-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+Af0sGlf9ys7IEnS/mo7V7PlLk6NBS4zkaEJwejDHz1kMaqWiTGzghZlBLQQdcU jjw962o59cChcCqzaGLcEA== 0000950116-06-000736.txt : 20060308 0000950116-06-000736.hdr.sgml : 20060308 20060308134722 ACCESSION NUMBER: 0000950116-06-000736 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060308 DATE AS OF CHANGE: 20060308 EFFECTIVENESS DATE: 20060308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCMORGAN FUNDS CENTRAL INDEX KEY: 0000919556 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-08370 FILM NUMBER: 06672499 BUSINESS ADDRESS: STREET 1: ONE BUSH STREET STREET 2: STE 800 CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 8007889485 MAIL ADDRESS: STREET 1: ONE BUSH ST STREET 2: STE 800 CITY: SAN FRNCISCO STATE: CA ZIP: 94104 FORMER COMPANY: FORMER CONFORMED NAME: MCM FUNDS DATE OF NAME CHANGE: 19940228 0000919556 S000005299 McMorgan Principal Preservation Fund C000014475 McMorgan Class MCPXX 0000919556 S000005307 McMorgan Intermediate Fixed Income Fund C000014491 McMorgan Class MCMNX C000014492 Class Z MCIZX 0000919556 S000005308 McMorgan Fixed Income Fund C000014493 McMorgan Class MCMFX C000014494 Class Z MCFZX C000014495 Class R1 MCMRX C000014496 Class R2 MCMWX 0000919556 S000005309 McMorgan High Yield Fund C000014497 McMorgan Class MCMHX C000014498 Class Z MCHZX 0000919556 S000005310 McMorgan Balanced Fund C000014499 McMorgan Class MCMBX C000014500 Class Z MCBZX 0000919556 S000005311 McMorgan Equity Investment Fund C000014501 McMorgan Class MCMEX C000014502 Class Z MCEZX N-CSR/A 1 ncsra.txt N-CSR/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-8370 MCMORGAN FUNDS (Exact name of Registrant as specified in charter) One Bush Street, Suite 800 San Francisco, CA 94104 (Address of principal executive offices) (Zip code) Teresa Matzelle Vice President McMorgan & Company LLC One Bush Street, Suite 800 San Francisco, CA 94104 (Name and address of agent for service) Copies to: Bibb L. Strench, Esq. Jeffrey A. Engelsman, Esq. Stradley, Ronon, Stevens & Young LLP New York Life Investment 1220 19th Street, NW Suite 600 Management LLC Washington, DC 20036 169 Lackawanna Avenue Parsippany, NJ 07054 Registrant's telephone number, including area code: (800) 788-9485 Date of fiscal year end: June 30 Date of reporting period: December 31, 2005 FORM N-CSR ITEM 1. REPORTS TO STOCKHOLDERS. McMorgan Funds SEMI-ANNUAL REPORT [graphic omitted] 2005 December 31, 2005 - ----------------- Principal Preservation Fund Intermediate Fixed Income Fund Fixed Income Fund High Yield Fund Balanced Fund Equity Investment Fund The McMorgan Funds are offered by NYLIFE Distributors LLC 169 Lackawanna Avenue, Parsippany, NJ 07054. Experience Is Essential [graphic omitted] LETTER FROM THE PRESIDENT ------------------------- Dear Shareholder, During the twelve months ended December 31, 2005, the U.S. economy continued to advance, with positive gross domestic product and gradually improving labor-market conditions. 2005's monthly growth in non-farm payrolls averaged 167,000 new jobs and the unemployment rate declined from 5.4% at year-end 2004 to 4.9%. Consumer spending has slowed somewhat from very strong performance this past spring and summer but remains a positive. Residential real estate activity has moderated in recent months. Manufacturing and industrial activity continues on a solid growth path. Cyclical inflation pressures in the past 12 months have been largely offset by ongoing deflationary forces of globalization, labor flexibility, and technological advancements. It was a difficult year for bond investors. The yield curve flattened substantially as the Federal Reserve continued to raise short-term rates by 0.25% at each of its eight policy setting meetings, while long-term rates were relatively unchanged. Lower volatility occurred despite a series of unexpected events (Katrina, Iraq, oil prices) that many thought would cause long-term bond yields to rise much higher. The equity market in 2005 followed a very similar pattern to that of 2004. Stocks struggled in a narrow trading range for most of both years before breaking out to the upside in the fourth quarter. Our semi-annual report for the six months ending December 31, 2005 that follows, provides additional information about the market forces, investment decisions, and securities that affected each of the McMorgan Funds during the reporting period. The McMorgan Funds seek to achieve superior performance through a consistent application of a disciplined investment approach. Although economic, industry, and geopolitical variables are constantly in flux, we strive to provide competitive performance for our shareholders over full market cycles. We thank you for placing your trust and confidence in the McMorgan Funds, and we look forward to serving your investment needs for many years to come. Sincerely, /s/ Mark R. Taylor Mark R. Taylor President 1 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 PRINCIPAL PRESERVATION FUND NASDAQ SYMBOL: MCPXX | DECEMBER 31, 2005 This portfolio of short-term, high-quality investments is composed of U.S. Treasury and government securities and other short-term vehicles. The Fund seeks principal preservation while providing maximum current income and maintaining liquidity. The Principal Preservation Fund is a money market fund and is appropriate for investors wishing to avoid principal fluctuations while earning interest income. - -------------------------------------------------------------------------------- Q: What factors affected the short-term bond market during the six months ended December 31, 2005? A: During the second half of the year, the money markets continued to adjust to modestly above-trend economic growth and the gradual unwinding of the Federal Reserve's accommodative monetary policy. Economic activity was generally healthy and core inflation remained well-contained despite persistently high energy prices and the temporary distortions caused by the Gulf Coast hurricanes. The Federal Reserve continued to raise interest rates, with the Fed Funds target ending the year at 4.25%. Recent commentary from Fed officials appears to imply that only modest further monetary tightening is likely to be needed to achieve the objectives of sustainable economic growth and price stability. Q: How did the economic environment affect the results of the portfolio? A: Solid economic growth with moderate inflation has led to gradual increases in short-term interest rates. This has increased the overall yield of the portfolio, while reducing the term premium on longer maturity money market instruments. The 7-day current yield and 30-day SEC yield as of December 31, 2005 were 4.00% and 3.90% respectively. Q: How did the Principal Preservation Fund invest during the reporting period? A: The Fund maintained a somewhat shortened average maturity, as the flat term structure of money market rates did not fully reflect the Fed's ongoing removal of accommodative monetary conditions. The Fund continued to seek maximum current income and returns consistent with the preservation of capital. Q: Did the Fund change its asset class weightings? A: The Fund generally invests in government securities, high quality short-dated commercial paper, and second tier commercial paper. We have maintained a higher allocation to commercial paper to increase the portfolio's yield while maintaining a relatively short maturity profile. Q: What do you anticipate going forward? A: The Federal Reserve appears to be nearing the end of the current monetary tightening cycle, though as always we expect policy makers to remain vigilant for signs of inflationary pressure. Given the slight recent moderation in economic growth and well-contained inflation, we do not anticipate significant further increases in short-term interest rates. As such, the flat term structure of money market rates appears to be fairly consistent with the likely path of monetary policy. - -------------------------------------------------------------------------------- 2 MCMORGAN PRINCIPAL PRESERVATION FUND AS OF DECEMBER 31, 2005 - -------------------------------------------------------------------------------- Diversification Credit Quality(+) Maturity - -------------------------------------------------------------------------------- Cash++ (13%) A-2/P-2 4% 1-15 days 24% Gov't 28% Gov't 25% 16-30 days 27% Commercial Paper 85% A-1/P-1 71% 31-90 days 45% 91+ days 4% Average Annual Total Returns For Period Ended December 31 (%) One Three Five Ten Year Years Years Years ---- ----- ----- ----- McMorgan Principal Preservation Fund 2.98 1.69 2.17 3.76 Principal Preservation Fund--Seven-Day Current Yield (%) 12/31/04 2.09% 1.97 2.25 3/31/05 2.50 2.57 2.76 6/30/05 2.84 3.03 3.24 9/30/05 3.39 3.63 3.78 12/31/05 4.00 An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. +Ratings such as OP-1O refer to individual bonds, and not to the Fund itself. Ratings by Moody's. ++Cash equals liabilities in excess of Cash and Other Assets. Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate so that upon redemption, shares may be worth more or less than their original cost. For the most recent month-end performance information, please visit www.mcmorganfunds.com. 3 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 INTERMEDIATE FIXED INCOME FUND NASDAQ SYMBOL: MCMNX | DECEMBER 31, 2005 This Fund invests in high-quality, investment grade corporate, government and mortgage-backed bonds, seeking to deliver above-average returns consistent with maintaining liquidity and preserving capital. Unlike a money market fund, the Intermediate Fixed Income Fund does not seek a stable net asset of $1 per share and is not suitable for investors seeking consistent principal stability. - -------------------------------------------------------------------------------- Q: What factors affected the bond market during the reporting period ending December 31, 2005? A: During the second half of the year, the bond market continued to adjust to modestly above-trend economic growth and the gradual unwinding of the Federal Reserve's accommodative monetary policy. Economic activity was generally healthy and core inflation remained well-contained despite persistently high energy prices and the temporary distortions caused by the Gulf Coast hurricanes. The Federal Reserve continued to raise interest rates, with the Fed Funds target ending the year at 4.25%. Over the six month period June 30, 2005 to December 31, 2005, the Federal Reserve increased the Fed Funds rate from 3.25% to 4.25%, helping interest rates to rise across the yield curve. The rise in yields was generally lower than in previous Fed tightening cycles as 10-year rates traded in a range of 4.0- 4.7% range. This unexpected "conundrum" was likely the result of several important factors including lower risk premiums and strong foreign demand for U.S. assets. Economic data for the period was mixed, with stronger data in the third quarter giving way to more moderate growth in the fourth quarter. Q: Were there any particular holdings or sectors that enhanced or detracted from results? A: The Fund's duration and yield exposure relative to the benchmark had little impact. An allocation to Treasury Inflation-Protected Securities (TIPS) had a modestly negative impact on performance, as inflation expectation declined over the period. An emphasis on mortgage-backed securities had a modestly positive performance impact. Declining volatility, attractive yield, and a relatively narrow trading range all contributed to positive performance from the mortgage-backed sector. Issue selection, particularly modest allocations to Ford Motor Credit and General Motors Acceptance Corp., as well as an overweight in BBB corporate bonds, weighed on performance. Q: How is the Fund positioned going forward? A: The Fund's interest rate strategy is positioned neutral to the benchmark with a modestly defensive bias. Portfolio duration is targeted at neutral relative to the Fund's benchmark index as we expect yields to remain within a fairly narrow range. Current yield curve strategy emphasizes intermediate maturities (5-9 year). The Fund currently de-emphasizes 2 to 5 year maturities. Overall portfolio exposure to spread sectors (non-U.S. Treasury issues) is higher than the benchmark, despite risk premiums being historically low. Within the short to intermediate maturity range (which is the primary maturity focus of the Fund), non-U.S. Treasury issues offer a more compelling risk/reward than found in longer maturity issues. The portfolio is well diversified and generally has an emphasis on higher quality and structure, focusing on sectors and securities with high risk-adjusted yields. Modest tactical exposures to the financing subsidiaries of General Motors and Ford reflect a positive fundamental view of the quality of assets available to service debt, sound liquidity and open access to funding sources, and importantly, our positive assessment of valuations with respect to risk and reward in a variety of scenarios. - -------------------------------------------------------------------------------- Funds that invest in bonds are subject to credit, interest rate and inflation risk and can lose principal value when interest rates rise. 4 MCMORGAN INTERMEDIATE FIXED INCOME FUND AS OF DECEMBER 31, 2005 - -------------------------------------------------------------------------------- Diversification Bond Quality+ Maturity - -------------------------------------------------------------------------------- Cash++ (9%) Gov't 64% Short Term 13% Gov't 70% Aaa 7% 1-5 years 34% Corporate 31% Aa 4% 5-10 years 52% Mortgage 7% A 8% 10+ years 1% Short Term 1% Baa 16% Ba 1%
Average Annual Total Returns* For Period Ended December 31 (%) One Three Five Ten Years or Year Years Years Life of Class ---- ----- ----- ------------- McMorgan Intermediate Fixed Income Fund 0.96 2.66 4.74 5.28 McMorgan Intermediate Fixed Income Fund (Class Z)** 0.61 2.37 N/A 3.65 Lehman Brothers Intermediate Gov't/Credit Index*** 1.58 2.97 5.50 5.80
Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate so that upon redemption, shares may be worth more or less than their original cost. For the most recent month-end performance information, please visit www.mcmorganfunds.com. Intermediate Fixed Income Fund--Growth Of $10,000
McMorgan Intermediate Lehman Brothers Intermediate McMorgan Intermediate Lehman Brothers Intermediate Fixed Income Fund Govt/Credit Fixed Income Fund Govt/Credit --------------------- ---------------------------- --------------------- ---------------------------- 12/31/95 $10,000 $10,000 12/31/00 13,266 13,449 10,083 10,086 13,490 13,669 9,963 9,968 13,646 13,799 9,909 9,917 13,756 13,905 9,893 9,882 13,707 13,869 9,877 9,875 13,768 13,947 9,980 9,979 13,832 13,999 10,016 10,009 14,122 14,290 10,018 10,017 14,251 14,433 10,152 10,156 14,494 14,643 10,336 10,336 14,644 14,886 10,472 10,473 14,378 14,738 12/31/96 10,413 10,406 12/31/01 14,324 14,657 10,449 10,446 14,371 14,733 10,457 10,466 14,511 14,849 10,382 10,394 14,275 14,623 10,502 10,515 14,440 14,865 10,593 10,603 14,642 15,013 10,693 10,699 14,660 15,142 10,929 10,916 14,843 15,321 10,862 10,862 14,980 15,549 10,995 10,988 15,202 15,828 11,150 11,110 15,135 15,766 11,136 11,134 15,147 15,752 12/31/97 11,237 11,223 12/31/02 15,456 16,095 11,389 11,370 15,454 16,094 11,373 11,361 15,720 16,321 11,404 11,398 15,669 16,337 11,451 11,455 15,779 16,461 11,550 11,538 16,141 16,792 11,622 11,612 16,095 16,780 11,651 11,653 15,578 16,324 11,870 11,836 15,621 16,363 12,122 12,133 16,061 16,777 12,050 12,121 15,875 16,619 12,077 12,119 15,901 16,642 12/31/98 12,114 12,168 12/31/03 16,036 16,787 12,176 12,235 16,153 16,898 11,997 12,055 16,317 17,070 12,118 12,145 16,423 17,204 12,121 12,183 16,020 16,796 12,014 12,089 15,918 16,720 11,999 12,098 15,992 16,770 11,969 12,087 16,134 16,911 11,952 12,096 16,393 17,194 12,072 12,209 16,442 17,223 12,092 12,241 16,558 17,338 12,120 12,255 16,441 17,181 12/31/99 12,077 12,215 12/31/04 16,566 17,297 12,019 12,170 16,591 17,330 12,119 12,269 16,503 17,235 12,224 12,397 16,402 17,145 12,172 12,369 16,551 17,341 12,188 12,388 16,708 17,497 12,420 12,606 16,781 17,571 12,502 12,702 16,667 17,425 12,619 12,852 16,856 17,629 12,769 12,969 16,699 17,479 12,800 13,029 16,587 17,383 13,000 13,206 16,627 17,459 12/31/05 16,725 17,579
This chart reflects a hypothetical investment of $10,000 with reinvestment of dividends and capital gains. +Ratings such as "Aaa" refer to individual bonds, and not to the Fund itself. Ratings by Moody's. ++Cash equals liabilities in excess of Cash and Other Assets. *Before taxes on distributions or redemption of Fund shares. **The Fund's inception date for Class Z shares was September 4, 2001. ***The Lehman Brothers Intermediate U.S. Government/Credit Index is an index of all publicly issued bonds of the U.S. government and agencies, as well as investment grade corporate bonds, with less than 10 years of maturity, and reflects no deduction for fees, expenses or taxes. 5 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 FIXED INCOME FUND NASDAQ SYMBOL: MCMFX | DECEMBER 31, 2005 This diversified portfolio invests in high-quality corporate, government and mortgage-backed bonds, with average remaining maturities of up to 30 years. The average weighted portfolio maturity is generally between 5 to 10 years. The Fund seeks above-average returns consistent with maintaining liquidity and preserving capital. - -------------------------------------------------------------------------------- Q: What factors affected the bond market during the reporting period ending December 31, 2005? A: During the second half of the year, the bond market continued to adjust to modestly above-trend economic growth and the gradual unwinding of the Federal Reserve's accommodative monetary policy. Economic activity was generally healthy and core inflation remained well-contained despite persistently high energy prices and the temporary distortions caused by the Gulf Coast hurricanes. The Federal Reserve continued to raise interest rates, with the Fed Funds target ending the year at 4.25%. Over the six month period June 30, 2005 to December 31, 2005, the Federal Reserve increased the Fed Funds rate from 3.25% to 4.25%, helping interest rates to rise across the yield curve. The rise in yields was generally lower than in previous Fed tightening cycles as 10-year rates traded in a range of 4.0 - 4.7% range. This unexpected "conundrum" was likely the result of several important factors including lower risk premiums and strong foreign demand for U.S. assets. Economic data for the period was mixed, with stronger data in the third quarter giving way to more moderate growth in the fourth quarter. Q: Were there any particular holdings or sectors that enhanced or detracted from results? A: The Fund's duration and yield exposure relative to the benchmark had little impact. An allocation to Treasury Inflation-Protected Securities (TIPS) had a modestly negative impact on performance, as inflation expectation declined over the period. An emphasis on mortgage-backed securities had a modestly positive performance impact. Declining volatility, attractive yield, and a relatively narrow trading range all contributed to positive performance from the mortgage-backed sector. Issue selection, particularly modest allocations to Ford Motor Credit and General Motors Acceptance Corp., as well as an overweight in BBB corporate bonds, weighed on performance. Q: How is the Fund positioned going forward? A: The Fund's interest rate strategy is positioned neutral to the benchmark with a modestly defensive bias. Portfolio duration is targeted at neutral relative to the Fund's benchmark index as we expect yields to remain within a fairly narrow range. Current yield curve strategy emphasizes intermediate maturities (7-15 year) over very long maturities which have sub- optimal risk/return characteristics. Overall portfolio exposure to spread sectors (non-U.S. Treasury issues) is only moderately higher than the benchmark as risk premiums remain historically low. The portfolio is well diversified and generally has an emphasis on higher quality and structure, focusing on sectors and securities with high risk-adjusted yields. Modest tactical exposures to the financing subsidiaries of General Motors and Ford reflect a positive fundamental view of the quality of assets available to service debt, sound liquidity and open access to funding sources, and importantly, our positive assessment of valuations with respect to risk and reward in a variety of scenarios. - -------------------------------------------------------------------------------- Funds that invest in bonds are subject to credit, interest rate and inflation risk and can lose principal value when interest rates rise. 6 MCMORGAN FIXED INCOME FUND AS OF DECEMBER 31, 2005 - -------------------------------------------------------------------------------- Diversification Bond Quality+ Maturity - -------------------------------------------------------------------------------- Cash++ (5%) Gov't 56% Short Term 7% Gov't 62% Aaa 6% 1-5 years 25% Corporate 37% Aa 6% 5-10 years 53% Mortgage 6% A 12% 10+ years 15% Baa 19% Ba 1%
Average Annual Total Returns* For Period Ended December 31 (%) One Three Five Ten Years or Year Years Years Life of Class ---- ----- ----- ------------- McMorgan Fixed Income Fund 1.72 3.45 5.62 5.80 McMorgan Fixed Income Fund (Class Z)** 1.47 3.20 N/A 5.01 McMorgan Fixed Income Fund (Class R1****) 1.64 N/A N/A 3.01 McMorgan Fixed Income Fund (Class R2****) 1.30 N/A N/A 2.69 Lehman Brothers U.S. Government/Credit Index*** 2.37 3.74 6.11 6.17
Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate so that upon redemption, shares may be worth more or less than their original cost. For the most recent month-end performance information, please visit www.mcmorganfunds.com. Fixed Income Fund--Growth Of $10,000
McMorgan Lehman Brothers U.S. McMorgan Lehman Brothers U.S. Fixed Income Fund Govt/Credit Fixed Income Fund Govt/Credit ----------------- --------------- ----------------- --------------- 12/31/95 $10,000 $10,000 12/31/00 $13,365 $13,529 10,074 10,062 13,595 13,757 9,870 9,849 13,775 13,898 9,786 9,766 13,819 13,962 9,700 9,699 13,710 13,858 9,678 9,682 13,770 13,938 9,812 9,811 13,810 14,005 9,821 9,833 14,185 14,354 9,801 9,810 14,353 14,537 9,982 9,984 14,530 14,671 10,222 10,217 14,783 15,044 10,417 10,405 14,434 14,797 12/31/96 10,305 10,290 12/31/01 14,303 14,680 10,324 10,302 14,387 14,787 10,335 10,324 14,592 14,913 10,206 10,201 14,227 14,610 10,356 10,350 14,476 14,894 10,450 10,446 14,690 15,031 10,570 10,571 14,750 15,158 10,904 10,895 14,987 15,340 10,774 10,773 15,289 15,684 10,950 10,942 15,595 16,021 11,131 11,117 15,420 15,867 11,158 11,176 15,435 15,877 12/31/97 11,287 11,293 12/31/02 15,867 16,298 11,463 11,452 15,815 16,298 11,414 11,429 16,187 16,588 11,453 11,465 16,107 16,566 11,501 11,522 16,274 16,743 11,609 11,646 16,768 17,219 11,702 11,764 16,677 17,150 11,710 11,774 15,873 16,431 11,968 12,003 15,960 16,540 12,303 12,347 16,551 17,064 12,148 12,259 16,302 16,848 12,200 12,333 16,362 16,893 12/31/98 12,248 12,362 12/31/03 16,524 17,060 12,304 12,450 16,716 17,216 12,033 12,154 16,913 17,426 12,176 12,214 17,070 17,586 12,162 12,245 16,515 17,046 12,012 12,119 16,368 16,959 11,976 12,081 16,461 17,029 11,939 12,047 16,638 17,209 11,900 12,038 17,001 17,574 12,033 12,146 17,083 17,635 12,043 12,178 17,229 17,789 12,063 12,170 17,071 17,591 12/31/99 11,981 12,096 12/31/04 17,269 17,778 11,944 12,092 17,392 17,901 12,087 12,245 17,249 17,782 12,243 12,421 17,113 17,658 12,147 12,360 17,345 17,923 12,121 12,349 17,568 18,147 12,398 12,601 17,682 18,265 12,496 12,735 17,516 18,058 12,662 12,914 17,770 18,327 12,786 12,963 17,511 18,087 12,808 13,045 17,346 17,932 13,075 13,268 17,407 18,023 12/31/05 17,566 18,202
This chart reflects a hypothetical investment of $10,000 with reinvestment of dividends and capital gains. +Ratings such as "Aaa" refer to individual bonds, and not to the Fund itself. Ratings by Moody's. ++Cash equals liabilities in excess of Cash and Other Assets. *Before taxes on distributions or redemption of Fund shares. **The Fund's inception date for Class Z shares was February 1, 2001. ***The Lehman Brothers U.S. Government/Credit Index is an index of all publicly issued bonds of the U.S. government and agencies, as well as investment grade corporate bonds, and reflects no deduction for fees, expenses or taxes. ****The Fund's inception date for Class R1 and R2 was January 2, 2004. 7 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 HIGH YIELD FUND NASDAQ SYMBOL: MCMHX | DECEMBER 31, 2005 The Fund normally invests at least 80% of its net assets in high yield debt securities. The Fund invests in securities that are rated below investment grade, or that are unrated but that are considered to be of comparable quality by the sub-advisor. The Fund will invest in securities with average remaining maturities of up to 30 years. The average weighted portfolio maturity will generally be between four and ten years. The Fund is sub-advised by Securities Investment, a division of New York Life Investment Management, LLC. - -------------------------------------------------------------------------------- Q: How did the high yield bond market perform in reporting period ending December 31, 2005? A: Although slightly better than first half 2005 returns, the high yield market delivered uninspired performance in the second half, returning 1.77%. This resulted in a 2.65% full year return for 2005. Q: What factors affected the market during the reporting period? A: While the overall market tone in 2005 was muted by consistent Federal Reserve actions, the high yield market experienced numerous unique disruptions which contributed to 2005's lackluster performance. Anxiety over GM and Ford triggered a massive flight to quality, culminating in the downgrade of both companies to non-investment grade status. Ultimately, the migration of GM and Ford into the high yield indices was relatively orderly. The smooth transition, combined with solid credit fundamentals in the broader market, led to a summer rally. The rally was short-lived as an acceleration in new issuances, the Gulf Coast hurricanes, oil price spikes, and several high profile defaults turned monthly returns negative in September and October before snapping back in November and December. Q: How has the Fund performed during these market conditions? A: In the second half of 2005, the Fund generated a gross return of 2.50% and a net return of 2.12%. During the year, the portfolio maintained its overweight position in single-B rated securities and its underweight in double-B rated securities. This portfolio positioning was rewarded in the 2nd half of 2005, although offset by weak credit performance in certain names. Q: What sectors helped or hurt the Fund's performance? A: The Fund benefited from overweights in the Broadcasting and Leisure industries, along with solid credit performance in the Telecommunications sector. Fund performance was also helped by its underweight to Autos. Exposure to the Paper and Forest Products sector, along with credit specific events impacting our Refco and Calpine holdings were the biggest relative detractors of fund performance. Q: How is the High Yield Fund positioned going forward? A: The Fund enters 2006 with an overweight position in single-B rated securities and an underweight in double-B rated securities. This posture is consistent with our expectation for continued federal funds rate hikes and a moderate increase in default rates from historical lows. We expect economic growth and corporate profits to slow but remain at healthy levels, resulting in generally stable credit conditions. From an industry perspective, our concerns over continued operational restructurings at Ford and GM compel us to maintain a notable underweight in the automobile industry. The Fund enters the year favoring the Gaming and Media industries. - -------------------------------------------------------------------------------- High yield securities have speculative characteristics and present a greater risk of loss than higher quality debt securities. These securities can also be subject to greater price volatility. Funds that invest in bonds are subject to credit, interest rate and inflation risk and can lose principal value when interest rates rise. 8 MCMORGAN HIGH YIELD FUND AS OF DECEMBER 31, 2005 - -------------------------------------------------------------------------------- Diversification Bond Quality+ Maturity - -------------------------------------------------------------------------------- Preferred Stock 1% Investment Grade 1% 0-3 years 4% Common Stock(a) 0% B 59% 3-5 years 4% Corporate 96% Ba 20% 5-10 years 91% Warrants(a) 0% Caa 15% 10+ years 1% Cash++ (6%) NR 5% Gov't 1% Short Term 8% (a)Less than one tenth of a percent.
Average Annual Total Returns* For Period Ended December 31 (%) One Three Five Since Year Years Years Inception*** ---- ----- ----- ------------ McMorgan High Yield Fund 2.09 N/A N/A 7.54 Lehman Brothers U.S. Corp High Yield**** 2.74 N/A N/A 8.03 Citigroup High Yield Market Capped***** 2.65 N/A N/A 7.83
Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate so that upon redemption, shares may be worth more or less than their original cost. For the most recent month-end performance information, please visit www.mcmorganfunds.com. High Yield Fund--Growth Of $10,000 McMorgan Lehman Brothers Citigroup High Yield High Yield Fund U.S. Corp High Yield Market Capped --------------- -------------------- ------------- 11/03/03 $10,000 $10,000 $10,000 10,060 10,152 10,139 10,391 10,381 10,399 12/31/03 10,568 10,580 10,579 10,446 10,553 10,521 10,470 10,625 10,587 03/31/04 10,434 10,553 10,551 10,261 10,374 10,368 10,423 10,523 10,523 06/30/04 10,564 10,666 10,658 10,793 10,875 10,853 10,914 11,033 11,000 09/30/04 11,171 11,232 11,228 11,330 11,368 11,358 11,462 11,538 11,521 12/31/04 11,436 11,523 11,505 11,617 11,692 11,678 11,275 11,352 11,350 03/31/05 11,087 11,242 11,194 11,270 11,442 11,424 11,457 11,666 11,615 06/30/05 11,653 11,870 11,783 11,712 11,893 11,833 11,595 11,774 11,714 09/30/05 11,476 11,691 11,627 11,578 11,752 11,657 11,700 11,853 11,760 12/31/05 11,701 11,815 11,769 This chart reflects a hypothetical investment of $10,000 with reinvestment of dividends and capital gains. +Ratings such as "Aaa" refer to individual bonds, and not to the Fund itself. Ratings by Moody's. ++Cash equals liabilities in excess of Cash and Other Assets. *Includes 4.4% weightings in Lehman Brothers High Yield TRAINS, a high yield index security. **Before taxes on distributions or redemption of Fund shares. ***The Fund's inception date for Class McMorgan shares was November 3, 2003. ****The Lehman Brothers U.S. Corp High Yield Index covers the universe of fixed rate, non-investment grade debt, and reflects no deduction for fees, expenses or taxes. *****The Citigroup High Yield Market Capped Index covers the universe of fixed rate, non-investment grade debt, and reflects no deduction for fees, expenses or taxes. 9 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 BALANCED FUND NASDAQ SYMBOL: MCMBX | DECEMBER 31, 2005 This portfolio of stocks, bonds and cash focuses on capital appreciation, creating current income, and preservation of capital. This Fund is diversified among different kinds of securities, with approximately 60% of the assets invested in equities and 40% in bonds over the long term. The mix of securities will change based on existing and anticipated market conditions. - -------------------------------------------------------------------------------- Q: Were there any significant changes in asset allocation? A: Asset allocation targets between stocks and bonds remain unchanged with a heavier weighting toward equities owing to a more favorable assessment of the prospects for equities than fixed income. Q: What were the most significant factors affecting the Balanced Fund's performance during the reporting period? A: Over the six month period from June 30, 2005 to December 31, 2005, increases in the federal funds rate pushed short and intermediate maturity interest rates significantly higher. Intermediate maturity interest rates rose somewhat more than longer term rates. Returns for the fixed income portion of the Fund consequently acted as a drag on performance while a strong second half in equities boosted fund performance. The fund's overweight in equities relative to fixed income was a positive factor in total fund performance. Q: How is the Balanced Fund positioned going forward? A: The allocation to equities remains above neutral due to our favorable outlook for the equity market. The economy and earnings continue to grow, inflation remains well behaved. The end of the recent Fed tightening cycle is likely to occur soon and although we expect some modest slowing in the economy's rate of growth the macro-environment should be conducive to reasonable investment returns. Within the fixed income portion of the fund, the interest rate strategy is neutral to the fixed income benchmark with a modestly defensive bias. Portfolio duration is targeted at neutral as we expect yields to remain within a fairly narrow range. Current yield curve strategy emphasizes intermediate maturities (7-15 year) over very long maturities which have sub-optimal risk/return characteristics. Within the equity portion of the Fund, the overall portfolio characteristics and risk level remained relatively constant over the second half of 2005. The beta (risk) of the portfolio was slightly higher than the S&P 500 index at 1.02 (versus 1.00 for the S&P 500). The fund maintained a minor value tilt and the weighted average market capitalization is slightly lower than that of the S&P 500. The Fund has a positive tilt toward companies exhibiting positive stock price momentum, which has rewarded shareholders over the past few years. On an economic sector basis, Information Technology, Utilities, Energy, Financials, and Telecommunications were emphasized, while Consumer Staples, Industrials, Consumer Discretionary, Materials and Health Care were underweight relative to the index. - -------------------------------------------------------------------------------- Funds that invest in bonds are subject to credit, interest rate and inflation risk and can lose principal value when interest rates rise. 10 MCMORGAN BALANCED FUND AS OF DECEMBER 31, 2005 - ------------------- ---------------------- ------------------------------- Asset Allocation Bond Quality+ Ten Largest Equity Holdings (%) - ------------------- ---------------------- ------------------------------- Short Term 4% Gov't 62% ExxonMobil Corp. 3.2 Stocks 64% Aaa 6% General Electric, Co. 2.7 Bonds 38% Aa 5% Microsoft Corp. 2.4 Cash++ (6%) A 10% MBNA Corp. 2.4 Baa 16% Pfizer, Inc. 2.2 Ba 1% Intel Corp. 2.0 IBM Corp. 1.7 Cisco Systems, Inc. 1.6 Citigroup, Inc. 1.6 United Health Group, Inc. 1.5 Total 21.3
Average Annual Total Returns* For Period Ended December 31 (%) One Three Five Ten Years or Year Years Years Life of Class ---- ----- ----- ------------- McMorgan Balanced Fund 5.02 9.06 2.04 7.54 McMorgan Balanced Fund (Class Z)** 4.77 8.78 N/A 1.32 Lehman Brothers Government/Credit Index 2.37 3.74 6.11 6.17 Standard & Poor's 500 Index 4.91 14.39 0.54 9.07
Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate so that upon redemption, shares may be worth more or less than their original cost. For the most recent month-end performance information, please visit www.mcmorganfunds.com. Balanced Fund--Growth Of $10,000
McMorgan Lehman McMorgan Lehman Balanced Fund Govt/Credit S&P 500 Balanced Fund Govt/Credit S&P 500 ------------- ----------- ------- ------------- ----------- ------- 2/31/95 $10,000 $10,000 $10,000 12/31/00 18,694 13,529 23,222 10,262 10,062 10,344 19,310 13,757 24,045 10,262 9,849 10,443 18,336 13,898 21,853 10,265 9,766 10,544 17,744 13,962 20,468 10,339 9,699 10,699 18,514 13,858 22,059 10,479 9,682 10,975 18,534 13,938 22,207 10,569 9,811 11,020 18,279 14,005 21,667 10,337 9,833 10,528 18,369 14,354 21,453 10,428 9,810 10,751 17,856 14,537 20,110 10,852 9,984 11,357 17,210 14,671 18,487 11,186 10,217 11,669 17,606 15,044 18,840 11,829 10,405 12,555 18,205 14,797 20,285 12/31/96 11,626 10,290 12,312 12/31/01 18,108 14,680 20,463 12,115 10,302 13,077 17,814 14,787 20,164 12,132 10,324 13,181 17,635 14,913 19,775 11,814 10,201 12,633 17,859 14,610 20,519 12,272 10,350 13,387 17,235 14,894 19,275 12,730 10,446 14,209 17,351 15,031 19,132 13,068 10,571 14,842 16,514 15,158 17,770 13,999 10,895 16,022 15,993 15,340 16,384 13,555 10,773 15,132 16,142 15,684 16,491 14,107 10,942 15,957 15,013 16,021 14,699 13,927 11,117 15,432 15,753 15,867 15,992 14,236 11,176 16,140 16,365 15,877 16,934 12/31/97 14,376 11,293 16,412 12/31/02 15,944 16,298 15,939 14,619 11,452 16,597 15,705 16,298 15,521 15,148 11,429 17,790 15,684 16,588 15,289 15,492 11,465 18,703 15,622 16,566 15,437 15,693 11,522 18,897 16,386 16,743 16,709 15,554 11,646 18,569 16,953 17,219 17,589 15,912 11,764 19,323 17,036 17,150 17,813 15,929 11,774 19,118 16,948 16,431 18,127 14,761 12,003 16,357 17,091 16,540 18,481 15,494 12,347 17,411 17,168 17,064 18,285 16,210 12,259 18,821 17,721 16,848 19,319 16,864 12,333 19,961 17,842 16,893 19,489 12/31/98 17,341 12,362 21,123 12/31/03 18,558 17,060 20,511 17,681 12,450 21,998 18,736 17,216 20,887 17,198 12,154 21,313 18,880 17,426 21,177 17,481 12,214 22,170 18,726 17,586 20,858 17,940 12,245 23,015 18,279 17,046 20,530 17,652 12,119 22,483 18,413 16,959 20,812 18,235 12,081 23,713 18,654 17,029 21,217 17,981 12,047 22,980 18,306 17,209 20,515 17,954 12,038 22,877 18,463 17,574 20,597 17,664 12,146 22,243 18,573 17,635 20,819 18,147 12,178 23,658 18,799 17,789 21,138 18,311 12,170 24,138 19,182 17,591 21,994 12/31/99 18,562 12,096 25,560 12/31/04 19,696 17,778 22,744 18,190 12,092 24,277 19,457 17,901 22,189 17,854 12,245 23,818 19,673 17,782 22,656 18,950 12,421 26,147 19,396 17,658 22,255 18,603 12,360 25,361 19,156 17,923 21,833 18,462 12,349 24,831 19,704 18,147 22,528 18,813 12,601 25,449 19,894 18,265 22,560 18,757 12,735 25,051 20,307 18,058 23,399 19,587 12,914 26,597 20,330 18,327 23,185 18,946 12,963 25,193 20,456 18,087 23,373 19,231 13,045 25,086 20,076 17,932 22,983 18,490 13,268 23,109 20,606 18,023 23,852 12/31/05 20,684 18,202 23,836
This chart reflects a hypothetical investment of $10,000 with reinvestment of dividends and capital gains. +Ratings such as "Aaa" refer to individual bonds, and not to the Fund itself. Ratings by Moody's. ++Cash equals liabilities in excess of Cash and Other Assets. *Before taxes on distributions or redemption of Fund shares. **The Fund's inception date for Class Z shares was January 25, 2001. ***The Lehman Brothers U.S. Government/Credit Index is an index of all publicly issued bonds of the U.S. government and agencies, as well as investment grade corporate bonds, and reflects no deduction for fees, expenses or taxes. ****The S&P 500 Index is a market capitalization-weighted index of common stocks, and reflects no deduction for fees, expenses or taxes. 11 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 EQUITY INVESTMENT FUND NASDAQ SYMBOL: MCMEX | DECEMBER 31, 2005 This portfolio of high-quality stocks focuses on selecting companies that demonstrate strong management, sustained earnings, growth potential, and the ability to pay above-average dividends. Since the Equity Investment Fund is comprised primarily of stocks, it assumes greater risk but also enjoys greater potential for capital growth and appreciation over the long term. The portfolio is well diversified among common stocks of U.S. companies. - -------------------------------------------------------------------------------- Q: What factors affected the stock market during the reporting period ending December 31, 2005? A: The equity market traded sideways within a narrow range before rallying during the final two months of the year. The market struggled much of the year against the headwinds of rising interest rates, higher energy prices, and fears of slowing profit growth. The economy also suffered a jolt from the heavy hurricane season. However, stocks moved higher during the fourth quarter, as investors anticipated the end of the Federal Reserve's tightening cycle. Oil prices retreated from their September 1st high, and corporate profits continued to exceed expectations, providing a spark that pushed equities into positive territory for the year. Q: How did corporate earnings fare during the period? A: Corporate earnings exceeded expectations during the second half of the year, continuing a multi-year trend. Companies in the S&P 500 experienced better than double-digit earnings growth for the third and fourth quarters on good sales growth and expanding profit margins. Corporate cash flow was strong, leading to increased dividend payouts and stock buybacks for many companies. Energy companies continued to lead the way with very strong earnings, but other cyclical sectors like Industrials and Information Technology posted strong growth. The rate of growth is expected to decelerate with profit levels high, but earnings are expected to inch higher in 2006. Q: Why did the Fund exceed its benchmark over the reporting period? A: Individual stock selection was the main reason the Fund exceeded the benchmark during the second half of the year. The Fund's emphasis on the Energy and Financial sectors was also rewarded, as these sectors returned over 9% in a market that rose 5.8%. Underweight positions in the consumer sectors (both Consumer Discretionary and Consumer Staples) helped as these sectors lagged. Q: Were there any significant shifts in sector allocation during the reporting period? A: There were some minor changes on the economic sector level. Technology, which had been underweight versus the index on June 30th, ended the period overweight versus the S&P 500. The weighting in Health Care was also increased and is now nearly even with the index. The Materials and Telecommunications sectors were reduced. Energy, Utilities, and Financials, three large sectors with higher than market weights, remained relatively constant during the second half of the year. Q: How was the Equity Investment Fund positioned at the end of the reporting period? A: The overall portfolio characteristics and risk level remained relatively constant over the second half of 2005. The Fund maintained a minor value tilt with a market capitalization slightly lower than the S&P 500. - -------------------------------------------------------------------------------- 12 MCMORGAN EQUITY INVESTMENT FUND AS OF DECEMBER 31, 2005
- ------------------------------- ----------------------------------- ----------------------------------------- Ten Largest Equity Holdings (%) Stock Weightings (%) Portfolio Characteristics - ------------------------------- ----------------------------------- ----------------------------------------- ExxonMobil Corp. 3.1 Financials 22.3 P/E Ratio (Trailing) 15.53 General Electric, Co. 2.6 Information Technology 17.6 Historical Beta 0.98 Microsoft Corp. 2.4 Health Care 13.2 Market Weighted Capitalization $78.5 bil MBNA Corp. 2.2 Industrials 9.2 Number of Issues 494 Pfizer, Inc. 2.1 Consumer Staples 6.6 S&P 500 Index-SPDR Trust 2.0 Energy 10.7 Intel Corp. 1.9 Consumer Discretionary 9.2 IBM Corp. 1.7 Materials 2.1 Cisco Systems, Inc. 1.6 Telecommunication Services 3.4 Citigroup, Inc. 1.5 Utilities 5.7 Total 21.1 Total 100.0
Average Annual Total Returns* For Period Ended December 31 (%) One Three Five Ten Years or Year Years Years Life of Class ---- ----- ----- ------------- McMorgan Equity Investment Fund 6.85 12.10 -1.34 7.79 McMorgan Equity Investment Fund (Class Z)** 6.57 11.83 N/A -2.61 S&P 500 4.91 14.39 0.54 9.07
Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate so that upon redemption, shares may be worth more or less than their original cost. For the most recent month-end performance information, please visit www.mcmorganfunds.com. Equity Investment Fund--Growth Of $10,000
McMorgan Equity McMorgan Equity Investment Fund S&P 500 Investment Fund S&P 500 --------------- ------- --------------- ------- 12/31/94 10,000 10,000 12/31/99 22,639 23,222 10,374 10,344 23,593 24,045 10,546 10,443 21,470 21,853 10,619 10,544 20,251 20,468 10,836 10,699 21,793 22,059 11,114 10,975 21,776 22,207 11,176 11,020 21,209 21,667 10,740 10,528 21,019 21,453 10,943 10,751 19,854 20,110 11,548 11,357 18,463 18,487 11,956 11,669 18,948 18,840 12,946 12,555 20,332 20,285 12/31/95 12,680 12,312 12/31/00 20,247 20,463 13,538 13,077 19,638 20,164 13,538 13,181 19,135 19,775 13,065 12,633 19,841 20,519 13,773 13,387 18,460 19,275 14,549 14,209 18,478 19,132 15,052 14,842 16,896 17,770 16,595 16,022 15,787 16,384 15,900 15,132 15,823 16,491 16,782 15,957 13,738 14,699 16,223 15,432 15,029 15,992 16,827 16,140 15,972 16,934 12/31/96 16,971 16,412 12/31/01 15,025 15,939 17,248 16,597 14,703 15,521 18,341 17,790 14,426 15,289 18,989 18,703 14,381 15,437 19,352 18,897 15,476 16,709 18,951 18,569 16,050 17,589 19,552 19,323 16,222 17,813 19,560 19,118 16,510 18,127 16,962 16,357 16,663 18,481 18,032 17,411 16,473 18,285 19,519 18,821 17,402 19,319 20,781 19,961 17,564 19,489 12/31/97 21,682 21,123 12/31/02 18,547 20,511 22,284 21,998 18,728 20,887 21,581 21,313 18,836 21,177 22,038 22,170 18,501 20,858 23,023 23,015 18,120 20,530 22,562 22,483 18,383 20,812 23,796 23,713 18,674 21,217 23,372 22,980 18,075 20,515 23,341 22,877 18,102 20,597 22,531 22,243 18,234 20,819 23,473 23,658 18,479 21,138 23,677 24,138 19,161 21,994 12/31/98 24,184 25,560 12/31/03 19,809 22,744 23,464 24,277 19,389 22,189 22,560 23,818 19,827 22,656 24,707 26,147 19,491 22,255 24,114 25,361 18,978 21,833 23,833 24,831 19,692 22,528 24,224 25,449 19,907 22,560 23,991 25,051 20,650 23,399 25,524 26,597 20,512 23,185 23,970 25,193 20,829 23,373 24,413 25,086 20,379 22,983 22,579 23,109 21,152 23,852 12/31/04 21,165 23,836
This chart reflects a hypothetical investment of $10,000 with reinvestment of dividends and capital gains. *Before taxes on distributions or redemption of Fund shares. **The Fund's inception date for Class Z shares was February 1, 2001. ***The S&P 500 Index is a market capitalization-weighted index of common stocks, and reflects no deduction for fees, expenses or taxes. 13 MCMORGAN FUNDS SEMI-ANNUAL REPORT 2005 Cost in Dollars of a $1,000 Investment in McMorgan Fund - -------------------------------------------------------------------------------- The example to the right is intended to describe the fees and expenses borne by shareholders during the reporting period and the impact of those costs on your investment. Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, if applicable, exchange fees, and sales charges (loads) on purchase payments, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire six month period from July 1, 2005, to December 31, 2005. The example illustrates your Fund's ongoing costs in two ways: Actual Expenses The second and third data columns in the table to the right provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number located in the fifth column (under the heading entitled "Expenses Paid During Period") to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The sixth and seventh data columns in the table to the right provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as redemption fees, if applicable, exchange fees, or sales charges (loads). Therefore, the sixth and seventh data columns of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. 14
- ----------------------------------------------------------------------------------------------------------------------------------- Based on Actual Returns and Expenses Based on Hypothetical 5% Return and Expenses Beginning ------------------------------------ -------------------------------------------- Account Ending Account Expenses Paid Ending Account Expenses Paid Share Class++ Value 7/1/05 Value 12/31/05 During Period Value 12/31/05 During Period - ----------------------------------------------------------------------------------------------------------------------------------- Principal Preservation Fund - ----------------------------------------------------------------------------------------------------------------------------------- McMorgan Class Shares $1,000 $1,017.50 $1.53 $1,023.50 $1.53 - ----------------------------------------------------------------------------------------------------------------------------------- Intermediate Fixed Income Fund - ----------------------------------------------------------------------------------------------------------------------------------- McMorgan Class Shares $1,000 $996.70 $2.52 $1,022.50 $2.55 - ----------------------------------------------------------------------------------------------------------------------------------- Z Class Shares $1,000 $995.35 $3.77 $1,021.25 $3.82 - ----------------------------------------------------------------------------------------------------------------------------------- Fixed Income Fund - ----------------------------------------------------------------------------------------------------------------------------------- McMorgan Class Shares $1,000 $993.50 $2.51 $1,022.50 $2.55 - ----------------------------------------------------------------------------------------------------------------------------------- Z Class Shares $1,000 $991.25 $3.76 $1,021.25 $3.82 - ----------------------------------------------------------------------------------------------------------------------------------- R1 Class Shares $1,000 $992.00 $3.01 $1,022.00 $3.06 - ----------------------------------------------------------------------------------------------------------------------------------- R2 Class Shares $1,000 $991.65 $4.27 $1,020.70 $4.33 - ----------------------------------------------------------------------------------------------------------------------------------- High Yield Fund - ----------------------------------------------------------------------------------------------------------------------------------- McMorgan Class Shares $1,000 $1,017.50 $3.73 $1,025.00 $3.78 - ----------------------------------------------------------------------------------------------------------------------------------- Balanced Fund - ----------------------------------------------------------------------------------------------------------------------------------- McMorgan Class Shares $1,000 $1,039.80 $3.08 $1,022.00 $3.06 - ----------------------------------------------------------------------------------------------------------------------------------- Z Class Shares $1,000 $1,038.65 $4.37 $1,020.75 $4.33 - ----------------------------------------------------------------------------------------------------------------------------------- Equity Investment Fund - ----------------------------------------------------------------------------------------------------------------------------------- McMorgan Class Shares $1,000 $1,063.45 $3.90 $1,021.25 $3.82 - ----------------------------------------------------------------------------------------------------------------------------------- Z Class Shares $1,000 $1,061.70 $5.20 $1,020.00 $5.09 - -----------------------------------------------------------------------------------------------------------------------------------
++Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, divided by 365, multiplied by 184 (to reflect the one-half year period). 15 PRINCIPAL PRESERVATION FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (Unaudited) FIXED INCOME SECURITIES 113.0% U.S. GOVERNMENT AGENCY NOTES 28.2%
PRINCIPAL AMORTIZED AMOUNT COST ------------------------- Federal Home Loan Bank (Discount Notes) - 5.5% 3.756%, due 1/31/06 .............................. $ 4,000,000 $ 3,987,062 4.18%, due 1/6/06 ................................ 3,910,000 3,907,276 ----------- 7,894,338 ----------- Federal Home Loan Mortgage Corporation (Discount Notes) - 17.9% 3.89%, due 1/3/06 ................................ 6,500,000 6,497,893 4.11%, due 5/8/06 ................................ 2,500,000 2,463,467 4.17%, due 2/7/06 ................................ 12,833,000 12,777,844 4.435%, due 6/13/06 .............................. 4,205,000 4,120,042 ----------- 25,859,246 ----------- Federal National Mortgage Association (Discount Note) - 4.8% 4.20%, due 2/1/06 ................................ 7,000,000 6,973,867 ----------- Total U.S. Government Agency Notes (Cost $40,727,451) ............................... 40,727,451 ----------- COMMERCIAL PAPER 84.8% Alcoa, Inc. 4.17%, due 1/3/06 ................................ 6,500,000 6,497,741 Alltel Corp. 4.34%, due 1/19/06 (a) ........................... 6,000,000 5,986,256 ANZ National Bank, Ltd. 4.38%, due 3/17/06 (a) ........................... 3,050,000 3,021,798 BNP Paribas Finance, Inc. 4.34%, due 2/14/06 ............................... 6,000,000 5,967,450 CIT Group, Inc. 4.30%, due 2/3/06 ................................ 5,200,000 5,178,882 Clorox Co. 4.41%, due 2/9/06 ................................ 1,500,000 1,492,650 Countrywide Financial Corp. 4.25%, due 1/3/06 ................................ 6,500,000 6,497,698 DaimlerChrysler NA Holdings Corp. 4.40%, due 1/30/06 ............................... 1,400,000 1,394,867 Danske Corp. 3.85%, due 1/17/06 ............................... 2,100,000 2,096,182 4.245%, due 1/31/06 .............................. 3,000,000 2,989,034 4.26%, due 2/6/06 ................................ 2,170,000 2,160,499 General Electric Capital Corp. 4.20%, due 2/7/06 ................................ 6,000,000 5,973,400 HBOS Treasury Services PLC 4.17%, due 2/6/06 ................................ 6,000,000 5,974,285 ING US Funding LLC 4.31%, due 2/8/06 ................................ 3,550,000 3,533,424 Lehman Brothers Holdings, Inc. 4.15%, due 1/3/06 ................................ 4,800,000 4,798,340
PRINCIPAL AMORTIZED AMOUNT COST ------------------------- COMMERCIAL PAPER (CONTINUED) MassMutual Funding LLC 4.25%, due 1/24/06 (a) ........................... $3,910,000 $ 3,898,922 MetLife, Inc. 4.38%, due 3/27/06 (a) ........................... 6,000,000 5,937,220 Motorola, Inc. 4.35%, due 1/24/06 ............................... 1,500,000 1,495,650 National Cooperative Services Corp. 4.30%, due 1/17/06 (a) ........................... 4,018,000 4,009,841 Pfizer Investment Capital PLC 4.08%, due 1/17/06 (a) ........................... 6,700,000 6,687,091 Prudential Financial Corp. 4.10%, due 1/23/06 ............................... 6,000,000 5,984,283 Sanofi-Aventis 4.30%, due 2/8/06 (a) ............................ 6,000,000 5,972,050 Societe Generale North America, Inc. 4.34%, due 2/3/06 ................................ 3,400,000 3,386,064 Southern Co. Funding Corp. 4.20%, due 1/20/06 (a) ........................... 3,200,000 3,192,533 Textron Financial Corp. 4.35%, due 1/25/06 ............................... 1,500,000 1,495,469 Torchmark Corp. 4.33%, due 1/5/06 (a) ............................ 3,725,000 3,722,760 UnitedHealth Group, Inc. 4.30%, due 2/6/06 (a) ............................ 2,220,000 2,210,189 Verizon Network Funding Corp. 4.29%, due 1/10/06 ............................... 6,000,000 5,992,850 Xtra, Inc. 4.32%, due 1/19/06 ............................... 2,338,000 2,332,669 4.32%, due 1/20/06 ............................... 2,720,000 2,713,472 ------------ Total Commercial Paper (Cost $122,593,569) .............................. 122,593,569 ------------ Total Fixed Income Securities (Cost $163,321,020) (b) .......................... 113.0% 163,321,020 Liabilities in Excess of Cash and Other Assets ............................ (13.0) (18,840,286) ---------- ------------ Net Assets ........................................ 100.0% $144,480,734 ========== ============ (a) May be sold to institutional investors only. The total market value of these securities at December 31, 2005 is $44,638,660 which represents 30.9% of the Fund's net assets. (b) At December 31, 2005, cost is identical for book and federal income tax purposes.
See accompanying notes to financial statements. 16 MCMORGAN FUNDS PRINCIPAL PRESERVATION FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (Unaudited)
ASSETS: Investments in securities at value (cost $163,321,020) .......................................... $163,321,020 Cash-interest bearing accounts ................................. 16,184 Receivable for fund shares sold ................................ 824,438 Interest receivable ............................................ 19,381 Other assets ................................................... 14,964 ------------ Total assets ................................................ 164,195,987 ------------ LIABILITIES: Fund shares redeemed ........................................... 19,573,755 Distributions payable .......................................... 76,122 Transfer agent fees payable .................................... 39,466 Payable to Advisor, net ........................................ 8,483 Administration fees payable .................................... 7,075 Accounting fees payable ........................................ 5,230 Accrued expenses ............................................... 5,122 ------------ Total liabilities ........................................... 19,715,253 ------------ Net Assets ...................................................... $144,480,734 ============ NET ASSETS CONSIST OF: Capital paid-in ................................................ $144,480,793 Net realized loss on investments ............................... (59) ------------ $144,480,734 ============ Net Assets: Class McMorgan ................................................. $144,480,734 ============ Shares Outstanding: Class McMorgan ................................................. 144,498,330 ============ Net asset value and redemption price per share: Class McMorgan ................................................. $ 1.00 ============
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited)
INVESTMENT INCOME: Interest ......................................................... $2,905,078 ---------- Expenses: Investment advisory fees (Note F) ................................ 193,398 Administration fees .............................................. 38,680 Transfer agent fees .............................................. 26,441 Insurance fees ................................................... 26,290 Accounting fees .................................................. 24,620 Legal fees ....................................................... 18,093 Trustees fees .................................................... 17,296 Registration expenses ............................................ 11,989 Custodian fees ................................................... 10,197 Report to shareholder expense .................................... 8,504 Auditing fees .................................................... 6,554 Miscellaneous expenses ........................................... 1,793 ---------- Total expenses ................................................ 383,855 Expenses reimbursed (Note F) ..................................... (151,772) ---------- Net expenses .................................................. 232,083 ---------- Net investment income ............................................. 2,672,995 ---------- REALIZED LOSS ON INVESTMENTS: Net realized loss on investments ................................. (59) ---------- Increase in net assets from operations ............................ $2,672,936 ==========
See accompanying notes to financial statements. 17 PRINCIPAL PRESERVATION FUND STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited) AND THE YEAR ENDED JUNE 30, 2005
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED 12/31/05 6/30/05 ---------------- ------------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income ..................... $ 2,672,995 $ 2,672,930 Net realized loss on investments .......... (59) -- ------------ ------------- Increase in net assets .................... 2,672,936 2,672,930 ------------ ------------- Dividends and distributions to shareholders: From net investment income ................ (2,672,995) (2,672,930) From capital gains ........................ -- (12,238) ------------ ------------- Total dividends and distributions to shareholders ............................. (2,672,995) (2,685,168) ------------ ------------- Capital share transactions: Net proceeds from sale of shares .......... 68,067,961 141,679,503 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions ........................ 2,548,044 2,623,491 ------------ ------------- 70,616,005 144,302,994 Cost of shares redeemed ................... (73,350,174) (130,458,113) ------------ ------------- Increase (decrease) in net assets derived from capital share transactions .......... (2,734,169) 13,844,881 ------------ ------------- Total increase (decrease) in net assets ... (2,734,228) 13,832,643 Net Assets: Beginning of period ....................... 147,214,962 133,382,319 ------------ ------------- End of period ............................. $144,480,734 $ 147,214,962 ============ =============
See accompanying notes to financial statements. 18 MCMORGAN FUNDS PRINCIPAL PRESERVATION FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.
CLASS MCMORGAN FOR THE SIX YEAR ENDED JUNE 30, MONTHS ENDED ------------------------------------------------------ 12/31/2005++ 2005 2004 2003 2002 2001 ------------ -------- -------- -------- -------- -------- Net asset value, beginning of period ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income ................................... 0.02 0.02 0.01 0.01 0.02 0.06 Net realized and unrealized gain (loss) on investments .. (0.00)(a) -- 0.00(a) 0.00(a) -- -- -------- -------- -------- -------- -------- -------- Total from investment operations ..................... 0.02 0.02 0.01 0.01 0.02 0.06 -------- -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income .............................. (0.02) (0.02) (0.01) (0.01) (0.02) (0.06) From capital gains ...................................... -- (0.00)(a) (0.00)(a) (0.00)(a) -- -- -------- -------- -------- -------- -------- -------- Total dividends and distributions .................... (0.02) (0.02) (0.01) (0.01) (0.02) (0.06) -------- -------- -------- -------- -------- -------- Net asset value, end of period ........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== ======== Total return ............................................. 1.75%(b) 1.92% 0.87% 1.30% 2.41% 5.88% Ratios/Supplemental Data Net assets, end of period (in 000's) .................... $144,481 $147,215 $133,382 $160,150 $141,127 $110,401 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor ..... 0.50%+ 0.49% 0.46% 0.43% 0.47% 0.49% Ratio of expenses to average net assets after reimbursement of expenses by Advisor .................. 0.30%+ 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 ........... 3.26%+ 1.71% 0.70% 1.15% 2.16% 5.47% Ratio of net investment income to average net assets after reimbursement of expenses by Advisor ............ 3.46%+ 1.90% 0.86% 1.28% 2.33% 5.66%
(a) Less than one cent per share. (b) Total return is not annualized. + Annualized. ++ Unaudited. See accompanying notes to financial statements. 19 INTERMEDIATE FIXED INCOME FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (Unaudited) FIXED INCOME SECURITIES 99.8% CORPORATE ASSET-BACKED 2.5%
PRINCIPAL AMOUNT VALUE ----------------------- Financials - 2.5% Accredited Mortgage Loan Trust Series 2005-2 Class A2A 4.479%, due 7/25/35 (a)(e) ......................... $ 992,415 $ 992,306 Merrill Lynch Mortgage Investors, Inc. Series 2005-WMC2 Class A2A 4.469%, due 4/25/36 (a)(e) ......................... 473,036 473,096 Novastar Home Equity Loan Series 2005-2 Class A2A 4.469%, due 10/25/35 (a)(e) ........................ 1,543,104 1,543,164 Soundview Home Equity Loan Trust Series 2005-2 Class A1 4.479%, due 7/25/35 (a)(e) ......................... 1,130,688 1,130,581 ---------- Total Corporate Asset-Backed (Cost $4,139,244) .................................. 4,139,147 ---------- CORPORATE BONDS 28.7% Consumer Discretionary - 4.6% Cox Communications, Inc. 7.75%, due 11/1/10 ................................. 1,855,000 2,009,095 DaimlerChrysler North American Holding Corp. 4.875%, due 6/15/10 ................................ 295,000 288,034 7.30%, due 1/15/12 ................................. 1,080,000 1,165,326 Office Depot, Inc. 6.25%, due 8/15/13 ................................. 865,000 883,880 Tele-Communications, Inc. 9.80%, due 2/1/12 .................................. 1,275,000 1,538,154 Time Warner, Inc. 6.15%, due 5/1/07 .................................. 5,000 5,062 9.125%, due 1/15/13 ................................ 1,460,000 1,728,021 ---------- 7,617,572 ---------- Consumer Staples - 0.6% Safeway, Inc. 4.95%, due 8/16/10 ................................. 1,075,000 1,046,918 ---------- Energy - 2.5% Anadarko Finance Corp. 6.75%, due 5/1/11 .................................. 765,000 827,679 Dominion Resources, Inc. 8.125%, due 6/15/10 ................................ 695,000 772,477
PRINCIPAL AMOUNT VALUE ----------------------- Energy (continued) Kinder Morgan, Inc. 6.50%, due 9/1/12 .................................. $1,190,000 $1,260,667 Pacific Gas & Electric Co. 4.20%, due 3/1/11 .................................. 445,000 426,686 Progress Energy, Inc. 7.10%, due 3/1/11 .................................. 695,000 749,849 ---------- 4,037,358 ---------- Financials - 16.7% Aegon N.V. 4.75%, due 6/1/13 .................................. 375,000 365,474 American General Finance Corp. 4.875%, due 7/15/12 ................................ 380,000 371,223 Ameriprise Financial, Inc. 5.35%, due 11/15/10 ................................ 255,000 256,747 Bank One Corp. 5.90%, due 11/15/11 ................................ 1,920,000 1,996,714 Capital One Financial Corp. 6.25%, due 11/15/13 ................................ 535,000 558,078 Caterpillar Financial Services Corp. 4.30%, due 6/1/10 .................................. 880,000 856,552 CIT Group, Inc. 5.75%, due 9/25/07 ................................. 1,920,000 1,946,711 Citigroup, Inc. 5.625%, due 8/27/12 ................................ 1,590,000 1,638,832 Credit Suisse First Boston USA, Inc. 4.875%, due 8/15/10 ................................ 1,540,000 1,528,187 EOP Operating L.P. 6.763%, due 6/15/07 ................................ 520,000 530,808 8.10%, due 8/1/10 .................................. 895,000 988,510 Ford Motor Credit Co. 7.375%, due 10/28/09 ............................... 2,160,000 1,915,674 General Motors Acceptance Corp. 7.75%, due 1/19/10 ................................. 905,000 845,168 Goldman Sachs Group, Inc. (The) 4.50%, due 6/15/10 ................................. 385,000 376,243 6.875%, due 1/15/11 ................................ 895,000 964,158 HSBC Finance Corp. 5.875%, due 2/1/09 ................................. 945,000 965,763 6.375%, due 10/15/11 ............................... 1,190,000 1,257,922 iStar Financial, Inc. 5.15%, due 3/1/12 .................................. 1,000,000 968,453 5.375%, due 4/15/10 ................................ 400,000 396,427 Jefferies Group, Inc. 7.75%, due 3/15/12 ................................. 740,000 822,870 MBNA America Bank NA 7.125%, due 11/15/12 ............................... 295,000 329,781
See accompanying notes to financial statements. 20 MCMORGAN FUNDS CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ------------------------ Financials (continued) MBNA Corp. 5.00%, due 5/4/10 ................................. $ 855,000 $ 854,941 Merrill Lynch & Co., Inc. 4.79%, due 8/4/10 ................................. 575,000 568,532 MetLife, Inc. 6.125%, due 12/1/11 ............................... 850,000 900,710 Residential Capital Corp. 6.375%, due 6/30/10 ............................... 1,620,000 1,646,106 Simon Property Group, L.P. 6.35%, due 8/28/12 ................................ 605,000 640,886 6.375%, due 11/15/07 .............................. 1,615,000 1,650,278 Textron Financial Corp. 4.125%, due 3/3/08 ................................ 525,000 516,926 Wachovia Bank NA 4.80%, due 11/1/14 ................................ 795,000 771,577 Wachovia Corp. 4.375%, due 6/1/10 ................................ 5,000 4,891 ----------- 27,435,142 ----------- Industrials - 0.8% International Lease Finance Corp. 4.875%, due 9/1/10 ................................ 1,405,000 1,385,940 5.00%, due 4/15/10 ................................ 10,000 9,946 ----------- 1,395,886 ----------- Information Technology - 0.5% First Data Corp. 3.375%, due 8/1/08 ................................ 745,000 712,450 4.50%, due 6/15/10 ................................ 185,000 178,651 ----------- 891,101 ----------- Telecommunication Services - 3.0% British Telecommunications PLC 8.375%, due 12/15/10 .............................. 1,200,000 1,366,033 New Cingular Wireless Services, Inc. 7.875%, due 3/1/11 ................................ 1,130,000 1,267,923 Sprint Capital Corp. 7.625%, due 1/30/11 ............................... 2,010,000 2,216,487 ----------- 4,850,443 ----------- Total Corporate Bonds (Cost $48,424,199) ................................ 47,274,420 ----------- U.S. GOVERNMENT SECURITIES 62.0% U.S. GOVERNMENT AGENCY OBLIGATIONS 42.3% Federal Home Loan Bank - 8.7% * 3.125%, due 11/15/06 .............................. 9,050,000 8,924,332 * 4.50%, due 5/21/07 ................................ 5,395,000 5,376,053 ----------- 14,300,385 ----------- Federal Home Loan Mortgage Corporation - 4.9% 2.375%, due 2/15/07 ............................... 2,175,000 2,118,835 3.25%, due 11/2/07 ................................ 15,000 14,559 3.30%, due 9/14/07 ................................ 5,000 4,877 * 3.875%, due 6/15/08 ............................... 6,045,000 5,925,261 6.00%, due 2/1/11 ................................. 19,051 19,435 ----------- 8,082,967 -----------
PRINCIPAL AMOUNT VALUE -------------------------- Federal National Mortgage Association - 28.7% * 2.375%, due 2/15/07 ............................. $ 9,240,000 $ 8,999,446 * 4.375%, due 3/15/13 ............................. 5,950,000 5,793,682 * 4.75%, due 12/15/10 ............................. 8,125,000 8,125,089 5.00%, due 1/1/36 TBA (b) ....................... 2,925,000 2,833,594 * 5.50%, due 1/1/36 TBA (b) ....................... 16,165,000 16,003,350 6.50%, due 9/1/33 ............................... 2,740,659 2,817,193 6.50%, due 9/1/33 ............................... 2,704,777 2,780,310 ------------ 47,352,664 ------------ Total U.S. Government Agency Obligations (Cost $69,797,079) .............................. 69,736,016 ------------ U.S. TREASURY OBLIGATIONS 19.7% United States Treasury Bond - 1.0% 7.50%, due 11/15/16 ............................. 1,300,000 1,632,922 ------------ United States Treasury Notes - 13.2% * 2.00%, due 5/15/06 .............................. 12,645,000 12,538,302 * 4.25%, due 8/15/13 (c) .......................... 9,215,000 9,132,572 ------------ 21,670,874 ------------ United States Treasury Note TII - 5.5% * 1.875%, due 7/15/13 ............................. 9,196,136 9,070,406 ------------ Total U.S. Treasury Obligations (Cost $32,851,907) .............................. 32,374,202 ------------ Total U.S. Government Securities (Cost $102,648,986) ............................. 102,110,218 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS 6.6% Federal Home Loan Mortgage Corporation - 0.1% Series 2478 Class DK 5.50%, due 2/15/32 .............................. 191,464 192,421 ------------ Federal National Mortgage Association - 0.0%++ Series D Class 1 6.00%, due 4/1/09 ............................... 921 923 Series 1988-15 Class A 9.00%, due 6/25/18 .............................. 8,863 9,410 ------------ 10,333 ------------ Financials - 6.5% Greenwich Capital Commercial Funding Corp. Series 2005-GG5 Class A5 5.224%, due 4/10/37 (a) ......................... 1,615,000 1,622,154 Series 2004-GG1 Class A7 5.317%, due 6/10/36 (a) ......................... 2,300,000 2,321,596 GS Mortgage Securities Corp. Series 2005-GG4 Class A4 4.761%, due 7/10/39 ............................. 2,000,000 1,940,505 Series 2004-GG2 Class A6 5.396%, due 8/10/38 (a) ......................... 1,675,000 1,699,138 Merrill Lynch Mortgage Trust Series 2005-CKI1, Class A6 5.245%, due 11/12/37 (a) ........................ 3,150,000 3,182,238 ------------ 10,765,631 ------------
See accompanying notes to financial statements. 21 INTERMEDIATE FIXED INCOME FUND (continued) COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
PRINCIPAL AMOUNT VALUE ------------------------ Total Collateralized Mortgage Obligations (Cost $11,090,477) ................................ $ 10,968,385 ------------ Total Fixed Income Securities (Cost $166,302,906) ............................... 164,492,170 ------------ SHORT-TERM INVESTMENTS 9.2% Commercial Paper - 0.1% CIESCO, Inc. 4.295%, due 1/26/06 (d) ........................... $184,802 184,802 ------------ Total Commercial Paper (Cost $184,802) ................................... 184,802 ------------ SHARES --------- Investment Company - 0.0%++ BGI Institutional Money Market Fund (d) ................................... 82,486 82,486 ------------ Total Investment Company (Cost $82,486) .................................... 82,486 ------------ PRINCIPAL AMOUNT --------- Time Deposits - 0.6% Credit Suisse First Boston Corp. 4.24%, due 1/20/06 (d) ............................ $323,404 323,404 Dexia Group 4.265%, due 1/6/06 (d) ............................ 184,802 184,802 Toronto Dominion Bank 4.30%, due 1/26/06 (d) ............................ 231,003 231,003 UBS AG 4.29%, due 1/12/06 (d) ............................ 231,003 231,003 ------------ Total Time Deposits (Cost $970,212) ................................... 970,212 ------------
PRINCIPAL AMOUNT VALUE -------------------------- U.S. Government Agencies - 8.5% Federal Home Loan Mortgage Corporation (Discount Note) 3.092%, due 1/13/06 (e) ......................... $ 3,440,000 $ 3,436,054 Federal National Mortgage Association (Discount Note) 4.001%, due 2/13/06 (e) ......................... 10,545,000 10,494,563 ------------ Total U.S. Government Agencies (Cost $13,976,592) .............................. 13,930,617 ------------ Total Short-Term Investments (Cost $15,214,092) .............................. 15,168,117 ------------ Total Investments (Cost $181,516,998) (f) ......................... 109.0% 179,660,287 Liabilities in Excess of Cash and Other Assets ........................... (9.0) (14,863,188) ----------- ------------ Net Assets ....................................... 100.0% $164,797,099 =========== ============
* Among the Fund's 10 largest holdings, excluding short-term investments. May be subject to change. ++ Less than one tenth of a percent. (a) Floating/variable rate. Rate shown is the rate in effect at December 31, 2005. (b) TBA: Securities purchased on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement. The market value of these securities at December 31, 2005 is $18,836,944. (c) Represents security, or a portion thereof, which is out on loan. (d) Represents security, or a portion thereof, purchased with cash collateral received for securities on loan. (e) Segregated or partially segregated as collateral for TBAs. (f) Aggregate cost for federal income tax purposes is $181,624,907, and net unrealized depreciation is as follows: Gross unrealized appreciation ................................ $ 286,695 Gross unrealized depreciation ................................ (2,251,315) ----------- Net unrealized depreciation .................................. $(1,964,620) ===========
See accompanying notes to financial statements. 22 MCMORGAN FUNDS INTERMEDIATE FIXED INCOME FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (Unaudited)
ASSETS: Investments in securities at value (cost $181,516,998) including $1,210,034 market value of securities loaned ............................................ $179,660,287 Cash-interest bearing accounts ................................. 5,315,138 Receivable for securities sold ................................. 6,255,251 Interest receivable ............................................ 1,479,072 Receivable for fund shares sold ................................ 5,415 Other assets ................................................... 14,962 ------------ Total assets ................................................ 192,730,125 ------------ LIABILITIES: Payable for securities purchased ............................... 26,601,092 Securities lending collateral .................................. 1,237,500 Transfer Agent fees payable .................................... 43,693 Payable to Advisor, net ........................................ 30,850 Administration fees payable .................................... 7,797 Accounting fees payable ........................................ 5,003 12b-1 fees payable ............................................. 5 Accrued expenses ............................................... 7,086 ------------ Total liabilities ........................................... 27,933,026 ------------ Net Assets ..................................................... $164,797,099 ============ NET ASSETS CONSIST OF: Capital paid-in ................................................ $167,783,610 Accumulated undistributed net investment income ................ 308,427 Accumulated net realized loss on investments ................... (1,438,227) Net unrealized depreciation on investments ..................... (1,856,711) ------------ $164,797,099 ============ Net Assets: Class McMorgan ................................................. $164,771,755 Class Z ........................................................ 25,344 ------------ $164,797,099 ============ Shares Outstanding: Class McMorgan ................................................. 16,279,702 ============ Class Z ........................................................ 2,507 ============ Net asset value and redemption price per share: Class McMorgan ................................................. $ 10.12 ============ Class Z ........................................................ $ 10.11 ============
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited)
INVESTMENT INCOME: Interest ........................................................ $ 3,447,796 Income from securities loaned - net ............................. 645 ----------- Total investment income ...................................... 3,448,441 ----------- Expenses: Investment advisory fees (Note F) ............................... 285,104 Administration fees ............................................. 46,431 Accounting fees ................................................. 30,140 Insurance fees .................................................. 29,701 Transfer agent fees ............................................. 28,851 Legal fees ...................................................... 20,227 Trustees fees ................................................... 19,116 Registration expenses ........................................... 15,437 Custodian fees .................................................. 9,690 Report to shareholder expense ................................... 9,555 Auditing fees ................................................... 7,815 12b-1 distribution fees (Class Z) ............................... 30 Miscellaneous expenses .......................................... 6,604 ----------- Total expenses ............................................... 508,701 Expenses reimbursed (Note F) ..................................... (101,379) ----------- Net expenses ................................................. 407,322 ----------- Net investment income ............................................ 3,041,119 ----------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on investments ................................ (1,282,719) Net change in unrealized appreciation on investments ............ (2,257,282) ----------- Net realized and unrealized loss on investments ................. (3,540,001) ----------- Decrease in net assets from operations ........................... $ (498,882) ===========
See accompanying notes to financial statements. 23 INTERMEDIATE FIXED INCOME FUND STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited) AND THE YEAR ENDED JUNE 30, 2005
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED 12/31/2005 6/30/2005 ---------------- ------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ...................... $ 3,041,119 $ 5,432,619 Net realized gain (loss) on investments .... (1,282,719) 420,585 Net change in unrealized appreciation on investments ............................... (2,257,282) 2,433,572 ------------ ------------ Increase (decrease) in net assets .......... (498,882) 8,286,776 ------------ ------------ Dividends and distributions to shareholders: From net investment income: Class McMorgan shares..................... (2,889,641) (5,464,514) Class Z shares............................ (402) (39,878) From capital gains: Class McMorgan shares..................... (364,830) (274,313) Class Z shares............................ (56) (2,877) ------------ ------------ Total dividends and distributions to shareholders .............................. (3,254,929) (5,781,582) ------------ ------------ Capital share transactions: Net proceeds from sale of shares: Class McMorgan shares..................... 22,167,244 38,005,390 Class Z shares............................ 2,869 897,702 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions: Class McMorgan shares..................... 3,183,863 5,614,438 Class Z shares............................ 458 42,753 ------------ ------------ 25,354,434 44,560,283 Cost of shares redeemed: Class McMorgan shares..................... (20,448,181) (54,821,916) Class Z shares............................ (2,201) (2,617,979) ------------ ------------ Increase (decrease) in net assets derived from capital share transactions ........... 4,904,052 (12,879,612) ------------ ------------ Total increase (decrease) in net assets .... 1,150,241 (10,374,418) Net Assets: Beginning of period ........................ 163,646,858 174,021,276 ------------ ------------ End of period (including undistributed net investment income of $308,427 and $157,351, respectively) ............................. $164,797,099 $163,646,858 ============ ============
See accompanying notes to financial statements. 24 MCMORGAN FUNDS INTERMEDIATE FIXED INCOME FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.
CLASS MCMORGAN YEAR ENDED JUNE 30, ------------------------------------------------------ FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004 2003 2002 2001 ------------ -------- -------- -------- -------- -------- Net asset value, beginning of period ..................... $ 10.36 $ 10.22 $ 10.93 $ 10.46 $ 10.50 $ 9.99 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income ................................... 0.19(b) 0.34(b) 0.36 0.49 0.56 0.60 Net realized and unrealized gain (loss) on investments .. (0.23) 0.16 (0.43) 0.51 0.06 0.51 -------- -------- -------- -------- -------- -------- Total from investment operations....................... (0.04) 0.50 (0.07) 1.00 0.62 1.11 -------- -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income .............................. (0.18) (0.34) (0.36) (0.50) (0.57) (0.60) From capital gains ...................................... (0.02) (0.02) (0.28) (0.03) (0.09) -- -------- -------- -------- -------- -------- -------- Total dividends and distributions...................... (0.20) (0.36) (0.64) (0.53) (0.66) (0.60) -------- -------- -------- -------- -------- -------- Net asset value, end of period ........................... $ 10.12 $ 10.36 $ 10.22 $ 10.93 $ 10.46 $ 10.50 ======== ======== ======== ======== ======== ======== Total return ............................................. (0.33)%(a) 4.93% (0.64)% 9.79% 5.98% 11.37% Ratios/Supplemental Data Net assets, end of period (in 000's) .................... $164,772 $163,622 $172,331 $191,682 $164,068 $207,924 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor...... 0.61%+ 0.60% 0.57% 0.57% 0.53% 0.50% Ratio of expenses to average net assets after reimbursement of expenses by Advisor................... 0.50%+ 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............ 3.62%+ 3.14% 3.32% 4.55% 5.19% 5.79% Ratio of net investment income to average net assets after reimbursement of expenses by Advisor............. 3.73%+ 3.24% 3.39% 4.62% 5.22% 5.79% Portfolio turnover ...................................... 148%(c) 286%(c) 225.59% 204.18% 76.07% 56.64%
See accompanying notes to financial statements. 25 INTERMEDIATE FIXED INCOME FUND FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS Z YEAR ENDED JUNE 30, ------------------------------------ FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004 2003 2002* ------------ ------ ------- ------- ------ Net asset value, beginning of period....................................... $10.35 $10.21 $ 10.92 $ 10.45 $10.65 ------ ------ ------- ------- ------ Income from investment operations: Net investment income..................................................... 0.18(b) 0.34(b) 0.35 0.47 0.44 Net realized and unrealized gain (loss) on investments.................... (0.23) 0.13 (0.45) 0.50 (0.10) ------ ------ ------- ------- ------ Total from investment operations........................................ (0.05) 0.47 (0.10) 0.97 0.34 ------ ------ ------- ------- ------ Less dividends and distributions: From net investment income................................................ (0.17) (0.31) (0.33) (0.47) (0.45) From capital gains........................................................ (0.02) (0.02) (0.28) (0.03) (0.09) ------ ------ ------- ------- ------ Total dividends and distributions....................................... (0.19) (0.33) (0.61) (0.50) (0.54) ------ ------ ------- ------- ------ Net asset value, end of period............................................. $10.11 $10.35 $ 10.21 $ 10.92 $10.45 ====== ====== ======= ======= ====== Total return............................................................... (0.46)%(a) 4.67% (0.91)% 9.53% 3.25%(a) Ratios/Supplemental Data Net assets, end of period (in 000's)...................................... $ 25 $ 25 $ 1,690 $ 3,682 $1,987 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor.................................................. 0.86%+ 0.85% 0.82% 0.82% 0.78%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor..................................................... 0.75%+ 0.75% 0.75% 0.75% 0.75%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor.................................... 3.37%+ 2.89% 3.07% 4.30% 4.94%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor.................................... 3.48%+ 2.99% 3.14% 4.37% 4.97%+ Portfolio turnover........................................................ 148%(c) 286%(c) 225.59% 204.18% 76.07%
- --------------- * Class Z commenced operations on September 4, 2001. (a) Total return is not annualized. (b) Per share data based on average shares outstanding during the year. (c) The portfolio turnover not including mortgage dollar rolls for the six months ending December 31, 2005 and year ending June 30, 2005 is 42% and 199%, respectively. + Annualized. ++ Unaudited. See accompanying notes to financial statements. 26 MCMORGAN FUNDS FIXED INCOME FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (Unaudited) FIXED INCOME SECURITIES 96.0% CORPORATE ASSET-BACKED 2.5%
PRINCIPAL AMOUNT VALUE ----------------------- Financials - 2.5% Accredited Mortgage Loan Trust Series 2005-2 Class A2A 4.479%, due 7/25/35 (a)(d) ......................... $ 405,988 $ 405,944 Merrill Lynch Mortgage Investors, Inc. Series 2005-WMC2 Class A2A 4.469%, due 4/25/36 (a)(d) ......................... 191,467 191,491 Novastar Home Equity Loan Series 2005-2 Class A2A 4.469%, due 10/25/35 (a)(d) ........................ 631,938 631,962 Soundview Home Equity Loan Trust Series 2005-2 Class A1 4.479%, due 7/25/35 (a)(d) ......................... 467,023 466,979 ---------- Total Corporate Asset-Backed (Cost $1,696,416) .................................. 1,696,376 ---------- CORPORATE BONDS 34.7% Consumer Discretionary - 5.8% AT&T Broadband Corp. 9.455%, due 11/15/22 ............................... 235,000 307,896 Cox Communications, Inc. 7.75%, due 11/1/10 ................................. 1,190,000 1,288,853 DaimlerChrysler North American Holdings Corp. 7.30%, due 1/15/12 ................................. 965,000 1,041,241 Office Depot, Inc. 6.25%, due 8/15/13 ................................. 350,000 357,640 Tele-Communications, Inc. 9.80%, due 2/1/12 .................................. 340,000 410,174 Time Warner, Inc. 7.625%, due 4/15/31 ................................ 475,000 528,983 9.125%, due 1/15/13 ................................ 35,000 41,425 ---------- 3,976,212 ---------- Consumer Staples - 1.6% Diageo Finance B.V. 5.30%, due 10/28/15 ................................ 385,000 388,105 Safeway, Inc. 4.95%, due 8/16/10 ................................. 690,000 671,975 ---------- 1,060,080 ---------- Energy - 3.7% Anadarko Finance Corp. 6.75%, due 5/1/11 .................................. 565,000 611,292 Dominion Resources, Inc. 5.15%, due 7/15/15 ................................. 370,000 358,464 Kinder Morgan, Inc. 6.50%, due 9/1/12 .................................. 680,000 720,381
PRINCIPAL AMOUNT VALUE ----------------------- Energy (continued) Pacific Gas & Electric Co. 4.20%, due 3/1/11 .................................. $ 430,000 $ 412,304 Progress Energy, Inc. 7.10%, due 3/1/11 .................................. 375,000 404,595 ---------- 2,507,036 ---------- Financials - 19.0% Aegon N.V. 4.75%, due 6/1/13 .................................. 145,000 141,316 American General Finance Corp. 5.375%, due 10/1/12 ................................ 75,000 75,381 Ameriprise Financial, Inc. 5.35%, due 11/15/10 ................................ 200,000 201,370 Capital One Bank 6.50%, due 6/13/13 ................................. 205,000 217,800 Capital One Financial Corp. 6.25%, due 11/15/13 ................................ 135,000 140,824 Caterpillar Financial Services Corp. 4.30%, due 6/1/10 .................................. 420,000 408,809 CIT Group, Inc. 5.75%, due 9/25/07 ................................. 920,000 932,799 Citigroup, Inc. 5.625%, due 8/27/12 ................................ 1,050,000 1,082,248 Credit Suisse First Boston USA, Inc. 5.125%, due 8/15/15 ................................ 460,000 455,553 EOP Operating L.P. 7.00%, due 7/15/11 ................................. 395,000 422,786 Ford Motor Credit Co. 6.375%, due 11/5/08 ................................ 200,000 179,335 7.375%, due 10/28/09 ............................... 785,000 696,206 General Motors Acceptance Corp. 6.875%, due 9/15/11 ................................ 100,000 91,195 7.75%, due 1/19/10 ................................. 280,000 261,488 Goldman Sachs Group, Inc. (The) 5.25%, due 4/1/13 .................................. 515,000 515,729 HSBC Finance Corp. 5.875%, due 2/1/09 ................................. 130,000 132,856 6.75%, due 5/15/11 ................................. 595,000 638,537 7.00%, due 5/15/12 ................................. 155,000 169,550 iStar Financial, Inc. 5.15%, due 3/1/12 .................................. 625,000 605,283 5.375%, due 4/15/10 ................................ 150,000 148,660 Jefferies Group, Inc. 5.50%, due 3/15/16 ................................. 155,000 153,109 7.75%, due 3/15/12 ................................. 100,000 111,199
See accompanying notes to financial statements. 27 FIXED INCOME FUND (continued) CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ------------------------ Financials (continued) JPMorgan Chase & Co. 5.125%, due 9/15/14 ............................... $ 425,000 $ 420,712 5.75%, due 1/2/13 ................................. 225,000 232,039 7.125%, due 6/15/09 ............................... 225,000 239,961 MBNA America Bank NA 7.125%, due 11/15/12 .............................. 200,000 223,580 MBNA Corp. 5.00%, due 5/4/10 ................................. 115,000 114,992 7.50%, due 3/15/12 ................................ 240,000 270,320 Merrill Lynch & Co., Inc. 4.79%, due 8/4/10 ................................. 345,000 341,119 MetLife, Inc. 5.50%, due 6/15/14 ................................ 125,000 127,797 6.125%, due 12/1/11 ............................... 300,000 317,898 Residential Capital Corp. 6.375%, due 6/30/10 (b) ........................... 715,000 726,522 Simon Property Group, L.P. 5.10%, due 6/15/15 ................................ 170,000 164,416 6.35%, due 8/28/12 ................................ 160,000 169,490 6.375%, due 11/15/07 .............................. 595,000 607,997 Textron Financial Corp. 4.125%, due 3/3/08 ................................ 740,000 728,619 Wachovia Bank NA 4.80%, due 11/1/14 ................................ 535,000 519,237 ----------- 12,986,732 ----------- Industrials - 1.3% International Lease Finance Corp. 4.875%, due 9/1/10 ................................ 420,000 414,302 5.00%, due 4/15/10 ................................ 80,000 79,572 5.875%, due 5/1/13 ................................ 350,000 362,194 ----------- 856,068 ----------- Information Technology - 0.5% First Data Corp. 4.50%, due 6/15/10 ................................ 130,000 125,538 5.625%, due 11/1/11 ............................... 245,000 246,662 ----------- 372,200 ----------- Telecommunication Services - 2.8% AT&T Wireless Services, Inc. 8.75%, due 3/1/31 ................................. 310,000 410,694 British Telecommunications PLC 8.375%, due 12/15/10 .............................. 720,000 819,620 Sprint Capital Corp. 8.75%, due 3/15/32 ................................ 495,000 656,905 ----------- 1,887,219 ----------- Total Corporate Bonds (Cost $24,204,146) ................................ 23,645,547 ----------- U.S. GOVERNMENT SECURITIES 53.1% U.S. GOVERNMENT AGENCY OBLIGATIONS 30.1% Federal Home Loan Bank - 2.1% 3.125%, due 11/15/06 .............................. 1,475,000 1,454,518 -----------
PRINCIPAL AMOUNT VALUE ------------------------ Federal Home Loan Mortgage Corporation - 2.6% * 2.375%, due 2/15/07 ............................... $1,690,000 $ 1,646,359 6.00%, due 11/15/27 ............................... 106,642 107,637 ----------- 1,753,996 ----------- Federal National Mortgage Association - 25.4% * 4.375%, due 3/15/13 ............................... 3,110,000 3,028,294 * 4.75%, due 12/15/10 ............................... 5,325,000 5,325,059 * 5.00%, due 1/1/36 TBA (c) ......................... 2,275,000 2,203,906 * 5.50%, due 1/1/36 TBA (c) ......................... 5,900,000 5,841,000 6.50%, due 9/1/33 ................................. 928,479 954,408 ----------- 17,352,667 ----------- Total U.S. Government Agency Obligations (Cost $20,539,620) ................................ 20,561,181 ----------- U.S. TREASURY OBLIGATIONS 23.0% United States Treasury Bonds - 9.5% * 5.25%, due 2/15/29 ................................ 3,685,000 4,021,113 * 7.50%, due 11/15/16 ............................... 1,985,000 2,493,347 ----------- 6,514,460 ----------- United States Treasury Notes - 7.1% * 2.00%, due 5/15/06 ................................ 3,045,000 3,019,306 * 4.25%, due 8/15/13 ................................ 1,855,000 1,838,407 ----------- 4,857,713 ----------- United States Treasury TII - 4.9% * 1.875%, due 7/15/13 ............................... 3,377,844 3,331,662 ----------- United States Treasury Strips - 1.5% (zero coupon), due 8/15/17 ........................ 1,670,000 987,865 ----------- Total U.S. Treasury Obligations (Cost $15,785,016) ................................ 15,691,700 ----------- Total U.S. Government Securities (Cost $36,324,636) ................................ 36,252,881 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS 5.7% Federal Home Loan Mortgage Corporation - 0.1% Series 2478 Class DK 5.50%, due 2/15/32 ................................ 56,313 56,594 ----------- Financials - 5.6% Greenwich Capital Commercial Funding Corp. Series 2005-GG5 Class A5 5.224%, due 4/10/37 (a) ........................... 1,345,000 1,350,958 Series 2005-GG5 Class A7 5.317%, due 6/10/36 (a) ........................... 950,000 958,920 GS Mortgage Securities Corp. Series 2005-GG4 Class A4 4.761%, due 7/10/39 (a) ........................... 825,000 800,458 Series 2004-GG2 Class A6 (a) 5.396%, due 8/10/38 ............................... 700,000 710,088 ----------- 3,820,424 ----------- Total Collateralized Mortgage Obligations (Cost $3,938,156) ................................. 3,877,018 ----------- Total Fixed Income Securities (Cost $66,163,354) ................................ 65,471,822 -----------
See accompanying notes to financial statements. 28 MCMORGAN FUNDS
PRINCIPAL AMOUNT VALUE ------------------------ SHORT-TERM INVESTMENTS 8.8% U.S. Government Agencies - 8.8% Federal Home Loan Mortgage Corporation (Discount Note) 3.092%, due 1/13/06 (d) ........................... $1,195,000 $ 1,193,629 Federal National Mortgage Association (Discount Notes) 4.001%, due 2/13/06 (d) ........................... 4,730,000 4,707,376 4.178%, due 2/15/06 (d) ........................... 130,000 129,348 ----------- Total Short-Term Investments (Cost $6,030,353) ................................. 6,030,353 ----------- Total Investments (Cost $72,193,707)(e) ............................. 104.8% 71,502,175 Liabilities in Excess of Cash and Other Assets ............................. (4.8) (3,246,554) ---------- ----------- Net Assets ......................................... 100.0% $68,255,621 ========== ===========
* Among the Fund's 10 largest holdings, excluding short-term investments. May be subject to change daily. (a) Floating/variable rate. Rate shown is the rate in effect at December 31, 2005. (b) May be sold to institutional investors only. The total market value of this security at December 31, 2005 is $726,522, which is 1.1% of the Fund's net assets. (c) TBA: Securities purchased on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement. The market value of these securities at December 31, 2005 is $8,044,906. (d) Segregate or partially segregated as collateral for TBAs. (e) Aggregate cost for federal income tax purposes is $72,235,221 and net unrealized depreciation is as follows: Gross unrealized appreciation .................................. $ 205,103 Gross unrealized depreciation .................................. (938,149) --------- Net unrealized depreciation ...................................... $(733,046) =========
See accompanying notes to financial statements. 29 FIXED INCOME FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (Unaudited)
ASSETS: Investments in securities at value (cost $72,193,707) ............................................ $71,502,175 Cash-interest bearing accounts .................................. 5,241,379 Receivable for securities sold .................................. 2,725,076 Interest receivable ............................................. 631,085 Receivable for fund shares sold ................................. 96,389 Other assets .................................................... 32,990 ----------- Total assets ................................................. 80,229,094 ----------- LIABILITIES: Payable for securities purchased ................................ 11,802,178 Fund shares redeemed ............................................ 101,972 Transfer agent fees payable ..................................... 40,528 12b-1 fees payable .............................................. 6,164 Administration fees payable ..................................... 3,676 Payable to advisor, net ......................................... 1,321 Accrued expenses ................................................ 17,634 ----------- Total liabilities ............................................ 11,973,473 ----------- Net Assets ....................................................... $68,255,621 =========== NET ASSETS CONSIST OF: Capital paid-in ................................................. $69,294,548 Accumulated undistributed net investment income ................. 169,555 Accumulated net realized loss on investments .................... (516,950) Net unrealized depreciation on investments ...................... (691,532) ----------- $68,255,621 =========== Net Assets: Class McMorgan .................................................. $39,145,655 Class Z ......................................................... 29,107,851 Class R1 ........................................................ 1,061 Class R2 ........................................................ 1,054 ----------- $68,255,621 =========== Shares Outstanding: Class McMorgan .................................................. 3,609,395 =========== Class Z ......................................................... 2,683,283 =========== Class R1 ........................................................ 98 =========== Class R2 ........................................................ 97 =========== Net asset value and redemption price per share: Class McMorgan .................................................. $ 10.85 =========== Class Z ......................................................... $ 10.85 =========== Class R1 ........................................................ $ 10.85 =========== Class R2 ........................................................ $ 10.84 ===========
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited)
INVESTMENT INCOME: Interest ........................................................ $ 1,491,677 Income from securities loaned - net ............................. 149 ----------- Total investment income ...................................... 1,491,826 ----------- Expenses: Investment advisory fees (Note F) ............................... 113,797 12b-1 distribution fees (Class Z) ............................... 36,553 12b-1 distribution fees (Class R2) .............................. 1 Transfer agent fees ............................................. 27,007 Registration expenses ........................................... 26,327 Accounting fees ................................................. 22,759 Administration fees ............................................. 22,109 Insurance fees .................................................. 12,317 Trustees fees ................................................... 8,445 Legal fees ...................................................... 7,754 Auditing fees ................................................... 7,296 Custodian fees .................................................. 6,487 Report to shareholder expense ................................... 6,123 Miscellaneous expenses .......................................... 7,619 ----------- Total expenses ............................................... 304,594 Expenses reimbursed (Note F) .................................... (105,471) ----------- Net Expenses ................................................. 199,123 ----------- Net Investment Income ............................................ 1,292,703 ----------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on investments ................................ (475,471) Net change in unrealized appreciation on investments ................................................... (1,291,637) ----------- Net realized and unrealized loss on investments ................. (1,767,108) ----------- Decrease in net assets from operations ........................... $ (474,405) ===========
See accompanying notes to financial statements. 30 MCMORGAN FUNDS FIXED INCOME FUND STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited) AND THE YEAR ENDED JUNE 30, 2005
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED 12/31/2005 6/30/2005 ---------------- ------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ...................... $ 1,292,703 $ 2,238,098 Net realized gain (loss) on investments .... (475,471) 934,900 Net change in unrealized appreciation on investments ............................... (1,291,637) 1,475,090 ----------- ------------ Increase (decrease) in net assets from operations ................................ (474,405) 4,648,088 ----------- ------------ Dividends and distributions to shareholders: From net investment income: Class McMorgan shares..................... (685,526) (1,331,359) Class Z shares............................ (524,004) (912,135) Class R1 shares........................... (20) (38) Class R2 shares........................... (19) (35) From capital gains: Class McMorgan shares..................... (180,169) (324,543) Class Z shares............................ (143,849) (239,557) Class R1 shares........................... (5) (10) Class R2 shares........................... (5) (10) ----------- ------------ Total dividends and distributions to shareholders .............................. (1,533,597) (2,807,687) ----------- ------------ Capital share transactions: Net proceeds from sale of shares: Class McMorgan shares..................... 12,433,240 7,074,115 Class Z shares............................ 2,723,810 7,426,819 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions: Class McMorgan shares..................... 861,688 1,649,321 Class Z shares............................ 667,811 1,151,646 Class R1 shares........................... 25 46 Class R2 shares........................... 24 43 ----------- ------------ 16,686,598 17,301,990 Cost of shares redeemed: Class McMorgan shares..................... (7,252,712) (14,091,415) Class Z shares............................ (2,535,825) (5,861,494) Class R1 shares........................... (75) -- Class R2 shares........................... (75) -- ----------- ------------ Increase (decrease) in net assets derived from capital share transactions ........... 6,897,911 (2,650,919) ----------- ------------ Total increase (decrease) in net assets .... 4,889,909 (810,518) Net Assets: Beginning of period ........................ 63,365,712 64,176,230 ----------- ------------ End of period (including undistributed net investment income of $169,555 and $86,421, respectively) ............................. $68,255,621 $ 63,365,712 =========== ============
See accompanying notes to financial statements. 31 FIXED INCOME FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.
CLASS MCMORGAN YEAR ENDED JUNE 30, ------------------------------------------------- FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004 2003 2002 2001 ------------ ------- ------- ------- ------- ------- Net asset value, beginning of period ......................... $ 11.19 $ 10.88 $ 11.71 $ 10.86 $ 10.74 $ 10.23 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income ....................................... 0.23(a) 0.40 0.46 0.53 0.60 0.62 Net realized and unrealized gain (loss) on investments ...... (0.31) 0.40 (0.61) 0.86 0.12 0.52 ------- ------- ------- ------- ------- ------- Total from investment operations........................... (0.08) 0.80 (0.15) 1.39 0.72 1.14 ------- ------- ------- ------- ------- ------- Less dividends and distributions: From net investment income .................................. (0.21) (0.39) (0.46) (0.54) (0.60) (0.63) From capital gains .......................................... (0.05) (0.10) (0.22) -- -- -- ------- ------- ------- ------- ------- ------- Total dividends and distributions.......................... (0.26) (0.49) (0.68) (0.54) (0.60) (0.63) ------- ------- ------- ------- ------- ------- Net asset value, end of period ............................... $ 10.85 $ 11.19 $ 10.88 $ 11.71 $ 10.86 $ 10.74 ======= ======= ======= ======= ======= ======= Total return ................................................. (0.65)%(b) 7.42% (1.29)% 13.06% 6.81% 11.38% Ratios/Supplemental Data Net assets, end of period (in 000's) ........................ $39,146 $34,203 $38,484 $39,753 $29,292 $28,554 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor.......... 0.83%+ 0.79% 0.77% 0.83% 0.89% 0.82% Ratio of expenses to average net assets after reimbursement of expenses by Advisor....................... 0.50%+ 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................ 3.75%+ 3.18% 3.82% 4.41% 4.87% 5.53% Ratio of net investment income to average net assets after reimbursement of expenses by Advisor................. 4.08%+ 3.47% 4.09% 4.74% 5.27% 5.85% Portfolio turnover .......................................... 166%(c) 347%(c) 231.21% 142.48% 94.80% 58.66%
See accompanying notes to financial statements. 32 MCMORGAN FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS Z YEAR ENDED JUNE 30, ----------------------------------------------- FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004 2003 2002 2001** ------------ ------- ------- ------- ------ ------ Net asset value, beginning of period ........................... $ 11.20 $ 10.88 $ 11.71 $ 10.86 $10.74 $10.87 ------- ------- ------- ------- ------ ------ Income from investment operations: Net investment income ......................................... 0.21(a) 0.35 0.42 0.52 0.55 0.24 Net realized and unrealized gain (loss) on investments ........ (0.31) 0.43 (0.60) 0.84 0.14 (0.13) ------- ------- ------- ------- ------ ------ Total from investment operations............................. (0.10) 0.78 (0.18) 1.36 0.69 0.11 ------- ------- ------- ------- ------ ------ Less dividends and distributions: From net investment income .................................... (0.20) (0.36) (0.43) (0.51) (0.57) (0.24) From capital gains ............................................ (0.05) (0.10) (0.22) -- -- -- ------- ------- ------- ------- ------ ------ Total dividends and distributions............................ (0.25) (0.46) (0.65) (0.51) (0.57) (0.24) ------- ------- ------- ------- ------ ------ Net asset value, end of period ................................. $ 10.85 $ 11.20 $ 10.88 $ 11.71 $10.86 $10.74 ======= ======= ======= ======= ====== ====== Total return ................................................... (0.87)%(b) 7.26% (1.53)% 12.80% 6.55% 1.03%(a) Ratios/Supplemental Data Net assets, end of period (in 000's) .......................... $29,108 $29,161 $25,690 $15,646 $3,114 $1,699 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor ......................... 1.08%+ 1.04% 1.02% 1.08% 1.14% 1.07%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor ......................................... 0.75%+ 0.75% 0.75% 0.75% 0.75% 0.75%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor ........................ 3.50%+ 2.93% 3.57% 4.16% 4.62% 5.28%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor ........................ 3.83%+ 3.22% 3.84% 4.49% 5.02% 5.60%+ Portfolio turnover ............................................ 166%(c) 347%(c) 231.21% 142.48% 94.80% 58.66%
See accompanying notes to financial statements. 33 FIXED INCOME FUND FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS R1 YEAR ENDED JUNE 30, ---------------- FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004* ------------ ------ ------- Net asset value, beginning of period...................................................... $11.20 $10.88 $ 11.11 ------ ------ ------- Income from investment operations: Net investment income.................................................................... 0.22(a) 0.39 0.20 Net realized and unrealized gain (loss) on investments................................... (0.31) 0.41 (0.24) ------ ------ ------- Total from investment operations....................................................... (0.09) 0.80 (0.04) ------ ------ ------- Less dividends and distributions: From net investment income............................................................... (0.21) (0.38) (0.19) From capital gains....................................................................... (0.05) (0.10) -- ------ ------ ------- Total dividends and distributions...................................................... (0.26) (0.48) (0.19) ------ ------ ------- Net asset value, end of period............................................................ $10.85 $11.20 $ 10.88 ====== ====== ======= Total return.............................................................................. (0.79)%(b) 7.42% (0.42)%(a) Ratios/Supplemental Data Net assets, end of period (in 000's)..................................................... $ 1 $ 1 $ 1 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor............................................................................. 0.93%+ 0.81% 0.87%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor............................................................................. 0.60%+ 0.50% 0.60%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor............................................................................. 3.65%+ 3.06% 3.72%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor................................................................................ 3.98%+ 3.36% 3.99%+ Portfolio turnover....................................................................... 166%(c) 347%(c) 231.21%
See accompanying notes to financial statements. 34 MCMORGAN FUNDS FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS R2 YEAR ENDED JUNE 30, ---------------- FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004* ------------ ------ ------- Net asset value, beginning of period....................................................... $11.18 $10.88 $ 11.11 ------ ------ ------- Income from investment operations: Net investment income..................................................................... 0.21(a) 0.34 0.18 Net realized and unrealized gain (loss) on investments.................................... (0.31) 0.41 (0.24) ------ ------ ------- Total from investment operations........................................................ (0.10) 0.75 (0.06) ------ ------ ------- Less dividends and distributions: From net investment income................................................................ (0.19) (0.35) (0.17) From capital gains........................................................................ (0.05) (0.10) -- ------ ------ ------- Total dividends and distributions....................................................... (0.24) (0.45) (0.17) ------ ------ ------- Net asset value, end of period............................................................. $10.84 $11.18 $ 10.88 ====== ====== ======= Total return............................................................................... (0.83)%(b) 6.97% (0.58)%(a) Ratios/Supplemental Data Net assets, end of period (in 000's)...................................................... $ 1 $ 1 $ 1 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor.............................................................................. 1.18%+ 1.06% 1.12%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor.............................................................................. 0.85%+ 0.75% 0.85%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor.............................................................................. 3.40%+ 2.73% 3.47%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor................................................................................. 3.73%+ 3.03% 3.74%+ Portfolio turnover........................................................................ 166%(c) 347%(c) 231.21%
- --------------- * Class R1 and R2 commenced operations on January 2, 2004. **Class Z commenced operations on February 1, 2001. (a) Per share data based on average shares outstanding during the year. (b) Total return is not annualized. (c) The portfolio turnover not including mortgage dollar rolls for the six months ended December 31, 2005 and year ended June 30, 2005 is 43% and 216%, respectively. + Annualized. ++ Unaudited. See accompanying notes to financial statements. 35 HIGH YIELD FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (Unaudited) LONG-TERM BONDS 95.9% CORPORATE BONDS 88.8%
PRINCIPAL AMOUNT VALUE ---------------------- Advertising - 0.3% Lamar Media Corp. 6.625%, due 8/15/15 ................................. $500,000 $ 501,875 ---------- Aerospace & Defense - 0.7% BE Aerospace, Inc. Series B 8.875%, due 5/1/11 .................................. 635,000 666,750 Moog, Inc. 6.25%, due 1/15/15 .................................. 330,000 325,050 ---------- 991,800 ---------- Airlines - 0.2% American Airlines, Inc. Class A 7.25%, due 2/5/09 ................................... 350,000 342,125 ---------- Auto Components - 1.4% Accuride Corp. 8.50%, due 2/1/15 ................................... 310,000 305,350 Commercial Vehicle Group, Inc. 8.00%, due 7/1/13 (a) ............................... 138,000 136,275 Cooper Standard Automotive, Inc. 8.375%, due 12/15/14 ................................ 495,000 376,200 Dura Operating Corp. Series B 8.625%, due 4/15/12 ................................. 86,000 70,950 Rexnord Corp. 10.125%, due 12/15/12 ............................... 750,000 806,250 Sunstate Equipment Co. LLC 10.50%, due 4/1/13 (a) .............................. 300,000 303,000 ---------- 1,998,025 ---------- Auto Manufacturers - 0.1% General Motors Corp. 8.375%, due 7/15/33 (b) ............................. 230,000 151,800 ---------- Beverages - 0.4% Le-Natures, Inc. 10.00%, due 6/15/13 (a) ............................. 495,000 519,750 ---------- Building Materials & Components - 1.0% Ahern Rentals, Inc. 9.25%, due 8/15/13 (a) .............................. 667,000 702,017 Goodman Global Holdings Co., Inc. 7.491%, due 6/15/12 (a)(d) .......................... 690,000 683,100 ---------- 1,385,117 ----------
PRINCIPAL AMOUNT VALUE ----------------------- Building Products - 2.8% Building Materials Corp. of America Series B 8.00%, due 10/15/07 ................................ $ 200,000 $ 202,250 8.00%, due 12/1/08 ................................. 290,000 293,262 Da-Lite Screen Co., Inc. 9.50%, due 5/15/11 ................................. 545,000 572,250 ERICO International Corp. 8.875%, due 3/1/12 ................................. 800,000 826,000 KI Holdings, Inc. (zero coupon), due 11/15/14 9.875%, beginning 11/15/09 ......................... 375,000 245,625 MMI Products 11.25%, due 4/15/07 ................................ 600,000 564,000 Nortek, Inc. 8.50%, due 9/1/14 .................................. 616,000 594,440 NTK Holdings, Inc. (zero coupon), due 3/1/14 .......................... 418,000 261,250 Ply Gem Industries, Inc. 9.00%, due 2/15/12 ................................. 620,000 550,250 ---------- 4,109,327 ---------- Capital Markets - 4.4% *TRAINS HY-2005-1 7.651%, due 6/15/15 (a)(e) ......................... 6,234,146 6,405,585 ---------- Chemicals - 3.3% BCI US Finance Corp. 9.775%, due 7/15/10 (a)(d) ......................... 470,000 475,875 Compression Polymers Corp. 10.50%, due 7/1/13 (a) ............................. 413,000 400,610 Huntsman International LLC 7.875%, due 1/1/15 (a) ............................. 530,000 511,450 9.875%, due 3/1/09 ................................. 425,000 448,375 10.125%, due 7/1/09 ................................ 169,000 174,492 Innophos, Inc. 9.625%, due 8/15/14 (a) ............................ 275,000 277,062 Invista 9.25%, due 5/1/12 (a) .............................. 660,000 704,550 MacDermid, Inc. 9.125%, due 7/15/11 ................................ 425,000 449,969 PQ Corp. 7.50%, due 2/15/13 (a) ............................. 715,000 664,950 Rockwood Specialties Group, Inc. 7.50%, due 11/15/14 ................................ 265,000 264,006 10.625%, due 5/15/11 ............................... 259,000 283,929 Westlake Chemical Corp. 8.75%, due 7/15/11 ................................. 194,000 207,580 ---------- 4,862,848 ----------
See accompanying notes to financial statements. 36 MCMORGAN FUNDS CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ----------------------- Coal - 0.5% Massey Energy Co. 6.875%, due 12/15/13 (a) ........................... $ 725,000 $ 731,344 ---------- Commercial Banks - 0.5% UGS Corp. 10.00%, due 6/1/12 ................................. 635,000 692,150 ---------- Commercial Services & Supplies - 4.3% Allied Waste North America 7.875%, due 4/15/13 (b) ............................ 1,090,000 1,125,425 American Color Graphics, Inc. 10.00%, due 6/15/10 ................................ 150,000 104,812 Cardtronics, Inc. 9.25%, due 8/15/13 (a) ............................. 810,000 805,950 Geo Group, Inc. (The) 8.25%, due 7/15/13 ................................. 345,000 337,237 Hertz Corp. 8.875%, due 1/1/14 (a) ............................. 725,000 738,594 Insurance Auto Auctions, Inc. 11.00%, due 4/1/13 ................................. 345,000 362,560 Mac-Gray Corp. 7.625%, due 8/15/15 ................................ 622,000 626,665 Mobile Mini, Inc. 9.50%, due 7/1/13 .................................. 620,000 681,225 NSP Holdings LLC 11.75%, due 1/1/12 (c) ............................. 137,382 142,877 United Rentals North America, Inc. 6.50%, due 2/15/12 ................................. 580,000 564,775 7.75%, due 11/15/13 (b) ............................ 86,000 83,850 Waste Services, Inc. 9.50%, due 4/15/14 ................................. 610,000 610,000 ---------- 6,183,970 ---------- Construction Materials - 0.4% Texas Industries, Inc. 7.25%, due 7/15/13 (a) ............................. 120,000 124,500 US Concrete, Inc. 8.375%, due 4/1/14 ................................. 500,000 498,750 ---------- 623,250 ---------- Containers & Packaging - 2.3% AEP Industries, Inc. 7.875%, due 3/15/13 ................................ 175,000 171,099 Berry Plastics Corp. 10.75%, due 7/15/12 ................................ 410,000 440,750 Crown Americas, Inc. 7.625%, due 11/15/13 (a) ........................... 515,000 534,312 Graham Packaging Co., Inc. 8.50%, due 10/15/12 ................................ 90,000 88,650 9.875%, due 10/15/14 (b) ........................... 265,000 258,375 Jefferson Smurfit Corp. 8.25%, due 10/1/12 ................................. 86,000 82,560 Owens-Brockway Glass Container, Inc. 7.75%, due 5/15/11 ................................. 847,000 884,056
PRINCIPAL AMOUNT VALUE ---------------------- Containers & Packaging (continued) Plastipak Holdings, Inc. 8.50%, due 12/15/15 (a) ............................. $360,000 $ 363,600 Port Townsend Paper Corp. 12.00%, due 4/15/11 (a)(f) .......................... 195,000 124,800 Pregis Corp. 12.375%, due 10/15/13 (a)(b) ........................ 365,000 359,525 ---------- 3,307,727 ---------- Diversified Financial Services - 4.1% Altra Industrial Motion, Inc. 9.50%, due 12/1/11 (a) .............................. 500,000 485,000 BCP Crystal US Holdings Corp. 9.625%, due 6/15/14 ................................. 80,000 89,000 CCM Merger, Inc. 8.00%, due 8/1/13 (a) ............................... 591,000 567,360 Cellu Tissue Holdings, Inc. 9.75%, due 3/15/10 .................................. 355,000 351,450 Chukchansi Economic Development Authority 8.00%, due 11/15/13 (a) ............................. 393,000 403,316 Couche-Tard U.S. L.P. 7.50%, due 12/15/13 ................................. 530,000 545,900 General Motors Acceptance Corp. 6.125%, due 8/28/07 ................................. 475,000 440,314 6.875%, due 9/15/11 ................................. 530,000 483,331 Global Cash Access LLC 8.75%, due 3/15/12 .................................. 296,000 314,870 Innophos Investments Holdings, Inc. 12.34%, due 2/15/15 (a)(d) .......................... 299,965 282,342 JOSTENS IH Corp. 7.625%, due 10/1/12 ................................. 580,000 582,900 KRATON Polymers LLC/KRATON Polymers Capital Corp. 8.125%, due 1/15/14 ................................. 210,000 201,600 Nalco Finance Holdings, Inc. (zero coupon), due 2/1/14 9.00%, beginning 2/1/09 (b) ......................... 430,000 322,500 Rainbow National Services LLC 8.75%, due 9/1/12 (a) ............................... 265,000 282,225 10.375%, due 9/1/14 (a) ............................. 210,000 235,200 Standard Aero Holdings, Inc. 8.25%, due 9/1/14 ................................... 377,000 309,140 ---------- 5,896,448 ---------- Diversified Telecommunication Services - 2.4% Cincinnati Bell, Inc. 8.375%, due 1/15/14 ................................. 585,000 575,494 GCI, Inc. 7.25%, due 2/15/14 .................................. 530,000 524,700 Level 3 Financing, Inc. 10.75%, due 10/15/11 ................................ 200,000 177,500 Qwest Capital Funding, Inc. 6.875%, due 7/15/28 ................................. 925,000 844,062
See accompanying notes to financial statements. 37 HIGH YIELD FUND (continued) CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ----------------------- Diversified Telecommunication Services (continued) Syniverse Technologies, Inc. Series B 7.75%, due 8/15/13 ................................. $ 697,000 $ 702,227 Time Warner Telecommunications Holdings, Inc. 9.25%, due 2/15/14 (b) ............................. 635,000 669,925 ---------- 3,493,908 ---------- Electric Utilities - 3.1% CMS Energy Corp. 8.50%, due 4/15/11 ................................. 1,040,000 1,132,300 Mirant North America LLC 7.375%, due 12/31/13 (a) ........................... 662,000 669,447 *Sierra Pacific Power Co. 6.25%, due 4/15/12 ................................. 1,185,000 1,202,775 Sierra Pacific Resources 6.75%, due 8/15/17 (a) ............................. 700,000 696,500 Texas Genco LLC 6.875%, due 12/15/14 (a) ........................... 795,000 860,587 ---------- 4,561,609 ---------- Electronic Equipment & Instruments - 0.7% Itron, Inc. 7.75%, due 5/15/12 ................................. 705,000 719,100 Sanmina-SCI Corp. 6.75%, due 3/1/13 (b) .............................. 275,000 261,594 ---------- 980,694 ---------- Energy Equipment & Services - 0.7% Newpark Resource 8.625%, due 12/15/07 ............................... 575,000 575,000 Pride International, Inc. 7.375%, due 7/15/14 ................................ 430,000 461,175 ---------- 1,036,175 ---------- Food & Staples Retailing - 0.3% Stater Brothers Holdings 8.125%, due 6/15/12 ................................ 370,000 366,300 ---------- Food Products - 1.1% Del Monte Corp. 8.625%, due 12/15/12 ............................... 380,000 403,750 Dole Foods Co., Inc. 8.875%, due 3/15/11 ................................ 32,000 32,800 Pinnacle Foods Holding Corp. 8.25%, due 12/1/13 ................................. 440,000 419,100 Reddy Ice Holdings, Inc. (zero coupon), due 11/1/12 10.50%, beginning 11/1/08 (b) ...................... 865,000 687,675 ---------- 1,543,325 ---------- Gas Utilities - 0.8% ANR Pipeline Co. 8.875%, due 3/15/10 ................................ 620,000 662,603 Ferrellgas Partners L.P. 6.75%, due 5/1/14 .................................. 475,000 448,875 ---------- 1,111,478 ----------
PRINCIPAL AMOUNT VALUE ---------------------- Health Care Equipment & Supplies - 0.8% Fisher Scientific International, Inc. 6.125%, due 7/1/15 (a) .............................. $375,000 $ 375,000 Fresenius Medical Capital Trust IV 7.875%, due 6/15/11 ................................. 325,000 346,125 Norcross Safety Products LLC Series B 9.875%, due 8/15/11 ................................. 400,000 412,000 ---------- 1,133,125 ---------- Health Care Providers & Services - 4.8% Concentra Operating Corp. 9.125%, due 6/1/12 .................................. 325,000 334,750 9.50%, due 8/15/10 .................................. 275,000 284,625 HCA, Inc. 5.75%, due 3/15/14 .................................. 835,000 809,701 6.375%, due 1/15/15 (b) ............................. 720,000 727,800 IASIS Healthcare LLC 8.75%, due 6/15/14 .................................. 530,000 556,500 National Mentor, Inc. 9.625%, due 12/1/12 ................................. 475,000 496,375 Res-Care, Inc. 7.75%, due 10/15/13 (a) ............................. 589,000 589,000 Service Corp. International 7.50%, due 6/15/17 (a) .............................. 865,000 858,512 Tenet Healthcare Corp. 6.50%, due 6/1/12 ................................... 150,000 137,250 9.25%, due 2/1/15 (a) ............................... 600,000 595,500 9.875%, due 7/1/14 .................................. 150,000 151,875 Triad Hospitals, Inc. 7.00%, due 11/15/13 ................................. 200,000 200,500 Vanguard Health Holding Co. II 9.00%, due 10/1/14 .................................. 575,000 610,937 VWR International, Inc. 6.875%, due 4/15/12 ................................. 240,000 238,200 8.00%, due 4/15/14 .................................. 370,000 368,150 ---------- 6,959,675 ---------- Hotels, Restaurants & Leisure - 7.4% American Casino & Entertainment Properties LLC 7.85%, due 2/1/12 ................................... 540,000 553,500 Herbst Gaming, Inc. 8.125%, due 6/1/12 .................................. 620,000 644,800 Inn of the Mountain Gods Resort & Casino 12.00%, due 11/15/10 ................................ 275,000 272,250 Isle of Capri Casinos, Inc. 7.00%, due 3/1/14 ................................... 225,000 219,375 9.00%, due 3/15/12 .................................. 400,000 423,000 Majestic Star Casino LLC/ Majestic Star Casino Capital Corp. II 9.75%, due 1/15/11 (a) .............................. 786,000 791,895 Mandalay Resort Group 6.375%, due 12/15/11 ................................ 530,000 526,687 9.375%, due 2/15/10 (b) ............................. 89,000 97,455
See accompanying notes to financial statements. 38 MCMORGAN FUNDS CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ----------------------- Hotels, Restaurants & Leisure (continued) MGM Mirage 5.875%, due 2/27/14 ................................ $500,000 $ 477,500 Mohegan Tribal Gaming Authority 6.125%, due 2/15/13 ................................ 440,000 432,300 7.125%, due 8/15/14 ................................ 300,000 307,125 Pinnacle Entertainment, Inc. 8.75%, due 10/1/13 (b) ............................. 460,000 489,900 San Pasqual Casino 8.00%, due 9/15/13 (a) ............................. 393,000 398,895 Scientific Games Corp. 6.25%, due 12/15/12 ................................ 575,000 565,656 Seneca Gaming Corp. 7.25%, due 5/1/12 .................................. 450,000 452,812 Six Flags, Inc. 8.875%, due 2/1/10 ................................. 140,000 136,500 9.75%, due 4/15/13 ................................. 160,000 157,000 Station Casinos, Inc. 6.50%, due 2/1/14 .................................. 650,000 656,500 6.875%, due 3/1/16 ................................. 720,000 736,200 Town Sports International, Inc. 9.625%, due 4/15/11 ................................ 400,000 419,000 Tunica-Biloxi Gaming Authority 9.00%, due 11/15/15 (a) ............................ 393,000 393,000 Turning Stone Casino Resort Enterprise 9.125%, due 12/15/10 (a) ........................... 245,000 252,350 Vail Resorts, Inc. 6.75%, due 2/15/14 ................................. 370,000 370,000 Worldspan, LP/WS Financing Corp. 10.59%, due 2/15/11 (d) ............................ 523,000 455,010 Wynn Las Vegas LLC 6.625%, due 12/1/14 ................................ 575,000 559,187 ----------- 10,787,897 ----------- Household Durables - 3.9% ALH Finance LLC 8.50%, due 1/15/13 (b) ............................. 691,000 651,267 Beazer Homes USA, Inc. 6.50%, due 11/15/13 ................................ 390,000 370,987 K. Hovnanian Enterprises, Inc. 8.875%, due 4/1/12 ................................. 425,000 441,623 KB Home 5.75%, due 2/1/14 .................................. 925,000 872,155 Meritage Homes Corp. 6.25%, due 3/15/15 ................................. 812,000 738,920 Norcraft Holdings L.P. (zero coupon), due 9/1/12 9.75%, beginning 9/1/08 ............................ 490,000 347,900 Sealy Mattress Co. 8.25%, due 6/15/14 (b) ............................. 575,000 592,250 Simmons Bedding Co. 7.875%, due 1/15/14 (b) ............................ 280,000 259,000 (zero coupon), due 12/15/14 10.00%, beginning 12/15/09 (a)(b) .................. 580,000 313,200 Standard Pacific Corp. 7.00%, due 8/15/15 ................................. 500,000 461,250
PRINCIPAL AMOUNT VALUE ----------------------- Household Durables (continued) Stanley-Martin Communities LLC 9.75%, due 8/15/15 (a) ............................. $ 741,000 $ 674,310 ---------- 5,722,862 ---------- Household Products - 0.9% Johnsondiversey Holdings, Inc. (zero coupon), due 5/15/13 10.67%, beginning 5/15/07 .......................... 1,050,000 834,750 Spectrum Brands, Inc. 7.375%, due 2/1/15 ................................. 640,000 534,400 ---------- 1,369,150 ---------- Iron & Steel - 0.3% Chaparral Steel Co. 10.00%, due 7/15/13 ................................ 378,000 407,295 ---------- IT Services - 1.3% Activant Solutions, Inc. 10.054%, due 4/1/10 (a)(d) ......................... 175,000 180,469 10.50%, due 6/15/11 ................................ 635,000 695,325 Iron Mountain, Inc. 8.625%, due 4/1/13 ................................. 530,000 552,525 Sungard Data Systems, Inc. 9.125%, due 8/15/13 (a) ............................ 515,000 533,025 ---------- 1,961,344 ---------- Leisure Equipment & Products - 0.8% Leslie's Poolmart 7.75%, due 2/1/13 .................................. 560,000 561,400 True Temper Sports, Inc. 8.375%, due 9/15/11 ................................ 750,000 675,000 ---------- 1,236,400 ---------- Machinery - 1.4% Columbus McKinnon Corp. 8.875%, due 11/1/13 (a) ............................ 927,000 964,080 Gardner Denver, Inc. 8.00%, due 5/1/13 .................................. 445,000 467,250 Mueller Group, Inc. 10.00%, due 5/1/12 ................................. 135,000 143,437 Mueller Holdings, Inc. (zero coupon), due 4/15/14 14.75%, beginning 4/15/09 .......................... 425,000 319,813 Terex Corp. 7.375%, due 1/15/14 ................................ 86,000 85,140 ---------- 1,979,720 ---------- Machinery & Engineering - 0.3% Douglas Dynamics LLC 7.75%, due 1/15/12 (a) ............................. 440,000 424,600 ---------- Media - 8.6% Adelphia Communications Corp. 10.875%, due 10/1/10 (g) ........................... 635,000 355,600 Affinity Group, Inc. 9.00%, due 2/15/12 ................................. 450,000 449,438 10.875%, due 2/15/12 (c) ........................... 250,222 243,028
See accompanying notes to financial statements. 39 HIGH YIELD FUND (continued) CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ----------------------- Media (continued) AMC Entertainment, Inc. 8.59%, due 8/15/10 (d) ............................. $ 223,000 $ 229,411 CBD Media Holdings 9.25%, due 7/15/12 ................................. 675,000 675,000 *CCH I LLC 11.00%, due 10/1/15 (a) ............................ 1,411,000 1,185,240 Charter Communications Operation LLC 8.00%, due 4/30/12 (a) ............................. 200,000 199,000 CSC Holdings Inc. 7.00%, due 4/15/12 (a) ............................. 635,000 600,075 7.625%, due 7/15/18 ................................ 635,000 603,250 Dex Media, Inc. 8.00%, due 11/15/13 ................................ 395,000 402,900 (zero coupon), due 11/15/13 9.00%, beginning 11/15/08 .......................... 560,000 445,200 DirectTV Holdings, Inc. 8.375%, due 3/15/13 ................................ 402,000 432,150 Echostar DBS Corp. 5.75%, due 10/1/08 ................................. 630,000 617,400 Emmis Communications Corp. 10.366%, due 6/15/12 (d) ........................... 570,000 572,138 Houghton Mifflin Co. (zero coupon), due 10/15/13 11.50%, beginning 10/15/08 ......................... 710,000 557,350 Mediacom Broadband LLC 8.50%, due 10/15/15 (a)(b) ......................... 400,000 370,500 11.00%, due 7/15/13 ................................ 420,000 451,500 Medianews Group, Inc. 6.875%, due 10/1/13 ................................ 480,000 459,000 PanAmSat Corp. 9.00%, due 8/15/14 ................................. 349,000 365,578 PanAmSat Holding Corp. (zero coupon), due 11/1/14 10.375%, beginning 11/1/09 ......................... 110,000 77,000 Radio One, Inc. 6.375%, due 2/15/13 ................................ 720,000 699,300 River Rock Entertainment Authority 9.75%, due 11/1/11 ................................. 300,000 323,250 Salem Communciations Corp. 7.75%, due 12/15/10 ................................ 475,000 492,219 Vertis, Inc. 10.875%, due 6/15/09 ............................... 200,000 197,000 13.50%, due 12/7/09 (a) ............................ 200,000 162,000 Warner Music Group 7.375%, due 4/15/14 ................................ 450,000 446,625 WMG Holdings Corp. (zero coupon), due 12/15/14 9.50%, beginning 12/15/09 .......................... 354,000 247,800 Young Broadcasting, Inc. 8.75%, due 1/15/14 ................................. 100,000 88,125 10.00%, due 3/1/11 (b) ............................. 475,000 444,719
PRINCIPAL AMOUNT VALUE ------------------------ Media (continued) Zeus Special Subsidiary, Ltd. (zero coupon), due 2/1/15 9.25%, beginning 2/1/10 (a) ....................... $ 260,000 $ 170,950 ----------- 12,562,746 ----------- Metals & Mining - 0.6% Century Alluminum Co. 7.50%, due 8/15/14 ................................ 475,000 467,875 International Steel Group, Inc. 6.50%, due 4/15/14 ................................ 350,000 350,000 ----------- 817,875 ----------- Multiline Retail - 0.6% JC Penney Corp., Inc. 8.00%, due 3/1/10 ................................. 600,000 657,148 Neiman-Marcus Group, Inc. 9.00%, due 10/15/15 (a)(b) ........................ 203,000 207,568 ----------- 864,716 ----------- Multi-Utilities & Unregulated Power - 6.4% AES Corp. (The) 8.75%, due 5/15/13 (a) ............................ 780,000 849,225 Aquila, Inc. 7.625%, due 11/15/09 .............................. 485,000 494,700 Calpine Corp. 8.75%, due 7/15/13 (a)(g) ......................... 250,000 205,000 *Dynegy Holdings, Inc. 10.125%, due 7/15/13 (a) .......................... 1,180,000 1,333,399 *Edison Mission Energy 10.00%, due 8/15/08 ............................... 1,410,000 1,543,950 NorthWestern Corp. 5.875%, due 11/1/14 ............................... 305,000 305,573 NRG Energy, Inc. 8.00%, due 12/15/13 ............................... 536,683 598,402 Reliant Energy, Inc. 6.75%, due 12/15/14 ............................... 530,000 462,425 9.50%, due 7/15/13 ................................ 275,000 275,688 *Sonat, Inc. 7.625%, due 7/15/11 ............................... 1,770,000 1,800,975 *Williams Cos, Inc. 7.625%, due 7/15/19 ............................... 1,400,000 1,501,500 ----------- 9,370,837 ----------- Oil & Gas - 4.8% Chaparral Energy, Inc. 8.50%, due 12/1/15 (a) ............................ 725,000 750,375 Chesapeake Energy Corp. 6.50%, due 8/15/17 (a) ............................ 500,000 502,500 6.625%, due 1/15/16 ............................... 285,000 288,563 6.875%, due 1/15/16 ............................... 400,000 410,000 Comstock Resources, Inc. 6.875%, due 3/1/12 ................................ 385,000 376,819 Denbury Resources, Inc. 7.50%, due 12/15/15 ............................... 552,000 558,900
See accompanying notes to financial statements. 40 MCMORGAN FUNDS CORPORATE BONDS (CONTINUED)
PRINCIPAL AMOUNT VALUE ----------------------- Oil & Gas (continued) Encore Acquisition Co. 7.25%, due 12/1/17 ................................. $ 575,000 $ 569,250 MarkWest Energy Partners L.P. 6.875%, due 11/1/14 (a) ............................ 800,000 736,000 Pacific Energy Partners L.P. 6.25%, due 9/15/15 (a) ............................. 1,134,000 1,116,990 Swift Energy Co. 7.625%, due 7/15/11 ................................ 275,000 280,500 9.375%, due 5/1/12 ................................. 300,000 322,500 Targa Resources, Inc. 8.50%, due 11/1/13 (a) ............................. 725,000 743,125 Whiting Petroleum Corp. 7.00%, due 2/1/14 (a) .............................. 295,000 295,738 ---------- 6,951,260 ---------- Paper & Forest Products - 1.7% Appleton Papers, Inc. 8.125%, due 6/15/11 ................................ 475,000 461,938 Buckeye Technologies, Inc. 8.00%, due 10/15/10 ................................ 475,000 451,250 *Georgia-Pacific Corp. 8.125%, due 5/15/11 ................................ 1,625,000 1,627,031 ---------- 2,540,219 ---------- Personal Products - 0.5% Aearo Co., I 8.25%, due 4/15/12 ................................. 725,000 735,875 ---------- Pharmaceuticals - 1.4% AmerisourceBergen Corp. 5.875%, due 9/15/15 (a) ............................ 500,000 504,375 *NBTY, Inc. 7.125%, due 10/1/15 (a) ............................ 1,286,000 1,224,915 Omnicare, Inc. 6.875%, due 12/15/15 ............................... 367,000 372,505 ---------- 2,101,795 ---------- Real Estate - 1.5% American Real Estate Partners L.P. 7.125%, due 2/15/13 (a) ............................ 770,000 770,000 Ashton Woods USA LLC 9.50%, due 10/1/15 (a) ............................. 968,000 872,410 Host Marriott L.P. 7.125%, due 11/1/13 (b) ............................ 530,000 551,200 ---------- 2,193,610 ---------- Semiconductors & Semiconductor Equipment - 0.1% Amkor Technology, Inc. 7.75%, due 5/15/13 ................................. 86,000 74,820 ---------- Specialized Services - 0.4% Crystal US Holdings 3 LLC (zero coupon), due 10/1/14 10.50%, beginning 10/1/09 (a) ...................... 330,000 240,075 K&F Acquisition, Inc. 7.75%, due 11/15/14 ................................ 380,000 383,800 ---------- 623,875 ----------
PRINCIPAL AMOUNT VALUE ------------------------- Specialty Retail - 1.2% Asbury Automotive Group, Inc. 9.00%, due 6/15/12 ............................... $ 430,000 $ 430,000 Lazydays RV Center, Inc. 11.75%, due 5/15/12 .............................. 530,000 536,625 Nebraska Book Co., Inc. 8.625%, due 3/15/12 .............................. 250,000 230,000 Petro Stopping Centers L.P. 9.00%, due 2/15/12 ............................... 580,000 582,900 ------------ 1,779,525 ------------ Telecommunications - 0.3% American Cellular Corp. Series B 10.00%, due 8/1/11 ............................... 169,000 183,365 CCO Holdings LLC 8.75%, due 11/15/13 .............................. 200,000 190,500 Valor Telecommunications Enterprise LLC 7.75%, due 2/15/15 ............................... 65,000 67,925 ------------ 441,790 ------------ Transportation Infrastructure - 0.4% Great Lakes Dredge & Dock Corp. 7.75%, due 12/15/13 (b) .......................... 200,000 180,250 Hornbeck Offshore Services, Inc. Series B 6.125%, due 12/1/14 .............................. 370,000 360,750 ------------ 541,000 ------------ Wireless Telecommunication Services - 2.6% Alamosa Delaware, Inc. 8.50%, due 1/31/12 ............................... 530,000 573,063 American Tower Corp. 7.125%, due 10/15/12 ............................. 805,000 829,150 Dobson Cellular Systems 9.875%, due 11/1/12 .............................. 71,000 78,278 Dobson Communications Corp. 8.875%, due 10/1/13 .............................. 89,000 88,778 Nextel Communications, Inc. 7.375%, due 8/1/15 ............................... 330,000 348,255 Nextel Partners, Inc. 8.125%, due 7/1/11 ............................... 400,000 427,500 Rural Cellular Corp. 8.25%, due 3/15/12 ............................... 135,000 142,425 9.75%, due 1/15/10 (b) ........................... 150,000 151,500 SBA Telecommunications, Inc. (zero coupon), due 12/15/11 9.75%, beginning 12/15/07 ........................ 1,053,000 976,658 US Unwired, Inc. Series B 10.00%, due 6/15/12 .............................. 175,000 196,875 ------------ 3,812,482 ------------ Total Corporate Bonds (Cost $131,457,321) .............................. 129,191,123 ------------
See accompanying notes to financial statements. 41 HIGH YIELD FUND (continued)
PRINCIPAL AMOUNT VALUE ----------------------- FOREIGN CORPORATE BONDS 7.1% Chemicals - 0.4% Nova Chemicals Corp. 6.50%, due 1/15/12 ................................. $ 580,000 $ 561,875 ---------- Commercial Services & Supplies - 0.1% Ashtead Holdings PLC 8.625%, due 8/1/15 (a) ............................. 135,000 142,088 ---------- Diversified Financial Services - 1.3% Dollarama Group L.P. 8.875%, due 8/15/12 (a)(b) ......................... 676,000 662,480 JSG Funding PLC 9.625%, due 10/1/12 ................................ 845,000 845,000 Nell AF SARL 8.375%, due 8/15/15 (a)(b) ......................... 370,000 366,300 ---------- 1,873,780 ---------- Electronic Equipment & Instruments - 0.4% Flextronics International, Ltd. 6.50%, due 5/15/13 ................................. 530,000 538,613 ---------- Food & Staples Retailing - 0.2% Jean Coutu Group (PJC), Inc. 8.50%, due 8/1/14 (b) .............................. 315,000 288,225 ---------- Hotels, Restaurants & Leisure - 1.4% Intrawest Corp. 7.50%, due 10/15/13 ................................ 475,000 480,938 *Kerzner International, Ltd. 6.75%, due 10/1/15 (a)(b) .......................... 1,225,000 1,191,313 Royal Caribbean Cruises, Ltd. 6.875%, due 12/1/13 ................................ 400,000 423,656 ---------- 2,095,907 ---------- Machinery - 0.2% MAAX Corp. 9.75%, due 6/15/12 ................................. 420,000 331,800 ---------- Metals & Mining - 0.7% Novelis, Inc. 7.50%, due 2/15/15 (a) ............................. 520,000 484,900 Russel Metals, Inc. 6.375%, due 3/1/14 ................................. 525,000 509,250 ---------- 994,150 ---------- Oil & Gas - 0.4% Compton Petroleum Corp. 7.625%, due 12/1/13 (a) ............................ 515,000 526,588 ---------- Paper & Forest Products - 0.9% Abitibi-Consolidated, Inc. 6.00%, due 6/20/13 ................................. 425,000 360,188 Bowater Canada Finance 7.95%, due 11/15/11 ................................ 445,000 431,650 Fraser Papers, Inc. 8.75%, due 3/15/15 (a) ............................. 240,000 208,800 Tembec Industries, Inc. 8.50%, due 2/1/11 (b) .............................. 86,585 48,055 8.625%, due 6/30/09 (b) ............................ 425,000 242,250 ---------- 1,290,943 ----------
PRINCIPAL AMOUNT VALUE ------------------------ Semiconductors & Semiconductor Equipment - 0.4% Magnachip Semiconductor S.A. 7.741%, due 12/15/11 (d) .......................... $585,000 $ 593,775 ------------ Wireless Telecommunication Services - 0.7% Inmarsat Finance PLC 7.625%, due 6/30/12 ............................... 293,000 302,156 Inmarsat Finance PLC (zero coupon), due 11/15/12 10.375%, beginning 11/15/08 ....................... 125,000 104,219 Intelsat Bermuda, Ltd. 8.695%, due 1/15/12 (a)(d) ........................ 600,000 609,750 ------------ 1,016,125 ------------ Total Foreign Corporate Bonds (Cost $10,860,409) ................................ 10,253,869 ------------ Total Long-Term Bonds (Cost $142,317,730) ............................... 139,444,992 ------------
SHARES ------ PREFERRED STOCKS 1.1% Media - 1.1% Haights Cross Communication, Inc. 16.00% Class B (h)(i) ................................... 6,286 330,015 Paxson Communications Corp. 14.25% (c)(j) ........................................... 85 739,500 Spanish Broadcasting System, Inc. 10.75% Series B ......................................... 479 518,518 --------- 1,588,033 --------- Total Preferred Stocks (Cost $1,456,615) ....................................... 1,588,033 ---------
NUMBER OF WARRANTS ----------- WARRANTS 0.0% ++ Machinery - 0.0% ++ Mueller Holdings, Inc. Strike Price $0.001 Expire 4/15/14 (a)(j) ................................. 235 95,234 ------ Media - 0.0% ++ Haights Cross Communication, Inc. Strike Price $0.001 Expire 12/10/11 (h)(i)(j)(k) .......................... 7 0(l) Preferred Class A Strike Price $0.001 Expire 12/10/11 (h)(i)(j)(k) .......................... 6,225 62 ------ 62 ------ Total Warrants (Total Cost $10,555) .................................. 95,296 ------
See accompanying notes to financial statements. 42 MCMORGAN FUNDS
SHARES VALUE ------------------------- COMMON STOCK 0.1% Chemicals - 0.1% Huntsman Corp. (j) ................................ 5,871 $101,099 -------- Total Common Stock (Cost $43,855) ................................... 101,099 --------
PRINCIPAL AMOUNT ---------- SHORT-TERM INVESTMENTS 9.0% Commercial Paper - 1.2% CIESCO, Inc. 4.295%, due 1/26/06 (m) .......................... $1,742,635 1,742,635 --------- Total Commercial Paper (Cost $1,742,635) ................................ 1,742,635 ---------
SHARES ------- Investment Company - 0.5% BGI Institutional Money Market Fund (m) ................................. 777,822 777,822 ------- Total Investment Company (Cost $777,822) .................................. 777,822 -------
PRINCIPAL AMOUNT ---------- Time Deposits - 6.3% Credit Suisse First Boston Corp. 4.24%, due 1/20/06 (m) ........................... $3,049,612 3,049,612 Dexia Group 4.265%, due 1/6/06 (m) ........................... 1,742,635 1,742,635 Toronto Dominion Bank 4.30%, due 1/26/06 (m) ........................... 2,178,294 2,178,294 UBS AG 4.29%, due 1/12/06 (m) ........................... 2,178,294 2,178,294 ------------ Total Time Deposits (Cost $9,148,835) ................................ 9,148,835 ------------ U.S. Government Agency - 1.0% Federal Home Loan Bank (Discount Note) 3.87%, due 1/12/06 ............................... 1,465,000 1,463,110 ------------ Total U.S. Government Agency (Cost $1,463,110) ................................ 1,463,110 ------------ Total Short-Term Investments (Cost $13,132,402) ............................... 13,132,402 ------------ Total Investments (Cost $156,961,157) (o) .......................... 106.1% 154,361,822 Liabilities in Excess of Cash and Other Assets ............................ (6.1) (8,900,540) ---------- ------------ Net Assets ........................................ 100.0% $145,461,282 ========== ============
* Among the Fund's 10 largest holdings, excluding short-term investments. May be subject to change daily. ++ Less than one tenth of a percent. (a) May be sold to institutional investors only. The total market value of these securities at December 31, 2005 is $44,719,575 which represents 30.7% of the Fund's net assets. (b) Represents security, or a portion thereof, which is out on loan. (c) PIK ("Payment in Kind") - Interest or dividend payment is made with additional securities. (d) Floating/variable rate. Rate shown is the rate in effect at December 31, 2005. (e) Target Return Index Securities Trust. Static portfolio comprised of 70 bullet High Yield bonds selected from the Lehman Brothers High Yield Index. (f) 195 Units - each unit reflects $1,000 principal amount of zero coupon Senior Notes plus 1 warrant to aquire 0.6902 shares of common stock at $0.01 per share at a future date. (g) Issue in default. (h) Illiquid security. The total market value of these securities at December 31, 2005 is $330,077 which represents 0.2% of the Fund's net assets. (i) Restricted security. The total market value of these securities at December 31, 2005 is $330,077, which represents 0.2% of the Fund's net assets. (j) Non-income producing security. (k) Fair Valued security. The total market value of this security at December 31, 2005 is $62, which represents less than 0.1% of the Fund's net assets. (l) Less than one dollar. (m) Represents security, or a portion thereof, purchased with cash collateral received for securities on loan. (o) Aggregate cost for federal income tax purposes is $156,961,177, and net unrealized depreciation is as follows:
Gross unrealized appreciation ................................ $ 1,737,999 Gross unrealized depreciation ................................ (4,337,354) ----------- Net unrealized depreciation .................................. $(2,599,355) ===========
See accompanying notes to financial statements. 43 HIGH YIELD FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (Unaudited)
ASSETS: Investments in securities at value (cost $156,961,157) Including $11,380,098 market value of securities loaned ............................................ $154,361,822 Cash-interest bearing accounts ................................. 25,430 Dividends and interest receivable .............................. 2,834,910 Other assets ................................................... 2,886 ------------ Total assets ................................................. 157,225,048 ------------ LIABILITIES: Securities lending collateral .................................. 11,669,292 Payable to Advisor, net ........................................ 60,646 Administration fees payable .................................... 6,313 Accounting fees payable ........................................ 4,675 Transfer Agent fees payable .................................... 3,689 Accrued expenses ............................................... 19,151 ------------ Total liabilities ............................................ 11,763,766 ------------ Net Assets $145,461,282 ============ NET ASSETS CONSIST OF: Capital paid-in ................................................ $149,091,933 Accumulated undistributed net investment income ........................................................ 322,984 Accumulated net realized loss on investments ................... (1,354,300) Net unrealized depreciation on investments ..................... (2,599,335) ------------ $145,461,282 ============ Net Assets: Class McMorgan ................................................. $145,461,282 ============ Shares Outstanding: Class McMorgan ................................................. 14,596,753 ============ Net asset value and redemption price per share: Class McMorgan ................................................. $ 9.97 ============
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited)
INVESTMENT INCOME: Interest ........................................................ $ 5,675,450 Dividends ....................................................... 25,749 Income from securities loaned - net ............................. 17,262 ----------- Total investment income ....................................... 5,718,461 ----------- Expenses: Investment advisory fees (Note F) ............................... 373,509 Administration fees ............................................. 35,131 Accounting fees ................................................. 24,591 Insurance fees .................................................. 15,844 Legal fees ...................................................... 15,279 Trustees fees ................................................... 14,764 Custodian fees .................................................. 9,577 Auditing fees ................................................... 7,058 Report to shareholder expense ................................... 5,971 Transfer agent fees ............................................. 2,504 Miscellaneous expenses .......................................... 14,304 ----------- Total expenses ................................................ 518,532 ----------- Net investment income ............................................ 5,199,929 ----------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net realized loss on investments ................................ (1,170,584) Net change in unrealized depreciation on investments ................................................... (1,440,706) ----------- Net realized and unrealized loss on investments ................. (2,611,290) ----------- Increase in net assets from operations ........................... $ 2,588,639 ===========
See accompanying notes to financial statements. 44 MCMORGAN FUNDS HIGH YIELD FUND STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited) AND THE YEAR ENDED JUNE 30, 2005
FOR THE FOR THE SIX MONTHS ENDED PERIOD ENDED 12/31/2005 6/30/2005 ---------------- ------------ INCREASE IN NET ASSETS: Operations: Net investment income ...................... $ 5,199,929 $ 5,939,946 Net realized gain (loss) on investments .... (1,170,584) 1,556 Net change in unrealized depreciation on investments ............................... (1,440,706) (425,768) ------------ ------------ Increase in net assets from operations ..... 2,588,639 5,515,734 ------------ ------------ Dividends and distributions to shareholders: From net investment income: Class McMorgan shares..................... (5,104,013) (5,828,372) From capital gains: Class McMorgan shares..................... (185,264) (336,393) ------------ ------------ Total dividends and distributions to shareholders .............................. (5,289,277) (6,164,765) ------------ ------------ Capital share transactions: Net proceeds from sale of shares: Class McMorgan shares..................... 26,503,519 66,740,076 Net asset value of shares issued to shareholders in reinvestment of dividends and distributions: Class McMorgan shares..................... 4,922,516 6,164,761 ------------ ------------ 31,426,035 72,904,837 Cost of shares redeemed: Class McMorgan shares..................... (8,249,925) (3,160,084) ------------ ------------ Increase in net assets derived from capital share transactions ........................ 23,176,110 69,744,753 ------------ ------------ Total increase in net assets ............... 20,475,472 69,095,722 Net assets: Beginning of period ........................ 124,985,810 55,890,088 ------------ ------------ End of period (including undistributed net investment income of $322,984 and $227,068, respectively) ............................. $145,461,282 $124,985,810 ============ ============
See accompanying notes to financial statements. 45 HIGH YIELD FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.
CLASS MCMORGAN ------------------------- FOR THE FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED PERIOD ENDED 12/31/2005++ 6/30/2005 6/30/2004* ---------------- ---------- ------------ Net asset value, beginning of period......................................... $ 10.14 $ 9.94 $ 10.00 ------------- ---------- ----------- Income from investment operations: Net investment income....................................................... 0.37 0.72 0.48 Net realized and unrealized gain (loss) on investments...................... (0.16) 0.25 (0.06) ------------- ---------- ----------- Total from investment operations.......................................... 0.21 0.97 0.42 ------------- ---------- ----------- Less dividends and distributions: From net investment income.................................................. (0.37) (0.72) (0.48) From capital gains.......................................................... (0.01) (0.05) -- ------------- ---------- ----------- Total dividends and distributions......................................... (0.38) (0.77) (0.48) ------------- ---------- ----------- Net asset value, end of period............................................... $ 9.97 $ 10.14 $ 9.94 ============= ========== =========== Total return................................................................. 2.12%(a) 9.94% 4.23%(a) Ratios/Supplemental Data Net assets, at end of period (in 000's)..................................... $ 145,461 $ 124,986 $ 55,890 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor................................................................... 0.74%+ 0.75% 0.81%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor...................................... 0.74%+ 0.75% 0.75%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor................................................................... 7.40%+ 7.24% 7.62%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor................................................................... 7.40%+ 7.24% 7.68%+ Portfolio turnover.......................................................... 16% 86% 40.00%
- --------------- * The Fund commenced operations on November 3, 2003. (a) Total return is not annualized. + Annualized. ++ Unaudited. See accompanying notes to financial statements. 46 MCMORGAN FUNDS BALANCED FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (Unaudited) COMMON STOCKS 64.1%
SHARES VALUE ----------------- Consumer Discretionary - 5.0% Abercrombie & Fitch Co. Class A .......................... 709 $ 46,213 Advance Auto Parts, Inc. (a) ............................. 465 20,209 Aeropostale, Inc. (a) .................................... 126 3,314 American Eagle Outfitters, Inc. .......................... 176 4,044 American Greetings Corp. Class A ......................... 819 17,993 AnnTaylor Stores Corp. (a) ............................... 387 13,359 Apollo Group, Inc. Class A (a) ........................... 132 7,981 ArvinMeritor, Inc. ....................................... 161 2,317 AutoNation, Inc. (a) ..................................... 1,111 24,142 AutoZone, Inc. (a) ....................................... 716 65,693 Barnes & Noble, Inc. ..................................... 721 30,765 Best Buy Co., Inc. ....................................... 2,182 94,873 Big Lots, Inc. (a) ....................................... 193 2,318 Black & Decker Corp. (The) ............................... 178 15,479 Borders Group, Inc. ...................................... 579 12,547 Boyd Gaming Corp. ........................................ 154 7,340 Brinker International, Inc. .............................. 853 32,977 Brunswick Corp. .......................................... 222 9,027 Career Education Corp. (a) ............................... 381 12,847 Catalina Marketing Corp. ................................. 186 4,715 CBRL Group, Inc. ......................................... 379 13,322 CCE Spinco, Inc. (When Issued) (a) ....................... 1 8 Chico's FAS, Inc. (a) .................................... 413 18,143 Circuit City Stores, Inc. ................................ 456 10,301 Claire's Stores, Inc. .................................... 612 17,883 Clear Channel Communications, Inc. ....................... 4,176 131,335 Coach, Inc. (a) .......................................... 1,642 54,744 Comcast Corp. Class A (a)(b) ............................. 311 8,074 Dana Corp. ............................................... 310 2,226 Darden Restaurants, Inc. ................................. 1,713 66,601 Dillards, Inc. Class A (b) ............................... 453 11,243 Dollar Tree Stores, Inc. (a)(b) .......................... 1,071 25,640 Eastman Kodak Co. (b) .................................... 470 10,998 Education Management Corp. (a) ........................... 359 12,030 Emmis Communciations Corp. Class A (a) ................... 426 8,482 Entercom Communications Corp. (a) ........................ 148 4,391 Federated Department Stores, Inc. ........................ 1,566 103,873 Ford Motor Co. (b) ....................................... 22,319 172,303 Furniture Brands International, Inc. ..................... 522 11,656 GameStop Corp. Class A (a)(b) ............................ 53 1,686 Gannett Co., Inc. ........................................ 1,497 90,673 Gap, Inc. (The) (b) ...................................... 4,426 78,075 General Motors Corp. (b) ................................. 4,376 84,982 Genuine Parts Co. (b) .................................... 673 29,558 Goodyear Tire & Rubber Co. (The) (a)(b) .................. 2,107 36,620 GTECH Holdings Corp. ..................................... 1,058 33,581 H&R Block, Inc. .......................................... 1,419 34,836 Harley-Davidson, Inc. (b) ................................ 2,387 122,907 Hasbro, Inc. ............................................. 1,447 29,200 Hilton Hotels Corp. ...................................... 1,588 38,287
SHARES VALUE ------------------- Consumer Discretionary (continued) Home Depot, Inc. (The) ................................. 6,355 $ 257,250 J.C. Penney Co., Inc. Holding Co. ...................... 2,096 116,538 Jones Apparel Group, Inc. .............................. 709 21,780 Knight Ridder, Inc. .................................... 159 10,065 Lear Corp. (b) ......................................... 155 4,411 Limited Brands, Inc. (b) ............................... 1,966 43,940 Marriott International, Inc. Class A ................... 258 17,278 Maytag Corp. ........................................... 544 10,238 McGraw-Hill Cos., Inc. (The) ........................... 1,461 75,431 Media General, Inc. Class A ............................ 49 2,484 Michaels Stores, Inc. .................................. 892 31,550 Modine Manufacturing Co. ............................... 135 4,400 Newell Rubbermaid, Inc. ................................ 3,294 78,331 Nike, Inc. Class B ..................................... 304 26,384 Nordstrom, Inc. ........................................ 2,764 103,374 Office Depot, Inc. (a) ................................. 3,737 117,342 OfficeMax, Inc. ........................................ 270 6,847 Omnicom Group, Inc. .................................... 781 66,487 O'Reilly Automotive, Inc. (a) .......................... 219 7,010 Pacific Sunwear of California, Inc. (a) ................ 456 11,364 Payless ShoeSource, Inc. (a) ........................... 840 21,084 Polo Ralph Lauren Corp. ................................ 138 7,747 RadioShack Corp. ....................................... 620 13,039 Reader's Digest Association, Inc. (The) ................ 424 6,453 Reebok International, Ltd. ............................. 195 11,355 Rent-A-Center, Inc. (a) ................................ 867 16,352 Ross Stores, Inc. (b) .................................. 392 11,329 Ruby Tuesday, Inc. ..................................... 377 9,761 Ryland Group, Inc. (The) ............................... 97 6,997 Saks, Inc. (a) ......................................... 1,177 19,844 Sears Holdings Corp. (a)(b) ............................ 394 45,519 Sherwin-Williams Co. (The) ............................. 55 2,498 Sotheby's Holdings, Inc. Class A (a) ................... 103 1,891 Staples, Inc. .......................................... 2,610 59,273 Target Corp. ........................................... 3,027 166,394 Tiffany & Co. (b) ...................................... 320 12,253 Timberland Co. Class A (a) ............................. 219 7,128 Time Warner, Inc. ...................................... 2,496 43,530 TJX Cos., Inc. (The) ................................... 970 22,533 Toll Brothers, Inc. (a) ................................ 1,264 43,785 Tupperware Corp. ....................................... 553 12,387 Visteon Corp. (a) ...................................... 483 3,024 Walt Disney Co. (The) .................................. 208 4,986 Wendy's International, Inc. ............................ 264 14,589 Westwood One, Inc. ..................................... 258 4,205 Whirlpool Corp. ........................................ 285 23,872 Yum! Brands, Inc. ...................................... 2,779 130,280 ---------- 3,426,423 ---------- Consumer Staples - 4.3% Albertson's, Inc. ...................................... 3,946 84,247 Altria Group, Inc. ..................................... 4,110 307,099 Archer-Daniels-Midland Co. ............................. 6,344 156,443 Brown-Forman Corp. Class B ............................. 141 9,774
See accompanying notes to financial statements. 47 BALANCED FUND (continued) COMMON STOCKS (CONTINUED)
SHARES VALUE ------------------- Consumer Staples (continued) Church & Dwight Co., Inc. .............................. 250 $ 8,257 Clorox Co. (The) ....................................... 1,250 71,113 Coca-Cola Co. (The) .................................... 5,626 226,784 Coca-Cola Enterprises, Inc. ............................ 1,147 21,988 Colgate-Palmolive Co. .................................. 1,281 70,263 ConAgra Foods, Inc. .................................... 570 11,560 Constellation Brands, Inc. Class A (a) ................. 449 11,777 Dean Foods Co. (a) ..................................... 1,816 68,391 Energizer Holdings, Inc. (a) ........................... 744 37,044 General Mills, Inc. .................................... 2,643 130,353 J.M. Smucker Co. (The) ................................. 134 5,896 Kellogg Co. (The) ...................................... 635 27,445 Kimberly-Clark Corp. ................................... 5,756 343,345 Kroger Co. (The) (a) ................................... 4,670 88,170 McCormick & Co., Inc. .................................. 1,139 35,218 Pepsi Bottling Group, Inc. (The) ....................... 1,420 40,626 PepsiCo, Inc. .......................................... 1,489 87,970 Procter & Gamble Co. (The) ............................. 10,243 592,865 Reynolds American, Inc. (b) ............................ 330 31,459 Safeway, Inc. .......................................... 3,621 85,673 SUPERVALU, Inc. ........................................ 1,323 42,971 Tyson Foods, Inc. Class A (b) .......................... 1,552 26,539 UST, Inc. .............................................. 612 24,988 Wal-Mart Stores, Inc. .................................. 4,922 230,350 Whole Foods Market, Inc. ............................... 300 23,217 ---------- 2,901,825 ---------- Energy - 7.1% Amerada Hess Corp. (b) ................................. 852 108,051 Anadarko Petroleum Corp. (b) ........................... 2,131 201,912 Arch Coal, Inc. ........................................ 109 8,666 BJ Services Co. ........................................ 487 17,858 Burlington Resources, Inc. ............................. 4,056 349,627 Chevron Corp. .......................................... 4,264 242,067 ConocoPhillips ......................................... 6,939 403,711 Cooper Cameron Corp. (a) ............................... 825 34,155 Devon Energy Corp. ..................................... 5,421 339,029 El Paso Corp. (b) ...................................... 760 9,242 EOG Resources, Inc. .................................... 482 35,364 *ExxonMobil Corp. ....................................... 24,636 1,383,803 Forest Oil Corp. (a) ................................... 43 1,960 Grant Prideco, Inc. (a) ................................ 275 12,133 Helmerich & Payne, Inc. ................................ 617 38,198 Kerr-McGee Corp. ....................................... 1,370 124,478 Marathon Oil Corp. ..................................... 2,985 181,995 Newfield Exploration Co. (a) ........................... 846 42,359 Occidental Petroleum Corp. ............................. 4,732 377,992 Overseas Shipholding Group, Inc. ....................... 54 2,721 Patterson-UTI Energy, Inc. ............................. 388 12,785 Peabody Energy Corp. ................................... 420 34,616 Pioneer Natural Resources Co. .......................... 898 46,040 Plains Exploration & Production Co. (a) ................ 340 13,508 Pogo Producing Co. (b) ................................. 582 28,989 Pride International, Inc. (a) .......................... 613 18,850 Schlumberger Ltd. ...................................... 728 70,725 Southwestern Energy Co. (a) ............................ 60 2,156
SHARES VALUE ------------------- Energy (continued) Sunoco, Inc. (b) ....................................... 1,646 $ 129,013 Transocean, Inc. (a) ................................... 2,665 185,724 Valero Energy Corp. .................................... 6,769 349,280 Williams Cos., Inc. (The) .............................. 2,719 62,999 ---------- 4,870,006 ---------- Financials - 14.7% A.G. Edwards, Inc. ..................................... 452 21,181 ACE, Ltd. .............................................. 3,392 181,268 AFLAC, Inc. ............................................ 6,017 279,309 Allstate Corp. (The) ................................... 2,485 134,364 American Express Co. ................................... 10,052 517,276 American Financial Group, Inc. ......................... 383 14,673 American International Group, Inc. ..................... 6,379 435,239 AmeriCredit Corp. (a) .................................. 1,706 43,725 Ameriprise Financial, Inc. ............................. 1,902 77,974 AmerUs Group Co. ....................................... 339 19,211 AON Corp. .............................................. 3,789 136,215 Apartment Investment & Management Co. Class A (REIT) (g)..................... 220 8,331 Arthur J. Gallagher & Co. .............................. 257 7,936 Bank of America Corp. .................................. 1,329 61,333 Bank of Hawaii Corp. ................................... 195 10,050 Bank of New York Co., Inc. (The) ....................... 3,015 96,028 BB&T Corp. (b) ......................................... 4,828 202,341 Capital One Financial Corp. ............................ 1,631 140,918 Charles Schwab Corp. (The) ............................. 8,017 117,609 Chubb Corp. (The) ...................................... 2,086 203,698 CIT Group, Inc. ........................................ 2,134 110,499 Citigroup, Inc. ........................................ 13,990 678,935 City National Corp. .................................... 91 6,592 Comerica, Inc. ......................................... 2,029 115,166 Compass Bancshares, Inc. ............................... 710 34,286 Countrywide Financial Corp. ............................ 1,213 41,472 Cullen/Frost Bankers, Inc. ............................. 180 9,662 E*Trade Financial Corp. (a) ............................ 4,345 90,637 Equity Office Properties Trust (REIT) (g) .............. 895 27,145 Everest Re Group Ltd. .................................. 363 36,427 Fannie Mae ............................................. 4,705 229,651 Federated Investors, Inc. .............................. 651 24,113 Fidelity National Financial, Inc. ...................... 776 28,549 First American Corp. ................................... 162 7,339 Franklin Resources, Inc. ............................... 1,144 107,547 Freddie Mac ............................................ 551 36,008 Goldman Sachs Group, Inc. (The) ........................ 398 50,829 Hanover Insurance Group, Inc. (The) .................... 110 4,595 Hartford Financial Services Group, Inc. (The) (b)................................. 861 73,951 HCC Insurance Holdings, Inc. ........................... 626 18,580 Highwood Properties, Inc. (REIT) (g) ................... 123 3,499 Horace Mann Educators Corp. ............................ 256 4,854 Huntington Bancshares, Inc. (b) ........................ 467 11,091 Independence Community Bank Corp. ...................... 938 37,267 IndyMac Bancorp, Inc. .................................. 130 5,073 Janus Capital Group, Inc. .............................. 2,366 44,079 Jefferies Group, Inc. (b) .............................. 191 8,591 JPMorgan Chase & Co. ................................... 6,125 243,101
See accompanying notes to financial statements. 48 MCMORGAN FUNDS COMMON STOCKS (CONTINUED)
SHARES VALUE -------------------- Financials (continued) KeyCorp ............................................... 2,736 $ 90,096 LaBranche & Co., Inc. (a)(b) .......................... 140 1,415 Legg Mason, Inc. ...................................... 1,339 160,265 Lehman Brothers Holdings, Inc. (b) .................... 1,455 186,487 Lincoln National Corp. ................................ 463 24,553 Loews Corp. ........................................... 1,046 99,213 Longview Fibre Co. (REIT) (g) ......................... 223 4,641 MBIA, Inc. (b) ........................................ 588 35,374 MBNA Corp. ............................................ 38,324 1,040,880 Merrill Lynch & Co., Inc. ............................. 1,516 102,679 MetLife, Inc. ......................................... 8,658 424,242 Moody's Corp. ......................................... 1,558 95,692 Morgan Stanley Co. .................................... 4,686 265,884 National City Corp. ................................... 6,957 233,546 New Plan Excel Realty Trust (REIT) (g) ................ 401 9,295 Northern Trust Corp. .................................. 727 37,673 Old Republic International Corp. ...................... 309 8,114 PMI Group, Inc. (The) ................................. 210 8,625 Potlatch Corp. (REIT) (g) ............................. 177 9,023 Principal Financial Group, Inc. ....................... 3,433 162,827 Progressive Corp. (The) ............................... 2,040 238,231 Protective Life Corp. ................................. 857 37,511 Prudential Financial, Inc. ............................ 5,318 389,224 Public Storage, Inc. (REIT) (b)(g) .................... 683 46,253 Radian Group, Inc. .................................... 699 40,954 Raymond James Financial, Inc. ......................... 255 9,606 Rayonier, Inc. (REIT) (g) ............................. 164 6,535 Regions Financial Corp. ............................... 760 25,962 SAFECO Corp. .......................................... 712 40,228 St. Paul Travelers Cos., Inc. (The) ................... 8,168 364,865 StanCorp Financial Group, Inc. ........................ 212 10,589 State Street Corp. .................................... 1,298 71,961 SunTrust Banks, Inc. .................................. 750 54,570 SVB Financial Group (a) ............................... 53 2,483 T. Rowe Price Group, Inc. ............................. 508 36,591 Torchmark Corp. ....................................... 444 24,686 U.S. Bancorp .......................................... 567 16,948 Unizan Financial Corp. ................................ 1,309 34,767 UnumProvident Corp. ................................... 3,544 80,626 W.R. Berkley Corp. .................................... 1,400 66,668 Wachovia Corp. ........................................ 618 32,667 Waddell & Reed Financial, Inc. Class A ................ 320 6,710 Washington Mutual, Inc. ............................... 4,895 212,933 Wells Fargo & Co. ..................................... 3,982 250,189 Wilmington Trust Corp. ................................ 301 11,712 XL Capital, Ltd. Class A .............................. 1,137 76,611 Zions Bancorp ......................................... 185 13,979 ----------- 10,002,800 ----------- Health Care - 8.5% Aetna, Inc. ........................................... 3,484 328,576 Allergan, Inc. ........................................ 298 32,172 AmerisourceBergen Corp. ............................... 2,542 105,239 Amgen, Inc. (a) ....................................... 6,269 494,373 Applera Corp.- Applied Biosystems Group (b)................................. 894 23,745
SHARES VALUE ------------------- Health Care (continued) Apria Healthcare Group, Inc. (a) ....................... 281 $ 6,775 Bausch & Lomb, Inc. (b) ................................ 306 20,777 Baxter International, Inc. ............................. 4,650 175,073 Beckman Coulter, Inc. .................................. 128 7,283 Becton, Dickinson & Co. ................................ 427 25,654 Biogen Idec, Inc. (a) .................................. 575 26,065 Cardinal Health, Inc. (b) .............................. 5,167 355,231 Caremark Rx, Inc. (a) .................................. 3,632 188,101 Chiron Corp. (a) ....................................... 138 6,135 CIGNA Corp. ............................................ 1,058 118,179 Community Health Systems, Inc. (a) ..................... 539 20,665 Coventry Health Care, Inc. (a) ......................... 1,188 67,668 Cytyc Corp. (a) ........................................ 260 7,340 Forest Laboratories, Inc. (a) .......................... 4,076 165,812 Guidant Corp. .......................................... 459 29,720 HCA, Inc. .............................................. 3,547 179,124 Health Net, Inc. (a) ................................... 1,373 70,778 Hospira, Inc. (a) ...................................... 1,500 64,170 Humana, Inc. (a) ....................................... 1,926 104,640 Intuitive Surgical, Inc. (a) ........................... 80 9,382 Invitrogen Corp. (a) ................................... 107 7,130 Johnson & Johnson ...................................... 8,831 530,743 King Pharmaceuticals, Inc. (a) ......................... 2,421 40,963 Lincare Holdings, Inc. (a) ............................. 580 24,308 Manor Care, Inc. ....................................... 608 24,180 McKesson Corp. ......................................... 2,375 122,526 Medco Health Solutions, Inc. (a) ....................... 573 31,973 Merck & Co., Inc. ...................................... 15,131 481,317 Mylan Laboratories, Inc. ............................... 566 11,297 Omnicare, Inc. ......................................... 241 13,790 PerkinElmer, Inc. ...................................... 482 11,356 Pfizer, Inc. ........................................... 40,815 951,806 Techne Corp. (a) ....................................... 406 22,797 Tenet Healthcare Corp. (a) ............................. 1,075 8,235 Thermo Electron Corp. (a) .............................. 322 9,702 Triad Hospitals, Inc. (a) .............................. 365 14,319 UnitedHealth Group, Inc. ............................... 10,455 649,674 Universal Health Services, Inc. Class B (b) ............ 695 32,484 Varian Medical Systems, Inc. (a) ....................... 1,404 70,677 Varian, Inc. (a) ....................................... 128 5,093 Vertex Pharmaceuticals, Inc. (a)(b) .................... 193 5,340 Waters Corp. (a) ....................................... 187 7,069 Watson Pharmaceuticals, Inc. (a) ....................... 820 26,658 Wellpoint, Inc. (a) .................................... 642 51,225 ---------- 5,787,339 ---------- Industrials - 5.9% 3M Co. ................................................. 148 11,470 Adesa, Inc. ............................................ 205 5,006 Alaska Air Group, Inc. (a) ............................. 181 6,465 Alexander & Baldwin, Inc. .............................. 192 10,414 Allied Waste Industries, Inc. (a)(b) ................... 1,427 12,472 Boeing Co. (The) ....................................... 7,368 517,528 Brink's Co. (The) ...................................... 124 5,941 Burlington Northern Santa Fe Corp. ..................... 1,877 132,929 C.H. Robinson Worldwide, Inc. .......................... 666 24,662 Cendant Corp. .......................................... 10,267 177,106
See accompanying notes to financial statements. 49 BALANCED FUND (continued) COMMON STOCKS (CONTINUED)
SHARES VALUE ------------------- Industrials (continued) CNF, Inc. .............................................. 300 $ 16,767 Corporate Executive Board Co. .......................... 213 19,106 CSX Corp. .............................................. 927 47,064 Cummins, Inc. .......................................... 397 35,623 Dun & Bradstreet Corp. (a) ............................. 577 38,636 Eaton Corp. ............................................ 338 22,676 Emerson Electric Co. ................................... 623 46,538 Equifax, Inc. .......................................... 1,346 51,175 Federal Signal Corp. ................................... 187 2,807 FedEx Corp. ............................................ 457 47,249 Fluor Corp. ............................................ 231 17,847 GATX Corp. ............................................. 403 14,540 *General Electric Co. ................................... 33,792 1,184,410 Goodrich Corp. ......................................... 707 29,058 Granite Construction, Inc. ............................. 195 7,002 Herman Miller, Inc. .................................... 146 4,116 HNI Corp. .............................................. 328 18,017 Honeywell International, Inc. .......................... 1,954 72,787 Illinois Tool Works, Inc. .............................. 584 51,386 Ingersoll-Rand Co. Class A ............................. 904 36,494 Joy Global, Inc. ....................................... 666 26,640 Lockheed Martin Corp. .................................. 4,555 289,835 Masco Corp. ............................................ 5,210 157,290 Monster Worldwide, Inc. (a)(b) ......................... 477 19,471 MSC Industrial Direct Co. Class A ...................... 209 8,406 Navistar International Corp. (a) ....................... 149 4,264 Nordson Corp. .......................................... 200 8,102 Norfolk Southern Corp. ................................. 3,939 176,585 Parker Hannifin Corp. .................................. 812 53,560 Precision Castparts Corp. .............................. 1,363 70,617 Quanta Services, Inc. (a)(b) ........................... 1,376 18,122 Raytheon Co. ........................................... 1,717 68,938 Republic Services, Inc. ................................ 745 27,975 Robert Half International, Inc. ........................ 911 34,518 Rockwell Collins, Inc. ................................. 991 46,052 Ryder System, Inc. ..................................... 524 21,494 Southwest Airlines Co. ................................. 1,546 25,401 SPX Corp. .............................................. 155 7,094 Stericycle, Inc. (a) ................................... 102 6,006 Swift Transportation Co., Inc. (a) ..................... 522 10,597 Teleflex, Inc. ......................................... 312 20,274 Textron, Inc. .......................................... 498 38,336 United Parcel Service, Inc. Class B .................... 470 35,321 United Rentals, Inc. (a)(b) ............................ 614 14,361 Waste Management, Inc. ................................. 5,621 170,597 ---------- 4,027,147 ---------- Information Technology - 11.5% Activision, Inc. (a) ................................... 612 8,409 Acxiom Corp. ........................................... 1,029 23,667 ADC Telecommunications, Inc. (a)(b) .................... 265 5,920 Adtran, Inc. ........................................... 404 12,015 Advanced Micro Devices, Inc. (a) ....................... 1,480 45,288 Agilent Technologies, Inc. (a) ......................... 3,653 121,608 Apple Computer, Inc. (a) ............................... 3,141 225,806 Arrow Electronics, Inc. (a) ............................ 1,422 45,547
SHARES VALUE ------------------- Information Technology (continued) Autodesk, Inc. ......................................... 1,663 $ 71,426 Avnet, Inc. (a) ........................................ 1,186 28,393 BMC Software, Inc. (a) ................................. 2,648 54,258 Cadence Design Systems, Inc. (a)(b) .................... 638 10,795 CDW Corp. .............................................. 138 7,945 Ceridian Corp. (a) ..................................... 911 22,638 Cisco Systems, Inc. (a) ................................ 40,578 694,695 Citrix Systems, Inc. (a) ............................... 751 21,614 Cognizant Technology Solutions Corp. (a) ............... 299 15,055 CommScope, Inc. (a) .................................... 83 1,671 Computer Sciences Corp. (a) ............................ 2,224 112,623 Compuware Corp. (a) .................................... 4,598 41,244 Corning, Inc. (a) ...................................... 11,538 226,837 CSG Systems International, Inc. (a) .................... 609 13,593 Dell, Inc. (a) ......................................... 10,703 320,983 DST Systems, Inc. (a)(b) ............................... 546 32,711 Dycom Industries, Inc. (a) ............................. 229 5,038 Fair Isaac Corp. (b) ................................... 501 22,129 Fairchild Semiconductor International, Inc. (a)............................... 271 4,583 First Data Corp. ....................................... 9,345 401,928 Fiserv, Inc. (a) ....................................... 284 12,289 Freescale Semiconductor, Inc. Class B (a) .............. 4,722 118,853 Harris Corp. ........................................... 353 15,183 Hewlett-Packard Co. .................................... 21,595 618,265 Imation Corp. .......................................... 405 18,658 Intel Corp. ............................................ 34,786 868,259 International Business Machines Corp. .................. 9,322 766,268 Intersil Corp. Class A ................................. 601 14,953 Intuit, Inc. (a) ....................................... 1,766 94,128 Lam Research Corp. (a) ................................. 822 29,329 Lexmark International, Inc. (a) ........................ 726 32,547 LSI Logic Corp. (a) .................................... 3,133 25,064 McAfee, Inc. (a) ....................................... 1,929 52,334 MEMC Electronic Materials, Inc. (a) .................... 236 5,232 Mercury Interactive Corp. (a) .......................... 194 5,391 Micron Technology, Inc. (a) ............................ 5,021 66,830 *Microsoft Corp. ........................................ 40,351 1,055,179 MoneyGram International, Inc. .......................... 145 3,782 Motorola, Inc. ......................................... 19,761 446,401 MPS Group, Inc. (a) .................................... 393 5,372 National Semiconductor Corp. ........................... 4,126 107,193 Novell, Inc. (a) ....................................... 3,812 33,660 Novellus Systems, Inc. (a) ............................. 226 5,451 NVIDIA Corp. (a)(b) .................................... 632 23,106 Parametric Technology Corp. (a) ........................ 1,201 7,326 Plexus Corp. (a) ....................................... 284 6,458 Powerwave Technologies, Inc. (a)(b) .................... 848 10,659 QLogic Corp. (a) ....................................... 306 9,948 Qualcomm, Inc. ......................................... 87 3,748 Reynolds & Reynolds Co. (The) Class A .................. 204 5,726 Sabre Holdings Corp. Class A ........................... 571 13,767 SanDisk Corp. (a) ...................................... 416 26,133 Sanmina-SCI Corp. (a) .................................. 3,203 13,645 Scientific-Atlanta, Inc. ............................... 226 9,734 Siebel Systems, Inc. ................................... 1,044 11,046 Silicon Laboratories, Inc. (a) ......................... 75 2,750
See accompanying notes to financial statements. 50 MCMORGAN FUNDS COMMON STOCKS (CONTINUED)
SHARES VALUE ------------------- Information Technology (continued) Solectron Corp. (a) .................................... 11,667 $ 42,701 Sun Microsystems, Inc. (a) ............................. 6,749 28,278 Sybase, Inc. (a) ....................................... 418 9,137 Symantec Corp. (a) ..................................... 2,714 47,495 Synopsys, Inc. (a) ..................................... 1,774 35,586 Tech Data Corp. (a) .................................... 96 3,809 Tellabs, Inc. (a) ...................................... 757 8,251 Texas Instruments, Inc. ................................ 15,144 485,668 Unisys Corp. (a) ....................................... 658 3,836 Western Digital Corp. (a) .............................. 401 7,463 Xerox Corp. (a) (b) .................................... 2,166 31,732 ---------- 7,847,042 ---------- Materials - 1.1% E.I. du Pont de Nemours & Co. .......................... 1,771 75,268 Eastman Chemical Co. ................................... 163 8,409 FMC Corp. (a) .......................................... 157 8,348 Freeport-McMoran Copper & Gold, Inc. Class B (b)................................ 2,156 115,993 International Paper Co. ................................ 240 8,066 Louisiana-Pacific Corp. (b) ............................ 560 15,383 Lyondell Chemical Co. (b) .............................. 802 19,104 Martin Marietta Materials, Inc. ........................ 566 43,424 MeadWestvaco Corp. ..................................... 1,533 42,970 Monsanto Co. ........................................... 451 34,966 Nucor Corp. (b) ........................................ 434 28,956 Olin Corp. ............................................. 278 5,471 Pactiv Corp. (a) ....................................... 1,425 31,350 Phelps Dodge Corp. ..................................... 1,171 168,472 Rohm & Haas Co. ........................................ 322 15,591 Scotts Miracle-Gro Co. (The) Class A ................... 277 12,531 Sensient Technologies Corp. ............................ 491 8,789 Steel Dynamics, Inc. ................................... 194 6,889 United States Steel Corp. .............................. 625 30,044 Vulcan Materials Co. ................................... 1,063 72,018 Weyerhaeuser Co. ....................................... 297 19,703 ---------- 771,745 ---------- Telecommunication Services - 2.5% AT&T, Inc. ............................................. 24,877 609,238 CBS Corp. Class B (a) .................................. 1 13 CenturyTel, Inc. ....................................... 1,572 52,128 Cincinnati Bell, Inc. (a) .............................. 2,923 10,260 Citizens Communications Co. ............................ 2,586 31,627 Qwest Communications International, Inc. (a)(b)............................ 15,604 88,163 Sprint Nextel Corp. .................................... 9,571 223,579 Telephone & Data Systems, Inc. ......................... 155 5,585 Verizon Communications, Inc. ........................... 13,683 412,132 Viacom, Inc. Class B (a) ............................... 7,371 303,296 ---------- 1,736,021 ---------- Utilities - 3.5% AES Corp. (The) (a) .................................... 3,386 53,600 Allegheny Energy, Inc. (a) ............................. 1,557 49,279 Alliant Energy Corp. ................................... 457 12,814
SHARES VALUE -------------------- Utilities (continued) American Electric Power Co., Inc. (b) ................. 4,718 $ 174,991 Black Hills Corp. ..................................... 72 2,492 CenterPoint Energy, Inc. (b) .......................... 3,023 38,846 Cinergy Corp. ......................................... 7,171 304,481 CMS Energy Corp. (a) .................................. 860 12,479 Constellation Energy Group, Inc. ...................... 1,370 78,912 DPL, Inc. ............................................. 491 12,771 Edison International .................................. 3,886 169,468 Entergy Corp. ......................................... 2,256 154,874 Equitable Resources, Inc. ............................. 1,212 44,468 FirstEnergy Corp. ..................................... 2,314 113,363 Great Plains Energy, Inc. ............................. 162 4,530 MDU Resources Group, Inc. ............................. 728 23,835 National Fuel Gas Co. ................................. 327 10,199 Nicor, Inc. (b) ....................................... 547 21,503 NiSource, Inc. ........................................ 842 17,564 Pepco Holdings, Inc. .................................. 436 9,753 PG&E Corp. ............................................ 4,449 165,147 Pinnacle West Capital Corp. (b) ....................... 169 6,988 Public Service Enterprise Group, Inc. ................. 6,302 409,441 Puget Energy, Inc. .................................... 207 4,227 Questar Corp. ......................................... 512 38,758 SCANA Corp. ........................................... 705 27,763 Sierra Pacific Resources (a) .......................... 1,049 13,679 Southern Co. (The) (b) ................................ 2,727 94,163 TECO Energy, Inc. ..................................... 401 6,889 TXU Corp. ............................................. 5,640 283,072 Westar Energy, Inc. ................................... 146 3,139 Wisconsin Energy Corp. ................................ 510 19,921 Xcel Energy, Inc. ..................................... 195 3,600 ----------- 2,387,009 ----------- Total Common Stocks (Cost $40,739,707) .................................... 43,757,357 ----------- FIXED INCOME SECURITIES 34.6% CORPORATE ASSET-BACKED SECURITIES 0.9%
PRINCIPAL AMOUNT --------- Financials - 0.9% Accredited Mortgage Loan Trust Series 2005-2 Class A2A 4.479%, due 7/25/35 (c)(h) ............................. $145,728 145,712 Merrill Lynch Mortgage Investors, Inc. Series 2005-WMC2 Class A2A 4.469%, due 4/25/36 (c)(h) ............................. 67,577 67,585 Novastar Home Equity Loan Series 2005-2 Class A2A 4.469%, due 10/25/35 (c)(h) ............................ 235,140 235,149 Soundview Home Equity Loan Trust Series 2005-2 Class A1 4.479%, due 7/25/35 (c)(h) ............................. 172,061 172,045 ------- Total Corporate Asset-Backed Securities (Cost $620,505) ........................................ 620,491 -------
See accompanying notes to financial statements. 51 BALANCED FUND (continued)
PRINCIPAL AMOUNT VALUE ---------------------- CORPORATE BONDS 10.7% Consumer Discretionary - 1.5% AT&T Broadband Corp. 9.455%, due 11/15/22 ................................ $ 90,000 $ 117,918 Cox Communications, Inc. 7.75%, due 11/1/10 .................................. 290,000 314,090 DaimlerChrysler North American Holding Corp. 7.30%, due 1/15/12 .................................. 225,000 242,776 Office Depot, Inc. 6.25%, due 8/15/13 .................................. 120,000 122,619 Tele-Communications, Inc. 9.80%, due 2/1/12 ................................... 90,000 108,576 Time Warner, Inc. 7.625%, due 4/15/31 ................................. 130,000 144,774 ---------- 1,050,753 ---------- Consumer Staples - 0.4% Diageo Finance B.V. 5.30%, due 10/28/15 ................................. 115,000 115,927 Safeway, Inc. 4.95%, due 8/16/10 .................................. 150,000 146,082 ---------- 262,009 ---------- Energy - 1.0% Anadarko Finance Corp. 6.75%, due 5/1/11 ................................... 75,000 81,145 Dominion Resources, Inc. 5.15%, due 7/15/15 .................................. 135,000 130,791 Kinder Morgan, Inc. 6.50%, due 9/1/12 ................................... 185,000 195,986 Pacific Gas & Electric Co. 4.20%, due 3/1/11 ................................... 130,000 124,650 Progress Energy, Inc. 7.10%, due 3/1/11 ................................... 115,000 124,076 ---------- 656,648 ---------- Financials - 6.2% Aegon N.V. 4.75%, due 6/1/13 ................................... 50,000 48,730 Ameriprise Financial, Inc. 5.35%, due 11/15/10 ................................. 35,000 35,240 Capital One Bank 6.50%, due 6/13/13 .................................. 80,000 84,995 Capital One Financial Corp. 6.25%, due 11/15/13 ................................. 25,000 26,078 Caterpillar Financial Services Corp. 4.30%, due 6/1/10 ................................... 150,000 146,003 CIT Group, Inc. 5.75%, due 9/25/07 .................................. 385,000 390,356 Citigroup, Inc. 5.625%, due 8/27/12 ................................. 370,000 381,363 Credit Suisse First Boston USA, Inc. 5.125%, due 8/15/15 ................................. 170,000 168,357 EOP Operating L.P. 7.00%, due 7/15/11 .................................. 110,000 117,738
PRINCIPAL AMOUNT VALUE ---------------------- Financials (continued) Ford Motor Credit Co. 7.25%, due 10/25/11 ................................. $ 90,000 $ 77,747 7.375%, due 10/28/09 ................................ 240,000 212,853 General Motors Acceptance Corp. 6.875%, due 9/15/11 ................................. 75,000 68,396 7.75%, due 1/19/10 .................................. 50,000 46,694 Goldman Sachs Group, Inc. (The) 4.50%, due 6/15/10 .................................. 55,000 53,749 5.25%, due 4/1/13 ................................... 125,000 125,177 HSBC Finance Corp. 6.75%, due 5/15/11 .................................. 200,000 214,634 iStar Financial, Inc. (REIT) 5.15%, due 3/1/12 (g) ............................... 145,000 140,426 5.375%, due 4/15/10 (g) ............................. 55,000 54,509 Jefferies Group, Inc. 5.50%, due 3/15/16 .................................. 60,000 59,268 7.75%, due 3/15/12 .................................. 45,000 50,039 JPMorgan Chase & Co. 5.125%, due 9/15/14 ................................. 205,000 202,932 7.125%, due 6/15/09 ................................. 135,000 143,976 MBNA America Bank NA 7.125%, due 11/15/12 ................................ 160,000 178,864 Merrill Lynch & Co., Inc. 4.79%, due 8/4/10 ................................... 95,000 93,931 MetLife, Inc. 5.50%, due 6/15/14 .................................. 135,000 138,021 Residential Capital Corp. 6.375%, due 6/30/10 ................................. 230,000 233,706 Simon Property Group, L.P. (REIT) 5.10%, due 6/15/15 (g) .............................. 30,000 29,015 6.35%, due 8/28/12 (g) .............................. 145,000 153,601 6.375%, due 11/15/07 (g) ............................ 165,000 168,604 Textron Financial Corp. 4.125%, due 3/3/08 .................................. 135,000 132,924 Wachovia Bank NA 4.80%, due 11/1/14 .................................. 250,000 242,634 ---------- 4,220,560 ---------- Industrials - 0.5% International Lease Finance Corp. 4.875%, due 9/1/10 .................................. 210,000 207,151 5.875%, due 5/1/13 .................................. 100,000 103,484 ---------- 310,635 ---------- Information Technology - 0.2% First Data Corp. 5.625%, due 11/1/11 ................................. 170,000 171,153 ---------- Telecommunication Services - 0.9% AT&T Wireless Services, Inc. 8.75%, due 3/1/31 ................................... 80,000 105,985 British Telecommunications PLC 8.375%, due 12/15/10 ................................ 220,000 250,439 Sprint Capital Corp. 7.625%, due 1/30/11 ................................. 15,000 16,541 8.75%, due 3/15/32 .................................. 190,000 252,145 ---------- 625,110 ---------- Total Corporate Bonds (Cost $7,468,809) ................................... 7,296,868 ----------
See accompanying notes to financial statements. 52 MCMORGAN FUNDS
PRINCIPAL AMOUNT VALUE ------------------------ U.S. GOVERNMENT SECURITIES 21.0% U.S. GOVERNMENT AGENCY OBLIGATIONS 10.1% Federal Home Loan Bank - 0.5% 4.50%, due 5/21/07...................... $ 325,000 $ 323,859 ----------- Federal Home Loan Mortgage Corporation - 1.5% * 2.375%, due 2/15/07..................... 1,080,000 1,052,111 ----------- Federal National Mortgage Association - 8.1% * 4.375%, due 3/15/13..................... 1,545,000 1,504,410 4.75%, due 12/15/10..................... 525,000 525,006 5.00%, due 1/1/36 TBA (d)............... 700,000 678,125 * 5.50%, due 1/1/36 TBA (d)............... 2,175,000 2,153,250 6.50%, due 9/1/33....................... 618,984 636,270 ----------- 5,497,061 ----------- Total U.S. Government Agency Obligations (Cost $6,908,386)....................... 6,873,031 ----------- U.S. TREASURY OBLIGATIONS 10.9% United States Treasury Bond - 2.0% * 5.25%, due 2/15/29...................... 1,225,000 1,336,734 ----------- United States Treasury Notes - 6.3% * 2.00%, due 5/15/06...................... 2,750,000 2,726,796 * 4.25%, due 8/15/13...................... 1,600,000 1,585,688 ----------- 4,312,484 ----------- United States Treasury Note TII - 1.6% * 1.875%, due 7/15/13..................... 1,133,177 1,117,684 ----------- United States Treasury Strip - 1.0% (zero coupon), due 8/15/17............... 1,120,000 662,520 ----------- Total U.S. Treasury Obligations (Cost $7,476,746)....................... 7,429,422 ----------- Total U.S. Government Securities (Cost $14,385,132)...................... 14,302,453 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS 2.0% Federal Home Loan Mortgage Corporation - 0.1% 6.00%, due 11/15/27..................... 42,657 43,055 ----------- Financials - 1.9% Greenwich Capital Commercial Funding Corp. Series 2005-GG5 Class A5 5.224%, due 4/10/37 (c)................. 420,000 421,860 Series 2004-GG1Class A7 5.317%, due 6/10/36 (c)................. 350,000 353,286 GS Mortgage Securities Corp. Series 2005-GG4 Class A4 4.761%, due 7/10/39..................... 300,000 291,077 Series 2004-GG2 Class A6 5.396%, due 8/10/38 (c)................. 250,000 253,603 ----------- 1,319,826 ----------- Total Collateralized Mortgage Obligations (Cost $1,341,774)....................... 1,362,881 ----------- Total Fixed Income Securities (Cost $23,816,220)...................... 23,582,693 -----------
SHARES VALUE ------------------------ INVESTMENT COMPANY 0.0%++ Capital Markets - 0.0%++ S&P 500 Index-SPDR Trust, Series 1 (b)(e) ................................... 90 $ 11,199 ----------- Total Investment Company (Cost $11,041) .................................... 11,199 ----------- PRINCIPAL AMOUNT ---------- SHORT-TERM INVESTMENTS 7.1% Commercial Paper - 0.6% CIESCO, Inc. 4.295%, due 1/26/06 (f) ........................... $ 406,660 406,660 ----------- Total Commercial Paper (Cost $406,660) ................................... 406,660 ----------- SHARES ---------- Investment Company - 0.3% BGI Institutional Money Market Fund (f) ................................... 181,512 181,512 ----------- Total Investment Company (Cost $181,512) ................................... 181,512 ----------- PRINCIPAL AMOUNT ---------- Time Deposits - 3.1% Credit Suisse First Boston Corp. 4.24%, due 1/20/06 (f) ............................ $ 711,654 711,654 Dexia Group 4.265%, due 1/6/06 (f) ............................ 406,660 406,660 Toronto Dominion Bank 4.30%, due 1/26/06 (f) ............................ 508,325 508,325 UBS AG 4.29%, due 1/12/06 (f) ............................ 508,325 508,325 ----------- Total Time Deposits (Cost $2,134,964) ................................. 2,134,964 ----------- U.S Government Agencies - 3.1% Federal Home Loan Mortgage Corporation (Discount Note) 3.092%, due 1/13/06 (h) ........................... 460,000 459,472 Federal National Mortgage Association (Discount Note) 4.001%, due 2/13/06 (h) ........................... 1,640,000 1,632,156 ----------- Total U.S. Government Agencies (Cost $2,091,628) ................................. 2,091,628 ----------- Total Short-Term Investments (Cost $4,814,764) ................................. 4,814,764 ----------- Total Investments (Cost $69,381,732) (i) ............................ 105.8% 72,166,013 Liabilities in Excess of Cash and Other Assets .................................. (5.8) (3,951,844) ---------- ----------- Net Assets ......................................... 100.0% $68,214,169 ========== ===========
See accompanying notes to financial statements. 53 BALANCED FUND (continued) * Among the Fund's largest holdings, excluding short-term investments. May be subject to change daily. ++ Less than one tenth of a percent. (a) Non-income producing security. (b) Represents security, or a portion thereof, which is out on loan. (c) Floating/variable rate. Rate shown is the rate in effect at December 31, 2005. (d) TBA: Securities purchased on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement. The market value of these securities at December 31, 2005 is $2,813,375. (e) Exchange Traded Fund - represents a basket of securities that are traded on an exchange. (f) Represents security, or a portion thereof, purchased with cash collateral received for securities on loan. (g) REIT- Real Estate Investment Trust. (h) Segregated or partially segregated as collateral for TBAs.
(i) Aggregate cost for federal income tax purposes is $69,619,130, and net unrealized appreciation is as follows: Gross unrealized appreciation ................................ $ 4,384,748 Gross unrealized depreciation ................................ (1,837,865) ----------- Net unrealized appreciation .................................. $ 2,546,883 ===========
See accompanying notes to financial statements. 54 MCMORGAN FUNDS BALANCED FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (Unaudited)
ASSETS: Investments in securities at value (cost $69,381,732) including $2,633,708 market value of securities loaned ............................................. $72,166,013 Cash-interest bearing accounts .................................. 2,292,269 Receivable for securities sold .................................. 1,596,937 Dividends and interest receivable ............................... 274,378 Receivable for fund shares sold ................................. 126,970 Other assets .................................................... 29,117 ----------- Total assets ................................................. 76,485,684 ----------- LIABILITIES: Payable for securities purchased ................................ 5,158,662 Securities lending collateral ................................... 2,723,136 Payable for fund shares redeemed ................................ 311,929 Transfer Agent fees payable ..................................... 49,807 Payable to Advisor, net ......................................... 8,472 Administration fees payable ..................................... 3,631 Accounting fees payable ......................................... 3,249 12b-1 fees payable .............................................. 1,575 Accrued expenses ................................................ 11,054 ----------- Total liabilities ............................................ 8,271,515 ----------- Net Assets ...................................................... $68,214,169 =========== NET ASSETS CONSIST OF: Capital paid-in ................................................. $72,874,072 Accumulated undistributed net investment income ................. 19,667 Accumulated net realized loss on investments .................... (7,463,851) Net unrealized appreciation on investments ...................... 2,784,281 ----------- $68,214,169 =========== Net Assets: Class McMorgan .................................................. $60,834,361 Class Z ......................................................... 7,379,808 ----------- $68,214,169 =========== Shares Outstanding: Class McMorgan .................................................. 3,410,756 =========== Class Z ......................................................... 413,951 =========== Net asset value and redemption price per share: Class McMorgan .................................................. $ 17.84 =========== Class Z ......................................................... $ 17.83 ===========
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited)
INVESTMENT INCOME: Interest ......................................................... $ 538,176 Dividends ........................................................ 449,386 Income from securities loaned - net .............................. 1,358 ---------- Total investment income .......................................... 988,920 ---------- Expenses: Investment advisory fees (Note F) ................................ 157,673 Transfer agent fees .............................................. 33,434 Administration fees .............................................. 23,125 Accounting fees .................................................. 22,425 Registration expenses ............................................ 15,159 Insurance fees ................................................... 14,037 Auditing fees .................................................... 12,323 Legal fees ....................................................... 10,668 Trustees fees .................................................... 9,554 12b-1 distribution fees (Class Z) ................................ 9,232 Custodian fees ................................................... 8,283 Report to shareholder expense .................................... 6,044 Miscellaneous expenses ........................................... 11,509 ---------- Total expenses ................................................. 333,466 Expenses reimbursed (Note F) ...................................... (113,392) ---------- Net expenses ................................................... 220,074 ---------- Net investment income ............................................. 768,846 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments ................................. 1,248,537 Net change in unrealized appreciation on investments ............. 691,774 ---------- Net realized and unrealized gain on investments .................. 1,940,311 ---------- Increase in net assets from operations ............................ $2,709,157 ==========
See accompanying notes to financial statements. 55 BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited) AND THE YEAR ENDED JUNE 30, 2005
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED 12/31/2005 6/30/2005 ---------------- ------------ DECREASE IN NET ASSETS: Operations: Net investment income ...................... $ 768,846 $ 2,008,977 Net realized gain on investments ........... 1,248,537 3,919,633 Net realized gain on redemption-in-kind .... -- 3,409,747 Net change in unrealized appreciation on investments ............................... 691,774 (2,100,869) ----------- ------------ Increase in net assets from operations ..... 2,709,157 7,237,488 ----------- ------------ Dividends to shareholders: From net investment income: Class McMorgan shares..................... (717,427) (1,908,919) Class Z shares............................ (76,681) (148,201) ----------- ------------ Total dividends to shareholders ............ (794,108) (2,057,120) ----------- ------------ Capital share transactions: Net proceeds from sale of shares: Class McMorgan shares..................... 2,835,847 7,695,458 Class Z shares............................ 402,055 750,905 Net asset value of shares issued to shareholders in reinvestment of dividends: Class McMorgan shares..................... 708,800 1,846,874 Class Z shares............................ 76,681 148,200 ----------- ------------ 4,023,383 10,441,437 Cost of shares redeemed: Class McMorgan shares..................... (8,315,124) (70,869,458) Class Z shares............................ (490,536) (1,473,923) ----------- ------------ Decrease in net assets derived from capital share transactions ........................ (4,782,277) (61,901,944) ----------- ------------ Total decrease in net assets ............... (2,867,228) (56,721,576) Net Assets: Beginning of period ........................ 71,081,397 127,802,973 ----------- ------------ End of period (including undistributed net investment income of $19,667 and $44,929, respectively) ............................. $68,214,169 $ 71,081,397 =========== ============
See accompanying notes to financial statements. 56 MCMORGAN FUNDS BALANCED FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.
CLASS MCMORGAN YEAR ENDED JUNE 30, FOR THE SIX ----------------------------------------------------- MONTHS ENDED 12/31/2005++ 2005 2004 2003 2002 2001 ------------ ------- -------- -------- -------- -------- Net asset value, beginning of period $ 17.36 $ 16.64 $ 15.52 $ 15.51 $ 18.15 $ 19.93 ------- ------- -------- -------- -------- -------- Income from investment operations: Net investment income ................................. 0.21(c) 0.38(b)(c) 0.34 0.44 0.48 0.52 Net realized and unrealized gain (loss) on investments....................................... 0.48 0.72 1.12 0.02 (2.16) (1.07) ------- ------- -------- -------- -------- -------- Total from investment operations..................... 0.69 1.10 1.46 0.46 (1.68) (0.55) ------- ------- -------- -------- -------- -------- Less dividends and distributions: From net investment income ............................ (0.21) (0.38) (0.34) (0.45) (0.48) (0.53) From capital gains .................................... -- -- -- (0.00)(a) (0.48) (0.70) ------- ------- -------- -------- -------- -------- Total dividends and distributions.................... (0.21) (0.38) (0.34) (0.45) (0.96) (1.23) ------- ------- -------- -------- -------- -------- Net asset value, end of period ......................... $ 17.84 $ 17.36 $ 16.64 $ 15.52 $ 15.51 $ 18.15 ======= ======= ======== ======== ======== ======== Total return ........................................... 3.97%(e) 6.65% 9.50% 3.16% (9.65)% (2.84)% Ratios/Supplemental Data Net assets, end of period (in 000's)................. $60,834 $63,886 $120,325 $125,658 $161,436 $175,681 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor ......................................... 0.92%+ 0.84% 0.72% 0.70% 0.67% 0.65% Ratio of expenses to average net assets after reimbursement of expenses by Advisor ............... 0.60%+ 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income to average net assets before reimbursement of expenses by Advisor ......................................... 2.22%+ 1.75%(b) 1.98% 2.79% 2.70% 2.69% Ratio of net investment income to average net assets after reimbursement of expenses by Advisor ......................................... 2.54%+ 1.99%(b) 2.10% 2.89% 2.77% 2.74% Portfolio turnover ..................................... 80%(d) 177%(d) 101.99% 56.23% 45.80% 38.09%
See accompanying notes to financial statements. 57 BALANCED FUND Financial Highlights (continued)
CLASS Z YEAR ENDED JUNE 30, FOR THE SIX --------------------------------------------- MONTHS ENDED 12/31/2005++ 2005 2004 2003 2002 2001* ------------ ------ ------- ------ ------ ------ Net asset value, beginning of period ........................... $17.35 $16.63 $ 15.52 $15.51 $18.15 $19.26 ------ ------ ------- ------ ------ ------ Income from investment operations: Net investment income ......................................... 0.19(c) 0.28(b) 0.30 0.40 0.43 0.21 Net realized and unrealized gain (loss) on investments ........ 0.48 0.78 1.11 0.03 (2.16) (1.10) ------ ------ ------- ------ ------ ------ Total from investment operations............................. 0.67 1.06 1.41 0.43 (1.73) (0.89) ------ ------ ------- ------ ------ ------ Less dividends and distributions: From net investment income .................................... (0.19) (0.34) (0.30) (0.42) (0.43) (0.22) From capital gains ............................................ -- -- -- (0.00)(a) (0.48)(a) -- ------ ------ ------- ------ ------ ------ Total dividends and distributions............................ (0.19) (0.34) (0.30) (0.42) (0.91) (0.22) ------ ------ ------- ------ ------ ------ Net asset value, end of period ................................ $17.83 $17.35 $ 16.63 $15.52 $15.51 $18.15 ====== ====== ======= ====== ====== ====== Total return ............................................... 3.84%(e) 6.40% 9.17% 2.90% (9.87)% (4.63)%(e) Ratios/Supplemental Data: Net assets, end of period (in 000's)......................... $7,380 $7,195 $ 7,478 $6,892 $6,842 $7,492 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor ........................ 1.17%+ 1.09% 0.97% 0.95% 0.92% 0.90%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor ..................................... 0.85%+ 0.85% 0.85% 0.85% 0.85% 0.85%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor ....................... 1.97%+ 1.50%(b) 1.73% 2.54% 2.45% 2.44%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor ....................... 2.29%+ 1.74%(b) 1.85% 2.64% 2.52% 2.49%+ Portfolio turnover ............................................. 80%(d) 177%(d)101.99% 56.23% 45.80% 38.09%*
* Class Z commenced operations on January 25, 2001. (a) Less than one cent per share. (b) Included in net investment income per share and the ratio of net investment income to average net assets are $0.06 per share and 0.20%, respectively, resulting from a special one-time dividend from Microsoft Corp. that paid $3.00 per share. (c) Per share data based on average shares outstanding during the period. (d) The portfolio turnover not including mortgage dollar rolls for the six months ended December 31, 2005 and year ended June 30, 2005 is 42% and 133%, respectively. (e) Total return is not annualized. + Annualized. ++ Unaudited. See accompanying notes to financial statements. 58 MCMORGAN FUNDS EQUITY INVESTMENT FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2005 (Unaudited) COMMON STOCKS 96.9%
SHARES VALUE ----------------- Consumer Discretionary - 7.4% Abercrombie & Fitch Co. Class A ........................... 2,627 $171,228 Advance Auto Parts, Inc. (a) .............................. 1,428 62,061 Aeropostale, Inc. (a) ..................................... 280 7,364 American Eagle Outfitters, Inc. ........................... 1,113 25,577 American Greetings Corp. Class A (b) ...................... 3,161 69,447 AnnTaylor Stores Corp. (a) ................................ 1,838 63,448 Apollo Group, Inc. Class A (a) ............................ 552 33,374 ArvinMeritor, Inc. ........................................ 609 8,764 AutoNation, Inc. (a) ...................................... 4,681 101,718 AutoZone, Inc. (a) ........................................ 2,786 255,615 Barnes & Noble, Inc. ...................................... 2,702 115,294 Best Buy Co., Inc. ........................................ 8,370 363,928 Big Lots, Inc. (a) ........................................ 934 11,217 Black & Decker Corp. (The) ................................ 385 33,480 Borders Group, Inc. ....................................... 2,131 46,179 Boyd Gaming Corp. ......................................... 342 16,300 Brinker International, Inc. (b) ........................... 3,341 129,163 Brunswick Corp. ........................................... 496 20,167 Career Education Corp. (a) ................................ 1,650 55,638 Catalina Marketing Corp. .................................. 667 16,908 CBRL Group, Inc. .......................................... 1,418 49,843 Chico's FAS, Inc. (a) ..................................... 921 40,460 Circuit City Stores, Inc. ................................. 1,832 41,385 Claire's Stores, Inc. ..................................... 2,575 75,241 Clear Channel Communications, Inc. ........................ 18,557 583,618 Coach, Inc. (a) ........................................... 5,047 168,267 Comcast Corp. Class A (a)(b) .............................. 962 24,974 Dana Corp. ................................................ 1,240 8,903 Darden Restaurants, Inc. .................................. 6,484 252,098 Dillards, Inc. Class A .................................... 1,423 35,319 Dollar Tree Stores, Inc. (a)(b) ........................... 4,245 101,625 Eastman Kodak Co. (b) ..................................... 2,351 55,013 Education Management Corp. (a) ............................ 1,703 57,068 Emmis Communciations Corp. Class A (a) .................... 1,582 31,498 Entercom Communications Corp. (a) ......................... 662 19,642 Federated Department Stores, Inc. ......................... 5,628 373,305 Ford Motor Co. (b) ........................................ 87,845 678,163 Furniture Brands International, Inc. ...................... 2,061 46,022 GameStop Corp. Class A (a)(b) ............................. 200 6,364 Gannett Co., Inc. (b) ..................................... 5,379 325,806 Gap, Inc. (The) (b) ....................................... 19,671 346,996 General Motors Corp. (b) .................................. 18,397 357,270 Genuine Parts Co. (b) ..................................... 2,694 118,320 Goodyear Tire & Rubber Co. (The) (a)(b) ................... 8,291 144,098 GTECH Holdings Corp. ...................................... 3,685 116,962 H&R Block, Inc. ........................................... 4,378 107,480 Harley-Davidson, Inc. (b) ................................. 9,333 480,556 Hasbro, Inc. .............................................. 6,026 121,605 Hilton Hotels Corp. ....................................... 4,844 116,789
SHARES VALUE -------------------- Consumer Discretionary (continued) Home Depot, Inc. (The) ................................. 20,174 $ 816,644 J.C. Penney Co., Inc. Holding Co. (b) .................. 7,769 431,956 Jones Apparel Group, Inc. .............................. 3,080 94,618 Knight Ridder, Inc. .................................... 353 22,345 Lear Corp. (b) ......................................... 584 16,621 Limited Brands, Inc. (b) ............................... 9,006 201,284 Marriott International, Inc. Class A ................... 1,398 93,624 Maytag Corp. ........................................... 2,145 40,369 McGraw-Hill Cos., Inc. (The) ........................... 6,516 336,421 Media General, Inc. Class A ............................ 197 9,988 Michaels Stores, Inc. .................................. 3,028 107,100 Modine Manufacturing Co. ............................... 603 19,652 Newell Rubbermaid, Inc. ................................ 13,029 309,830 NIKE, Inc. Class B ..................................... 1,469 127,495 Nordstrom, Inc. ........................................ 10,821 404,705 Office Depot, Inc. (a) ................................. 14,730 462,522 OfficeMax, Inc. ........................................ 1,194 30,280 Omnicom Group, Inc. .................................... 3,195 271,990 O'Reilly Automotive, Inc. (a) .......................... 878 28,105 Pacific Sunwear of California, Inc. (a) ................ 1,643 40,944 Payless ShoeSource, Inc. (a) ........................... 3,163 79,391 Polo Ralph Lauren Corp. ................................ 523 29,361 RadioShack Corp. ....................................... 1,861 39,137 Reader's Digest Association, Inc. (The) ................ 1,652 25,143 Reebok International, Ltd. ............................. 781 45,478 Rent-A-Center, Inc. (a) ................................ 3,447 65,010 Ross Stores, Inc. (b) .................................. 1,677 48,465 Ruby Tuesday, Inc. ..................................... 1,384 35,832 Ryland Group, Inc. (The) ............................... 389 28,059 Saks, Inc. (a) ......................................... 4,389 73,999 Sears Holdings Corp (a)(b) ............................. 1,809 208,994 Sherwin-Williams Co. (The) ............................. 261 11,855 Sotheby's Holdings, Inc. Class A (a) ................... 390 7,160 Staples, Inc. .......................................... 7,069 160,537 Target Corp. ........................................... 8,789 483,131 Tiffany & Co. (b) ...................................... 1,336 51,155 Timberland Co. Class A (a) ............................. 928 30,206 Time Warner, Inc. ...................................... 9,294 162,087 TJX Cos., Inc. (The) ................................... 3,891 90,388 Toll Brothers, Inc. (a) ................................ 4,986 172,715 Tupperware Corp. ....................................... 2,111 47,286 Visteon Corp. (a) ...................................... 2,132 13,346 Walt Disney Co. (The) .................................. 834 19,991 Wendy's International, Inc. ............................ 587 32,438 Westwood One, Inc. ..................................... 1,155 18,826 Whirlpool Corp. ........................................ 1,166 97,664 Yum! Brands, Inc. ...................................... 12,042 564,529 ----------- 13,000,236 -----------
See accompanying notes to financial statements. 59 EQUITY INVESTMENT FUND (continued) COMMON STOCKS (CONTINUED)
SHARES VALUE -------------------- Consumer Staples - 6.3% Albertson's, Inc. (b) .................................. 14,960 $ 319,396 Altria Group, Inc. ..................................... 16,043 1,198,733 Archer-Daniels-Midland Co. ............................. 24,547 605,329 Brown-Forman Corp. Class B ............................. 680 47,138 Church & Dwight Co., Inc. .............................. 1,115 36,828 Clorox Co. (The) ....................................... 4,522 257,257 Coca-Cola Co. (The) .................................... 23,598 951,235 Coca-Cola Enterprises, Inc. ............................ 5,079 97,364 Colgate-Palmolive Co. .................................. 5,300 290,705 ConAgra Foods, Inc. .................................... 2,101 42,608 Constellation Brands, Inc. Class A (a) ................. 1,001 26,256 Dean Foods Co. (a) ..................................... 7,013 264,110 Energizer Holdings, Inc. (a) ........................... 2,767 137,769 General Mills, Inc. .................................... 11,564 570,336 J.M. Smucker Co. (The) ................................. 298 13,112 Kellogg Co. (The) ...................................... 2,944 127,240 Kimberly-Clark Corp. ................................... 22,752 1,357,157 Kroger Co. (The) (a) ................................... 19,109 360,778 McCormick & Co., Inc. .................................. 4,179 129,215 Pepsi Bottling Group, Inc. (The) ....................... 5,151 147,370 PepsiCo, Inc. .......................................... 5,414 319,859 Procter & Gamble Co. (The) ............................. 36,879 2,134,557 Reynolds American, Inc. (b) ............................ 1,478 140,898 Safeway, Inc. (b) ...................................... 13,573 321,137 SUPERVALU, Inc. ........................................ 5,251 170,552 Tyson Foods, Inc. Class A (b) .......................... 5,535 94,648 UST, Inc. .............................................. 2,722 111,139 Wal-Mart Stores, Inc. .................................. 18,034 843,991 Whole Foods Market, Inc. ............................... 668 51,697 ----------- 11,168,414 ----------- Energy - 10.8% Amerada Hess Corp. (b) ................................. 3,219 408,234 Anadarko Petroleum Corp. (b) ........................... 8,341 790,310 Arch Coal, Inc. ........................................ 531 42,214 BJ Services Co. ........................................ 2,638 96,735 Burlington Resources, Inc. ............................. 15,664 1,350,237 Chevron Corp. .......................................... 16,714 948,854 ConocoPhillips ......................................... 25,988 1,511,982 Cooper Cameron Corp. (a) ............................... 3,650 151,110 Devon Energy Corp. ..................................... 21,062 1,317,217 El Paso Corp. (b) ...................................... 3,886 47,254 EOG Resources, Inc. .................................... 1,985 145,639 *ExxonMobil Corp......................................... 97,983 5,503,705 Forest Oil Corp. (a) ................................... 199 9,068 Grant Prideco, Inc. (a) ................................ 1,148 50,650 Helmerich & Payne, Inc. ................................ 2,423 150,008 Kerr-McGee Corp. ....................................... 5,157 468,565 Marathon Oil Corp. ..................................... 11,061 674,389 Newfield Exploration Co. (a) ........................... 3,157 158,071 Occidental Petroleum Corp. ............................. 18,548 1,481,614 Overseas Shipholding Group, Inc. ....................... 242 12,194 Patterson-UTI Energy, Inc. ............................. 864 28,469 Peabody Energy Corp. ................................... 2,146 176,873 Pioneer Natural Resources Co. .......................... 4,116 211,027
SHARES VALUE -------------------- Energy (continued) Plains Exploration & Production Co. (a) ................ 1,388 $ 55,145 Pogo Producing Co. (b) ................................. 2,327 115,908 Pride International, Inc. (a) .......................... 2,738 84,193 Schlumberger Ltd. ...................................... 3,515 341,482 Southwestern Energy Co. (a) ............................ 282 10,135 Sunoco, Inc. (b) ....................................... 6,493 508,921 Transocean, Inc. (a) ................................... 9,779 681,499 Valero Energy Corp. .................................... 27,132 1,400,011 Williams Cos., Inc. (The) .............................. 9,841 228,016 ----------- 19,159,729 ----------- Financials - 22.2% A.G. Edwards, Inc. ..................................... 1,661 77,834 ACE, Ltd. .............................................. 13,499 721,387 AFLAC, Inc. ............................................ 23,840 1,106,653 Allstate Corp. (The) ................................... 11,095 599,907 American Express Co. ................................... 39,759 2,045,998 American Financial Group, Inc. ......................... 1,478 56,622 American International Group, Inc. ..................... 23,460 1,600,676 AmeriCredit Corp. (a) .................................. 6,706 171,875 Ameriprise Financial, Inc. ............................. 7,726 316,774 AmerUs Group Co. ....................................... 1,284 72,764 AON Corp. .............................................. 15,142 544,355 Apartment Investment & Management Co. Class A (REIT) (e) ..................... 809 30,637 Arthur J. Gallagher & Co. .............................. 1,099 33,937 Bank of America Corp. .................................. 6,419 296,237 Bank of Hawaii Corp. ................................... 853 43,964 Bank of New York Co., Inc. (The) ....................... 13,443 428,160 BB&T Corp. (b) ......................................... 17,100 716,661 Capital One Financial Corp. ............................ 6,473 559,267 Charles Schwab Corp. (The) ............................. 35,610 522,399 Chubb Corp. (The) ...................................... 7,742 756,006 CIT Group, Inc. ........................................ 8,076 418,175 *Citigroup, Inc.......................................... 54,512 2,645,467 City National Corp. .................................... 382 27,672 Comerica, Inc. ......................................... 7,993 453,683 Compass Bancshares, Inc. ............................... 2,619 126,472 Countrywide Financial Corp. ............................ 4,867 166,403 Cullen/Frost Bankers, Inc. ............................. 807 43,320 E*Trade Financial Corp. (a) ............................ 17,524 365,551 Equity Office Properties Trust (REIT) (e) .............. 3,737 113,343 Everest Re Group, Ltd. ................................. 1,376 138,082 Fannie Mae ............................................. 19,907 971,661 Federated Investors, Inc. .............................. 2,902 107,490 Fidelity National Financial, Inc. ...................... 3,085 113,497 First American Corp. ................................... 785 35,560 Franklin Resources, Inc. ............................... 5,088 478,323 Freddie Mac ............................................ 2,569 167,884 Goldman Sachs Group, Inc. (The) ........................ 2,155 275,215 Hanover Insurance Group, Inc. (The) .................... 441 18,421 Hartford Financial Services Group, Inc. (The) ..................................... 3,031 260,333 HCC Insurance Holdings, Inc. ........................... 2,218 65,830 Highwood Properties, Inc. (REIT) (e) ................... 272 7,738 Horace Mann Educators Corp. ............................ 875 16,590 Huntington Bancshares, Inc. (b) ........................ 2,354 55,907
See accompanying notes to financial statements. 60 MCMORGAN FUNDS COMMON STOCKS (CONTINUED)
SHARES VALUE --------------------- Financials - (continued) Independence Community Bank Corp. ..................... 3,611 $ 143,465 IndyMac Bancorp, Inc. ................................. 519 20,251 Janus Capital Group, Inc. ............................. 8,768 163,348 Jefferies Group, Inc. ................................. 857 38,548 JPMorgan Chase & Co. .................................. 23,402 928,825 KeyCorp ............................................... 10,444 343,921 LaBranche & Co., Inc. (a)(b) .......................... 1,021 10,322 Legg Mason, Inc. ...................................... 5,280 631,963 Lehman Brothers Holdings, Inc. (b) .................... 6,878 881,553 Lincoln National Corp. ................................ 1,983 105,158 Loews Corp. ........................................... 4,649 440,958 Longview Fibre Co. (REIT) (e) ......................... 637 13,256 MBIA, Inc. (b) ........................................ 2,284 137,405 *MBNA Corp.............................................. 145,086 3,940,536 Merrill Lynch & Co., Inc. ............................. 5,727 387,890 MetLife, Inc. ......................................... 34,001 1,666,049 Moody's Corp. ......................................... 6,556 402,670 Morgan Stanley Co. .................................... 17,179 974,736 National City Corp. ................................... 27,279 915,756 New Plan Excel Realty Trust (REIT) (e) ................ 1,794 41,585 Northern Trust Corp. .................................. 3,244 168,104 Old Republic International Corp. ...................... 1,495 39,259 PMI Group, Inc. (The) ................................. 796 32,692 Potlatch Corp. (REIT) (e) ............................. 624 31,812 Principal Financial Group, Inc. ....................... 13,293 630,487 Progressive Corp. (The) (b) ........................... 7,785 909,132 Protective Life Corp. ................................. 3,299 144,397 Prudential Financial, Inc. ............................ 19,588 1,433,646 Public Storage, Inc. (REIT) (b)(g) .................... 2,641 178,849 Radian Group, Inc. .................................... 2,587 151,572 Raymond James Financial, Inc. ......................... 1,016 38,273 Rayonier, Inc. (REIT) (e) ............................. 687 27,377 Regions Financial Corp. ............................... 3,751 128,134 SAFECO Corp. .......................................... 2,295 129,667 St. Paul Travelers Cos., Inc. (The) ................... 32,291 1,442,439 StanCorp Financial Group, Inc. ........................ 948 47,353 State Street Corp. .................................... 4,708 261,012 SunTrust Banks, Inc. .................................. 3,691 268,557 SVB Financial Group (a) ............................... 288 13,490 T. Rowe Price Group, Inc. ............................. 2,271 163,580 Torchmark Corp. ....................................... 1,818 101,081 U.S. Bancorp .......................................... 1,627 48,631 Unizan Financial Corp. ................................ 4,738 125,841 UnumProvident Corp. (b) ............................... 14,060 319,865 W.R. Berkley Corp. .................................... 5,415 257,862 Wachovia Corp. ........................................ 1,758 92,928 Waddell & Reed Financial, Inc. Class A ................ 1,429 29,966 Washington Mutual, Inc. ............................... 17,743 771,820 Wells Fargo & Co. ..................................... 15,616 981,153 Wilmington Trust Corp. ................................ 870 33,852 XL Capital, Ltd. Class A .............................. 4,211 283,737 Zions Bancorp ......................................... 741 55,990 ----------- 39,305,483 -----------
SHARES VALUE --------------------- Health Care - 12.9% Aetna, Inc. ........................................... 13,781 $ 1,299,686 Allergan, Inc. ........................................ 666 71,901 AmerisourceBergen Corp. ............................... 9,934 411,268 Amgen, Inc. (a) ....................................... 23,452 1,849,425 Applera Corp.- Applied Biosystems Group (b) .................................. 4,137 109,879 Apria Healthcare Group, Inc. (a) ...................... 1,063 25,629 Bausch & Lomb, Inc. (b) ............................... 1,114 75,641 Baxter International, Inc. ............................ 20,523 772,691 Beckman Coulter, Inc. ................................. 513 29,190 Becton, Dickinson & Co. ............................... 2,063 123,945 Biogen Idec, Inc. (a) ................................. 2,779 125,972 Cardinal Health, Inc. (b) ............................. 20,402 1,402,637 Caremark Rx, Inc. (a) ................................. 13,768 713,045 Chiron Corp. (a) ...................................... 617 27,432 CIGNA Corp. ........................................... 3,912 436,970 Community Health Systems, Inc. (a) .................... 2,189 83,926 Coventry Health Care, Inc. (a) ........................ 5,451 310,489 Cytyc Corp. (a) ....................................... 579 16,345 Forest Laboratories, Inc. (a) ......................... 16,158 657,307 Guidant Corp. ......................................... 1,409 91,233 HCA, Inc. ............................................. 13,096 661,348 Health Net, Inc. (a) .................................. 5,392 277,958 Hospira, Inc. (a) ..................................... 5,685 243,204 Humana, Inc. (a) ...................................... 7,723 419,591 Intuitive Surgical, Inc. (a) .......................... 176 20,640 Invitrogen Corp. (a) .................................. 429 28,589 Johnson & Johnson ..................................... 34,799 2,091,420 King Pharmaceuticals, Inc. (a) ........................ 9,525 161,163 Lincare Holdings, Inc. (a) ............................ 2,277 95,429 Manor Care, Inc. ...................................... 2,706 107,618 McKesson Corp. ........................................ 14,508 748,468 Medco Health Solutions, Inc. (a) ...................... 2,223 124,043 Merck & Co., Inc. ..................................... 59,580 1,895,240 Mylan Laboratories, Inc. .............................. 2,475 49,401 Omnicare, Inc. ........................................ 535 30,613 PerkinElmer, Inc. ..................................... 1,883 44,363 *Pfizer, Inc............................................ 159,696 3,724,111 Techne Corp. (a) ...................................... 1,521 85,404 Tenet Healthcare Corp. (a) ............................ 4,063 31,123 Thermo Electron Corp. (a) ............................. 1,288 38,807 Triad Hospitals, Inc. (a) ............................. 1,108 43,467 UnitedHealth Group, Inc. .............................. 40,863 2,539,227 Universal Health Services, Inc. Class B ............... 2,669 124,749 Varian Medical Systems, Inc. (a) ...................... 5,199 261,718 Varian, Inc. (a) ...................................... 544 21,646 Vertex Pharmaceuticals, Inc. (a)(b) ................... 774 21,417 Waters Corp. (a) ...................................... 903 34,133 Watson Pharmaceuticals, Inc. (a) ...................... 3,547 115,313 Wellpoint, Inc. (a) ................................... 2,682 213,997 ----------- 22,888,811 -----------
See accompanying notes to financial statements. 61 EQUITY INVESTMENT FUND (continued) COMMON STOCKS (CONTINUED)
SHARES VALUE --------------------- Industrials - 8.9% 3M Co. ................................................ 703 $ 54,482 Adesa, Inc. ........................................... 452 11,038 Alaska Air Group, Inc. (a) ............................ 555 19,825 Alexander & Baldwin, Inc. ............................. 559 30,320 Allied Waste Industries, Inc. (a)(b) .................. 4,966 43,403 Boeing Co. (The) ...................................... 29,101 2,044,054 Brink's Co. (The) ..................................... 287 13,750 Burlington Northern Santa Fe Corp. .................... 6,241 441,988 C.H. Robinson Worldwide, Inc. ......................... 2,972 110,053 Cendant Corp. ......................................... 40,358 696,175 CNF, Inc. ............................................. 1,272 71,092 Corporate Executive Board Co. ......................... 1,014 90,956 CSX Corp. ............................................. 2,884 146,421 Cummins, Inc. ......................................... 1,433 128,583 Dun & Bradstreet Corp. (a) ............................ 2,468 165,257 Eaton Corp. ........................................... 1,278 85,741 Emerson Electric Co. .................................. 3,376 252,187 Equifax, Inc. ......................................... 5,125 194,852 Federal Signal Corp. .................................. 836 12,548 FedEx Corp. ........................................... 2,476 255,994 Fluor Corp. ........................................... 990 76,487 GATX Corp. ............................................ 1,456 52,532 *General Electric Co.................................... 132,318 4,637,746 Goodrich Corp. ........................................ 2,606 107,107 Granite Construction, Inc. ............................ 848 30,452 Herman Miller, Inc. ................................... 585 16,491 HNI Corp. ............................................. 1,196 65,696 Honeywell International, Inc. ......................... 4,592 171,052 Illinois Tool Works, Inc. ............................. 2,790 245,492 Ingersoll-Rand Co. Class A ............................ 1,792 72,343 Joy Global, Inc. ...................................... 3,037 121,480 Lockheed Martin Corp. ................................. 17,866 1,136,814 Masco Corp. ........................................... 20,450 617,385 Monster Worldwide, Inc. (a)(b) ........................ 2,131 86,987 MSC Industrial Direct Co. Class A ..................... 933 37,525 Navistar International Corp. (a) ...................... 510 14,596 Nordson Corp. ......................................... 842 34,109 Norfolk Southern Corp. ................................ 15,001 672,495 Parker Hannifin Corp. ................................. 2,749 181,324 Precision Castparts Corp. ............................. 5,199 269,360 Quanta Services, Inc. (a)(b) .......................... 5,343 70,367 Raytheon Co. .......................................... 7,771 312,006 Republic Services, Inc. ............................... 3,232 121,362 Robert Half International, Inc. ....................... 4,313 163,420 Rockwell Collins, Inc. ................................ 3,680 171,010 Ryder System, Inc. .................................... 1,887 77,405 Southwest Airlines Co. ................................ 6,456 106,072 SPX Corp. ............................................. 620 28,377 Stericycle, Inc. (a) .................................. 225 13,248 Swift Transportation Co., Inc. (a) .................... 1,809 36,723 Teleflex, Inc. ........................................ 1,395 90,647 Textron, Inc. ......................................... 2,210 170,126 United Parcel Service, Inc. Class B ................... 1,780 133,767 United Rentals, Inc. (a)(b) ........................... 2,069 48,394 Waste Management, Inc. ................................ 20,485 621,720 ----------- 15,680,836 -----------
SHARES VALUE -------------------- Information Technology - 17.6% Activision, Inc. (a) ................................... 1,368 $ 18,796 Acxiom Corp. ........................................... 3,804 87,492 ADC Telecommunications, Inc. (a) ....................... 589 13,158 Adtran, Inc. ........................................... 1,756 52,223 Advanced Micro Devices, Inc. (a) ....................... 5,805 177,633 Advent Software, Inc. (a) .............................. 135 3,903 Agilent Technologies, Inc. (a) ......................... 16,179 538,599 Apple Computer, Inc. (a) ............................... 13,046 937,877 Arrow Electronics, Inc. (a) ............................ 5,630 180,329 Autodesk, Inc. ......................................... 6,147 264,014 Avnet, Inc. (a) ........................................ 4,394 105,192 BMC Software, Inc. (a) ................................. 10,383 212,748 Cadence Design Systems, Inc. (a)(b) .................... 2,412 40,811 CDW Corp. .............................................. 578 33,275 Ceridian Corp. (a) ..................................... 3,834 95,275 *Cisco Systems, Inc. (a)................................. 159,159 2,724,802 Citrix Systems, Inc. (a) ............................... 3,008 86,570 Cognizant Technology Solutions Corp. (a) ................................... 672 33,835 CommScope, Inc. (a) .................................... 453 9,119 Computer Sciences Corp. (a) ............................ 8,805 445,885 Compuware Corp. (a) .................................... 17,585 157,737 Corning, Inc. (a) ...................................... 42,850 842,431 CSG Systems International, Inc. (a) .................... 2,315 51,671 Dell, Inc. (a) ......................................... 47,009 1,409,800 DST Systems, Inc. (a) (b) .............................. 2,075 124,313 Dycom Industries, Inc. (a) ............................. 970 21,340 Fair Isaac Corp. (b) ................................... 2,230 98,499 Fairchild Semiconductor International, Inc. (a) ............................... 962 16,267 First Data Corp. ....................................... 36,870 1,585,779 Fiserv, Inc. (a) ....................................... 1,539 66,593 Freescale Semiconductor, Inc. Class B (a) .............. 18,703 470,755 Harris Corp. ........................................... 1,513 65,074 Hewlett-Packard Co. .................................... 85,671 2,452,761 Imation Corp. .......................................... 1,603 73,850 *Intel Corp.............................................. 135,882 3,391,615 *International Business Machines Corp.................... 36,423 2,993,971 Intersil Corp. Class A ................................. 2,683 66,753 Intuit, Inc. (a) ....................................... 7,678 409,237 Lam Research Corp. (a) ................................. 3,537 126,200 Lexmark International, Inc. (a) ........................ 3,052 136,821 LSI Logic Corp. (a) .................................... 11,946 95,568 McAfee, Inc. (a) ....................................... 7,779 211,044 MEMC Electronic Materials, Inc. (a) .................... 1,280 28,378 Mercury Interactive Corp. (a) .......................... 799 22,204 Micron Technology, Inc. (a) ............................ 18,068 240,485 *Microsoft Corp.......................................... 163,555 4,276,963 MoneyGram International, Inc. .......................... 701 18,282 Motorola, Inc. ......................................... 73,147 1,652,391 MPS Group, Inc. (a) .................................... 1,757 24,018 National Semiconductor Corp. ........................... 16,082 417,810 Novell, Inc. (a) ....................................... 15,093 133,271 Novellus Systems, Inc. (a) ............................. 1,093 26,363 NVIDIA Corp. (a) ....................................... 2,086 76,264 Parametric Technology Corp. (a) ........................ 4,513 27,529 Plexus Corp. (a) ....................................... 1,241 28,220
See accompanying notes to financial statements. 62 MCMORGAN FUNDS COMMON STOCKS (CONTINUED)
SHARES VALUE -------------------- Information Technology (continued) Powerwave Technologies, Inc. (a)(b) .................... 3,271 $ 41,116 QLogic Corp. (a) ....................................... 1,367 44,441 QUALCOMM, Inc. ......................................... 402 17,318 Reynolds & Reynolds Co. (The) Class A .................. 867 24,337 Sabre Holdings Corp. Class A ........................... 2,220 53,524 SanDisk Corp. (a) ...................................... 926 58,171 Sanmina-SCI Corp. (a) .................................. 11,529 49,114 Scientific-Atlanta, Inc. ............................... 1,011 43,544 Siebel Systems, Inc. ................................... 4,398 46,531 Silicon Laboratories, Inc. (a) ......................... 362 13,271 Solectron Corp. (a) .................................... 45,979 168,283 Sun Microsystems, Inc. (a) ............................. 27,069 113,419 Sybase, Inc. (a) ....................................... 1,239 27,085 Symantec Corp. (a) ..................................... 11,516 201,530 Synopsys, Inc. (a) ..................................... 6,877 137,953 Tech Data Corp. (a) .................................... 465 18,451 Tellabs, Inc. (a) ...................................... 3,656 39,850 Texas Instruments, Inc. ................................ 58,304 1,869,809 Unisys Corp. (a) ....................................... 1,493 8,704 Western Digital Corp. (a) .............................. 1,510 28,101 Xerox Corp. (a)(b) ..................................... 8,200 120,130 ----------- 31,026,475 ----------- Materials - 1.7% E.I. du Pont de Nemours & Co. .......................... 6,997 297,373 Eastman Chemical Co. ................................... 607 31,315 FMC Corp. (a) .......................................... 611 32,487 Freeport-McMoran Copper & Gold, Inc. Class B (b) ........................................... 8,487 456,601 International Paper Co. ................................ 1,142 38,383 Louisiana-Pacific Corp. (b) ............................ 1,829 50,243 Lyondell Chemical Co. (b) .............................. 3,577 85,204 Martin Marietta Materials, Inc. ........................ 2,197 168,554 MeadWestvaco Corp. ..................................... 5,592 156,744 Monsanto Co. ........................................... 2,178 168,860 Nucor Corp. (b) ........................................ 1,825 121,764 Olin Corp. ............................................. 1,243 24,462 Pactiv Corp. (a) ....................................... 5,534 121,748 Phelps Dodge Corp. ..................................... 4,623 665,111 Rohm & Haas Co. ........................................ 1,347 65,222 Scotts Miracle-Gro Co. (The) Class A ................... 1,173 53,067 Sensient Technologies Corp. ............................ 1,747 31,271 Steel Dynamics, Inc. ................................... 785 27,875 United States Steel Corp. .............................. 2,440 117,291 Vulcan Materials Co. ................................... 4,012 271,813 Weyerhaeuser Co. ....................................... 1,122 74,433 ----------- 3,059,821 ----------- Telecommunication Services - 3.8% AT&T, Inc. ............................................. 94,424 2,312,444 CenturyTel, Inc. ....................................... 6,239 206,885 Cincinnati Bell, Inc. (a) .............................. 11,371 39,912 Citizens Communications Co. ............................ 11,586 141,697 Qwest Communications International, Inc. (a)(b) ............................ 60,544 342,074 Sprint Nextel Corp. .................................... 39,462 921,832
SHARES VALUE --------------------- Telecommunication Services (continued) Telephone & Data Systems, Inc. ........................ 838 $ 30,193 Verizon Communications, Inc. .......................... 50,670 1,526,180 Viacom, Inc. Class B (a) .............................. 28,642 1,178,618 ------------ 6,699,835 ------------ Utilities - 5.3% AES Corp. (The) (a) ................................... 12,362 195,690 Allegheny Energy, Inc. (a) ............................ 6,129 193,983 Alliant Energy Corp. .................................. 2,041 57,230 American Electric Power Co., Inc. (b) ................. 18,584 689,281 Black Hills Corp. ..................................... 302 10,452 CenterPoint Energy, Inc. (b) .......................... 12,006 154,277 Cinergy Corp. ......................................... 29,578 1,255,882 CMS Energy Corp. (a) .................................. 2,716 39,409 Constellation Energy Group, Inc. ...................... 6,306 363,226 DPL, Inc. ............................................. 2,149 55,895 Edison International .................................. 15,516 676,653 Entergy Corp. ......................................... 8,286 568,834 Equitable Resources, Inc. ............................. 4,772 175,085 FirstEnergy Corp. ..................................... 8,550 418,865 Great Plains Energy, Inc. ............................. 676 18,901 MDU Resources Group, Inc. ............................. 3,108 101,756 National Fuel Gas Co. ................................. 1,466 45,725 Nicor, Inc. ........................................... 2,092 82,237 NiSource, Inc. ........................................ 3,789 79,039 Pepco Holdings, Inc. .................................. 1,649 36,888 PG&E Corp. ............................................ 17,506 649,823 Pinnacle West Capital Corp. (b) ....................... 677 27,994 Public Service Enterprise Group, Inc. ................. 23,129 1,502,691 Puget Energy, Inc. .................................... 827 16,887 Questar Corp. ......................................... 1,859 140,726 SCANA Corp. ........................................... 2,971 116,998 Sierra Pacific Resources (a) .......................... 4,066 53,021 Southern Co. (The) (b) ................................ 12,206 421,473 TECO Energy, Inc. ..................................... 1,638 28,141 TXU Corp. ............................................. 22,330 1,120,743 Westar Energy, Inc. ................................... 708 15,222 Wisconsin Energy Corp. ................................ 1,982 77,417 Xcel Energy, Inc. ..................................... 945 17,445 ------------ 9,407,889 ------------ Total Common Stocks (Cost $160,593,363) .................................. 171,397,529 ------------
See accompanying notes to financial statements. 63 EQUITY INVESTMENT FUND (continued)
SHARES VALUE -------------------------- INVESTMENT COMPANY 2.7% Capital Markets - 2.7% *S&P 500 Index-SPDR Trust Series 1 (b)(c) ................................ 38,243 $ 4,758,577 ----------- Total Investment Company (Cost $4,804,206) ............................... 4,758,577 -----------
PRINCIPAL AMOUNT ---------- SHORT-TERM INVESTMENTS 6.3% Commercial Paper - 0.9% CIESCO, Inc. 4.295%, due 1/26/06 (d) ......................... $1,665,903 1,665,903 ---------- Total Commercial Paper (Cost $1,665,903) ............................... 1,665,903 ----------
SHARES ---------- Investment Company - 0.4% BGI Institutional Money Market Fund (d) ................................. 743,572 743,572 --------- Total Investment Company (Cost $743,572) ................................. 743,572 ---------
PRINCIPAL AMOUNT ---------- Time Deposits - 5.0% Credit Suisse First Boston Corp. 4.24%, due 1/20/06 (d) .......................... $2,915,330 2,915,330 Dexia Group 4.265%, due 1/6/06 (d) .......................... 1,665,903 1,665,903 Toronto Dominion Bank 4.30%, due 1/26/06 (d) .......................... 2,082,378 2,082,378 UBS AG 4.29%, due 1/12/06 (d) .......................... 2,082,378 2,082,378 ------------- Total Time Deposits (Cost $8,745,989) ............................... 8,745,989 ------------- Total Short-Term Investments (Cost $11,155,464) .............................. 11,155,464 ------------- Total Investments (Cost $176,553,033) (f) ......................... 105.9% 187,311,570 Liabilities in Excess of Cash and Other Assets ........................... (5.9) (10,479,439) ---------- ------------- Net Assets ....................................... 100.0% $ 176,832,131 ========== =============
* Among the Fund's largest holdings, excluding short-term investments. May be subject to change daily. (a) Non-income producing security. (b) Represents security, or a portion thereof, which is out on loan. (c) Exchange Traded Fund - represents a basket of securities that are traded on an exchange. (d) Represents security, or a portion thereof, purchased with cash collateral received for securities on loan. (e) REIT - Real Estate Investment Trust. (f) Aggregate cost for federal income tax purposes is $177,978,913, and net unrealized appreciation is as follows:
Gross unrealized appreciation ............................ $15,005,506 Gross unrealized depreciation ............................ (5,672,849) ----------- Net unrealized appreciation .............................. $ 9,332,657 ===========
See accompanying notes to financial statements. 64 MCMORGAN FUNDS EQUITY INVESTMENT FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2005 (Unaudited)
ASSETS: Investments in securities at value (cost $176,553,033) including $10,796,355 market value of securities loaned ............................ $187,311,570 Cash-interest bearing accounts ................................. 1,201,012 Receivable for securities sold ................................. 2,696,925 Receivable for fund shares sold ................................ 445,960 Dividends and interest receivable .............................. 216,231 Other assets ................................................... 33,886 ------------ Total assets ................................................ 191,905,584 ------------ LIABILITIES: Securities lending collateral .................................. 11,155,464 Payable for securities purchased ............................... 3,741,803 Payable to Advisor, net ........................................ 63,526 Transfer Agent fees payable .................................... 57,033 Administration fees payable .................................... 8,627 Accounting fees payable ........................................ 5,010 12b-1 fees payable ............................................. 2,401 Payable for fund shares redeemed ............................... 1,999 Accrued expenses ............................................... 37,590 ------------ Total liabilities ........................................... 15,073,453 ------------ Net Assets ...................................................... $176,832,131 ============ NET ASSETS CONSIST OF: Capital paid-in ................................................ $191,453,964 Accumulated undistributed net investment income ................ 64,796 Accumulated net realized loss on investments ................... (25,445,166) Net unrealized appreciation on investments ..................... 10,758,537 ------------ $176,832,131 ============ Net Assets: Class McMorgan ................................................. $163,957,320 Class Z ........................................................ 12,874,811 ------------ $176,832,131 ============ Shares Outstanding: Class McMorgan ................................................. 7,154,869 ============ Class Z ........................................................ 562,224 ============ Net asset value and redemption price per share: Class McMorgan ................................................. $ 22.92 ============ Class Z ........................................................ $ 22.90 ============
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited)
INVESTMENT INCOME: Dividends ....................................................... $ 1,657,021 Interest ........................................................ 20,695 Income from securities loaned - net ............................. 5,141 ----------- Total investment income ...................................... 1,682,857 ----------- Expenses: Investment advisory fees (Note F) ............................... 422,928 Administration fees ............................................. 48,214 Custodian fees .................................................. 43,630 Transfer agent fees ............................................. 38,268 Accounting fees ................................................. 30,451 Insurance fees .................................................. 30,029 Legal fees ...................................................... 20,431 Trustees fees ................................................... 19,361 Registration expenses ........................................... 15,251 Auditing fees ................................................... 12,854 Report to shareholder expense ................................... 9,817 12b-1 distribution fees (Class Z) ............................... 8,801 Miscellaneous expenses .......................................... 6,911 ----------- Total expenses ............................................... 706,946 Expenses reimbursed (Note F) .................................... (63,439) ----------- Net expenses ................................................. 643,507 ----------- Net investment income ........................................... 1,039,350 ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments ................................ 4,627,677 Net change in unrealized appreciation on investments ............ 4,556,029 ----------- Net realized and unrealized gain on investments ................. 9,183,706 ----------- Increase in net assets from operations ........................... $10,223,056 ===========
See accompanying notes to financial statements. 65 EQUITY INVESTMENT FUND STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (Unaudited) AND THE YEAR ENDED JUNE 30, 2005
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED 12/31/2005 6/30/2005 ---------------- ------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income ...................... $ 1,039,350 $ 2,064,558 Net realized gain on investments ........... 4,627,677 12,304,076 Net change in unrealized appreciation on investments ................................ 4,556,029 (2,892,052) ------------ ------------ Increase in net assets from operations ..... 10,223,056 11,476,582 ------------ ------------ Dividends to shareholders: From net investment income: Class McMorgan shares..................... (984,361) (1,943,021) Class Z shares............................ (55,017) (88,829) ------------ ------------ Total dividends to shareholders ............ (1,039,378) (2,031,850) ------------ ------------ Capital share transactions: Net proceeds from sale of shares: Class McMorgan shares..................... 15,299,607 33,682,935 Class Z shares............................ 6,939,523 1,094,354 Net asset value of shares issued to shareholders in reinvestment of dividends: Class McMorgan shares..................... 972,720 1,925,333 Class Z shares............................ 55,017 88,829 ------------ ------------ 23,266,867 36,791,451 Cost of shares redeemed: Class McMorgan shares..................... (20,342,525) (80,770,357) Class Z shares............................ (1,312,299) (5,803,403) ------------ ------------ Increase (decrease) in net assets derived from capital share transactions ............ 1,612,043 (49,782,309) ------------ ------------ Total increase (decrease) in net assets .... 10,795,721 (40,337,577) Net Assets: Beginning of period ........................ 166,036,410 206,373,987 ------------ ------------ End of period (including undistributed net investment income of $64,796 and $64,824, respectively) ........................... $176,832,131 $166,036,410 ============ ============
See accompanying notes to financial statements. 66 MCMORGAN FUNDS EQUITY INVESTMENT FUND FINANCIAL HIGHLIGHTS The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.
CLASS MCMORGAN YEAR ENDED JUNE 30, ------------------------------------------------------ FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004 2003 2002 2001 ------------ -------- -------- -------- -------- -------- Net asset value, beginning of period ..................... $ 21.69 $ 20.58 $ 18.04 $ 19.05 $ 24.57 $ 30.17 -------- -------- -------- -------- -------- -------- Income from investment operations: Net investment income ................................... 0.14 0.25(a) 0.18 0.23 0.21 0.19 Net realized and unrealized gain (loss) on investments .. 1.23 1.10 2.54 (1.00) (5.12) (3.83) -------- -------- -------- -------- -------- -------- Total from investment operations....................... 1.37 1.35 2.72 (0.77) (4.91) (3.64) -------- -------- -------- -------- -------- -------- Less dividends and distributions: From net investment income .............................. (0.14) (0.24) (0.18) (0.24) (0.20) (0.20) From capital gains ...................................... -- -- -- -- (0.41) (1.76) -------- -------- -------- -------- -------- -------- Total dividends and distributions...................... (0.14) (0.24) (0.18) (0.24) (0.61) (1.96) -------- -------- -------- -------- -------- -------- Net asset value, end of period ........................... $ 22.92 $ 21.69 $ 20.58 $ 18.04 $ 19.05 $ 24.57 ======== ======== ======== ======== ======== ======== Total return ............................................. 6.32%(b) 6.60% 15.11% (3.99)% (20.34)% 12.44% Ratios/Supplemental Data Net assets, end of period (in 000's) .................... $163,957 $159,132 $195,193 $182,470 $196,914 $228,606 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor ..... 0.83%+ 0.80% 0.72% 0.71% 0.71% 0.69% Ratio of expenses to average net assets after reimbursement of expenses by Advisor .................. 0.75%+ 0.75% 0.72% 0.71% 0.71% 0.69% Ratio of net investment income to average net assets before reimbursement of expenses by Advisor ........... 1.16%+ 1.14%(a) 0.90% 1.34% 0.95% 0.69% Ratio of net investment income to average net assets after reimbursement of expenses by Advisor ............ 1.24%+ 1.19%(a) 0.90% 1.34% 0.95% 0.69% Portfolio turnover ...................................... 52% 127% 39.13% 30.77% 14.95% 22.52%
See accompanying notes to financial statements. 67 EQUITY INVESTMENT FUND Financial Highlights (continued)
CLASS Z YEAR ENDED JUNE 30, ------------------------------------------------ FOR THE SIX MONTHS ENDED 12/31/05++ 2005 2004 2003 2002 2001* ------------ ------ ------- ------- ------- ------- Net asset value, beginning of period ........................... $ 21.69 $20.57 $ 18.04 $ 19.05 $ 24.57 $ 27.68 ------- ------ ------- ------- ------- ------- Income from investment operations: Net investment income ......................................... 0.10 0.17(a) 0.13 0.18 0.15 0.06 Net realized and unrealized gain (loss) on investments ........ 1.23 1.14 2.53 (1.00) (5.11) (3.10) ------- ------ ------- ------- ------- ------- Total from investment operations............................. 1.33 1.31 2.66 (0.82) (4.96) (3.04) ------- ------ ------- ------- ------- ------- Less dividends and distributions: From net investment income .................................... (0.12) (0.19) (0.13) (0.19) (0.15) (0.07) From capital gains ............................................ -- -- -- -- (0.41) -- ------- ------ ------- ------- ------- ------- Total dividends and distributions............................ (0.12) (0.19) (0.13) (0.19) (0.56) (0.07) ------- ------ ------- ------- ------- ------- Net asset value, end of period ................................. $ 22.90 $21.69 $ 20.57 $ 18.04 $ 19.05 $ 24.57 ======= ====== ======= ======= ======= ======= Total return ................................................... 6.13%(b) 14.78% 14.78% (4.23)% (20.52)% (10.97)%(b) Ratios/Supplemental Data: Net assets, end of period (in 000's) .......................... $12,875 $6,904 $11,181 $10,170 $12,637 $11,645 Ratio of expenses to average net assets before reimbursement and recovery of expenses by Advisor ......................... 1.08%+ 1.05% 0.97% 0.96% 0.96% 0.94%+ Ratio of expenses to average net assets after reimbursement of expenses by Advisor ......................................... 1.00%+ 1.00% 0.97% 0.96% 0.96% 0.94%+ Ratio of net investment income to average net assets before reimbursement of expenses by Advisor ........................ 0.91%+ 0.89%(a) 0.65% 1.09% 0.70% 0.44%+ Ratio of net investment income to average net assets after reimbursement of expenses by Advisor ........................ 0.99%+ 0.94%(a) 0.65% 1.09% 0.70% 0.44%+ Portfolio turnover ............................................ 52% 127% 39.13% 30.77% 14.95% 22.52%
- --------------- * Class Z commenced operations on February 1, 2001. (a) Included in net investment income per share and the ratio of net investment income to average net assets are $0.06 per share and 0.03%, respectively, resulting from a special one-time dividend from Microsoft Corp. that paid $3.00 per share. (b) Total return is not annualized. + Annualized. ++ Unaudited. See accompanying notes to financial statements. 68 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 (UNAUDITED) NOTE (A) ORGANIZATION AND BUSINESS: McMorgan Funds (the "Trust") is a no-load, open-end management investment company that is registered under the Investment Company Act of 1940, as amended (the "Act"). The Trust was organized as a Delaware statutory trust (formerly business trust) on February 3, 1994. The Trust offers shares of beneficial interest (collectively, the "Shares") in the following series: McMorgan Principal Preservation Fund (the "Principal Preservation Fund"), McMorgan Intermediate Fixed Income Fund (the "Intermediate Fixed Income Fund"), McMorgan Fixed Income Fund (the "Fixed Income Fund"), McMorgan Balanced Fund (the "Balanced Fund"), McMorgan Equity Investment Fund (the "Equity Investment Fund"), and McMorgan High Yield Fund (the "High Yield Fund") (each a "Fund" and collectively, the "Funds"). The Principal Preservation Fund commenced investment operations on July 13, 1994. The Intermediate Fixed Income Fund, Fixed Income Fund, Balanced Fund and Equity Investment Fund commenced investment operations on July 14, 1994. The High Yield Fund commenced investment operations on November 3, 2003. The Principal Preservation Fund and the High Yield Fund only offer the McMorgan Funds class of shares. The Intermediate Fixed Income Fund, Balanced Fund, and the Equity Investment Fund offer two classes of shares: McMorgan Funds shares and Class Z shares. The Fixed Income Fund offers four classes of shares: McMorgan Funds shares, Class Z shares, Class R1 shares and Class R2 shares. Class Z shares commenced operations on January 25, 2001 for the Balanced Fund, on February 1, 2001 for the Fixed Income and Equity Investment Funds and on September 4, 2001 for the Intermediate Fixed Income Fund. Class R1 shares and Class R2 shares commenced operations on January 2, 2004. Each class of shares has equal rights as to earnings and assets except that each class bears different distribution expenses. Each class of shares has exclusive voting rights with respect to matters that affect just that class. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. Investment in the Principal Preservation Fund is neither insured nor guaranteed by the U.S. Government, and there can be no assurance that the Principal Preservation Fund will be able to maintain a stable net asset value of $1.00. Certain officers and trustees of the Funds are also officers and directors of McMorgan & Company LLC (the "Adviser"). The Adviser is a wholly-owned subsidiary of New York Life Investment Management Holdings LLC ("NYLIM Holdings"), which is a diversified financial services holding company and a wholly-owned subsidiary of New York Life Insurance Company ("New York Life"). New York Life Investment Management LLC ("NYLIM"), a wholly-owned subsidiary of NYLIM Holdings, is the sub-adviser to the High Yield Fund, Equity Investment Fund and the equity portion of the Balanced Fund. No officer or employee of the Adviser receives any compensation from the Funds for acting as a trustee of the Funds. All Trust officers serve without direct compensation from the Funds. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements. These policies are in conformity with accounting principals generally accepted in the United States of America. NOTE (B) SIGNIFICANT ACCOUNTING POLICIES (1) SECURITY VALUATION: The net asset value per share of each Fund is computed as of the close of regular trading on the New York Stock Exchange. 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 security shall be valued at the mean between the closing bid price and asked price on that exchange. Securities traded over-the-counter are priced at the closing bid price supplied through such system. 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 Funds' Board of Trustees. The prices for futures contracts are valued at the settlement prices established each day on the exchange where they are principally traded. Rights and warrants are valued at the last sale price at the close of the exchange on which the security to which the right or warrant relates is principally traded. In some situations, certain markets may not be closed at 69 NOTES TO FINANCIAL STATEMENTS (CONTINUED) the time at which a security must be valued. In these situations, a pricing service provides "snapshot" prices of such securities. All securities held in the portfolio of the Principal Preservation Fund and all 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. Securities for which market quotations are not readily available, or for which an independent pricing service does not provide a value or provides a value that does not represent the fair value in the judgment of the Fund's investment adviser or designee, are valued at fair value as determined in good faith by the Funds' Board of Trustees. Such fair valuation is determined by taking into account relevant factors and surrounding circumstances. (2) REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements to earn income. The Funds may only enter into repurchase agreements with financial institutions that are deemed to be creditworthy by the Adviser, pursuant to guidelines established by the Funds' Board of Trustees. During the term of any repurchase agreement, the Adviser will continue to monitor the creditworthiness of the seller. Repurchase agreements are considered under the Act to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund. 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 a delay or difficulty in exercising its right to the collateral. In addition, the Funds may incur a loss if the value of the security should decline, as well as disposition costs in liquidating the security. (3) INVESTMENT INCOME AND SECURITY TRANSACTIONS: Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Premiums/ discounts on fixed income securities are amortized/accreted daily. Security transactions are accounted for on the date securities are purchased and sold. The cost of securities sold is determined using the first-in-first-out method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual. (4) FEDERAL INCOME TAXES: The Trust has elected to be treated as a "regulated investment company" under Sub-chapter M of the Internal Revenue Code and to distribute substantially all of the Funds' net taxable income. Each Fund qualified for such treatment for the year ended June 30, 2005. Accordingly, no provisions for federal income taxes have been made in the accompanying financial statements. (5) DIVIDENDS AND DISTRIBUTIONS: Dividends and distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. (6) USE OF ESTIMATES: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (7) FOREIGN SECURITIES: Foreign securities may be subject to greater risks than U.S. investments, including currency fluctuations, less-liquid trading markets, greater price volatility, political and economic instability, less publicly available information, and changes in tax or currency laws or monetary policy. These risks are likely to be greater in emerging markets than in developed markets. (8) HIGH-YIELD SECURITIES ("JUNK BONDS"): are generally considered speculative because they present a greater risk of loss than higher-quality debt securities and may be subject to greater price volatility. (9) SECURITIES LENDING: 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 70 NOTES TO FINANCIAL STATEMENTS (CONTINUED) of credit. 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. (See Note (J)) (10) RESTRICTED SECURITIES: Each Fund (other than the McMorgan Principal Preservation Fund) may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted securities is included at the end of the Funds' Schedule of Investments. Restricted securities held at December 31, 2005: HIGH YIELD FUND
PERCENT DATE(S) OF SHARE 12/31/05 OF SECURITY ACQUISITION AMOUNT COST VALUE NET ASSETS - -------- ----------- ------ -------- -------- ---------- Haights Cross Communication, Inc. Preferred Stock 16.00%, Class B...................................................... 1/22/04 6,286 $292,429 $330,015 0.2% Warrants............................................................. 1/22/04 7 0(a) 0(a) 0.0%(b) Warrants, Preferred Class A.......................................... 1/22/04 6,225 62 62 0.0%(b) -------- -------- --- $292,491 $330,077 0.2% ======== ======== ===
(a) Less than one dollar (b) Less than one tenth of a percent. NOTE (C) DIVIDENDS FROM NET INVESTMENT INCOME AND DISTRIBUTIONS OF CAPITAL GAINS: The Principal Preservation Fund declares dividends daily from its net investment income. The Principal Preservation Fund's dividends are payable monthly and are automatically reinvested in additional Fund shares, at the month-end net asset value, for those shareholders that have elected the reinvestment option. The Intermediate Fixed Income Fund, the Fixed Income Fund and the High Yield Fund distribute their respective net investment income to shareholders monthly and net capital gains, if any, are distributed annually. With respect to the Balanced Fund and the Equity Investment Fund, dividends from net investment income are distributed quarterly and net realized gains from investment transactions, if any, are distributed to shareholders annually. The tax character of distributions paid during the years ended June 30, 2005 and June 30, 2004, was as follows:
INTERMEDIATE FIXED INCOME FIXED INCOME FUND FUND ------------------------ ----------------------- 2005 2004 2005 2004 ---------- ----------- ---------- ---------- Distribution paid from: Ordinary income ........................................................... $5,538,479 $ 8,354,076 $2,592,400 $3,611,823 Long-term capital gain .................................................... 243,103 3,239,056 215,287 19,383 ---------- ----------- ---------- ---------- $5,781,582 $11,593,132 $2,807,687 $3,631,206 ========== =========== ========== ==========
HIGH YIELD BALANCED EQUITY INVESTMENT FUND FUND FUND ----------------------- ----------------------- ----------------------- 2005 2004 2005 2004 2005 2004 ---------- ---------- ---------- ---------- ---------- ---------- Distribution paid from: Ordinary income ................................. $6,164,765 $2,605,922 $2,057,120 $2,866,834 $2,031,850 $1,814,574 Long-term capital gain .......................... -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- $6,164,765 $2,605,922 $2,057,120 $2,866,834 $2,031,850 $1,814,574 ========== ========== ========== ========== ========== ==========
71 NOTES TO FINANCIAL STATEMENTS (CONTINUED) As of June 30, 2005, the components of distributable earnings on a tax basis were as follows:
INTERMEDIATE FIXED INCOME FIXED INCOME FUND FUND ------------ ------------ Undistributed ordinary income ................... $522,917 $410,484 Unrealized appreciation ......................... 292,662 558,591 Post October loss ............................... (48,279) -- -------- -------- $767,300 $969,075 ======== ========
HIGH YIELD BALANCED EQUITY INVESTMENT FUND FUND FUND ----------- ----------- ----------------- Undistributed ordinary income.................................................... $ 413,015 $ 44,929 $ 64,824 Undistributed long-term gain (Capital loss carryforward)......................... -- (8,474,990) (28,646,963) Unrealized appreciation (depreciation)........................................... (1,158,649) 1,855,109 4,776,628 Post October loss................................................................ (184,379) -- -- ----------- ----------- ------------ $ (930,013) $(6,574,952) $(23,805,511) =========== =========== ============
In order to avoid imposition of the excise tax applicable to regulated investment companies, each Fund intends to declare as dividends, in each calendar year, at least 98% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts, if any, from prior years. NOTE (D) CAPITAL SHARE TRANSACTIONS (IN 000'S): Each Fund is authorized to issue an unlimited number of shares of beneficial interest with no par value. Transactions in shares of beneficial interest were as follows:
PRINCIPAL PRESERVATION FUND INTERMEDIATE FIXED INCOME FUND --------------------------------- ---------------------------------------------------------------------- CLASS MCMORGAN CLASS MCMORGAN CLASS Z --------------------------------- --------------------------------- --------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 DECEMBER 31, 2005 JUNE 30, 2005 DECEMBER 31, 2005 JUNE 30, 2005 ----------------- ------------- ----------------- ------------- ----------------- ------------- Shares sold ........ 68,068 141,679 2,174 3,670 --(a) 87 Shares issued in reinvestment of dividends and distributions..... 2,548 2,623 313 542 --(a) 4 ------- -------- ------ ------ --- ---- 70,616 144,302 2,487 4,212 --(a) 91 Shares redeemed .... (73,350) (130,458) (2,002) (5,287) --(a) (254) ------- -------- ------ ------ --- ---- Net increase (decrease)........ (2,734) 13,844 485 (1,075) --(a) (163) ======= ======== ====== ====== === ====
FIXED INCOME FUND ---------------------------------------------------------------------- CLASS MCMORGAN CLASS Z --------------------------------- --------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 DECEMBER 31, 2005 JUNE 30, 2005 ----------------- ------------- ----------------- ------------- Shares sold ............................................. 1,136 634 248 668 Shares issued in reinvestment of dividends and distributions ......................... 79 148 61 104 ----- ------ ---- ---- 1,215 782 309 772 Shares redeemed ......................................... (662) (1,264) (231) (528) ----- ------ ---- ---- Net increase (decrease) ................................. 553 (482) 78 244 ===== ====== ==== ====
72 NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIXED INCOME FUND ---------------------------------------------------------------------- CLASS R1 CLASS R2 --------------------------------- --------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 DECEMBER 31, 2005 JUNE 30, 2005 ----------------- ------------- ----------------- ------------- Shares sold ............................................. -- -- -- -- Shares issued in reinvestment of dividends and distributions ......................... --(a) --(a) --(a) --(a) ---- ---- ---- ---- --(a) --(a) --(a) --(a) Shares redeemed ......................................... --(a) -- --(a) -- ---- ---- ---- ---- Net increase (decrease) ................................. --(a) --(a) --(a) --(a) ==== ==== ==== ====
HIGH YIELD FUND --------------------------------- CLASS MCMORGAN --------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 ----------------- ------------- Shares sold ............................... 2,607 6,403 Shares issued in reinvestment of dividends 491 604 ----- ----- 3,098 7,007 Shares redeemed ........................... (825) (308) ----- ----- Net increase (decrease) ................... 2,273 6,699 ===== =====
BALANCED FUND ---------------------------------------------------------------------- CLASS MCMORGAN CLASS Z --------------------------------- --------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 DECEMBER 31, 2005 JUNE 30, 2005 ----------------- ------------- ----------------- ------------- Shares sold ............................................. 122 456 23 45 Shares issued in reinvestment of dividends .............. 40 108 4 9 ---- ------ --- --- 162 564 27 54 Shares redeemed ......................................... (431) (4,117) (28) (89) ---- ------ --- --- Net increase (decrease) ................................. (269) (3,553) (1) (35) ==== ====== === ===
EQUITY INVESTMENT FUND ---------------------------------------------------------------------- CLASS MCMORGAN CLASS Z --------------------------------- --------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 DECEMBER 31, 2005 JUNE 30, 2005 ----------------- ------------- ----------------- ------------- Shares sold ............................................. 681 1,599 300 52 Shares issued in reinvestment of dividends .............. 43 90 2 4 ---- ------ --- ---- 724 1,689 302 56 Shares redeemed ......................................... (905) (3,839) (58) (282) ---- ------ --- ---- Net increase (decrease) ................................. (181) (2,150) 244 (226) ==== ====== === ====
(a) Less than one thousand. NOTE (E) INVESTMENT TRANSACTIONS: Aggregate purchases and proceeds from sales of investment securities (other than short-term investments) for the six months ended December 31, 2005 were:
INTERMEDIATE FIXED INCOME FUND FIXED INCOME FUND HIGH YIELD --------------------------- --------------------------- ------------------------- PURCHASES SALES PURCHASES SALES PURCHASES SALES ------------ ------------ ------------ ------------ ----------- ----------- U.S. Government Securities ............. $208,732,568 $201,706,352 $ 94,606,909 $ 89,632,789 $ -- $ -- All others ............................. 20,974,192 36,752,018 13,839,272 15,158,560 44,658,357 21,070,972 ------------ ------------ ------------ ------------ ----------- ----------- Total .................................. $229,706,760 $238,458,370 $108,446,181 $104,791,349 $44,658,357 $21,070,972 ============ ============ ============ ============ =========== ===========
73 NOTES TO FINANCIAL STATEMENTS (CONTINUED)
BALANCED FUND EQUITY INVESTMENT FUND ------------------------- ------------------------- PURCHASES SALES PURCHASES SALES ----------- ----------- ----------- ----------- U.S. Government Securities .............................................. $32,841,190 $32,478,643 $ -- $ -- All others .............................................................. 20,961,288 28,419,779 85,858,324 86,921,026 ----------- ----------- ----------- ----------- Total ................................................................... $53,802,478 $60,898,422 $85,858,324 $86,921,026 =========== =========== =========== ===========
NOTE (F) AFFILIATED - ADVISORY, ADMINISTRATION AND DISTRIBUTION SERVICES AGREEMENTS: Under its investment advisory agreements with each of the Funds, the Adviser provides investment advisory services to the Funds. The Funds will pay the Adviser at the following annual percentage rates of the average daily net assets of each Fund: 0.25% for the Principal Preservation Fund; 0.35% for the Intermediate Fixed Income Fund; 0.35% for the Fixed Income Fund; 0.50% for the High Yield Fund; 0.45% for the Balanced Fund and 0.50% for the Equity Investment Fund. These fees are accrued daily and paid monthly. The Adviser has voluntarily undertaken to absorb for the McMorgan Funds Class of Principal Preservation Fund, Intermediate Fixed Income Fund, Fixed Income Fund, High Yield Fund, Balanced Fund and Equity Investment Fund, operating expenses which cause total expenses to exceed 0.30%, 0.50%, 0.50%, 0.75%, 0.60% and 0.75%, respectively. While the Adviser 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. For the period July 1, 2005 through December 31, 2005, the net amount of expenses the Adviser absorbed, subject to repayment, totaled $151,772 for the Principal Preservation Fund; $101,379 for the Intermediate Fixed Income Fund; $105,471 for the Fixed Income Fund; $113,392 for the Balanced Fund; and $63,439 for the Equity Investment Fund. The investment advisory agreements provide that any reductions or expense reimbursements made by the Adviser in its fees are subject to reimbursement by the Funds within the following three years of such reduction or reimbursement provided that the Funds are able to effect such reimbursement and remain in compliance with applicable expense limitations. Since July 1, 2002 though December 31, 2005, the Adviser has reduced its management fee and otherwise absorbed Fund expenses for each Fund in the following amounts: Principal Preservation Fund $885,437; Intermediate Fixed Income Fund $525,671; Fixed Income Fund $601,955; Balanced Fund $670,979; and Equity Investment Fund $156,138. High Yield Fund recovered $22,202 from management fee reimbursement during the six months ended December 31, 2005. This amount is included within investment advisory fees in the Statement of Operations. As of December 31, 2005 the Adviser can recover the following reimbursement amounts:
EXPIRES 2006 EXPIRES 2007 EXPIRES 2008 EXPIRES 2009 TOTAL ------------ ------------ ------------ ------------ -------- Principal Preservation Fund.............................. $219,211 $242,530 $271,924 $151,772 $885,437 Intermediate Fixed Income Fund........................... 116,789 132,200 175,303 101,379 525,671 Fixed Income Fund........................................ 146,036 160,536 189,912 105,471 601,955 Balanced Fund............................................ 145,813 164,865 246,909 113,392 670,979 Equity Investment Fund................................... -- -- 92,699 63,439 156,138
Pursuant to sub-advisory agreements, the Adviser pays NYLIM as sub-adviser the following: 50% of the fee received by the Adviser from the High Yield Fund and 0.25% of the net asset value of the assets of the Equity Fund and Balanced Fund. The Trust has adopted a Distribution Plan (the "Plan") on behalf of the Class Z Shares of the Intermediate Fixed Income Fund, Fixed Income Fund, Balanced Fund, Equity Investment Fund and High Yield Fund and Class R2 shares of the Fixed Income Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940. The Plan provides that the applicable Fund will reimburse NYLIFE Distributors LLC, an affiliate of the Adviser, who serves as distributor to the Funds pursuant to an Underwriting Agreement, or a third party administrator for actual distributions and shareholder servicing expenses incurred, on an annual basis of 0.25% of each Fund's Class Z and 74 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Class R2 Shares average daily net assets. The High Yield Fund does not currently offer Class Z shares to the public nor has any Class Z shares currently outstanding. NOTE (G) TRANSFER AGENT: NYLIM Service Company LLC, an affiliate of the Adviser, serves as the Funds transfer agent. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services ("BFDS"), by which BFDS will perform certain of the services for which NYLIM Service Company LLC is responsible. Transfer agent expenses accrued for the six months ended December 31, 2005 for each Fund were as follows: Principal Preservation Fund $26,441; Intermediate Fixed Income Fund $28,851; Fixed Income Fund $27,007; High Yield Fund $2,504; Balanced Fund $33,434; and Equity Investment Fund $38,268. NOTE (H) ADMINISTRATOR: NYLIM serves as Administrator for the Funds. For providing administrative services to the Funds, NYLIM receives from each Fund a basic fee, computed daily and paid monthly. Administration fees accrued for the six months ended December 31, 2005 for each Fund were as follows: Principal Preservation Fund $38,680; Intermediate Fixed Income Fund $46,431; Fixed Income Fund $22,109; High Yield Fund $35,131; Balanced Fund $23,125; and Equity Investment Fund $48,214. The Fund pays the Administrator a monthly fee for accounting services provided. Fees for accounting services provided to the Funds by the Administrator for the six months ended December 31, 2005 were as follows: Principal Preservation Fund $24,620; Intermediate Fixed Income Fund $30,140; Fixed Income Fund $22,759; High Yield Fund $24,591; Balanced Fund $22,425 and Equity Investment Fund $30,451. Investors Bank & Trust Company, 200 Clarendon Street, P.O. Box 9130, Boston, Massachusetts, 02116 ("IBT") provides sub-administration and sub-accounting services to the Funds pursuant to an agreement with NYLIM. These services include calculating daily net asset values of the Funds, maintaining general ledger and sub-ledger accounts for the calculation of the Fund's respective net asset values, and assisting NYLIM in conducting various aspects of the Fund's administrative operations. For providing these services to the Funds, IBT is compensated by NYLIM. NOTE (I) TRUSTEES FEES: The non-interested Trustees of McMorgan Funds each receive a flat fee of $33,000 per year, plus reimbursement for all out-of-pocket expenses incurred for each meeting of the Board of Trustees they attend. The Chairman and lead non-interested Trustee receives a flat fee of $40,000 per year, plus reimbursement for all out-of-pocket expenses incurred for each meeting attended. No officer or employee of McMorgan & Company LLC receives any compensation from McMorgan Funds for acting as a Trustee of McMorgan Funds. The Statement of Additional Information ("SAI") includes additional information about the Trustees is available, without charge, upon request, by calling 1-800-788-9485. NOTE (J) PORTFOLIO SECURITIES LOANED: As of December 31, 2005, the following Portfolios had securities on loan and received collateral as follows:
MARKET VALUE OF PORTFOLIO SECURITIES ON LOAN CASH COLLATERAL - --------- ------------------ --------------- Intermediate Fixed Income Fund ......... $ 1,210,034 $ 1,237,500 High Yield Fund ........................ 11,380,098 11,669,292 Balanced Fund .......................... 2,633,708 2,723,136 Equity Investment Fund ................. 10,796,355 11,155,464
The cash collateral received for securities on loan was used to purchase highly liquid short-term investments. Securities purchased with collateral received are valued at amortized cost which approximates market value. NOTE (K) CAPITAL LOSS CARRYFORWARD AND POST OCTOBER LOSSES: As of June 30, 2005, the Funds had available for federal tax purposes unused capital loss carryforwards as follows:
EXPIRES IN 2012 TOTAL --------------- ----------- Balanced Fund ................................. $ 8,474,990 $ 8,474,990 Equity Investment Fund ........................ 28,589,829 28,589,829
75 NOTES TO FINANCIAL STATEMENTS (CONTINUED) As of June 30, 2005, the Funds had realized capital losses during the period November 1, 2004 through June 30, 2005, which are treated for federal income tax purposes as arising in the tax year ending June 30, 2006.
POST OCTOBER LOSS ----------------- Intermediate Fixed Income Fund ............................. $ 48,279 High Yield Fund ............................................ 184,379
NOTE (L) INDEMNIFICATIONS. In the normal course of business the Funds enter into contracts with third party service providers that contain a variety of representations and warranties and which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote; however, there can be no assurance that material liabilities related to such obligations will not arise in the future that could adversely impact the Funds. 76 MCMORGAN FUNDS -- TRUSTEES AND OFFICERS (UNAUDITED) The Trust's Board of Trustees has the ultimate responsibility of running the Funds. Information about the Trust's Trustees are provided below. Additional board member information is included in the SAI, which is available free of charge by calling 1-800-831-1994.
NUMBER OF PORTFOLIOS IN FUND TERM OF OFFICE PRINCIPAL COMPLEX NAME, ADDRESS POSITION(S) AND LENGTH OF OCCUPATION(S) OVERSEEN AND AGE HELD WITH FUND TIME SERVED(1) DURING PAST 5 YEARS BY TRUSTEE - ----------------------------------------------------------------------------------------------------------------------------- Kenneth I. Rosenblum Chairman and Since inception Independent 6 McMorgan & Company LLC Trustee Consultant One Bush Street San Francisco, CA 94104 64 - ----------------------------------------------------------------------------------------------------------------------------- Robert C. Daney, CPA Trustee Since 5/2004 Partner, Brach, 6 McMorgan & Company LLC Neal, Daney & One Bush Street Spence LLP San Francisco, CA 94104 (1981-Present) 56 - ----------------------------------------------------------------------------------------------------------------------------- Alan Lindquist Trustee Since 8/24/04 Retired; prior 6 McMorgan & Company LLC thereto, Partner, One Bush Street Thomas Harvey LLP San Francisco, CA 94104 60 - ----------------------------------------------------------------------------------------------------------------------------- Walter B. Rose Trustee Since inception President, Venture 6 McMorgan & Company LLC Consulting Corp. One Bush Street (1998 - Present); San Francisco, CA 94104 prior thereto, President, McBain, 60 Rose Partners - ----------------------------------------------------------------------------------------------------------------------------- Mark R. Taylor* President & Since 7/04 Executive Vice 6 McMorgan & Company LLC Trustee Since 8/04/04 President, One Bush Street McMorgan & San Francisco, CA 94104 Company LLC 46 - ----------------------------------------------------------------------------------------------------------------------------- Arphiela Arizmendi* Treasurer and Since 2005 Director and Manager 6 New York Life Investment Principal of Fund Accounting Management LLC Financial and Administration, 169 Lackawanna Avenue and Accounting New York Life Parsippany, NJ 07054 Officer Investment Management LLC (since March 2003); Treasurer and Principal Financial and Accounting Officer, Eclipse Funds Inc., Eclipse Funds, MainStay VP Series Fund, Inc. and MainStay Funds (since December 2005); Assistant Treasurer, The MainStay Funds, Eclipse Funds Inc., Eclipse Funds, MainStay VP Series Fund, Inc. and McMorgan Funds (1992 to December 2005). 49 - -----------------------------------------------------------------------------------------------------------------------------
OTHER NAME, ADDRESS DIRECTORSHIPS AND AGE HELD BY TRUSTEE - -------------------------------------------------------- Kenneth I. Rosenblum N/A McMorgan & Company LLC One Bush Street San Francisco, CA 94104 64 - -------------------------------------------------------- Robert C. Daney, CPA N/A McMorgan & Company LLC One Bush Street San Francisco, CA 94104 56 - -------------------------------------------------------- Alan Lindquist N/A McMorgan & Company LLC One Bush Street San Francisco, CA 94104 60 - -------------------------------------------------------- Walter B. Rose N/A McMorgan & Company LLC One Bush Street San Francisco, CA 94104 60 - -------------------------------------------------------- Mark R. Taylor* N/A McMorgan & Company LLC One Bush Street San Francisco, CA 94104 46 - -------------------------------------------------------- Arphiela Arizmendi* N/A New York Life Investment Management LLC 169 Lackawanna Avenue Parsippany, NJ 07054 49 - --------------------------------------------------------
- --------------- (1) Each Trustee and Officer serves for an indefinite term, until his resignation, death or removal. * An "interested person" as defined in the 1940 Act. 77 MCMORGAN FUNDS -- TRUSTEES AND OFFICERS (UNAUDITED)
NUMBER OF PORTFOLIOS IN FUND TERM OF OFFICE PRINCIPAL COMPLEX NAME, ADDRESS POSITION(S) AND LENGTH OF OCCUPATION(S) OVERSEEN AND AGE HELD WITH FUND TIME SERVED(1) DURING PAST 5 YEARS BY TRUSTEE - ----------------------------------------------------------------------------------------------------------------------------- Vincent J. Bencivenga Chief Compliance Since 8/23/04 Chief Compliance 6 McMorgan & Company LLC Officer Officer, One Bush Street McMorgan & San Francisco, CA 94104 Company LLC; prior thereto Principal, Compliance 54 Group West - ----------------------------------------------------------------------------------------------------------------------------- Robert A. Anselmi* Chief Legal Since 2005 Senior Managing 6 New York Life Investment Officer Director, General Management LLC Counsel, and Secretary, 51 Madison Avenue New York Life New York, NY 10010 Investment Management LLC (including predecessor advisory organizations); General Counsel and Secretary, New York Life Investment Management Holdings LLC; Senior Vice President, New York Life Insurance Company; Vice President and Secretary, McMorgan & Company LLC; Secretary, NYLIM Service Company LLC, NYLCAP Manager LLC, and Madison Capital Funding LLC; Chief Legal Officer, Eclipse Funds, Eclipse Funds Inc., MainStay VP Series Fund, Inc., and 59 McMorgan Funds. - ----------------------------------------------------------------------------------------------------------------------------- Teresa Matzelle Vice President & Since 8/23/04 Vice President, 6 McMorgan & Company Secretary McMorgan & One Bush Street Company LLC San Francisco, CA 94104 53 - -----------------------------------------------------------------------------------------------------------------------------
OTHER NAME, ADDRESS DIRECTORSHIPS AND AGE HELD BY TRUSTEE - -------------------------------------------------------- Vincent J. Bencivenga N/A McMorgan & Company LLC One Bush Street San Francisco, CA 94104 54 - -------------------------------------------------------- Robert A. Anselmi* N/A New York Life Investment Management LLC 51 Madison Avenue New York, NY 10010 59 - -------------------------------------------------------- Teresa Matzelle N/A McMorgan & Company One Bush Street San Francisco, CA 94104 53 - --------------------------------------------------------
- --------------- (1) Each Trustee and Officer serves for an indefinite term, until his resignation, death or removal. * An "interested person" as defined in the 1940 Act. 78 MCMORGAN FUNDS -- PROXY VOTING GUIDELINES (UNAUDITED) McMorgan & Company LLC, the investment adviser of McMorgan Funds ("Funds"), votes all proxies in the Funds. A description of the policies and procedures that McMorgan & Company LLC uses to determine how to vote proxies and how McMorgan & Company LLC voted proxies during the most recent 6-month period ended December 31 is available (without charge) upon request by calling 1-800-831-1994 or visiting the McMorgan Funds website (www.McMorganFunds.com), or by visiting the SEC's website (www.sec.gov). MCMORGAN FUNDS -- SCHEDULE OF INVESTMENTS The Funds file their complete schedule of investments with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's web site at http://www.sec.gov, or they may be reviewed and copied at the SEC's Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room). 79 ----------------------------------------------- McMorgan Funds -------------------------- STRAIGHT FORWARD INVESTING -------------------------- ESTD (1994) ----------------------------------------------- BOARD OF TRUSTEES Robert C. Daney Alan C. Lindquist Walter B. Rose Kenneth I. Rosenblum Mark R. Taylor OFFICERS Mark R. Taylor, President and Principal Executive Officer Arphiela Arizmendi, Treasurer and Principal Financial Officer Vincent J. Bencivenga, Chief Compliance Officer Robert A. Anselmi, Chief Legal Officer Teresa Matzelle, Vice President and Secretary INVESTMENT ADVISOR McMorgan & Company LLC One Bush Street, Suite 800 San Francisco, CA 94104 CUSTODIAN Investors Bank & Trust Company 200 Claredon Street P.O. Box 9130 Boston, MA 02117 UNDERWRITER NYLIFE Distributors LLC 169 Lackawanna Avenue Parsippany, NJ 07054 LEGAL COUNSEL Sutherland Asbill & Brennan, LLP 1275 Pennsylvania Avenue, N.W. Washington, DC 20004 SHAREHOLDER SERVICES NYLIM Service Company LLC 169 Lackawanna Avenue Parsippany, NJ 07054 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Tait, Weller & Baker LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103 For Additional Information about McMorgan Funds call: (800) 831-1994 (7AM TO 5PM PST) This report is submitted for general information of the shareholders of the Funds. It is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus which includes details regarding the Funds' objectives, policies, expenses and other information. ITEM 2. CODE OF ETHICS. Registrant has adopted a code of ethics (the "Code") that applies to Registrant's principal executive office ("PEO") and principal financial officer ("PFO"). There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO and PFO during the period covered by this report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees has determined that the registrant has at least one "audit committee" financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The Audit Committee financial expert is Robert C. Daney. Mr. Daney is "independent" within the meaning of that term used in Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS Please see schedule of investments contained in the Report to Stockholders included under Item 1 of this Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Nominating and Governance Committee selects and nominates candidates for membership on the Board as independent trustees. Currently, there is no procedure for shareholders to recommend candidates to serve on the Board. -3- ITEM 11. CONTROLS AND PROCEDURES. (a) Based on an evaluation of the Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, the "Disclosure Controls") as of a date within 90 days prior to the filing date (the "Filing Date") of this Form N-CSR (the "Report"), the principal executive officer and principal financial officer have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Registrant in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Registrant's management, including the Registrant's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's last fiscal year that have materially affected or are reasonably likely to materially affect the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. -------- (a)(1) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940 are furnished as exhibits to this filing. (a)(2) Certifications of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002 are furnished as exhibits to this filing. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MCMORGAN FUNDS. By: /s/ Mark R. Taylor -------------------- MARK R. TAYLOR PRESIDENT Date: March 2, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Mark R. Taylor -------------------- MARK R. TAYLOR PRESIDENT Date: March 2, 2006 By: /s/ Arphiela Arizmendi -------------------- ARPHIELA ARIZMENDI TREASURER PRINCIPAL FINANCIAL OFFICER Date: March 2, 2006 -4- EXHIBIT INDEX (a)(1) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940. (a)(2) Certification of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. -5- Exhibit (a)(1) SECTION 302 CERTIFICATIONS I, Mark R. Taylor, President of McMorgan Funds, certify that: 1. I have reviewed this report on Form N-CSR of McMorgan Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Mark R. Taylor ---------------------- Mark R. Taylor President Date: March 2, 2006 SECTION 302 CERTIFICATIONS I, Arphiela Arizmendi, Principal Financial Officer of McMorgan Funds, certify that: 1. I have reviewed this report on Form N-CSR of McMorgan Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Arphiela Arizmendi --------------------------- Arphiela Arizmendi Principal Financial Officer Date: March 2, 2006 Exhibit (a)(2) SECTION 906 CERTIFICATIONS In connection with this report on Form N-CSR for the Registrant as furnished to the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/ Mark R. Taylor --------------------------- Mark R. Taylor President Date: March 2, 2006 By: /s/ Arphiela Arizmendi --------------------------- Arphiela Arizmendi Principal Financial Officer Date: March 2, 2006 [A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.] -----END PRIVACY-ENHANCED MESSAGE-----