UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the Fiscal Year Ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ________ to ________.

Commission File Number: 0-8678

McM Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

North Carolina 56-1171691
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

Box 12317, 702 Oberlin Road, Raleigh, North Carolina 27605
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(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code (919) 833-1600

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value - $1.00 per share
-----------------------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety (90) days.

Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [X]

State the aggregate market value of the voting stock held
by non-affiliates of the registrant as of March 16, 1998.
----------------------------------------------------------
Common Stock, $1.00 par value -- $2,217,857

At December 31, 1997, 4,695,621 shares of common stock of the registrant were
outstanding.

Documents Incorporated by Reference

Portions of the annual report to shareholders for the year ended December 31,
1997, are incorporated by reference into Parts I, II and IV.

Portions of the annual proxy statement for the year ended December 31, 1997, are
incorporated by reference into Part III.

PART I

Item 1. Business

McM Corporation ("McM" or the "Company") is an insurance holding
company conducting its business through insurance and non-insurance
subsidiaries. The following schedule identifies the subsidiaries of McM and the
abbreviations by which they are identified in this document.

Subsidiary Abbreviation
---------- ------------

PROPERTY AND CASUALTY

Occidental Fire & Casualty Company
of North Carolina OF&C
Wilshire Insurance Company Wilshire

OTHER:

Equity Holdings, Inc. Equity Holdings

In connection with and because it desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, McM would like to caution readers regarding certain forward-looking
statements in the following discussion and elsewhere in this Form 10-K. While
McM believes in the veracity of all statements made herein, forward-looking
statements are necessarily based upon a number of estimates and assumptions
that, while considered reasonable by McM are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond McM's control, and many of which, with respect to future
business decisions, are subject to change. These uncertainties and contingencies
can affect actual results and could cause its actual results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of McM. The forward looking statements are especially difficult for lines
of business that are longer tail in nature such as the Company's commercial
automobile liability line of business which is inherently subject to
considerable variability and volatility.

Item 1. (a) General Development of the Business

McM was organized as a North Carolina corporation on May 27, 1977, and
subsequently acquired or organized a number of insurance corporations and other
subsidiaries. From 1977 to 1991, McM operated as a multi-line holding company
with both life and health and property and casualty insurance operations.

The McMillen Trust, controlling shareholder of McM, currently owns
65.8% of the outstanding stock of McM. A petition was filed on behalf of the
McMillen Trust in the Chancery Court of Delaware on December 2, 1986, seeking
relief from the requirement that the Trust own at least

65% of the shares of McM. The Court, on December 10, 1987, determined that the
Trust must divest itself of its ownership of the shares of McM and invest the
proceeds in a diversified portfolio for the benefit of present and future
beneficiaries of the Trust. The Board of Directors of McM and the Trust believed
that the interests of all shareholders would be best served by a coordinated
sales process by which potential purchasers could be qualified and due diligence
reviews scheduled with minimal disruption to ongoing operations.

In 1991, McM decided to discontinue its life and health insurance
segment. On October 24, 1991, Occidental Life Insurance Company and Peninsular
Life Insurance Company were sold to Pennsylvania Life Insurance Company. On June
22, 1992, Atlantic Southern Insurance Company was sold to Global Life Assurance
Company Limited. The sale of Atlantic Southern Insurance Company completed the
disposition of the Company's life and health segment.

In January 1993, McM's Board of Directors announced that it had decided
to discontinue efforts to sell the remaining companies in the McM group,
including OF&C and Wilshire. The Board's decision was prompted by market and
economic conditions as well as other factors which had an adverse effect on the
general sale process being conducted by PaineWebber, Incorporated
("PaineWebber"). However, PaineWebber has continued to serve the McM group as
its financial advisor.

In April 1993, the Chancery Court granted the petition of the
Wilmington Trust Company, Trustee of the McMillen Trust, for a clarification of
existing orders to make clear, among other things, that the timing and terms of
any disposition of the Trust's shares shall be determined in the sound
discretion of the Trustee.

On February 3, 1997, McM received a copy of an SEC Form 3 filing made
by McM Acquisition Corporation ("MAC"), controlled by local real estate
developer and private investor M. Roland Britt, and by Mr. Britt himself. The
Form 3 indicated that MAC had acquired an option to purchase all of the McM
shares owned by the Trust for $6.20 per share exercisable until March 1, 1998.

The next day, February 4, 1997, McM received a copy of an SEC Schedule
13D filed by MAC and Mr. Britt. This Schedule 13D provided further information
in connection with the option. Attached to the Schedule 13D were written
agreements dated November 22, 1996, and January 24, 1997, between the Trust and
MAC relating to the option and to a possible merger between McM and MAC. Also
attached was a copy of an agreement entered into between McM and MAC on January
31, 1997, in a separate, independent action wherein McM agreed to provide MAC
with confidential access to the Company's records and information to enable MAC
to conduct due diligence reviews and pursue appropriate financial arrangements
for a possible acquisition of all of McM's shares. This agreement, which was to
expire May 31, 1997, also granted to MAC an exclusive period during which McM
would continue its policy in effect at

that time of not soliciting acquisition offers. In May 1997, the Board agreed to
extend the period covered by the agreement until September 28, 1997, at which
time it expired.

On September 22, 1997, a suit purporting to be a shareholder's
derivative action was brought against the Company, its directors, the McMillen
Trust and Wilmington Trust Company as Trustee of the McMillen Trust. MAC was
also named as a defendant.

The suit was filed in the Guilford County Superior Court by two
shareholders of McM on behalf of all McM shareholders except for the McMillen
Trust. The suit complained, among other allegations, that because the Trust owns
approximately two-thirds of the shares of the corporation, it effectively
exercised control of the corporation. It challenged the composition of the McM
Board of Directors and the actions of the Board as being controlled by the
majority shareholder. The complaint asked that the Court void the action of the
Trustee in connection with the McMillen Trust's grant of the option to sell its
shares to MAC. The suit also complained that the corporation had inappropriately
allowed MAC an exclusive due diligence period which expired by its terms on
September 28, 1997.

On December 23, 1997, the Superior Court approved an agreement to
terminate MAC's option and related agreements between the Trust and MAC (the
"Release"). The Release was signed by all parties to the pending litigation and
contained a mutual release between the remaining parties and MAC of any claims
which could have arisen from the option and related agreements and dismissed MAC
as a defendant in the litigation.

On February 20, 1998, the Superior Court approved a settlement of the
litigation. The settlement agreement, executed by all parties to the litigation,
provides that the Company, the current directors, the McMillen Trust and
Wilmington Trust Company will use their best efforts to nominate and elect Mr.
Jesse Greenfield to the McM Board of Directors at McM's 1998 annual
shareholders' meeting. The settlement agreement also contains provisions for
nominal monetary concessions by the Plaintiffs and the Company and mutual
releases between all parties.

In connection with McM Corporation's continuing efforts to consider all
strategies and alternatives available to maximize shareholder value, the
Company has authorized PaineWebber to explore all reasonable methods to increase
the capital position of McM, including a possible sale of the Company.

There were 147 employees of McM and its subsidiaries at December 31,
1997, all of which are directly employed by the property and casualty
subsidiaries.

Item 1. (b) Financial Information About Industry Segments

As a result of discontinuing its life and health insurance segment,

McM, through its subsidiaries, is engaged only in the marketing and underwriting
of property and casualty insurance. Information concerning industry segments,
therefore, is no longer applicable.

Item 1. (c) Narrative Description of Business

PROPERTY AND CASUALTY INSURANCE

McM's property and casualty insurance business is conducted through two
insurance companies, OF&C and Wilshire. The business is concentrated in
liability, physical damage and cargo coverages for the trucking transportation
industry as well as non-standard private passenger automobile coverages. These
insurance policies are generally marketed through general and independent agents
who have no authority to alter any terms of the policies.

The agents who produce business for OF&C and Wilshire are not exclusive
agents of the companies and generally have affiliations with other insurance
companies which may compete with McM. One agent accounts for approximately 16%
of premium income of the property and casualty business of McM.

OF&C is licensed in the District of Columbia and all states other than
Connecticut and Hawaii. Certain states have placed restrictions on the amount of
premium that OF&C may write in those states. Wilshire is licensed in nineteen
states comprised of Arizona, California, Colorado, Hawaii, Idaho, Iowa, Kansas,
Minnesota, Montana, Nebraska, Nevada, New Mexico, North Carolina, Ohio, Oregon,
South Dakota, Utah, Washington and Wisconsin. Wilshire is also approved, as a
non-admitted carrier, to write coverages in the states of Alabama, Alaska,
Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, North
Dakota, Oklahoma, Pennsylvania, Texas and Wyoming. A non-admitted carrier may
write coverages at rates in excess of the rates approved by the various states,
provided that licensed carriers in those states are unwilling to provide
coverages at the approved rates. Wilshire's premium writings are not restricted
by any state. Also see "Geographic Distribution of Premiums Received."

Competition. The property and casualty insurance business is highly competitive.
In most jurisdictions in which McM's property and casualty insurance
subsidiaries market their policies, there are numerous large standard lines
stock and mutual companies as well as other specialty companies competing for
the same business. Many of the companies have greater financial resources,
larger marketing organizations and broader diversification of risks than the McM
companies however, McM believes that the policies, rates, commissions and
services of its companies are competitive with other companies writing these
types of business.

Regulation. All insurance companies are subject to regulation and
supervision by the jurisdictions in which the companies are authorized
to transact business. These regulatory bodies have broad administrative

powers relating to the standards of solvency which must be met and maintained by
insurance companies, minimum capital and surplus requirements, limitations on
the investments of capital and surplus, granting and revoking of licenses,
licensing of agents, filing and approval of policy forms and rates, maintenance
of required reserves, unfair discrimination, form and content of financial
statements and other reporting forms, issuance and sale of stock, types of
allowable investments, and numerous other matters pertaining to insurance.

Insurance companies must keep assets equal to the minimum capital
required by law plus the accumulated reserves invested in certain classes of
investments as specified in the statutes applicable to such companies. In
addition, the National Association of Insurance Commissioners ("NAIC") has
adopted Risk-Based Capital ("RBC") requirements for property and casualty
insurance companies. RBC was developed to evaluate the adequacy of statutory
capital and surplus in relation to investment and insurance risks. The RBC
formula serves as an early warning tool for state insurance regulators to help
identify, for the purpose of initiating regulatory action, companies which may
be inadequately capitalized.

OF&C, as a result of the need to significantly strengthen reserve
adequacy of the property and casualty companies during 1997, triggered the first
RBC regulatory action threshold defined as Company Action Level RBC ("CAL").
Triggering the CAL threshold requires that an insurer prepare and submit to its
domiciliary state a comprehensive financial plan. Among other items, the plan
should identify the conditions in the insurer that contributed to the CAL event
and contain proposals for corrective actions that the insurer intends to take
that are expected to result in the elimination of the company action level
event. The Company has identified specific areas of its business contributing to
the decline in profitability and statutory capital and surplus and has
implemented remedial steps designed to improve the overall profitability of
property and casualty operations and eliminate the RBC deficiency.

OF&C, working within the framework of RBC guidelines, will submit its
plan of action to the state of North Carolina in the near future and believes
that its indicated RBC deficiency will be corrected through this plan. The
capital and surplus for Wilshire is well in excess of any regulatory action
thresholds defined by the NAIC.

The reporting practices for McM's property and casualty subsidiaries
are prescribed or permitted by state regulatory authorities ("statutory
accounting") and may differ from generally accepted accounting principles
("GAAP"). OF&C (which includes Wilshire on a statutory equity basis) reported to
insurance regulatory authorities combined statutory capital and surplus of $11.5
million and $18.2 million at December 31, 1997 and 1996, respectively. Combined
capital and surplus on a GAAP basis was $15.5 million and $23.6 million at
December 31, 1997 and 1996, respectively.

There are two major reconciling differences between the statutory
accounting and GAAP capital and surplus balances of McM's property and casualty
subsidiaries. In GAAP accounting, costs which vary with and are primarily
related to the production of property and casualty business are deferred to the
extent recoverable and are amortized over the lives of the policies in
proportion to the recognition of premium earned. Statutory accounting does not
permit this deferral and requires property and casualty companies to fully
recognize these expenses in the period they were incurred. At December 31, 1997,
McM's property and casualty subsidiaries recorded $2.8 million in deferred
policy acquisition costs as an asset on the GAAP balance sheet compared to $4.0
million at December 31, 1996. Statutory accounting also requires property and
casualty companies to record as a liability and restriction to capital and
surplus the uncollateralized portion of balances receivable from non-admitted
reinsurers ("Schedule F Penalty"). The combined Schedule F Penalty recorded by
McM's property and casualty subsidiaries totalled $261,200 and $269,000 at
December 31, 1997 and 1996, respectively.

Insurance holding company laws grant additional powers to insurance
regulators with respect to acquisitions and control of insurance companies by
holding companies and the requirements of disclosure relating to transactions
with affiliated companies.

Each company files a detailed annual report with the insurance
department of each state or governmental jurisdiction in which it is licensed to
do business. Insurance companies are also subject to periodic examinations by
these regulatory bodies. Some of the jurisdictions in which OF&C is licensed to
do business have, for various reasons, instituted restrictions or limitations on
the amount of business written in that state. These restrictions were imposed
years ago when the property and casualty companies were generating substantial
losses and experiencing financial difficulties. Generally they involved states
in which the Company was not actively writing business nor had intentions to
write business. These restrictions have no current effect on liquidity, capital
resources or results of operations. In the future, should the Company desire to
further expand its market presence into any state with such restrictions, it
will then pursue the lifting of such restrictions by providing current financial
and operational information as required by individual state regulatory
authorities.

Reinsurance As with other property and casualty insurance companies, the McM
property and casualty insurance companies reinsure a portion of the insurance
they write in order to control their exposure on large individual risks or in
the event of catastrophic losses. The companies remain contingently liable on
that portion of the risk reinsured should the reinsurer be unable to meet its
obligations under the reinsurance agreements. See Note C of the Notes to
Consolidated Financial Statements.

The largest liability exposure insured for any one risk is

$2,000,000. Reinsurance is in place to reduce the companies' exposure on
premiums earned subsequent to January 1992, to $100,000 of loss per risk. The
retention per risk on premiums earned prior to January 1, 1992, generally is
$100,000 with the exception of 1991 when the loss retention was $250,000.
Premiums payable under certain of the companies' liability reinsurance treaties
prior to January 1, 1990, are based in part on actual loss experience. Premiums
for the liability treaties subsequent to 1990 are calculated on a flat rate
based on policy limits. Separate physical damage (excluding theft and collision)
and motor cargo catastrophe reinsurance treaties provide reinsurance on any one
catastrophic occurrence. Coverages under these treaties are limited to a maximum
of 95% of $4,000,000 in excess of the first $500,000 of losses paid.

Quota share reinsurance coverages, by which the companies and their
reinsurers share risk on a proportionate basis, are also in place for both
commercial and private passenger automobile business. The companies cede 5% of
the retained commercial auto liability coverages. Prior to 1996, private
passenger automobile business was ceded at a rate of 40%, however, the cession
rate was reduced to 30% in 1996 and 20% in 1997. These quota share arrangements
allow the companies to better control premium growth.

The principal reinsurers of the companies for current business are
Zurich Reinsurance, Ltd., Unionamerica Insurance Company, CNA International
Reinsurance Company, Ltd., Murray Lawrence & Partners Underwriters, AXA
Reassurance Company and Sphere Drake Insurance. Reinsurance agreements cover
commercial and private passenger automobile liability, physical damage
(excluding theft and collision), motor cargo and ancillary coverages. In
addition to the reinsurers named above, principal reinsurers of the companies
for prior years' reinsurance treaties are Employers Reinsurance Corporation,
National Reinsurance Company and Reinsurance Corporation of New York.

Loss Reserves and Loss Adjustment Expenses

The consolidated financial statements include the estimated liability
for unpaid losses and loss adjustment expenses ("LAE") of the property and
casualty insurance subsidiaries. The liabilities for losses and LAE are
determined using case basis evaluations and statistical projections and
represent estimates of the ultimate net cost of all unpaid losses and LAE
incurred through December 31 of each year. These estimates give effect to trends
in claims severity and other factors which may vary as the liabilities are
ultimately settled. The estimates are continually reviewed and as adjustments to
these liabilities become necessary such adjustments are reflected in current
operations.

The following table provides a reconciliation of beginning and ending
liability balances for 1997, 1996 and 1995.

Reconciliation of Net Liability for Losses
and Loss Adjustment Expenses

1997 1996 1995
---- ---- ----
(Thousands of dollars)

GAAP
Reserves for losses and
settlement expenses, net of
reinsurance recoverables, at
beginning of year $26,532 $29,997 $ 38,415

Provision for insured events of
the current year 42,243 37,651 31,282

Increase (decrease)in provision
for insured events of prior
years 5,774 1,559 (248)
------- ------- -------
Incurred losses and settlement
expenses during current year,
net of reinsurance 48,017 39,210 31,034

Payments for:
Losses and settlement expenses
attributable to insured event of
the current year 26,123 22,853 18,113

Losses and settlement expenses
attributable to insured events
of prior years 19,267 19,822 21,339
------- ------- -------
45,390 42,675 39,452
------- ------- -------
Reserves for losses and settlement
expenses, net of reinsurance
recoverables, at end of year 29,159 26,532 29,997

Reinsurance recoverable on unpaid
losses and settlement expenses
at end of current year 28,124 28,768 36,155
------- ------- -------

Gross reserves for losses and
settlement expenses at end
of year $57,283 $55,300 $ 66,152
======= ======= ========

The reconciliation above reflects the emergence of a $5,774,000
deficiency in the December 31, 1996, reserve during 1997. This deficiency
included adverse reserve development of approximately $844,000 in private
passenger auto liability reserves, $813,000 in private passenger auto and
commercial auto physical damage and inland marine reserves, and $3,531,000
relating to the commercial auto liability line of business. In addition,
approximately $586,000 of this

deficiency relates to discontinued lines of business and participation in
involuntary pools and other residual market mechanisms in which OF&C and
Wilshire are required to participate by the various states in which the
companies write insurance. The increase in overall reserve levels for 1997
resulted from prior year reserve deficiencies, particularly for the 1995 and
1996 accident years and increased claim costs in the current underwriting year
for commercial and private passenger automobile physical damage coverages.

The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and settlement expenses. While anticipated
cost increases due to inflation are considered in estimating the ultimate claim
costs, the increase in average severity of claims is caused by a number of
factors that vary with the individual type of policy written. Future average
severity is projected based on historical trends adjusted for anticipated
changes in these trends and general economic conditions. These anticipated
trends are monitored based on actual development and are modified as necessary.

The liability for losses and LAE of $57,283,000 reported in the
accompanying financial statements in accordance with generally accepted
accounting principles (GAAP) is reported on a gross basis, i.e., without
reduction for reinsurance, and differs from that reported in the annual
statements filed with state insurance departments in accordance with statutory
accounting practices (SAP), which are reported net of reinsurance. See Note A of
the accompanying 1997 financial statements.

THIS SPACE LEFT BLANK INTENTIONALLY

ANALYSIS OF LOSS AND LOSS ADJUSTMENT
EXPENSE DEVELOPMENT
NET OF REINSURANCE WITH SUPPLEMENTAL GROSS DATA

(Thousands of dollars)

YEAR ENDED 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------- -------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------

Liability for Unpaid
Claims and Claim
Adjustment Expense $103,115 $96,308 $78,120 $64,002 $64,304 $59,580 $51,625 $38,415 $29,997 $26,532 $29,159

Paid (Cumulative) as of:

One year later $45,676 $48,461 $42,731 $41,726 $29,635 $28,500 $27,034 $21,338 $19,822 $19,267 $0
Two years later 75,454 72,353 63,893 47,833 44,905 44,659 39,119 31,096 $28,469
Three years later 90,546 84,912 67,649 56,343 54,980 51,326 44,649 35,177
Four years later 99,200 87,368 72,305 61,006 58,364 54,561 46,668
Five years later 101,072 90,495 75,568 62,341 60,459 55,699
Six years later 103,242 93,146 76,350 63,728 61,215
Seven years later 105,555 93,769 77,562 64,459
Eight years later 105,791 94,930 78,084
Nine years later 106,916 95,451
Ten years later 107,423

Liability Reestimated as of:

One year later $108,844 $97,562 $77,625 $68,679 $64,175 $60,849 $51,643 $38,167 $31,556 $32,306 $0
Two years later 109,955 95,362 78,970 66,266 64,686 59,881 50,184 $38,060 34,207
Three years later 108,203 96,354 79,861 67,429 64,167 58,563 49,874 $38,966
Four years later 109,058 96,874 80,345 67,540 63,204 58,713 50,131
Five years later 109,164 97,453 80,695 66,357 63,939 59,138
Six years later 109,198 97,619 79,909 67,115 64,278
Seven years later 109,415 97,251 80,698 67,465
Eight years later 109,226 98,054 81,067
Nine years later 110,008 98,428
Ten years later 110,394
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------

Cumulative Deficiency
(Redundancy) $7,279 $2,120 $2,947 $3,463 ($26) ($442) ($1,494) $551 $4,210 $5,774 $0
======== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Gross Data at End of Year
Gross Liability $55,300 $57,283
Reinsurance Recoverable 28,768 28,124
------- -------
Net Liability $26,532 $29,159
======= =======

The table above presents the development of balance sheet liabilities
for 1987 through 1997. The top line of the table shows the estimated liability
for unpaid losses and LAE recorded at the balance sheet date for each of the
indicated years. This liability represents the estimated amount of losses and
LAE for claims arising in all prior years that are unpaid at the balance sheet
date, including losses that had been incurred but not yet reported to the
Company. The lower portion of the table shows the re-estimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for individual years.

The deficiency/(redundancy) totals as set forth in the table represent
the aggregate change in the estimates over all prior years. For example, through
1997, the 1988 liability has developed a $2,120,000 deficiency which has been
recognized in operations over the nine year period. The effects on income of the
past three years of changes in estimates of the liabilities for losses and LAE
is shown in the preceding table, "Reconciliation of Net Liability for Losses and
Loss Adjustment Expenses".

The upper section of the table, "Analysis of Loss and Loss Adjustment
Expense Development", shows the cumulative amount paid with respect to the
previously recorded liability as of the end of each succeeding year. For
example, as of December 31, 1997, the Company paid $107,423,000 of the current
re-estimated reserve for losses and loss adjustment expenses at December 31,
1987, of $110,394,000. Thus an estimated $2,971,000 of losses incurred through
1987 remain unpaid as of the current financial statement date.

In evaluating this information, it should be noted that each amount
includes the effects of all changes in amounts for prior periods. For example,
the amount of the deficiency related to losses settled in 1989, but incurred in
1987, will be included in cumulative redundancy (deficiency) amount for years
1987 and 1988. This table does not present accident or policy year development
data. Conditions and trends that have affected development of the liability in
the past may not necessarily occur in the future. In addition, the Company has
entered into numerous reinsurance commutations and assumption transactions, as
discussed below, which are included in the information presented. Accordingly,
it may not be appropriate to extrapolate future deficiencies or redundancies
based on this table.

On March 5, 1987, the Company entered into a commutation agreement with
Omaha Indemnity Company (OIC), a subsidiary of Mutual of Omaha, whereby OIC
remitted $26 million of cash to the Company in satisfaction of all liabilities
due under various reinsurance treaties. Of this amount, $5.5 million reimbursed
existing paid loss recoverables leaving $20.5 million available to cover future
loss payments on the commuted

block of reserves. Based on a review of the commuted reserves by the Company's
actuary and by an independent actuarial consulting firm, the projected ultimate
value of commuted reserves and paid loss recoverables exceeded the commutation
proceeds by $5.5 million. This transaction was recorded in the 1986 consolidated
financial statements. Remaining loss and loss adjustment expense reserves
related to this block of business at December 31, 1997, are not material.

During 1985 McM entered into a commutation agreement with Universal
Reinsurance Corporation and Northwestern National Insurance Company, whereby
they remitted $15.5 million of cash to McM's property and casualty subsidiaries
in satisfaction of all liabilities due under the various reinsurance treaties.
This cash settlement was supplemented by $1 million in development recorded
during 1986. An additional $1.7 million in development was recorded during 1987.
The Company has experienced no significant development on this business since
1987 and remaining loss and loss adjustment expense reserves at December 31,
1997, are not material.

Additionally, the Company experienced adverse development of $1.2
million during 1987 on reserves commuted with several other reinsurers. No
significant development has been experienced on these reserves since 1987.

Effective December 31, 1985, OF&C assumed the liabilities on business
previously written by Peninsular Fire Insurance Company ("PFICO"), a former
subsidiary of McM. The coverages, which were primarily workers' compensation and
commercial multi-peril, are being run off and no new coverages have been
underwritten. Adverse development on the PFICO reserves was $2.5 million in
1985, $3.1 million in 1986, $3.9 million in 1987, and $3.1 million in 1988.
Development since 1988 has not been material.

The information below the table is a reconciliation of the data in the
table, which is reported net of reinsurance, to the reserves in the balance
sheet which are stated gross of reinsurance.

Geographic Distribution of Direct Written Premiums

The following is a summary of property and casualty direct written
premiums written in 1997 by geographic location. States accounting for less than
five percent (5%) of premiums are combined in "Other".

STATE PERCENT
----- -------

California 32
Florida 11
Nevada 14
Other 43
---
100%

Item 1. (d) Financial Information About Foreign and Domestic Operations
and Export Sales

The information called for under this item does not apply.

Item 2. Properties

McM ant its subsidiaries lease home office properties in various
locations. The major locations are set forth in the following table:

Square Book Annual
Footage Value Rent
------- ----- ------

Raleigh, North Carolina
OF&C 27,298 Not Owned $462,101
Wilshire
McM

Lancaster, California
Wilshire 10,578 Not Owned $121,924

Scottsdale, Arizona
OF&C 7,193 Not Owned $131,277
Wilshire

Item 3. Legal Proceedings

On September 22, 1997, an action denominated as a shareholders'
derivative action was brought against McM, the McMillen Trust, the Trustee of
the McMillen Trust, McM's directors and McM Acquisition Corporation. This action
settled on February 20, 1998. For more detailed information regarding this
action, see Item 1(a).

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during
the fourth quarter of 1997.

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters

The market information and related stockholder matters are incorporated
by reference from the Annual Report to Shareholders for the year ended December
31, 1997. This information is included in the Annual Report to Shareholders and
is on page 31 of this report.

Item 6. Selected Financial Data

The selected financial data is incorporated by reference from the
Annual Report to Shareholders for the year ended December 31, 1997. See page 31
of this report.

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Management's discussion is incorporated by reference from the Annual
Report to Shareholders for the year ended December 31, 1997. See pages 37
through 45 of this report.

Item 8. Financial Statements and Supplementary Data

The consolidated financial statements of McM Corporation and
subsidiaries and the report of independent auditors filed in response to Item 8
are incorporated by reference from the Annual Report to Shareholders beginning
on page 46 of this report.

A summary of the quarterly results of operations for the years ended
December 31, 1997, and December 31, 1996, is incorporated by reference from the
Annual Report to Shareholders on page 70 of this report.

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

The information called for under this item does not apply

PART III

Item 10. Directors and Executive Officers of the Registrant

The information called for is incorporated by reference and will be
filed with the Commission with the definitive proxy statement within the
required 120-day period.

Item 11. Executive Compensation

The information called for is incorporated by reference and will be
filed with the Commission with the definitive proxy statement within the
required 120-day period.

Item 12. Security Ownership of Certain Beneficial Owners and
Management

The information called for is incorporated by reference and will be
filed with the Commission with the definitive proxy statement within the
required 120-day period.

Item 13. Certain Relationships and Related Transactions

The information called for is incorporated by reference and will be
filed with the Commission with the definitive proxy statement within the
required 120-day period.

THIS SPACE LEFT BLANK INTENTIONALLY

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
Page
----

(a) The following documents are filed as a part of this report.

1. Financial Statements--The financial statements required by this item
are incorporated by reference from the Annual Report to Shareholders.
The following consolidated financial statements of McM and subsidiaries
are filed in response to Item 8:

Consolidated Balance Sheets - December 31, 1997 46
and 1996.

Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996 and 1995. 47

Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997, 1996 and 1995. 48

Consolidated Statements of Cash Flows -
Years Ended December 31, 1997, 1996 and 1995. 49

Notes to Consolidated Financial Statements 50

Report of Independent Auditors 69

2. Financial Statement Schedules--The following schedules are filed in
accordance with the requirements of Article 7 of Regulation S-X:

Schedule 1 - Summary of Investments - Other than 21
Investments in Related Parties (In
compliance with Schedule I of Rule
7-05):

Schedule 2 - Condensed Financial Information of 22
Registrant (In compliance with
Schedule II of Rule 7-05):

Schedule 3 - Reinsurance (In compliance with 26
Schedule IV of Rule 7-05):

Page

Schedule 4 - Valuation and Qualifying Accounts 27
(In compliance with Schedule V of
Rule 7-05):

Schedule 5 - Supplemental Information for Property 28
& Casualty Insurance Underwriters (In
compliance with Schedule VI of Rule
7-05):

All other schedules to the consolidated
financial statements required by Article
5 or 7 of Regulation S-X are not
applicable and, therefore, have been
omitted.

3. The following exhibits are included in accordance with the
requirements of Item 601 of Regulation S-K.

Exhibit (3): Articles of Incorporation and the By-laws of McM
Corporation are incorporated by reference from Form 10-K, dated
December 31, 1995.

Exhibit (9): McMillen Trust Agreement is incorporated by reference
from Form 10, dated April 24, 1978.

Exhibit (10): Material contracts:
a) The 1986 Stock Option Plan (as amended) is
incorporated by reference from the December 31, 1994,
Form 10-K. The 1996 Stock Option Plan is incorporated by
reference from the 1996 Proxy Statement.

b) The Phantom Stock Plan is incorporated by reference from
the December 31, 1994, Form 10-K. The first amendment to
this plan dated August 6, 1996, is incorporated by
reference from the December 31, 1996, Form 10-K.

c) Employment and retention bonus contracts for certain
executive officers are incorporated by reference from
the December 31, 1989, 1992, 1993, 1994 and 1996
Forms 10-K.

d) The Key Executive Incentive Compensation Plan is

incorporated by reference from the December 31,
1994 Form 10-K.

e) The Equity Appreciation Rights Plan is incorporated by
reference from the 1993 Proxy Statement.

f) The 1996 Employee Stock Purchase Plan is incorporated by
reference from the 1996 Proxy Statement.

g) The 1996 Non-Employee Directors' Stock Purchase Plan is
incorporated by reference from to 1996 Proxy Statement

Page

Exhibit (13): Annual Report to Shareholders for 29
year ended December 31, 1997.

Exhibit (22): Subsidiaries of the Registrant. 73

Exhibit (23): Consent of Independent Auditors 74

Exhibit (27): Financial Data Schedule (for SEC
use only)

(b) The Company reported on Form 8-K dated October 3, 1997, the filing of
an action denominated as a shareholders' derivative action against the
Company, its majority shareholder, the Trustee of the majority
shareholder McM's directors and McM Acquisition Corporation. Reference
is hereby made to Part I, Item 1 (a) of this Form 10-K for more
detailed information concerning the status of this action.

(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page 29.

(d) Financial Statement Schedules--The response to this portion of Item 14
is submitted as a separate section of this report beginning on page 20.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.

McM CORPORATION

By: /s/ STEPHEN L. STEPHANO
-----------------------
(Registrant)
Stephen L. Stephano, President and
Chief Operating Officer

Date: 3/25/98
-------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

/s/ GEORGE E. KING 3/25/98 /s/ MICHAEL DIGREGORIO 3/25/98
- ---------------------------- --------------------------------
George E. King Michael A. DiGregorio
Chairman Emeritus, Director
Chief Executive Officer and
Director

/s/ STEPHEN L. STEPHANO 3/25/98 /s/ LAURENCE F. LEE, JR. 3/25/98
- ------------------------------- ---------------------------------
Stephen L. Stephano Laurence F. Lee, Jr.
President, Director
Chief Operating Officer
and Director

/s/ KEVIN J. HAMM 3/25/98 /s/ LAURENCE F. LEE III 3/25/98
- --------------------------- ---------------------------------
Kevin J. Hamm Laurence F. Lee III
Vice President and Director
Chief Financial Officer

/s/ CLAUDE G. SANCHEZ, JR. 3/25/98 /s/ R. PEYTON WOODSON III 3/25/98
- ---------------------------------- ----------------------------------
Claude G. Sanchez, Jr. R. Peyton Woodson III
Director Director