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McM FUNDS
McM Principal Preservation Fund
PROSPECTUS
September 14, 2000
As revised December 7, 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.
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McM Funds - Prospectus
McM PRINCIPAL PRESERVATION 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
Financial Highlights
Additional Information Back Cover
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McM Principal Preservation Fund
Type of Fund: A Taxable Money Market Fund
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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
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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>
2.21% 5.72% 5.15% 5.38% 5.30% 4.92%
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
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
</TABLE>
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.]
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Fees and Expenses of the Fund
The following table shows the fees and expenses you may pay if you buy and hold
shares of the Fund. The Fund does not impose any front-end load, deferred sales
load or Rule 12b-1 distribution fee. Shareholders are not charged for exchanging
shares or reinvesting dividends.
McM
Principal
Preservation
Fund
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Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Other Expenses 0.26%
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Total Annual Operating
Expenses*** 0.51%
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*** These are the gross fees and expenses that the Fund 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 this
action by the advisor, actual expenses were:
Management Fees 0.04%
Other Expenses 0.26%
-----
Net Annual Operating
Expenses 0.30%
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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
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
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<S> <C> <C> <C> <C>
$52 $164 $285 $640
</TABLE>
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Management of the Fund
The advisor for the Fund is:
McMorgan & Company
One Bush Street, Suite 800
San Francisco, California 94104
The advisor is responsible for selecting, purchasing, monitoring and selling
securities in the Fund's investment portfolio. The advisor also arranges for the
transfer agency, custody and all other services necessary to operate the Fund.
McMorgan & Company was founded in 1969. McMorgan & Company also manages private
accounts, consisting primarily of retirement plans and health and welfare funds
for jointly trusteed plans. As of June 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 0.25% 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 0.04% of the Fund's
average daily net assets in investment advisory fees to McMorgan & Company.
The fees paid to the advisor reflect a voluntary undertaking to waive fees
and/or reimburse expenses so that total operating expenses do not exceed 0.30%
of the Fund
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 Fund is able to make the
repayment without exceeding its current expense limits.
Buying and Selling Fund Shares
Shares of the Fund are continuously offered through broker/dealers, financial
institutions and financial intermediaries that have selling agreements with McM
Funds, a Delaware business trust (the "Trust"), of which the Fund is one series
("qualified financial intermediaries"). Shares are sold at the NAV per share
next determined after the Trust or the qualified financial intermediary receives
and accepts a proper purchase request. Qualified financial intermediaries are
designated agents of the Fund for certain purposes relating to the timing of the
receipt of purchase and redemption orders. 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.
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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.
Participants in qualified retirement plans will normally receive various
materials from their plans which describe the methods by which a participant may
purchase, exchange, transfer or redeem shares.
Financial intermediaries may charge a separate fee for assisting in the
processing any of these transactions.
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
Shareholders of any class of shares of the other funds within the Trust may
exchange their shares of such other funds for shares of the Fund. Shares of the
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. An investor should request a copy of the prospectus for the Trust
before making a decision to invest in any other funds in the Trust, either
directly or by an exchange of Fund shares. 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.
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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 NAV for the Fund will not be
calculated on national bank holidays and 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 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
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 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
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<S> <C> <C>
Dividends from Net Investment Income declared daily/ ordinary Income
paid monthly
Short-term Capital Gains annually ordinary income
Long-term Capital Gains annually capital gain
</TABLE>
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Distributions from the Fund are expected to be primarily ordinary income.
Because of the nature of the Fund's portfolio, it is unlikely that this Fund
will generate capital gains or losses.
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.
Participants in qualified retirement plans will be advised by the plan as to the
tax consequences of their holding of, and transactions in Fund shares.
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 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 800-831-1994.
Defensive Investing
The Fund may occasionally take temporary defensive positions 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.
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Financial Highlights
The financial highlights table is intended to help you understand the Fund's
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 Fund during each period assuming you reinvested all dividends and
distributions. Tait, Weller and Baker has audited this information and their
report, along with the Fund's financial statements, are included in the annual
report, which is available upon request.
The table below set forth financial data for a share of beneficial interest
outstanding throughout each period presented.
<TABLE>
<CAPTION>
McM Principal
Preservation Fund
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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>
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Additional Information
For investors who want more information about the Fund or other funds within the
Trust, the following documents are available free upon request:
Prospectuses for other funds in the Trust: The McM Funds prospectus provides
information about each fund in the Trust which an investor should know before
making a decision to invest.
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, the SAI, and the Trust's other
prospectuses, or request other information and ask questions about the Funds by
contacting:
McM Funds
One Bush Street, Suite 800
San Francisco, CA 94104
Telephone: 800-831-1994
Internet address: www.mcmfunds.com
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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 Fund's SEC File No. is 811-8370.
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