the obligations underlying mortgage and
asset-backed securities may be prepaid, requiring the Fund to
reinvest the proceeds at lower interest rates. Rising interest rates
could cause prepayments to decrease, extending the life of mortgage
and asset-backed securities with lower than market interest rates.
Suitability
The Fund may be appropriate for investors who are willing to accept the
risks associated with a combination of investments in equity and fixed
income securities. The Fund is not suitable for investors who are looking
for absolute principal stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The Fund's past performance does not necessarily indicate how
the Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmarks, the S&P 500 Index (equities) and the Lehman Brothers
Aggregate Index (debt securities), two unmanaged securities indices. The
figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
0.79% 28.71% 16.26% 23.66% 20.62% 7.04%
------------------- ---------------- ---------------- ---------------- ---------------- ----------------
1994 1995 1996 1997 1998 1999
</TABLE>
-12-
<PAGE>
Year-to-Date Return 1.35% as of June 30, 2000
Best Quarter 11.93% in the fourth quarter of 1998
Worst Quarter -3.13% in the third quarter of 1999
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
======================================== ================ =============== =========== ================
<S> <C> <C> <C> <C>
McM Balanced Fund 7.04% 16.88% 19.02% 17.43%
S&P 500 Index 21.00% 27.73% 27.92% 26.44%
Lehman Brothers Aggregate Index -0.82% 5.73% 7.73% 7.07%
</TABLE>
* Inception date July 14, 1994.
-13-
<PAGE>
McM Equity Investment Fund
Type of Fund: A Diversified Stock Fund
Ticker Symbol: MCMEX
------------------------------------------------------------------
Investment Goal
Above-average total return consistent with reasonable risk.
Principal Investment Strategies
The Fund seeks capital appreciation and will invest in the common stocks of
companies believed to have potential for long-term capital growth with an
emphasis on dividend paying common stocks. The advisor selects equity
securities using a "top down" approach to control risk at the portfolio
level. It uses an investment model to construct the desired portfolio
characteristics with respect to many characteristics, such as liquidity,
risk and yield. Once the desired portfolio characteristics are established,
the advisor uses a "bottom up" approach for selecting equity securities. An
investment return model is used to select those securities which have an
expected return equal to or greater than the market. In addition to seeking
securities having an expected return greater than the market, an emphasis
in selecting an individual security is its contribution to desired
portfolio characteristics.
The Fund generally will be as fully invested as possible, but always at
least 65%, in equity securities of companies with the following attributes:
o ability to pay above-average dividends
o sustained earnings and growth potential
o strong management and balance sheet
o market undervaluation in light of expected future earnings
The Fund intends to stay fully invested under normal circumstances, but for
temporary and defensive purposes may invest in short-term fixed income
assets including:
o U.S. government securities
o money market instruments, including U.S. Treasury bills, commercial
paper, certificates of deposit and bankers' acceptances
o repurchase agreements
Principal Risks
By investing in stocks and bonds, the Fund may expose you to certain risks
that could cause you to lose money. These risks include:
o market risk - the risk that the price of a security (a stock or bond)
will rise or fall due to various unpredictable market conditions. The
Fund currently has, but may not always have, weightings similar to
that of the S&P 500 Index (but is not necessarily invested in the
same securities that are in the index). At the present time, the
technology sector represents about 30% of the S&P 500 Index and the
same portion of the net investments of the Fund. Technology stock
prices tend to be more volatile than those in other sectors and may
increase the volatility of the Fund's share price.
-14-
<PAGE>
o interest rate risk - the risk that securities (principally fixed
income securities) held by the Fund will increase or decrease in
value as interest rates change
Suitability
The Fund may be appropriate for investors 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. The Fund is not suitable for investors who are
looking for absolute principal stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund. The Fund's past performance does not necessarily
indicate how the Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmark, the S&P 500 Index, an unmanaged securities index. The
figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1.24% 35.94% 26.80% 33.84% 27.76% 11.54%
-------------------- ----------------- ----------------- ----------------- ----------------- -----------------
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 0.16% as of June 30, 2000
Best Quarter 20.25% in the fourth quarter of 1998
Worst Quarter -7.78% in the third quarter of 1998
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
===================================== ================= ================= =============== ===============
<S> <C> <C> <C> <C>
McM Equity Investment Fund 11.54% 24.01% 26.86% 24.60%
S&P 500 Index 21.00% 27.73% 27.92% 26.44%
</TABLE>
* Inception date July 14, 1994.
-15-
<PAGE>
Fees and Expenses of the Funds
The following table shows the fees and expenses you may pay if you buy and hold
shares of the Funds. The Funds do 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.
<TABLE>
<CAPTION>
McM McM McM McM McM
Principal Intermediate Fixed Balanced Equity
Preservation Fixed Income Fund Investment
Fund Income Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses:
(expenses that are deducted
from Fund assets)
Management Fees 0.25% 0.35% 0.35% 0.45% 0.50%
Other Expenses 0.26% 0.17% 0.41% 0.19% 0.17%
----- ----- ----- ----- -----
Total Annual Operating
Expenses*** 0.51% 0.52% 0.76% 0.64% 0.67%
===== ===== ===== ===== =====
</TABLE>
*** These are the gross fees and expenses that the Funds would have incurred for
the fiscal year ended June 30, 2000, if the advisor had not waived any fees
and/or reimbursed certain expenses. The advisor currently intends to continue to
waive and or reimburse certain expenses indefinitely, but this voluntary action
by the advisor may be discontinued at any time on 60 day's notice. With the cap,
actual expenses were:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Management Fees 0.00% 0.33% 0.00% 0.41% 0.50%
Other Expenses 0.30% 0.17% 0.50% 0.19% 0.17%
----- ----- ----- ----- -----
Net Annual Operating
Expenses 0.30% 0.50% 0.50% 0.60% 0.67%
===== ===== ===== ===== =====
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in each 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 each fund remain the same.
This example is for comparison only. Actual return and expenses will be
different and each fund's performance and expenses may be higher or lower. The
numbers are based on total fund operating expenses. Based on the above
assumptions, your costs for each fund would be:
-16-
<PAGE>
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
--------------------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
McM Principal Preservation Fund $52 $164 $285 $640
McM Intermediate Fixed Income Fund $53 $167 $291 $653
McM Fixed Income Fund $78 $243 $422 $942
McM Balanced Fund $65 $205 $357 $798
McM Equity Fund $68 $214 $373 $835
</TABLE>
Management of the Funds
The advisor for the Funds is:
McMorgan & Company
One Bush Street, Suite 800
San Francisco, California 94104
The advisor is responsible for selecting, purchasing, monitoring and selling
securities in each Fund's investment portfolio. The advisor also arranges for
the transfer agency, custody and all other services necessary to operate the
Funds.
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 30, 2000, the advisor had approximately
$28 billion of assets under management, including investment company assets of
approximately $690 million.
Portfolio Management
--------------------
An investment management team at McMorgan & Company manages the Funds'
investments. No member of the investment management team is solely responsible
for making recommendations for portfolio purchases and sales.
Management Fees
---------------
Each Fund pays the advisor a monthly fee for providing investment advisory
services. During the most recent fiscal year, after taking into account fee
waivers, the Funds paid the following investment advisory fees to McMorgan &
Company:
Fund Fees as % of average
---- daily net assets
--------------------
McM Principal Preservation Fund 0.04%
McM Intermediate Fixed Income Fund 0.33%
McM Fixed Income Fund 0.09%
McM Balanced Fund 0.41%
McM Equity Investment Fund 0.50%
The fees paid to the advisor reflect its voluntary agreement to waive fees
and/or reimburse expenses so that total operating expenses do not exceed the
following:
o 0.30% for the McM Principal Preservation Fund
o 0.50% for the McM Intermediate Fixed Income Fund and the McM Fixed Income
Fund
o 0.60% for the McM Balanced Fund
o 0.75% for the McM Equity Investment Fund
-17-
<PAGE>
Although the Advisor currently intends to continue the fee waiver and/or expense
reimbursements, this voluntary action by the advisor may be discontinued on 60
day's notice. Any waiver or reimbursement by the advisor is subject to repayment
by the Funds within the following three years if the Funds are able to make the
repayment without exceeding their current expense limits.
Your Account
Buying Shares
You may buy shares in any of the Funds with an initial investment of $5,000 or
more ($250 for retirement plans). Additional investments may be made for as
little as $250. The Funds have the right to waive the minimum investment
requirements for employees of the Funds' investment advisor and its affiliates.
The Funds also have the right to reject any purchase order.
Pricing of Fund Shares (Purchase Price)
---------------------------------------
The price of each Fund's shares is based on the Net Asset Value (NAV) of each
Fund's portfolio. The Funds calculate 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 that Fund.
Each Fund's NAV is calculated at the close of regular trading of the New York
Stock Exchange ("NYSE"), normally 4 p.m. Eastern time. The NAV for the Principal
Preservation Fund will not be calculated on national bank holidays. There is no
sales charge in connection with the purchase of shares.
The portfolio securities of each Fund, except those held by Principal
Preservation Fund or debt securities with maturities of 60 days or less, 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.
Securities held in the portfolio of the Principal Preservation Fund or debt
securities with maturities of less than 60 days are valued at amortized cost.
Under this method of valuation, the advisor values the security at cost and then
assumes a constant amortization of any discount or premium to maturity of the
security.
Timing of Requests
------------------
Except for the Principal Preservation Fund, all requests received by the
transfer agent, PFPC 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. These Funds do 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.
For the Principal Preservation Fund, all requests received by the transfer agent
before 1:00 p.m. Eastern time will be invested at the NAV determined that day.
Purchases received after 1:00 p.m. will be invested the next business day.
Shares of the Principal Preservation Fund may only be purchased on days when
national banks are open for business.
-18-
<PAGE>
To Purchase Shares:
<TABLE>
<CAPTION>
-------------------- ---------------------------------------------------- ----------------------------------------------------
Initial Investment Subsequent Investments
-------------------- ---------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
o Complete and sign the Account o Make your check payable to the Fund in
Registration Form. which you wish to invest.
o Make your check payable to the Fund in o Fill out an investment slip from an
By Mail which you wish to invest. account statement, include your name and
o Mail the Account Registration Form and account number. Mail to:
your check to: PFPC Inc.
PFPC Inc. 211 South Gulph Road
211 South Gulph Road P.O. Box 61767
P.O. Box 61503 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, the wire purchase. For same day purchase, the wire
must be received before 4:00 p.m. Eastern must be received by 4:00 p.m. Eastern time
By Wire time (1:00 p.m. Eastern time for Principal (1:00 p.m. Eastern time for Principal
Preservation Fund) Preservation Fund)
o Wire federal funds to: o Wire federal funds to:
Boston Safe Deposit & Trust Boston Safe Deposit & Trust
ABA#: 011001234 ABA#: 011001234
For: PFPC Inc. For: PFPC Inc.
Credit: McM [ ] Fund Credit: McM [ ] 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.
-------------------- ---------------------------------------------------- ----------------------------------------------------
o You may open an account by making an o You may add to an existing account by
By Exchange exchange of shares from an existing McM making an exchange from shares of an existing
Funds account. Exchanges can be made by McM Funds account. Exchanges can be made by
mail, fax or telephone. Call (800) 831-1146 mail, fax or telephone. Call (800) 831-1146
for help. 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.
o Subsequent investments will be drawn
from your bank account.
-------------------- ---------------------------------------------------- ----------------------------------------------------
</TABLE>
-19-
<PAGE>
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.
Each Fund, except the Principal Preservation Fund, may accept telephone orders.
Unless you decline telephone privileges on your Account Registration Form, you
may be responsible for any fraudulent telephone orders as long as the Funds take
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 Funds. Accounts established under such plans must have
all dividends reinvested in the Funds. 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, PFPC Inc.,
before 4:00 p.m. Eastern time (1:00 p.m. Eastern time for the Principal
Preservation Fund) 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. (1:00 p.m. Eastern
time for the Principal Preservation Fund) will be processed on the next business
day. Shares of the Principal Preservation Fund may only be sold on days that
banks are open for business.
Selling Recently Purchased Shares
---------------------------------
The Funds 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.
When the Funds require a signature guarantee, a medallion signature guarantee
must be provided. A medallion signature may be obtained from a domestic bank or
trust company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (NYSE MSP). Signature guarantees from financial institutions which are
not participating in one of these programs or notary publics will not be
accepted.
-20-
<PAGE>
To Sell Shares:
<TABLE>
<CAPTION>
--------------------- ----------------- --------------------------------------------------------------------------------------
<S> <C> <C>
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:
PFPC 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. (1:00 p.m. for
the Principal Preservation Fund) 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>
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 Funds would not charge.
-21-
<PAGE>
Additional Information on Buying and Selling Fund Shares
General Policies
----------------
The Funds reserve the right to:
o reject any purchase order when a Fund determines that it is not in the
best interest of the Funds 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 refuse purchase or exchange requests in excess of 1% of the Fund's total
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
----------------
The Funds may redeem your remaining shares at net asset value if the balance of
your account falls below $500 due to redemptions. The Funds 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 Funds may close any account
without notice if the account is inactive and the value of the account is $0.
Exchange Privileges
-------------------
Shares of a Fund may be exchanged for shares of any of the other Funds.
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 Funds mail monthly statements summarizing the activity in your account(s)
including each purchase or sale of your Fund shares. To reduce expenses,
whenever possible, the Funds may 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.
Distributions and Taxes
The Funds generally pay dividends and distributions of their net investment
income and net capital gains, as described in the table below.
-22-
<PAGE>
Reinvestment Option
-------------------
Dividend and capital gain distributions will be automatically reinvested in the
Funds 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 a 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.
<TABLE>
<CAPTION>
Type of Distribution Declared & Paid Federal Tax Status
======================================================= ========================== ==========================
<S> <C> <C>
Dividends from Net Investment Income ordinary Income
McM Principal Preservation Fund declared daily/
paid monthly
McM Intermediate Fixed Income Fund monthly
McM Fixed Income Fund monthly
McM Balanced Fund quarterly
McM Equity Investment Fund quarterly
annually ordinary income
Short-term Capital Gains (all Funds)
Long-term Capital Gains (all Funds) annually capital gain
</TABLE>
Distributions from each of the Funds 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 Funds' main investment strategies are set out in the front of the
prospectus. The Funds 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 Funds' Statement of Additional Information (SAI). You may obtain a
copy of the SAI without charge by calling 800-788-9485.
-23-
<PAGE>
Other Potential Risks
---------------------
Each Fund (except the Principal Preservation Fund) may, at times, invest a small
portion of its assets in derivative securities, such as future contracts and
options. In addition, the Balanced Fund, Intermediate Fixed Income Fund and
Fixed Income Fund may enter into interest rate, currency and mortgage swap
agreements and certain mortgage-related securities, which are deemed
derivatives. Derivatives can be illiquid, and a small investment in a derivative
could have a potentially large impact on the Fund's performance. The Funds
currently do not intend to invest in futures contracts or options.
Defensive Investing
-------------------
The Funds may occasionally take temporary defensive positions that are
inconsistent with each Fund's principal investment strategies when the advisor
deems it necessary to respond to adverse economic, political or other
conditions. At such time, the Funds may invest temporarily and without
limitation in U. S. government obligations, money market instruments and
repurchase agreements. When a Fund takes a temporary investment position, it may
not achieve its investment goals.
Financial Highlights
The financial highlights table is intended to help you understand the Funds'
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Funds during each period assuming you reinvested all dividends and
distributions. Tait, Weller and Baker has audited this information and their
report, along with the Funds' financial statements, are included in the annual
report, which is available upon request.
-24-
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
McM Principal
Preservation Fund
-----------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
06/30/00 06/30/99 06/30/98 06/30/97 06/30/96
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations
Net investment income ......................... 0.05 0.05 0.05 0.05 0.05
------- ------- ------- ------- -------
Total from investment operations ............. 0.05 0.05 0.05 0.05 0.05
------- ------- ------- ------- -------
Less Distributions:
From net investment income .................... (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Total distributions .......................... (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Net Asset Value, end of year ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return ................................... 5.48% 4.97% 5.41% 5.24% 5.39%
Ratios/Supplemental Data
Net assets, end of year (in 000's) ............ $71,038 $85,940 $48,184 $32,703 $24,195
Ratio of expenses to average net assets before
reimbursement and recovery of expenses by
Advisor ...................................... 0.51% 0.61% 0.67% 0.77% 0.93%
Ratio of expenses to average net assets after
reimbursement of expenses by Advisor ......... 0.30% 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average net
assets before reimbursement of expenses by
Advisor ...................................... 5.11% 4.53% 4.92% 4.65% 4.60%
Ratio of net investment income to average net
assets after reimbursement of expenses by
Advisor ...................................... 5.32% 4.84% 5.29% 5.12% 5.23%
Portfolio turnover ............................ N/A N/A N/A N/A N/A
</TABLE>
-25-
<PAGE>
Financial Highlights (continued)
--------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
McM Intermediate
Fixed Income Fund
-----------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
06/30/00 06/30/99 06/30/98 06/30/97 06/30/96
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year ............. $ 10.26 $ 10.53 $ 10.26 $ 10.17 $ 10.37
-------- -------- -------- ------- -------
Income from investment operations
Net investment income ......................... 0.58 0.57 0.60 0.60 0.57
Net realized and unrealized gain/(loss) on
investments .................................. (0.23) (0.23) 0.27 0.11 (0.10)
-------- -------- -------- ------- -------
Total from investment operations ............. 0.35 0.34 0.87 0.71 0.47
-------- -------- -------- ------- -------
Less Distributions:
From net investment income .................... (0.59) (0.57) (0.60) (0.60) (0.57)
From capital gains ............................ (0.03) (0.04) 0.00 (0.02) (0.10)
-------- -------- -------- ------- -------
Total distributions .......................... (0.62) (0.61) (0.60) (0.62) ( 0.67)
-------- -------- -------- ------- -------
Net Asset Value, end of year ................... $ 9.99 $ 10.26 $ 10.53 $ 10.26 $ 10.17
======== ======== ======== ======= =======
Total return ................................... 3.51% 3.25% 8.68% 7.14% 4.61%
Ratios/Supplemental Data
Net assets, end of year (in 000's) ............ $170,822 $153,096 $121,710 $93,402 $76,045
Ratio of expenses to average net assets before
reimbursement and recovery of expenses by
Advisor ...................................... 0.52% 0.52% 0.55% 0.59% 0.69%
Ratio of expenses to average net assets after
reimbursement of expenses by Advisor ......... 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income to average net
assets before reimbursement of expenses by
Advisor ...................................... 5.79% 5.40% 5.74% 5.80% 5.52%
Ratio of net investment income to average net
assets after reimbursement of expenses by
Advisor ...................................... 5.81% 5.42% 5.79% 5.89% 5.71%
Portfolio turnover ............................ 25.34% 40.40% 45.44% 36.02% 75.26%
</TABLE>
-26-
<PAGE>
Financial Highlights (continued)
--------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
McM Fixed
Income Fund
-----------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
06/30/00 06/30/99 06/30/98 06/30/97 06/30/96
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year ............. $ 10.52 $ 10.89 $ 10.44 $10.33 $10.58
------- ------- ------- ------ ------
Income from investment operations
Net investment income ......................... 0.63 0.61 0.62 0.65 0.64
Net realized and unrealized gain/(loss) on
investments .................................. (0.27) (0.35) 0.47 0.12 (0.20)
------- ------- ------- ------ ------
Total from investment operations ............ 0.36 0.26 1.09 0.77 0.44
------- ------- ------- ------ ------
Less Distributions:
From net investment income .................... (0.63) (0.61) (0.62) (0.65) (0.63)
From capital gains ............................ (0.02) (0.02) (0.02) (0.01) (0.06)
------- ------- ------- ------ ------
Total distributions ......................... (0.65) (0.63) (0.64) (0.66) (0.69)
------- ------- ------- ------ ------
Net Asset Value, end of year ................... $ 10.23 $ 10.52 $ 10.89 $10.44 $10.33
======= ======= ======= ====== ======
Total return ................................... 3.52% 2.34% 10.71% 7.72% 4.16%
Ratios/Supplemental Data
Net assets, end of year (in 000's) ............ $22,045 $27,408 $22,202 $9,565 $7,992
Ratio of expenses to average net assets before
reimbursement and recovery of expenses by
Advisor ...................................... 0.76% 0.93% 1.17% 1.57% 1.82%
Ratio of expenses to average net assets after
reimbursement of expenses by Advisor ......... 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income to average net
assets before reimbursement of expenses by
Advisor ...................................... 5.71% 5.16% 5.26% 5.25% 4.70%
Ratio of net investment income to average net
assets after reimbursement of expenses by
Advisor ...................................... 5.97% 5.59% 5.93% 6.32% 6.02%
Portfolio turnover ............................ 27.59% 29.32% 58.22% 32.46% 37.62%
</TABLE>
-27-
<PAGE>
Financial Highlights (continued)
--------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
McM Balanced
Fund
-----------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
06/30/00 06/30/99 06/30/98 06/30/97 06/30/96
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year ................. $ 20.15 $ 18.12 $ 15.30 $ 12.75 $ 11.35
-------- -------- ------- ------- -------
Income from investment operations
Net investment income ............................. 0.55 0.50 0.47 0.43 0.40
Net realized and unrealized gain on investments ... 0.07 2.10 2.82 2.54 1.49
-------- -------- ------- ------- -------
Total from investment operations ................. 0.62 2.60 3.29 2.97 1.89
-------- -------- ------- ------- -------
Less Distributions:
From net investment income ........................ (0.55) (0.50) (0.47) (0.42) (0.40)
From capital gains ................................ (0.29) (0.07) 0.00 0.00 (0.09)
-------- -------- ------- ------- -------
Total distributions .............................. (0.84) (0.57) (0.47) (0.42) (0.49)
-------- -------- ------- ------- -------
Net Asset Value, end of year ....................... $ 19.93 $ 20.15 $ 18.12 $ 15.30 $ 12.75
======== ======== ======= ======= =======
Total return ....................................... 3.17% 14.60% 21.76% 23.65% 16.86%
Ratios/Supplemental Data
Net assets, end of year (in 000's) ................ $165,066 $154,615 $93,201 $40,941 $11,915
Ratio of expenses to average net assets before
reimbursement and recovery of expenses by
Advisor .......................................... 0.64% 0.64% 0.74% 1.01% 2.21%
Ratio of expenses to average net assets after
reimbursement and recovery of expenses by
Advisor .......................................... 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income to average net
assets before reimbursement and recovery of
expenses by Advisor .............................. 2.73% 2.70% 2.87% 2.97% 1.81%
Ratio of net investment income to average net
assets after reimbursement and recovery of
expenses by Advisor .............................. 2.77% 2.74% 3.01% 3.38% 3.43%
Portfolio turnover ................................ 22.44% 18.58% 20.73% 31.64% 26.16%
</TABLE>
-28-
<PAGE>
Financial Highlights (continued)
--------------------------------------------------------------------------------
The tables below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
06/30/00 06/30/99 06/30/98 06/30/97 06/30/96
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year .......................... $ 30.37 $ 25.29 $ 19.71 $ 14.85 $ 11.95
-------- -------- -------- ------- -------
Income from investment operations ..........................
Net investment income ...................................... 0.23 0.23 0.23 0.24 0.21
Net realized and unrealized gain on investments . .......... 0.30 5.21 5.62 4.87 2.94
-------- -------- -------- ------- -------
Total from investment operations .......................... 0.53 5.44 5.85 5.11 3.15
-------- -------- -------- ------- -------
Less Distributions: ........................................
From net investment income ................................. (0.23) (0.22) (0.23) (0.24) (0.21)
From capital gains ......................................... (0.50) (0.14) (0.04) (0.01) (0.04)
-------- -------- -------- ------- -------
Total distributions ....................................... (0.73) (0.36) (0.27) (0.25) (0.25)
-------- -------- -------- ------- -------
Net Asset Value, end of year ................................ $ 30.17 $ 30.37 $ 25.29 $ 19.71 $ 14.85
======== ======== ======== ======= =======
Total return ................................................ 1.80% 21.70% 29.89% 34.68% 26.53%
Ratios/Supplemental Data ....................................
Net assets, end of year (in 000's) ......................... $260,033 $204,102 $128,541 $58,593 $23,913
Ratio of expenses to average net assets
before reimbursement and recovery of expenses by
Advisor .................................................. 0.67% 0.66% 0.75% 0.88% 1.72%
Ratio of expenses to average net assets after reimburse-
ment and recovery of expenses by Advisor .................. 0.68% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average net assets
before reimbursement and recovery of expenses by
Advisor ................................................... 0.78% 0.95% 1.05% 1.36% 0.80%
Ratio of net investment income to average net assets
after reimbursement and recovery of expenses by
Advisor ................................................... 0.77% 0.86% 1.05% 1.49% 1.77%
Portfolio turnover ......................................... 13.68% 4.79% 0.57% 0.88% 0.92%
</TABLE>
-29-
<PAGE>
Additional Information
For investors who want more information about the Funds, the following documents
are available free upon request:
Annual and Semiannual Reports: Additional information about the Funds'
investments is available in the Funds' 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 Funds'
performance during their last fiscal year.
Statement of Additional Information (SAI): The SAI provides more detailed
information about the Funds 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 Funds by contacting:
McM Funds
One Bush Street, Suite 800
San Francisco, CA 94104
Telephone: 800-788-9485
Internet address: www.mcmfunds.com
These reports and other information about the McM Funds are available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov . You may also
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. For more
information about the operation of the SEC's Public Reference Section, please
call 1-202-942-8090.
The Funds' SEC File No. is 811-8370
-30-
<PAGE>
McM FUNDS
PROSPECTUS
McM Intermediate Fixed Income Fund
Class Z
September 14, 2000
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.
Class Z shares are only offered to qualified retirement plan service
providers or through broker-dealers or financial institutions that have
selling agreements with the Distributor.
-1-
<PAGE>
McM Funds - Prospectus - September 14, 2000
McM INTERMEDIATE FIXED INCOME FUND
Table of Contents
The Fund
Fees and Expenses of the Fund
Management of the Fund
Buying and Selling Fund Shares
Pricing of Fund Shares
Distributions and Taxes
Other Investment Strategies and Risks
Additional Information Back Cover
-2-
<PAGE>
McM Intermediate Fixed Income Fund
Type of Fund: An Intermediate Term Investment Grade Bond Fund
-----------------------------------------------------------------
Investment Goal
Above average total return consistent with maintaining liquidity and
preserving capital.
Principal Investment Strategies
The Fund invests in high quality, short to intermediate-term bonds, and
other debt securities with average remaining maturities of up to 15 years.
The average weighted portfolio maturity is generally between three and ten
years.
The Fund invests at least 65% of its assets in investment grade
fixed-income securities. These securities are investment grade or issued or
guaranteed by the U.S government, its agencies or instrumentalities. The
Fund intends to be fully invested under normal circumstances, but for
temporary and defensive purposes the Fund may invest up to 100% of its
assets in investment grade short-term fixed income securities (including
short-term U.S. government securities and 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 generally invests in 100-150
securities, with special emphasis on collateralized mortgage obligations
and corporate bonds to provide incremental returns.
The advisor generally establishes a target duration for the portfolio equal
to the Lehman Brothers Intermediate Government/Corporate Index. The adviser
may adjust the portfolio's duration on the basis of the expected real
return of the portfolio's fixed income investments. The advisor may
increase duration as the expected real rate of return increases and
decrease duration as the expected real rate of return decreases.
After target duration is selected, the advisor constructs a diversified
portfolio of fixed-income securities with the following attributes:
o call protection
o high quality
o undervalued
o higher yield than the market
The Fund principally invests in:
o securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities
o corporate, bank and commercial obligations
o mortgage-backed securities, including collateralized mortgage
obligations
o asset-backed securities representing interests in pools of assets
such as motor vehicle installment purchase obligations and credit
card receivables
-3-
<PAGE>
Principal Risks
By investing in bonds, the Fund may expose you to certain risks that could
cause you to lose money. These risks include:
o interest rate risk - the risk that securities held by the Fund will
increase or decrease in value as interest rates change. Debt
securities typically decrease in value as interest rates rise and
increase in value when interest rates fall. The share price of a fund
such as this one, that invests most of its assets in debt securities,
will exhibit similar responses to interest rate changes.
o credit risk - the risk that the issuer of a security may not make
timely interest payments or pay the principal upon maturity.
o call risk - the risk that a debt security might be redeemed prior to
maturity and thus the Fund will not receive the full benefit of the
investment as it originally intended.
o prepayment risk - the risk that the obligations underlying mortgage
and asset-backed securities may be prepaid, requiring the Fund to
reinvest the proceeds at lower interest rates. Rising interest rates
could cause prepayments to decrease, extending the life of mortgage
and asset-backed securities with lower than market interest rates.
Suitability
The Fund may be appropriate for investors who want higher returns than a
money market fund and less market fluctuation than the McM Fixed Income
Fund. The Fund attempts to achieve higher returns by investing in short to
intermediate-term securities that generally have higher yields and slightly
more interest rate risk than a money market fund. The Fund does not attempt
to maintain a $1.00 per share value as money market funds do, and thus is
not suitable for investors who are looking for absolute principal
stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund and how the Fund's total return has varied from year
to year. The Fund's past performance does not necessarily indicate how the
Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmark, the Lehman Brothers Intermediate Government/Corporate Index,
an unmanaged securities index. The figures assume reinvestment of all
dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-0.43% 14.95% 4.13% 7.91% 7.81% -0.31%
-------------------- ----------------- ----------------- ------------------ ----------------- -----------------
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 2.84% as of June 30, 2000
Best Quarter 5.00% in the second quarter of 1995
Worst Quarter -0.98% in the second quarter of 1999
-4-
<PAGE>
*Returns are for a class of shares of the Fund that is not offered in
the prospectus, but that would have substantially similar annual
returns because the shares are invested in the same portfolio of
securities and the annual returns would differ only to the extent that
the classes do not have the same expenses.
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
=========================================== ============ ============= ============= =============
<S> <C> <C> <C> <C>
McM Intermediate Fixed Income Fund -0.31% 5.06% 6.78% 6.10%
Lehman Brothers Intermediate 0.39% 5.50% 7.10% 6.47%
Government/Corporate Index
</TABLE>
* Inception date July 14, 1994.
[Definition of Investment Grade: An investment grade security is one
rated Baa or higher by Moody's Investor's Service, Inc., BBB or higher
by Standard & Poor's Ratings Group, or BBB or higher by Fitch Investors
Service Inc. The Fund may invest in unrated debt securities only if the
advisor believes they are comparable to investment grade rated
securities.]
[Definition of Duration: Duration is the average time needed to recover
an initial cash outlay. The duration of a bond or mutual fund portfolio
may be an indication of sensitivity to changes in interest rates. In
general, the longer a fund's duration, the more it will react to
changes in interest rates and the greater the risk and return
potential.]
[Definition of Expected Real Return: Expected real return is the
difference between the current yield to maturity of fixed income
investments and the expected inflation rate.]
Fees and Expenses of the Fund
The following table shows the fees and expenses you may pay if you buy and hold
Class Z shares of the Fund. The Class Z shares of the Fund do not impose any
front-end loads or deferred sales load, but do impose a Rule 12b-1 distribution
fee. Shareholders are not charged for exchanging shares into other Class Z
series of the McM Funds or reinvesting dividends.
Annual Fund Operating
Expenses:
(expenses that are deducted
from Fund assets)
Management Fees 0.35%
Distribution (12b-1) Fees 0.25%
Other Expenses* 0.17%
-----
Total Annual Operating
Expenses** 0.77%
=====
-5-
<PAGE>
* Other Expenses are based on estimated amounts for the current fiscal year.
** These are the estimated gross fees and expenses that the Fund would have
incurred for the fiscal year ended June 30, 2000, if the class had been
operational and the advisor had not waived any fees. The advisor currently
intends to continue to waive certain fees indefinitely, but this voluntary
action by the advisor may be discontinued at any time on 60 days' notice.
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 each 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:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
--------------------------------------------------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
$79 $246 $428 $954
</TABLE>
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 30, 2000, the advisor had approximately
$28 billion of assets under management, including investment company assets of
approximately $690 million.
Portfolio Management
--------------------
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.
-6-
<PAGE>
Management Fees
---------------
The Fund pays the advisor an annual advisory fee of 0.35% of average daily net
assets for providing investment advisory services. During the most recent fiscal
year, after taking into account fee waivers, the Fund paid 0.33% of the Fund's
average daily net assets in advisory fees to McMorgan & Company.
The fees paid to the advisor reflect a voluntary undertaking to waive a portion
of its advisory fee. Although the Advisor currently intends to continue this
waiver, this voluntary action by the advisor may be discontinued on 60 days'
notice. Any waiver by the advisor is subject to repayment by the Fund within the
following three years if the Fund is able to make the repayment without
exceeding its current expense limits.
Buying and Selling Fund Shares
The Fund continuously offers shares through broker/dealers and financial
institutions ("Participating Companies") that have selling agreements with the
Trust. Shares are sold at the NAV per share next determined after the Trust or
its designated agent receives and accepts a proper purchase request. Each
Participating Company submits purchase and redemption orders to the Trust based
on requests they receive. The participating companies are designated agents of
the Fund. The Trust, the Fund and the Fund's distributor reserve the right to
reject any purchase order from any party for shares of any Fund.
The Fund will ordinarily make payment for redeemed shares within seven business
days after the Trust or its designated agent receives and accepts a proper
redemption order. A proper redemption order will contain all the necessary
information and signatures required to process the redemption order. The
redemption price will be the NAV per share next determined after the Trust or
its designated agent receives and accepts the shareholder's request in proper
form.
Participating Company plan participants and investors will normally receive
various materials which describe the methods by which a participant may
purchase, exchange, transfer or redeem shares.
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 Funds 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 refuse purchase or exchange requests in excess of 1% of the Fund's total
assets.
o change the minimum investment amounts.
-7-
<PAGE>
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.
Exchange Privileges
-------------------
Class Z shares of the Fund may be exchanged for Class Z 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.
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.
Distribution Plan
-----------------
The Fund has adopted a 12b-1 plan that allows it to pay distribution and service
fees for the sale and distribution of its Class Z shares. Because these fees are
paid out of the Fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Pricing of Fund Shares
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
the Fund's investments and other assets, subtracting any liabilities, and then
dividing that figure by the total number of outstanding shares of that Fund. The
Fund's NAV is calculated at the close of regular trading of the New York Stock
Exchange ("NYSE"), normally 4 p.m. Eastern time. There is no sales charge in
connection with the purchase of shares. 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.
The portfolio securities of the Fund, except debt securities with maturities of
60 days or less, 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.
Debt securities with maturities of less than 60 days are valued at amortized
cost. Under this method of valuation, the advisor values the security at cost
and then assumes a constant amortization of any discount or premium to maturity
of the security.
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.
-8-
<PAGE>
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.
<TABLE>
<CAPTION>
Type of Distribution Declared & Paid Federal Tax Status
======================================================= ========================== ==========================
<S> <C> <C>
Dividends from Net Investment Income monthly ordinary income
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
</TABLE>
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 800-831-1994.
Other Potential Risks
---------------------
The Fund may, at times, invest a small portion of its assets in derivative
securities, such as future contracts and options. In addition, the Fund may
enter into interest rate, currency and mortgage swap agreements and certain
mortgage-related securities, which are deemed derivatives. Derivatives can be
illiquid, and a small investment in a derivative could have a potentially large
impact on the Fund's performance. The Fund currently does not intend to invest
in futures contracts or options.
-9-
<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.
-10-
<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 is 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: 800-831-1994
Internet address: www.mcmfunds.com
These reports and other information about the McM Funds are available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov . You may also
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. For more
information about the operation of the SEC's Public Reference Section, please
call 1-202-942-8090.
The McM Funds' SEC File No. is 811-8370
-11-
<PAGE>
McM FUNDS
PROSPECTUS
McM Fixed Income Fund
Class Z
September 14, 2000
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.
Class Z shares are only offered to qualified retirement plan service
providers or through broker-dealers or financial institutions that have
selling agreements with the Distributor.
-1-
<PAGE>
McM Funds - Prospectus - September 14, 2000
McM FIXED INCOME FUND
Table of Contents
The Fund
Fees and Expenses of the Fund
Management of the Fund
Buying and Selling Fund Shares
Pricing of Fund Shares
Distributions and Taxes
Other Investment Strategies and Risks
Additional Information Back Cover
-2-
<PAGE>
McM Fixed Income Fund
Type of Fund: An Investment Grade Bond Fund
-----------------------------------------------------------------
Investment Goal
Above average total return consistent with maintaining liquidity and
preserving capital.
Principal Investment Strategies
The Fund invests in high quality, short to intermediate-term bonds, and
other debt securities with average remaining maturities of up to 30 years.
The average weighted portfolio maturity is generally between three and
fifteen years.
The Fund invests at least 65% of its assets in investment grade
fixed-income securities. These securities are investment grade or issued or
guaranteed by the U.S government, its agencies or instrumentalities. The
Fund intends to be fully invested under normal circumstances, but for
temporary and defensive purposes, the Fund may invest up to 100% of its
assets in investment grade short-term fixed income securities (including
short-term U.S. government securities and 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 generally invests in 100-150
securities, with special emphasis on collateralized mortgage obligations
and corporate bonds to provide incremental returns.
The advisor generally establishes a target duration for the portfolio equal
to the Lehman Brothers Aggregate Bond Index. The advisor may adjust the
portfolio's duration on the basis of the expected real return of the
portfolio's fixed income investments. The advisor may increase duration as
the expected real rate of return increases and decrease duration as the
expected real rate of return decreases.
Once a target duration is selected, the advisor constructs a diversified
portfolio of fixed income securities with the following attributes:
o call protection
o high quality
o undervalued
o higher yield than the market
The Fund principally invests in:
o securities issued or guaranteed by the U.S. government, its agencies
and instrumentalities
o corporate, bank and commercial obligations
o mortgage-backed securities, with an emphasis on collateralized
mortgage obligations
o asset-backed securities representing interests in pools of assets
such as motor vehicle installment purchase obligations and credit
card receivables
-3-
<PAGE>
Principal Risks
By investing in bonds, the Fund may expose you to certain risks that could
cause you to lose money. These risks include:
o interest rate risk - the risk that securities held by the Fund will
increase or decrease in value as interest rates change. Debt
securities typically decrease in value as interest rates rise and
increase in value when interest rates fall. The share price of a fund
such as this one, that invests most of its assets in debt securities,
will exhibit similar responses to interest rate changes.
o credit risk - the risk that the issuer of a security may not make
timely interest payments or pay the principal upon maturity.
o call risk - the risk that a debt security might be redeemed prior to
maturity and thus the Fund will not receive the full benefit of the
investment as it originally intended.
o prepayment risk - the risk that obligations underlying mortgage and
asset-backed securities may be prepaid, requiring the Fund to
reinvest the proceeds at lower interest rates. Rising interest rates
could cause prepayments to decrease, extending the life of mortgage
and asset-backed securities with lower than market interest rates.
Suitability
The Fund may be appropriate for investors who want higher returns than a
money market fund. The Fund attempts to achieve higher returns by investing
in fixed income securities that generally have higher yields and slightly
more interest rate risk. The Fund does not attempt to maintain a $1.00 per
share value as money market funds do, and thus is not suitable for
investors who are looking for absolute principal stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund. The Fund's past performance does not necessarily
indicate how the Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmark, the Lehman Brothers Aggregate Index, an unmanaged securities
index. The figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-0.73% 19.29% 3.04% 9.53% 8.52% -2.18%
------------------ ----------------- ----------------- ----------------- ---------------- -----------------
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 3.48% as of June 30, 1999
Best Quarter 6.65% in the second quarter of 1995
Worst Quarter -2.14% in the first quarter of 1996
* Returns are for a class of shares of the Fund that is not offered in
the prospectus, but that would have substantially similar annual
returns because the shares are invested in the same portfolio of
securities and the annual returns would differ only to the extent that
the classes do not have the same expenses.
-4-
<PAGE>
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
====================================== ============== ============== ============== ==============
<S> <C> <C> <C> <C>
McM Fixed Income Fund -2.18% 5.15% 7.40% 6.61%
Lehman Brothers Aggregate Index -0.82% 5.73% 7.73% 7.07%
</TABLE>
* Inception date July 14, 1994.
[Definition of Investment Grade: An investment grade security is one
rated Baa or higher by Moody's Investor's Service, Inc., BBB or higher
by Standard & Poor's Ratings Group, or BBB or higher by Fitch Investors
Service, Inc. The Fund may also invest in unrated debt securities that
the advisor believes are comparable to investment grade rated
securities.]
[Definition of Duration: Duration is the average time needed to recover
an initial cash outlay. The duration of a bond or mutual fund portfolio
may be an indication of sensitivity to changes in interest rates. In
general, the longer a fund's duration, the more it will react to
changes in interest rates and the greater the risk and return
potential.]
Fees and Expenses of the Fund
The following table shows the fees and expenses you may pay if you buy and hold
Class Z shares of the Fund. The Class Z shares of the Fund do not impose any
front-end loads or deferred sales load, but do impose a Rule 12b-1 distribution
fee. Shareholders are not charged for exchanging shares into other Class Z
series of the McM Funds or reinvesting dividends.
Annual Fund Operating
Expenses:
(expenses that are deducted
from Fund assets)
Management Fees 0.35%
Distribution (12b-1) Fees 0.25%
Other Expenses* 0.41%
-----
Total Annual Operating
Expenses** 1.01%
=====
* Other Expenses are based on estimated amounts for the current fiscal year.
** These are the estimated gross fees and expenses that the Fund would have
incurred for the fiscal year ended June 30, 2000, if the class had been
operational and the advisor had not waived any fees. The advisor currently
intends to continue to waive certain fees indefinitely, but this voluntary
action by the advisor may be discontinued at any time on 60 days' notice.
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.
-5-
<PAGE>
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 each 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
--------------------------------------------------------- ------------ ------------ ------------ ------------
$103 $322 $558 $1,236
</TABLE>
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 30, 2000, the advisor had approximately
$28 billion of assets under management, including investment company assets of
approximately $690 million.
Portfolio Management
--------------------
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
---------------
The Fund pays the advisor an annual advisory fee of 0.35% of average daily net
assets for providing investment advisory services. During the most recent fiscal
year, after taking into account fee waivers, the Fund paid 0.09% of the Fund's
average daily net assets in advisory fees to McMorgan & Company.
The fees paid to the advisor reflect a voluntary undertaking to waive a portion
of its advisory fee. Although the Advisor currently intends to continue this
waiver, this voluntary action by the advisor may be discontinued on 60 days'
notice. Any waiver by the advisor is subject to repayment by the Fund within the
following three years if the Fund is able to make the repayment without
exceeding its current expense limits.
-6-
<PAGE>
Buying and Selling Fund Shares
The Fund continuously offers shares through broker/dealers and financial
institutions ("Participating Companies") that have selling agreements with the
Trust. Shares are sold at the NAV per share next determined after the Trust or
its designated agent receives and accepts a proper purchase request. Each
Participating Company submits purchase and redemption orders to the Trust based
on requests they receive. The participating companies are designated agents of
the Fund. The Trust, the Fund and the Fund's distributor reserve the right to
reject any purchase order from any party for shares of any Fund.
The Fund will ordinarily make payment for redeemed shares within seven business
days after the Trust or its designated agent receives and accepts a proper
redemption order. A proper redemption order will contain all the necessary
information and signatures required to process the redemption order. The
redemption price will be the NAV per share next determined after the Trust or
its designated agent receives and accepts the shareholder's request in proper
form.
Participating Company plan participants and investors will normally receive
various materials which describe the methods by which a participant may
purchase, exchange, transfer or redeem shares.
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 Funds 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 refuse purchase or exchange requests in excess of 1% of the Fund's total
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.
Exchange Privileges
-------------------
Class Z shares of the Fund may be exchanged for Class Z 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.
-7-
<PAGE>
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.
Distribution Plan
-----------------
The Fund has adopted a 12b-1 plan that allows it to pay distribution and service
fees for the sales and distribution of its Class Z shares. Because these fees
are paid out of the Fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Pricing of Fund Shares
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
the Fund's investments and other assets, subtracting any liabilities, and then
dividing that figure by the total number of outstanding shares of that Fund. The
Fund's NAV is calculated at the close of regular trading of the New York Stock
Exchange ("NYSE"), normally 4 p.m. Eastern time. There is no sales charge in
connection with the purchase of shares. 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.
The portfolio securities of the Fund, except debt securities with maturities of
60 days or less, 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.
Debt securities with maturities of less than 60 days are valued at amortized
cost. Under this method of valuation, the advisor values the security at cost
and then assumes a constant amortization of any discount or premium to maturity
of the security.
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.
-8-
<PAGE>
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.
<TABLE>
<CAPTION>
Type of Distribution Declared & Paid Federal Tax Status
======================================================= ========================== ==========================
<S> <C> <C>
Dividends from Net Investment Income monthly ordinary income
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
</TABLE>
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 800-831-1994.
Other Potential Risks
---------------------
The Fund may, at times, invest a small portion of its assets in derivative
securities, such as future contracts and options. In addition, the Fund may
enter into interest rate, currency and mortgage swap agreements and certain
mortgage-related securities, which are deemed derivatives. Derivatives can be
illiquid, and a small investment in a derivative could have a potentially large
impact on the Fund's performance. The Fund currently does not intend to invest
in futures contracts or options.
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.
-9-
<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 is 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: 800-831-1994
Internet address: www.mcmfunds.com
----------------
These reports and other information about the McM Funds are available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov . You may also
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. For more
information about the operation of the SEC's Public Reference Section, please
call 1-202-942-8090.
The McM Funds' SEC File No. is 811-8370
-10-
<PAGE>
McM FUNDS
PROSPECTUS
McM Balanced Fund
Class Z
September 14, 2000
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.
Class Z shares are only offered to qualified retirement plan service providers
or through broker-dealers or financial institutions that have selling agreements
with the Distributor.
-1-
<PAGE>
McM Funds - Prospectus - September 14, 2000
McM BALANCED FUND
Table of Contents
The Fund
Fees and Expenses of the Fund
Management of the Fund
Buying and Selling Fund Shares
Pricing of Fund Shares
Distributions and Taxes
Other Investment Strategies and Risks
Additional Information Back Cover
-2-
<PAGE>
McM Balanced Fund
Type of Fund: A Balanced Fund
------------------------------------------------------------------
Investment Goal
Balance of capital appreciation, income and preservation of capital
Principal Investment Strategies
The Fund's target asset allocation is 60% in equity securities and 40% in
debt securities over the long term. The Fund invests in a diversified
portfolio of equity and debt securities. The mix of securities will change
based on existing and anticipated market conditions. The Fund's asset
allocation is generally between 50% and 70% in common stocks and at least
25% in debt securities under normal market conditions.
Equities
The Fund seeks capital appreciation and will invest in the common stocks of
companies believed to have the potential for long-term capital growth with
an emphasis on dividend paying common stocks. The advisor creates a
portfolio using a "top-down" approach to control risk at the portfolio
level. It uses an investment model to construct the desired portfolio
characteristics with respect to many characteristics, such as liquidity,
risk and yield. Once the desired portfolio characteristics are established,
the advisor uses a "bottom up" approach for selecting equity securities. An
investment return model is used to select those securities which have an
expected return equal to or greater than the market. In addition to seeking
securities having an expected return greater than the market, an emphasis
in selecting an individual security is its contribution to desired
portfolio characteristics.
Debt Securities
The Fund seeks to provide shareholders with income by investing in a broad
range of intermediate and long-term debt securities, including:
o securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities
o investment grade debt securities including fixed and variable rate
debt obligations, mortgage and asset-backed securities and
collateralized mortgage obligations
o preferred stock and securities convertible into common stock
In selecting debt securities for the Fund, the advisor first establishes a
targeted portfolio duration for the Fund equal to the Lehman Brothers
Aggregate Bond Index. The advisor may increase duration as the expected
real rate of return of the Fund increases and decrease duration as the
expected rate of return of the Fund decreases. The advisor then selects a
diversified portfolio of debt securities with the following attributes:
o high quality
o attractive yields
o yield to maturity advantage over the market
o high degree of protection from call risk
-3-
<PAGE>
Principal Risks
By investing in stocks and bonds, the Fund may expose you to certain risks
that could cause you to lose money. These risks include:
o interest rate risk - the risk that securities held by the Fund will
increase or decrease in value as interest rates change, causing the
Fund's value to change. Debt securities typically decrease in value
as interest rates rise, and when interest rates fall, a debt security
will typically increase in value. A fund such as this, that may
invest a significant percentage of its assets in debt securities, may
exhibit similar responses to interest rate changes.
o stock market risk - the risk that the price of a security will rise
or fall due to various unpredictable market conditions. The equity
portion of the Fund currently has, but may not always have,
weightings similar to that of the S&P 500 Index (but is not
necessarily invested in the same securities that are in the index).
At the present time, the technology sector represents about 30% of
the S&P 500 Index and the same portion of the equity investments of
the Fund. Technology stock prices tend to be more volatile than those
in other sectors and may increase the volatility of the equity
portion of the Fund and thus, its share price.
o credit risk - the risk that the issuer of a security may not make
timely interest payments or pay the principal upon maturity
o call risk - the risk that a debt security might be redeemed prior to
maturity
o prepayment risk - the risk the obligations underlying mortgage and
asset-backed securities may be prepaid, requiring the Fund to
reinvest the proceeds at lower interest rates. Rising interest rates
could cause prepayments to decrease, extending the life of mortgage
and asset-backed securities with lower than market interest rates.
Suitability
The Fund may be appropriate for investors who are willing to accept the
risks associated with a combination of investments in equity and fixed
income securities. The Fund is not suitable for investors who are looking
for absolute principal stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The Fund's past performance does not necessarily indicate how
the Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmarks, the S&P 500 Index (equities) and the Lehman Brothers
Aggregate Index (debt securities), two unmanaged securities indices. The
figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
0.79% 28.71% 16.26% 23.66% 20.62% 7.05%
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
</TABLE>
-4-
<PAGE>
Year-to-Date Return 1.35% as of June 30, 2000
Best Quarter 11.93% in the fouth quarter of 1998
Worst Quarter -3.13% in the third quarter of 1999
* Returns are for a class of shares of the Fund that is not offered in
the prospectus, but that would have substantially similar annual
returns because the shares are invested in the same portfolio of
securities and the annual returns would differ only to the extent that
the classes do not have the same expenses.
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
McM Balanced Fund 7.04% 16.88% 19.02% 17.43%
S&P 500 Index 21.00% 27.73% 27.92% 26.44%
Lehman Brothers Aggregate Index -0.82% 5.73% 7.73% 7.07%
</TABLE>
* Inception date July 14, 1994.
Fees and Expenses of the Fund
The following table shows the fees and expenses you may pay if you buy and hold
Class Z shares of the Fund. The Class Z shares of the Fund do not impose any
front-end loads or deferred sales load, but do impose a Rule 12b-1 distribution
fee. Shareholders are not charged for exchanging shares into other Class Z
series of the McM Funds or reinvesting dividends.
Annual Fund Operating
Expenses:
(expenses that are deducted
from Fund assets)
Management Fees 0.45%
Distribution (12b-1) Fees 0.25%
Other Expenses* 0.19%
-----
Total Annual Operating
Expenses** 0.89%
=====
* Other Expenses are based on estimated amounts for the current fiscal year.
** These are the estimated gross fees and expenses that the Fund would have
incurred for the fiscal year ended June 30, 2000, if the class had been
operational and the advisor had not waived any fees. The advisor currently
intends to continue to waive certain fees indefinitely, but this voluntary
action by the advisor may be discontinued at any time on 60 days' notice.
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.
-5-
<PAGE>
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 each 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 5 years 10 years
---------------------------------------------------------------------
$91 $284 $493 $1,096
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 30, 2000, the advisor had approximately
$28 billion of assets under management, including investment company assets of
approximately $690 million.
Portfolio Management
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
The Fund pays the advisor an annual advisory fee of 0.45% of average daily net
assets for providing investment advisory services. During the most recent fiscal
year, after taking into account fee waivers, the Fund paid 0.41% of the Fund's
average daily net assets in advisory fees to McMorgan & Company.
The fees paid to the advisor reflect a voluntary undertaking to waive a portion
of its advisory fee. Although the Advisor currently intends to continue this
waiver, this voluntary action by the advisor may be discontinued on 60 days'
notice. Any waiver by the advisor is subject to repayment by the Fund within the
following three years if the Fund is able to make the repayment without
exceeding its current expense limits.
-6-
<PAGE>
Buying and Selling Fund Shares
The Fund continuously offers shares through broker/dealers and financial
institutions ("Participating Companies") that have selling agreements with the
Trust. Shares are sold at the NAV per share next determined after the Trust or
its designated agent receives and accepts a proper purchase request. Each
Participating Company submits purchase and redemption orders to the Trust based
on requests they receive. The participating companies are designated agents of
the Fund. The Trust, the Fund and the Fund's distributor reserve the right to
reject any purchase order from any party for shares of any Fund.
The Fund will ordinarily make payment for redeemed shares within seven business
days after the Trust or its designated agent receives and accepts a proper
redemption order. A proper redemption order will contain all the necessary
information and signatures required to process the redemption order. The
redemption price will be the NAV per share next determined after the Trust or
its designated agent receives and accepts the shareholder's request in proper
form.
Participating Company plan participants and investors will normally receive
various materials which describe the methods by which a participant may
purchase, exchange, transfer or redeem shares.
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 Funds 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 refuse purchase or exchange requests in excess of 1% of the Fund's
total 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.
-7-
<PAGE>
Exchange Privileges
Class Z shares of the Fund may be exchanged for Class Z 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.
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.
Distribution Plan
The Fund has adopted a 12b-1 plan that allows it to pay distribution and service
fees for the sales and distribution of its Class Z shares. Because these fees
are paid out of the Fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Pricing of Fund Shares
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
the Fund's investments and other assets, subtracting any liabilities, and then
dividing that figure by the total number of outstanding shares of that Fund. The
Fund's NAV is calculated at the close of regular trading of the New York Stock
Exchange ("NYSE"), normally 4 p.m. Eastern time. There is no sales charge in
connection with the purchase of shares. 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.
The portfolio securities of the Fund, except debt securities with maturities of
60 days or less, 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.
Debt securities with maturities of less than 60 days are valued at amortized
cost. Under this method of valuation, the advisor values the security at cost
and then assumes a constant amortization of any discount or premium to maturity
of the security.
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.
-8-
<PAGE>
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.
<TABLE>
<CAPTION>
Type of Distribution Declared & Paid Federal Tax Status
========================================================================================================
<S> <C> <C>
Dividends from Net Investment Income monthly ordinary income
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
</TABLE>
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 800-831-1994.
Other Potential Risks
The Fund may, at times, invest a small portion of its assets in derivative
securities, such as future contracts and options. In addition, the Fund may
enter into interest rate, currency and mortgage swap agreements and certain
mortgage-related securities, which are deemed derivatives. Derivatives can be
illiquid, and a small investment in a derivative could have a potentially large
impact on the Fund's performance. The Fund currently does not intend to invest
in futures contracts or options.
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.
-9-
<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 is 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: 800-831-1994
Internet address: www.mcmfunds.com
These reports and other information about the McM Funds are available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov . You may also
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. For more
information about the operation of the SEC's Public Reference Section, please
call 1-202-942-8090.
The McM Funds' SEC File No. is 811-8370
-10-
<PAGE>
McM FUNDS
PROSPECTUS
McM Equity Investment Fund
Class Z
September 14, 2000
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.
Class Z shares are only offered to qualified retirement plan service providers
or through broker-dealers or financial institutions that have selling agreements
with the Distributor.
-1-
<PAGE>
McM Funds - Prospectus - September 14, 2000
McM EQUITY INVESTMENT FUND
Table of Contents
The Fund
Fees and Expenses of the Fund
Management of the Fund
Buying and Selling Fund Shares
Pricing of Fund Shares
Distributions and Taxes
Other Investment Strategies and Risks
Additional Information Back Cover
-2-
<PAGE>
McM Equity Investment Fund
Type of Fund: A Diversified Stock Fund
------------------------------------------------------------------
Investment Goal
Above-average total return consistent with reasonable risk.
Principal Investment Strategies
The Fund seeks capital appreciation and will invest in the common stocks of
companies believed to have potential for long-term capital growth with an
emphasis on dividend paying common stocks. The advisor selects equity
securities using a "top down" approach to control risk at the portfolio
level. It uses an investment model to construct the desired portfolio
characteristics with respect to many characteristics, such as liquidity,
risk and yield. Once the desired portfolio characteristics are established,
the advisor uses a "bottom up" approach for selecting equity securities. An
investment return model is used to select those securities which have an
expected return equal to or greater than the market. In addition to seeking
securities having an expected return greater than the market, an emphasis
in selecting an individual security is its contribution to desired
portfolio characteristics.
The Fund generally will be as fully invested as possible, but always at
least 65%, in equity securities of companies with the following attributes:
o ability to pay above-average dividends
o sustained earnings and growth potential
o strong management and balance sheet
o market undervaluation in light of expected future earnings
The Fund intends to stay fully invested under normal circumstances, but for
temporary and defensive purposes may invest in short-term fixed income
assets including:
o U.S. government securities
o money market instruments, including U.S. Treasury bills, commercial
paper, certificates of deposit and bankers' acceptances
o repurchase agreements
Principal Risks
By investing in stocks and bonds, the Fund may expose you to certain risks
that could cause you to lose money. These risks include:
o market risk - the risk that the price of a security (a stock or bond)
will rise or fall due to various unpredictable market conditions. The
Fund currently has, but may not always have, weightings similar to
that of the S&P 500 Index (but is not necessarily invested in the
same securities that are in the index). At the present time, the
technology sector represents about 30% of the S&P 500 Index and the
same portion of the net investments of the Fund. Technology stock
prices tend to be more volatile than those in other sectors and may
increase the volatility of the Fund's share price.
-3-
<PAGE>
o interest rate risk - the risk that securities (principally fixed
income securities) held by the Fund will increase or decrease in
value as interest rates change
Suitability
The Fund may be appropriate for investors 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. The Fund is not suitable for investors who are
looking for absolute principal stability.
Past Fund Performance
The bar chart and performance table below illustrate some of the risks of
investing in the Fund. The Fund's past performance does not necessarily
indicate how the Fund will perform in the future.
The bar chart shows changes in the Fund's performance from year to year.
The table shows how the Fund's average annual returns compare with those of
its benchmark, the S&P 500 Index, an unmanaged securities index. The
figures assume reinvestment of all dividends and distributions.
<TABLE>
<CAPTION>
1.24% 35.94% 26.80% 33.84% 27.76% 11.54%
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
</TABLE>
Year-to-Date Return 0.16% as of June 30, 2000
Best Quarter 20.25% in the fourth quarter of 1998
Worst Quarter -7.78% in the third quarter of 1998
* Returns are for a class of shares of the Fund that is not offered in
the prospectus, but that would have substantially similar annual
returns because the shares are invested in the same portfolio of
securities and the annual returns would differ only to the extent that
the classes do not have the same expenses.
Performance Table
(Average annual total returns as of December 31, 1999)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years Since
Inception*
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
McM Equity Investment Fund 11.54% 24.01% 26.86% 24.60%
S&P 500 Index 21.00% 27.73% 27.92% 26.44%
</TABLE>
* Inception date July 14, 1994.
Fees and Expenses of the Fund
The following table shows the fees and expenses you may pay if you buy and hold
Class Z shares of the Fund. The Class Z shares of the Fund do not impose any
front-end loads or deferred sales load, but do impose a Rule 12b-1 distribution
fee. Shareholders are not charged for exchanging shares into other Class Z
series of the McM Funds or reinvesting dividends.
-4-
<PAGE>
Annual Fund Operating
Expenses:
(expenses that are deducted
from Fund assets)
Management Fees 0.50%
Distribution (12b-1) Fees 0.25%
Other Expenses* 0.17%
Total Annual Operating
Expenses 0.92%
=====
* "Other Expenses" are based on estimated amounts for the current 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 each 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 5 years 10 years
-----------------------------------------------------------------------
$94 $293 $509 $1,131
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.
-5-
<PAGE>
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 30, 2000, the advisor had approximately
$28 billion of assets under management, including investment company assets of
approximately $690 million.
Portfolio Management
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
The Fund pays the advisor an annual advisory fee of 0.50% of average daily net
assets for providing investment advisory services. During the most recent fiscal
year, after taking into account fee waivers, the Fund paid 0.50% of the Fund's
average daily net assets in advisory fees to McMorgan & Company.
The fees paid to the advisor reflect a voluntary undertaking to waive a portion
of its advisory fee. Although the Advisor currently intends to continue this
waiver, this voluntary action by the advisor may be discontinued on 60 days'
notice. Any waiver by the advisor is subject to repayment by the Fund within the
following three years if the Fund is able to make the repayment without
exceeding its current expense limits.
Buying and Selling Fund Shares
The Fund continuously offers shares through broker/dealers and financial
institutions ("Participating Companies") that have selling agreements with the
Trust. Shares are sold at the NAV per share next determined after the Trust or
its designated agent receives and accepts a proper purchase request. Each
Participating Company submits purchase and redemption orders to the Trust based
on requests they receive. The participating companies are designated agents of
the Fund. The Trust, the Fund and the Fund's distributor reserve the right to
reject any purchase order from any party for shares of any Fund.
The Fund will ordinarily make payment for redeemed shares within seven business
days after the Trust or its designated agent receives and accepts a proper
redemption order. A proper redemption order will contain all the necessary
information and signatures required to process the redemption order. The
redemption price will be the NAV per share next determined after the Trust or
its designated agent receives and accepts the shareholder's request in proper
form.
Participating Company plan participants and investors will normally receive
various materials which describe the methods by which a participant may
purchase, exchange, transfer or redeem shares.
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 Funds would not charge.
-6-
<PAGE>
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 refuse purchase or exchange requests in excess of 1% of the Fund's
total 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.
Exchange Privileges
Class Z shares of the Fund may be exchanged for Class Z 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.
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.
Distribution Plan
The Fund has adopted a 12b-1 plan that allows it to pay distribution and service
fees for the sales and distribution of its Class Z shares. Because these fees
are paid out of the Fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Pricing of Fund Shares
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
the Fund's investments and other assets, subtracting any liabilities, and then
dividing that figure by the total number of outstanding shares of that Fund. The
Fund's NAV is calculated at the close of regular trading of the New York Stock
Exchange ("NYSE"), normally 4 p.m. Eastern time. There is no sales charge in
connection with the purchase of shares. 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.
The portfolio securities of the Fund, except debt securities with maturities of
60 days or less, 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.
Debt securities with maturities of less than 60 days are valued at amortized
cost. Under this method of valuation, the advisor values the security at cost
and then assumes a constant amortization of any discount or premium to maturity
of the security.
-7-
<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.
<TABLE>
<CAPTION>
Type of Distribution Declared & Paid Federal Tax Status
===========================================================================================================
<S> <C> <C>
Dividends from Net Investment Income monthly ordinary income
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
</TABLE>
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 800-831-1994.
-8-
<PAGE>
Other Potential Risks
The Fund may, at times, invest a small portion of its assets in derivative
securities, such as future contracts and options. In addition, the Fund may
enter into interest rate, currency and mortgage swap agreements and certain
mortgage-related securities, which are deemed derivatives. Derivatives can be
illiquid, and a small investment in a derivative could have a potentially large
impact on the Fund's performance. The Fund currently does not intend to invest
in futures contracts or options.
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.
-9-
<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 is 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: 800-831-1994
Internet address: www.mcmfunds.com
These reports and other information about the McM Funds are available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov . You may also
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. For more
information about the operation of the SEC's Public Reference Section, please
call 1-202-942-8090.
The McM Funds' SEC File No. is 811-8370
-10-
<PAGE>
McM FUNDS
McM S&P 500 Index Fund
PROSPECTUS
Class Z
September 14, 2000
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.
Class Z shares are only offered to qualified retirement plan service providers
or through broker-dealers or financial institutions that have selling agreements
with the Distributor.
-1-
<PAGE>
Table of Contents
The McM S&P 500 Index Fund
Fees and Expenses of the Fund
Management of the Fund
Buying and Selling Fund Shares
Pricing of Fund Shares
Distributions and Taxes
Other Investment Strategies and Risks
Financial Highlights
Additional Information Back Cover
-2-
<PAGE>
McM S&P 500 Index Fund
Type of Fund: An S&P 500 Index Fund
Ticker Symbol: N/A
------------------------------------------------------------------------------
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.
-3-
<PAGE>
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.
-4-
<PAGE>
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
Annual Fund Operating Expenses:
(expenses that are deducted
from Fund assets)
Management Fees 0.15%
Other Expenses* 0.25%
Total Annual Operating 0.35%
=====
Expenses
*"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
------------------------------------------------------------
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.
-5-
<PAGE>
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 30, 2000, the advisor had approximately
$28 billion of assets under management, including investment company assets of
approximately $690 million.
Portfolio Management
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
The Fund pays the advisor a monthly fee of 0.15% for providing investment
advisory services.
Buying and Selling Fund Shares
The Fund continuously offers shares through broker/dealers and financial
institutions ("Participating Companies") that have selling agreements with the
Trust. Shares are sold at the NAV per share next determined after the Trust or
its designated agent receives and accepts a proper purchase request. Each
Participating Company submits purchase and redemption orders to the Trust based
on requests they receive. The participating companies are designated agents of
the Fund. The Trust, the Fund and the Fund's distributor reserve the right to
reject any purchase order from any party for shares of any Fund.
The Fund will ordinarily make payment for redeemed shares within seven business
days after the Trust or its designated agent receives and accepts a proper
redemption order. A proper redemption order will contain all the necessary
information and signatures required to process the redemption order. The
redemption price will be the NAV per share next determined after the Trust or
its designated agent receives and accepts the shareholder's request in proper
form.
Participating Company plan participants and investors will normally receive
various materials which describe the methods by which a participant may
purchase, exchange, transfer or redeem shares.
-6-
<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 Funds 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 refuse purchase or exchange requests in excess of 1% of the Fund's
total 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.
Exchange Privileges
Class Z shares of the Fund may be exchanged for Class Z 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.
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.
Pricing of Fund Shares
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
the Fund's investments and other assets, subtracting any liabilities, and then
dividing that figure by the total number of outstanding shares of that Fund. The
Fund's NAV is calculated at the close of regular trading of the New York Stock
Exchange ("NYSE"), normally 4 p.m. Eastern time. There is no sales charge in
connection with the purchase of shares. 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.
The portfolio securities of the Fund, except debt securities with maturities of
60 days or less, 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.
Debt securities with maturities of less than 60 days are valued at amortized
cost. Under this method of valuation, the advisor values the security at cost
and then assumes a constant amortization of any discount or premium to maturity
of the security.
-7-
<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.
<TABLE>
<CAPTION>
Type of Distribution Declared & Paid Federal Tax Status
=========================================================================================================
<S> <C> <C>
Dividends from Net Investment Income monthly ordinary income
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
</TABLE>
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 800-831-1994.
-8-
<PAGE>
Other Potential Risks
The Fund may, at times, invest a small portion of its assets in derivative
securities, such as future contracts and options. In addition, the Fund may
enter into interest rate, currency and mortgage swap agreements and certain
mortgage-related securities, which are deemed derivatives. Derivatives can be
illiquid, and a small investment in a derivative could have a potentially large
impact on the Fund's performance. The Fund currently does not intend to invest
in futures contracts or options.
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.
-9-
<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 is 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: 800-831-1994
Internet address: www.mcmfunds.com
These reports and other information about the McM Funds are available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov . You may also
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102. For more
information about the operation of the SEC's Public Reference Section, please
call 1-202-942-8090.
The McM Funds' SEC File No. is 811-8370
-10-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 14, 2000
--------------------------------------------------------------------------------
McM FUNDS
--------------------------------------------------------------------------------
MONEY MARKET FUND BALANCED FUND
McM Principal Preservation Fund McM Balanced Fund
FIXED INCOME FUNDS EQUITY FUNDS
McM Intermediate Fixed Income Fund McM Equity Investment Fund
McM Fixed Income Fund
--------------------------------------------------------------------------------
This Statement of Additional Information dated September 14, 2000 is not a
prospectus. It should be read in conjunction with the McM Funds' McM Funds Class
Prospectus dated September 14, 2000, and the Class Z Prospectuses dated
September 14, 2000, which are incorporated by reference herein. Copies of the
Prospectuses may be obtained without charge by contacting either the Advisor or
the Distributor at the addresses and telephone numbers below.
Underwriter: Advisor:
Provident Distributors, Inc. McMorgan & Company
3200 Horizon Dr. One Bush Street, Suite 800
King of Prussia, PA 19406 San Francisco, CA 94104
(610) 239-4590 (800) 788-9485
The Annual Report, which contains important financial information about the McM
Funds, is incorporated by reference into this Statement of Additional
Information and is also available without charge at the above phone numbers or
addresses.
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TABLE OF CONTENTS Page
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McM Funds.........................................................................................................3
Investment Policies
Mortgage-Backed Securities and Mortgage Pass-Through Securities..............................................3
Collateralized Mortgage Obligations, Real Estate Mortgage Investment Conduit
and Multi-Class Pass-Throughs..............................................................................3
Resets.......................................................................................................4
Caps and Floors..............................................................................................4
Stripped Mortgage-Backed Securities..........................................................................4
Risks of Mortgage-Backed Securities..........................................................................5
Other Mortgage-Backed Securities.............................................................................5
Asset-Backed Securities......................................................................................6
Futures Contracts and Related Options........................................................................6
Risk Factors of Options, Futures, and Forward Contracts..................................................... 6
Options......................................................................................................6
Purchasing Call Options......................................................................................7
Covered Call Writing.........................................................................................7
Purchasing Put Options.......................................................................................8
Writing Put Options..........................................................................................8
Swaps........................................................................................................9
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions................................9
Variable and Floating Rate Instruments......................................................................10
Repurchase Agreements and Reverse Repurchase Agreements.....................................................10
Borrowing...................................................................................................10
Securities Lending..........................................................................................10
Technology Companies - Sector Focus.........................................................................11
Securities of Other Investment Companies....................................................................11
Foreign Securities..........................................................................................11
Restricted Securities.......................................................................................11
Rule 144A Securities........................................................................................12
Illiquid Securities.........................................................................................12
Convertible Securities......................................................................................12
Money Market Instruments....................................................................................12
Temporary Defensive Measures................................................................................13
Other Investments...........................................................................................13
Investment Restrictions..........................................................................................13
Trustees and Officers............................................................................................14
Control Persons and Principal Holders of Securities..............................................................15
Investment Advisory and Other Services
Investment Advisory Agreement...............................................................................17
Transfer Agent..............................................................................................19
Administrative Services.....................................................................................19
Accounting Services.........................................................................................19
Custodian and Custody Administrator.........................................................................19
Underwriter.................................................................................................19
Portfolio Transactions and Brokerage Commissions.................................................................20
Shares of Beneficial Interest....................................................................................21
Purchases, Redemptions and Pricing of Shares....................................................................21
Taxes............................................................................................................23
Performance Information..........................................................................................24
Total Return Calculations...................................................................................24
Yield of Principal Preservation Fund........................................................................25
Yields of Intermediate Fixed Income Fund and Fixed Income Fund..............................................25
Other Information................................................................................................26
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McM FUNDS
McM Funds, 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")
and McM Equity Investment Fund (the "Equity Investment Fund") (each a "Fund" and
collectively the "Funds"). The McM Intermediate Fixed Income Fund, McM Fixed
Income Fund, McM Balanced Fund and McM Equity Investment Fund offer two classes
of shares: McM Funds shares and Class Z shares (referred to individually as a
"class" and collectively as the "classes"). The McM Principal Preservation Fund
only offers the McM Funds class of 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 concerning
the investment policies and related risks of the Funds. 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.
Mortgage-Backed Securities and Mortgage Pass-Through Securities
Each Fund (except Principal Preservation Fund) may invest in mortgage-backed
securities, which are interests in pools of mortgage loans, including mortgage
loans made by savings and loan institutions, mortgage bankers, commercial banks
and others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations
as further described below. A Fund may also invest in debt securities which are
secured with collateral consisting of mortgage-backed securities (see
"Collateralized Mortgage Obligations").
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. Also,
securities issued by GNMA and other mortgage-backed securities may be purchased
at a premium over the maturity value of the underlying mortgages. This premium
is not guaranteed and would be lost if prepayment occurs. Mortgage-backed
securities issued by U.S. Government agencies or instrumentalities other than
GNMA are not "full faith and credit" obligations. Certain obligations, such as
those issued by the Federal Home Loan Bank, are supported by the issuer's right
to borrow from the U.S. Treasury; while others, such as those issued by the
Federal National Mortgage Association, are supported only by the credit of the
issuer. Unscheduled or early payments on the underlying mortgages may shorten
the securities' effective maturities and reduce returns. A Fund may agree to
purchase or sell these securities with payment and delivery taking place at a
future date.
For federal income tax purposes, other than diversification under Subchapter M,
mortgage-backed securities are not considered to be separate securities but
rather "grantor trusts" conveying to the holder an individual interest in each
of the mortgages constituting the pool. The mortgage securities which are issued
or guaranteed by GNMA, FHLMC or FNMA are called pass-through certificates
("Certificates") because a pro rata share of both regular interest and principal
payments (less GNMA's, FHLMC's or FNMA's fees and any applicable loan servicing
fees), as well as unscheduled early prepayments on the underlying mortgage pool,
are passed through monthly to the holder of the Certificate (i.e., the Fund).
The yields provided by these mortgage securities have historically exceeded the
yields on other types of U.S. Government securities with comparable maturities
in large measure due to the risks associated with prepayment features. (See
"Risks of Mortgage Securities").
Collateralized Mortgage Obligations ("CMOs"), Real Estate Mortgage Investment
Conduits ("REMICs") and Multi-Class Pass-Throughs. Each Fund (except Principal
Preservation Fund) may also invest in certain debt obligations which are
collateralized by mortgage loans or mortgage pass-through securities. Such
securities may be issued or guaranteed by U.S. Government agencies or issued by
certain financial institutions and other mortgage lenders. CMOs and REMICs are
debt instruments issued by special purpose entities, which are secured by pools
of mortgage loans or other mortgage-backed securities.
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Multi-class pass-through securities are equity interests in a trust composed of
mortgage loans or other mortgage-backed securities. Payments of principal and
interest on underlying collateral allows the payment of debt service on the CMO
or REMIC or scheduled distributions on the multi-class pass-through securities.
CMOs, REMICs and multi-class pass-through securities (collectively CMOs unless
the context indicates otherwise) may be issued by agencies or instrumentalities
of the U.S. Government or by private organizations.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate or adjustable rate tranche (to be discussed in the next paragraph) and has
a stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. Interest is paid or
accrues on all classes of a CMO on a monthly, quarterly or semi-annual basis.
The principal and interest on the underlying mortgages may be allocated among
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied to the classes of a series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of a CMO until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index such as the London Interbank Offered Rate
("LIBOR"). These adjustable rate tranches, known as "floating rate CMOs," will
be considered as adjustable rate mortgage securities (""ARMS") by a Fund.
Floating rate CMOs may be backed by fixed-rate or adjustable rate mortgages.
Floating rate CMOs are typically issued with lifetime "caps" on the coupon rate.
These "caps," similar to the "caps" on adjustable rate mortgages, represent a
ceiling beyond which the coupon rate on a floating rate CMO may not be increased
regardless of increases in the interest rate index to which the floating rate
CMO is based.
REMICs are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs in
that they issue multiple classes of securities. As with CMOs, the mortgages
which collateralize the REMICs in which a Fund may invest include mortgages
backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or issued by private
entities, which are not guaranteed by any government agency.
Yields on privately-issued CMOs as described above have been historically higher
than the yields on CMOs issued or guaranteed by U.S. Government agencies. The
risk of loss due to default on such instruments is higher because they are not
guaranteed by the U.S. Government. McM Funds will not invest in subordinated
privately-issued CMOs.
Resets
The interest rates paid on the ARMS and CMOs in which a Fund may invest
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are three main categories of
indices: those based on U.S. Treasury securities; those derived from a
calculated measure such as a cost of funds index; or moving average of mortgage
rates.
Caps and Floors
The underlying mortgages which collateralize the ARMS and CMOs in which a Fund
invests will frequently have caps and floors that limit the maximum amount by
which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization.
Stripped Mortgage-Backed Securities
Each Fund (except Principal Preservation Fund) may also invest in stripped
mortgage-backed securities, which are derivative multi-class mortgage
securities. The stripped mortgage-backed securities in which a Fund may invest
will only be issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Stripped mortgage-backed securities have greater market
volatility than other types of mortgage securities in which a Fund may invest.
Stripped mortgage-backed securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage-backed security will
have one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
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interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the yield to maturity
of any such IOs held by the Fund. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to recoup
fully its initial investment in these IO securities even if the securities are
rated in the highest rating categories, AAA or Aaa, by Standard & Poor's Ratings
Group ("S&P") or Moody's Investor Services, Inc.("Moody's"), respectively.
Stripped mortgage-backed securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The U.S. Securities and Exchange Commission has indicated that it views such
securities as illiquid. A Fund's investment in stripped mortgage securities will
be treated as illiquid and will, together with any other illiquid investments,
not exceed 15% of a Fund's net assets.
Risks of Mortgage-Backed Securities
The mortgage-backed securities in which a Fund invests differ from conventional
bonds in that principal is paid back over the life of the mortgage security
rather than at maturity. As a result, the holder of the mortgage-backed
securities (i.e., the Fund) receives monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the holder reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest that is lower than the rate on the existing mortgage securities. For
this reason, mortgage-backed securities may be less effective than other types
of U.S. Government securities as a means of "locking in" long-term interest
rates.
A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages and expose a Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by a
Fund, the prepayment right of mortgagors may decrease or limit the increase in
net asset value of the Fund because the value of the mortgage-backed securities
held by the Fund may decline more than or may not appreciate as much as the
price of noncallable debt securities. To the extent market interest rates
increase beyond the applicable cap or maximum rate on a mortgage security, the
market value of the mortgage-backed security would likely decline to the same
extent as a conventional fixed rate security.
In addition, to the extent mortgage-backed securities are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holder's principal investment to the extent of the premium
paid. On the other hand, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which, when distributed to shareholders, will be taxable
as ordinary income.
A Fund may also invest in pass-through certificates issued by non-governmental
issuers. Pools of conventional residential mortgage loans created by such
issuers generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government
guarantees of payment. Timely payment of interest and principal of these pools
is, however, generally supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurance and the mortgage
poolers. Such insurance and guarantees and the creditworthiness of the issuers
thereof will be considered in determining whether a mortgage-related security
meets the Fund's quality standards. The Fund may buy mortgage-related securities
without insurance or guarantees, if through an examination of the loan
experience and practices of the poolers, the investment manager determines that
the securities meet the Fund's quality standards.
With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities can meet their obligations under the policies. Although the market
for such non-governmental issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to each Fund's
limit with respect to investment in illiquid securities.
Other Mortgage-Backed Securities
The Advisor expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments the principal or
interest payments of which may vary or the terms to maturity of which may differ
from customary long-term fixed rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Advisor will, consistent
with a Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities. A Fund will
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not invest in any new types of mortgage-related securities without prior
disclosure to the shareholders of the respective Fund.
Asset-Backed Securities
Asset-backed securities are securities backed by installment contracts, credit
card and other receivables, or other assets of a financial character.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments. An asset-backed security's
stated maturity may be shortened, and the security's total return may be
difficult to predict precisely.
Futures Contracts and Related Options
Each Fund (except Principal Preservation Fund) may invest in futures contracts
and options on futures contracts for hedging purposes or to maintain liquidity.
However, a Fund may not purchase or sell a futures contract unless immediately
after any such transaction the sum of the aggregate amount of margin deposits on
its existing futures positions and the amount of premiums paid for related
options is 20% or less of its total assets.
At maturity, a futures contract obligates a Fund to take or make delivery of
certain securities or the cash value of a securities index. A Fund may sell a
futures contract in order to offset a decrease in the market value of its
portfolio securities that might otherwise result from a market decline. A Fund
may do so either to hedge the value of its portfolio of securities as a whole or
to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, a Fund may purchase a futures
contract in anticipation of purchases of securities. In addition, a Fund may
utilize futures contracts in anticipation of changes in the composition of its
portfolio holdings.
A Fund may purchase and sell call and put options on futures contracts traded on
an exchange or board of trade. In connection with a Fund's position in a futures
contract or option thereon, a Fund will create a segregated account of liquid
assets, such as cash, U.S. Government securities or other liquid high-grade debt
obligations, or will otherwise cover its position in accordance with applicable
requirements of the U.S. Securities and Exchange Commission.
Risk Factors of Options, Futures and Forward Contracts
The primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the securities
held by a Fund and the price of futures contracts and options; (ii) possible
lack of a liquid secondary market for a futures contract and the resulting
inability to close a futures contract when desired; (iii) losses, which are
potentially unlimited, due to unanticipated market movements; and (iv) McMorgan
& Company's (the "Advisor") ability to predict correctly the direction of
security prices, interest rates and other economic factors.
Options
Each Fund (except Principal Preservation Fund) may purchase put and call options
listed on a national securities exchange and issued by the Options Clearing
Corporation to the extent that premiums paid on all outstanding call options do
not exceed 20% of a Fund's total assets. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the option. Each Fund (except
Principal Preservation Fund) may write covered call and secured put options.
Such options may relate to particular securities, stock indices, or financial
instruments and may or may not be listed on a national securities exchange and
issued by the Options Clearing Corporation. Options trading is a highly
specialized activity that entails greater than ordinary investment risk. Options
on particular securities may be more volatile than the underlying securities,
and therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than a direct investment in the underlying securities. A
Fund may lose potential market appreciation if the Advisor's judgment is
incorrect with respect to interest rates, security prices or the movement of
indices.
A Fund may use options traded on U.S. exchanges and, to the extent permitted by
law, options traded over-the-counter. A Fund will invest in such options only to
the extent consistent with its 10% limit on investments in illiquid securities.
A Fund will write call and put options only if they are "covered." In the case
of a call option on a security, the option is "covered" if a Fund owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if additional cash
consideration is required, liquid assets, such as cash, U.S. Government
securities or other liquid high-grade debt obligations, in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified stock portfolio or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written; or (ii) greater than the exercise price of the call written
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provided the difference is maintained by the Fund in liquid assets such as cash,
U.S. Government securities and other high-grade debt obligations in a segregated
account with its custodian. A Fund will write put options only if they are
"secured" by liquid assets maintained in a segregated account by McM Funds'
custodian in an amount not less than the exercise price of the option at all
times during the option period.
A Fund's obligation to sell a security subject to a covered call option written
by it, or to purchase a security subject to a secured put option written by it,
may be terminated prior to the expiration date of the option by the Fund's
execution of a closing purchase transaction, which is effected by purchasing on
an exchange an option of the same series as the previously written option. Such
a purchase does not result in the ownership of an option. A closing purchase
transaction will ordinarily be effected to realize a profit on an outstanding
option, to prevent an underlying security from being called, to permit the sale
of the underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. There is no assurance that a liquid secondary market will exist for
any particular option. An option writer, unable to effect a closing purchase
transaction, will not be able to sell the underlying security (in the case of a
covered call option) or liquidate the segregated account (in the case of a
secured put option) until the option expires or the optioned security is
delivered upon exercise with the result that the writer in such circumstances
will be subject to the risk of market decline or appreciation in the security
during such period.
Purchasing Call Options
Each Fund (except Principal Preservation Fund) may purchase call options to the
extent that premiums paid by a Fund do not aggregate more than 20% of that
Fund's total assets. When a Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund obtains the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who receives
the premium upon writing the option, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. The advantage of purchasing call options is that a Fund may alter
portfolio characteristics and modify portfolio maturities without incurring the
cost associated with transactions.
A Fund may, following the purchase of a call option, liquidate its position by
effecting a closing sale transaction. This is accomplished by selling an option
of the same series as the option previously purchased. The Fund will realize a
profit from a closing sale transaction if the price received on the transaction
is more than the premium paid to purchase the original call option; the Fund
will realize a loss from a closing sale transaction if the price received on the
transaction is less than the premium paid to purchase the original call option.
Although a Fund will generally purchase only those call options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options no secondary market on an exchange may
exist. In such event, it may not be possible to effect closing transactions in
particular options, with the result that a Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by a Fund may expire without any value to the Fund, in which event the
Fund would realize a capital loss that would be characterized as short-term
unless the option was held for more than one year.
Covered Call Writing
Each Fund (except Principal Preservation Fund) may write covered call options
from time to time on such portions of their portfolios, without limit, as the
Advisor determines is appropriate in seeking to obtain a Fund's investment
objective. The advantage to a Fund of writing covered calls is that the Fund
receives a premium that is additional income. However, if the security rises in
value, the Fund may not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
or upon entering a closing purchase transaction. A closing purchase transaction,
in which a Fund, as writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written, cannot be
effected with respect to an option once the option writer has received an
exercise notice for such option.
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Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option less the commission paid. Such a
gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security and the proceeds
of the sale of the security plus the amount of the premium on the option less
the commission paid.
A Fund will write call options only on a covered basis, which means that a Fund
will own the underlying security subject to a call option at all times during
the option period. Unless a closing purchase transaction is effected, a Fund
would be required to continue to hold a security which it might otherwise wish
to sell or deliver a security it would want to hold. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
Purchasing Put Options
Each Fund (except Principal Preservation Fund) may invest up to 20% of its total
assets in the purchase of put options. A Fund will, at all times during which it
holds a put option, own the security covered by such option. The purchase of the
put on substantially identical securities held will constitute a short sale for
tax purposes, the effect of which is to create short-term capital gain on the
sale of the security and to suspend running of its holding period (and treat it
as commencing on the date of the closing of the short sale) or that of a
security acquired to cover the same if, at the time the put was acquired, the
security had not been held for more than one year.
A put option purchased by a Fund gives it the right to sell one of its
securities for an agreed-upon price up to an agreed date. A Fund may purchase
put options in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option ("protective puts"). The ability to purchase put options will allow a
Fund to protect unrealized gains in an appreciated security in its portfolio
without actually selling the security. If the security does not drop in value, a
Fund will lose the value of the premium paid. A Fund may sell a put option which
it has previously purchased prior to the sale of the securities underlying such
option. Such sale will result in a net gain or loss depending upon whether the
amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold.
A Fund may sell a put option purchased on individual portfolio securities.
Additionally, a Fund may enter into closing sale transactions. A closing sale
transaction is one in which a Fund, when it is the holder of an outstanding
option, liquidates its position by selling an option of the same series as the
option previously purchased.
Writing Put Options
Each Fund (except Principal Preservation Fund) may also write put options on a
secured basis, which means that a Fund will maintain, in a segregated account
with its custodian, cash or U.S. Government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. Government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by the Fund. Secured put options
will generally be written in circumstances where the Advisor wishes to purchase
the underlying security for a Fund's portfolio at a price lower than the current
market price of the security. In such event, that Fund would write a secured put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. With regard to the
writing of put options, each Fund will limit the aggregate value of the
obligations underlying such put options to 50% of its total net assets.
Following the writing of a put option, a Fund may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.
8
<PAGE>
Swaps
To help enhance the value of its portfolio or manage its exposure to different
types of investments, the Balanced Fund, Intermediate Fixed Income Fund and
Fixed Income Fund may enter into interest rate, currency and mortgage swap
agreements and may purchase and sell interest rate "caps", "floors" and
"collars". The potential loss from investing in swap agreements is much greater
than the amount initially invested. This would protect a Fund from a decline in
the value of the underlying security due to rising rates, but would also limit
its ability to benefit from falling interest rates. A Fund will enter into
interest rate swaps only on a net basis (i.e. the two payment streams will be
netted out, with the Fund receiving or paying as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid high-grade debt
securities having an aggregate value at least equal to the accrued excess will
be maintained in a segregated account by McM Funds' custodian bank. Interest
rate swaps do not involve the delivery of securities or other underlying assets
or principal. Thus, if the other party to an interest rate swap defaults, a
Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive.
In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest rate cap has the right to receive payments to the extent a specified
interest rate exceeds an agreed-upon level; the purchaser of an interest rate
floor has the right to receive payments to the extent a specified interest rate
falls below an agreed level. A collar entitles the purchaser to receive payments
to the extent a specified interest rate falls outside an agreed-upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on a Fund's performance.
Swap agreements involve risks 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
Each Fund may purchase or sell securities on a when-issued or delayed delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Debt securities are often issued
on this basis. No income will accrue on securities purchased on a when-issued or
delayed delivery basis until the securities are delivered. Each Fund will
establish a segregated account in which it will maintain cash and U.S.
Government securities or other high-grade debt obligations at least equal in
value to commitments for when-issued securities. Securities purchased or sold on
a when-issued, delayed delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although a Fund would generally purchase securities on a
when-issued, delayed delivery or a forward commitment basis with the intention
of acquiring the securities, a Fund may dispose of such securities prior to
settlement if the Advisor deems it appropriate to do so.
A Fund may dispose of or negotiate a when-issued or forward commitment. A Fund
will normally realize a capital gain or loss in connection with these
transactions. For purposes of determining a Fund's average dollar-weighted
maturity, the maturity of when-issued or forward commitment securities will be
calculated from the commitment date.
When a Fund purchases securities on a when-issued, delayed delivery or forward
commitment basis, the Fund's custodian will maintain in a segregated account
cash, U.S. Government securities or other high-grade liquid debt obligations
having a value (determined daily) at least equal to the amount of the Fund's
purchase commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio securities in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued purchases, forward commitments and delayed
delivery transactions.
Variable and Floating Rate Instruments
With respect to the variable and floating rate instruments that may be acquired
by Intermediate Fixed Income Fund and Fixed Income Fund, the Advisor will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and, if the instruments are subject to demand
features, will monitor their financial status to meet payment on demand. Where
necessary to ensure that a variable or floating rate instrument meets a Fund's
quality requirements, the issuer's obligation to pay the principal of the
instrument will be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend.
Repurchase Agreements
Each Fund may enter into repurchase agreements to earn income. McM Funds may
only enter into repurchase agreements with financial institutions that are
deemed to be creditworthy by the Advisor pursuant to guidelines established by
9
<PAGE>
McM Funds' Board of Trustees. During the term of any repurchase agreement, the
Advisor will continue to monitor the creditworthiness of the seller. Repurchase
agreements will be fully collateralized by securities in which the Fund may
invest directly. Such collateral will be marked-to-market daily. If the seller
of the underlying security under the repurchase agreement should default on its
obligation to repurchase the underlying security, a Fund may experience delay or
difficulty in exercising its right to realize upon the security and, in
addition, may incur a loss if the value of the security should decline, as well
as disposition costs in liquidating the security. No more than 10% of a Fund's
net assets will be invested in illiquid securities, including repurchase
agreements that have a maturity of longer than seven days.
The repurchase price under the repurchase agreements generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Repurchase agreements are considered to be collateralized
loans by a Fund under the Investment Company Act of 1940, as amended (the "1940
Act").
Each Fund will only enter into a repurchase agreement where the market value of
the underlying security, including interest accrued, will at all times be equal
to or exceed the value of the repurchase agreement. The securities held subject
to a repurchase agreement by Principal Preservation Fund may have stated
maturities exceeding 13 months, provided the repurchase agreement itself matures
in less than 13 months.
Reverse Repurchase Agreements
Each Fund may obtain funds for temporary defensive purposes by entering into
reverse repurchase agreements with banks and broker-dealers. Reverse repurchase
agreements involve sales by a Fund of portfolio assets concurrently with an
agreement by that Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities. During the time a
reverse repurchase agreement is outstanding, the Fund will maintain a segregated
custodial account consisting of cash, U.S. Government securities or other
high-grade liquid debt obligations having a value at least equal to the
repurchase price, plus accrued interest, subject to the agreement. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the price of the securities the Fund is
obligated to repurchase. Reverse repurchase agreements are considered borrowings
by the Fund, and as such are subject to the investment limitations discussed in
the section entitled "Borrowing."
Borrowing
Each Fund (except Principal Preservation Fund) has a fundamental policy that it
may not borrow money, except that it may (1) borrow money from banks for
temporary or emergency purposes and not for leveraging or investment and (2)
enter into reverse repurchase agreements for any purpose, so long as the
aggregate amount of borrowings and reverse repurchase agreements does not exceed
one-third of the Fund's total assets less liabilities (other than borrowings).
No Fund will purchase securities while borrowings in excess of 5% of its total
assets are outstanding.
Securities Lending
To increase return on portfolio securities, each Fund (except Principal
Preservation Fund) may lend its portfolio securities on a short-term basis to
banks, broker-dealers and other institutional investors pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. Collateral
will consist of U.S. Government securities, cash equivalents or irrevocable
letters of credit. A Fund will not lend portfolio securities in excess of
one-third of the value of its respective total assets. There may be risks of
delay in receiving additional collateral or in recovering the securities loaned
or even a loss of rights in the collateral should the borrower of the securities
fail financially. However, loans are made only to borrowers deemed by the
Advisor to be of good standing and when, in its judgment, the income to be
earned from the loan justifies the attendant risks.
Technology Companies - Sector Focus
To the extent that a fund has significant investments in one or a few sectors,
it is subject to more risk than a fund that maintains broad sector
diversification. The Equity Investment Fund and the equity portion of the
Balanced Fund currently have, but may not always have weightings similar to the
S&P 500 Index (but are not necessarily the same securities). At the present
time, the technology sector represents about 30% of the S&P 500 index.
Technology company stocks can be subject to abrupt or erratic price movements
and have been volatile, especially over the short term, due to the rapid pace of
product change and development affecting such companies. Technology companies
are subject to significant competitive pressures, such as new market entrants,
aggressive pricing and tight profit margins. In addition, the prices of
technology issuers may be influenced not only by developments relating to the
company, but by factors which affect the sector, even if those factors are not
relevant to the company. Smaller technology companies may be sensitive to
10
<PAGE>
increases in interest rates, as such an increase could make it more difficult
for an issuer to borrow money to expand. These companies also face the risks
that new services, equipment or technologies will not be accepted by consumers
and businesses or will become rapidly obsolete. These factors can affect the
profitability of technology companies and therefore the value of their
securities. In addition, many internet-related companies are in the emerging
stage of development and are particularly vulnerable to the risks that their
business plans will not develop as anticipated or that technology will rapidly
change.
Securities of Other Investment Companies
Each Fund may invest in securities issued by other investment companies that
invest in securities in which the Fund is permitted to invest. In addition, each
Fund may invest in securities of other investment companies within the limits
prescribed by the 1940 Act, which include limits to its investments in
securities issued by other investment companies, so that, as determined
immediately after a purchase of such securities is made: (i) not more than 5% of
the value of the Fund's total assets will be invested in the securities of any
one investment company; (ii) not more than 10% of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or Funds as a whole. As a shareholder of
another investment company, each Fund would bear along with other shareholders
its pro rata portion of the investment company's expenses, including advisory
fees. In accordance with applicable state regulatory provisions, the Advisor has
agreed to waive its management fee with respect to the portion of any Fund's
assets invested in shares of other open-end investment companies. In the case of
closed-end investment companies, these expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations.
Foreign Securities
Each Fund (except Principal Preservation Fund) may only invest indirectly in
foreign securities through American Depository Receipts and European Depository
Receipts ("ADR's" and "EDR's"). For many foreign securities, there are U.S.
dollar denominated ADR's, which are bought and sold in the United States and are
issued by domestic banks. ADR's represent the right to receive securities of
foreign issuers deposited in the domestic bank or a correspondent bank. In
general, there is a large, liquid market in the United States for most ADR's.
Each Fund may also invest in EDR's which are receipts evidencing an arrangement
with a European bank similar to that for ADR's and are designed for use in the
European securities markets. EDR's are not necessarily denominated in the
currency of the underlying security. McM Funds will not invest in unsponsored
ADR's and EDR's.
Investments made in foreign securities, whether made directly or indirectly,
involve certain inherent risks, such as those related to changes in foreign
currency exchange rates, future political and economic developments, the
possible imposition of foreign withholding tax on the interest or dividend
income payable on such instruments, the possible establishment of foreign
controls, the possible seizure or nationalization of foreign deposits or assets,
or the adoption of other foreign government restrictions that might adversely
affect the foreign securities held by a Fund.
Restricted Securities
Each Fund will limit investments in securities of issuers which the Fund is
restricted from selling to the public without registration under the Securities
Act of 1933, as amended (the "Securities Act"), to no more than 10% of the
Fund's total assets, excluding restricted securities eligible for resale
pursuant to Rule 144A that have been determined to be liquid by McM Funds' Board
of Trustees.
Rule 144A Securities
Each Fund may purchase securities which are not registered under the Securities
Act but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the Securities Act. In some cases, such securities are
classified as "illiquid securities", however, any such security will not be
considered illiquid so long as it is determined by the Advisor, under guidelines
approved by McM Funds' Board of Trustees, that an adequate trading market exists
for that security. This investment practice could have the effect of increasing
the level of illiquidity in a Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities.
Illiquid Securities
Each Fund will not invest more than 10% of the value of its net assets in
securities that are illiquid because of restrictions on transferability or other
reasons. Repurchase agreements with deemed maturities in excess of seven days
and securities that are not registered under the Securities Act but that may be
purchased by institutional buyers pursuant to Rule 144A under the Securities Act
are subject to 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).
11
<PAGE>
Convertible Securities
Common stock occupies the most junior position in a company's capital structure.
Convertible securities entitle the holder to exchange those securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to convert. The provisions of any convertible
security determine its ranking in a company's capital structure. In the case of
subordinated convertible debentures, the holder's claims on assets and earnings
are subordinated to the claims of other creditors, and are senior to the claims
of preferred and common shareholders. In the case of preferred stock and
convertible preferred stock, the holder's claims on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.
Money Market Instruments
Money market instruments in which a Fund may invest include, but are not limited
to, the following: short-term corporate obligations, letters of credit backed by
commercial paper, time deposits, trading securities, variable and floating rate
notes, master demand notes and bank obligations.
Bank obligations include bankers' acceptances and negotiable certificates of
deposit issued by a U.S. bank, savings bank or savings association that is a
member of the Federal Reserve System or insured by the Federal Deposit Insurance
Corporation. Investments in bank obligations are limited to the obligations of
financial institutions having $1 billion or more in total assets at the time of
purchase.
Investments by McM Funds in commercial paper will consist of issues that are
rated "A-1" or better by S&P or "Prime-1" by Moody's, and regarding up to 5% of
the Principal Preservation Fund, commercial paper rated "A-2" by S&P or
"Prime-2" by Moody's. In addition, McM Funds may acquire unrated commercial
paper that is determined by the Advisor at the time of purchase to be of
comparable quality to rated instruments that may be acquired by McM Funds.
Commercial paper may include variable and floating rate instruments. While there
may be no active secondary market with respect to a particular variable or
floating rate instrument purchased by McM Funds, McM Funds may, from time to
time as specified in the instrument, demand payment of the principal or may
resell the instrument to a third party. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of an instrument
if the issuer defaulted on its payment obligation or during periods that a Fund
is not entitled to exercise its demand rights, and a Fund could, for these or
other reasons, suffer a loss. Substantial holdings of variable and floating rate
instruments could reduce portfolio liquidity.
Time Deposits carry some credit risk, which Treasuries do not; also, investors
regard time deposits as being sufficiently less liquid than Treasuries; hence,
investors demand some extra yield for buying time deposits rather than
Treasuries.
Because Variable and Floating Rate Notes are direct lending arrangements between
the lender and the borrower, it is not contemplated that such instruments will
generally be traded, and there is generally no established secondary market for
these obligations, although they are redeemable at face value. Accordingly, if
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand.
Temporary Defensive Measures
For temporary and defensive purposes, each Fund (except Principal Preservation
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. Each 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 a Fund to invest in
securities other than those listed here and in the Prospectus, provided that
such investment would be consistent with that Fund's investment objective and
that it would not violate any fundamental investment policies or restrictions
applicable to that Fund.
12
<PAGE>
INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental policies and may not
be changed as to a Fund without the approval of a majority of the outstanding
voting shares (as defined in the 1940 Act) of the Fund. Unless otherwise
indicated, all percentage limitations listed below apply to each Fund and apply
only at the time of the transaction. Accordingly, if a percentage restriction is
adhered to at the time of investment, a later increase or decrease in the
percentage that results from a relative change in values or from a change in a
Fund's total assets will not be considered a violation.
Except as set forth under "Investment Objectives" and "Investment Strategies" in
the Prospectus, each Fund may not:
(1) As to 75% of its total assets, purchase the securities of any one
issuer (other than securities issued by the U.S. Government or its
agencies or instrumentalities), if immediately after such purchase
more than 5% of the value of the Fund's total assets would be
invested in securities of such issuer;
(2) Purchase or sell real estate (but this restriction shall not prevent
a Fund from investing directly or indirectly in portfolio instruments
secured by real estate or interests therein or acquiring securities
of real estate investment trusts or other issuers that deal in real
estate), interests in oil, gas and/or mineral exploration or
development programs or leases;
(3) Purchase or sell commodities or commodity contracts, except that a
Fund may enter into futures contracts and options thereon in
accordance with such Fund's investment objectives and policies;
(4) Make investments in securities for the purpose of exercising control;
(5) Purchase the securities of any one issuer if, immediately after such
purchase, a Fund would own more than 10% of the outstanding voting
securities of such issuer;
(6) Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of
transactions. For this purpose, the deposit or payment by a Fund for
initial or maintenance margin in connection with futures contracts is
not considered to be the purchase or sale of a security on margin;
(7) Make loans, except that this restriction shall not prohibit (a) the
purchase and holding of debt instruments in accordance with a Fund's
investment objectives and policies, (b) the lending of portfolio
securities or (c) entry into repurchase agreements with banks or
broker-dealers;
(8) Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of its
total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the total assets of the Fund at the
time of its borrowing. All borrowings will be done from a bank and
asset coverage of at least 300% is required. A Fund will not purchase
securities when borrowings exceed 5% of that Fund's total assets;
(9) Purchase the securities of issuers conducting their principal
business activities in the same industry (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if immediately after such purchase the value of a
Fund's investments in such industry would exceed 25% of the value of
the total assets of the Fund;
(10) Act as an underwriter of securities, except that, in connection with
the disposition of a security, a Fund may be deemed to be an
"underwriter" as that term is defined in the Securities Act;
(11) Invest in puts, calls, straddles or combinations thereof except to
the extent 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.
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<PAGE>
TRUSTEES AND OFFICERS
McM Funds has a Board of Trustees that establishes each Fund's policies and
supervises and reviews the management of each Fund. The officers of McM Funds
and the Advisor administer the day-to-day operations of the Funds pursuant to
the terms of the Investment Advisory Agreement with each Fund.
Information pertaining to the Trustees and executive officers of McM Funds is
set forth below.
<TABLE>
<CAPTION>
Aggregate
Principal Compensation From Total Compensation
Position(s) Occupation(s) Trust To Date for From Trust and Fund
Name, Address Held with During Past Fiscal Year Ended Complex Paid
and Date of Birth Registrant Five Years June 30, 2000 to Trustees
----------------- ----------- ------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Terry A. O'Toole, CPA* 7-9-47 Chairman President and CEO, N/A N/A
McMorgan & Company and McMorgan &
One Bush Street, Suite 800 President Company
San Francisco, CA 94104
$9,250
Kenneth I. Rosenblum 4-27-41 Trustee Independent $9,250
1299 Ocean Avenue Consultant
Suite 333
Santa Monica, CA 90401
Walter B. Rose 5-8-46 Trustee President, Venture $9,250 $9,250
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 2-22-31 Trustee Retired; prior $9,250 $9,250
2047 Byron Street thereto Chairman
Palo Alto, CA 94301 and Chief
Executive Officer,
Hemming Morse, Inc.
Robert R. Barron* 10-17-44 Trustee, Executive Vice N/A N/A
McMorgan & Company Vice President, McMorgan
3500 W. Olive Avenue President & & Company.
Suite 690 Treasurer
Burbank, CA 91505
N/A
Mark R. Taylor* 12-22-58 Trustee Vice President, N/A
McMorgan & Company McMorgan &
One Bush Street, Suite 800 Company
San Francisco, CA 94104
Gregory L. Watson, CFA* 9-1-45 Trustee Executive Vice N/A N/A
McMorgan & Company President, McMorgan
8955 E. Pinnacle Peak Rd & Company
Suite 101
Scottsdale, AZ 85255
N/A
Deane A. Nelson, CFA* 8-1-46 Vice Vice President, N/A
McMorgan & Company President McMorgan &
One Bush Street, Suite 800 and Company
San Francisco, CA 94104 Secretary
Robert M. Hirsch* 12-11-53 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 offi cers are co nsidered "inte rested persons" of McM
Funds as defined under the 1940 Act.
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<PAGE>
The non-interested Truste es of McM F unds each rece ive a fee of $8,500 per
year, plus $500 per meeting and expenses f or each meetin g 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.
Code of Ethics.
The Trust and the advisor have adopted separate Codes of Ethics under rule 17j-1
of the1940 Act. Each Code of Ethics permits personnel subject to the Codes to
invest in securities, including securities that may be purchased or held by the
Fund. Without prior approval from the designated compliance officer, the
officers, directors or trustees and advisory personnel of the Trust and advisor
with substantial responsibility or with knowledge of the investments made by the
advisor on behalf of its clients, including the McM Funds, are prohibited from
purchasing or selling any security which he or she knows:
(i) is being considered for purchase or sale by the advisor for a client;
(ii) is being purchased or sold by the advisor for a client; or
(iii) is the subject of non-public material information relating to the
security and known to the that person.
Moreover, portfolio managers and trading personnel of the advisor are prohibited
from engaging in any transaction for their own account that involves a limited
opportunity from which a client could otherwise benefit. All access persons must
obtain prior approval of any personal securities transaction involving an
initial public offering or limited offering (private placement). All Access
Persons who are registered representatives must obtain prior approval of any
personal securities transactions.
Independent Trustees of the McM Funds are not subject to the pre-clearance
provisions of the Trust's Code if they have no knowledge of a Fund's intended
investments.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of August 30, 2000, the Trustees and officers of the Trust, individually and
as a group, owned beneficially less than 1% of the outstanding shares of the McM
Fund shares of the McM Principal Preservation Fund, McM Intermediate Fixed
Income Fund and McM Balanced Fund. The Trustees and officers of the Trust,
individually and as a group, owned beneficially 2% of the McM Fixed Income Fund
and the McM Equity Investment Fund and 1% of the Trust.
As of August 30, 2000, no person owned beneficially or of record 5% or more of
the Trust. As of August 30, 2000, the Class Z shares had not commenced
operations. As of August 30, 2000, the following persons owned beneficially more
than 5% of the outstanding voting shares of the McM Funds class of the following
series:
McM PRINCIPAL PRESERVATION FUND
Name & Address of Beneficial Owners Percentage
----------------------------------- ----------
Union Bank of California 10.68%
Trustee Producer Supl Plan McMorgan
San Diego, CA
Cement Masons Vacation Holiday Trust Fund 9.76%
Suisun, CA
Union Bank of California 8.71%
Trustee Producer Basic Plan McMorgan
San Diego, CA
Operating Engineers Participating EMP PRE 6.54%
APP APP & Journeyman Action Training Fund
Oakland, CA
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<PAGE>
McM INTERMEDIATE FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
----------------------------------- ----------
Cement Masons Health & Welfare Trust Fund 10.15%
Suisun, CA
Stationary Engineers Local 39 6.38%
New York, NY
Northern California Carpenters Regional Council 5.45%
Oakland, CA
McM FIXED INCOME FUND
Name & Address of Beneficial Owners Percentage
----------------------------------- ----------
Industrial Carpenters & Precast Industry Pension 39.20%
Fund*
Oakland, CA
USW Education and Scholarship Fund 9.97%
Cleveland, OH
San Joaquin Valley Hotel Restaurant & Tavern 6.35%
Pension Trust
Fresno, CA
Office & Professional Employees Insurance 5.20%
Trust Fund
Oakland, CA
McM BALANCED FUND
Name & Address of Beneficial Owners Percentage
----------------------------------- ----------
UA Local 290 Plumber Steamfitter & Shipfitter 11.83%
Retiree Health Trust
Portland, OR
UA Local 38 Pipe Trades Defined 9.41%
Contribution Plan
San Francisco, CA
Sheet Metal Workers Local 104 6.67%
Supplemental Unemployment & Healthcare Fund
San Ramon, CA
Plumbers & Pipefitters Local Union No. 286 6.24%
Goodlettsville, TN
IBEW Local 48 General Fund 5.95%
Portland, OR
Lake Cty Illinois Plaster & Cement Mason 5.02%
Retirement Savings Plan
Geneva, IL
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<PAGE>
McM EQUITY INVESTMENT FUND
Name & Address of Beneficial Owners Percentage
----------------------------------- ----------
Operating Engineers Health & Welfare 9.04%
Trust Fund
New York, NY
BAC Local 3 Pension Trust 5.42%
Los Angeles, CA
Todd Shipyard 5.15%
San Diego, CA
* Pursuant to the definitions set forth in the 1940 Act, as of August 30, 2000,
these persons are deemed "control persons" by nature of their significant
holdings in the respective Fund. This does not mean, however, that these
persons manage the affairs of McM Funds. The Advisor maintains sole
responsibility over the affairs of McM Funds pursuant to its Investment
Advisory Agreement with McM Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisory Agreement. Each 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, each Fund
pays McMorgan & Company a monthly fee at the following annual rates based on
each Fund's average daily net assets before any fee waiver as follows: Principal
Preservation Fund - 0.25%, Intermediate Fixed Income Fund - 0.35%, Fixed Income
Fund - 0.35%, Balanced Fund - 0.45%, Equity Investment Fund - 0.50%. The Advisor
has voluntarily undertaken to reduce some or all of its management fee to keep
total annual operating expenses at or below the following percentages of each
Fund's McM Funds Class average net assets: Principal Preservation Fund (0.30%),
Intermediate Fixed Income Fund (0.50%), Fixed Income Fund (0.50%), Balanced Fund
(0.60%), Equity Investment Fund (0.75%). While the Advisor has not undertaken to
limit the total annual operating expenses of the Class Z shares, the advisory
fee waiver would also apply to these shares. Such fee waivers and expense
reimbursements may be terminated at any time at the discretion of the Advisor.
Any fee reductions or expense reimbursements made by the Advisor are subject to
reimbursement by the appropriate Fund within the following three years provided
the Fund is able to effect such reimbursement and remain in compliance with
applicable expense limitations.
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 an advisory agreement on behalf of each Fund (the "Advisory Agreements"),
the Advisor is not liable for any error of judgment or mistake of law or for any
loss suffered by McM Funds or a Fund in connection with the performance of the
Advisory Agreements, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard of its duties and obligations thereunder.
The Advisory Agreements are terminable with respect to a Fund by vote of the
Board of Trustees or by the holders of a majority of the outstanding voting
securities of the Fund, at any time without penalty, on 60 days' written notice
to the Advisor. The Advisor may also terminate its advisory relationship with
respect to a Fund on 60 days' written notice to McM Funds. The Advisory
Agreements terminate automatically in the event of their assignment.
17
<PAGE>
For the fiscal years ended June 30, 2000, 1999 and 1998 the Advisor was paid
advisory fees and expense recoveries after expense reimbursements and fee
waivers as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Series June 30, 2000 June 30, 1999 June 30, 1998
<S> <C> <C> <C>
McM Principal Preservation
Fund $29,694 $0.00 $0.00
McM Intermediate Fixed
Income Fund $533,604 $452,932 $323,908
McM Fixed Income Fund $23,311 $0.00 $0.00
McM Balanced Fund $674,848 $481,329 $202,084
McM Equity Investment Fund $1,192,631 $977,550 $480,813
</TABLE>
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.
For the fiscal years ended June 30, 2000, 1999 and 1998, the Advisor reimbursed
the Funds for certain recoverable expenses as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Series June 30, 2000 June 30, 1999 June 30, 1998
<S> <C> <C> <C>
McM Principal Preservation
Fund $148,962 $156,860 $140,922
McM Intermediate Fixed
Income Fund $26,886 $27,773 $58,688
McM Fixed Income Fund $69,988 $108,967 $101,633
McM Balanced Fund $67,866 $50,527 $90,791
McM Equity Investment Fund $0.00 $0.00 $0.00
</TABLE>
Transfer Agent. PFPC Inc. ("PFPC"), a wholly-owned subsidiary of PNC Bank
Corporation, which has its principal business address at 400 Bellevue Parkway,
Wilmington, DE 19809, provides transfer agency and dividend disbursing agent
services for the Funds. As part of these services, PFPC maintains records
pertaining to the sale and redemption of Fund shares and will distribute each
Fund's cash dividends to shareholders.
Administrative Services Agent. PFPC also serves as the administrator for the
Funds. The services include the day-to-day administration of matters necessary
to the Funds' operations, maintenance of records and books, preparation of
reports, and compliance monitoring. For providing administrative services to the
Funds, PFPC receives from each Fund a basic fee, computed daily and paid
monthly.
McM Funds paid the following administration fees for the fiscal years ended June
30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Series June 30, 2000 June 30, 1999 June 30, 1998
<S> <C> <C> <C>
Principal Preservation
Fund $38,082 $53,963 $39,466
Intermediate Fixed
Income Fund $94,208 $53,391 $39,144
Fixed Income Fund $12,292 $53,871 $38,314
Balanced Fund $95,523 $54,540 $39,088
Equity Investment Fund $135,138 $55,958 $40,160
</TABLE>
18
<PAGE>
Accounting Services Agent. PFPC also serves as the accounting agent for the
Funds and maintains the accounting books and records of the Funds, 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 Funds, PFPC receives from each Fund an annual fee, computed daily and paid
monthly.
Custodian and Custody Administrator. The Bank of New York, 48 Wall Street, New
York, New York 10286, is custodian of the Funds' assets pursuant to a custodian
agreement. Under the custodian agreement, The Bank of New York (i) maintains a
separate account or accounts in the name of 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.
PFPC will act as custody administrator and has agreed to pay the fees and
expenses of the custodian. For those services, PFPC receives an annual fee.
Certain transaction fees and out-of-pocket expenses may also be charged.
Underwriter
Provident Distributors, Inc. ("PDI"), 3200 Horizon Dr., King of Prussia, PA
19406, serves as underwriter pursuant to an underwriting agreement for the
limited purpose of acting as underwriter to facilitate the registration of
shares of each Fund under state securities laws and to assist in the sale of
shares. The Underwriting Agreement may be terminated by either party upon 60
days' prior written notice to the other party.
PDI 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 PDI as states in which it wishes to offer its shares for
sale, in order that state registrations may be maintained for the Trust.
PDI 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.
Distribution Plan. The Trust has adopted a distribution plan on behalf of the
Class Z shares of the McM Intermediate Fixed Income Fund, McM Fixed Income Fund,
McM Balanced Fund and McM Equity Investment Fund (the "Plan") in accordance with
Rule 12b-1 under the 1940 Act. The Plan permits each Fund to pay certain
expenses associated with the distribution and servicing of its shares. The Plan
provides that the applicable Fund will reimburse PDI or a third party
administrator for actual distribution and shareholder servicing expenses
incurred not exceeding, on an annual basis, 0.25% of each Fund's average daily
net assets.
In adopting the Plan, the Board of Trustees considered the likelihood that the
Plan is designed to benefit each Fund and its shareholders by strengthening the
system for distributing the Fund's shares and thereby increasing sales and
reducing redemptions. The Trustees adopted the Plan because of its anticipated
benefits to the Funds. These anticipated benefits include: increased promotion
and distribution of the Funds' shares, an enhancement in each Fund's ability to
maintain accounts and improve asset retention, increased stability of net assets
for the Funds, increased stability in each Fund's positions, and greater
flexibility in achieving investment objectives. The costs of any joint
distribution activities among the Funds will be allocated among the Funds in
proportion to their net assets. The Board of Trustees concluded that there was a
reasonable liklihood that each of the applicable Funds and their shareholders
would benefit from the adoption of the Plan.
The Plan is subject to annual approval by the Trustees and is terminable at any
time by vote of the Trustees or by vote of a majority of the shares of the
applicable class or Fund. Pursuant to the Plan, a new Trustee who is not an
interested person (as defined in the 1940 Act) must be nominated by existing
Trustees who are not interested persons.
19
<PAGE>
If the Plan is terminated (or not renewed) with respect to any one or more
classes or Funds, the Plan may continue in effect with respect to a class or
fund as to which it has not been terminated (or has been renewed). Although
there is no obligation for the Trust to pay expenses incurred by the Distributor
in excess of those paid to the Distributor under a Plan, if the Plan is
terminated, the Board will consider how to treat such expenses. Any expenses
incurred by the Distributor but not yet recovered through distribution fees
could be recovered through future distribution fees.
Because amounts paid pursuant to the Plan are paid to the Distributor, the
Distributor and its officers, directors and employees may be deemed to have a
financial interest in the operation of the Plan. None of the Trustees has a
financial interest in the operation of the Plan. The Plan was not in effect
during the fiscal year ended June 30, 2000.
All payments made pursuant to the Plan will be made for the purpose of selling
shares issued by the applicable Funds.
Independent Accountants
The accounting firm of Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800,
Philadelphia, PA 19103, has been designated as independent accountant for each
Fund. Tait, Weller & Baker performs annual audits of each 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 each
Fund and for the placement of its portfolio business and the negotiation of
commissions, if any, paid on such transactions. Fixed income securities in which
a Fund invests are traded in the over-the-counter market. These securities are
generally traded on a net basis with dealers acting as principal for their own
accounts without a stated commission. In over-the-counter transactions, orders
are placed directly with a principal market-maker unless a better price and
execution can be obtained by using a broker. Brokerage commissions are paid on
transactions in listed securities, futures contracts and options thereon. The
Advisor is responsible for effecting portfolio transactions and will do so in a
manner deemed fair and reasonable to each Fund. The primary consideration in all
portfolio transactions will be prompt execution of orders in an efficient manner
at the most favorable price. In selecting and monitoring broker-dealers and
negotiating commissions, the Advisor considers the firm's reliability, the
quality of its execution services on a continuing basis and its financial
condition.
The Advisor effects portfolio transactions for other investment companies and
advisory accounts. Research services furnished by dealers through whom McM Funds
effect securities transactions may be used by the Advisor in servicing all of
its accounts; not all such services may be used in connection with McM Funds. In
the opinion of the Advisor, it is not possible to measure separately the
benefits from research services to each of the accounts (including each Fund).
The Advisor will attempt to allocate equitably portfolio transactions among each
Fund and others whenever concurrent decisions are made to purchase or sell
securities by a Fund and other accounts. In making such allocations between McM
Funds and others, the main factors to be considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for recommending investments to McM Funds and the others. In some
cases, this procedure could have an adverse effect on McM Funds. In the opinion
of the Advisor, however, the results of such procedures will, on the whole, be
in the best interests of each of the clients.
McM Funds paid the following aggregate brokerage commissions for the fiscal
years ended June 30, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Series June 30, 2000 June 30, 1999 June 30, 1998
<S> <C> <C> <C>
McM Balanced Fund $30,957 $29,250 $22,585
McM Equity Investment
Fund $77,806 $58,757 $47,700
</TABLE>
The McM Principal Preservation Fund, McM Intermediate Fixed Income Fund and the
McM Fixed Income Fund paid no brokerage commissions during the three preceding
fiscal years.
20
<PAGE>
SHARES OF BENEFICAL INTEREST
Each share of a Fund represents an equal proportionate interest in the assets
belonging to that Fund. When issued, shares are fully paid and non-assessable.
In the event of liquidation of a Fund, shareholders are entitled to share pro
rata in the net assets of the Fund available for distribution to such
shareholders. Shares of a 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 Funds
have 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 a Fund.
PURCHASES, REDEMPTONS AND PRICING OF SHARES
Purchase of Shares
Shares of McM Principal Preservation Fund are offered in one class only, McM
Fund shares, with no sales charge or Rule 12b-1 fees. McM Intermediate Fixed
Income Fund, McM Fixed Income Fund, McM Balanced Fund and McM Equity Investment
Fund offer both McM Fund shares and Class Z shares. The McM Funds shares have no
sales charge or Rule 12b-1 fees. Class Z shares have no sales charge, but are
subject to a 0.25% Rule 12b-1 distribution and servicing fee.
Net Asset Value
The net asset value per share of each Fund is computed as of the close of
regular trading on the NYSE; provided that, for the Principal Preservation Fund,
it is also not a national bank holiday. The NYSE is currently closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.
The net asset value per share is computed by adding the value of all securities
and other assets in the portfolio, deducting any liabilities (expenses and fees
are accrued daily) and dividing by the number of shares outstanding. The equity
securities of each Fund listed or traded on a stock exchange are valued at the
last sale price on its principal exchange. If no sale price is reported, the
mean of the last bid and asked prices is used. Securities traded
over-the-counter are priced at the mean of the last bid and asked prices. When
market quotations are not readily available, securities and other assets are
valued at fair value as determined in good faith by the Board of Trustees.
Fixed income securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices provided
by investment dealers in accordance with procedures established by the Board of
Trustees. Options, futures and options on futures are valued at the price as
determined by the appropriate clearing corporation.
All securities held in the portfolio of the Principal Preservation Fund, and
debt securities with maturities of 60 days or less held by the other Funds, are
valued at amortized cost. When a security is valued at amortized cost, it is
valued at its cost when purchased, and thereafter by assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.
21
<PAGE>
Transfer of Securities:
At the discretion of McM Funds, investors may be permitted to purchase a Fund's
shares by transferring securities to the Fund that meet the Fund's investment
objectives and policies. Securities transferred to a Fund will be valued in
accordance with the same procedures used to determine the Fund's net asset value
at the time of the next determination of net asset value after such acceptance.
Shares issued by a Fund in exchange for securities will be issued at the net
asset value determined as of the same time. All dividends, interest,
subscription, or other rights pertaining to such securities shall become the
property of the Fund and must be delivered to the Fund by the investor upon
receipt from the issuer. Investors who are permitted to transfer such securities
will be required to recognize a gain or loss on such transfer and pay tax
thereon, if applicable, measured by the difference between the fair market value
of the securities and the investor's basis therein. Securities will not be
accepted in exchange for shares of a Fund unless: (1) such securities are, at
the time of the exchange, eligible to be included in the Fund's portfolio and
current market quotations are readily available for such securities; (2) the
investor represents and warrants that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act; and (3) the value of any such security, (except U.S. Government
securities), being exchanged, together with other securities of the same issuer
owned by the Fund, will not exceed 5% of the Fund's net assets immediately after
the transaction.
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 a Fund. In-kind
payments need not constitute a cross-section of the Fund's portfolio. If a
shareholder has requested redemption of all or a part of the shareholder's
investment, and the Fund completes such redemption in-kind, the Fund will not
recognize gain or loss for federal tax purposes, on the securities used to
complete the redemption but the shareholder will recognize gain or loss equal to
the difference between the fair market value of the securities received and the
shareholder's basis in the Fund shares redeemed.
McM Funds may suspend the right of redemption or postpone the date of payment
for more than seven days during any period when (1) trading on the NYSE is
restricted or the NYSE is closed, other than customary weekend and holiday
closings; (2) the U.S. Securities and Exchange Commission has by order permitted
such suspension; (3) an emergency, as defined by rules of the U.S. Securities
and Exchange Commission, exists making disposal of portfolio investments or
determination of the value of the net assets of a Fund not reasonably
practicable.
TAXES
Each Fund has elected, and intends to continue, to qualify to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").
In order to so qualify for any taxable year, a fund must, among other things,
(i) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, gains from the sale of securities or
foreign currencies or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii) distribute at least 90%
of its dividend, interest and certain other taxable income each year; and (iii)
at the end of each fiscal quarter maintain at least 50% of the value of its
total assets in cash, government securities, securities of other regulated
investment companies, and other securities of issuers which represent, with
respect to each issuer, no more than 5% of the value of a fund's total assets
and 10% of the outstanding voting securities of such issuer, and have no more
than 25% of its assets invested in the securities (other than those of the
government or other regulated investment companies) of any one issuer or of two
or more issuers which the fund controls and which are engaged in the same,
similar or related trades and businesses.
To the extent McM Funds continues to qualify for treatment as a regulated
investment company, it will not be subject to federal income tax on income paid
to shareholders in the form of dividends or capital gains distributions.
An excise tax at the rate of 4% will be imposed on the excess, if any, of a
Fund's "required distributions" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. Each Fund intends to make distributions sufficient to avoid imposition of
the excise tax. For a distribution to qualify as such with respect to a calendar
year under the foregoing rules, it must be declared by each Fund during October,
22
<PAGE>
November or December to shareholders of record during such month and paid by
January 31 of the following year. Such distributions will be taxable in the year
they are declared, rather than the year in which they are received.
When a Fund writes a call, or purchases a put option, an amount equal to the
premium received or paid by it is included in the Fund's accounts as an asset
and as an equivalent liability. In writing a call, the amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which a Fund has written expires on its stipulated expiration date, the Fund
recognizes a short-term capital gain. If a Fund enters into a closing purchase
transaction with respect to an option which the Fund has written, the Fund
realizes a short-term gain (or loss if the cost of the closing transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished. If a call option which a Fund has written is
exercised, the Fund realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the premium
originally received.
The premium paid by a Fund for the purchase of a put option is recorded in the
Fund's assets and liabilities as an investment and subsequently adjusted daily
to the current market value of the option. For example, if the current market
value of the option exceeds the premium paid, the excess would be unrealized
appreciation and, conversely, if the premium exceeds the current market value,
such excess would be unrealized depreciation. The current market value of a
purchased option is the last sale price on the principal exchange on which such
option is traded or, in the absence of a sale, the mean between the last bid and
asked prices. If an option which a Fund has purchased expires on the stipulated
expiration date, the Fund realizes a short-term or long-term capital loss for
federal income tax purposes in the amount of the cost of the option. If a Fund
exercises a put option, it realizes a capital gain or loss (long-term or
short-term, depending on the holding period of the underlying security) from the
sale which will be decreased by the premium originally paid.
Accounting for options on certain stock indices will be in accordance with
generally accepted accounting principles. The amount of any realized gain or
loss on closing out such a position will result in a realized gain or loss for
tax purposes. Such options held by a Fund at the end of each fiscal year on a
broad-based stock index will be required to be "marked-to-market" for federal
income tax purposes. Sixty percent of any net gain or loss recognized on such
deemed sales or on any actual sales will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss
("60/40 gain or loss"). Futures contracts and options on futures contracts
utilized by McM Funds are also "Section 1256 contracts." Any gains or losses on
Section 1256 contracts held by a Fund at the end of each taxable year (and on
October 31 of each year for purposes of the 4% excise tax) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized and the resulting gain or loss is treated as a
60/40 gain or loss.
Shareholders will be subject to federal income taxes on distributions made by a
Fund whether received in cash or additional shares of a Fund. Distributions of
net investment income and net short-term capital gains, if any, will be taxable
to shareholders as ordinary income. Distributions of net long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains,
without regard to how long a shareholder has held shares of a Fund. A loss on
the sale of shares held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain dividend paid to the
shareholder with respect to such shares. Dividends paid by a Fund may qualify in
part for the 70% dividends received deduction for corporations, provided,
however, that those shares have been held for at least 45 days.
Each Fund will notify shareholders each year of the amount of dividends and
distributions, including the amount of any distribution of long-term capital
gains, and the portion of its dividends which qualify for the 70% deduction.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in McM Funds. The law firm Stradley, Ronan, Stevens and Young,
LLP has expressed no opinion in respect thereof. Dividends and distributions
also may be subject to state and local taxes. Shareholders are urged to consult
their tax advisors regarding specific questions as to federal, state and local
taxes.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisors concerning the tax consequences of
ownership of shares of McM Funds, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
23
<PAGE>
PERFORMANCE INFORMATION
General
From time to time, McM Funds may include general comparative information, such
as statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. McM Funds may also include calculations, such as
hypothetical compounding examples or tax-free compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any Fund.
From time to time, the yield and total return of a Fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Total Return Calculations
Each Fund that computes its average annual total returns does so by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
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.
Each Fund that computes its aggregate total returns does so by determining the
aggregate compounded rate of return during specified period that likewise equate
the initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
Aggregate Total Return = [ (ERV) - 1 ]
---
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Based upon the foregoing calculations, the average annual total return for the
Principal Preservation Fund for the one year period ended June 30, 2000 and the
period July 13, 1994 (commencement of operations) through June 30, 2000 was
5.48% and 5.29%, respectively. The average annual total returns for the one year
period ended June 30, 2000 and for the period July 14, 1994 (commencement of
operations) through June 30, 2000 were as follows: Intermediate Fixed Income
Fund 3.51% and 6.07%; Fixed Income Fund 3.52% and 6.65%; Balanced Fund 3.17% and
16.13%; and Equity Investment Fund 1.80% and 22.36%, respectively.
Since performance will fluctuate, performance data for a Fund should not be used
to compare an investment in the Fund's shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time. Shareholders should
remember that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
24
<PAGE>
Yield of Principal Preservation Fund
The yield of the Principal Preservation Fund for a seven-day period (the "base
period") will be computed by determining the net change in value (calculated as
set forth below) of a hypothetical account having a balance of one share at the
beginning of the period, dividing the net change in account value by the value
of the account at the beginning of the base period to obtain the base period
return, and multiplying the base period return by 365/7 with the resulting yield
figure carried to the nearest hundredth of one percent. Net changes in value of
a hypothetical account will include the value of additional shares purchased
with dividends from the original share and dividends declared on both the
original share and any such additional shares, but will not include realized
gains or losses or unrealized appreciation or depreciation on portfolio
investments. Yield may also be calculated on a compound basis (the "effective
yield"), which assumes that net income is reinvested in shares of the Fund at
the same rate as net income is earned for the base period.
The yield and effective yield of Principal Preservation Fund will vary in
response to fluctuations in interest rates and in the expenses of the Fund. For
comparative purposes the current and effective yields should be compared to
current and effective yields offered by competing financial institutions for the
same base period and calculated by the methods described above. For the
seven-day period ended June 30, 2000, the Principal Preservation Fund had a
yield of 6.18% and an effective yield of 6.37%.
Yields of Intermediate Fixed Income Fund, Fixed Income Fund, Balanced Fund and
Equity Investment Fund The yield of each of these Funds is calculated by
dividing the net investment income per share (as described below) earned by the
Fund during a 30-day (or one-month) period by the maximum offering price per
share on the last day of the period and annualizing the result on a semi-annual
basis by adding one to the quotient, raising the sum to the power of six,
subtracting one from the result and then doubling the difference. A Fund's net
investment income per share earned during the period is based on the average
daily number of shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
YIELD = 2 [ ( a - b + 1)6 - 1 ]
-------
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on any debt obligations held by a Fund is calculated by computing the
yield to maturity of each obligation held by that Fund based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of the month, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held by that Fund. For purposes of this
calculation, it is assumed that each month contains 30 days, and that the
maturity date is the date on which the obligation reasonably may be expected to
be called or, if none, the stated maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount premium. The amortization schedule will be adjusted
monthly to reflect changes in the market values of such debt obligations.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).
The interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
25
<PAGE>
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original discount (market discount), the yield to maturity is the
imputed rate based on the original issue discount calculation. On the other
hand, in the case of tax-exempt obligations that are issued with original issue
discount but which have discounts based on current market value that are less
than the then-remaining portion of the original discount (market premium), the
yield to maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest
("pay-downs") (i) gain or loss attributable to actual monthly paydowns are
accounted for as an increase or decrease to interest income during the period
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the U.S.
Securities and Exchange Commission under the Securities Act with respect to the
securities offered by the Prospectus. Certain portions of the Registration
Statement have been omitted from the Prospectus and this Statement of Additional
Information pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. The Registration Statement including the exhibits filed
therewith may be examined at the office of the U.S. Securities and Exchange
Commission in Washington, D.C.
Statements contained in the Prospectus or 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 McM Funds' investment operations and annual financial statements
audited by independent certified public accountants. Inquiries regarding McM
Funds may be directed to the Advisor at (800) 788-9485.
Audited Financial Statements. McM Funds' financial statements, including the
notes thereto, dated as of June 30, 2000, which have been audited by Tait,
Weller & Baker, are incorporated by reference from the Funds' 2000 Annual Report
to Shareholders.
26
<PAGE>
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although McMorgan & Company considers security ratings
when making investment decisions, it also performs its own investment analysis
and does not rely solely on the ratings assigned by credit agencies.
STANDARD & POOR'S RATINGS SERVICES
<TABLE>
<CAPTION>
------------------------------------------------------- -----------------------------------------------------
Bond Rating Explanation
<S> <C>
------------------------------------------------------- -----------------------------------------------------
Investment Grade
------------------------------------------------------- -----------------------------------------------------
AAA Highest rating; extremely strong capacity to pay
principal and interest
------------------------------------------------------- -----------------------------------------------------
AA High quality; very strong capacity to pay principal
and interest
------------------------------------------------------- -----------------------------------------------------
A Strong capacity to pay principal and interest;
somewhat more susceptible to the adverse effects of
changing circumstances and economic conditions.
------------------------------------------------------- -----------------------------------------------------
BBB Adequate capacity to pay principal and interest;
normally exhibit adequate protection parameters,
but adverse economic conditions or changing
circumstances more likely to lead to a weakened
capacity to pay principal and interest than for
higher rated bonds.
------------------------------------------------------- -----------------------------------------------------
Non-Investment Grade
------------------------------------------------------- -----------------------------------------------------
BB,B, CCC, CC, C Predominantly speculative with respect to the
issuer's capacity to meet required interest and
principal payments. BB - lowest degree of
speculation; C - the highest degree of speculation.
Quality and protective characteristics outweighed
by large uncertainties or major risk exposure to
adverse conditions.
------------------------------------------------------- -----------------------------------------------------
D In default.
------------------------------------------------------- -----------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOODY'S INVESTORS SERVICE, INC.
------------------------------------------------------- -----------------------------------------------------
Bond Rating Explanation
<S> <C>
------------------------------------------------------- -----------------------------------------------------
Investment Grade
------------------------------------------------------- -----------------------------------------------------
Aaa Highest quality, smallest degree of investment risk.
------------------------------------------------------- -----------------------------------------------------
Aa High quality; together with Aaa bonds, they compose
the high-grade bond group.
------------------------------------------------------- -----------------------------------------------------
A Upper-medium grade obligations; many favorable
investment attributes.
------------------------------------------------------- -----------------------------------------------------
Baa Medium-grade obligations; neither highly protected
nor poorly secured. Interest and principal appear
adequate for the present but certain protective
elements may be lacking or may be unreliable over
any great length of time.
------------------------------------------------------- -----------------------------------------------------
Non-Investment Grade
------------------------------------------------------- -----------------------------------------------------
Ba More uncertain, with speculative elements.
Protection of interest and principal payments not
well safeguarded during good and bad times.
------------------------------------------------------- -----------------------------------------------------
B Lack characteristics of desirable investment;
potentially low assurance of timely interest and
principal payments or maintenance of other contract
terms over time.
------------------------------------------------------- -----------------------------------------------------
Caa Poor standing, may be in default; elements of
danger with respect to principal or interest
payments.
------------------------------------------------------- -----------------------------------------------------
Ca Speculative in a high degree; could be in default
or have other marked shortcomings.
------------------------------------------------------- -----------------------------------------------------
C Lowest-rated; extremely poor prospects of ever
attaining investment standing.
------------------------------------------------------- -----------------------------------------------------
</TABLE>
Unrated securities will be treated as noninvestment grade securities unless a
portfolio manager determines that such securities are the equivalent of
investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
27
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 14, 2000
--------------------------------------------------------------------------------
McM FUNDS
McM S&P 500 Index Fund
--------------------------------------------------------------------------------
This Statement of Additional Information dated September 15, 2000 is not a
prospectus. It should be read in conjunction with the McM S&P 500 Index Fund's
Prospectus dated September 15, 2000, 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:
Provident Distributors, Inc. McMorgan & Company
3200 Horizon Dr. One Bush Street, Suite 800
King of Prussia, PA 19406 San Francisco, CA 94104
(610) 239-4590 (800) 788-9485
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<S> <C>
McM Funds.........................................................................................................3
Investment Policies and Related Risks.............................................................................3
Investment Restrictions...........................................................................................9
Trustees and Officers............................................................................................10
Investment Advisory and Other Services...........................................................................11
Portfolio Transactions and Brokerage Commissions.................................................................13
Shares of Beneficial Interest....................................................................................13
Purchases, Redemptions and Pricing of Shares....................................................................14
Taxes............................................................................................................15
Performance Information..........................................................................................16
Other Information................................................................................................18
</TABLE>
--------------------------------------------------------------------------------
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")
and 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
Class Z shares (referred to individually as a "class" and collectively as the
"classes"). The McM Principal Preservation Fund only offers the McM Funds class
of shares and the S&P 500 Index Fund only offers Class Z 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. A Fund
may do so either to hedge the value of its portfolio of securities as a whole or
to protect against declines, occurring prior to sales of securities, in the
value of the securities to be sold. Conversely, 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.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 3
<PAGE>
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; (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 a Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, liquid assets, such as cash, U.S. Government
securities or other liquid high-grade debt obligations, in such amount as are
held in a segregated account by its custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified stock portfolio or
liquid assets equal to the contract value. A call option is also covered if a
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written; or (ii) greater than the exercise price of the call written
provided the difference is maintained by the Fund in liquid assets such as cash,
U.S. Government securities and other high-grade debt obligations in a segregated
account with its custodian. The 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 a Fund do
not aggregate more than 20% of that 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 a Fund may alter portfolio characteristics and modify portfolio
maturities without incurring the cost associated with transactions.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 4
<PAGE>
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.
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 a Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by a Fund may expire without any value to the Fund, in which event the
Fund would realize a capital loss that would be characterized as short-term
unless the option was held for more than one year.
Covered Call Writing
The 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 a Fund, as writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written, cannot be
effected with respect to an option once the option writer has received an
exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable 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.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 5
<PAGE>
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 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 a Fund, when it is the holder of an outstanding
option, liquidates its position by selling an option of the same series as the
option previously purchased.
Writing Put Options
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.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 6
<PAGE>
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 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 Trusts'
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.
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McM Funds - Statement of Additional Information Page 7
<PAGE>
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 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.
Technology Companies - Sector Focus
To the extent that a fund has significant investments in one or a few sectors,
it is subject to more risk than a fund that maintains broad sector
diversification. The McM S&P 500 Index Fund has weightings similar to the S&P
500 Index. At the present time, the technology sector represents about 30% of
the S&P 500 index.
Technology company stocks can be subject to abrupt or erratic price movements
and have been volatile, especially over the short term, due to the rapid pace of
product change and development affecting such companies. Technology companies
are subject to significant competitive pressures, such as new market entrants,
aggressive pricing and tight profit margins. In addition, the prices of
technology issuers may be influenced not only by developments relating to the
company, but by factors which affect the sector, even if those factors are not
relevant to the company. Smaller technology companies may be sensitive to
increases in interest rates, as such an increase could make it more difficult
for an issuer to borrow money to expand. These companies also face the risks
that new services, equipment or technologies will not be accepted by consumers
and businesses or will become rapidly obsolete. These factors can affect the
profitability of technology companies and therefore the value of their
securities. In addition, many internet-related companies are in the emerging
stage of development and are particularly vulnerable to the risks that their
business plans will not develop as anticipated or that technology will rapidly
change.
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.
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McM Funds - Statement of Additional Information Page 8
<PAGE>
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 such Fund's investment objectives and policies;
(4) Make investments in securities for the purpose of exercising control;
(5) Purchase the securities of any one issuer if, immediately after such
purchase, the Fund would own more than 10% of the outstanding voting
securities of such issuer;
(6) Sell securities short or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of
transactions. For this purpose, the deposit or payment by 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 that Fund's total
assets;
(9) Purchase the securities of issuers conducting their principal
business activities in the same industry (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if immediately after such purchase the value of a
Fund's investments in such industry would exceed 25% of the value of
the total assets of the Fund;
(10) Act as an underwriter of securities, except that, in connection with
the disposition of a security, 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.
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McM Funds - Statement of Additional Information Page 9
<PAGE>
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.
<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 Date of Birth Registrant Five Years June 30, 2000 to Trustees
------------------------------ ----------- ------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Terry A. O'Toole, CPA* 7-9-47 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 4-27-41 Trustee Independent $9,250 $9,250
1299 Ocean Avenue Consultant
Suite 333
Santa Monica, CA 90401
Walter B. Rose 5-8-46 Trustee President, Venture $9,250 $9,250
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 2-22-31 Trustee Retired; prior $9,250 $9,250
2047 Byron Street thereto Chairman
Palo Alto, CA 94301 and Chief
Executive Officer,
Hemming Morse, Inc.
Robert R. Barron* 10-17-44 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* 12-22-58 Trustee Vice President, N/A N/A
McMorgan & Company McMorgan &
One Bush Street, Suite 800 Company
San Francisco, CA 94104
Gregory L. Watson, CFA* 9-1-45 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* 8-1-46 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* 12-11-53 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.
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McM Funds - Statement of Additional Information Page 10
<PAGE>
The non-interested Trustees of McM Funds each receive a fee of $8,500 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.
Code of Ethics.
The Trust and the advisor have adopted separate Codes of Ethics under rule 17j-1
of the1940 Act. Each Code of Ethics permits personnel subject to the Codes to
invest in securities, including securities that may be purchased or held by the
Fund. Without prior approval from the designated compliance officer, the
officers, directors or trustees and advisory personnel of the Trust and advisor
with substantial responsibility or with knowledge of the investments made by the
advisor on behalf of its clients, including the McM Funds, are prohibited from
purchasing or selling any security which he or she knows:
(i) is being considered for purchase or sale by the advisor for a client;
(ii) is being purchased or sold by the advisor for a client; or
(iii) is the subject of non-public material information relating to the
security and known to the that person.
Moreover, portfolio managers and trading personnel of the advisor are prohibited
from engaging in any transaction for their own account that involves a limited
opportunity from which a client could otherwise benefit. All access persons must
obtain prior approval of any personal securities transaction involving an
initial public offering or limited offering (private placement). All Access
Persons who are registered representatives must obtain prior approval of any
personal securities transactions.
Independent Trustees of the McM Funds are not subject to the pre-clearance
provisions of the Trust's Code if they have no knowledge of a Fund's intended
investments.
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
Agreements terminate 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.
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McM Funds - Statement of Additional Information Page 11
<PAGE>
Transfer Agent. PFPC, Inc. ("PFPC"), a wholly-owned subsidiary of PNC Bank
Corporation, which has its principal business address at 400 Bellevue Parkway,
Wilmington, DE19809, provides transfer agency and dividend disbursing agent
services for the Funds. 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. PFPC 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,
PFPC receives from each Fund a basic fee, computed daily and paid monthly.
McM Funds paid the following administration fees for the fiscal years ended June
30, 2000, 1999 and 1998:
Fiscal Year End Fiscal Year End Fiscal Year End
Series 2000 1999 1998
Principal
Preservation Fund $38,082 $53,963 $39,466
Intermediate Fixed
Income Fund $94,208 $53,391 $39,144
Fixed Income Fund $12,292 $53,871 $38,314
Balanced Fund $95,523 $54,540 $39,088
Equity Investment
Fund $135,138 $55,958 $40,160
Accounting Services Agent. PFPC also serves as the accounting agent for the
Funds and maintains the accounting books and records of the Funds, 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 Funds, PFPC receives from each Fund an annual fee, computed daily and paid
monthly.
Custodian and Custody Administrator. The Bank of New York, 48 Wall Street, New
York, New York 10286, is custodian of the Funds' assets pursuant to a custodian
agreement. Under the custodian agreement, The Bank of New York (i) maintains a
separate account or accounts in the name of 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.
PFPC will act as custody administrator and has agreed to pay the fees and
expenses of the custodian. For those services, PFPC receives an annual fee.
Certain transaction fees and out-of-pocket expenses may also be charged.
Underwriter
Provident Distributors, Inc. ("PDI"), 3200 Horizon Dr., King of Prussia, PA
19406, serves as underwriter pursuant to an underwriting agreement for the
limited purpose of acting as underwriter to facilitate the registration of
shares of each Fund under state securities laws and to assist in the sale of
shares. The Underwriting Agreement may be terminated by either party upon 60
days' prior written notice to the other party.
PDI 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 PDI as states in which it wishes to offer its shares for
sale, in order that state registrations may be maintained for the Trust.
PDI 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.
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McM Funds - Statement of Additional Information Page 12
<PAGE>
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.
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 such
shareholders. Shares of a 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 a Fund.
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McM Funds - Statement of Additional Information Page 13
<PAGE>
PURCHASES, REDEMPTONS AND PRICING OF SHARES
Purchase of Shares
Shares of the S&P 500 Index Fund are offered in one class only, Class Z shares,
with no sales charge or Rule 12b-1 fees. The Intermediate Fixed Income Fund,
Fixed Income Fund, Balanced Fund and Equity Investment Fund offer both McM Fund
shares and Class Z shares. The McM Funds shares have no sales charge or Rule
12b-1 fees. With the exception of the S&P 500 Index Fund, Class Z shares have no
sales charge, but are subject to a 0.25% 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; provided that, for the Principal Preservation Fund, it is
also not a national bank holiday. The NYSE is currently closed on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas.
The net asset value per share is computed by adding the value of all securities
and other assets in the portfolio, deducting any liabilities (expenses and fees
are accrued daily) and dividing by the number of shares outstanding. The equity
securities of 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 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.
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McM Funds - Statement of Additional Information Page 14
<PAGE>
McM Funds may suspend the right of redemption or postpone the date of payment
for more than seven days during any period when (1) trading on the NYSE is
restricted or the NYSE is closed, other than customary weekend and holiday
closings; (2) the U.S. Securities and Exchange Commission has by order permitted
such suspension; (3) an emergency, as defined by rules of the U.S. Securities
and Exchange Commission, exists making disposal of portfolio investments or
determination of the value of the net assets of a Fund not reasonably
practicable.
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 the value of its
total assets in cash, government securities, securities of other regulated
investment companies, and other securities of issuers which represent, with
respect to each issuer, no more than 5% of the value of a fund's total assets
and 10% of the outstanding voting securities of such issuer, and have no more
than 25% of its assets invested in the securities (other than those of the
government or other regulated investment companies) of any one issuer or of two
or more issuers which the fund controls and which are engaged in the same,
similar or related trades and businesses. To the extent the 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 a fund's ordinary income for
the calendar year plus 98% of its capital gain net income recognized during the
one-year period ending on October 31 plus undistributed amounts from prior
years. The 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.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 15
<PAGE>
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.
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 Stradley, Ronan, Stevens and
Young, LLP has expressed no opinion in respect thereof. Dividends and
distributions also may be subject to state and local taxes. Shareholders are
urged to consult their tax advisors regarding specific questions as to federal,
state and local taxes.
The foregoing discussion relates solely to U.S. federal income tax law. Non-U.S.
investors should consult their tax advisors concerning the tax consequences of
ownership of shares of McM Funds, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
PERFORMANCE INFORMATION
General
From time to time, 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.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 16
<PAGE>
The Fund computes its aggregate total returns 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.
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 a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on any debt obligations held by 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.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 17
<PAGE>
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 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 McM Funds' investment operations and annual financial statements
audited by independent certified public accountants. Inquiries regarding McM
Funds may be directed to the Advisor at (800) 788-9485.
--------------------------------------------------------------------------------
McM Funds - Statement of Additional Information Page 18
<PAGE>
MCM FUNDS
FORM N-1A
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
Preservation 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 contract for the McM S&P 500 Index Fund is
incorporated by reference to Exhibit 99.B.23 (d)(2) of
Post-Effective No.9.
(e) Copies of each underwriting or distribution contract --
Underwriting Agreement among Registrant, McMorgan & Company and
Provident Distributors, Inc. dated November 22, 1999 is
incorporated by reference to Exhibit 99.B.23(e) of Post-Effective
No.10.
(f) Copies of all bonus, profit sharing, pension or other similar
contracts -- Not Applicable.
(g) Copies of all custodian agreements -- 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) Administration and Accounting Services Agreement between the
Registrant and PFPC, Inc. is filed herewith electronically.
(2) Transfer Agency Services Agreement between the Registrant and
PFPC, Inc. is filed herewith electronically.
(i) Opinion and Consent of Counsel as to the legality of the securities
to be issued is filed herewith electronically.
(j) Copies of any other opinions, appraisals or rulings -- Consent of
Independent Auditors - is filed herewith electronically.
(k) All financial statements omitted from Item 23. -- Not Applicable.
<PAGE>
(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 is filed herewith electronically.
(n) Financial Data Schedules on behalf of McM Principal Preservation
Fund, McM Intermediate Fixed Income Fund, McM Fixed Income Fund,
McM Balanced Fund, McM Equity Investment Fund and McM S&P 500 Index
Fund-- not applicable.
(o) Rule 18f-3 Plan -- filed herewith electronically.
(p) Code of Ethics
(1) Code of Ethics of the Registrant - filed herewith
electronically
(2) Code of Ethics of the Advisor, McMorgan and Company - filed
herewith electronically
(q) Power of Attorney--filed herewith electronically.
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.
<PAGE>
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:
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, 2000 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) Provident Distributors, Inc., the principal underwriter
for the Registrant's securities, acts as principal
underwriter for the following investment companies as of
9/1/00:
International Dollar Reserve Fund I, Ltd.
Provident Institutional Funds Trust
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
<PAGE>
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
Columbia National Municipal Bond Fund, Inc.
GAMNA Series Funds, Inc.
WT Investment Trust
Kalmar Pooled Investment Trust
The RBB Fund, Inc.
Robertson Stephens Investment Trust
Harris Insight Funds Trust
Hilliard-Lyons Research Trust
ABN AMRO Funds
Alleghany Funds
Deutsche Asset Management VIT Funds Trust
First Choice Funds Trust
Forward Funds, Inc.
IBJ Funds Trust
Light Index Funds, Inc.
LKCM Funds
Matthews International Funds
McM Funds
Metropolitan West Funds
New Covenant Funds, Inc.
Pictet Funds
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
The Stratton Funds, Inc.
The Galaxy Fund
The Galaxy VIP Fund
Galaxy Fund II
The Govett Funds, Inc.
Trainer, Wortham First Mutual Funds
Undiscovered Managers Funds
Wilshire Target Funds, Inc.
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth and Income Fund
WPG Growth Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The BlackRock Funds, Inc. (Distributed by BlackRock
Distributors, Inc. a wholly owned subsidiary of
Provident Distributors, Inc.)
Northern Funds Trust (Distributed by Northern Funds
Distributors, LLC. a wholly owned subsidiary of
Provident Distributors, Inc.)
The Offit Investment Fund, Inc. (Distributed by Offit
Funds Distributor, Inc. a wholly owned subsidiary of
Provident Distributors, Inc.)
<PAGE>
The Offit Variable Insurance Fund, Inc. (Distributed by
Offit Funds Distributor, Inc. a wholly owned subsidiary
of Provident Distributors, Inc.)
Provident Disributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Provident Distributors, Inc. is
located at 3200 Horizon Drive, King of Prussia, Pennsylvania 19406
(b) The table below sets forth certain information as to the
Underwriter's Trustees, Officers and Control Persons:
Position Position
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
------------------ --------------------- ---------------
Philip H. Rinnander President & Treasurer None
Jane Haegele Director & Secretary None
Jason A. Greim Vice President None
Barbara A. Rice Vice President None
Jennifer K. Rinnander Vice President None
Lisa M. Buono Vice President &
Compliance Officer None
(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, PFPC, Inc., 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903.
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, 2000, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a
meeting of shareholders for the purpose of voting upon the
question of removal of any director or directors when
requested in writing to do so by the record holders of not
less than 10 percent of the Registrant's outstanding
shares and to assist its shareholders in accordance with
the requirements of Section 16(c) of the Investment
Company Act of 1940, as amended relating to shareholder
communications.
<PAGE>
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 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 14th day of September, 2000.
McM Funds
Registrant
By /s/ Terry A. O'Toole*
---------------------
Terry A. O'Toole,
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement of McM Funds has been signed below by the following
persons in the capacities and on the date indicated.
Signature Capacity Date
--------- -------- ----
/s/ Terry A. O'Toole* Chairman of the Board 9/14/00
-------------------------- of Trustees and President
Terry O'Toole and Principal Executive Officer
/s/ Kenneth I. Rosenblum* Trustee 9/14/00
--------------------------
Kenneth I. Rosenblum
/s/ Walter B. Rose* Trustee 9/14/00
--------------------------
Walter B. Rose
/s/ Robert R. Barron* Treasurer, Vice President 9/14/00
-------------------------- Principal Accounting & Financial
Robert R. Barron Officer & Trustee
/s/ Gregory L. Watson* Trustee 9/14/00
--------------------------
Gregory L. Watson
/s/ Mark R. Taylor* Trustee 9/14/00
--------------------------
Mark R. Taylor
/s/ S.D. Sicotte* Trustee 9/14/00
--------------------------
*By:/s/ Thomas N. Calabria, as Attorney-in-Fact
and Agent pursuant to Power of Attorney
<PAGE>
McM FUNDS
99.B Index to Exhibits to Form N-1A
Exhibit Description of
Number Exhibit
99.B.23(h)(1) Administration and Accounting Services Agreement between
Registrant and PFPC, Inc. dated July 1, 2000.
99.B.23(h)(2) Transfer Agency Services Agreement between Registrant and
PFPC, Inc. dated July 1, 2000.
99.B.23(i) Opinion and Consent of Counsel
99.B.23(j) Consent of Independent Auditor
99.B.23(m) Rule 12b-1 Plan
99.B.23(o) Rule 18f-3 Plan
99.B.23(p)(1) Code of Ethics of the Registrant
99.B.23(p)(2) Code of Ethics of the Advisor, McMorgan and Company.
99B.23(q) Powers of Attorney
