As filed with the Securities and Exchange Commission on December 22, 1999
File Nos. 33-500
811-4418
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933
Post-Effective Amendment No. 28
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 30
--------------
CALIFORNIA INVESTMENT TRUST II
(Exact Name of Registrant as Specified in its Charter)
44 Montgomery Street, Suite 2100, San Francisco, California 94104
(Address of Principal Executive Office)
Registrant's Telephone Number: (415) 398-2727
STEPHEN C. ROGERS
44 Montgomery Street, Suite 2100, San Francisco, California 94104
(Name and Address of Agent for Service)
--------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to Rule 485(b)
___ on December 31, 1998 pursuant to Rule 485(b)
___ 60 days after filing pursuant to Rule 485(a)(1)
___ 75 days after filing pursuant to Rule 485(a)(2)
_x_ on December 31, 1999 pursuant to Rule 485(a)
-------------
Please Send Copy of Communications to:
JULIE ALLECTA, ESQ.
Paul, Hastings, Janofsky & Walker LLP
345 California Street - 29th Floor
San Francisco, California 94104
Telephone: (415) 835-1600
<PAGE>
CALIFORNIA INVESTMENT TRUST II
CONTENTS OF POST-EFFECTIVE AMENDMENT
This Post-Effective Amendment to the registration statement of the Registrant
contains the following documents:
Facing Sheet
Contents of Post-Effective Amendment
Part A - Combined prospectus for shares of U.S. Government Securities
Fund, The United States Treasury Trust, S&P 500 Index Fund, S&P
MidCap Index Fund, S&P SmallCap Index Fund and Equity Income Fund
Part B - Statement of Additional Information for shares of U.S. Government
Securities Fund, The United States Treasury Trust, S&P 500 Index
Fund, S&P MidCap Index Fund, S&P SmallCap Index Fund and Equity
Income Fund
Part C - Other Information
Signature page
Exhibits
<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
----------------------------
PART A
PROSPECTUS FOR
U.S. GOVERNMENT SECURITIES FUND
THE UNITED STATES TREASURY TRUST
S&P 500 INDEX FUND
S&P MIDCAP FUND
S&P SMALLCAP FUND
EQUITY INCOME FUND
----------------------------
<PAGE>
California
INVESTMENT TRUST
------------------
F U N D G R O U P
Prospectus
January 1, 2000
California Tax-Free Income Fund
California Insured Intermediate Fund
California Tax-Free Money Market Fund
S&P 500 Index Fund
S&P MidCap Index Fund
S&P SmallCap Index Fund
Equity Income Fund
U.S. Government Securities Fund
The United States Treasury Trust
(800) 225-8778
www.caltrust.com
The Funds are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution or government entity such as the Federal Deposit
Insurance Corporation (FDIC).
As with all mutual funds, the Securities and Exchange Commission has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a criminal offense.
email us at [email protected]
<PAGE>
California
INVESTMENT TRUST
------------------
F U N D G R O U P
Prospectus
January 1, 2000
TABLE OF CONTENTS
- -----------------
ABOUT THE FUNDS
California Tax-Free Income Fund 1
California Insured Intermediate Fund 5
California Tax-Free Money Market Fund 9
S&P 500 Index Fund 13
S&P MidCap Index Fund 17
S&P SmallCap Index Fund 21
Equity Income Fund 25
U.S. Government Securities Fund 29
The United States Treasury Trust 33
INVESTING IN THE FUNDS
Buying Shares 39
Selling and Exchanging Shares 42
Other Policies 46
Dividends and taxes 47
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE INCOME FUND
Ticker Symbol: CFNTX
- --------------------------------------------------------------------------------
GOAL
Seek high current tax-free income for California residents.
The California Tax-Free Income Fund seeks as high a level of income exempt from
regular federal income taxes and California personal income taxes as is
consistent with prudent investment management and safety of capital. The Fund
invests in intermediate and long-term municipal bonds.
STRATEGY
The manager will invest in municipal bonds issued by the State of California and
various municipalities located within the state. Generally, these bonds are
rated in one of the four highest ratings (investment grade) by an independent
rating organization like Standard & Poor's, Moody's or Fitch. In some cases,
securities are not rated by independent agencies. The manager will generally
purchase an unrated security only if it believes the security is of similar
quality to an investment-grade issue. Generally, the interest on municipal bonds
is not subject to federal and California personal income taxes. Under normal
circumstances, it is the Fund's policy to invest at least 80% of its total
assets in California municipal bonds, but as a general rule the percentage is
much higher. The Fund maintains an average maturity between 3 and 12 years.
WHAT IS THE MANAGER'S APPROACH?
The manager tries to select securities that it believes will provide the best
balance between risk and return within the Fund's range of allowable
investments. The manager considers a number of factors, including general market
and economic conditions and the credit quality of the issuer. To provide
tax-free income to shareholders, the manager purchases municipal bonds that are
not subject to federal and California personal income taxes. Typically, a "buy
and hold" strategy is used. This means the Fund holds securities for income
purposes rather than trading securities for capital gains. The manager may sell
a security when it believes doing so could benefit the Fund and its
shareholders. While income is the most important part of return over time, the
total return from a municipal security includes both income and price gains or
losses. The Fund's focus on income does not mean it invests only in the
highest-yielding securities available, or that it can avoid losses of principal.
MAIN RISKS
The Fund is subject to several risks, any of which could cause the Fund to lose
money. The Fund is considered non-diversified which means it may invest a large
percentage of its assets
1
<PAGE>
in the securities of a particular issuer as compared with other types of mutual
funds. Accordingly, the chance exists that the Fund's performance may be hurt
disproportionately by poor performance of a relatively few number of securities.
The Fund is also subject to:
Interest rate risk, which is the chance that bond prices overall will decline
over short and long-term periods due to rising interest rates. The manager will
generally maintain a longer maturity in this Fund relative to the California
Insured Intermediate Fund (our other municipal bond fund). Thus, the interest
rate risk is higher in this Fund than the other fund. The California Insured
Intermediate Fund is discussed in detail on page 5.
State Specific Risk, which is the chance that the Fund is more vulnerable to
unfavorable economic and political developments that impact the State of
California than funds that diversify across many states.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund.
OTHER RISKS OF THE FUND
Call risk, which is the chance that during declining interest rates, a bond
issuer will call or prepay a high-yielding bond before the bond's maturity date.
This would force the Fund to purchase lower yielding bonds which would reduce
the income generated from the portfolio and could potentially result in capital
gains paid out by the Fund.
Credit Risk, which it the chance that a bond issuer will fail to pay interest
and principal in a timely manner, reducing the Fund's return. The manager
attempts to minimize this risk by investing in investment grade bonds.
Manager risk, which is the chance that poor security selection will cause the
Fund to under perform other mutual funds with similar investment objectives.
IS THIS FUND RIGHT FOR YOU?
This Fund is intended primarily for residents of California but may be held by
residents of other states. If you are looking for tax-free income and are
comfortable with the moderate volatility of a long-term bond fund, this may be
the right investment for you. Generally, this Fund will fluctuate more than our
other tax-free funds, but will pay a higher rate of dividends.
2
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark index. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1989 9.92%
1990 6.73%
1991 12.11%
1992 8.81%
1993 14.77%
1994 -8.63%
1995 20.55%
1996 3.10%
1997 9.29%
1998 6.32%
Best Quarter:
(Q1, 1986) 11.11%
Worst Quarter:
(Q1, 1994) -7.42%
Year to date performance as of 11/30/99: -2.69%
Average Annual returns as of 12/31/98
- -------------------------------------
1 year 5 years 10 years
------ ------- --------
California Tax-Free Income Fund 6.32% 5.70% 8.04%
Lehman Municpal Bond Index 6.48% 6.22% 8.22%
Date of inception: 12/4/85
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management fees 0.47%
Distribution (12b-1 fees) fees none
Other expenses 0.14%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.61%
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $62 $196 $341 $764
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------------------
CALIFORNIA TAX-FREE INCOME FUND 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 13.18 $ 12.86 $ 12.31 $ 12.22 $ 12.17
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................. 0.56 0.58 0.60 0.62 0.61
Net gain (loss) on securities
(both realized and unrealized) ...... (0.68) 0.51 0.54 0.09 0.30
---------- ---------- ---------- ---------- ----------
Total from investment operations .. (0.12) 1.09 1.14 0.71 0.91
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.57) (0.58) (0.59) (0.62) (0.66)
Distribution from capital gains ....... (0.09) (0.19) .--- .--- (0.20)
---------- ---------- ---------- ---------- ----------
Total distributions ............... (0.66) (0.77) (0.59) (0.62) (0.86)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............ $ 12.40 $ 13.18 $ 12.86 $ 12.31 $ 12.22
========== ========== ========== ========== ==========
Total return ............................ (1.07)% 8.75% 9.48% 5.40% 8.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 200,946 $ 225,507 $ 212,198 $ 194,926 $ 196,046
Ratio of expenses to average net assets
Before expense reimbursements ....... 0.61% 0.61% 0.59% 0.60% 0.62%
After expense reimbursements ........ 0.61% 0.61% 0.59% 0.60% 0.62%
Ratio of net investment income
to average net assets
Before expense reimbursements ....... 4.33% 4.47% 4.75% 4.96% 5.13%
After expense reimbursements ........ 4.33% 4.47% 4.75% 4.96% 5.13%
Portfolio Turnover ...................... 16.36% 20.95% 34.96% 10.34% 32.21%
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE FUND
Ticker Symbol: CATFX
- --------------------------------------------------------------------------------
GOAL
Seek high current tax-free income for California residents.
The California Insured Intermediate Fund seeks as high a level of income exempt
from regular federal income taxes and California personal income taxes as is
consistent with prudent investment management and safety of capital. The Fund
invests primarily in municipal securities that are covered by insurance
guaranteeing the timely payment of principal and interest.
STRATEGY
The manager will invest in municipal bonds issued by the State of California and
various municipalities located within the state. Generally, these bonds are
rated AAA (the highest rating) by an independent rating organization like
Standard & Poor's, Moody's or Fitch; and are insured by an independent insurance
company. Some securities are not rated by independent agencies but are
considered AAA because of the insurance on the bond. The insurance guarantees
the timely principal and interest payments of the bond, but does not insure the
Fund. The interest on the municipal bonds is generally not subject to federal
and California personal income taxes. The Fund can maintain a portfolio maturity
from 3 to 12 years, but generally maintains an intermediate-term maturity to
reduce the volatility of the share price.
WHAT IS THE MANAGER'S APPROACH?
The manager tries to select securities that it believes will provide the best
balance between risk and return within the Fund's range of allowable
investments. The manager considers a number of factors, including general market
and economic conditions and the credit quality of the issuer. To provide
tax-free income to shareholders, the manager purchases municipal bonds that are
not subject to federal and California personal income taxes. Typically, a "buy
and hold" strategy is used. This means the Fund holds securities for income
purposes, rather than trading securities for capital gains. The manager may sell
a security when it believes doing so could benefit the Fund and its
shareholders. While income is the most important part of return over time, the
total return from a municipal security includes both income and price gains or
losses. Under normal circumstances, it is the Fund's policy to invest at least
80% of its total assets in California municipal bonds, but as a general rule the
percentage is much higher. The Fund's focus on income does not mean it invests
only in the highest-yielding securities available, or that it can avoid losses
of principal.
MAIN RISKS
The Fund is subject to several risks, any of which could cause the Fund to lose
money. The Fund is considered non-diversified which means it may invest a
5
<PAGE>
large percentage of its assets in the securities of a particular issuer as
compared with other types of mutual funds. Accordingly, the chance exists that
the Fund's performance may be hurt disproportionately by poor performance of a
relatively few number of securities. The Fund is also subject to:
Interest rate risk, which is the chance that bond prices overall will decline
over short and long-term periods due to rising interest rates. Interest rate
risk is usually moderate for intermediate-term bonds. We also offer the
California Tax-Free Income Fund for investors who want tax-free income and are
more comfortable with interest rate risk. The California Tax-Free Income Fund is
discussed in detail on page 1.
State Specific Risk, which is the chance that the Fund is more vulnerable to
unfavorable economic and political developments that impact the State of
California than mutual funds that diversify across many states.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund.
OTHER RISKS OF THE FUND
Call risk, which is the chance that during declining interest rates, the bond
issuer will call or prepay a high-yielding bond before the bond's maturity date.
This would force the Fund to purchase lower yielding bonds which would reduce
the income generated from the portfolio and could potentially result in capital
gains paid out by the Fund.
Credit Risk, which it the chance that a bond issuer will fail to pay interest
and principal in a timely manner, reducing the Fund's return. This risk is
moderated by the bond insurance which guarantees timely payment of principal and
interest. It is important to note that the insurance protects the Fund's
holdings, not the Fund itself.
Manager risk, which is the chance that poor security selection will cause the
Fund to underperform other mutual funds with similar investment objectives.
IS IT RIGHT FOR YOU?
This Fund is intended primarily for residents of California. If you are looking
for tax-free income and are comfortable with the moderate volatility of a
intermediate-term bond fund, this may be the right investment for you.
Generally, this fund will fluctuate less than our other tax-free bond fund, but
will pay a lower rate of dividends.
6
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark index. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1992 1.16%
1993 11.63%
1994 -4.99%
1995 14.37%
1996 3.89%
1997 6.39%
1998 5.97%
Best Quarter: (Q1 1995) 5.64%
Worst Quarter: (Q1 1994) -4.85%
Year to date performance as of 11/30/99: 0.13%
Average Annual returns as of 12/31/98 Since
- ------------------------------------- 1 year 5 years Inception
------ ------- ---------
California Insured Intermediate Fund 5.97% 4.94% 6.02%
Lehman 5 Year Muni Bond Index 5.84% 5.28% 5.90%
date of inception: 10/20/92
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management fees 0.50%
Distribution (12b-1) fees none
other expenses 0.16%
-----
Total Annual operating expenses 0.66%
Expense reimbursement* 0.11%
TOTAL ANNUAL FUND OPERATING EXPENSE* 0.55%
*The manager has agreed to limit the Fund's expenses at 0.55%. This limitation
is guaranteed though 12/31/00.
7
<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $56 $200 $357 $812
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE FUND 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 10.92 $ 10.72 $ 10.42 $ 10.49 $ 10.23
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................. 0.43 0.44 0.45 0.46 0.44
Net gain (loss) on securities
(both realized and unrealized) ...... (0.26) 0.25 0.30 (0.07) 0.30
---------- ---------- ---------- ---------- ----------
Total from investment operations .. 0.17 0.69 0.75 0.39 0.74
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.43) (0.44) (0.45) (0.46) (0.48)
Distributions from capital gains ...... (0.12) (0.05) .--- .--- .---
---------- ---------- ---------- ---------- ----------
Total distributions ............... (0.55) (0.49) (0.45) (0.46) (0.48)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period .......... $ 10.54 $ 10.92 $ 10.72 $ 10.42 $ 10.49
========== ========== ========== ========== ==========
Total return ............................ 1.51% 6.64% 7.34% 3.75% 7.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .. $ 24,175 $ 23,572 $ 24,390 $ 24,207 $ 23,515
Ratio of expenses to average net assets
Before expense reimbursements ....... 0.66% 0.70% 0.70% 0.70% 0.76%
After expense reimbursements ........ 0.55% 0.55% 0.55% 0.55% 0.60%
Ratio of net investment income
to average net assets
Before expense reimbursements ....... 3.85% 3.94% 4.12% 4.22% 4.19%
After expense reimbursements ........ 3.96% 4.09% 4.27% 4.37% 4.35%
Portfolio turnover ...................... 8.38% 26.76% 32.11% 36.08% 43.56%
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
Ticker Symbol: CAXXX
- --------------------------------------------------------------------------------
GOAL
Seek high current tax-free income for California residents while maintaining a
stable $1.00 share price.
The California Tax-Free Money Market Fund has the objectives of capital
preservation, liquidity, and the highest achievable current income exempt from
regular federal income taxes and California personal income taxes consistent
with safety. This Fund invests in short-term securities and attempts to maintain
a constant net asset value of $1.00 per share.
STRATEGY
The manager invests in high-quality, short-term municipal securities whose
interest is not subject to federal and California personal income taxes.
WHAT IS THE MANAGER'S APPROACH?
The Fund invests at least 80% of its assets in a variety of high-quality,
short-term California municipal securities. The Fund seeks to provide a stable
net asset value of $1.00 per share by investing in securities with an effective
maturity of 13 months or less, and by maintaining an average weighted maturity
of 90 days or less. To be considered high-quality, a security must generally be
rated in one of the two highest credit quality categories for short-term
securities by at least two nationally recognized rating services like Standard &
Poor's, Moody's or Fitch (or by one, if only one credit rating service has rated
the security). If unrated, the security must be determined by the manager to be
of a equivalent quality to those in the two highest credit-quality ratings.
MAIN RISKS
The Fund is subject to several risks, any of which could cause the Fund to lose
money. The Fund is considered non-diversified which means it may invest a large
percentage of its assets in the securities of particular issuers as compared
with other mutual funds. Accordingly, the chance exists that the Fund's
performance may be hurt disproportionately by poor performance of a relatively
few number of securities. The Fund is also subject to:
9
<PAGE>
State Specific Risk, which is the chance that the Fund is more vulnerable to
unfavorable economic and political developments that impact the State of
California than funds that diversify across many states.
Interest rate risk, which is the chance that interest rates will decline and the
Fund will produce less income. There is a chance that dramatic interest rate
movements could lower the share price to a value less than one dollar.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund.
Credit Risk, which it the chance that a bond issuer will fail to pay interest
and principal in a timely manner, reducing the Fund's return. This risk is
moderated by the bond insurance purchased to protect investors from credit risk
of the issuers.
Manager risk, which is the chance that poor security selection will cause the
Fund to underperform other mutual funds with similar investment objectives.
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 $1.00 share price, it is possible to lose money by investing in the
Fund.
IS IT RIGHT FOR YOU?
This Fund is intended primarily for residents of California. If you are looking
for tax-free income and want to avoid share price fluctuation, this Fund may be
right for you. Investors in this Fund do not pay personal income tax on the
dividends paid. Your investment time frame may be short or long-term in nature.
This Fund is designed as a cash management account and offers a free
checkwriting feature.
10
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
These figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1989 9.92%
1990 6.73%
1991 12.11%
1992 8.81%
1993 14.77%
1994 -8.63%
1995 20.55%
1996 3.10%
1997 9.29%
1998 6.32%
Best Quarter:
(Q2 1989) 1.67%
Worst Quarter:
(Q3 1994) 0.48%
Year to date performance as of 11/30/99: 2.32%
Average Annual returns as of 12/31/98
- -------------------------------------
1 year 5 years 10 years
------ ------- --------
California Tax-Free Money Market Fund 2.87% 2.98% 3.58%
Date if inception: 12/4/85
Seven day yield as of 11/30/99: 3.06%
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder fees
Sales and redemption charges none
Annual Operating Expenses
(expenses that are deducted from Fund assets)
Management fees 0.50%
Distributtion (12b-1) fees none
other expenses 0.11%
Total Annual operating expenses 0.61%
Expense reimbursement* 0.21%
Total annual fund operating expense 0.40%
*The manager has limited the fund's expenses at 0.40% since the Fund's
inception. This limitation is guaranteed though 12/31/00.
11
<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $41 $174 $319 $742
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY MARKET FUND Year Ended August 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................. 0.026 0.030 0.031 0.032 0.032
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.026) (0.030) (0.031) (0.032) (0.032)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total return ............................ 2.61% 3.09% 3.09% 3.26% 3.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 105,606 $ 88,236 $ 92,818 $ 103,402 $ 80,412
Ratio of expenses to average net assets
Before expense reimbursements ....... 0.61% 0.61% 0.61% 0.61% 0.66%
After expense reimbursements ........ 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income
to average net assets
Before expense reimbursements ....... 2.33% 2.77% 2.86% 2.90% 2.97%
After expense reimbursements ........ 2.54% 2.98% 3.07% 3.11% 3.23%
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
Ticker Symbol: SPFIX
- --------------------------------------------------------------------------------
GOAL
Replicate the total return of the U.S. stock market as measured by the S&P 500
Composite Stock Index.
The S&P 500 Index Fund is a diversified mutual fund that seeks to provide
investment results that correspond to the total return of common stocks publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite Stock Price Index.
STRATEGY
The S&P 500 Index includes the common stocks of 500 leading U.S. companies from
a broad range of industries. Standard & Poor's, the company that maintains the
index, makes all determinations regarding the inclusion of stocks in the index.
Each stock is weighted in proportion to its total market value.
In order to meet the investment goal, the Fund is passively managed. It invests
primarily in the stocks that make up of the index so that the weighting of each
stock in the portfolio approximates the index. The manager's goal is to maintain
a return correlation of at least .95 to the S&P 500 Index (a return correlation
of 1.0 is perfect). Under normal circumstances, it is the Fund's policy to
invest at least 80% of its total assets in the underlying stocks of the index.
As a rule of thumb, the percentage is generally higher.
Like many index funds, the Fund may invest in futures contracts and lend
securities to minimize the performance variation between the Fund and the index.
This performance gap occurs because, unlike the index, the Fund must pay
operating expenses and contend with the flow of cash in and out of the
portfolio. While we expect the Fund's performance to closely represent the
index, the Fund will generally underperform the index.
------------------------------------
SECTOR BREAKDOWNS
as of December 1999
Industry % of Fund
Capital good 6.0 %
Consumer cyclical 7.5 %
Consumer non-durable 22.0 %
Banking & financial service 13.6 %
Utility 10.3 %
Service 0.8 %
Transportation 0.9 %
Manufacturing 6.1 %
Technology 27.0 %
Energy 5.8 %
------------------------------------
LARGECAP STOCKS
The stocks that are represented in the S&P 500 Index make-up about 77% of the
total market value of publicly traded stocks in the United States. For many
investors, the S&P 500 Index functions as the benchmark for the entire stock
market. The individual stocks that make up the index have market values ranging
in size from $387 million to $559 Billion. The median market value is $7.8
billion.
The index is made up of stocks from many diverse industries. The industry table
above gives you a general idea of the exposure to specific sectors.
13
<PAGE>
MAIN RISKS
The stock market goes up and down every day. As with any investment whose
performance is linked to these markets, the value of the Fund will change.
During a declining stock market, an investment in this Fund would lose money.
The Fund is primarily invested in the U.S. stock market and is designed to
passively track the performance of the LargeCap sector. In an attempt to
accurately track the performance of the S&P 500 Index, the Fund does not intend
to take steps to reduce its market exposure in any market.
Many factors will affect the performance of the stock market. Two major factors
are economic and political news. The impact of positive or negative events could
be short-term (by causing a change in the market that is corrected in a year or
less) or long-term (by causing a change in the market that lasts for many
years). Events may affect one sector of the economy or a single stock, but may
not have a significant impact on the overall market.
The Fund invests in large companies from many sectors. In doing so, the Fund is
not as sensitive to the movements of a single company's stock or a single
economic sector. However, during periods where alternative investments such as
MidCap stocks, SmallCap stocks, bonds and money market instruments outperform
LargeCap stocks, we expect the performance of the Fund to underperform other
mutual funds that invest in these alternative categories.
OTHER RISKS OF THE FUND
Under normal circumstances the Fund may follow a number of investment policies
to achieve its objective. The Fund may invest in stock futures. Losses (or
gains) involving futures can sometimes be substantial - in part because a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund usually will not use futures for speculative purposes or as leverage.
It is the Fund's policy to hold cash deposits equal or greater than the total
market value of any futures position. The value of all futures and options
contracts in which the Fund acquires an interest will not exceed 20% (35% if
under 25 million in total net assets) of current total assets.
FUTURES DISCLOSURE
The S&P 500 Index is a capitalization weighted index, meaning companies are
weighted based on their size. Thus, poor performance of the largest companies
could result in negative performance of the index and the Fund.
Although the Fund's primary risks are associated with changes in the stock
market, there are other risks associated with the Fund. These risks generally
apply to how well the Fund tracks the index. For example, the Fund invests in
futures contracts to the extent that it holds cash in the portfolio. If these
futures contracts do not track the index, the Fund's performance relative to the
index will change.
Some mutual funds lend portfolio securities in order to offset expenses. The
Fund has never engaged in this strategy, however, in the event that it did,
there is a risk that the practice could negatively impact the share price of the
Fund.
IS IT RIGHT FOR YOU?
If you are looking for a diversified stock fund, this Fund may be right for you.
You should be comfortable with the volatility of the stock market and the risk
that your investment could decline in value. Your investment time-frame should
be long-term in nature. This Fund is designed as a passive investment, meaning
that you should not try to use the Fund to time movements in the overall stock
market. Since trading can increase the Fund's operating expenses, it is strongly
discouraged.
14
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark index. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1992 7.63%
1993 9.77%
1994 1.04%
1995 37.20%
1996 22.63%
1997 32.99%
1998 28.75%
Best Quarter: (Q4 1998) 21.50%
Worst Quarter: (Q3 1998) -9.86%
Year to date performance as of 11/30/99: 14.13%
Average Annual returns as of 12/31/98 Since
- ------------------------------------- 1 year 5 years Inception
------ ------- ---------
CIT S&P 500 Index Fund 28.75% 23.82% 20.25%
S&P 500 Composite Stock Price Index 28.58% 24.03% 20.44%
Date of inception: 4/20/92
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management fees 0.25%
Distribution (12b-1) fees none
other expenses 0.12%
-----
Total Annual operating expenses 0.37%
Expense reimbursement* 0.17%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.20%
Annual account fee $10.00
*The manager has limited the fund's expenses at 0.20% since the Fund's
inception. This limitation is guaranteed though 12/31/00.
"Standard & Poor's", "S&P", "S&P 500", "Standard & Poor's 500" and "500" are
service marks of Standard and Poor's Corporation and have been licensed for use
by the Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in the
Funds.
15
<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $30 $132 $241 $551
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
S&P 500 INDEX FUND Year Ended August 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ....... $ 20.90 $ 19.98 $ 14.81 $ 13.31 $ 11.38
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .................. 0.39 0.36 0.38 0.36 0.39
Net gain on securities
(both realized and unrealized) ....... 7.79 1.28 5.44 2.05 1.94
---------- ---------- ---------- ---------- ----------
Total from investment operations ... 8.18 1.64 5.82 2.41 2.33
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................... (0.39) (0.34) (0.37) (0.37) (0.37)
Distribution from capital gains ........ (0.57) (0.38) (0.28) (0.54) (0.03)
---------- ---------- ---------- ---------- ----------
Total distributions ................ (0.96) (0.72) (0.65) (0.91) (0.40)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............. $ 28.12 $ 20.90 $ 19.98 $ 14.81 $ 13.31
========== ========== ========== ========== ==========
Total return ............................. 39.76% 8.14% 40.19% 18.63% 21.06%
RATIOS/SUPPLEMENTAL DATA ................. $ 142,276 $ 87,621 $ 71,860 $ 43,849 $ 21,800
Ratio of expenses to average net assets
Before expense reimbursements ........ 0.37% 0.40% 0.46% 0.57% 1.04%
After expense reimbursements ......... 0.20% 0.20% 0.20% 0.20% 0.20%
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements ........ 1.33% 1.48% 1.85% 2.13% 2.40%
After expense reimbursements ......... 1.50% 1.68% 2.11% 2.50% 3.24%
Portfolio turnover ....................... 9.76% 1.82% 2.10% 1.87% 3.68%
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
S&P MIDCAP INDEX FUND
Ticker Symbol: SPMIX
- --------------------------------------------------------------------------------
GOAL
Replicate the performance of medium-sized U.S. companies as measured by the S&P
MidCap 400 Index.
The S&P MidCap Index Fund is a diversified mutual fund that seeks to provide
investment results that correspond to the total return of publicly traded common
stocks of medium-size domestic companies, as represented by the S&P MidCap 400
Index.
STRATEGY
The S&P MidCap Index includes the common stocks of 400 medium-sized U.S.
companies from a broad range of industries. Standard & Poor's, the company that
maintains the index, makes all determinations regarding the inclusion of stocks
in the index. Each stock is weighted in proportion to its total market value.
In order to meet the investment goal, the Fund is passively managed. It invests
primarily in the stocks that make up the S&P MidCap Index so that the weighting
of each stock in the portfolio approximates the index. The manager's goal is to
maintain a return correlation of at least .95 to the S&P MidCap Index (a return
correlation of 1.0 is perfect).Under normal circumstances, it is the Fund's
policy to invest at least 80% of its total assets in the underlying stocks of
the index. As a rule of thumb, the percentage is generally higher.
Like many index funds, the Fund may invest in futures contracts and lend
securities to minimize the performance variation between the Fund and the index.
This performance gap occurs because, unlike the index, the Fund must pay
operating expenses and contend with the flow of cash in and out of the
portfolio. While we expect the Fund's performance to closely represent the
index, the Fund will generally underperform the index.
MAIN RISKS
The stock market goes up and down every day. As with any investment whose
performance is linked to these markets, the value of the Fund will change.
During a declining stock market, an investment in this Fund would lose money.
----------------------------------------
Sector Breakdowns
as of December 1999
Industry % of index
Capital good 3.5 %
Consumer cyclical 6.1 %
Consumer non-durable 22.6 %
Banking & financial service 12.6 %
Utility 10.2 %
Service 3.9 %
Transportation 2.3 %
Manufacturing 8.7 %
Technology 25.1 %
Energy 5.0 %
----------------------------------------
MIDCAP STOCKS
The stocks that are represented in the S&P MidCap 400 Index make-up roughly 6%
of the total market value of publicly traded stocks in the United States. The
S&P MidCap 400 Index was designed to track the overall performance of the MidCap
sector. The individual stocks that make up the index have total market values
ranging in size from $173 million to $18 billion. The median market value is
$1.5 billion.
The index is made up of stocks from many diverse industries. The industry table
above gives you a general idea of the exposure to specific sectors.
17
<PAGE>
The Fund is primarily invested in the U.S. stock market and is designed to
passively track the performance of the MidCap sector. In an attempt to
accurately track the performance of the S&P MidCap 400 Index, the Fund does not
intend to take steps to reduce its market exposure in any market.
Many factors will affect the performance of the stock market. Two major factors
are economic and political news. The impact of positive or negative events could
be short-term (by causing a change in the market that is corrected in a year or
less) or long-term (by causing a change in the market that lasts for many
years). Events may affect one sector of the economy or a single stock, but may
not have a significant impact on the overall market.
The Fund invests in medium-sized companies from many sectors. In doing so, the
Fund is not as sensitive to the movements of a single company's stock or a
single economic sector. However, during periods where alternative investments
such as LargeCap stocks, SmallCap stocks, bonds and money market instruments
out-perform MidCap stocks, we expect the performance of the Fund to underperform
other mutual funds that invest in these alternative categories.
The S&P MidCap Index is a capitalization weighted index, meaning companies are
weighted based on their size. Thus, poor performance of the largest companies
could result in negative performance of the index and the Fund.
OTHER RISKS OF THE FUND
Under normal circumstances the Fund may follow a number of investment policies
to achieve its objective. The Fund may invest in stock futures. Losses (or
gains) involving futures can sometimes be substantial - in part because a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund usually will not use futures for speculative purposes or as leverage.
It is the Fund's policy to hold cash deposits equal or greater than the total
market value of any futures position. The value of all futures and options
contracts in which the Fund acquires an interest will not exceed 20% (35% if
under 25 million in total net assets) of current total assets.
Although the Fund's primary risks are associated with changes in the stock
market, there are other risks associated with the Fund. These risks generally
apply to how well the Fund tracks the index. For example, the Fund invests in
futures contracts to the extent that it holds cash in the portfolio. If these
futures contracts do not track the index, the Fund's performance relative to the
index will change.
Some mutual funds lend portfolio securities in order to offset expenses. The
Fund has never engaged in this strategy, however, in the event that it did,
there is a risk that the practice could negatively impact the share price of the
Fund.
IS IT RIGHT FOR YOU?
If you are looking for a diversified stock fund, this Fund may be right for you.
You should be comfortable with the volatility of the stock market and the risk
that your investment could decline in value. Your investment time-frame should
be long-term in nature. This Fund is designed as a passive investment, meaning
that you should not try to use the Fund to time movements in the overall stock
market. Since trading can increase the Fund's operating expenses, it is strongly
discouraged.
18
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark index. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1992 14.95%
1993 12.88%
1994 -3.96%
1995 30.62%
1996 18.85%
1997 31.89%
1998 18.49%
Best Quarter: (Q4 1998) 27.54%
Worst Quarter: (Q3 1998) -14.55
Year to date performance as of 11/30/99: 8.47%
Average Annual returns as of 12/31/98 Since
- ------------------------------------- 1 year 5 years Inception
------ ------- ---------
CIT S&P MidCap Index Fund 18.49% 18.43% 17.96%
S&P MidCap 400 Index 19.09% 18.82% 17.83%
date of inception: 4/20/92
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management fees 0.40%
Distributtion (12b-1) fees none
other expenses 0.17%
-----
Total Annual operating expenses 0.57%
Expense reimbursement* 0.17%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.40%
Annual account fee $10.00
*The manager has limited the fund's expenses at 0.40% since the Fund's
inception. This limitation is guaranteed though 12/31/00.
"Standard & Poor's", "S&P", and "Standard and Poor's Midcap 400 Index" are
service marks of Standard and Poor's Corporation and have been licensed for use
by the Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in the Fund.
19
<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $51 $196 $351 $797
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
S&P MIDCAP INDEX FUND Year Ended August 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ 15.41 $ 18.57 $ 14.45 $ 13.82 $ 12.21
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................ 0.20 0.23 0.22 0.24 0.26
Net gain on securities
(both realized and unrealized) ..... 5.80 (1.76) 4.85 1.33 2.04
---------- ---------- ---------- ---------- ----------
Total from investment operations . 6.00 (1.53) 5.07 1.57 2.30
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................. (0.20) (0.23) (0.22) (0.25) (0.25)
Distribution from capital gains ...... (2.51) (1.40) (0.73) (0.69) (0.44)
---------- ---------- ---------- ---------- ----------
Total distributions .............. (2.71) (1.63) (0.95) (0.94) (0.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........... $ 18.70 $ 15.41 $ 18.57 $ 14.45 $ 13.82
========== ========== ========== ========== ==========
Total return ........................... 41.13% (9.37)% 36.63% 11.77% 20.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) ... $ 57,164 $ 39,855 $ 46,271 $ 33,559 $ 26,168
Ratio of expenses to average net
assets
Before expense reimbursements ........ 0.57% 0.56% 0.61% 0.71% 0.80%
After expense reimbursements ......... 0.40% 0.40% 0.40% 0.40% 0.40%
Ratio of net investment income (loss)
to average net assets
Before expense reimbursements ...... 0.90% 1.04% 1.19% 1.38% 1.70%
After expense reimbursements ....... 1.07% 1.20% 1.40% 1.69% 2.10%
Portfolio turnover ..................... 42.98% 19.35% 17.80% 18.18% 11.71%
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
S&P SMALLCAP INDEX FUND
Ticker Symbol: SMCIX
- --------------------------------------------------------------------------------
GOAL
Replicate the performance of small-sized U.S. companies as measured by the S&P
SmallCap 600 Stock Index.
The S&P SmallCap Index Fund is a diversified mutual fund that seeks to provide
investment results that correspond to the total return of publicly traded common
stocks of small-sized companies, as represented by the S&P SmallCap 600 Index.
STRATEGY
The S&P SmallCap 600 Index includes common stocks of 600 small U.S. companies
from a broad range of industries. Standard & Poor's, the company that maintains
the index, makes all determinations regarding the inclusion of stocks in the
index. Each stock is weighted in proportion to its total market value.
In order to meet the investment goal, the Fund is passively managed. It invests
primarily in the stocks that make up of the S&P SmallCap Index so that the
weighting of each stock in the portfolio approximates the index. The manager's
goal is to maintain a return correlation of at least .95 to the S&P SmallCap
Index (a return correlation of 1.0 is perfect). Under normal circumstances, it
is the Fund's policy to invest at least 80% of its total assets (65% if assets
are less than $25 million) in the underlying stocks. As a rule of thumb, the
percentage is generally higher.
Like many index funds, the Fund may invest in futures contracts and lend
securities to minimize the performance variation between the Fund and the index.
This performance gap occurs because, unlike the index, the Fund must pay
operating expenses and contend with the flow of cash in and out of the
portfolio. While we expect the Fund's performance to closely represent the
index, the fund will generally underperform the index.
----------------------------------------
Sector Breakdowns
as of December 1999
Industry % of index
Capital good 7.0 %
Consumer cyclical 9.6 %
Consumer non-durable 20.1 %
Banking & financial service 12.0 %
Utility 3.6 %
Service 4.7 %
Transportation 3.4 %
Manufacturing 15.8 %
Technology 20.2 %
Energy 3.6 %
----------------------------------------
SMALLCAP STOCKS
The stocks that are represented in the S&P 600 SmallCap Index make up about 3%
of the total market value of publicly traded stocks in the United States. The
individual stocks that make up the index have market values ranging in size from
$24 million to $3.5 billion. The median market value is $438 million.
Over long periods of time, SmallCap stocks have generally outperformed other
segments of the market. In doing so, they also have more volatility in share
price. While many investors believe SmallCap stocks are the best choice for
long-term holdings, there can be no assuarance that this trend will continue.
"Standard & Poor's", "S&P", and "Standard and Poor's SmallCap 600 Index" are
service marks of Standard and Poor's Corporation and have been licensed for use
by the Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in the Fund.
21
<PAGE>
MAIN RISKS
The stock market goes up and down every day. As with any investment whose
performance is linked to these markets, the value of the Fund will change.
During a declining stock market, an investment in this Fund would lose money.
The Fund is primarily invested in the U.S. stock market and is designed to
passively track the performance of the MidCap sector. In an attempt to
accurately track the performance of the S&P SmallCap 600 Index, the Fund does
not intend to take steps to reduce its market exposure in any market.
Many factors will affect the performance of the stock market. Two major factors
are economic and political news. The impact of positive or negative events could
be short-term (by causing a change in the market that is corrected in a year or
less) or long-term (by causing a change in the market that lasts for many
years). Events may affect one sector of the economy or a single stock, but may
not have a significant impact on the overall market.
The Fund invests in small-sized companies from many sectors. In doing so, the
Fund is not as sensitive to the movements of a single company's stock or a
single economic sector. However, during periods where alternative investments
such as LargeCap stocks, MidCap stocks, bonds and money market instruments
outperform SmallCap stocks, we expect the performance of the Fund to
underperform other mutual funds that invest in these alternative categories.
The S&P SmallCap Index is a capitalization weighted index, meaning companies are
weighted based on their size. Thus, poor performance of the largest companies
could result in negative performance of the index and the Fund.
OTHER RISKS OF THE FUND
Under normal circumstances the Fund may follow a number of investment policies
to achieve its objective. The Fund may invest in stock futures. Losses (or
gains) involving futures can sometimes be substantial - in part because a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund usually will not use futures for speculative purposes or as leverage.
It is the Fund's policy to hold cash deposits equal or greater than the total
market value of any futures position. The value of all futures and options
contracts in which the Fund acquires an interest will not exceed 20% (35% if
under 25 million in total net assets) of current total assets.
Although the Fund's primary risks are associated with changes in the stock
market, there are other risks associated with the Fund. These risks generally
apply to how well the Fund tracks the index. For example, the Fund invests in
futures contracts to the extent that it holds cash in the portfolio. If these
futures contracts do not track the index, the Fund's performance relative to the
index will change.
Some funds lend portfolio securities in order to offset expenses. The Fund has
never engaged in this strategy, however, in the event that it did, there is a
risk that the practice could negatively impact the share price of the Fund.
IS IT RIGHT FOR YOU?
If you are looking for a diversified stock fund, this Fund may be right for you.
You should be comfortable with the volatility of the stock market and the risk
that your investment could decline in value. Your investment time-frame should
be long-term in nature. This Fund is designed as a passive investment, meaning
that you should not try to use the Fund to time movements in the overall market.
Since trading can increase the Fund's operating expenses, it is strongly
discouraged.
22
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark index. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1996 3.73%
1997 24.05%
1998 -2.91%
Best Quarter: (Q2 1997) 17.68%
Worst Quarter: (Q3 1998) -20.77%
Year to date performance as of 11/30/99: 4.15%
Average Annual returns as of 12/31/98 Since
- ------------------------------------- 1 year Inception
------ ---------
CIT S&P SmallCap Index Fund -2.91% 10.18%
S&P SmallCap 600 Index -1.32% 12.40%
date of inception: 10/2/96
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management fees 0.50%
Distribution (12b-1) fees none
other expenses 0.55%
-----
Total Annual operating expenses 1.05%
Expense reimbursement* 0.40%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.65%
*The manager has limited the fund's expenses at 0.650% since the Fund's
inception. This limitation is guaranteed though 12/31/00.
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $66 $191 $326 $721
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since the Fund's inception on October 2, 1996. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait Weller & Baker, whose
report, along with the Fund's financial statements are included in the Annual
Report, which is available upon request.
<TABLE>
<CAPTION>
Year Ended October 2,
S&P SmallCap Index Fund August 31, 1996* to
1999 1998 August 31, 1997
-------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ....... $ 9.46 $ 12.25 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .................. 0.08 0.13 0.23
Net gain on securities
(both realized and unrealized) ....... 2.13 (2.39) 2.22
---------- ---------- ----------
Total from investment operations ... 2.21 (2.26) 2.45
---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................... (0.08) (0.14) (0.20)
Distribution from capital gains ........ (0.13) (0.39) .---
---------- ---------- ----------
Total distributions ................ (0.21) (0.53) (0.20)
---------- ---------- ----------
Net asset value, end of year ............. $ 11.46 $ 9.46 $ 12.25
========== ========== ==========
Total return ............................. 23.53% (19.38)% 24.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) ..... $ 10,881 $ 7,916 $ 5,933
Ratio of expenses to average net
assets
Before expense reimbursements ........ 1.05% 1.10% 2.32%**
After expense reimbursements ......... 0.65% 0.65% 0.65%**
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements ........ 0.31% 0.57% 0.27%**
After expense reimbursements ......... 0.71% 1.02% 1.94%**
Portfolio turnover ....................... 25.40% 24.58% 19.99%
</TABLE>
- ------------------
* Commencement of operations
** Annualized
24
<PAGE>
- --------------------------------------------------------------------------------
EQUITY INCOME FUND
Ticker Symbol: EQTIX
- --------------------------------------------------------------------------------
GOAL
Achieve a high level of income and capital appreciation (when consistent with
high income) by investing primarily in income-producing U.S. equity securities.
The Equity Income Fund is a diversified mutual fund that seeks a high level of
current income by investing primarily in income producing equity securities. As
a secondary objective, the Fund will also consider the potential for price
appreciation when consistent with seeking current income.
STRATEGY
In order to meet the investment goal, the fund invests primarily in securities
which generate a relatively high level of dividend income and have potential for
capital appreciation. These securities will generally be stocks of medium and
large U.S. corporations. It is the Fund's policy that under normal circumstances
it will invest at least 80% of its total assets (65% if total assets are less
than $25 million) in stocks.
Although the Fund will attempt to invest as much of the assets as is practical
in income-producing stocks, the Fund may maintain a reasonable position in
high-quality, short-term debt securities and money market instruments to meet
redemption requests and other liquidity needs.
The Fund will invest in futures contracts when the manager wants to remain fully
invested in the market. Utilizing futures allows the manager to maintain a high
percentage of the portfolio in the market while maintaining cash for liquidity
needs.
----------------------------------------
Sector Breakdowns
as of December 1999
Industry % of index
Capital good 7.6 %
Consumer cyclical 4.1 %
Consumer non-durable 14.1 %
Banking & financial service 24.8 %
Utility 11.5 %
Service 0.6 %
Transportation 0.6 %
Manufacturing 11.3 %
Technology 16.7 %
Energy 8.7 %
----------------------------------------
VALUE STOCKS
The fund invests primarily in value stocks. It will attempt to manage the assets
so that the average dividend yield of the stocks held will be at least 50%
greater than the yield of the S&P 500 Index. "Value stock" is a term used to
describe a stock that pays a higher dividend. Over long periods of time, value
stocks have demonstrated lower volatility as compared to the overall market.
The Fund is made up of stocks from many diverse industries. The table above
gives you a general idea of the exposure to specific sectors.
25
<PAGE>
MAIN RISKS
The stock market goes up and down every day. As with any investment whose
performance is linked to these markets, the value of the Fund will change.
During a declining stock market, an investment in this Fund would lose money.
The Fund is primarily invested in U.S. value stocks and is designed to provide a
dividend yield as well as potential for capital appreciation.
Many factors will affect the performance of the stock market. Two major factors
are economic and political news. The impact of positive or negative events could
be short-term (by causing a change in the market that is corrected in a year or
less) or long-term (by causing a change in the market that lasts for many
years). Events may affect one sector of the economy or a single stock, but may
not have a significant impact on the overall market.
The Fund invests in large and medium-sized companies from many sectors. In doing
so, the Fund is not as sensitive to the movements of a single company's stock or
a single economic sector. However, during periods where alternative investments
such as growth stocks, SmallCap stocks, bonds and money market instruments
out-perform value stocks, we expect the performance of the Fund to underperform
other mutual funds that invest in these alternative categories.
OTHER RISKS OF THE FUND
Under normal circumstances the Fund may follow a number of investment policies
to achieve its objective. The Fund may invest in stock futures. Losses (or
gains) involving futures can sometimes be substantial - in part because a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund usually will not use futures for speculative purposes or as leverage.
It is the Fund's policy to hold cash deposits equal or greater than the total
market value of any futures position. The value of all futures and options
contracts in which the Fund acquires an interest will not exceed 20% (35% if
under 25 million in total net assets) of current total assets.
The Fund's primary risks are associated with changes in the stock market,
however, there are other risks associated with the Fund. For example, the Fund
may invest in futures contracts to the extent that it holds cash in the
portfolio. If these futures contracts owned by the Fund do not perform well, the
Fund's performance will be impacted
Some mutual funds are able to lend portfolio securities in order to offset
expenses. The Fund has never engaged in this strategy, however, in the event
that it did, there is a risk that the practice could negatively impact the net
assets value of the Fund.
IS IT RIGHT FOR YOU?
If you are looking for a conservative, value oriented stock Fund, this fund may
be right for you. You should be comfortable with the changing values of the
stock market and the risk that your investment could decline in value. Your
investment time frame should be long-term in nature. This Fund is designed as a
passive investment, meaning that you should not try to use the Fund to time
movements in the overall market. Since trading can increase the Fund's operating
expenses, it is strongly discouraged.
26
<PAGE>
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark index. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1996 10.97%
1997 29.29%
1998 13.15%
Best Quarter: (Q4 1998) 17.08%
Worst Quarter:(Q3 1998) -14.56%
Year to date performance
as of 11/30/99: 0.12%
Average Annual returns as of 12/31/98 Since
- ------------------------------------- 1 year Inception
------ ---------
CIT Equity Income Fund 13.15% 23.19%
S&P/BARRA Value Index 14.67% 25.22%
date of inception: 9/4/96
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management fees 0.50%
Distribution (12b-1) fees none
other expenses 0.36%
-----
Total Annual operating expenses 0.86%
Expense reimbursement* 0.06%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.80%
*The manager has limited the fund's expenses at 0.80% since the Fund's
inception. This limitation is guaranteed though 12/31/00.
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $82 $268 $471 $1,055
27
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since the Fund's inception on September 4, 1996. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait Weller & Baker, whose
report, along with the Fund's financial statements are included in the Annual
Report, which is available upon request.
<TABLE>
<CAPTION>
Year Ended September 4,
EQUITY INCOME FUND August 31, 1996* to
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ....... $ 11.98 $ 12.64 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .................. 0.32 0.37 0.39
Net gain on securities
(both realized and unrealized) ....... 2.41 (0.25) 2.84
---------- ---------- ----------
Total from investment operations ... 2.73 0.12 3.23
---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment
income ............................... (0.33) (0.37) (0.32)
Distribution from capital gains ........ (0.41) (0.27)
---------- ---------- ----------
Total distributions ................ (0.33) (0.78) (0.59)
---------- ---------- ----------
Net asset value, end of year ............. $ 14.38 $ 11.98 $ 12.64
========== ========== ==========
Total return ............................. 22.89% 0.46% 33.28%
RATIOS/SUPPLEMENTAL DATA ................. $ 13,716 $ 12,080 $ 9,747
Ratio of expenses to average net
assets
Before expense reimbursements ........ 0.86% 0.91% 1.55%**
After expense reimbursements ......... 0.80% 0.78% 0.76%**
Ratio of net investment income (loss) to
average net assets
Before expense reimbursements ........ 2.09% 2.56% 2.48%**
After expense reimbursements ......... 2.15% 2.69% 3.27%**
Portfolio turnover ....................... 54.03% 41.23% 2.80%
</TABLE>
- ----------------------
* Commencement of operations
** Annualized
28
<PAGE>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND
Ticker Symbol: CAUSX
- --------------------------------------------------------------------------------
GOAL
Maximize current income for investors.
The U.S. Government Securities Fund seeks liquidity, safety from credit risk and
as high a level of income as is consistent with these objectives by investing in
full faith and credit obligations of the U.S. government and its agencies or
instrumentalities, primarily Government National Mortgage Association
Certificates ("GNMA").
STRATEGY
The Fund invests primarily in high-quality bonds whose interest is guaranteed by
the full faith and credit of the United States government and its agencies or
instrumentalities.
WHAT IS THE MANAGER'S APPROACH?
The manager will select securities that it believes will provide the best
balance between risk and return within the Fund's range of allowable
investments. Generally, the manager will select a balance between treasury bonds
and GNMA securities in an attempt to maximize the overall performance of the
Fund. The manager considers a number of factors, including general market and
economic conditions to balance the portfolio. While income is the most important
part of return over time, the total return for a bond fund includes both income
and price gains or losses. Under normal circumstances, it is the Fund's policy
to invest at least 65% of its total assets in securities issued by the U.S.
government and its agencies or instrumentalities, but as a general rule the
percentage is much higher. The Fund's focus on income does not mean it invests
only in the highest-yielding securities available, or that it can avoid losses
of principal.
MAIN RISKS
The Fund is subject to several risks, any of which could cause the fund to lose
money. These include:
Interest rate risk, which is the chance that bond prices overall will decline
over short and long-term periods due to rising interest rates. This is the
primary risk of this Fund.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund over long periods of time.
Prepayment risk is similar to call risk. In the case of GNMA securities,
payments to the Fund are based on payments from the underlying mortgages. During
periods where homeowners refinance their martgages, these securities are paid
off and the Fund may have to reinvest the principal in lower yielding
securities. This would reduce the income generated from the portfolio.
29
<PAGE>
Manager risk, which is the chance that poor security selection will cause the
Fund to underperform other mutual funds with similar investment objectives.
The Fund invests in intermediate and long-term fixed income securities. During
periods where alternative investments such as stocks and money market
instruments out perform bonds, we expect the performance of the Fund to
underperform other mutual funds that invest in these alternative categories.
IS IT RIGHT FOR YOU?
If you are looking for a conservative income fund, this Fund may be right for
you. You should be comfortable with the changing values of the bond market and
the risk that your investment could decline in value. Your investment time frame
should be long-term in nature. This Fund is better used as a passive investment,
meaning that you should not try to use the Fund to time movements in the overall
market.
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
The table compares the performance of the Fund with a benchmark indices. These
figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1989 13.49%
1990 8.59%
1991 17.49%
1992 8.36%
1993 15.79%
1994 -6.99%
1995 23.35%
1996 -0.48%
1997 9.33%
1998 12.08%
Best Quarter: (Q2 1989) 7.33%
Worst Quarter: (Q1 1996) -5.89%
Year to date performance as of 11/30/99: -4.26%
Average Annual returns as of 12/31/98
- ------------------------------------- 1 year 5 years 10 years
------ ------- --------
US Government Securities Fund 12.08% 6.95% 9.78%
Lehman Brothers Treasury Index 10.03% 7.20% 9.17%
Lehman Brothers GNMA Treasury Index 1.96% 7.90% 9.24%
Date of inception: 12/5/85
30
<PAGE>
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
Annual Operating Expenses
(expenses that are deducted from Fund assets)
Management fees 0.50%
Distributtion (12b-1) fees none
other expenses 0.16%
-----
Total Annual operating expenses 0.66%
Expense reimbursement* 0.01%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.65%
*The manager has limited the fund's expenses at 0.65% since the Fund's
inception. This limitation is guaranteed though 12/31/00.
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $66 $210 $367 $822
31
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 11.30 $ 10.38 $ 10.15 $ 10.66 $ 10.30
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................. 0.56 0.59 0.64 0.66 0.70
Net gain (loss) on securities
(both realized and unrealized) ...... (0.80) 1.01 0.36 (0.51) 0.41
---------- ---------- ---------- ---------- ----------
Total from investment operations .. (0.24) 1.60 1.00 0.15 1.11
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.56) (0.61) (0.63) (0.66) (0.75)
Distribution from capital gains ....... (0.26) (0.07) (0.14) .--- .---
---------- ---------- ---------- ---------- ----------
Total distributions ............... (0.82) (0.68) (0.77) (0.66) (0.75)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............ $ 10.24 $ 11.30 $ 10.38 $ 10.15 $ 10.66
========== ========== ========== ========== ==========
Total return ............................ (2.42)% 15.88% 10.00% 1.26% 11.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 30,950 $ 36,063 $ 31,277 $ 29,088 $ 29,884
Ratio of expenses to average net assets
Before expense reimbursements ....... 0.66% 0.68% 0.69% 0.71% 0.75%
After expense reimbursements ........ 0.65% 0.65% 0.65% 0.65% 0.64%
Ratio of net investment income
to average net assets
Before expense reimbursements ....... 5.11% 5.46% 6.00% 6.10% 6.72%
After expense reimbursements ........ 5.12% 5.49% 6.04% 6.16% 6.83%
Portfolio Turnover .................... 139.00% 65.27% 170.76% 89.11% 169.83%
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
THE UNITED STATES TREASURY TRUST
Ticker Symbol: USTXX
- --------------------------------------------------------------------------------
GOAL
Maximize current income for investors and maintain a stable $1.00 share price.
The United States Treasury Trust seeks capital preservation, safety, liquidity,
and, consistent with these objectives, the highest attainable current income
exempt from state income taxes. This Fund will invest its assets only in
short-term U.S. Treasury securities and its income will be exempt from
California (and most other states') personal income taxes.
STRATEGY
The Fund primarily invests its assets in high-quality, short-term Treasury bills
whose interest is guaranteed by the full faith and credit of the United States
government. The Fund generally buys only securities that mature in 13 months or
less. The Fund's weighted average maturity will generally be less than 90 days.
WHAT IS THE MANAGER'S APPROACH?
The manager selects securities that it believes will attain the highest possible
yield and maintain the $1.00 share price. The manager generally purchases only
U.S Treasury Bills, notes and bonds, but may invest in other securities from
time to time.
MAIN RISKS
The Fund is subject to some risks which could cause the Fund to lose money. It
is important to remember that this Fund is not a FDIC-insured money market
account. The risks include:
Interest rate risk, which is the chance that short-term security prices overall
will decline due to rising interest rates. In an extreme case, a short-term
movement could potentially change the Fund's share price to something other than
the $1.00 target.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund.
Manager risk, which is the chance that poor security selection will cause the
Fund to under perform other mutual funds with similar investment objectives.
The securities that the Fund holds are backed by the full faith and credit of
the United States federal government and are those that the manager believes do
not represent credit risk to the Fund. It is important to note that the U.S.
government backs the securities held by the Fund, but not the Fund itself.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. Although the Fund seeks
to preserve the $1.00 share price, it is possible to lose money by investing in
the Fund.
33
<PAGE>
IS IT RIGHT FOR YOU?
The Fund may be appropriate for those seeking a cash management account and very
conservative investors who wish to protect their investment from volatile
markets. It may be used in retirement accounts such as 401ks and IRAs. Lastly,
The Fund's dividends are generally not subject to state personal income taxes.
Thus, investors who pay a high rate of state income taxes may benefit from this
feature.
PERFORMANCE
Below are a chart and a table showing the variability of the Fund's performance.
These figures assume that all distributions are reinvested. It is important to
remember that past performance does not accurately predict future performance.
[GRAPHIC OMITTED]
1989 5.67%
1990 7.80%
1991 5.82%
1992 3.48%
1993 2.81%
1994 3.70%
1995 5.32%
1996 4.90%
1997 3.30%
1998 4.74%
Best Quarter:
(Q2 1993) 0.68%
Worst Quarter:
(Q3 1989) 2.07%
Year to date performance as of 11/30/99:
- -3.98%
Average Annual returns as of 12/31/98 Since
- ------------------------------------- 1 year 5 years Inception
------ ------- ---------
The United States Treasury Trust 4.74% 4.71% 5.07%
Date of inception: 4/26/89
Seven day yield as of 11/30/99: 4.64%
FUND FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
Sales and redemption charges none
Annual Operating Expenses
(expenses that are deducted from Fund assets)
Management fees 0.50%
Distribution (12b-1) fees none
other expenses 0.13%
-----
Total Annual operating expenses 0.63%
Expense reimbursement* 0.23%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.40%
*The manager has agreed to limit the fund's expenses at 0.40% . This limitation
is guaranteed though 12/31/00.
34
<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Fund $41 $174 $328 $764
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Tait Weller & Baker, whose report, along with
the Fund's financial statements are included in the Annual Report, which is
available upon request.
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------------------------
THE UNITED STATES TREASURY TRUST 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income ................. 0.042 0.051 0.048 0.050 0.050
LESS DISTRIBUTIONS
Dividends from net investment income .. (0.042) (0.051) (0.048) (0.050) (0.050)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total return ............................ 4.22% 5.21% 4.92% 5.11% 5.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) .... $ 50,517 $ 44,341 $ 104,509 $ 37,903 $ 29,797
Ratio of expenses to average net assets
Before expense reimbursements ....... 0.63% 0.64% 0.64% 0.66% 0.72%
After expense reimbursements ........ 0.41% 0.40% 0.40% 0.43% 0.50%
Ratio of net investment income
to average net assets
Before expense reimbursements ....... 3.92% 4.54% 4.58% 4.60% 4.75%
After expense reimbursements ........ 4.14% 4.78% 4.82% 4.83% 4.97%
</TABLE>
35
<PAGE>
FUND MANAGEMENT
The portfolio manager for the Funds is CCM Partners, 44 Montgomery Street, Suite
2100, San Francisco, CA 94104. CCM Partners manages $650 million in mutual fund
assets and has been managing mutual funds since 1985. CCM Partners is
responsible for managing the portfolios and handling the administrative duties
of the Funds. As compensation for these services, CCM Partners receives a
management fee from each Fund. For the period ended 8/31/99 the fees were 0.47%
for the California Tax-Free Income Fund; 0.39% for the California Insured
Intermediate Fund; 0.29% for the California Tax-Free Money Market Fund; 0.08%
for the S&P 500 Index Fund; 0.23% for the S&P MidCap Index Fund; 0.05% for the
S&P SmallCap Index Fund; 0.44% for the Equity Income Fund; 0.49% for the U.S.
Government Securities Fund and 0.27% for The United States Treasury Trust.
Phillip W. McClanahan is the portfolio manager for the California Tax-Free
Income Fund, the California Insured Intermediate Fund, the U.S. Government
Securities Fund and The United States Treasury Trust. He joined the firm in 1985
and has over 35 years of investment experience. Mr. McClanahan graduated from
the University of Kansas in 1958 and earned his MBA from the University of
Pennsylvania, Wharton School in 1966.
Roderick G. Baldwin is the portfolio manager for the S&P 500 Index Fund, S&P
MidCap Index Fund, S&P SmallCap Index Fund and the Equity Income Fund. He joined
CCM Partners in 1999. Prior to his employment with CCM Partners, he was Vice
President of Index Investing at Bank of America Capital Management. Mr. Baldwin
graduated from Hamilton College in 1968 and earned his MBA from the University
of Pennsylvania, Wharton School in 1970. He has approximately 30 years of
experience with equity fund management.
Michael J. Conn is the portfolio manager for the California Tax-Free Money
Market Fund. Mr. Conn joined CCM Partners in 1996 and prior to his joining the
firm, spent 3 years at Gruntal & Co. specializing in trading and institutional
sales of fixed income securities. Mr. Conn graduated from the Leavy School of
Business at Santa Clara University.
ADDITIONAL INVESTMENT RELATED RISKS
PORTFOLIO TURNOVER
Except for the California Tax-Free Money Market Fund and The Untited States
Treasury Trust, the Funds generally intend to purchase securities for long-term
investments rather than short-term gains. However, a security may be held for a
shorter than expected period of time if, among other things, the manager needs
to raise cash or feels that it is appropriate to do so. Portfolio holdings may
also be sold sooner than anticipated due to unexpected changes in the markets.
Buying and selling securities may involve incurring some expense to a Fund, such
as commissions paid to brokers and other transaction costs. By selling a
security, a Fund may realize taxable capital gains that it will subsequently
distribute to shareholders. Generally speaking, the higher a Fund's annual
portfolio turnover, the greater its brokerage costs and the greater likelihood
that it will realize taxable capital gains. Increased
36
<PAGE>
brokerage costs may affect a Fund's performance. Also, unless you are a
tax-exempt investor or you purchase shares through a tax-deferred account, the
distributions of capital gains may affect your after-tax return. For some funds,
annual portfolio turnover of 100% or more is considered high. The U.S.
Government Securities Fund had turnover in excess of 100% during its last fiscal
year.
OPENING AN ACCOUNT
Shares of the Funds may be purchased through the Funds' distributor or through
other third party distributors, brokerage firms and retirement plans. The
following information is specific to buying directly from the Funds'
distributor. If you invest through a third party distributor, many of the
policies, options and fees charged for the transaction may be different. You
should contact them directly for information regarding how to invest or redeem
through them.
You'll find all the necessary application materials included in the packet
accompanying this Prospectus or you may download an investment kit by accessing
our Web site at www.caltrust.com. Additional paperwork may be required for
corporations, associations, and certain other fiduciaries. The minimum initial
investments and subsequent investments for each Fund are listed below.
Minimum Minimum
initial subsequent IRA
Fund investment investment Minimum
---- ---------- ---------- -------
Income Fund $10,000 $250 none
Insured Fund $10,000 $250 none
Money Fund $10,000 $250 none
Government Fund $10,000 $250 none
Treasury Trust $10,000 $250 none
S&P 500 Index Fund $5,000 $250 none
S&P MidCap Index Fund $5,000 $250 none
S&P SmallCap Index Fund $5,000 $250 none
Equity Income Fund $5,000 $250 none
The Fund's distributor may change the minimum investment amounts at any time or
waive them at its discretion. To protect against fraud, it is the policy of the
Funds not to accept third party checks for the purposes of opening new accounts
or purchasing additional shares. If you have any questions concerning the
application materials, wire transfers, or our yields and net asset values,
please call us, toll-free at (800) 225-8778. If you have any questions about our
investment policies and objectives, please call us at (415) 398-2727 or (800)
225-8778.
BUYING & SELLING SHARES
If you need an account application call us at (800) 225-8778 or down load an
investment kit from our web site at www.caltrust.com. Keep in mind the following
important policies:
o A Fund may take up to 7 days to pay redemption proceeds.
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o If your shares were recently purchased by check, the Fund will not release
your redemption proceeds until payment of the check can be verified which
may take up to 15 days. Exchange purchases must meet the minimum investment
amounts of the Fund you are purchasing.
o You must obtain and read the prospectus for the Fund you are buying prior
to making the exchange.
o If you have not selected the convenient exchange privileges on your
original account application, you must provide a signature guarantee letter
of instruction to the Fund, directing any changes in your account.
o The Manager may refuse any purchase or exchange purchase transaction for
any reason.
HOW TO BUY SHARES
INITIAL PURCHASE
Make your check payable to the name of Fund in which you are investing and mail
it with the application to the agent of the Funds, Firstar Mutual Fund Services,
LLC, at the address indicated. Please note the minimum initial investments
previously listed.
Firstar Mutual Fund Services, LLC
PO Box 701
Milwaukee, WI 53201-0701
PURCHASING BY EXCHANGE
You may purchase shares in a Fund by exchanging shares from an account in one of
our other Funds. Such exchanges must meet the minimum amounts required for
initial or subsequent investments described above. When opening an account by
exchanging shares, your new account must be established with the same
registration as your other California Investment Trust Fund Group account and an
exchange authorization must be in effect. If you have an existing account with
us, call (800) 225-8778 during normal business hours (8 AM to 5 PM, PST) to
exchange shares.
You may also exchange shares by accessing our Web site at www.caltrust.com. You
must complete the on-line access agreement in order to access your account
on-line.
Each exchange actually represents the sale of shares of one Fund and the
purchase of shares in another, which may produce a gain or loss for tax
purposes. We will confirm each exchange transaction to you by mail.
All transactions are processed at the share price next calculated after
receiving the instructions in good form, normally at 4:00 p.m., eastern standard
time.
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WIRE INSTRUCTIONS:
Federal funds should be wired to:
Firstar Bank Milwaukee, NA
ABA # 075000022
For: Firstar Mutual Fund Services, LLC
Account # 112-952-137
For further credit to:
Name of fund: _____________________________________
Account registration: _____________________________
Account number: ___________________________________
If you are opening a new account by wire, you must first call California
Investment Trust Fund Group at (800) 225-8778 to obtain an account number.
In order to make your order effective, we must have your order in good form.
Accordingly, your purchase will be processed at the net asset value next
calculated after your order has been received by the Funds' agent. You will
begin to earn dividends as of the first business day following the day of your
purchase.
All your purchases must be made in U.S. dollars and checks must be drawn on
banks located in the U.S. We reserve the right to limit the number of investment
checks processed at one time. If the check does not clear, we will cancel your
purchase, and you will be liable for any losses and fees incurred.
When you purchase by check, redemption proceeds will not be sent until we are
satisfied that the investment has been collected (confirmation of clearance may
take up to 15 days). Payments by check or other negotiable bank deposit will
normally be effective within two business days for checks drawn on a member of
the Federal Reserve System and longer for most other checks. Wiring your money
to us will reduce the time you must wait before redeeming or exchanging shares.
You can wire federal funds from your bank or broker, which may charge you a fee.
You may buy shares of a Fund through selected securities brokers. Your broker is
responsible for the transmission of your order to Firstar, the Funds' agent, and
may charge you a fee. You will generally receive the share price next determined
after your order is placed with your broker, in accordance with your broker's
agreed upon procedures with the Funds. Your broker can advise you of specific
details.
If you wish, you may also deliver your investment checks (and application, for
new accounts) to the Fund's office. Your order will be forwarded promptly to the
Funds' agent for processing. Please note that your purchase will not be deemed
received, nor will it be processed, until we have forwarded it on your behalf to
Firstar which, in turn, will execute your purchase at the net asset value next
calculated after receipt of your order.
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The Funds do not consider the U.S. Postal Service or other independent delivery
service to be their agents. Therefore, deposit in the mail or with such delivery
services does not constitute receipt by Firstar or the Funds.
PURCHASING ADDITIONAL SHARES
Make your check payable to the name of the Fund in which you are investing,
write your account number on the check, and mail your check with your
confirmation stub to the address printed on your account statement. There is a
$250 minimum for subsequent investments.
After setting up your on-line account, you may obtain a history of transactions
for your account (s) by accessing our Web site at www.caltrust.com.
AUTOMATIC SHARE ACCUMULATION PLAN
Using the Funds' Automatic Share Accumulation Plan (ASAP), you may arrange to
make additional purchases (minimum $250) automatically by electronic funds
transfer (EFT) from your checking or savings account. Your bank must be a member
of the Automated Clearing House. You can terminate the program with ten-day's
written notice. There is no fee to participate in this program, however, a
service fee of $20.00 will be deducted from your account for any ASAP purchase
that does not clear due to insufficient funds, or if prior to notifying the
Funds in writing or by telephone to terminate the plan, you close your bank
account or in any manner that prevents withdrawal of the funds from the
designated checking or NOW account. Investors may obtain more information
concerning this program, including the application form, from the Funds.
The share prices of the Funds are subject to fluctuations. Before undertaking
any plan for systematic investment, you should keep in mind that such a program
does not assure a profit or protect against a loss.
We reserve the right to suspend the offering of shares of any of the Funds for a
period of time and to reject any specific purchase order in whole or in part.
HOW FUND SHARES ARE PRICED
The Funds are open for business every day that both the New York Stock Exchange
(NYSE) and the Federal Reserve Bank of New York are open. The net asset value of
each Fund is computed by adding all of its portfolio holdings and other assets,
deducting its liabilities, and then dividing the result by the number of shares
outstanding in that Fund. Our Shareholder Servicing Agent usually calculates
this value at market close, normally 4:00 p.m. eastern time or 1:00 p.m. pacific
time, on each day that the markets are open. The number of shares your money
buys is determined by the share price of the Fund on the day your transaction is
processed. Orders that are received in good form are executed at the net asset
value next calculated. The Funds' net asset value will not be calculated, nor
transactions processed, on certain holidays observed by national banks and/or
the NYSE.
The share prices of the Income Fund, the Insured Fund, the Government Fund and
the four Stock Funds (S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap
index Fund & the Equity Income Fund) will vary over time as interest rates and
the value of their securities
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vary. Portfolio securities of the Stock Funds that are listed on a national
exchange are valued at the last reported sale price. U.S. Treasury Bills are
valued at amortized cost, which approximates market value. Portfolio securities
of the Income Fund, the Insured Fund and the Government Fund are valued by an
independent pricing service that uses market quotations representing the latest
available bid price, prices provided by market makers, or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Securities with remaining maturities of 60 days or less
are valued using the amortized cost basis as reflecting fair value. All other
securities are valued at their fair value as determined in good faith by the
respective Boards of Trustees.
The share price of the Funds are reported by the National Association of
Securities Dealers, Inc. in the mutual funds section of most newspapers after
the heading "California Trust".
PERFORMANCE INFORMATION
All performance information published in advertisements, sales literature and
communications to investors, including various expressions of current yield,
effective yield, tax equivalent yield, total return and distribution rate, is
calculated and presented in accordance with the rules prescribed by the
Securities and Exchange Commission.
In each case, performance information will be based on past performance and will
reflect all recurring charges against Fund income. Performance information is
based on historical data and does not indicate the future performance of any
Fund.
HOW TO SELL SHARES
BY MAIL
You may redeem all or a portion of your shares on any business day that the
Funds are open. Your shares will be redeemed at the net asset value next
calculated after we have received your redemption request in good form. Remember
that we may hold redemption proceeds until we are satisfied that we have
collected the funds which were deposited by check. To avoid these possible
delays, which could be up to 15 days, you should consider making your investment
by wire, following the instructions on page 39.
If you have not elected telephone redemption or transfer privileges, you must
send a "signature-guaranteed letter of instruction" specifying the name of the
Fund, the number of shares to be sold, your name, and your account number to the
Funds' offices. If you have additional questions, please contact us at (800)
225-8778.
The Custodian requires that signature(s) be guaranteed by an eligible signature
guarantor such as a commercial bank, broker-dealer, credit union, securities
exchange or association, clearing agency or savings association. This policy is
designed to protect shareholders and their accounts.
BY CHECK
With checkwriting, our most convenient redemption procedure, your investment
will continue to earn income until the check clears your account. You must apply
for the checkwriting feature for your account. You may redeem by check provided
that the proper signatures you designated are on the check. The minimum
redemption amount by check is $500. There is no charge for this service and you
may write an unlimited number of checks.
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You should not attempt to close your account by check, since you cannot be sure
of the number of shares and value of your account. You must use the phone,
on-line or mail redemption feature to close your account. The checkwriting
feature is not available for any of our Stock Funds. Please note that a $20.00
fee will be charged to your account for any returned check.
BY EXCHANGE
You must meet the minimum investment requirement of the Fund into which you are
exchanging shares. You can only exchange between accounts with identical
registration. Same day exchanges are accepted until market close, normally 4:00
p.m., eastern time (1:00 p.m., pacific time).
BY WIRE
You must have applied for the wire feature on your account. We will notify you
when this feature is active and you may then make wire redemptions by calling us
before 4:00 p.m. eastern time (1:00 p.m., pacific time). This means your money
will be wired to your bank the next business day. There is a charge for each
wire (currently $12.00).
BY ELECTRONIC FUNDS TRANSFER
You must have applied for the EFT withdrawal feature on your account. Typically,
money sent by EFT will be sent to your bank within three business days after the
sales of your securities. There is no fee for this service.
ONLINE
You can sell shares in a regular account by accessing our Web site at
www.caltrust.com. You may not buy or sell shares in a retirement account using
our on-line feature.
BY TELEPHONE
You must have this feature set up in advance on your account. Call the Funds at
(800) 225-8778. Give the name of the Fund in which you are redeeming shares, the
exact name in which your account is registered, your account number, the
required identification number and the number of shares or dollar amount that
you wish to redeem. Telecommunications Device for the Deaf (TDD) services for
hearing impaired shareholders are available for telephone redemptions by calling
(800) 864-3416.
Unless you submit an account application that indicates that you have declined
telephone and/or online exchange privileges, you agree, by signing your account
application, to authorize and direct the Funds to accept and act upon telephone,
on-line, telex, fax, or telegraph instructions for exchanges involving your
account or any other account with the same registration. The Funds employ
reasonable procedures in an effort to confirm the authenticity of your
instructions, such as requiring a seller to give a special authorization number.
Provided these procedures are followed, you further agree that neither a Fund
nor the Fund's agent will be responsible for any loss, damage, cost or expense
arising out of any instructions received for an account.
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You should realize that by electing the telephone exchange or the on-line access
options, you may be giving up a measure of security that you might otherwise
have if you were to exchange your shares in writing. For reasons involving the
security of your account, telephone transactions may be tape recorded.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares of a Fund with a value of $10,000 or more, you may establish a
Systematic Withdrawal Plan. You may receive monthly or quarterly payments in
amounts of not less than $100 per payment. Details of this plan may be obtained
by calling the Funds at (800) 225-8778.
OTHER REDEMPTION POLICIES
Retirement Plan shareholders should complete a Rollover-Distribution Election
Form in order to sell shares of the Funds so that the sale is treated properly
for tax purposes.
Once your shares are redeemed, we will normally mail you the proceeds on the
next business day, but no later than within seven days. When the markets are
closed (or when trading is restricted) for any reason other than its customary
weekend or holiday closings, or under any emergency circumstances as determined
by the Securities and Exchange Commission to merit such action, we may suspend
redemption or postpone payment dates. If you want to keep your account(s) open,
please be sure that the value of your account does not fall below $5,000 ($1,000
in the case of Stock Funds) because of redemptions. The manager may elect to
close an account and mail you the proceeds to the address of record. We will
give you 30 days' written notice that your account(s) will be closed unless you
make an investment to increase your account balance(s) to the $5,000 minimum
($1,000 in the case of the Stock Funds). If you close your account, any accrued
dividends will be paid as part of your redemption proceeds.
The share prices of the Funds will fluctuate and you may receive more or less
than your original investment when you redeem your shares.
The Funds and the manager reserve certain rights, including the following:
o To automatically redeem your shares if your account balance falls
below the minimum balance due to the sale of shares.
o To modify or terminate the exchange privilege on 60 days written
notice.
o To refuse any purchase or exchange purchase order.
o To change or waive a funds minimums.
o To suspend the right to sell shares back to the Fund, and delay
sending proceeds, during times when trading on the principal markets
for the Funds are restricted or halted, or otherwise as permitted by
the SEC.
o To withdraw or suspend any part of the offering made by this
Prospectus.
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OTHER POLICIES
TAX-SAVING RETIREMENT PLANS
We can set up your new account in a Fund under one of several tax-sheltered
plans. The following plans let you save for your retirement and shelter your
investment earnings from current income taxes:
IRAs/Roth IRAs: You can also make investments in the name of your spouse if your
spouse has no earned income. Each Fund is subject to an annual custodial fee,
currently $12.50 with a maximum annual charge of $25.00 per social security
number. This fee is assessed annually in September of each year.
SIMPLE, SEP, 401(k)/Profit-Sharing and Money-Purchase Plans (Keogh): Open to
corporations, self-employed people and partnerships, to benefit themselves and
their employees.
403(b) Plans. Open to eligible employees of certain states and non-profit
organizations.
We can provide you with complete information on any of these plans, inluding
information that discusses benefits, provisions and fees.
CASH DISTRIBUTIONS
Unless you otherwise indicate on the account application, we will reinvest all
dividends and capital gains distributions back into your account. You may
indicate on the application that you wish to receive either income dividends or
capital gains distributions in cash. Electronic Funds Transfer (EFT) is
available to those investors who would like their dividends electronically
transferred to their bank accounts. For those investors who do not request this
feature, dividend checks will be mailed via regular mail. If you elect to
receive distributions by mail and the U.S. Postal Service cannot deliver your
checks, we will void such checks and reinvest your money in your account at the
then current net asset value and reinvest your subsequent distributions.
STATEMENT AND REPORTS
Shareholders of the Funds will receive statements at least monthly and after
every transaction that affects their share balance and/or account registration.
A statement with tax information will be mailed to you by January 31 of each
year, a copy of which will be filed with the IRS if it reflects any taxable
distributions. Twice a year you will receive our financial statements, at least
one of which will be audited.
The account statements you receive will show the total number of shares you own
and a current market value. You may rely on these statements in lieu of share
certificates which are not necessary and are not issued. You should keep your
statements to assist in record keeping and tax calculations.
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We pay for regular reporting services, but not for special services, such as a
request for an historical transcript of an account. You may be required to pay a
separate fee for these special services. After setting up your on-line account,
you may also obtain a transaction history for your account (s) by accessing our
Web site at www.caltrust.com.
CONSOLIDATED MAILINGS
In an effort to reduce mailing costs, consolidated statements will be sent to
each registrant. Consolidated statements include a summary of all Funds held by
each registrant as identified by the first line of registration, social security
number and address zip code. Consolidated statements offer convenience to
investors by summarizing account information and reducing unnecessary mail. If
you prefer to have individual statements for your account(s), please call the
Funds' offices at (800) 225-8778.
DIVIDEND & TAXES
Any investment in the funds typically involves several tax considerations. the
information below is meant as a general summary for U.S. citizens and residents.
Because your situation may be different, it is important that you consult your
tax advisor about the tax implications of your investment in any of the Funds.
As a shareholder, you are entitled to your share of the dividends your Fund
earns. The S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap Index Fund
and the Equity Income Fund distribute substantially all their dividends
quarterly. Shareholders of record on the second to last business day of the
quarter will receive the dividends.
The California Tax-Free Income Fund, California Insured Intermediate Fund,
California Tax-Free Money Market Fund, U.S. Government Securities Fund and The
United States Treasury Trust distribute substantially all their dividends
monthly. Shareholders of record on the second to last business day of the month
will receive the dividends.
Capital gains are generally paid on the last day of November, to shareholders of
record on the second to last business day of November of each year. The United
States Treasury Trust and the California Tax-Free Money Market Fund do not
expect to pay any capital gains.
At the beginning of each year, shareholders are provided with information
detailing the tax status of any dividend the Funds have paid during the previous
year.
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TO LEARN MORE
This prospectus contains important information on the Funds and should be read
and kept for future reference. You can also get more information from the
following sources:
ANNUAL AND SEMI-ANNUAL REPORTS
These are automatically mailed to all shareholders without charge. In the Annual
Report, you will find a discussion of market conditions and investment
strategies that significantly affected each Fund's performance during its most
recent fiscal year. The Annual Report is incorporated by reference into this
prospectus, making it a legal part of the prospectus.
STATEMENT OF ADDITIONAL INFORMATION
This includes more details about the Funds, including a detailed discussion of
the risks associated with the various investments. The SAI is incorporated by
reference into this prospectus, making it a legal part of the prospectus.
You may obtain a copy of these documents free of charge by calling the Funds at
(800) 225-8778, emailing the Funds at [email protected], or by contacting the
SEC at the address noted below or via e-mail at [email protected].. The SEC may
charge you a duplication fee. You can also review these documents in person at
the SEC's Public Reference Room, or by visiting the SEC's Internet Site at
www.sec.gov.
CALIFORNIA INVESTMENT TRUST FUND GROUP
44 MONTGOMERY STREET SUITE 2100
SAN FRANCISCO CA 94104
(800) 225-8778
www.caltrust.com
Securities and Exchange Commission
Washington DC 20549-6009
202-942-8090 (Public Reference Section)
www.sec.gov
SEC File Number 811-5049
<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
---------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION FOR
U.S. GOVERNMENT SECURITIES FUND
THE UNITED STATES TREASURY TRUST
S&P 500 INDEX FUND
S&P MIDCAP FUND
S&P SMALLCAP FUND
EQUITY INCOME FUND
---------------------------
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CALIFORNIA INVESTMENT TRUST FUND GROUP
44 Montgomery Street, Suite 2100
San Francisco, California 94104
(800) 225-8778
Statement of Additional Information - January 1, 2000
The California Investment Trust Fund Group presently consists of nine
separate funds which are part of California Investment Trust and California
Investment Trust II (collectively the "Trusts"): California Tax-Free Income Fund
(the "Income Fund"), California Insured Intermediate Fund (the "Insured Fund"),
California Tax-Free Money Market Fund (the "Money Fund"), U.S. Government
Securities Fund (the "Government Fund"), The United States Treasury Trust (the
"Treasury Trust"), the S&P 500 Index Fund (the "500 Fund"), the S&P MidCap Index
Fund (the "MidCap Fund"), the S&P SmallCap Index Fund (the "SmallCap Fund"), and
the Equity Income Fund.
This Statement of Additional Information relates to all funds of the
Trusts. These funds are sometimes referred to herein collectively as the "Funds"
and individually as a "Fund."
THE COMBINED PROSPECTUS FOR THE FUNDS DATED JANUARY 1, 2000, AS MAY BE
AMENDED FROM TIME TO TIME, PROVIDES THE BASIC INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN A FUND, AND MAY BE OBTAINED WITHOUT CHARGE FROM THE FUNDS AT THE
ABOVE ADDRESS. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE
TRUSTS AND EACH FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
California Tax-Free Income Fund and California Insured Intermediate Fund both
seek as high a level of income exempt from regular Federal income taxes and
California personal income taxes as is consistent with prudent investment
management and safety of capital. The Income Fund invests in intermediate and
long-term municipal bonds. The Insured Fund invests primarily in municipal
securities that are covered by insurance guaranteeing the timely payment of
principal and interest.
California Tax-Free Money Market Fund has the objectives of capital
preservation, liquidity, and the highest achievable current income, exempt from
regular Federal income taxes and California personal income taxes consistent
with safety. This fund invests in short-term securities and attempts to maintain
a constant net asset value of $1.00 per share.
U.S. Government Securities Fund seeks liquidity, safety from credit risk and as
high a level of income as is consistent with these objectives by investing in
full faith and credit obligations of the U.S. Government and its agencies or
instrumentalities, primarily Government National Mortgage Association ("GNMA")
Certificates.
The United States Treasury Trust seeks capital preservation, safety, liquidity,
and, consistent with these objectives, the highest attainable current income
exempt from state income taxes. This fund will invest its assets only in
short-term U.S. Treasury securities and its income will be exempt from
California (and most other states') personal income taxes.
S&P 500 Index Fund is a diversified mutual fund that seeks to provide investment
results that correspond to the total return of common stocks publicly traded in
the United States, as represented by the Standard & Poor's (S&P) 500 Composite
Stock Price Index (the "S&P 500").
S&P MidCap Index Fund is a diversified mutual fund that seeks to provide
investment results that correspond to the total return of publicly traded common
stocks of medium-size domestic companies, as represented by the S&P MidCap 400
Index (the "MidCap Index").
S&P SmallCap Index Fund is a diversified mutual fund that seeks to provide
investment results that correspond to the total return of publicly traded common
stocks of small-sized companies, as represented by the S&P SmallCap 600 Index
(the "SmallCap Index").
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Equity Income Fund is a diversified mutual fund that seeks a high level of
current income by investing primarily in income producing equity securities. As
a secondary objective, the fund will also consider the potential for price
appreciation when consistent with seeking current income.
We will attempt to manage the Equity Income Fund so that the average income
yield of the common stocks held by the fund will be at least 50% greater than
the yield of the S&P 500. Because of our strategies, we expect that the Fund
will have less price volatility than the S&P 500.
CONTENTS Page
About the California Investment Trust Fund Group ....................... B-3
Investment Objectives and Policies of the Tax-Free Funds' ............. B-3
Investment Objectives and Policies of the Government
Fund and the Treasury Trust ......................................... B-4
Investment Objectives and Policies of the Stock Funds .................. B-6
Description of Investment Securities and
Portfolio Techniques ................................................ B-6
Investment Restrictions ................................................ B-14
Trustees and Officers .................................................. B-17
Investment Management and Other Services ............................... B-18
The Trusts' Policies Regarding Broker-Dealers
Used for Portfolio Transactions ...................................... B-22
Additional Information Regarding Purchases and
Redemptions of Fund Shares ........................................... B-23
Taxation ............................................................... B-25
Yield Disclosure and Performance Information ........................... B-27
Miscellaneous Information .............................................. B-31
Financial Statements ................................................... B-33
Appendix ............................................................... B-33
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ABOUT THE CALIFORNIA INVESTMENT TRUST FUND GROUP
The California Investment Trust Fund Group currently consists of two
diversified, open-end management investment companies: California Investment
Trust ("CIT") and California Investment Trust II ("CIT II"). Each Trust issues
its shares of beneficial interest with no par value in different series, each
known as a "fund." Shares of each Fund represent equal proportionate interest in
the assets of that Fund only, and have identical voting, dividend, redemption,
liquidation and other rights. Shareholders have no preemptive or other right to
subscribe to any additional shares and conversion rights. The Trusts are
organized as Massachusetts business trusts. Currently, CIT has three separate
funds, each of which maintains a totally separate investment portfolio: the
Income Fund, the Money Fund, and the Insured Fund. CIT II currently has six
Funds: the Government Fund, the Treasury Trust, the 500 Fund, the MidCap Fund,
the SmallCap Fund and the Equity Income Fund. The Income Fund, the Money Fund
and the Insured Fund are also referred to herein as the "Tax-Free Funds." The
500 Fund, the MidCap Fund and the SmallCap Fund are also referred to herein as
the "Index Funds." The Index Funds, combined with the Equity Income Fund, are
referred to as the "Stock Funds".
INVESTMENT OBJECTIVES AND POLICIES OF THE TAX-FREE FUNDS
The following information supplements each Tax-Free Fund's investment
objectives and basic policies as set forth in the Prospectus.
As noted in the Prospectus, each Tax-Free Fund seeks to provide investors
with income exempt from Federal income taxes and from California personal income
tax. The Tax-Free Funds generally are as fully invested as practicable in
municipal securities. However, because the Tax-Free Funds do not presently
intend to invest in taxable obligations, there may be occasions when, as a
result of maturities of portfolio securities or sales of fund shares, or in
order to meet anticipated redemption requests, a fund may hold cash which is not
earning income.
Under California law, a mutual fund, or series thereof, must have at least
50% of its total assets invested in obligations that produce interest that is
exempt from California personal income tax if received by an individual
(including California state and local obligations, direct obligations of the
U.S. Government and obligations of certain U.S. territories and possessions) at
the end of each quarter of its taxable year in order to be eligible to pay
dividends to California residents which will be exempt from California personal
income tax. Accordingly, as described in the funds' prospectus, under normal
market conditions, each Tax-Free Fund attempts to invest 100% and, as a matter
of fundamental policy, invests at least 80% of the value of its net assets in
securities, the interest on which is, in the opinion of bond counsel, exempt
from regular Federal income taxes and from California personal income tax, and
is not a separate tax preference item subject to the Federal alternative minimum
tax. Thus, it is possible, although not anticipated, that up to 20% of a
Tax-Free Fund's assets could be invested in municipal securities from another
state and/or in taxable obligations.
The Income Fund and the Insured Fund both seek as high a level of income
exempt from Federal and California personal income tax as is consistent with
prudent investment management and safety of capital. The Income Fund seeks to
reduce, to the extent possible, the credit risks of its portfolio by investing
in California municipal securities having at the time of purchase one of the top
four ratings, or if unrated, being of similar quality to one of the top four
ratings, of Standard & Poor's Corporation ("S&P"), Moody's Investors Service
("Moody's"), or Fitch Investors Service, Inc. ("Fitch"). These are considered to
be "investment grade" securities, although securities rated BBB, Baa, BBB by
S&P, Moody's and Fitch, respectively, in the fourth highest category are
regarded as having an adequate capacity to pay principal and interest but with
greater vulnerability to adverse economic conditions and to have some
speculative characteristics. No more than 20% of the Income Fund's total assets
will be invested in securities in the fourth highest category.
The Insured Fund seeks to reduce the credit risks of its portfolio by
investing in California municipal securities that are insured as to the timely
payment of principal and interest under an insurance policy obtained by the
issuer. The Insured Fund also may invest up to 20% of its total assets in
uninsured California municipal securities in one of the top two ratings
categories or if unrated of similar quality to securities in one of the top two
ratings.
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If the rating on an issue held in either the Income or the Insured Fund's
portfolio is downgraded, CCM Partners (the "Manager") will consider such event
in its evaluation of the overall investment merits of that security but such
consideration will not necessarily result in the automatic sale of the security.
When the Income or the Insured Fund invests in securities not rated by S&P,
Moody's, or Fitch, it is the responsibility of the Manager to evaluate them and
reasonably determine that they are of at least equal quality to securities rated
in the four highest categories.
The Money Fund invests in high-quality securities, whether rated or
unrated. Such issues include those rated, at the time of purchase, not lower
than Aa (applicable to municipal bonds), MIG-2 (applicable to municipal notes),
or P-1 (applicable to commercial paper) by Moody's; AA (bonds), SP-1 (notes), or
A-1 (commercial paper) by S&P; or AA (bonds), FIN-1+ (notes), or Fitch-2
(commercial paper) by Fitch. Generally, all of the instruments held by the Money
Fund are offered on the basis of a quoted yield to maturity and the price of the
security is adjusted so that relative to the stated rate of interest, it will
return the quoted rate to the purchaser.
Subsequent to its purchase by the Income Fund, the Insured Fund or the
Money Fund, a municipal security may be assigned a lower rating or cease to be
rated. Such an event would not necessarily require the elimination of the issue
from the portfolio, but the Manager will consider such an event in determining
whether the Income, the Insured Fund or the Money Fund should continue to hold
the security in its portfolio. In addition to considering ratings assigned by
the rating services in its selection of portfolio securities for the Income Fund
or the Money Fund, the Manager considers, among other things, information
concerning the financial history and condition of the issuer and its revenue and
expense prospects and, in the case of revenue bonds, the financial history and
condition of the source of revenue to service the debt securities.
INVESTMENT OBJECTIVES AND POLICIES OF THE
GOVERNMENT FUND AND THE TREASURY TRUST
The following information supplements the investment objectives and basic
policies of the Government Fund and the Treasury Trust as set forth in the
Prospectus.
The Government Fund seeks to provide liquidity, safety from credit risk and
as high a level of income as is consistent with such objectives by investing in
full faith and credit obligations of the U.S. Government and its agencies or
instrumentalities. To achieve its objective, the fund currently invests
primarily in "GNMA Certificates" (popularly called "GNMA's" or "Ginnie Mae's").
GNMA's are mortgage-backed securities representing part ownership of a pool of
mortgage loans on real property.
A GNMA Certificate differs from a bond in that principal is scheduled to be
paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. The Government Fund will purchase "modified pass-through"
type GNMA Certificates for which the payment of principal and interest on a
timely basis is guaranteed, rather than the "straight-pass through" Certificates
for which such guarantee is not available. The Government Fund may also purchase
"variable rate" GNMA Certificates or any other type which may be issued with
GNMA's guarantee. The balance of the Government Fund's assets is invested in
other securities issued or guaranteed by the U.S. Government, including U.S.
Treasury bills, notes, and bonds.
Securities of the type to be included in the Government Fund have
historically involved little risk of principal if held to maturity. However, due
to fluctuations in interest rates, the market value of such securities may vary
during the period of a shareholder's investment in the Government Fund.
GNMA Certificates are created by an "issuer," which is a Federal Housing
Administration ("FHA") approved lender, such as mortgage bankers, commercial
banks and savings and loan associations, who also meet criteria imposed by GNMA.
The issuer assembles a specific pool of mortgages insured by either the FHA or
the Farmers Home Administration or guaranteed by the Veterans Administration.
Upon application by the issuer, and after approval by GNMA of the pool, GNMA
provides its commitment to guarantee timely payment of principal and interest on
the GNMA Certificates secured by the mortgages included in the pool. The GNMA
Certificates, endorsed by GNMA, are then sold by the issuer through securities
dealers.
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The GNMA guarantee of timely payment of principal and interest on GNMA
Certificates is backed by the full faith and credit of the United States. GNMA
may borrow U.S. Treasury funds to the extent needed to make payments under its
guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagees or by result of foreclosure, such principal payments are passed
through to the GNMA Certificate holders (such as the Government Fund).
Accordingly, the life of the GNMA Certificate is likely to be substantially
shorter than the stated maturity of the mortgages in the underlying pool.
Because of such variation in prepayment rights, it is not possible to predict
the life of a particular GNMA Certificate, but FHA statistics indicate that 25
to 30 year single-family dwelling mortgages have an average life of
approximately 12 years.
Generally, GNMA Certificates bear a nominal "coupon rate" which represents
the effective FHA-Veterans Administration mortgage rates for the underlying pool
of mortgages, less GNMA and issuer's fees. Payments to holders of GNMA
Certificates consist of the monthly distributions of interest and principal less
the GNMA and issuer's fees. The actual yield to be earned by the holder of a
GNMA Certificate is calculated by dividing such payments by the purchase price
paid for the GNMA Certificate (which may be at a premium or a discount from the
face value of the Certificate). Monthly distributions of interest, as contrasted
to semi-annual distributions which are common for other fixed interest
investments, have the effect of compounding and thereby raising the effective
annual yield earned on GNMA Certificates.
The portion of the payments received by the Government Fund as a holder of
the GNMA Certificates which constitutes a return of principal is added to the
Government Fund's cash available for investment in additional GNMA Certificates
or other U.S. Government guaranteed securities. The interest portion received by
the Government Fund is distributed as net investment income to the Fund's
shareholders.
Prepayment risk is the risk that principal of a GNMA will be unexpectedly
returned to the Fund. Under certain market conditions mortgages are more likely
to be pre-paid by the borrowers. This is most likely during periods where
interest rates are declining below recent market levels. By refinancing a
mortgage, a borrower pays off their existing balance and the payment is passed
through to the holder of the GNMA. Because of market circumstances, the Fund may
be forced to reinvest the returned principal in securities with lower yields.
This would ultimately reduce the income available to shareholders and could
potentially result in realized capital gains.
The Manager continually monitors the Government Fund's investments, and
changes are made as market conditions warrant.
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The Treasury Trust seeks capital preservation, safety, liquidity, and,
consistent with these objectives, the highest attainable current income exempt
from state income taxes, by investing exclusively in U.S. Treasury securities,
namely bills, notes or bonds which are direct obligations of the U.S.
Government. The Treasury Trust's net assets will at the time of investment have
remaining maturities of 397 days or less. The dollar weighted average maturity
of the Fund's portfolio will generally be 90 days or less and the manager will
attempt to maintain the net asset value at $1.00 per share.
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS
As stated in the Prospectus, the investment objective of the 500 Fund is to
seek investment results that correspond to the total return (i.e., the
combination of capital changes and income) of common stocks publicly traded in
the United States, as represented by the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"). The S&P 500 is a well-known stock market index that
includes common stocks of companies representing approximately 77% of the market
value of all common stocks publicly traded in the United States. As of December
1999, companies included in the Index range from $387 million to $559 billion in
market capitalization. The Manager believes that the performance of the S&P 500
is representative of the performance of publicly traded common stocks in
general. The median market capitalization of the stocks in the S&P 500 Index is
approximately $7.8 billion.
The investment objective of the MidCap Fund is to seek investment results
that correspond to the total return (i.e., the combination of capital changes
and income) of publicly traded common stocks of medium-size domestic companies,
as represented by the Standard & Poor's MidCap 400 Index (the "MidCap Index").
As of December 15, 1999, the MidCap Index represented approximately 6% of the
market value of all common stocks publicly traded in the United States, is
composed of 400 selected common stocks of medium-size domestic companies with
market capitalizations between $173 million and $18 billion. The median market
capitalization of the stocks in the MidCap Index is approximately $1.5 billion.
The investment objective of the SmallCap Fund is to seek investment results
that correspond to the total return of publicly traded common stocks of small
sized companies, as represented by the S&P SmallCap 600 Index (the "SmallCap
Index").* As of December 15, 1999, the SmallCap Index represented about 3% of
the market value of all common stocks publicly traded in the United States, was
composed of 600 selected domestic companies with market capitalizations between
$24 million and $3.5 billion. The median market capitalization of the stocks in
the SmallCap Index was $438 million.
The Equity Income Fund is a diversified mutual fund that seeks a high level
of current income by investing primarily in income producing equity securities.
As a secondary objective, the Fund will also consider the potential for price
appreciation when consistent with seeking current income.
The Manager will attempt to manage the Equity Income Fund so that the
average income yield of the common stocks held by the Equity Income Fund will be
at least 50% greater that the yield of the S&P 500 Index. Because of these
strategies, the Manager expects that the Fund will have less price volatility
that the S&P 500 Index.
DESCRIPTION OF INVESTMENT SECURITIES AND PORTFOLIO TECHNIQUES
Municipal Securities
Discussed below are the major attributes of the various municipal and other
securities in which each of the Tax-Free Funds may invest and of the portfolio
techniques the Income Fund or the Money Fund may utilize.
Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the issuer's taxing power for the payment
of principal and interest.
Revenue Anticipation Notes are issued in expectation of receipt of other
kinds of revenue, such as federal revenues available under the Federal Revenue
Sharing Program. They also are usually general obligations of the issuer.
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Bond Anticipation Notes normally are issued to provide interim financing
until long-term financing can be arranged. The long-term bonds then provide the
money for the repayment of the notes.
Construction Loan Notes are sold to provide construction financing for
specific projects. After successful completion and acceptance, many projects
receive permanent financing through the FHA under the Federal National Mortgage
Association or the Government National Mortgage Association.
Project Notes are instruments sold by the Department of Housing and Urban
Development but issued by a state or local housing agency to provide financing
for a variety of programs. They are backed by the full faith and credit of the
U.S. Government, and generally are for periods of one year or less.
Short-Term Discount Notes (tax-exempt commercial paper) are short-term (397
days or less) promissory notes issued by municipalities to supplement their cash
flow.
Municipal Bonds, which meet longer term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.
1. General Obligation Bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special assessments.
General Obligation bonds are generally paid from a municipality's general
fund, so that the credit of the security is determined by the overall credit of
the issuer. Economic and political events that negatively impact the
municipality could also affect the value of the bonds issued by the
municipality.
2. Revenue Bonds. A revenue bond is not secured by the full faith, credit
and taxing power of an issuer. Rather, the principal security for a revenue bond
is generally the net revenue derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects including: electric, gas, water, and sewer systems; highways,
bridges, and tunnels; port and airport facilities; colleges and universities;
and hospitals. Although the principal security behind these bonds may vary, many
provide additional security in the form of a debt service reserve fund which may
be used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Some authorities
are provided further security in the form of a state's assurance (although
without obligation) to make up deficiencies in the debt service reserve fund.
Revenue bonds are generally paid from revenues generated from facilities or
projects financed by the bond. Economic and political events which affect the
ability to generate revenue could potentially impact the value of a revenue
bond.
Industrial Development Bonds which pay tax-exempt interest are in most
cases revenue bonds and are issued by or on behalf of public authorities to
raise money to finance various privately operated facilities for business
manufacturing, housing, sports, and pollution control. These bonds are also used
to finance public facilities such as airports, mass transit systems, ports, and
parking. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of the real and personal property so financed as
security for such payment. As a result of 1986 federal tax legislation,
industrial revenue bonds may no longer be issued on a tax-exempt basis for
certain previously permissible purposes, including sports and pollution control
facilities.
The quality of an Industrial Development Bonds is in part based on the
corporation's ability to make payments of principal and interest. Unfavorable
developments that affect the ability or willingness for the corporation to make
the payments could have an impact on the value of the bond.
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There may, of course, be other types of municipal securities that become
available which are similar to the foregoing described municipal securities in
which the Tax-Free Funds may invest.
Variable Rate Demand Notes ("VRDN's") are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the unpaid principal balance
plus accrued interest upon a short notice period prior to specified dates,
generally at 30, 60, 90, 180, or 365 day intervals. The interest rates are
adjustable at intervals ranging from daily to six months. Adjustment formulas
are designed to maintain the market value of the VRDN at approximately the par
value of the VRDN upon the adjustment date. The adjustments are typically based
upon the prime rate of a bank or some other appropriate interest rate adjustment
index.
The Tax-Free Funds may also invest in VRDN's in the form of participation
interests ("Participating VRDN's") in variable rate tax-exempt obligations held
by a financial institution, typically a commercial bank ("institution").
Participating VRDN's provide the Tax-Free Funds with a specified undivided
interest (up to 100%) of the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
Participating VRDN's from the institution upon a specified number of days'
notice, not to exceed seven days. In addition, the Participating VRDN is backed
by an irrevocable letter of credit or guaranty of the institution. The Tax-Free
Funds have an undivided interest in the underlying obligation and thus
participate on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.
VRDN's may be unrated or rated and their creditworthiness may be a function
of the creditworthiness of the issuer, the institution furnishing the
irrevocable letter of credit, or both. Accordingly, a Tax-Free Fund may invest
in such VRDN's the issuers or underlying institutions of which the Manager
believes are creditworthy and satisfy the quality requirements of each Tax-Free
Fund. The Manager will continuously monitor the creditworthiness of the issuer
of such securities and the underlying institution.
Periods of high inflation and periods of economic slowdown, together with
the fiscal measures adopted to attempt to deal with them, have caused wide
fluctuations in interest rates. While the value of the underlying VRDN may
change with changes in interest rates generally, the variable rate nature of the
underlying VRDN should tend to reduce changes in the value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case with a portfolio of fixed income securities. The Tax-Free Funds may
invest in VRDN's on which stated minimum or maximum rates, or maximum rates set
by state law, limit the degree to which interest on such VRDN's may fluctuate;
to the extent it does, increases or decreases in value may be somewhat greater
than would be the case without such limits. Because the adjustment of interest
rates on the VRDN's is made in relation to movements of various interest rate
adjustment indices, the VRDN's are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
For purposes of determining whether a VRDN held by a Tax-Free Fund matures
within one year from the date of its acquisition, the maturity of the instrument
will be deemed to be the longer of (1) the demand period required before the
Tax-Free Fund is entitled to receive payment of the principal amount of the
instrument, or (2) the period remaining until the instrument's next interest
rate adjustment. The maturity of a VRDN will be determined in the same manner
for purposes of computing a Tax-Free Fund's dollar-weighted average portfolio
maturity.
Obligations with Puts Attached. Each Tax-Free Fund may purchase municipal
securities together with the right to resell the securities to the seller at an
agreed upon price or yield within a specified period prior to the maturity date
of the securities. Although it is not a put option in the usual sense, such a
right to resell is commonly known as a "put" and is also referred to as a
"stand-by commitment." The Tax-Free Funds will use such puts in accordance with
regulations issued by the Securities and Exchange Commission ("SEC"). The
Manager understands that the Internal Revenue Service (the "IRS") has issued a
revenue ruling to the effect that, under specified circumstances, a registered
investment company will be
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the owner of tax-exempt municipal obligations acquired subject to a put option.
The IRS has also issued private letter rulings to certain taxpayers (which do
not serve as precedent for other taxpayers) to the effect that tax-exempt
interest received by a regulated investment company with respect to such
obligations will be tax-exempt in the hands of the company and may be
distributed to its shareholders as exempt-interest dividends. The IRS has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest therein, to be purchased by
either the seller or a third party. Each Tax-Free Fund intends to take the
position that it is the owner of any municipal obligations acquired subject to a
stand-by commitment or similar put right and that tax-exempt interest earned
with respect to such municipal obligations will be tax-exempt in its hands.
There is no assurance that stand-by commitments will be available to the
Tax-Free Funds nor have the Tax-Free Funds assumed that such commitments would
continue to be available under all market conditions.
U.S. Government Obligations, Other Securities and Portfolio Techniques
U.S. Government Obligations. U.S. Treasury obligations are issued by the
U.S. Treasury and include U.S. Treasury bills (maturing within one year of the
date they are issued), certificates of indebtedness, notes and bonds (issued
with maturities longer than one year). Such obligations are backed by the full
faith and credit pledge of the U.S. Government. Agencies and instrumentalities
of the U.S. Government are established under the authority of an act of Congress
and include, but are not limited to, the Government National Mortgage
Association, the Tennessee Valley Authority, the Bank for Cooperatives, the
Farmer's Home Administration, Federal Home Loan Banks, the FHA, Federal
Intermediate Credit Banks, Federal Land Banks and the Federal National Mortgage
Association. Obligations are issued by such agencies or instrumentalities in a
range of maturities and may be either (1) backed by the full faith and credit
pledge of the U.S. Government, or (2) backed only by the rights of the issuer to
borrow from the U.S. Treasury. The Funds may only invest in obligations backed
by the U.S. Government's full faith and credit.
Repurchase Transactions. The Tax-Free Funds, the Government Fund and the
Stock Funds may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board or with member banks of the
Federal Reserve System. Such a transaction is an agreement in which the seller
of U.S. Government securities agrees to repurchase the securities sold to the
Fund at a mutually agreed upon time and price. It may also be viewed as the loan
of money by the fund to the seller. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. The rate is
effective for the period of time in the agreement and is not related to the
coupon rate on the underlying security. The period of these repurchase
agreements is usually short, from overnight to one week, and in particular, at
no time will the Money Fund invest in repurchase agreements with a term of more
than one year. The U.S. Government securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. A fund always receives as collateral
U.S. Government securities whose market value, including accrued interest, is at
least equal to 100% of the dollar amount invested by the fund in each agreement,
and such fund makes payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its custodian. If the seller
defaults, the fund might incur a loss if the value of the collateral securing
the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. A fund may not enter into a
repurchase agreement with more than seven days to maturity if, as a result, more
than 10% of the market value of the fund's total assets would be invested in
such repurchase agreements. With respect to the Tax-Free Funds and the
Government Fund, the Manager on an ongoing basis will review and monitor the
creditworthiness of institutions with which it has entered into repurchase
agreements. The current policy of the Stock Funds is to limit repurchase
agreements to those parties whose creditworthiness has been reviewed and found
satisfactory by the Manager.
When-Issued Purchases and Forward Commitments. New issues of Government
securities and municipal securities may be offered on a when-issued basis.
Accordingly, the Tax-Free Funds and the Government Fund may purchase securities
on a when-issued or forward commitment basis. When-issued purchases and forward
commitments involve a commitment by the funds to purchase securities at a future
date. The price of the underlying securities (usually expressed in terms of
yield) and the date when the securities will be delivered and paid for (the
settlement date) are fixed at the time the transaction is negotiated. Thus, the
Fund bears the market risk of the security immediately following its commitment
to buy the security.
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The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining a fund's net asset value starting
on the day the fund agrees to purchase the securities. Therefore, if a fund
remains substantially fully invested at the same time that it has committed to
purchase securities on a when-issued or forward commitment basis, its net asset
value per share may be subject to greater price fluctuation. A fund does not
earn interest on the securities it has committed to purchase until they are paid
for and delivered on the settlement date. Settlement of when-issued purchases
and forward commitments generally takes place within two months of the date of
the transaction, but delayed settlements beyond two months may be negotiated.
The funds make commitments to purchase securities on a when-issued or
forward commitment basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, each fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the fund on the settlement date. In these cases a fund may realize a capital
gain or loss.
When a fund enters into a when-issued purchase or a forward commitment to
purchase securities, the Funds' Custodian, Firstar Trust Company (the
"Custodian") will establish, and maintain on a daily basis, a separate account
of the fund consisting of cash or portfolio securities having a value at least
equal to the amount of the Fund's purchase commitments. These procedures are
designed to insure that the Fund maintains sufficient assets at all times to
cover its obligations under when-issued purchases and forward commitments.
Lending Portfolio Securities. Each of the Tax-Free Funds and the Government
Fund may lend up to 100% of its portfolio securities to non-affiliated brokers,
dealers, and financial institutions provided that cash or U.S. Government
securities equal to 100% of the market value of the securities loaned is
deposited by the borrower with the lending fund and is maintained each business
day. Although the Stock Funds have no current intention to do so, each Stock
Fund may lend up to 10% of its portfolio securities to non-affiliated brokers,
dealers and financial institutions provided that cash or U.S. Government
securities equal to 100% of the market value of the securities loaned is
deposited by the borrower with the lending fund and is maintained each business
day. While such securities are on loan, the borrower will pay such fund any
income accruing thereon, and the fund may invest or reinvest the collateral
(depending on whether the collateral is cash or U.S. Government securities) in
portfolio securities, thereby earning additional income. Each fund will not lend
its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale. Loans are
typically subject to termination by the fund in the normal settlement time,
currently five business days after notice, or by the borrower on one day's
notice. Borrowed securities must be returned when the loan is terminated. Any
gain or loss in the market price of the borrowed securities which occurs during
the term of the loan inures to the lending fund and its shareholders. A fund may
pay reasonable finders', borrowers', administrative, and custodial fees in
connection with a loan of its securities. The Manager will review and monitor
the creditworthiness of such borrowers on an ongoing basis.
Special Considerations Affecting Investment in California Municipal
Obligations. The Money Fund invests a high proportion of its assets in
California municipal securities. The Income Fund and the Insured Fund also
invest primarily in California municipal securities. Payment of interest and
preservation of principal is dependent upon the continuing ability of California
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder. In addition to general
economic pressures, certain California constitutional amendments, legislative
measures, executive orders, administrative regulations and voter initiatives
could adversely affect a California issuer's ability to raise revenues to meet
its financial obligations. The following is not an exhaustive list, constitutes
only a brief summary, does not purport to be a complete description, and is
based on information drawn from official statements and prospectuses relating to
securities offerings of the State of California that have come to the attention
of the Tax-Free Funds and were available before the date of this Statement of
Additional Information. The Tax-Free Funds have not independently verified such
information.
As used below, "California Tax-Exempt Securities" include issues secured by
a direct payment obligation of the State of California and obligations of other
issuers that rely in whole or in part on
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California revenues to pay their obligations, the interest on which is, in the
opinion on bond counsel, exempt from federal income tax and California personal
income tax. Property tax revenues and part of the State's General Fund surplus
are distributed to counties, cities and their various taxing entities; whether
and to what extent a portion of the State's General Fund will be so distributed
in the future is unclear.
State Budgetary Considerations
Overview. After suffering through a severe state-wide recession,
California's economy has been on a steady recovery since the beginning of 1994.
Employment has grown by over 500,000 in 1994 and 1995, and the pre-recession
employment level is expected to be matched in 1996. The strongest growth has
been in export-related industries, business services, electronics,
entertainment, and tourism, which has offset the recession-related losses which
were heaviest in aerospace and defense-related industries, finance and
insurance. This state recession negatively affected State tax revenues (which
are correlated with state economic conditions) and resulted in increased
expenditures for health and welfare programs. As a result, from the late 1980's
until 1992-93, the State experienced recurring budget deficits. A further
consequence of the largest budget imbalance was to significantly reduce the
State's available cash resources and require it to use a series of external
borrowings to meet its cash needs.
The State's accumulated budget deficit approached $2.8 billion at its peak
on June 30, 1993. Because of the deterioration in the State's financial
condition, the State's credit ratings had been reduced. Since October 1992,
three major nationally recognized statistical rating organizations had lowered
the State's general obligation bond rating from the highest rating of "AAA" to
"A+" by S&P, "A1" by Moody's, and "A+" by Fitch.
The State's financial condition improved markedly during the fiscal years
1995-99. This was a result of a combination of factors, most notably: better
than expected revenues, a slowdown in growth of social welfare programs, and
continued spending restraint based on the actions taken in earlier years. This
economic improvement caused two of the three nationally recognized statistical
rating organizations to raise the State's general obligation bond rating.
Moody's raise its rating from "A1" to "Aa3"and Fitch went from "A+" to "AA-",
while S&P remained at an "A+".
The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (approximately $2.2
billion in 1995-96. $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than
were initially planned when the budgets were enacted. These additional funds
were largely directed to school spending as mandated by Proposition 98, and to
make up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled $639.8 Million as of June 30, 1997 and $1.782 billion at June
30, 1998.
State Appropriations Limit. Subject to certain exceptions, California is
subject to an annual appropriations limit imposed by its Constitution on
"proceeds of taxes". Various expenditures, including but not limited to debt
service on certain bonds and appropriations for qualified capital outlay
projects, are not included in the appropriations limit.
Issues Affecting Local Governments and Special Districts
Proposition 13. Certain California Tax-Exempt Securities may be obligations
of issuers that rely in whole or in part on ad valorem real property taxes for
revenue. In 1978, California voters approved Proposition 13, which amended the
State Constitution to limit ad valorem real property taxes and restrict the
ability of taxing entities to increase property tax and other revenues. With
certain exceptions, the maximum ad valorem real property tax is limited to 1% of
the value of real property. The value of real property may be adjusted annually
for inflation at a rate not exceeding 2% per year, or reduced to reflect
declining value, and may also be adjusted when there is a change in ownership or
new construction with respect to the property. Constitutional challenges to
Proposition 13 to date have been unsuccessful.
The State, in response to the significant reduction in local property tax
revenues as a result of the passage of Proposition 13, enacted legislation to
provide local government with increased expenditures from the General Fund. This
post-Proposition 13 fiscal relief has, however, ended.
11
<PAGE>
Proposition 62. This initiative placed further restrictions on the ability
of local governments to raise taxes and allocate approved tax revenues. Several
recent decisions of the California Courts of Appeal have held parts of
Proposition 62 unconstitutional. Recently, however, the California Supreme Court
upheld a requirement imposed by Proposition 62 that "special taxes" be approved
by two-thirds of the voters voting in an election on the issue. This recent
decision may invalidate other taxes that have been imposed by local governments
in California and make it more difficult for local governments to raise taxes.
Propositions 98 and 111. These initiatives changed the State appropriations
limit and State funding of public education below the university level by
guaranteeing K-14 schools a minimum share of General Fund revenues. The
initiatives also require that the State establish a prudent reserve fund for
public education.
Proposition 218. Passed in November 1996, this initiative places additional
limitations on the ability of California local governments to increase general
taxes and impose special assessments. Taxes, assessments and fees have a grace
period of up to two years from November 1996 to receive voter approval.
Appropriations Limit. Local governmental entities are also subject to
annual appropriations limits. If a local government's revenues in any year
exceed the limit, the excess must be returned to the public through a revision
of tax rates or fee schedules over the following two years.
Conclusion. The effect of these Constitutional and statutory changes and of
budget developments on the ability of California issuers to pay interest and
principal on their obligations remains unclear, and may depend upon whether a
particular bond is a general obligation or limited obligation bond (limited
obligation bonds being generally less affected). The Tax-Free Funds'
concentration in California tax-exempt securities provides a greater level of
risk than a fund that is diversified across numerous state and municipal
entities.
Additional Issues
Mortgages and Deeds of Trust. The Tax-Free Funds may invest in issues that
are secured in whole or in part by mortgages or deeds of trust on real property.
California law limits the remedies of a creditor secured by a mortgage or a deed
of trust, which may result in delays in the flow of revenues to, and debt
service paid by, an issuer.
Lease Financing. Some local governments and districts finance certain
activities through lease arrangements. It is uncertain whether such lease
financing are debt that requires voter approval.
Seismic Risk. It is impossible to predict the time, location, or magnitude
of a major earthquake or its effect on the California economy. In January 1994,
a major earthquake struck Los Angeles, causing significant damage to structures
and facilities in a four-county area. The possibility exists that another such
earthquake could create a major dislocation of the California economy.
Stock Index Futures Contracts. The Stock Funds may enter into agreements to
"buy" or "sell" a stock index at a fixed price at a specified date. No stock
actually changes hands under these contracts; instead, changes in the underlying
index's value are settled in cash. The cash settlement amounts are based on the
difference between the index's current value and the value contemplated by the
contract. An option on a stock index futures contract is an agreement to buy or
sell an index futures contract; that is, exercise of the option results in
ownership of a position in a futures contract. Most stock index futures are
based on broad-based common stocks, such as the S&P 500 and the MidCap Index,
both registered trademarks of Standard & Poor's Corporation. Other broad-based
indices include the New York Stock Exchange Composite Index, S&P BARRA/Value,
Russell 2000, Value Line Composite Index and Standard & Poor's 100 Stock Index.
The Manager expects that futures transactions for the 500 Fund, the MidCap
Fund, the SmallCap Fund and the Equity income Fund will typically involve the
S&P 500 Index, the MidCap Index, the Russell 2000 and the S&P 500 Index,
respectively. Because the value of index futures depends primarily on the value
of their underlying indices, the performance of broad-based contracts will
generally reflect broad changes in common stock prices. Each Fund's investments
may be more or less heavily weighted in
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<PAGE>
securities of particular types of issuers, or securities of issuers in
particular industries, than the indexes underlying its index futures positions.
Therefore, while a fund's index futures positions should provide exposure to
changes in value of the underlying indexes (or protection against declines in
their value in the case of hedging transactions), it is likely that, in the case
of hedging transactions, the price changes of a Fund's index futures positions
will not match the price changes of the fund's other investments. Other factors
that could affect the correlation of a fund's index futures positions with its
other investments are discussed below.
Futures Margin Payments. Both the purchaser and seller of a futures
contract are required to deposit "initial margin" with a futures broker (known
as a "futures commission merchant," or "FCM"), when the contract is entered
into. Initial margin deposits are equal to a percentage of the contract's value,
as set by the exchange where the contract is traded, and may be maintained in
cash or high quality liquid securities. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments are similar to good faith deposits or performance
bonds, unlike margin extended by a securities broker, and initial and variation
margin payments do not constitute purchasing securities on margin for purposes
of the fund's investment limitations. In the event of the bankruptcy of a FCM
that holds margin on behalf of a fund, the fund may be entitled to a return of
margin owed to it only in proportion to the amount received by the FCM's other
customers. The Manager will attempt to minimize this risk by monitoring the
creditworthiness of the FCMs with which the Stock Funds do business.
Limitations on Stock Index Futures Transactions. Each Stock Fund has filed
a notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association, which regulate trading in the futures markets.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act,
each fund may use futures contracts for bona fide hedging purposes within the
meaning of CFTC regulations; provided, however, that, with respect to positions
in futures contracts which are not used for bona fide hedging purposes within
the meaning of CFTC regulations, the aggregate initial margin required to
establish such position will not exceed five percent of the liquidation value of
each fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts into which the fund has entered.
The Manager also intends to follow certain other limitations on each of the
Stock Fund's futures activities. Under normal conditions, a fund will not enter
into any futures contract if, as a result, the sum of (i) the current value of
assets hedged in the case of strategies involving the sale of securities, and
(ii) the current value of the indexes or other instruments underlying the Fund's
other futures positions would exceed 20% of such fund's total assets (35% if
total assets are below $25 million). In addition, each fund does not intend to
enter into futures contracts that are not traded on exchanges or boards of
trade.
The above limitations on the Stock Funds' investments in futures contracts,
and these funds' policies regarding futures contracts discussed elsewhere in
this Statement of Additional Information, are not fundamental policies and may
be changed as regulatory agencies permit. Non-fundamental policies may be
changed without shareholder approval.
Various exchanges and regulatory authorities have undertaken reviews of
futures trading in light of market volatility. Among the possible actions that
have been presented are proposals to adopt new or more stringent daily price
fluctuation limits for futures transactions, and proposals to increase the
margin requirements for various types of strategies. It is impossible to predict
what actions, if any, will result from these reviews at this time.
Each Stock Fund may purchase index futures contracts in order to attempt to
remain fully invested in the stock market. For example, if a fund had cash and
short-term securities on hand that it wished to invest in common stocks, but at
the same time it wished to maintain a highly liquid position in order to be
prepared to meet redemption requests or other obligations, it could purchase an
index futures contract in order to approximate the activity of the index with
that portion of its portfolio. Each Stock Fund may also purchase futures
contracts as an alternative to purchasing actual securities. For example, if a
fund intended to purchase stocks but had not yet done so, it could purchase a
futures contract in order to participate in the index's activity while deciding
on particular investments. This strategy is sometimes known as an
13
<PAGE>
anticipatory hedge. In these strategies a fund would use futures contracts to
attempt to achieve an overall return -- whether positive or negative -- similar
to the return from the stocks included in the underlying index, while taking
advantage of potentially greater liquidity than futures contracts may offer.
Although a fund would hold cash and liquid debt securities in a segregated
account with a value sufficient to cover its open future obligations, the
segregated assets would be available to the fund immediately upon closing out
the futures position, while settlement of securities transactions can take
several days.
When a Fund wishes to sell securities, it may sell stock index futures
contracts to hedge against stock market declines until the sale can be
completed. For example, if the Manager anticipated a decline in common stock
prices at a time when a Fund anticipated selling common stocks, it could sell a
futures contract in order to lock in current market prices. If stock prices
subsequently fell, the futures contract's value would be expected to rise and
offset all or a portion of the anticipated loss in the common stocks the Fund
had hedged in anticipation of selling them. Of course, if prices subsequently
rose, the futures contract's value could be expected to fall and offset all or a
portion of any gains from those securities. The success of this type of strategy
depends to a great extent on the degree of correlation between the index futures
contract and the securities hedged.
Asset Coverage for Futures Positions. Each Stock Fund will comply with
guidelines established by the SEC with respect to coverage of futures strategies
by mutual funds, and if the guidelines so require will set aside cash and or
other appropriate liquid assets (e.g., U.S. Equities, U.S. Government securities
or other high grade debt obligations) in a segregated custodial account in the
amount prescribed. Securities held in a segregated account cannot be sold while
the futures or option strategy is outstanding, unless they are replaced with
other suitable assets. As a result, there is a possibility that segregation of a
large percentage of a fund's assets could impede portfolio management or such
fund's ability to meet redemption requests or other current obligations.
Correlation of Price Changes. As noted above, price changes of a Fund's
futures positions may not be well correlated with price changes of its other
investments because of differences between the underlying indexes and the types
of securities the Fund invests in. For example, if a fund sold a broad-based
index futures contract to hedge against a stock market decline while the fund
completed a sale of specific securities in its portfolio, it is possible that
the price of the securities could move differently from the broad market average
represented by the index futures contract, resulting in an imperfect hedge which
could affect the correlation between the fund's return and that of the
respective benchmark index. In the case of an index futures contract purchased
by the fund either in anticipation of actual stock purchases or in an effort to
be fully invested, failure of the contract to track its index accurately could
hinder such fund in the achievement of its objective.
Stock index futures prices can also diverge from the prices of their
underlying indexes. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
index, and the time remaining until expiration of the contract, which may not
affect security prices the same way. Imperfect correlation may also result from
differing levels of demand in the futures markets and the securities markets,
from structural differences in how futures and securities are traded, or from
imposition of daily price fluctuation limits for futures contracts. A fund may
sell futures contracts with a greater or lesser value than the securities it
wishes to hedge in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases.
Liquidity of Futures Contracts. Because futures contracts are generally
settled within a day from the date they are closed out, compared with a
settlement period of up to five days for some types of securities, the futures
markets can provide superior liquidity to the securities markets in many cases.
Nevertheless, there is no assurance a liquid secondary market will exist for any
particular futures contract at any particular time. In addition, futures
exchanges may establish daily price fluctuation limits for futures contracts,
and may halt trading if a contract's price moves upward or downward more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached, it may be impossible for a Fund to enter into new positions or
close out existing positions. Trading in index futures can also be halted if
trading in the underlying index stocks is halted. If the secondary market for a
futures contract is not liquid because of price fluctuation limits or otherwise,
it would prevent prompt liquidation of unfavorable futures positions, and
potentially could require a fund to continue to hold a futures position until
the delivery date regardless of potential consequences. If a fund must continue
to hold a futures position, its access to other assets held to cover the
position could also be impaired.
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<PAGE>
INVESTMENT RESTRICTIONS
Except as noted with respect to any fund, each trust has adopted the
following restrictions as additional fundamental policies of its Funds, which
means that they may not be changed without the approval of a majority of the
outstanding voting securities of that fund. Under the Investment Company Act of
1940, as amended, ("1940 Act"), a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the affirmative vote of
the lesser of (l) more than 50% of the outstanding shares of the trust or of
such fund, or (2) 67% or more of the shares of the trust or of such fund present
at a meeting of shareholders if more than 50% of the outstanding shares of the
trust or of such fund are represented at the meeting in person or by proxy. A
fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefor) for temporary or emergency purposes
may be made from banks in any amount up to 10% (15% in the case of the Stock
Funds) of the fund's total asset value. However, a fund will not purchase
additional securities while the value of its outstanding borrowings exceeds 5%
of its total assets. Secured temporary borrowings may take the form of a reverse
repurchase agreement, pursuant to which a Fund would sell portfolio securities
for cash and simultaneously agree to repurchase them at a specified date for the
same amount of cash plus an interest component. (As a matter of operating
policy, the funds currently do not intend to utilize reverse repurchase
agreements, but may do so in the future.)
2. Except as required in connection with permissible futures contracts
(Stock Funds only), buy any securities on "margin" or sell any securities
"short," except that it may use such short-term credits as are necessary for the
clearance of transactions.
3. Make loans, except (a) through the purchase of debt securities which are
either publicly distributed or customarily purchased by institutional investors,
(b) to the extent the entry into a repurchase agreement may be deemed a loan, or
(c) to lend portfolio securities to broker-dealers or other institutional
investors if at least 100% collateral, in the form of cash or securities of the
U.S. Government or its agencies and instrumentalities, is pledged and maintained
by the borrower.
4. Act as underwriter of securities issued by other persons except insofar
as the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
5. With respect to 75% of its total assets, purchase the securities of any
one issuer (except securities issued or guaranteed by the U.S. Government and
its agencies or instrumentalities, as to which there are no percentage limits or
restrictions) if immediately after and as a result of such purchase (a) the
value of the holdings of the Fund in the securities of such issuer would exceed
5% of the value of the Fund's total assets, or (b) the Fund would own more than
10% of the voting securities of any such issuer (both the issuer of the
municipal obligation as well as the financial institution/ intermediary shall be
considered issuers of a participation certificate), except that the Insured Fund
may invest more than 25% of its assets in securities insured by the same
insurance company.
6. Purchase securities from or sell to the Trust's officers and Trustees,
or any firm of which any officer or Trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, Trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and Trustees
together own beneficially more than 5% of such securities (non-fundamental for
the Stock Funds).
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices, and provided that this limitation
shall not prohibit the purchase of securities secured by real estate or
interests therein.
8. (a) Invest in commodities and commodity contracts, or interests in
oil, gas, or other mineral exploration or development programs; provided,
however, that a fund may invest in futures contracts as described in the
Prospectus and in this Statement of Additional Information (Stock Funds only).
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<PAGE>
(b) Invest in commodities and commodity contracts, puts, calls,
straddles, spreads, or any combination thereof, or interests in oil, gas, or
other mineral exploration or development programs, except that the Government
Fund may purchase, hold, and dispose of "obligations with puts attached" in
accordance with its investment policies (all Funds except the Stock Funds).
9. Invest in companies for the purpose of exercising control or management.
10. (a) Purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and as such securities may be acquired in
connection with a merger, consolidation, acquisition, or reorganization (the
Stock Funds only).
(b) Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization (all
funds except the Stock Funds).
11. Purchase illiquid securities, including (under current SEC
interpretations) securities that are not readily marketable, and repurchase
agreements with more than seven days to maturity if, as a result, more than 10%
of the total assets of the Fund would be invested in such illiquid securities.
12. Invest 25% or more of its assets in securities of any one industry,
although for purposes of this limitation, tax-exempt securities and obligations
of the U.S. Government and its agencies or instrumentalities are not considered
to be part of any industry (both the industry of the issuer of the municipal
obligation as well as the industry of the financial institution/intermediary
shall be considered in the case of a participation certificate), except that the
Insured Fund may invest more than 25% of its assets in securities insured by the
same insurance company.
13. Issue senior securities, as defined in the Investment Company Act,
except that this restriction shall not be deemed to prohibit a fund from (a)
making any permitted borrowings, mortgages or pledges, and (b) entering into
permissible repurchase and futures transactions.
In addition, each Stock Fund has adopted the following restrictions as
operating policies, which are not fundamental policies, and may be changed
without shareholder approval in accordance with applicable regulations. Each
Stock Fund may not:
1. Engage in short sales of securities.
2. Invest in warrants, valued at the lower of cost or market, in excess of
5% of the value of a Fund's net assets. Included in such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants that are not
listed on the New York Stock Exchange (the "NYSE") or American Stock Exchange.
Warrants acquired by a fund in units or attached to securities may be deemed to
be without value.
3. Enter into a futures contract or option on a futures contract, if, as a
result thereof, more than 5% of the fund's total assets (taken at market value
at the time of entering into the contract) would be committed to initial
deposits and premiums on open futures contracts and options on such contracts.
4. Invest more than 5% of its total assets in the securities of companies
(including predecessors) that have been in continuous operation for a period of
less than three years.
5. Invest in puts, calls, straddles or spread options, or any combination
thereof.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
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<PAGE>
TRUSTEES AND OFFICERS
The Trustees of each Trust have the responsibility for the overall
management of the respective Trust, including general supervision and review of
the Funds' investment activities. The Trustees elect the officers of each Trust
who are responsible for administering the day-to-day operations of such Trust
and its funds. The affiliations of the officers and Trustees and their principal
occupations for the past five years are listed below. The Trustees and officers
of each Trust are identical. Trustees who are deemed to be an "interested
person" of the Trust, as defined in the 1940 Act, are indicated by an asterisk
(*).
<TABLE>
<CAPTION>
Position and Offices Principal Occupation
Name and Address Age with the Trusts within the Past 5 years
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Stephen C. Rogers 33 President & Trustee Chief Executive Officer, CCM Partners
44 Montgomery Street 1999 to present; Chief Operating Officer,
Suite 2100 CCM Partners 1997 to 1999;
San Francisco, CA 94104 Administrative Officer, CCM Partners
1993-1997; Marketing epresentative,
CCM Partners, 1992 to 1993.
*Phillip W. McClanahan 63 Vice President, Director of Investments, CCM Partners:
44 Montgomery Street Treasurer and 1985-present 1984-1985: Vice President
Suite 2100 Trustee and Portfolio Manager, Transamerica
San Francisco, CA 94104 Investment Services: 1966-1984: Vice
President and Portfolio Manager,
Fireman's Fund Insurance Company and
Amfire, Inc.
Harry Holmes 74 Trustee Principal, Harry Holmes & Associates
Del Ciervo at Midwood (consulting); 1982-1984: President and
Pebble Beach, CA 93953 Chief Executive Officer, Aspen Skiing
Company; 1973-1984: President and
Chief Executive Officer, Pebble Beach
Company (property management).
John B. Sias 73 Trustee President and CEO,
C/O Chronicle Publishing Chronicle Publishing Company, 1993 to
901 Mission Street Present; Company formerly, Director
and San Francisco, CA 94105
Executive Vice
President, Capital Cities/ABC Inc.
and President, ABC Network T.V. Group.
Guy Rounsaville, Jr. 56 Trustee Partner, Allen, Matkins, Leck, Gamble &
333 Bush Street, #1700 Mallory LLP: General Counsel, Wells Fargo
San Francisco, CA 94104 Bank; 1977-1999: Corporate Secretary,
Wells Fargo & Company; 1978-1999.
</TABLE>
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<PAGE>
As shown on the following table the funds pay the fees of the Trustees who
are not affiliated with the Manager, which are currently $2,500 per quarter and
$500 for each meeting attended. The table provides information regarding all
series of the California Investment Trust as of October 28, 1999. As of October
28, 1999 Trustees and Officers as a group owned less than 1% of the outstanding
shares of the Money Fund, the Treasury Trust, the Insured Fund, the Government
Fund, and the 500 Fund. As of October 28, 1999 the Trustees and Officers of the
Trust as a group owned approximately 1.1% of the Income Fund, 2.0% of the MidCap
Fund, 2.7% of the SmallCap Fund and 1.25% of the Equity Income Fund.
<TABLE>
<CAPTION>
Pension or Estimated Total compensation
Aggregate retirement benefits annual respecting registrant
Fund group accrued as Fund benefits upon and Fund complex
Name/Position compensation Expenses retirement paid to Trustees
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen C. Rogers None None None None
CEO, Trustee
Phillip W. McClanahan None None None None
Treasurer, Trustee
Harry Holmes $12,000 None None $12,000
Trustee
John B. Sias $12,000 None None $12,000
Trustee
Guy Rounsaville, Jr. $12,000 None None $12,000
Trustee
</TABLE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
Management Services
CCM Partners, a California Limited Partnership (the "Manager"), is the
Manager of the funds under Investment Management Agreements dated December 27,
1985, October 15, 1992, December 31, 1985 and April 13, 1992. (Such Investment
Management Agreements are collectively referred to as the "Agreements.") CCM
Partners is indirectly controlled by a privately held corporation, RFS, Inc.,
which in turn is controlled by a family partnership of which Mr. Stephen C.
Rogers is a co-trustee. Pursuant to the Agreements, the manager supplies
investment research and portfolio management, including the selection of
securities for the funds to purchase, hold, or sell and the selection of brokers
or dealers through whom the portfolio transactions of each fund are executed.
The Manager's activities are subject to review and supervision by the Trustees
to whom the Manager renders periodic reports of the funds' investment
activities. The Manager, at its own expense, also furnishes the Trusts with
executive and administrative personnel, office space and facilities, and pays
certain additional administrative expenses incurred in connection with the
operation of each fund.
Each Fund pays for its own operating expenses and for its share of its
respective Trust's expenses not assumed by the Manager, including, but not
limited to, costs of custodian services, brokerage fees, taxes, interest, costs
of reports and notices to shareholders, costs of dividend disbursing and
shareholder record-keeping services (including telephone costs), auditing and
legal fees, the fees of the independent Trustees and the salaries of any
officers or employees who are not affiliated with the Manager, and its pro -rata
portion of premiums on the fidelity bond covering the Fund.
For the Manager's services, each Fund (except the Stock Funds) pays a
monthly fee computed at the annual rate of 1/2 of 1% (0.50%) of the value of the
average daily net assets of each Fund up to and including assets of $100
million; plus 45/100 of 1% (0.45%) per annum of average net assets over $100
million up to and including $500 million; and 4/10 of 1% (0.40%) per annum of
average net assets over $500 million. For the Manager's services, the Manager is
entitled to a monthly fee from the MidCap Fund computed at the annual rate of
4/10 of 1% (0.40%) of the value of its average daily net assets. The Manager is
entitled to a monthly fee from the 500 Fund computed at the annual rate of
25/100 of 1% (0.25%) of the value of its average daily net assets. For the
SmallCap Fund and the Equity Income Fund, the Manager is compensated at a rate
of 1/2 of 1% (0.50%) per annum of the value of average daily net
18
<PAGE>
assets of these Funds up to and including $500 million; plus 45/100 of 1% (.45%)
per annum of the value of assets up to and including $1 billion, and 40/100 of
1% (0.40%) per annum of average net assets above 1 billion.
The Agreements provide that the Manager is obligated to reimburse each of
the other Funds monthly (through a reduction of its management fees and
otherwise) for all expenses (except for extraordinary expenses such as
litigation) in excess of 1.00% of each Fund's average daily net assets. The
Manager may also, and has to date, reduced its fees in excess of its obligations
under the Agreements.
The following fees were paid to the manager:
For the fiscal year ended August 31, 1997:
Fund Fee Reimbursement Net to Manager
- --------------------------------------------------------------------------------
Money Fund $479,264 $200,511 $278,753
Income Fund $961,291 n/a $961,291
Government Fund $150,067 $13,522 $136,545
Treasury Trust $210,368 $100,556 $109,812
Insured Fund $126,291 $38,590 $87,701
S&P 500 $143,433 $151,316 ($7,883)
S&P MidCap $155,818 $83,969 $71,849
S&P SmallCap $15,081 $50,827 ($35,746)
Equity Income $22,205 $35,391 ($13,186)
For the fiscal year ended August 31, 1998:
Fund Fee Reimbursement Net to Manager
- --------------------------------------------------------------------------------
Money Fund $505,199 $213,549 $291,650
Income Fund $1,032,319 n/a $1,032,319
Government Fund $168,159 $10,318 $157,841
Treasury Trust $238,447 $116,733 $121,714
Insured Fund $116,198 $34,788 $81,410
S&P 500 $217,634 $173,969 $43,665
S&P MidCap $203,446 $80,984 $122,462
S&P SmallCap $48,850 $43,596 $5,254
Equity Income $57,707 $15,526 $42,181
For the fiscal year ended August 31, 1999:
Fund Fee Reimbursement Net to Manager
- --------------------------------------------------------------------------------
Money Fund $558,691 $233,014 $325,677
Income Fund $1,043,156 n/a $1,043,156
Government Fund $174,183 $3,320 $170,863
Treasury Trust $253,658 $109,740 $143,918
Insured Fund $123,678 $27,698 $95,982
S&P 500 $313,194 $218,960 $94,234
S&P MidCap $212,287 $89,438 $122,849
S&P SmallCap $47,058 $38,043 $9,015
Equity Income $67,107 $8,051 $59,056
The Agreements with respect to the Funds are currently in effect until
January 31, 2000. Each Agreement will be in effect thereafter only if it is
renewed for each Fund for successive periods not exceeding one year by (i) the
Board of Trustees of the Trusts or a vote of a majority of the outstanding
voting securities of each Fund, and (ii) a vote of a majority of such Trustees
who are not parties to said Agreement nor an interested person of any such party
(other than as a Trustee), cast in person at a meeting called for the purpose of
voting on such Agreement.
Management Agreements may be terminated without penalty at any time by the
applicable Trust with respect to one or more of the Funds to which the relevant
Agreement applies (either by the applicable Board of Trustees or by a majority
vote of the terminating Fund's outstanding shares); or by the Manager on
60-days' written notice, and will automatically terminate in the event of its
assignment as defined in the 1940 Act.
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<PAGE>
Principal Underwriter
RFS Partners, a California limited partnership, is currently the principal
underwriter of each Fund's shares under an underwriting agreement with each
Fund, pursuant to which RFS Partners agrees to act as each Fund's distribution
agent. Each Fund's shares are sold to the public on a best efforts basis in a
continuous offering without a sales load or other commission or compensation.
RFS Partners is the general partner of the Funds' Manager. The general partner
of RFS Partners is Richard F. Shelton, Inc., a corporation that is controlled by
Richard F. Shelton Trust. Mr. McClanahan is a limited partner of RFS Partners.
While the shares of each Fund are offered directly to the public with no sales
charge, RFS Partners may, out of its own monies, compensate brokers who assist
in the sale of a Fund's shares. In addition, the Manager may, out of its own
monies, make cash contributions to tax-exempt charitable organizations which
invest in the Government Fund or the Treasury Trust.
Other Services
Firstar Mutual Fund Services, LLC is the shareholder servicing agent for
the Trusts and acts as the Trusts' transfer and dividend-paying agent. In such
capacities it performs many services, including portfolio and net asset
valuation, bookkeeping, and shareholder record-keeping.
Firstar Bank Milwaukee (the "Custodian") acts as custodian of the
securities and other assets of the Trusts. The Custodian does not participate in
decisions relating to the purchase and sale of portfolio securities. Under the
custodian agreement, the Custodian (i) maintains a separate account or accounts
in the name of each Fund, (ii) holds and transfers portfolio securities on
account of each Fund, (iii) accepts receipts and makes disbursements of money on
behalf of each Fund, (iv) collects and receives all income and other payments
and distribution on account of each Fund's securities and (v) makes periodic
reports to the Trustees of each Trust concerning each Fund's operations.
Tait, Weller & Baker (the "Auditors"), Eight Penn Center Plaza, Suite 800,
Philadelphia, Pennsylvania 19103, are the independent auditors for the Trusts.
The Auditors provide audit services and assistance and consultation with respect
to regulatory filings with the SEC. The Auditors also audit the books of each
Fund at least once each year.
The validity of shares of beneficial interest offered hereby has been
passed on by Paul, Hastings, Janofsky & Walker LLP, 345 California Street, 29th
Floor, San Francisco, California 94104.
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<PAGE>
THE TRUSTS' POLICIES REGARDING BROKER-DEALERS
USED FOR PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the funds, assignment of their
portfolio business, and negotiation of commission rates and prices are made by
the Manager, whose policy is to obtain the "best execution" (prompt and reliable
execution at the most favorable security price) available. Since it is
anticipated that most purchases made by the funds (other than the Stock Funds)
will be principal transactions at net prices, the Funds will incur few or no
brokerage costs. The funds will deal directly with the selling or purchasing
principal or market maker without incurring charges for the services of a
broker-dealer on its behalf unless it is determined that a better price or
execution may be obtained by utilizing the services of a broker-dealer.
Purchases of portfolio securities from underwriters may include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and asked price.
When a broker-dealer is used for portfolio transactions, the Manager will
seek to determine that the amount of commissions paid is reasonable in relation
to the value of the brokerage and research services and information provided,
viewed in terms of either that particular transaction or its overall
responsibilities with respect to the funds for which it exercises investment
discretion. In selecting broker-dealers and in negotiating commissions, the
Manager considers the broker-dealer's reliability, the quality of its execution
services on a continuing basis, the financial condition of the firm, and the
research services provided, which include furnishing advice as to the value of
securities, the advisability of purchasing or selling specific securities and
furnishing analysis and reports concerning state and local governments,
securities, and economic factors and trends, and portfolio strategy. The Manager
considers such information, which is in addition to and not in lieu of the
services required to be performed by the Manager under the Management
Agreements, to be useful in varying degrees, but of indeterminable value.
The funds may pay brokerage commissions in an amount higher than the lowest
available rate for brokerage and research services as authorized, under certain
circumstances, by the Securities Exchange Act of 1934, as amended. Where
commissions paid reflect research services and information furnished in addition
to execution, the Manager believes that such services were bona fide and
rendered for the benefit of its clients. For the fiscal year ended August 31,
1997, the 500 Fund paid $842 in brokerage commissions, the MidCap Fund paid
$9,878 in brokerage commissions, the Equity Income Fund paid $550 in brokerage
commissions and the SmallCap Fund paid $44,210 in brokerage commissions. For the
fiscal year ended August 31, 1998, the 500 Fund paid $728 in brokerage
commissions, the MidCap Fund paid $6,229 in brokerage commissions, the Equity
Income Fund paid $327 in brokerage commissions and the SmallCap Fund paid $5,309
in brokerage commissions. For the fiscal year ended August 31, 1999, the 500
Fund paid $2,512 in brokerage commissions, the MidCap Fund paid $10,102 in
brokerage commissions, the Equity Income Fund paid $3,255 in brokerage
commissions and the SmallCap Fund paid $3,033 in brokerage commissions. In some
cases, a broker may provide research services to the Manager. Such research is
paid for by the broker using soft dollars. Any research received by the Manager
is used for the exclusive benefit of the funds and their shareholders.
Provided that the best execution is obtained, the sale of shares of any of
the funds may also be considered as a factor in the selection of broker-dealers
to execute the funds' portfolio transactions. No affiliates of the Funds or of
the Manager will receive commissions for business arising directly or indirectly
out of portfolio transactions of the funds.
If purchases or sales of securities of the funds are considered at or about
the same time, transactions in such securities will be allocated among the
several funds in a manner deemed equitable to all by the Manager, taking into
account the respective sizes of the funds, and the amount of securities to be
purchased or sold. It is recognized that it is possible that in some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as a fund is concerned. In other cases, however, it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions or net prices will be beneficial to a fund.
21
<PAGE>
ADDITIONAL INFORMATION REGARDING PURCHASES
AND REDEMPTIONS OF FUND SHARES
Purchase Orders
The purchase price for shares of the funds is the net asset value of such
shares next determined after receipt and acceptance of a purchase order in
proper form by the Funds' Custodian, Firstar Bank Milwaukee. Once shares of a
fund are purchased, they begin earning income immediately, and income dividends
will start being credited to the investor's account on the day following the
effective date of purchase and continue through the day the shares in the
account are redeemed. All checks are accepted subject to collection at full face
value in U.S. funds and must be drawn in U.S. dollars on a U.S. bank. Checks
drawn in U.S. funds on foreign banks will not be credited to the shareholder's
account and dividends will not begin accruing until the proceeds are collected,
which can take a long period of time.
Payments transmitted by wire and received by the Custodian prior to the
close of the Funds, normally at 4:00 p.m. Eastern time (1:00 p.m. Pacific time)
on any business day are effective on the same day as received. Wire payments
received by the Custodian after that time will normally be effective on the next
business day and such purchases will be made at the net asset value next
calculated after receipt of that payment.
Shareholder Accounting
All purchases of fund shares will be credited to the shareholder in full
and fractional shares of the relevant fund (rounded to the nearest 1/1000 of a
share) in an account maintained for the shareholder by the Trusts' transfer
agent. Share certificates will not be issued for any fund at any time. To open
an account in the name of a corporation, a resolution of that corporation's
Board of Directors will be required. Other evidence of corporate status or the
authority of account signatories may be required.
Each Trust reserves the right to reject any order for the purchase of
shares of any fund, in whole or in part. In addition, the offering of shares of
any fund may be suspended by the relevant Trust at any time and resumed at any
time thereafter.
Shareholder Redemptions
All requests for redemption and all share assignments should be sent to the
applicable fund, 44 Montgomery Street, Suite 2100, San Francisco, California
94104, or, for telephone redemptions, by calling the Fund at (800) 225-8778, For
on-line redemptions, visit the Fund's web-site at www.caltrust.com.
Redemptions will be made in cash at the net asset value per share next
determined after receipt by the transfer agent of a redemption request in proper
form, including all share certificates, share assignments, signature guarantees,
and other documentation as may be required by the transfer agent. The amount
received upon redemption may be more or less than the shareholder's original
investment.
The Trusts will attempt to make payment for all redemptions within one
business day, but in no event later than seven days after receipt of such
redemption request in proper form. However, each Trust reserves the right to
suspend redemptions or postpone the date of payment (1) for any periods during
which the New York Stock Exchange is closed (other than for the customary
weekend and holiday closings), (2) when trading in the markets the Trusts
usually utilize is restricted or an emergency exists, as determined by the
Securities and Exchange Commission ("SEC"), so that disposal of the Trust's
investments or the determination of a Fund's net asset value is not reasonably
practicable, or (3) for such other periods as the SEC by order may permit for
the protection of a Trust's shareholders. Also, each Trust will not mail
redemption proceeds until checks used for the purchase of the shares have
cleared, which can take up to 15 days.
As of the date of this Statement of Additional Information, the Trusts
understand that the New York Stock Exchange is closed for the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas. The Trusts have
been advised that the Custodian is also closed on Martin Luther King's Birthday.
On holidays in which the Custodian is closed, any transactions will be processed
on the following business day.
22
<PAGE>
Due to the relatively high cost of handling small investments, each Trust
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose accounts in the Trust have an aggregate value of less than
$5,000 ($1,000 in the case of the Stock Funds), but only where the value of such
accounts has been reduced by such shareholder's prior voluntary redemption of
shares. In any event, before a Trust redeems such shares and sends the proceeds
to the shareholder, it will notify the shareholder that the value of the shares
in that shareholder's account is less than the minimum amount and allow that
shareholder 30 days to make an additional investment in an amount which will
increase the aggregate value of that shareholder's accounts to at least $5,000
before the redemption is processed ($1,000 in the case of the Stock Funds).
Use of the Exchange Privilege as described in the Prospectus in conjunction
with market timing services offered through numerous securities dealers has
become increasingly popular as a means of capital management. In the event that
a substantial portion of a fund's shareholders should, within a short period,
elect to redeem their shares of that fund pursuant to the Exchange Privilege,
the fund might have to liquidate portfolio securities it might otherwise hold
and incur the additional costs related to such transactions. The Exchange
Privilege may be terminated or suspended by the Funds upon 60-day's prior notice
to shareholders.
Redemptions in Kind
Each Trust has committed itself to pay in cash all requests for redemption
by any shareholder of record, limited in amount, however, during any 90-day
period to the lesser of $250,000 or 1% of the value of the applicable Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the Trustees reserve the right to make payments in whole or in
part in securities or other assets of the Fund from which the shareholder is
redeeming in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of that fund or the
Trust. In such circumstances, the securities distributed would be valued at the
price used to compute such fund's net asset value. Should a fund do so, a
shareholder would likely incur transaction fees in converting the securities to
cash.
Determination of Net Asset Value Per Share ("NAV")
The valuation of the portfolio securities of the Money Fund and the
Treasury Trust (including any securities held in the separate account maintained
for when-issued securities) is based upon their amortized cost, which does not
take into account unrealized capital gains or losses. This involves valuing an
instrument at its cost and thereafter 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. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price such funds would
receive if they sold the instrument. During periods of declining interest rates,
the daily yield on shares of the Money Fund and the Treasury Trust computed as
described above may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices. Thus, if the use of amortized cost by such funds resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in such
fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors in
such fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The use of amortized cost by the Money Fund and the Treasury Trust, and the
maintenance of each Fund's per share net asset value at $1.00 is permitted by
Rule 2a-7 under the 1940 Act, pursuant to which each fund must adhere to certain
conditions. There are policies that the Funds' Manager follows to regarding
2a-7. Under the amortized cost method, securities are valued at their
acquisition cost, as adjusted for amortization of premium or discount, rather
than at current market value. Calculations are made at least weekly to compare
the value of these Funds' investments valued at amortized cost with market
values.
The Money Fund and the Treasury Trust each maintain a dollar-weighted
average portfolio maturity of 90 days or less, only purchase instruments having
remaining maturities of 397 days or less, and only invest in securities
determined by the Trustees to be of high quality with minimal credit risks. The
23
<PAGE>
Trustees have also established procedures designed to stabilize, to the extent
reasonably possible, each Fund's price per share as computed for the purpose of
sales and redemptions at $1.00. Such procedures include review of each Fund's
portfolio holdings by the Trustees, at such intervals as they may deem
appropriate, to determine whether each Fund's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation is examined by the Trustees. If such
deviation exceeds 1/2 of 1%, the Trustees will promptly consider what action, if
any, will be initiated. In the event the Trustees determine that a deviation
exists which may result in material dilution or other unfair results to
investors or existing shareholders, they have agreed to take such corrective
action as they regard as necessary and appropriate, which may include the sale
of portfolio securities prior to maturity to realize capital gains or losses or
to shorten average portfolio maturity, adjusting or withholding of dividends,
redemptions of shares in kind, or establishing a net asset value per share by
using available market quotations.
The portfolio securities of the Stock Funds are generally valued at the
last reported sale price. Securities held by the Stock Funds that have no
reported last sale for any day that a fund's NAV is calculated and securities
and other assets for which market quotations are readily available are valued at
the latest available bid price. Portfolio securities held by the Income Fund,
the Insured Fund and the Government Fund for which market quotations are readily
available are valued at the latest available bid price. All other securities and
assets are valued at their fair value as determined in good faith by the Board
of Trustees. Securities with remaining maturities of 60 days or less are valued
on the amortized cost basis unless the Trustees determine that such valuation
does not reflect fair value. The Trusts may also utilize a pricing service,
bank, or broker/dealer experienced in such matters to perform any of the pricing
functions.
TAXATION
Provided that, as anticipated, each Tax-Free Fund qualifies as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), and, at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of each Tax-Free Fund consists of Municipal
Obligations, each Tax-Free Fund may designate and pay exempt-interest dividends
from interest earned on such obligations. Such exempt-interest dividends may be
excluded by shareholders of the Tax-Free Funds from their gross income for
federal income tax purposes. Corporate shareholders must take all
exempt-interest dividends into account in determining "adjusted current
earnings" for purposes of calculating their alternative minimum tax. Each
Tax-Free Fund might purchase municipal obligations at a discount from the prices
at which they were originally issued, especially during periods of rising
interest rates. For federal income tax purposes, some or all of this market
discount may be included in the Tax-Free Funds' ordinary income and will be
taxable to shareholders as such when it is distributed. If, at the close of each
quarter of its taxable year, at least 50% of the value of the total assets of
each Tax-Free Fund consists of obligations that produce interest that is exempt
from California personal income tax if received by an individual, and if each
maintains its qualification as a regulated investment company, then such
Tax-Free Fund will be qualified to pay exempt-interest dividends to its
shareholders that, to the extent they are attributable to interest received by
such Tax-Free Fund on such obligations, are exempt from California personal
income tax. The total amount of exempt-interest dividends paid by a Tax-Free
Fund to its shareholders with respect to any taxable year cannot exceed the
amount of interest received by the Fund during such year on tax-exempt
obligations less any expenses attributable to such interest.
Provided the Treasury Trust qualifies as a regulated investment company and
meets certain requirements of California tax law, including the requirement
that, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets is invested in direct obligations of the United States
(or other U.S. and California tax-exempt obligations), then the Treasury Trust
will be qualified to pay dividends to its shareholders that, to the extent they
are attributable to interest received by the Treasury Trust on such U.S.
Government obligations, will be exempt from California personal income tax.
Because the GNMA certificates in which the Government Fund primarily invests are
not considered direct obligations of the United States for this purpose, the
Government Fund does not expect to meet the 50% requirement; as a result,
dividends paid by the Government Fund will be subject to California personal
income tax.
Exempt-interest dividends paid to Tax-Free Fund shareholders that are
corporations subject to California franchise or income tax will be taxed as
ordinary income to such shareholders. Moreover, no dividend paid by the Tax-Free
Funds will qualify for the corporate dividends-received deduction for federal
income tax purposes.
24
<PAGE>
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of a Tax-Free Fund is not deductible for federal income tax
purposes. Under regulations used by the Internal Revenue Service (the "IRS") for
determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares of a Fund. California
personal income tax law restricts the deductibility of interest on indebtedness
incurred by a shareholder to purchase or carry shares of a fund paying dividends
exempt from California personal income tax, as well as the allowance of losses
realized upon a sale or redemption of shares, in substantially the same manner
as federal tax law (which is described in the Prospectus). Further, a Tax-Free
Fund may not be an appropriate investment for persons who are "substantial
users" of facilities financed by industrial revenue bonds or are "related
persons" of such users. Such persons should consult their tax advisers before
investing in one of the Tax-Free Funds.
Up to 85% of Social Security or railroad retirement benefits may be
included in federal taxable income for benefit recipients whose adjusted gross
income (including income from tax-exempt sources such as tax-exempt bonds and
the Tax-Free Funds) plus 50% of their benefits exceeds certain base amounts.
Income from the Tax-Free Funds, and others like them, is included in the
calculation of whether a recipient's income exceeds certain established amounts
but is not taxable directly. California does not impose personal income tax on
Social Security or railroad retirement benefits.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. It can be expected that similar proposals may
be introduced in the future. Proposals by members of state legislatures may also
be introduced which could affect the state tax treatment of the Tax-Free Funds'
distributions. If such proposals were enacted, the availability of Municipal
Obligations for investment by the Tax-Free Funds and the value of the Tax-Free
Funds' portfolios would be affected. In such event, the Tax-Free Funds would
reevaluate their investment objectives and policies.
General
Each Fund is treated as a separate entity and intends to continue to
qualify in each year to be treated as a separate "regulated investment company"
under the Code. Each of these Funds has elected such treatment and has so
qualified during its last fiscal period ended August 31, 1999. To continue to
qualify for the tax treatment afforded a regulated investment company under the
Code, a fund must distribute for each fiscal year at least 90% of its taxable
income (including net realized short-term capital gains) and tax-exempt net
investment income and meet certain source of income, diversification of assets
and other requirements of the Code. Provided a fund continues to qualify for
such tax treatment, it will not be subject to federal income tax on the part of
its net investment income and its net realized capital gains which it
distributes to shareholders, nor will it be subject to Massachusetts or
California income or excise taxation. Each fund must also meet certain Code
requirements relating to the timing of its distributions, which generally
require the distribution of substantially all of its taxable income and capital
gains each calendar year, in order to avoid a 4% federal excise tax on certain
retained amounts.
Each Stock Fund may purchase or sell futures contracts. Such transactions
are subject to special tax rules which may affect the amount, timing and
character of distributions to shareholders. Unless a Fund is eligible to make
and makes a special election, such futures contracts that are "Section 1256
contracts" (such as a futures contract the margin requirements for which are
based on a marked-to-market system and which is traded on a "qualified board or
exchange") will be "marked to market" for federal income tax purposes at the end
of each taxable year, i.e., each futures contract will be treated as sold for
its fair market value on the last day of the taxable year. In general, unless
the special election is made, gain or loss from transactions in such futures
contracts will be 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of a Stock Fund's transactions in futures contracts. Under Section
1092, a fund may be required to postpone recognition for tax purposes of losses
incurred in certain closing transactions in futures.
25
<PAGE>
Dividends of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable to shareholders as
ordinary income, whether such distributions are taken in cash or reinvested in
additional shares. Distributions of net long-term capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable as long-term capital gains, whether such distributions are
taken in cash or reinvested in additional shares, and regardless of how long
shares of a fund have been held. The current maximum federal individual tax rate
applicable to ordinary income is 39.6%. The current maximum federal individual
tax rate applicable to net long-term capital gains is 20% for investments held
longer than 12 months. Dividends declared by a Fund in October, November, or
December of any calendar year to shareholders of record as of a record date in
such a month will be treated for federal income tax purposes as having been
received by shareholders on December 31 of that year if they are paid during
January of the following year.
A portion of each Stock Fund's ordinary income dividends may qualify for
the dividends received deduction available to corporate shareholders under Code
Section 243 to the extent that the Fund's income is derived from qualifying
dividends. Availability of the deduction is subject to certain holding periods
and debt-financing limitations. Because a fund may also earn other types of
income such as interest, income from securities loans, non-qualifying dividends,
and short-term capital gains, the percentage of dividends from a fund that
qualifies for the deduction generally will be less than 100%. Each Stock Fund
will notify corporate shareholders annually of the percentage of fund dividends
that qualifies for the dividends received deduction.
The use of equalization accounting by the Income Fund, the Insured Fund and
the Government Fund may affect the amount, timing and character of their
distributions to shareholders.
Each Fund is required to file information reports with the IRS with respect
to taxable distributions and other reportable payments made to shareholders. The
Code requires backup withholding of tax at a rate of 31% on redemptions (except
redemptions of Money Fund and Treasury Trust shares) and other reportable
payments made to non-exempt shareholders if they have not provided the fund with
their correct social security or other taxpayer identification number and made
the certifications required by the IRS or if the IRS or a broker has given
notification that the number furnished is incorrect or that withholding applies
as a result of previous underreporting. Such withholding is not required with
respect to the Tax-Free Funds' dividends qualifying as "exempt-interest
dividends" but will apply to the proceeds of redemption or repurchase of Fund
(except Money Fund and Treasury Trust) shares for which the correct taxpayer
identification number has not been furnished in the manner required or if
withholding is otherwise applicable. Therefore, investors should make certain
that their correct taxpayer identification number and completed certifications
are included in the application form when opening an account.
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences and this discussion should not be
construed as applicable to all shareholders' tax situations. Investors should
consult their own tax advisers to determine the suitability of a particular Fund
and the applicability of any federal, state, local, or foreign taxation. Paul,
Hastings, Janofsky & Walker LLP has expressed no opinion in respect thereof.
Foreign shareholders should consider, in particular, the possible application of
U.S. withholding taxes on certain taxable distributions from a Fund at rates up
to 30% (subject to reduction under certain income tax treaties).
YIELD DISCLOSURE AND PERFORMANCE INFORMATION
As noted in the Prospectus, each fund may from time to time quote various
performance figures in advertisements and investor communications to illustrate
the fund's past performance. Performance information published by the Funds will
be in compliance with rules adopted by the SEC. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a fund be accompanied by
certain standardized performance information computed as required by the SEC. An
explanation of the methods used by the Funds to compute or express performance
is discussed below.
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<PAGE>
Total Return
Total return for the funds may be stated for any relevant period as specified in
the advertisement or communication. Any statements of total return or other
performance data for the Income Fund, the Insured Fund and the Government Fund
will be limited to or accompanied by standardized information on the fund's
average annual compounded rate of return over the most recent four calendar
quarters and over the life of the fund (i.e., the period from the fund's
inception of operations through the end of the most recent calendar quarter).
The average annual compounded rate of return is determined by reference to a
hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period and assumes reinvestment (on the reinvestment
date) of all distributions at net asset value and redemption at the end of the
stated period. It is calculated according to the following standardized formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial purchase order of $1,000 from which the maximum sales
load is deducted
T = average annual total return n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the end of
the period
Aggregate total return is calculated in a similar manner, except that the
results are not annualized.
The average annual compounded rates of return, or total return, for the Income
Fund, the Government Fund, the Insured Fund, the 500 Fund, the MidCap Fund, the
SmallCap Fund and the Equity Income Fund for the following periods were:
<TABLE>
<CAPTION>
One Year Five Years Ten Years Period From
Ended Ended Ended Inception*
August 31, August 31, August 31, through August 31,
Fund 1999 1999 1999 1999
- ---- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Fund -1.05% 6.14% 7.11% 8.21%
Government Fund -2.39% 7.03% 8.29% 8.15%
Insured Fund 1.54% 5.32% N/A 5.38%
500 Fund 39.76% 24.92% N/A 19.53%
MidCap Fund 41.13% 18.62% N/A 16.41%
SmallCap Fund 22.90% N/A N/A 18.13%
Equity Income Fund 23.53% N/A N/A 7.77%
</TABLE>
* December 4, 1985 for the Income Fund and the Government Fund; October 20,
1992 for the Insured Fund; April 20, 1992 for the 500 Fund and the MidCap
Fund; September 4, 1996 for the Equity Income Fund; October 2, 1996 for the
SmallCap Fund.
Yield
As stated in the Prospectus, a fund may also quote its current yield and,
where appropriate, effective yield and tax equivalent yield in advertisements
and investor communications.
The current yield for the Income Fund, Insured Fund, Government Fund and
the Equity Income Fund is determined by dividing the net investment income per
share earned during a specified 30-day period by the net asset value per share
on the last day of the period and annualizing the resulting figure, according to
the following formula:
Yield = 2[(((a-b)/cd)+1)6 - 1)]
where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
27
<PAGE>
The current yield for the Income Fund, the Government Fund and the Insured
Fund for the 30-day period ended August 31, 1999, was 4.41%, 5.627% and 4.03%,
respectively.
The current yield for the Money Fund and the Treasury Trust is computed in
accordance with a standardized method which involves determining the net change
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of a specified 7-day period, subtracting a hypothetical
charge reflecting deductions of expenses, and dividing the net change or
difference by the value of the account at the beginning of the period to obtain
the base period return, and annualizing the results (i.e., multiplying the base
period return by 365/7). The net change in the value of the account does not
include realized gains and losses or unrealized appreciation and depreciation.
The Money Fund and the Treasury Trust may also quote an effective yield.
Effective yield is calculated by compounding the base period return (calculated
as described above) by adding 1, raising that sum to a power equal to 365
divided by 7, and subtracting 1 from the result, according to the following
formula: EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)(365/7)] - 1.
- ------------------
The current yield and effective yield for the 7-day period ended August 31,
1999 was 2.41% and 2.54%, respectively, for the Money Fund, and 4.27% and 4.28%,
respectively, for the Treasury Trust.
A tax equivalent yield demonstrates the taxable yield necessary to produce
an after-tax yield equivalent to that of a fund which invests in tax-exempt
obligations. The tax equivalent yields for the Treasury Trust and the Tax-Free
Funds are computed by dividing that portion of the current yield (or effective
yield) of each fund (computed for each fund as discussed for the current yield
indicated above) which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion (if any) of the yield of the fund that is not
tax-exempt. In calculating tax equivalent yields, the Tax-Free Funds assume an
effective tax rate beginning in 1999 (combining federal and California rates) of
45.2%. The effective rate used in determining such yield does not reflect the
tax costs resulting from the loss of the benefit of personal exemptions and
itemized deductions that may result from the receipt of additional taxable
income by taxpayers with adjusted gross incomes exceeding certain levels. The
tax equivalent yield may be higher than the rate stated for taxpayers subject to
the loss of these benefits. The tax equivalent yield for the Income Fund for the
30-day period ended August 31, 1999, was 7.81%. The tax equivalent yield for the
Money Fund for the 7-day period ended August 31, 1999 was 4.60%. The tax
equivalent yield for the Treasury Trust (using an effective California tax rate
of 9.3%) for the 7-day period ended August 31, 1999 was 4.74%. The tax
equivalent yield for the Insured Fund for the 30-day period ended August 31,
1999 was 6.91%.
Distribution Rate
Each fund may also include a reference to its current distribution rate in
investor communications and sales literature preceded or accompanied by the
Prospectus, reflecting the amounts actually distributed to shareholders. All
calculations of a fund's distribution rate are based on the distributions per
share, which are declared, but not necessarily paid, during the fiscal year. The
distribution rate is determined by dividing the distributions declared during
the period by the net asset value per share on the last day of the period and
annualizing the resulting figure. In calculating its distribution rate, each
fund uses the same assumptions that apply to its calculation of yield. The
distribution rate will differ from a fund's yield because it may include capital
gains and other items of income not reflected in the fund's yield, as well as
interest income received by the fund and distributed to shareholders which is
reflected in the fund's yield. The distribution rate does not reflect capital
appreciation or depreciation in the price of the fund's shares and should not be
considered to be a complete indicator of the return to the investor on his
investment.
Comparisons
From time to time, advertisements and investor communications may compare a
fund's performance to the performance of other investments as reported in
various indices or averages, in order to enable an investor better to evaluate
how an investment in a particular fund might satisfy his investment
28
<PAGE>
objectives. The funds may also publish an indication of past performance as
measured by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors the performance of mutual funds. The Lipper performance
analysis includes the reinvestment of dividends and capital gains distributions,
but does not take any sales charges into consideration and is prepared without
regard to tax consequences. In addition to Lipper, the funds may publish an
indication of past performance as measured by other independent sources such as
**NoLOAD FUND*XR, a mutual fund monitoring system, the American Association of
Individual Investors, Weisenberger Investment Companies Services, Donoghue's
Money Fund Report, Barron's, Business Week, Financial World, Money Magazine,
Forbes, and The Wall Street Journal.
The Government Fund may also quote (among others) the following indices of
bond prices prepared by Salomon Brothers, Inc. These indices are not managed for
any investment goal. Their composition may, however, be changed from time to
time by Salomon Brothers, Inc.
The Mortgage Pass-Through Index is an index of approximately 200
mortgage-related securities, including GNMAs, FNMAs, Freddie Macs, conventional
pass-through securities, and FHA project pools.
The Long-Term Corporate Index is an index of all outstanding corporate
bonds with more than twelve years remaining until maturity which currently
includes approximately thirty securities.
The High-Grade Corporate Index is an index of approximately 800 triple-a or
double-a rated corporate bonds with more than twelve years remaining until
maturity.
The MidCap Fund, 500 Fund and SmallCap Fund each may compare its
performance to the performance of the MidCap Index, S&P 500, SmallCap Index,
respectively. Each such fund may compare its performance to the Value Line
Composite Index, the Russell 2000 and/or other widely recognized market indices.
These indices are unmanaged indices of common stock prices. The performance of
each index is based on changes in the prices of stocks comprising such index and
assumes the reinvestment of all dividends paid on such stocks. Taxes, brokerage
commissions and other fees are disregarded in computing the level of each index.
The performance of a fund may also be compared to compounded rates of
return regarding a hypothetical investment of $2,000 at the beginning of each
year, earning interest throughout the year at the compounding interest rates of
5%, 7.5% and 10%.
In assessing any comparisons of total return or yield, an investor should
keep in mind that the composition of the investments in a reported average is
not identical to a fund's portfolio, that such averages are generally unmanaged
and that the items included in the calculations of such averages may not be
identical to the formula used by the fund to calculate its total return or
yield. In addition, there can be no assurance that a fund will continue its
performance as compared to any such averages.
MISCELLANEOUS INFORMATION
Shareholders of funds other than the Stock Funds who so request may have
their dividends paid out monthly in cash. Shareholders of the Stock Funds who so
request may have their dividends paid out quarterly in cash. If a shareholder
withdraws the entire amount in his Money Fund or Treasury Trust account at any
time during the month, all daily dividends accrued with respect to his account
during the month to the time of withdrawal will be paid in the same manner and
at the same time as the proceeds of withdrawal.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, each Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the relevant Trust. Each
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of Trust assets for any shareholder held personally liable for
obligations of the relevant Trust. Each Declaration of Trust also provides that
a Trust shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of that Trust and satisfy any judgment
thereon. All such rights are limited to the assets of the fund(s) of which a
shareholder holds shares. Each Declaration of Trust further provides that each
Trust may maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Trusts as investment
companies as distinguished from operating companies would not likely give rise
to liabilities in excess of a Fund's total assets. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance exists and a Trust
itself is unable to meet its obligations.
29
<PAGE>
As of November 30, 1999, the following shareholders, to the Trusts'
knowledge, owned beneficially more than 5% of a Fund's outstanding shares, as
noted:
<TABLE>
<CAPTION>
<S> <C>
MONEY FUND:
Donald Fisher & Doris Fisher (9.27%)
One Maritime Plaza #1400
San Francisco, CA 94111-3503
Robert J. Fisher (5.17%)
One Maritime Plaza #1400
San Francisco, CA 94111-3503
John J. Fisher (5.15%)
One Maritime Plaza #1400
San Francisco, CA 94111-3503
INSURED FUND:
Northern Trust Co. (10.20%) Deborah Murray (7.07%)
P.O. Box 92956 27 Makin Grade
Chicago, IL 60675 Ross, CA 94957
John Larson (7.47%) The Harold Messmer Family Trust (5.48%)
1 Market Plaza 2884 Sand Hill Rd., Suite 200
San Francisco, CA 94105 Menlo Park, CA 94025
GOVERNMENT FUND:
Blush & Co. (8.50%) Firstar Trust Company CUST (6.68%)
P.O. Box 976 David Vernon Thomas IRA
New York, NY 10268 1393 Oak Avenue
Los Altos Hills, CA 94024-5768
TREASURY TRUST:
William Edwards (23.35%) Edwin Callan (6.92%)
3000 Sand Hill Rd. 71 Stevenson Street, #1300
Menlo Park, CA 94025 San Francisco, CA 94105
D & DF Foundation (5.00%)
1 Maritime Plaza, Suite 1300
San Francisco, CA 94111-3503
S&P 500 FUND: Charles Schwab & Co. (7.13%)
State Street CA Inc., Custodian (14.52%) 101 Montgomery Street
FBO Cal/STRS San Francisco, CA 94104
1001 Marina Village PKWY FL 3
Alameda, CA 94501
MIDCAP FUND:
Donald Fisher & Doris Fisher, Trustees (12.22%) Charles Schwab & Co. (11.53%)
Donald G. Fisher 1991 101 Montgomery Street
Charitable Remainder Trust 1 San Francisco, CA 94104
30
<PAGE>
EQUITY INCOME FUND:
Timothy Abel (12.01%) Susan Ballinger (10.05%)
1331 B St., #B 50 Makin Grade
Hayward, CA 94541 Kentfield, CA 94904
Richard F. Shelton Trust (6.25%)
1 Market
San Francisco, CA 94105
SMALLCAP FUND:
Alexander D. Calhoun & (6.60%) FBO Spieker 1991 Trust (5.26%)
Charles S. Lafollette Trust Michael McAuliffe Trust
Thomas B. Calhoun 1992 Trust 1 Market Plaza, Suite 2100
1 Maritime Plaza, Suite 300 San Francisco, CA 94105
San Francisco, CA 94111
Richard F. Shelton Trust Charles Schwab & Co. Inc. (9.94%)
Richard F. Shelton Trustee (6.12%) Reinvest Account
1 Market 101 Montgomery Street
San Francisco, CA 94105 San Francisco, CA 94104
</TABLE>
Although each fund is offering only its own shares by this joint Statement
of Additional Information and joint Prospectus, it is possible that a fund might
become liable for any mis-statements in this Statement of Additional Information
or in the Prospectus about one of the other funds. The Board of Trustees of each
Trust has considered this possibility in approving the use of a joint Prospectus
and Statement of Additional Information.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended August 31, 1999
for the Income Fund, the Money Fund, the Government Fund, the Treasury Trust,
the Insured Fund, the 500 Fund, the MidCap Fund, SmallCap Fund and the Equity
Income Fund as contained in their combined Report to Shareholders for the fiscal
year ended August 31, 1999 (the "Report"), are incorporated herein by reference
to the Report which has been filed with the Securities and Exchange Commission.
Any person not receiving the Report with this Statement should call or write the
funds to obtain a free copy.
APPENDIX
DESCRIPTION OF MUNICIPAL SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating symbols of
municipal securities.
Municipal Bonds
Moody's Investors Service:
Aaa: Municipal bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Municipal bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A: Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
31
<PAGE>
Baa: Bonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Conditional Rating: Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Corporation:
AAA: Municipal bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. In the market they
move with interest rates, and hence provide the maximum safety on all counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior, but
also to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
Fitch Investor's Service:
AAA: Bonds and notes rated AAA are regarded as being of the highest quality,
with the obligor having an extraordinary ability to pay interest and repay
principal which is unlikely to be affect by reasonably foreseeable events.
AA: Bonds and notes rated AA are regarded as high quality obligations. The
obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities, and more subject to possible change
over the term of the issue.
32
<PAGE>
A: Bonds and notes rated A are regarded as being of good quality. The obligor's
ability to pay interest and repay principal is strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds and notes with higher ratings.
BBB: Bonds and notes rated BBB are regarded as being of satisfactory quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to weaken this ability than bonds with higher ratings.
Note: Fitch ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories. These are
refinements more closely reflecting strengths and weaknesses, and are not to be
used as trend indicators.
Municipal Notes
Moody's:
Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of first importance in long-term
borrowing risk are of lesser importance in the short run. Symbols used will be
as follows:
MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG-4: Notes are of adequate quality, carrying specific risk but having
protection and not being distinctly or predominantly speculative.
Standard & Poor's:
Until June 29, 1984, Standard & Poor's used the same rating symbols for notes
and bonds. After June 29, 1984, for new municipal note issues due in three years
or less the ratings below usually will be assigned. Notes maturing beyond three
years will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Fitch:
Fitch Investment Note Ratings are grouped into four categories with the
indicated symbols. The ratings reflect Fitch's current appraisal of the degree
of assurance of timely payment, whatever the source.
FIN-1+: Notes assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
FIN-1: Notes assigned this rating reflect an assurance of timely payment only
slightly less than the strongest issues.
FIN-2: Notes assigned this rating have a degree of assurance for timely payment
but with a lesser margin of safety than the prior two categories.
33
<PAGE>
FIN-3: Notes with this rating have speculative characteristics which suggest
that the degree of assurance for timely payment is minimal.
Commercial Paper
Moody's:
Moody's Commercial Paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Trust, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
P-3 (Prime-3): Acceptable capacity for repayment.
Standard & Poor's:
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
Fitch:
Fitch-1: Commercial paper assigned this rating is regarded as having the
strongest degree of assurance for timely payment.
Fitch-2: Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
Fitch-3: Commercial paper carrying this rating has a satisfactory degree of
assurance for timely payment but the margin of safety is not as great as the two
higher categories.
Fitch-4: Issues carrying this rating have characteristics suggesting that the
degree of assurance for timely payment is minimal and is susceptible to near
term adverse change due to less favorable financial or economic conditions.
34
<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
---------------------------
PART C
OTHER INFORMATION
---------------------------
Item 23. Exhibits
(a) Agreement and Declaration of Trust dated September 11, 1985.
(b) By-Laws
(c) Instruments Defining Rights of Security Holder - Not applicable.
(d) Investment Advisory Contracts
(1) Investment Management Agreement dated December 31, 1985.
(2) Investment Management Agreement dated April 13, 1992.
(e) Underwriting Agreement dated April 13, 1992.
(f) Bonus or Profit Sharing Contracts - Not applicable.
(g) Form of Custodian Agreement
(h) Other Material Contracts - Not applicable.
(i) Opinion of Counsel as to legality of shares.
(j) Other opinions - Independent Auditors' Consent.
(k) Omitted Financial Statements - Not applicable.
(l) Initial Capital Agreement - Not applicable.
(m) Rule 12b-1 Plan - Not Applicable.
(n) Financial Data Schedule - Financial Data Schedule is incorporated
by reference to Form NSAR-B filed on October 29, 1999.
(o) Rule 18f-3 - Not applicable.
C-1
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant.
As of the date of this Post-Effective Amendment, to the knowledge of
the Registrant, the Registrant did not control any other person, nor was it
under common control with another person.
Item 25. Indemnification
Please see Article VI of By-Laws (filed herewith). Pursuant to Rule
484 under the Securities Act of 1933, as amended, the Registrant furnishes the
following undertaking:
"Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provision, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue."
Notwithstanding the provisions contained in the Registrant's By-Laws,
in the absence of authorization by the appropriate court on the merits pursuant
to Sections 4 and 5 of Article VI of said By-Laws, any indemnification under
said Article shall be made by Registrant only if authorized in the manner
provided in either subsection (a) or (b) of Section 6 of Article VI.
Item 26. Business and Other Connections of Investment Adviser.
CCM Partners, a California Limited Partnership, is the Registrant's
investment adviser with respect to these Funds. CCM Partners has been engaged
during the past two fiscal years as the investment adviser of the California
Investment Trust, a diversified, open-end management investment company, which
comprises the following series: California Tax-Free Income Fund, California
Insured Intermediate Fund and California Tax-Free Money Market Fund. The
principal business address of California Investment Trust is 44 Montgomery
Street, Suite 2100, San Francisco, California 94104.
From December, 1990 through February 27, 1993, CCM Partners also
served as investment adviser of the California Tax-Free Money Trust, a
registered management investment company. The principal business address of
California Tax-Free Money Trust is 6 St. James Avenue, Boston, Massachusetts
02116.
C-2
<PAGE>
The officers of CCM Partners are Phillip W. McClanahan and Stephen C.
Rogers. Phillip W. McClanahan has served as an officer and Trustees of the
Registrant and California Investment Trust during the past two fiscal years.
Stephen C. Rogers, an officer of CCM Partners, has also served as an officer of
the Registrant and California Investment Trust since October 1994. Stephen C.
Rogers was elected to the Board as Secretary and Trustee on August 4, 1998. He
was elected as Chairman of the Board on October 26, 1999. For additional
information, please see Part A of this Registration Statement.
Item 27. Principal Underwriters
RFS Partners, Inc. is the principal underwriter, and in that capacity
distributes the shares of the Funds. RFS Partners also serves as principal
underwriter for the California Investment Trust II. Certain limited partners of
RFS Partners also serve as officers and/or trustees of the Registrant.
Item 28. Locations of Accounts and Records.
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are
kept by Registrant's Shareholder Servicing and Transfer Agent, Firstar Mutual
Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Item 29. Management Services
All management-related service contracts are discussed in Part A or
Part B of this Form N-1A.
Item 30. Undertakings.
(a) not applicable
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's last
Annual Report to Shareholders, upon request and without charge.
(c) Registrant has undertaken to comply with Section 16(a) of the
Investment Company Act of 1940, as amended, which requires the
prompt convening of a meeting of shareholders to elect trustees
to fill vacancies in the Registrant's Board of Trustees in the
event that less than a majority of the Trustees have been elected
to such position by shareholders. Registrant has also undertaken
promptly to call a meeting of shareholders for the purpose of
voting upon the question of removal of Trustee or Trustees when
requested in writing to do so by the record holders of not less
than 10% of the Registrant's outstanding shares and to assist its
shareholders in communicating with other shareholders in
accordance with the requirements of section 16(c) of the
Investment Company Act of 1940, as amended.
C-2
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, the State of California, on the 22 day of December, 1999.
CALIFORNIA INVESTMENT TRUST II
---------------------------
(Registrant)
By Stephen C. Rogers*
-----------------------------
Stephen C. Rogers, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Stephen C. Rogers * Principal Executive Officer, December 22, 1999
- ---------------------- Secretary and Trustee
Stephen C. Rogers
Phillip W. McClanahan* Principal Financial and Accounting December 22, 1999
- ---------------------- Officer and Trustee
Philip W. McClanahan
Harry Holmes* Trustee December 22, 1999
- ----------------------
Harry Holmes
John B. Sias* Trustee December 22, 1999
- ----------------------
John B. Sias
Guy Rounsaville Trustee December 22, 1999
- ----------------------
Guy Rounsaville, Jr.
* By: /s/ Julie Allecta
----------------------------------------
Julie Allecta, Attorney-in-Fact Pursuant
to Power of Attorney previously filed.
C-3
- --------------------------------------------------------------------------------
Exhibit 23 (a)
Agreement and Declaration of Trust
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
of
CALIFORNIA INVESTMENT TRUST II
A Massachusetts Business Trust Dated: September 11, 1985
CALIFORNIA INVESTMENT TRUST II AGREEMENT AND DECLARATION OF TRUST
ARTICLE I Name and Definitions
1. Name
2. Definitions
(a) Trust
(b) Trustees
(c) Shares
(d) Shareholder
(e) 1940 Act
(f) Commission and Principal Underwriter
(g) Declaration of Trust
(h) By-Laws
(i) Series Company
(j) Series
ARTICLE II Purpose of Trust
ARTICLE III Shares
1. Division of Beneficial Interest
2. Ownership of Shares
3. Investments in the Trust
4. Status of Shares and Limitation of Personal Liability
5. Power of Trustees to Change Provisions Relating to Shares
6. Establishment and Designation of Shares
(a) Assets Belonging to Series
(b) Liabilities Belonging to Series
(c) Dividends, Distributions, Redemptions and Repurchases
(d) Voting
(e) Equality
(f) Fractions
(g) Exchange Privilege
(h) Combination of Series
(i) Elimination of Series
7. Indemnification of Shareholders
8. Initial Designation of Series
ARTICLE IV The Trustees
1. Election and Tenure
2. Effect of Death, Resignation, etc. of a Trustee
3. Powers
4. Payment of Expenses by the Trust
5. Payment of Expenses by Shareholders
6. Ownership of Assets of the Trust
7. Service Contracts
<PAGE>
ARTICLE V Shareholders' Voting Powers and Meetings
1. Voting Powers
2. Voting Power and Meetings
3. Quorum and Required Vote
4. Action by Written Consent
5. Record Dates
6. Additional Provisions
ARTICLE VI Net Asset Value, Distributions, and Redemptions
1. Determination of Net Asset Value, Net Income and Distributions
2. Redemptions and Repurchases
3. Redemptions at the Option of the Trust
ARTICLE VII Compensation and Limitation of Liability of Trustees
1. Compensation
2. Limitation of Liability
3. Indemnification
ARTICLE VIII Miscellaneous
1. Trustees, Shareholders, etc. Not Personally Liable; Notice
2. Trustees' Good Faith Action, Expert Advisor No Bond or Surety
3. Liability of Third Persons Dealing with Trustees
4. Termination of Trust or Series
5. Merger and Consolidation
6. Filing of Copies, References, Headings
7. Applicable Law
8. Amendments
9. Trust Only
10. Use of the Name "California Investment Trust"
AGREEMENT AND DECLARATION OF TRUST
OF
CALIFORNIA INVESTMENT TRUST II
THIS AGREEMENT AND DECLARATION OF TRUST made at San Francisco, California
this 11th day of September 1985 by the Trustees hereunder.
WHEREAS the Trustees desire and have agreed to manage all property coming
into their hands as trustees of a Massachusetts business trust in accordance
with the provisions hereinafter set forth,
NOW, THEREFORE, the Trustees hereby direct that this Agreement and
Declaration of Trust be filed with the Secretary of The Commonwealth of
Massachusetts and do hereby declare that they will hold all cash, securities and
other assets, which they may from time to time acquire in any manner as Trustees
hereunder, IN TRUST, and manage and dispose of the same upon the following terms
and conditions for the pro rata benefit of the holders of Shares in this Trust.
<PAGE>
ARTICLE I
Name and Definitions
SECTION 1. NAME. This Trust shall be known as the CALIFORNIA INVESTMENT
TRUST II and the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.
SECTION 2. DEFINITIONS. Whenever used herein, unless otherwise required by
the text or specifically provided;
(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected or appointed in accordance with such Article;
(c) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust (as the context may require) shall be divided from time to
time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time;
(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18 (f) (2) of the 1940 Act or in any successor
statutory provision; and
(j) "Series" refers to each Series of Shares established and designated
under or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
company registered under the 1940 Act and investing one or more portfolios
primarily in securities and debt instruments.
<PAGE>
ARTICLE III:
Shares
SECTION 1. DIVISION OF BENEFICIAL INTEREST. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, without
par value. Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof, and holders of
the Shares of any Series shall be entitled to receive dividends, when and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular Series from the assets belonging to such Series according to the
number of Shares of such Series held of record by such shareholder on the record
date for any dividend or on the date of termination, as the case may be.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or any Series, The
Trustees may from time to time divide or combine the Shares of any particular
Series into a greater or lesser number of Shares of that Series without thereby
changing the proportionate beneficial interest of the Shares of that Series in
the assets belonging to that Series or in any way affecting the rights of Shares
of any other Series.
SECTION 2. OWNERSHIP OF SHARES. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be shall be conclusive as to who are
the Shareholders of each Series and as to the number of Shares of each Series
held from time to time by each.
SECTION 3. INVESTMENTS IN THE TRUST. The Trustees may accept investments in
the Trust from such persons, at such times, on such terms, and for such
consideration as they from time to time authorize.
SECTION 4. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the existence of the
Trust shall not operate to terminate the Trust, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholders, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
SECTION 5. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING TO SHARES.
Notwithstanding an other provision of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust, provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Share holders or that
Shareholder approval is not otherwise required by the 1940 Act or other
applicable law.
Without limiting the generality of the foregoing the Trustees may, for the
above-stated purposes, amend the Declaration of Trust to:
<PAGE>
(a) create one or more Series of Shares (in addition to any Series already
existing or otherwise) with such rights and preferences and such eligibility
requirements for investment therein as the Trustees shall determine and
reclassify any or all outstanding Shares as shares of particular Series in
accordance with such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (i) of
Section 6 of this Article III;
(c) combine one or more Series of Shares into a single Series on such terms
and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series, including without limitation, to provide for the issue of
Shares of any Series in connection with any merger or consolidation of the Trust
with another trust or company or any acquisition by the Trust of part or all of
the assets of another trust or investment company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among the various Series of
Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series of
Shares;
(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all other
Series of Shares in respect of Assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with respect to
such Series.
SECTION 6. ESTABLISHMENT AND DESIGNATION OF SERIES. Except as set for the
In Sect ion 8 of this Article III, the establishment and designation of any
other Series of Shares shall be effective upon the resolution by a majority of
the then Trustees, setting forth such establishment and designation and the
relative rights and preferences of such Series, or as otherwise provided in such
resolution. Such establishment and designation shall be set forth in an
amendment to this Declaration of Trust as provided in Section 8 of Article VIII.
Shares of each Series established pursuant to this Section 6, unless
otherwise provided in the resolution establishing such Series, shall have the
following relative rights and preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by the Trust for
the issue or sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust. Such consideration, assets, income,
earnings, profits and proceeds thereof, from whatever source derived, including,
without 1imitation any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series in such manner and on such basis as they, in their
sole discretion, deem fair and equitable, and any General Asset so allocated to
a particular Series shall belong to that Series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
<PAGE>
(b) LIABILITIES BELONGING TO SERIES. The assets belonging to each
particular Series shall be charged with the liabilities of the Trust in respect
to that Series and all expenses, costs, charges and reserves attributable to
that Series, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair and
equitable. The liabilities, expenses, costs, charges, and reserves so charged to
a Series are herein referred to as "liabilities belonging to" that Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the Trustee
shall be conclusive and binding upon the holders of all Series for all purposes.
Under no circumstances shall the assets allocated or belonging to any particular
Series be charged with liabilities attributable to any other Series. All persons
who have extended credit which has been allocated to a particular Series, or who
have a claim or contract which has been allocated to any particular Series,
shall look only to the assets of that particular Series for payment of such
credit, claim, or contract.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS, AND REPURCHASES. Notwithstanding
any other provisions or this Declaration, including, without limitation, Article
VI, no dividend or distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series) with respect to, nor any
redemption or repurchase of, the Shares of any Series shall be effected by the
Trust other than from the assets belonging to such Series, nor, except as
specifically provided in Section 7 of this Article III shall any Shareholder of
any particular Series otherwise have any right or claim against the assets
belonging to any other Series except to the extent that such Shareholder has
such a right or claim hereunder as Shareholder of such other Series. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(d) VOTING. All Shares of the Trust entitled to vote on a matter shall vote
separately by Series. That is, the Shareholders of each Series shall have the
right to approve or disapprove matters affecting the Trust and each respective
Series as if the Series were separate companies. There are however two
exceptions to voting by separate Series. First if the 1940 Act requires all
Shares of the Trust to be voted in the aggregate without differentiation between
the separate Series, then all the Trust's Shares shall be entitled to vote on a
one-vote-per-Share basis. Second, if any matter affects only the interests of
some but not all Series, then only such affected Series shall be entitled to
vote on the matter.
(e) EQUALITY. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets belonging to that Series (subject to
the liabilities belonging to that Series), and each Share of any particular
Series shall be equal to each other Share of that Series.
(f) FRACTIONS. Any fractional Share of a Series shall carry property only
if all the rights and obligations of a whole share of that Series, including
rights with respect to voting, receipt of dividends and distributions,
redemption of Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any Series shall have the right to exchange said
Shares for Shares of one or more other Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(h) COMBINATION OF SERIES. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise required by
applicable law, to combine the assets and liabilities belonging to any two or
more Series into assets and liabilities belonging to a single Series.
(i) ELIMINATION OF SERIES. At any time that there are no Shares outstanding
of any particular Series previously established and designated, the Trustees may
amend this Declaration of Trust to abolish that Series and to rescind the
establishment and designation thereof, such amendment to be effected in the
manner provided in Section 5 of this Article III.
<PAGE>
SECTION 7. INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators, or other legal representatives or
in the case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Trust to be held harmless
from indemnification against all loss and expense arising from such liability.
SECTION 8. INITIAL DESIGNATION OF SERIES. Subject to the relative rights
and preferences and other terms of this Agreement and Declaration of Trust, the
Trustees authorize the establishment of two (2) initial Series to be designated
as follows: "California GNMA Fund " and " California Federal Money Market Fund."
ARTICLE IV
The Trustees
SECTION 1. NUMBER, ELECTION AND TENURE. The number of Trustees shall be
four (4), unless such number shall be changed from time to time by a written
instrument signed by a majority of the Trustees, provided, however, that the
number of Trustees shall in no event be less than three nor more than 15. The
initial Trustees shall be John R. Hill, Harry Holmes, Phillip W. McClanahan, and
Richard F. Shelton. The Trustees may fill vacancies in the Trustees or remove
Trustees with or without cause. Each Trustee shall serve during the continued
lifetime of the Trust until he dies, resigns or is removed, or, if sooner, until
the next meeting of Shareholders called for the purpose of electing Trustees and
until the election and qualification of his successor. Any Trustee may resign at
any time by written instrument signed by him and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation for
any period following his resignation or removal, or any right to damages on
account of such removal. The Shareholders may fix the number of Trustees and
elect Trustees at any meeting of Shareholders called by the Trustees for that
purpose.
SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The death,
declination, resignation, retirement, removal, or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in Article IV, Section 1, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of such vacancy. In the event of the
death, declination, resignation, retirement, removals or incapacity of all the
then Trustees within a short period of time and without the opportunity for at
least one Trustee being able to appoint additional Trustees to fill vacancies,
the Trust's investment adviser or investment advisers jointly, if there is more
than one, are empowered to appoint new Trustees.
SECTION 3. POWERS. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or convenient to carry out that responsibility including
the power to engage in securities transactions of all kinds on behalf of the
Trust. Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the regulation and
management of the affairs of the Trust and may amend and repeal them to the
extent that such By-Laws do not reserve that right to the Shareholders; they may
fill vacancies in or remove from their number and may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and establish and terminate one or more
committees consisting of two or more Trustees which may exercise the powers and
authority of the Trustees to the extent that the Trustees determine; they may
employ one or more custodians of the assets of the Trust and may authorize such
custodians to employ subcustodians and to deposit all or any part of such assets
in a system or systems for the central handling of securities or with a Federal
Reserve Bank, retain or otherwise provide for the services of (including the
Trust's performance of such services for itself) a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more Principal Underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various
<PAGE>
matters, and in general delegate such authority as they consider desirable to
any officer of the Trust, to any committee of the Trustees and to any agent or
employee of the Trust or to any such custodian, transfer or Shareholder
servicing agent, or Principal Underwriter. Any determination as to what is in
the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without 1imitation, all types of bonds, debentures, stocks,
negotiable or non- negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all persons, including,
without limitation states, territories, and possessions of the United States and
the District of Columbia and any political subdivision, agency, or
instrumentality thereof, any foreign government or any political subdivision of
the U.S. Government or any foreign government, or any international
instrumentality, or by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any state,
territory, or possession thereof, or by any corporation or organization
organized under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers, privileges
in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and right of subscription or otherwise which in any
manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for their organization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
<PAGE>
(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof;
(l) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust or payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, principal underwriters, or independent contractors
of the Trust, individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person as Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action taken or omitted
that may be determined to constitute negligence, whether or not the Trust would
have the power to indemnify such person against liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust or one or more of its Series. The
Trustees shall not in any way be bound or limited by any present or future law
or custom in regard to investment by fiduciaries. The Trustees shall not be
required to obtain any court order to deal with any assets of the Trust or take
any other action hereunder.
SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as they deem fair, all expenses,
fees, charges, taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser or manager, principal
underwriter, auditors, counsel, custodian, transfer agent, Shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.
SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS . The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, for charges of the Trust's custodian or transfer, Shareholder servicing
or similar agent, an amount fixed from time to time by the Trustees, by setting
off such charges due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such charges due from such Shareholder.
SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trustees.
SECTION 7. SERVICE CONTRACTS.
(a) Subject to such requirements and restrictions as may be set forth in
the By-Laws, the Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services for the Trust or
for any Series with California Capital Management, a California Limited
Partnership ("Management") or any other corporation, trust, association or other
organization (the "Manager"); and any such contract may contain such other terms
as the Trustees may determine, including without limitation, authority for the
Manager to determine from time to time without prior consultation with the
Trustees what investments shall be purchased, held, sold or exchanged and what
portion, if any, of the assets of the Trust shall be held uninvested and to make
changes in the Trust's investments.
<PAGE>
(b) The Trustees may also, at any time and from time to time, contract with
any corporation, trust, association or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares of
one or more of the Series. Every such contract shall comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may determine.
(c) The Trustees are also empowered, at any time and from time to time, to
contract with First Pennsylvania Bank, N.A. or any other corporations, trusts,
associations or other organizations appointing it or them the transfer agent
and/or Shareholder servicing agent for the Trust or one or more of its Series.
Every such contract shall comply with such requirements and restrictions as may
be set forth in the By-Laws or stipulated by resolution of the Trustees.
(d) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner trustee, employee, manager adviser,
principal underwriter, distributor or affiliate or agent of or for any
corporation, trust, association, or other organization, or for any parent
or affiliate of any organization with which an advisory or management
contract, or principal underwriter's or distributor's contract, or
transfer, shareholder servicing or other agency contract may have been or
may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract , or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract with one or
more other corporations, trust, associations, or other organizations, or
has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
SECTION 1. VOTING POWERS. Subject to the provisions of Article III, Section
6(d), the Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Article IV, Section 1, (ii) to the same extent as the
stockholders of a California business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iii) with respect to the termination of the Trust or any Series to the extent
and as provided in Article VIII, Section 4, and (iv) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the By-Laws or any registration of the Trust with the Commission (or
any successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At any time when no Shares of a Series
are outstanding, the Trustees may exercise all rights of Shareholders of that
Series with respect to matters affecting that Series, take any action required
by law, this Declaration of Trust or the By-Laws to be taken by the
Shareholders.
<PAGE>
SECTION 2. VOTING POWER AND MEETINGS. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven days before
such meeting, postage prepaid, stating the time and place of the meeting, to
each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the By-Laws, a written waiver thereof,
executed before or after the meeting by such Shareholder or his attorney
thereunto authorized and filed with the records of the meeting shall be deemed
equivalent to such notice.
SECTION 3. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
forty percent (40%) of the Shares entitled to vote shall constitute quorum at a
Shareholders' meeting. When any one or more Series is to vote as a single class
separate from any other Shares which are to vote on the same matters as separate
class or classes, forty percent (40%) of the Shares of each such Series entitled
to vote shall constitute a quorum at Shareholder's meeting of that Series. Any
meeting of Shareholders may be adjourned from time to time by a majority of the
votes properly cast upon the question, whether or not quorum is present and the
meeting may be held as adjourned with in a reasonable time after the date set
for the original meeting without further notice. Subject to the provisions of
Article III, Section 6(d), when a quorum is present at any meeting, a majority
of the Shares voted shall decide any questions and a plurality shall elect a
Trustee, except when a larger vote is required by any provision of this
Declaration of Trust or the By-Laws or by applicable law.
SECTION 4. ACTION BY WRITTEN CONSENT. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series entitled to vote separately on the matter consent to the
action in writing and such written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
SECTION 5. RECORD DATES. For the purpose of determining the Shareholders of
any Series who are entitled to vote or act at any meeting or any adjournment
thereof, the Trustees may from time to time fix a time, which shall be not more
than seventy-five (75) days before the date of any meeting of Shareholders, as
the record date for determining the Shareholders of such Series having the right
to notice of and to vote at such meeting and any adjournment thereof, and in
such case only Shareholders of record on such record date shall have such right,
notwithstanding any transfer of shares on the books of the Trust after the
record date. For the purpose of determining the Shareholders of any Series who
are entitled to receive payment of any dividend or of any other distribution,
the Trustees may from time to time fix a date, which shall be before the date
for the payment of such dividend or such other payment, as the record date for
determining the Shareholders of such Series having the right to receive such
dividend or distribution. Without fixing a record date the Trustees may for
voting and/or distribution purposes close the register or transfer books for one
or more Series for all or any part of the period between a record date and a
meeting of Shareholders or the payment of a distribution. Nothing in this
section shall be construed as precluding the Trustees from setting different
record dates for different Series.
SECTION 6. ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions, and Redemptions
SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND DISTRIBUTIONS,
Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the By-laws or in a duly
adopted vote of the Trustees such bases and time for determining the per Share
or net asset value of the Shares of any Series or
<PAGE>
net income attributable to the Shares of any Series, or the declaration and
payment of dividends and distributions on the Shares of any Series, as they may
deem necessary or desirable.
SECTION 2. REDEMPTIONS AND REPURCHASES. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of proper instrument of transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the By-Laws and applicable law, next
determined. Payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request is made in
proper form. The obligation set forth in this Section 2 is subject to the
provision that in the event that any time the New York Stock Exchange is closed
for other then weekends or holidays, or if permitted by the rules of the
Commission during periods when trading on the Exchange is restricted or during
any emergency which makes it impracticable for the Trust to dispose of the
investments of the applicable Series or to determine fairly the value of the net
assets belonging to such Series or during any other period permitted by order of
the Commission for the protection of investors, such obligations may be
suspended or postponed by the Trustees.
The redemption price may in any case or cases be paid wholly or partly in
kind if the Trustees determine that such payment is advisable in the interest of
the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other person
in transferring securities selected for delivery as all or part of any payment
in kind.
SECTION 3. REDEMPTIONS AT THE OPTION OF THE TRUST. The Trust shall have the
right at its option and at any time to redeem Shares of any Shareholder at the
net asset value thereof as described in Section 1 of this Article VI: (i) if at
such time such Share holder owns Share s of any Series having an aggregate net
asset value of less than an amount, not to exceed $10,000, determined from time
to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares
equal to or in excess of a percentage determined from time to time by the
Trustees of the outstanding Shares of the Trust or of any Series.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
SECTION 1. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking services
and payment for the same by the Trust.
SECTION 2. LIMITATION OF LIABILITY. The Trustees shall not be responsible
or liable in any event for any neglect or wrongdoing of any officer, agent,
employee, manager or Principal Underwriter of the Trust, nor shall any Trustee
be responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Every note, bond, contract, instruments certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
SECTION 3. INDEMNIFICATION. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase insurance for and to provide by
resolution or in the By-Laws for indemnification out of Trust assets for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he becomes involved by virtue of his capacity or former
capacity
<PAGE>
with the Trust. The provisions, including any exceptions and limitations
concerning indemnification, may be set forth in detail in the By-Laws or in a
resolution of the Trustees.
ARTICLE VIII
Miscellaneous
SECTION 1. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE. All
persons extending credit to, contracting with or having any claim against the
Trust or any Series shall look only to the assets of the Trust, or, to the
extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series, only to the assets belonging to
the relevant Series, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason or
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by any officers or officer or
otherwise may include a notice that this Declaration of Trust is on file with
the Secretary of The Commonwealth of Massachusetts and may recite that the note,
bond, contract, instrument, certificate, or undertaking was executed or made by
or on behalf of the Trust or by them as Trustee or Trustees or as officers or
officer or otherwise and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust or upon the assets
belonging to the Series for the benefit of which the Trustees have caused the
note, bond, contract, instrument certificate or undertaking to be made or
issued, and may contain such further recital as he or they may deem appropriate,
but the omission of any such recital shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholders or any other person
individually.
SECTION 2. TRUSTEE'S GOOD FAITH ACTION, EXERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
SECTION 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
SECTION 4. TERMINATION OF TRUST OR SERIES. Unless terminated as provided
without limitation of time. The Trust may be terminated at any time by vote of
at least two- third s (66-2/3%) of the Shares of each Series entitled to vote,
voting separately by Series, or by the Trustees by written notice to the
Shareholders. Any Series may be terminated at any time by vote of at least
two-thirds (66-2/3%) of the Shares of that Series or by the Trustees by written
notice to the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and liabilities
belonging, severally, to each Series (or the applicable Series, as the case may
be), whether due or accrued or anticipated as may be determined by the Trustees,
the Trust shall, in accordance with such procedures as the Trustees consider
appropriate, reduce the remaining assets belonging, severally, to each Series
(or the applicable Series, as the case may be), to distributable form in cash or
shares or other securities, or any combination thereof, and distribute the
proceeds belonging to each Series (or the applicable Series, as the case may
be), to the Shareholders of that Series, as a Series, ratably according to the
number of Shares of that Series held by the several Shareholders on the date of
termination.
<PAGE>
SECTION 5. MERGER AND CONSOLIDATION. The Trustees may cause the Trust or
one or more of its Series to be merged into or consolidated with another Trust
or company or the Shares exchanged under or pursuant to any state or Federal
statute, if any, or otherwise to the extent permitted by law. Such merger or
consolidation or share exchange must be authorized by vote of a majority of the
outstanding Shares of the Trust as a whole or any affected Series, as may be
applicable; provided that in all respects not governed by statute or applicable
law, the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.
SECTION 6. FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of The Commonwealth of Massachusetts and with any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and " hereunder ", shall be deemed to refer to this instrument as
amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts each of which shall be
deemed an original.
SECTION 7. APPLICABLE LAW. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of The Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof; the Trust may exercise all powers which are ordinarily
exercised by such a trust.
SECTION 8. AMENDMENTS. This Declaration of Trust may be amended at any time
by an instrument in writing signed by a majority of the then Trustees.
SECTION 9. TRUST ONLY. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a trust.
Nothing in this Agreement and Declaration of Trust shall be construed to make
the Shareholders, either by themselves or with the Trustees, partners or members
of a joint stock association.
SECTION 10. USE OF THE NAME "CALIFORNIA INVESTMENT TRUST". California
Capital Management, a California Limited Partnership (" Management ") has
consented to the use by the Trust of the indentifying words or name "California
Investment Trust" as the name of the Trust. Such consent is conditioned upon the
employment of Management, its successors or any affiliate thereof, as Manager of
the Trust. As between the Trust and itself, Management controls the use of the
name of the Trust insofar as such name contains "California Investment Trust."
The name or identifying words "California Investment Trust" may be used from
time to time in other connections and for other purposes by Management or
affiliated entities. Management may require the Trust to cease using "California
Investment Trust" in the name of the Trust if the Trust ceases to employ, for
any reason, Management, an affiliate, or any successor as Manager of the Trust.
IN WITNESS WHEREOF, a majority of the Trustees as aforesaid do hereto set
their hands this 11th day of September, 1985.
_____________________________ _____________________________
John R. Hill Harry Holmes
_____________________________ _____________________________
Phillip W. McClanahan Richard F. Shelton
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF CALIFORNIA INVESTMENT TRUST II
The undersigned certify that:
1. They constitute a majority of the Board of Trustees of CALIFORNIA
INVESTMENT TRUST II, a Massachusetts business trust.
2. They hereby adopt the following amendments to the Agreement and Declaration
of Trust of this Trust:
A. Article III, Section 8 is amended to read as follows:
"SECTION 8. INITIAL DESIGNATION OF SERIES. Subject to the
relative rights and preferences Subject to the other terms of this
Agreement and Declaration of Trust, the Trustees authorize the
establishment of two (2) initial Series to be designated as follows:
"California GNMA Fund" and "California Money Fund For Investment In
Federal Securities."
B. Article VIII, Section 10 is hereby amended to read as follows:
"SECTION 10. USE OF THE NAME "CALIFORNIA INVESTMENT TRUST". CCM
Partners, a California Limited Partnership, ("Management") has
consented to the use by the Trust of the identifying words or name
"California Investment Trust" as the name of the Trust. Such consent
is conditioned upon the employment of Management, its successors or
any affiliate thereof, as Manager of the Trust and its Series. As
between the Trust and itself, Management controls the use of the name
of the Trust insofar as such name contains "California Investment
Trust". The name or identifying words "California Investment Trust"
may be used from time to time in other connections and for other
purposes by Management or affiliated entities. Management may require
the Trust to cease using "California Investment Trust" in the name of
the Trust if the Trust ceases to employ, for any reason, Management,
an affiliate, or any successor as Manager of the Trust or one or more
of its Series."
C. Article VIII is hereby amended by the addition of a new Section 11 to
read as follows:
"SECTION 11. USE OF THE NAMES OF SERIES. CCM Partners, a
California Limited Partnership, has consented to the use by the Trust
of the identifying words or names of each Series as created and as
modified from time to time. Such consent is conditioned upon the
employment of Management, its successors or any affiliate thereof, as
Manager of any particular Series. As between the Trust and itself,
Management controls the use of the name of each Series as
consideration for Management's or an affiliate's creation and
development of such name. The name or identifying words constituting
the name of a Series may be used from time to time in other
connections and for other purposes by Management or affiliated
entities. Management may require the Trust to cease using a name or
identifying words as the name for a particular Series if such Series
ceases to employ, for any reason, Management, an affiliate, or any
successor as Manager of such Series."
<PAGE>
3. It is the determination of the Trustees that approval of the shareholders
of the Trust is not required by the Investment Company Act of 1940, as
amended, or other applicable law, These amendments are made pursuant to
Article III, Section 5 and Article VIII, Section 8 of the Agreement and
Declaration of Trust which empower the Trustees to change provisions
relating to shares and, in general, to amend the Agreement and Declaration
of Trust, respectively. Pursuant to Article VIII, Section 6, this
Certificate of Amendment may be executed in counterparts,
We declare under penalty of perjury that the matters set forth in this
Certificate are true and correct of our own knowledge.
Dated: December 31, 1985
_____________________________ _____________________________
John R. Hill Harry Holmes
_____________________________ _____________________________
Phillip W. McClanahan Richard F. Shelton
CERTIFICATE OF AMENDMENT
OF
AGREEMENT AND DECLARATION OF TRUST
OF
CALIFORNIA INVESTMENT TRUST II
The undersigned certify that:
1. They constitute a majority of the Board of Trustees of CALIFORNIA
INVESTMENT TRUST II.
2. They hereby adopt the following amendment to this Agreement and Declaration
of Trust of this Trust:
A. Article III, Section 8 is hereby amended to read as follows:
SECTION 8. DESIGNATION OF SERIES. Subject to the relative rights
and preferences and other terms of this Agreement and Declaration of
Trust, the Trustees authorize the establishment of two (2) Series to
be designated as follows: "U.S. Government Securities Fund" and
"California Money Fund for Investment in Federal Securities."
3. It is the determination of the Trustees that approval of the shareholders
of the Trust is not required by the Investment Company Act of 1940, as
amended, or other applicable law. These amendments are made pursuant to
Article III, Section 5 and Article VIII, Section 8 of the Agreement and
Declaration of Trust which empower the Trustees to change provisions
relating to shares and, in general, to amend the Agreement and Declaration
of Trust, respectively.
IN WITNESS WHEREOF, the Trustees named below do hereby set their hands as
of the 18th day of March, 1987,
_____________________________ _____________________________
John R. Hill Harry Holmes
_____________________________ _____________________________
Phillip W. McClanahan Richard F. Shelton
- --------------------------------------------------------------------------------
Exhibit 23 (b)
By-Laws
- --------------------------------------------------------------------------------
<PAGE>
BY-LAWS
-------
for the regulation, except as otherwise provided by statute or the
Agreement and Declaration of Trust of
CALIFORNIA INVESTMENT TRUST II
a Massachusetts Business Trust
CALIFORNIA INVESTMENT TRUST II
BY-LAWS
ARTICLE I Offices
1. Principal Office
2. Other Offices
ARTICLE II Meetings of Shareholders
1. Place of Meetings
2. Call of Meeting
3. Notice of Shareholders' Meeting
4. Manner of Giving Notice; Affidavit of Notice
5. Adjourned Meeting; Notice
6. Voting
7. Waiver of Notice of Consent by Absent Shareholders
8. Shareholder Action by Written Consent without a Meeting
9. Record Date for Shareholder Notice, Voting and Giving Consents
10. Proxies
11. Inspectors of Election
ARTICLE III Trustees
1. Powers
2. Number and Qualification of Trustees
3. Vacancies
4. Place of Meetings and Meetings by Telephone
5. Regular Meetings
6. Special Meetings
7. Quorum
8. Waiver of Notice
9. Adjournment
10. Notice of Adjournment
11. Action Without a Meeting
12. Fees and Compensation of Trustees
ARTICLE IV Committees
1. Committees of Trustees
2. Meetings and Action of Committees
ARTICLE V Officers
1. Officers
2. Election of Officers
3. Subordinate Officers
4. Removal and Resignation of Officers
5. Vacancies in Offices
6. Chairman of the Board
7. President
8. Vice President
9. Secretary
10. Treasurer
<PAGE>
ARTICLE VI Indemnification of Trustees, Officers, Employees and Other Agents
1. Agents, Proceedings and Expenses
2. Actions Other than by Trust
3. Actions by the Trust
4. Exclusion and Indemnification
5. Successful Defense by Agent
6. Required Approval
7. Advance of Expenses
8. Other Contractual Rights
9. Limitations
10. Insurance
11. Fiduciaries of Corporate Employee Benefit Plan
ARTICLE VII Records and Reports
1. Maintenance and Inspection of Share Register
2. Maintenance and Inspection of By-laws
3. Maintenance and Inspection of Other Records
4. Inspection by Trustees
5. Financial Statements
ARTICLE VIII General Matters
1. Checks, Drafts, Evidence of Indebtedness
2. Contracts and Instruments; How Executed
3. Certificate of Shares
4. Lost Certificates
5. Representation of Shares of Other Entities
ARTICLE IX Amendments
1. Amendment by Shareholders
2. Amendment by Trustees
BY-LAWS
OFCALIFORNIA INVESTMENT TRUST II
A Massachusetts Business Trust
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix the location
of the principal executive office of the Trust at any place within or outside
The Commonwealth of Massachusetts.
Section 2. OTHER OFFICES. The Board of Trustees may at any time establish
branch subordinate offices at any place or places where the Trust intends to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any
place within or outside The Commonwealth of Massachusetts designated by the
Board of Trustees. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the Trust.
Section 2. CALL OF MEETING. A meeting of the shareholders may be called at
any time by the Board of Trustees or by the chairman of the Board or by the
president.
<PAGE>
Section 3. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 4 of
this Article II not less than seven (7) nor more than seventy-five (75) days
before the date of the meeting. The notice shall specify (i) the place, date and
hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a trustee has a direct or indirect financial
interest, (ii) an amendment of the Declaration of Trust, (iii) a reorganization
of the Trust, or (iv) a voluntary dissolution of the Trust, the notice shall
also state the general nature of that proposal.
Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further mailing if these
shall be available to the shareholder on written demand of the shareholder at
the principal executive office of the Trust for a period of one year from the
date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
Section 5. ADJOURNED MEETING; NOTICE. Any shareholder's meeting, whether or
not a quorum is present, may be adjourned from time to time by the vote of the
majority of the shares represented at that meeting, either in person or by
proxy.
When any meeting of shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 3 and 4 of this Article II. At any adjourned meeting, the Trust may
transact any business, which might have been transacted at the original meeting.
Section 6. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of the
Declaration of Trust, as in effect at such time. The shareholder s' vote may be
by voice vote or by ballot, provided, however, that any election for trustees
must be by ballot if demanded by any shareholder before the voting has begun. On
any matter other than elections of trustees, any shareholder may vote part of
the shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, but if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
the total shares that the shareholder is entitled to vote on such proposal.
Section 7. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the beginning of the
meeting.
Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any meeting of shareholders may be taken without a
meeting and without prior notice if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted. All such consents shall be filed with the Secretary of
the Trust and shall be maintained in the Trust's records. Any shareholder giving
a written consent or the shareholder's proxy holders or a transferee of the
shares or a personal representative of the shareholder or their respective proxy
holders may revoke the consent by a writing received by the Secretary of the
Trust before written consents of the number of shares required to authorize the
proposed action have been filed with the Secretary.
<PAGE>
If the consents of all shareholder s entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II. In the
case of approval of (i) contracts or transactions in which a trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, and (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to action without a meeting, the Board of
Trustees may fix in advance a record date which shall not be more than
seventy-five (75) days nor less than seven (7) days before the date of any such
meeting as provided in the Declaration of Trust.
If the Board of Trustees does not so fix a record date:
(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business
on the business day next preceding the day on which notice is given or
if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent
to action in writing without a meeting, (i) when no prior action by
the Board of Trustees has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action of the Board
of Trustees has been taken I shall be at the close of business on the
day on which the Board of Trustees adopt the resolution relating to
that action or the seventy fifth day before the date of such other
action, whichever is later.
Section 10. PROXIES. Every person entitled to vote for trustees or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the Trust. A proxy shall be deemed signed if the shareholder's name
is placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) revoked by the
person executing it before the vote pursuant to that proxy by a writing
delivered to the Trust stating that the proxy is revoked or by a subsequent
proxy executed by or attendance at the meeting and voting in person by the
person executing that proxy; or (ii) written notice of the death or incapacity
of the maker of that proxy is received by the Trust before the vote pursuant to
that proxy is counted; provided however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy unless otherwise
provided in the proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of the California General
Corporation Law.
Section 11. INSPECTORS OF ELECTION. Before any meeting of shareholders, the
Board of Trustees may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chairman of the meeting may and on the request of
any shareholder or a shareholder 's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
ARTICLE III
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the Declaration
of Trust and these By-Laws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the Trust
shall be managed and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES . The authorized number of
trustees shall be not less than three (3) nor more than fifteen (15). The exact
number of trustees within the limits specified shall be four (4), until changed
by a duly adopted amendment to the Declaration of Trust and these By-laws.
<PAGE>
Section 3. VACANCIES. Vacancies in the Board of Trustees may be filled by a
majority of the remaining trustees, though less than a quorum, or by a sole
remaining trustee, unless the Board of Trustees calls a meeting of shareholders
for the purposes of electing trustees. In the event that at any time less than a
majority of the trustees holding office at that time were so elected by the
holders of the outstanding voting securities of the Trust, the Board of Trustees
shall forthwith cause to be held as promptly as possible, and in any event
within sixty (60) days, a meeting of such holders for the purpose of electing
trustees to fill any existing vacancies in the Board of Trustees, unless such
period is extended by order of the United States Securities and Exchange
Commission.
Notwithstanding the above, whenever and for so long as the Trust is a
participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-1 under the Investment Company Act of 1940, then the selection and
nomination of the trustees who are not interested persons of the Trust (as that
term is defined in the Investment Company Act of 1940) shall be, and is,
committed to the discretion of such disinterested trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the
Board of Trustees be held at any place within or outside The Commonwealth of
Massachusetts that has been designated from time to time by resolution of the
Board. In the absence of such a designation, regular meetings shall be held at
the principal executive office of the Trust. Any meeting, regular or special,
may be held by conference telephone or similar communication equipment, so long
as all trustees participating in the meeting can hear one another and all such
trustees shall be deemed to be present in person at the meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees for
any purpose or purposes may be called at any time by the chairman of the board
or the president or any vice president or the secretary or any two (2) trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each trustee at that trustee's address
as it is shown on the records of the Trust. In case the notice is mailed it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. In case the notice is delivered personally
or by telephone or to the telegraph company, it shall be given at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
trustee or to a person at the office of the trustee who the person giving the
notice has reason to believe will promptly communicate it to the trustee. The
notice need not specify the purpose of the meeting or the place if the meeting
is to be held at the principal executive office of the Trust.
Section 7. QUORUM. A majority of the authorized number of trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
trustees if any action taken is approved by a least a majority of the required
quorum for that meeting.
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to any
trustee who either before or after the meeting signs a written waiver of notice,
a consent to holding the meeting, or an approval of the minutes. The waiver of
notice or consent need not specify the purpose of the meeting. All such waivers,
consents, and approvals shall be filed with the records of the Trust or made a
part of the minutes of the meeting. Notice of a meeting shall also be deemed
given to any trustee who attends the meeting without protesting before or at its
commencement the lack of notice to that trustee.
Section 9. ADJOURNMENT. A majority of the trustees present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given unless the meeting is adjourned for more
than forty-eight (48) hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting in the manner specified in
Section 7 of this Article III to the trustees who were present at the time of
the adjournment.
Section 11. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Trustees may be taken without a meeting if a majority
of the members of the Board of Trustees shall individually or collectively
consent in writing to that action. Such action by written consent shall have the
same force and effect as a majority vote of the Board of Trustees. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Trustees.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
<PAGE>
ARTICLE IV
COMMITTEES
----------
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may by resolution
adopted by a majority of the authorized number of trustees designate one or more
committees, each consisting of two (2) or more trustees, to serve at the
pleasure of the Board. The Board may designate one or more trustees as alternate
members of any committee who may replace any absent member at any meeting of the
committee. Any committee to the extent provided in the resolution of the Board,
shall have the authority of the Board, except with respect to:
(a) the approval of any action which under applicable law also requires
shareholders' approval or approval of the outstanding shares, or
requires approval by a majiority of the entire Board or certain
members of said Board;
(b) the filling of vacancies on the Board of Trustees or in any committee;
(c) the fixing of compensation of the trustees for serving on the Board of
Trustees or on any committee;
(d) the amendment or repeal of the Declaration of Trust or of the By-Laws
or the adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Board of Trustees
which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Trust, except at a rate or
in a periodic amount or within a designated range determined by the
Board of Trustees; or
(g) the appointment of any other committees of the Board of Trustees or
the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committee shall be governed by and held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees, and notice of special meetings of
committees shall also be given to all alternate members who shall have the right
to attend all meetings of the commit tee. The Board of Trustees may adopt rules
for the government of any committee not inconsistent with the provisions of
these By-Laws.
ARTICLE V
OFFICERS
--------
Section 1. OFFICERS. The officers of the Trust shall be a president, a
secretary, and a treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a chairman of the Board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may
empower the president to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Trustees at any regular or special
meeting of the Board of Trustees or except in the case of an officer upon whom
such power of removal may be conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or other cause shall be filled in the
manner prescribed in these By-Laws for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer is elected, shall if present preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
By-Laws.
<PAGE>
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Trustees to the chairman of the board, if there be such an
officer, the president shall be the chief executive officer of the Trust and
shall, subject to the control of the Board of Trustees, have general
supervision, direction and control of the business and the officers of the
Trust. He shall preside at all meetings of the shareholders and in the absence
of the chairman of the board or if there be none, at all meetings of the Board
of Trustees. He shall have the general powers and duties of management usually
vested in the office of president of corporation and shall have such other
powers and duties as may be prescribed by the Board of Trustees or these
By-Laws.
Section 8. VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the Board of
Trustees or if not ranked, a vice president designated by the Board of Trustees,
shall perform all the duties of the president and when so acting shall have all
power s of and be subject to all the restrictions upon the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Trustees or
by these By-Laws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept at the
principa1 executive office of the Trust or such other place as the Board of
Trustees may direct a book of minutes of all meetings and actions of trustees,
committees of trustees and shareholders with the time and place of holding
whether regular or special and if special how authorized, the notice given, the
names of those present at trustees' meetings or committee meetings, the number
of shares present or represented at shareholders' meetings, and the proceedings.
The secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
as determined by resolution of the Board of Trustees, a share register or a
duplicate share register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give or cause to be given notice of all meetings of the
shareholders and of the Board of Trustees required by these By-Laws or by
applicable law to be given and shall have such other powers and perform such
other duties as may be prescribed by the Board of Trustees or by these By-Laws.
Section 10. TREASURER. The treasurer shall be the chief financial officer
of the Trust and shall keep and maintain or cause to be kept and maintained
adequate and correct books and records of accounts of the properties and
business transactions of the Trust, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any trustee.
The treasurer shall deposit all monies and other valuables in the name and
to the credit of the Trust with such depositaries as may be designated by the
Board of Trustees. He shall disburse the funds of the Trust as may be ordered by
the Board of Trustees, shall render to the president and trustees, whenever they
request it, an account of all of his transactions as chief financial officer and
of the financial condition of the Trust and shall have other powers and perform
such other duties as may be prescribed by the Board of Trustees or these
By-Laws.
ARTICLE VI
INDEMNIFICATION OF TRUSTEES, OFFICERS,
--------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without 1imitation attorney 's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. This Trust shall indemnify any
person who was or is party or is threatened to be made a party to any proceeding
(other than an action by or in the right of this Trust) by reason of the fact
that such person is or was an agent of this Trust, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of this Trust
and in the case of a criminal proceeding had no reasonable cause to believe the
conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner which the person reasonably believed to be in the
best interests of this Trust or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of this Trust to procure a judgment in
its favor by reason of the fact that that person is or was an agent of this
Trust, against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of that action if that person acted in
good faith in a manner that person believed to be in the best interests of this
Trust and with such care, including reasonable inquiry as an ordinarily prudent
person in a like position would use under similar circumstances.
<PAGE>
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent's office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person shall
have been adjudged to be liable in the performance of that person's duty to
this Trust, unless and only to the extent that the court in which that
action was brought shall determine upon application that in view of all the
circumstances of the case, that person was not liable by reason of the
disabling conduct set forth in the preceding paragraph and is fairly and
reasonably entitled to indemnity for the expenses which the court shall
determine; or
(b) Of amounts paid in settling or otherwise disposing of a threatened or
pending action, with or without court approval, or of expenses incurred in
defending a threatened or pending action which is settled or otherwise
disposed of without court approval, unless the required approval set forth
in Section 6 of this Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this
Trust has been successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 of this Article or in defense of any claim, issue or matter
therein, before the court or other body before whom the proceeding was brought,
the agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith, provided that the Board of Trustees,
including a majority who are disinterested, non-party trustees, also determines
that based upon a review of the facts, the agent was not liable by reason of the
disabling conduct referred to in Section 4 of this Article.
Section 6. REOUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by this Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of trustees who are not parties
to the proceeding and are not interested persons of the Trust (as defined
in the Investment Company Act of 1940); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Sections 5 or 6 in any circumstances where
it appears:
(a) That it would be inconsistent with a provision of the Declaration of
Trust, a resolution of the shareholders, or an agreement in effect at the
time of accrual of the alleged cause of action asserted in the proceeding
in which the expenses were incurred or other amounts were paid which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a
court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board or Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VII
RECORDS AND REPORTS
-------------------
<PAGE>
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. This Trust shall
keep at its principal executive office or at the office of its transfer agent or
registrar, if either be appointed and as determined by resolution of the Board
of Trustees, a record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The original Trust shall
keep at its principal executive office the original or a copy of these By-Laws
as amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and any
income statement of the Trust for each quarterly period of each fiscal year and
accompanying balance sheet of the Trust as of the end of each such period that
has been prepared by the Trust shall be kept on file in the principal executive
office of the Trust for at least twelve (12) months and each such statement
shall be exhibited at all reasonable times to any shareholder demanding an
examination of any such statement or a copy shall be mailed to any such
shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.
ARTICLE VIII
GENERAL MATTERS
---------------
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts, or
other orders for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the Trust shall be signed or endorsed by
such person or persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees,
except as otherwise provided in these By-Laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or ratified by the
Board of Trustees or within the agency power of an officer, no officer, agent,
or employee shall have any power or authority to bind the Trust by any contract
or engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust shall be issued to each
shareholder when any of these shares are fully paid. All certificates shall be
signed in the name of the Trust by the chairman of the board or the president or
vice president and by the treasurer or an assistant treasurer or the secretary
or any assistant secretary, certifying then number of shares and the series of s
hares owned by the shareholders. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed on a certificate shal1 have
ceased to be that officer, transfer agent, or registrar before that certificate
is issued, it may be issued by the Trust with the same effect as if that person
were an officer, transfer agent or registrar at the date of issue.
Notwithstanding the foregoing, the Trust may adopt and use a system of issuance,
recordation and transfer of its shares by electronic or other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the Trust and cancelled at the same time. The Board of
Trustees may in case any share certificate or certificate for any other security
is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES. The chairman of the
board, the president or any vice president or any other person authorized by
resolution of the Board of Trustees or by any of the foregoing designated
officers, is authorized to vote on behalf of the Trust any and all shares of any
corporation or corporations, partnership, trusts, or other entities, foreign or
domestic, standing in the name of the Trust. The authority granted to these
officers to vote or represent on behalf of the Trust any and all shares held by
the Trust in any form of entity may be exercised by any of these officers in
person or by any person authorized to do so by a proxy duly executed by these
officers.
<PAGE>
ARTICLE IX
AMENDMENTS
----------
Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by applicable
law or by the Declaration of Trust or these By-Laws.
Section 2. AMENDMENT BY TRUSTEES. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal By-Laws, and
except as otherwise provided by applicable law or by the Declaration of Trust,
these By-Laws may be adopted, amended, or repealed by the Board of Trustees.
- --------------------------------------------------------------------------------
Exhibit 23 (d) (1)
Investment Advisory Contract
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the 31st day of December,
1985, by and between CALIFORNIA INVESTMENT TRUST II, a Massachusetts Business
Trust (hereinafter called the "Trust"), and CCM Partners, a California Limited
Partnership (hereinafter called the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is an open-end management investment company, registered
as such under the Investment Company Act of 1940; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and is engaged in the business of supplying
investment advice, investment management and administrative services, as an
independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render advice and
services to the Trust and to each of the separate series formed under the Trust
(such series hereinafter referred to individually as a 'Fund" and collectively
as the 'Funds') pursuant to the terms and provisions of this Agreement, and the
manager is interested in furnishing said advice and services.
<PAGE>
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. The Trust hereby employs the Manager and the Manager hereby accepts such
employment, to render investment advice and investment management services with
respect to the assets of the Trust and each of the Funds, subject to the
supervision and direction of the Trust's Board of Trustees. The Manager shall,
except as otherwise provided for herein, render or make available all services
needed for the management and operation of the Trust and the Funds, and shall,
as part of its duties hereunder, (i) furnish the Trust with advice and
recommendations with respect to the investment of the Funds' assets and the
purchase and sale of their portfolio securities, including the taking of such
other steps as may be necessary to implement such advice and recommendations,
(ii) furnish the Trust with reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Trust's Board of
Trustees may request, and (iii) in general superintend and manage the
investments of the Trust and the Funds, subject to the ultimate supervision and
direction of the Trust's Board of Trustees.
2. The Manager shall use its best judgment and efforts in rendering the
advice and services to the Trust as contemplated by this Agreement.
3. The manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Trust in any way, or
in any way be deemed
2
<PAGE>
an agent for the Trust. It is expressly understood and agreed that the services
to be rendered by the Manager to the Trust under the provisions of this
Agreement are not to be deemed exclusive, and the Manager shall be free to
render similar or different services to others so long as its ability to render
the services provided for in this Agreement shall not be impaired thereby.
4. The Manager agrees to use its best efforts in the furnishing of such
advice and recommendations to the Trust and the Funds, in the preparation of
reports and information, and in the management of the Funds' assets, all
pursuant to this Agreement, and for this purpose the Manager shall, at its own
expense, maintain such staff and employ or retain such personnel and consult
with such other persons as it shall from time to time determine to be necessary
to the performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Manager shall be
deemed to include persons employed or retained by the Manager to furnish
statistical, research, and other factual information, advice regarding economic
factors and trends, information with respect to technical and scientific
developments, and such other information, advice and assistance as the Manager
may desire and request.
5. The Trust will from time to time furnish to the Manager detailed
statements of the investments and assets of the Trust and the Funds and
information as to their respective investment objectives and needs, and will
make available to the Manager such financial reports, proxy statements, legal
and other information relating to the
3
<PAGE>
Funds' investments as may be in the possession of the Trust or available to it,
together with such other information as the Manager may reasonably request.
6. The Manager shall bear and pay the costs of rendering the services to be
performed by it under this Agreement. The Trust and each Fund shall bear and pay
for all other expenses of their operation, including, but not limited to,
expenses incurred in connection with the issuance, registration and transfer of
their shares; fees of their custodian, transfer and shareholder servicing agent;
costs and expenses of pricing and calculating each Fund's daily net asset value
and of maintaining its books of account as required by the Investment Company
Act of 1940; expenditures in connection with meetings of the Trust's
shareholders and trustees, except those called solely to accommodate the
Manager; salaries of officers and fees and expenses of trustees or members of
any advisory board or committee of the Trust who are not members of, affiliated
with or interested persons of the Manager; salaries of and costs related to
personnel involved in placing orders for the execution of the Funds' portfolio
transactions or in maintaining registration of the Funds' shares under state
securities laws; insurance premiums on property or personnel of the Trust which
inure to its benefit; the cost of preparing and printing reports, proxy
statements, prospectuses, and statements of additional information of the Trust
or other communications for distribution to its shareholders; legal, auditing
and accounting fees; trade association dues; fees and expenses of registering
and maintaining registration of the Trust's shares for sale under Federal and
applicable State securities laws; and all other charges and costs of the Trust's
operation plus any extraordinary and non-recurring expenses, except as herein
otherwise
4
<PAGE>
prescribed. To the extent the Manager incurs any costs or performs any services
which are an obligation of the Trust, as set forth herein, the Trust shall
promptly reimburse the Manager for such costs and expenses. To the extent the
services for which the Trust is obligated to pay are performed by the Manager,,
the Manager shall be entitled to recover from the Trust only to the extent of
the Manager's costs for such services, including the cost of personnel, office
space, and other facilities applicable to the furnishing of such services.
7. (a) Each Fund shall pay to the Manager, and the Manager agrees to
accept, as full compensation for all administrative and investment management
services furnished or provided to the Trust and the Funds pursuant to this
Agreement, a management fee computed at the following annual percentages of the
average daily net assets of each Fund:
0.50% on the first $100 million of net assets; plus
0.45% on net assets from $100 million to and including $500 million; plus
0.40% on net assets in excess of $500 million.
(b) The management fee shall be accrued daily by each Fund and paid to
the Manager on the first business day of the succeeding month.
(c) To the extent that the gross operating costs and expenses of each
Fund (excluding any extraordinary expenses, such as litigation) exceed 1.00% of
such
5
<PAGE>
Fund's average daily net asset value for any one (1) fiscal year, -the Manager
shall reimburse such Fund for the amount of such excess expenses.
(d) The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this Agreement.
If this Agreement is terminated prior to the end of any month, the fee to the
Manager shall be prorated for the portion of any month in which this Agreement
is in effect which is not a complete month according to the proportion which the
number of calendar days in the month during which the Agreement is in effect
bears to the number of calendar days in the month, and shall be payable within
ten (10) days after the date of termination.
(e) The Manager may waive any portion of the compensation or
reimbursement of expenses due to it pursuant to this Agreement. Any such waiver
shall be applicable only with respect to the specific items waived and shall not
constitute a waiver of any future compensation or reimbursement due to the
Manager hereunder.
8. The Manager agrees that neither it nor any of its officers or employees
shall take any short position in the shares of the Trust. This prohibition shall
not prevent the purchase of such shares by any of the officers and partners or
bona fide employees of the Manager or any trust, pension, profit-sharing or
other benefit plan for such persons or affiliates thereof, at a price not less
than the net asset value thereof at the time of purchase, as allowed pursuant to
rules promulgated under the Investment Company Act of 1940, as amended.
6
<PAGE>
9. Nothing herein contained shall be deemed to require the Trust to take
any action contrary to its Declaration of Trust, By-Laws, or any applicable
statute or regulation, or to relieve or deprive the Board of Trustees of the
Trust of its responsibility for and control of the conduct of the affairs of the
Trust.
10. (a) In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties hereunder on the
part of the Manager, the Manager shall not be subject to liability to the Trust
or to any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security by the Funds.
(b) Notwithstanding the foregoing, the Manager agrees to reimburse the
Trust for any and all costs, expenses, and counsel and trustees' fees reasonably
incurred by the Trust in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement, holdings of meetings of
its shareholders or trustees, the conduct-of factual investigations, any legal
or administrative proceedings (including any applications for exemptions or
determinations by the Securities and Exchange Commission) which the Trust incurs
as the result of action or inaction of the manager or any of its partners where
the action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the interests
or control of the manager or its affiliates (or litigation related to any
pending or proposed future transaction in such interests or control) which shall
7
<PAGE>
have been undertaken without the prior, express approval of the Trust's Board of
Trustees; or (ii) is within the sole control of the Manager or any of its
affiliates or any of their officers, partners, employees, or agents. So long as
this Agreement is in effect, the Manager shall pay to the Trust the amount due
for expenses subject to this Subparagraph 1011) within thirty (30) days after a
bill or statement has been received from the Trust therefore This provision
shall not be deemed to be a waiver of any claim which the Trust may have or may
assert against the Manager or others for costs, expenses, or damages heretofore
incurred by the Trust or for costs, expenses, or damages the Trust may hereafter
incur which are not reimbursable to it hereunder.
(c) No provision of this Agreement shall be construed to protect any
trustee or officer of the Trust, or partner or officer of the Manager, from
liability in violation of Sections 17(h) and (i) of the Investment Company Act
of 1940, as amended.
11. The Trust's employment of the Manager is not an exclusive arrangement,
and one or more Funds may from time to time employ other individuals or entities
to furnish them with the services provided for herein. In the event that one or
more of the Funds elect to terminate or not continue this Agreement with the
Manager, then the Manager shall have no duty and be under no obligation-to
continue providing such Fund or Funds the services provided for herein.
12. This Agreement shall remain in effect until December 31, 1987, unless
sooner terminated as hereinafter provided, and shall continue in effect with
respect to
8
<PAGE>
each of the Funds for periods not exceeding one (1) year thereafter so long as
such continuation is approved at least annually by (i) the Board of Trustees of
the Trust or by the vote of a majority of the outstanding voting securities of
each Fund desiring to continue the Agreement, and (ii) the vote of a majority of
the trustees of the Trust who are not parties to this Agreement or interested
persons thereof, cast in person at a meeting called for the purpose of voting on
such approval.
13. This Agreement may be terminated by each of the Funds at any time with
respect to such Fund, without payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities of
the terminating Fund or Funds, upon sixty (60) days' written notice to the
Manager, and by the Manager upon sixty (60) days' written notice to the
respective Fund.
14. This Agreement shall terminate automatically with respect to all Funds
in the event of any transfer or assignment thereof, as defined in the Investment
Company Act of 1940, as amended.
15. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged without the affirmative vote or written consent of the
holders of a majority of the outstanding voting securities of the: Trust and
each of the Funds.
16. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby.
9
<PAGE>
17. The terms "majority of the outstanding voting securities" and
"interested persons" shall have the meanings as set forth in the Investment
Company Act of 1940, as amended.
18. The Manager acknowledges that it has received notice of and accepts the
limitations of the Trust's liability set forth in Article VIII of its Agreement
and Declaration of Trust. The Manager agrees that the Trust's obligations
hereunder shall be limited to the Trust and to the assets of-each respective
Fund, and that the Manager shall not seek satisfaction of any such obligation
from the shareholders of the Trust nor from any Trustee, officer, employee or
agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
CALIFORNIA INVESTMENT TRUST II
By ______________________________
Vice President
CCM PARTNERS,
A California Limited Partnership
By ______________________________
General Partner
10
<PAGE>
ADDENDUM TO THE INVESTMENT MANAGEMENT AGREEMENT
BY AND BETWEEN CALIFORNIA INVESTMENT TRUST II,
ON BEHALF OF THE UNITED STATES TREASURY TRUST
AND CCM PARTNERS
California Investment Trust II, on behalf of The United States Treasury
Trust, does hereby adopt and agree to be bound under- the terms and conditions
of the Investment Management Agreement to which this Addendum is attached this
.. day of April, 1989, provided that the management fee to be paid hereunder
shall, for the initial fiscal period of The United States Treasury Trust ending
August 31, 1989, amount to no more than 0.15% per annum of the average daily net
assets of The United States Treasury Trust during said fiscal period.
CALIFORNIA INVESTMENT TRUST II
ON BEHALF OF THE UNITED STATES
TREASURY TRUST
By ______________________________
Phillip W. McClanahan,
Vice President
CCM PARTNERS
By ______________________________
Richard F. Shelton,
General Partner
- --------------------------------------------------------------------------------
Exhibit 23 (d) (2)
Investment Advisory Contract
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made as of the 13th day of April, 1992, by and
between CALIFORNIA INVESTMENT TRUST II, a Massachusetts business trust (the
"Trust"), on behalf of each series of the Trust (the "Fund(s)") listed in the
Appendix attached hereto, as such may be amended from time to time and CCM
PARTNERS, a limited partnership organized and existing under the laws of the
State of California (the "Manager"),
WHEREAS, the Trust is an open-end management investment company, registered
as such under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is engaged in the business of
supplying investment advice, investment management and administrative services,
as an independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render advice and
services to the Fund(s) pursuant to the terms and provisions of this Agreement,
and the Manager is interested in furnishing said advice and services;
NOW THEREFORE, the Trust and the Manager mutually agree as follows:
1. APPOINTMENT OF MANAGER. The Trust hereby employs the Manager and the Manager
hereby accepts such employment, to render investment advice and management
services with respect to the assets of the Fund(s) for the period and on the
terms set forth in this Agreement, subject to the supervision and direction of
the Trust's Board of Trustees.
2. DUTIES OF MANAGER.
(a) GENERAL DUTIES. The Manager shall act as investment manager to the
Fund(s) and shall supervise investments of the Fund(s) on behalf of the Fund(s)
in accordance with the investment objectives, programs and restrictions of the
Fund(s) as provided in the Trust's governing documents, including, without
limitation, the Trust's Agreement and Declaration of Trust and By-Laws, and such
other limitations as the Trustees may impose from time to time in writing to the
Manager. The Manager shall, except as otherwise provided for herein, render or
make available all services needed for the management, administration and
operation of the Funds. Without limiting the generality of the foregoing, the
Manager shall: (i) furnish the Fund(s) with advice and recommendations with
respect to the investment of each Fund's assets and the purchase and sale of
portfolio securities for the Fund(s), including the taking of such other steps
as may be necessary to implement such advice and recommendations; (ii) furnish
the Fund(s) with reports, statements and other data on securities, economic
conditions and other pertinent subjects which the Trust's Board of Trustees may
reasonably request; (iii) manage the investments of the Fund(s), subject to the
ultimate supervision and direction of the Trust's Board of Trustees; (iv)
provide persons satisfactory to the Trust's Board of Trustees to act as officers
and employees of the Trust and the Fund(s) (such officers and employees, as well
as certain Trustees, may be trustees, directors, officers, partners, or
employees of the Manager or its affiliates); and (v) render to
<PAGE>
the Trust's Board of Trustees such periodic and special reports with respect to
each Fund's investment activities as the Board may reasonably request. The
Manager, in its sole discretion, may delegate any one or more of these functions
to a sub-adviser to each Fund (the "Sub-Adviser").
(b) BROKERAGE. The Manager or a Sub-Adviser acting pursuant to an agreement
with the Manager shall place orders for the purchase and sale of securities
either directly with the issuer or with a broker or dealer selected by the
Manager. In placing each Fund's securities trades, it is recognized that the
Manager will give primary consideration to securing the most favorable price and
efficient execution, so that each Fund's total cost or proceeds in each
transaction will be the most favorable under all the circumstances. Within the
framework of this policy, the Manager may consider the financial responsibility,
research and investment information, and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which other clients of the Manager may be a party. It is
understood that an affiliate of the Manager or Sub-Adviser may act as one of the
Fund's brokers in the purchase and sale of portfolio securities for the Fund(s),
consistent with the requirements of the 1940 Act.
It is also understood that it may be desirable for the Fund(s) that the
Manager and the Sub-Adviser to have access to investment and market research and
securities and economic analyses provided by brokers and others. It is also
understood that brokers providing such services may execute brokerage
transactions at a higher cost to the Fund(s) than might result from the
allocation of brokerage to other brokers on the basis or seeking the most
favorable price and efficient execution. Therefore, the purchase and sale of
securities for the Fund(s) may be made with brokers who provide such research
and analysis, subject to review by the Trust's Board of Trustees from time to
time with respect to the extent and continuation of this practice to determine
whether each Fund benefits, directly or indirectly, from such practice. It is
understood by both parties that the Manager or the Sub-Adviser may select
broker-dealers for the execution of a Fund's portfolio transactions who provide
research and analysis as the Manager or the Sub-Adviser may lawfully and
appropriately use in its investment management and advisory capacities, whether
or not such research and analysis may also be useful to the Manager or the
Sub-Adviser in connection with its services to other clients.
On occasions when the Manager or the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of one or more of the Funds as well as
of other clients, the Manager or the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be so purchased
or sold in order to obtain the most favorable price or lower brokerage
commissions and the most efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager or the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Fund(s) and to such other clients.
<PAGE>
3. BEST EFFORTS AND JUDGMENT. The Manager shall use its best judgment and
efforts in rendering the advice and, services to the Fund(s) as contemplated by
this Agreement.
4. INDEPENDENT CONTRACTOR. The Manager shall, for all purposes herein, be deemed
to be an independent contractor, and shall, unless otherwise expressly provided
and authorized to do so, have no authority to act for or represent the Trust or
the Fund(s) in any way, or in any way be deemed an agent for the Trust or for
the Fund(s). It is expressly understood and agreed that the services to be
rendered by the Manager to the Fund(s) under the provisions of this Agreement
are not to be deemed exclusive, and the Manager shall be free to render similar
or different services to others so long as its ability to render the services
provided for in this Agreement shall not be impaired thereby.
5. MANAGER'S PERSONNEL. The Manager shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other persons as
it shall from time to time determine to be necessary to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Manager shall be deemed to include
persons employed or retained by the Manager to furnish statistical information,
research, and other factual information, advice regarding economic factors and
trends, information with respect to technical and scientific developments, and
such other information, advice and assistance as the Manager or the Trust's
Board of Trustees may desire and reasonably request.
6. REPORTS BY FUNDS TO MANAGER. Each Fund from time to time will furnish to the
Manager (and the Sub-Adviser) detailed statements of its investments and assets,
and information as to its investment objective and needs, and will make
available to the Manager such financial reports, proxy statements, legal and
other information relating to each Fund's investments as may be in its
possession or available to it, together with such other information as the
Manager or the Sub-Adviser may reasonably request.
7. EXPENSES.
(a) The Manager shall bear and pay the costs of rendering the services to
be performed by it under this Agreement. In addition, with respect to the
operation of each Fund, the Manager is responsible for (i) the compensation of
any of the Trust's trustees, officers, and employees who are affiliates of the
Manager, (ii) the expenses of printing and distributing the Fund's prospectuses,
statements of additional information, and sales and advertising materials (but
not the legal, auditing or accounting fees attendant thereto) to prospective
investors (but not to existing shareholders), and (iii) providing office space
and equipment reasonably necessary for the operation of the Fund.
(b) Each Fund is responsible for and has assumed the obligation for payment
of all of its expenses, other than as stated in Subparagraph 7(a) above,
including but not limited to: fees and expenses incurred in connection with the
issuance, registration and transfer of its shares; brokerage and commission
expenses; all expenses of transfer, receipt, safekeeping, servicing and
accounting for the cash, securities and other property of the Trust for the
benefit of the Fund(s) including all fees and expenses of its custodian,
shareholder
<PAGE>
services agent and accounting services agent; interest charges on any
borrowings; costs and expenses of pricing and calculating its daily net asset
value and of maintaining its books of account required under the 1940 Act;
taxes, if any; expenditures in connection with meetings of each Fund's
Shareholders and Board of Trustees that are properly payable by the Fund;
salaries and expenses of officers and fees and expenses of members of the
Trust's Board of Trustees or members of any advisory board or committee who are
not members of, affiliated with or interested persons of the Manager; insurance
premiums on property or personnel of each Fund which inure to its benefit,
including liability and fidelity bond insurance; the cost of preparing and
printing reports, proxy statements, prospectuses and statements of additional
information of the Fund or other communications for distribution to existing
shareholders; legal, auditing and accounting fees; trade association dues; fees
and expenses (including legal fees) of registering and maintaining registration
of its shares for sale under federal and applicable state and foreign securities
laws; all expenses of maintaining and servicing shareholder accounts, including
all charges for transfer, shareholder recordkeeping, dividend disbursing,
redemption, and other agents for the benefit of the Fund(s), if any; and all
other charges and costs of its operation plus any extraordinary and
non-recurring expenses, except as herein otherwise prescribed.
(c) To the extent the Manager incurs any costs by assuming expenses which
are an obligation of a Fund as set forth herein, such Fund shall promptly
reimburse the Manager for such costs and expenses, except to the extent the
Manager has otherwise agreed to bear such expenses. To the extent the services
for which a Fund is obligated to pay are performed by the Manager, the Manager
shall be entitled to recover from such Fund to the extent of the Manager's
actual costs for providing such services.
8. INVESTMENT ADVISORY AND MANAGEMENT FEE
(a) Each Fund shall pay to the Manager, and the Manager agrees to accept,
as full compensation for all administrative and investment management and
advisory services furnished or provided to such Fund pursuant to this Agreement,
a management fee as set forth in the Fee Schedule attached here to as the
Appendix, as may be amended in writing from time to time by the Trust and the
Manager.
(b) The management fee shall be accrued daily by each Fund and paid to the
Manager on the first business day of the succeeding month.
(c) The initial fee under this Agreement shall be payable on the first
business day of the first month following the effective date of this Agreement
and shall be prorated as set forth below. If this Agreement is terminated prior
to the end of any month, the fee to the Manager shall be prorated for the
portion of any month in which this Agreement is in effect which is not a
complete month according to the proportion which the number of calendar days in
the month during which the Agreement is in effect bears to the number of
calendar days in the month, and shall be payable within ten (10) days after the
date of termination.
<PAGE>
(d) The fees payable to the Manager under this Agreement will be reduced to
the extent required under the most stringent expense limitation applicable to a
Fund imposed by any state in which shares of the Fund are qualified for sale.
The Manager may reduce any portion of the compensation or reimbursement of
expenses due to it pursuant to this Agreement and may agree to make payments to
limit the expenses that are the responsibility of a Fund under this Agreement.
Any such reduction or payment shall be applicable only to such specific
reduction or payment and shall not constitute an agreement to reduce any future
compensation or reimbursement due to the Manager hereunder or to continue future
payments. Any such reduction will be agreed to prior to accrual of the related
expense or fee and will be estimated daily and reconciled and paid on a monthly
basis. Any fee withheld pursuant to this paragraph from the Manager shall be
reimbursed by the appropriate Fund to the Manager in the first fiscal year or
the second fiscal year next succeeding the fiscal year of the withholding to the
extent permitted by the applicable state law if the aggregate expenses for the
next succeeding fiscal year or second succeeding fiscal year do not exceed the
applicable state limitation or any more restrictive limitation to which the
Manager has agreed.
(e) The Manager may agree not to require payment of any portion of the
compensation or reimbursement of expenses otherwise due to it pursuant to this
Agreement prior to the time such compensation or reimbursement has accrued as a
liability of the Fund. Any such agreement shall be applicable only with respect
to the specific items covered thereby and shall not constitute an agreement not
to require payment of any future compensation or reimbursement due to the
Manager hereunder.
9. TRADING IN FUND SHARES. The Manager agrees that neither it nor any of its
partners, officers or employees shall take any short position in the shares of
any of the Funds. This prohibition shall not prevent the purchase of such shares
by any of the officers and partners or bona fide employees of the Manager or any
trust, pension, profit-sharing or other benefit plan for such persons or
affiliates thereof, at a price not less than the net asset value thereof at the
time of purchase, as allowed pursuant to rules promulgated under the 1940 Act.
10. CONFLICTS WITH TRUST'S GOVERNING DOCUMENTS AND APPLICABLE LAWS. Nothing
herein contained shall be deemed to require the Trust or any Fund to take any
action contrary to the Trust's Agreement and Declaration of Trust, By-Laws, or
any applicable statute or regulation, or to relieve or deprive the Board of
Trustees of the Trust of its responsibility for and control of the conduct of
the affairs of the Trust and the Fund.
11. MANAGER'S LIABILITIES.
(a) In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties hereunder on the part of the
Manager, the Manager shall not be subject to liability to the Trust or the
Fund(s) or to any shareholder of the Fund(s) for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security by the
Fund(s).
<PAGE>
(b) The Fund(s) shall indemnify and hold harmless the Manager, its general
partner and partners, shareholders, directors, officers and employees of each of
them (any such person, an "Indemnified Party") against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating and
defending any alleged loss, liability, claim, damage or expenses and reasonable
counsel fees incurred in connection therewith) arising out of the Indemnified
Party's performance or non-performance of any duties under this Agreement;
provided, however, that nothing herein shall be deemed to protect any
Indemnified Party against any liability to which such Indemnified Party would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
in the performance of duties hereunder or by reason of reckless disregard of
obligations and duties under this Agreement.
(c) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Trust, or partner or officer of the Manager, from
liability in violation of Sections 17(h) and (i) of the 1940 Act.
12. NON-EXCLUSIVITY. The Trust's employment of the Manager is not an exclusive
arrangement, and the Trust may from time to time employ other individuals or
entities to furnish it with the services provided for herein. In the event this
Agreement is terminated with respect to any Fund, this Agreement shall remain in
full force and effect with respect to all other Funds listed on the Appendix
hereto, as the same may be amended.
13. TERM. This Agreement shall become effective as of the date of execution and
shall remain in effect for a period of two (2) years, unless sooner terminated
as hereinafter provided. This Agreement shall continue in effect thereafter for
additional periods not exceeding one (1) year so long as such continuation is
approved for each Fund at least annually by (i) the Board of Trustees of the
Trust or by the vote of a majority of the outstanding voting securities of each
Fund and (ii) the vote of a majority of the Trustees of the Trust who are not
parties to this Agreement nor interested persons thereof, cast in person at a
meeting called for the purpose of voting on such approval.
14. TERMINATION. This Agreement may be terminated by the Trust on behalf of any
one or more of the Funds at any time without payment of any penalty, by the
Board of Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Fund, upon sixty (60) days' written notice to the
Manager, and by the Manager upon sixty (60) days' written notice to the Fund.
15. TERMINATION BY ASSIGNMENT. This Agreement shall terminate automatically in
the event of any transfer or assignment thereof, as defined in the 1940 Act.
16. TRANSFER, ASSIGNMENT. This Agreement may not be transferred, assigned, sold
or in any manner hypothecated or pledged without the affirmative vote or written
consent of the holders of a majority of the outstanding voting securities of
each Fund.
<PAGE>
17. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute or rule, or shall be otherwise rendered
invalid, the remainder of this Agreement shall not be affected thereby.
18. DEFINITIONS. The terms "majority of the outstanding voting securities" and
"interested persons" shall have the meanings as set forth in the 1940 Act.
19. NOTICE OF LIMITATION AN LIABILITY. The Manager acknowledges that it has
received notice of and accepts the limitations of the Trust's liability set
forth in Article III, Section 6(b) of its Agreement and Declaration of Trust,
The Manager agrees that the Trust's obligations under this Agreement with
respect to any one specific Fund shall be limited to the Fund and to its assets,
and that the Manager shall not seek satisfaction of any such obligation from the
shareholders of the Fund nor from any trustee, officer, employee or agent of the
Trust or the Fund, nor from the assets of shareholders of any other Funds.
20. CAPTIONS. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
21. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California without giving effect to
the conflict of laws principles thereof; provided that nothing herein shall be
construed to preempt, or to be inconsistent with, any federal law, regulation or
rule, including the 1940 Act and the Investment Advisers Act of 1940 and any
rules and regulations promulgated thereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
CALIFORNIA INVESTMENT TRUST II
By: /s/ Phillip W. McClanahan
-------------------------
Phillip W. McClanahan
Vice President
CCM PARTNERS,
a California Limited Partnership
By: /s/ Richard F. Shelton
----------------------
RFS Partners,
its General Partner
By: /s/ Richard F. Shelton
Richard F. Shelton, Inc.,
its General Partner
By: /s/ Richard F. Shelton
Richard F. Shelton
President
<PAGE>
CCM PARTNERS
APPENDIX
to Management Agreement
Dated April 13, 1992,
as amended on September 4, 1996
FUND NAMES
----------
The provisions of the Management Agreement between the Trust and the
Manager apply to the following series of the Trust:
1. S&P 500 Index Fund
2. S&P MidCap Index Fund
3. S&P SmallCap Index Fund
4. Equity Income Fund
FEE SCHEDULE
------------
Each Fund shall pay to the Manager, as full compensation for all investment
management, advisory and administrative services furnished or provided to such
Fund, pursuant to the Management Agreement made as of April 13, 1992, as amended
on September 4, 1996, a management fee based upon each Fund's average daily net
assets at the following per annum rates:
1. S&P 500 Index Fund: 0.25%
2. S&P MidCap Index Fund: 0.40%
3. S&P SmallCap Index Fund: 0.50% of the first $500 million average daily net
assets, 0.45% of the next $500 million average daily net assets and 0.40%
for average daily net assets above 1 billion.
4. Equity Income Fund: 0.50% of the first $500 million average daily net
assets, 0.45% of the next $500 million average daily net assets and 0.40%
for average daily net assets above 1 billion.
- --------------------------------------------------------------------------------
Exhibit 23 (e)
Underwriting Agreement
- --------------------------------------------------------------------------------
<PAGE>
CALIFORNIA INVESTMENT TRUST II
44 Montgomery Street, Suite 2100
San Francisco, California 94104
Date: April 13, 1992
RFS Partners
44 Montgomery Street, Suite 2100
San Francisco, California 94104
Re: Underwriting Agreement
Ladies and Gentlemen:
We are a Massachusetts business trust operating as an open-end management
investment company (hereinafter referred to as the "Trust"). As such, the Trust
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and its shares are registered under the Securities Act of 1933, as
amended (the "1933 Act"). Each series of shares of beneficial interest (each, a
"Fund" and collectively, the "Funds") authorized for issuance by the Trust are
listed in Appendix "A" hereto, as such Appendix may be amended from time to
time. Each series constitutes a distinct and separate investment portfolio for
shareholders of such shares. The terms of this Agreement shall apply equal force
to each Fund. We desire to offer and sell shares of beneficial interest of the
Funds (the "Shares") to the public in accordance with the applicable federal and
state securities laws.
A registration statement on Form N-1A (as amended from time to time, the
"Registration Statement") has been filed with the Securities and Exchange
Commission ("SEC") with respect to the Shares we currently desire to be offered
and sold, and such Registration Statement with respect to such Shares has been
declared effective under the 1933 Act and 1940 Act by the SEC. The Registration
Statement contains forms of a prospectus and a statement of additional
information which, in the forms such documents have been or will be filed with
the SEC pursuant to Rule 497 under the 1933 Act, are referred to herein as the
"Prospectus" and the "Statement of Additional Information" The Prospectus and
Statement of Additional Information for each Fund are intended to be the primary
documents used in the offer and sale of Shares of such Fund.
You have informed us that your company is registered as a broker-dealer
under the provisions of the Securities Exchange Act of 1934 and that your
company is a member of the National Association of Securities Dealers, Inc. You
have indicated your desire to act as the principal underwriter of and
non-exclusive selling agent and distributor for Shares of the Funds. We have
been authorized to execute and deliver this Agreement to you on behalf of each
Fund by consent of our Board of Trustees, given at a meeting at which a majority
of the Trustees, including a majority of the Trustees who are not otherwise
interested persons of the Trust and who are not interested persons of your
company, were present and voted in favor of the consent approving this
agreement.
<PAGE>
1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and in
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as principal underwriter
and nonexclusive sales agent and distributor for the Shares of each Fund and
agree that we will deliver such Shares as you may sell. You agree to use your
best efforts to promote the sale of Shares of the Fund, but are not obligated to
sell any specific number of Shares.
2. INDEPENDENT CONTRACTOR. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts, except
that you are authorized to accept orders for the purchase or repurchase of the
Shares as our agent. You may appoint sub-agents or distribute through dealers
(pursuant to the Master Selling Group Agreement attached hereto as Exhibit A),
your own sales representatives or otherwise as you may determine from time to
time, but this Agreement shall not be construed as authorizing any dealer or
other person to accept orders for sale or repurchase of Shares of the Fund on
our behalf or otherwise act as our agent for any purpose.
3. PUBLIC OFFERING PRICE. The Shares of each Fund shall be offered for sale
to the public at (i) a price equivalent to their respective net asset value per
share (without sales load), or (ii) at a public offering price that includes the
applicable sales load, if any, as set forth in the then-current Prospectus of
such Fund. On each business day on which the New York Stock Exchange is open for
business, we will furnish you with the net asset value of the Shares, which
shall be determined and become effective as of the close of business on the New
York Stock Exchange on that day, as set forth in the then-current Prospectus of
the Fund. The net asset value so determined shall apply to all orders for the
purchase of our Shares received by dealers and you prior to such determination,
and you are authorized as our agent to accept orders and confirm sales at such
net asset value, provided that such dealers notify you of the time when they
received the particular order and that the order is placed with you prior to
your close of business on the day on which the applicable net asset value is
determined. To the extent that the Transfer Agent or Custodian for the Fund (the
"Agent") receives payments on behalf of investors, such Agent shall be required
to record the time of such receipt with respect to each payment, and the
applicable net asset value and public offering price shall be that which is next
determined and effective after the time of receipt by them. In all events, you
shall forthwith notify all of the dealers comprising your selling group and the
Agent of the effective net asset value as received from us. Should we at any
time calculate the net asset value more frequently than once each business day,
you and we will follow procedures with respect to such additional price or
prices comparable to those set forth above in this Section 3.
<PAGE>
4. SALES COMMISSION. The Trust currently intends to offer Shares at net
asset value and without any sales load. In the event that the Prospectus for a
Fund provides for a sales load, however, you shall be entitled to charge a sales
commission on the sale of the Shares of each Fund in the amount set forth in the
then-current effective Prospectus for such Fund. Such commission (subject to any
quantity or other discounts or eliminations of commission as set forth in the
Fund's then current Prospectus) shall be an amount mutually agreed upon between
us and equal to the difference between the net asset value and the public
offering price of the Shares. You may allow such sub-agents or dealers such
commissions or discounts, including payments exceeding the total sales
commission, as you shall deem advisable, so long as any such commissions or
discounts are set forth in the then-current Prospectus of the Fund to the extent
required by all applicable securities laws.
5. PAYMENT FOR SHARES. At or prior to the time of delivery of any of the
Shares, you will pay or cause to be paid to the Fund's Custodian, for the
applicable Fund's account, an amount in cash equal to the net asset value of
such Shares. In the event that you pay for Shares sold by you prior to your
receipt of payment from purchasers, you are authorized to reimburse yourself for
the net asset value of such Shares when received by you.
6. TRANSFER AGENT REGISTRATION OF SHARES. No Shares of the Fund shall be
registered on the books of the Fund until (i) receipt by us of your written
request therefor; (ii) receipt by the Fund's Transfer Agent of a certificate
signed by an officer of the Trust stating the amount to be received therefor;
and (iii) receipt by the Fund's Custodian of payment of that amount. We will
provide for the recording of all Shares purchased in uncertificated form in
"book accounts." Share certificates will be issued only upon specific request.
7. BLUE SKY AND FEDERAL REGISTRATION OF SHARES. We shall be responsible for
registering and/or qualifying the Shares of the Funds for sale in such states
and in such amounts as we shall mutually agree upon and for maintaining such
registrations and/or qualifications. We shall also be responsible for
registering the Shares of the Funds with the Securities and Exchange Commission.
We shall notify you of the states in which the Shares are registered and/or
qualified for sale, and we shall promptly notify you of any suspension or
limitation on such registration and/or qualification. You agree to sell Shares
only in such states where we have notified you that the Shares are registered
and/or qualified for sale, and then only in such amounts as we have notified you
may be sold in such states; provided, however, that at your own risk, you may
sell Shares in any jurisdiction pursuant to a valid exemption for or exception
to the applicable registration or qualification requirements.
8. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase Shares for your
own account for purposes of resale to the public, but you may purchase Shares
for your own investment account upon your prior written assurance to us that the
purchase is for investment purposes only and that the Shares will not be resold
except by us through redemption.
<PAGE>
9. Allocation of Expenses.
(a) We will pay the expenses:
(i) Of the preparation of our audited and certified financial
statements to be included in any amendments to your
Registration Statement under the 1933 Act, including the
Prospectus and Statement of Additional Information of the
Fund included therein ("Amendments");
(ii) Of the preparation, including legal fees and the setting of
type, and the printing of all Amendments or supplements to
the Registration Statement filed with the Securities and
Exchange Commission, including the copies of the Fund's
Prospectuses naming you as principal underwriter, and the
Statement of Additional Information included in the
Amendments or supplements thereto; PROVIDED, HOWEVER, that
we will not pay for any expenses of any Amendments or
supplements necessitated by your (including your
"affiliates") activities, or related to your activities,
where such Amendments or supplements result in expenses
which we would not otherwise have incurred;
(iii)Of the preparation, printing, and distribution of any
reports or communications to existing shareholders of the
Funds, including Prospectuses and Statements of Additional
Information;
(iv) Of filing and other fees to federal, state or other
securities regulatory authorities necessary to register and
maintain registration of the Shares; and
(v) Of the Transfer Agent(s) for the Funds, including all costs
and expenses in connection with the issuance, transfer and
registration of the Shares, including but not limited to any
taxes and other governmental charges in connection
therewith.
(b) You will pay or be responsible for the expenses:
(i) Described in the proviso at the end of subparagraph (a) (ii)
above;
(ii) Of printing additional copies for use by you as sales
literature or in marketing, of Prospectuses, Statements of
Additional Information, reports or other communications that
we have prepared for distribution to our existing
shareholders; and
<PAGE>
(iii)Incurred by you in advertising, promoting and selling the
Shares to the public, including the costs of materials.
10. FURNISHING OF INFORMATION. We will furnish to you such information with
respect to the Fund and its Shares, in such form and signed by such of our
officers as you may reasonably request, and we warrant that the statements
therein contained when so signed will be true and correct. We will also furnish
you with such information and will take such action as you may reasonably
request in order to qualify the Shares for sale to the public under the
securities laws of jurisdictions in which you may wish to offer them. We will
furnish you at least annually with audited financial statements of our books and
accounts certified by independent public accountants, and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
We undertake to furnish to you, or cause to be furnished to you, as many
copies of each Fund's current Prospectus, Statement of Additional Information,
and Annual and Semi-Annual Reports to Shareholders as you shall reasonably
request, subject to your obligation set forth in 9. (b) (ii) above, with respect
to the expense of sales literature and marketing material. We hereby warrant
that each such Prospectus, Statement of Additional Information, and Annual and
Semi-Annual Report to Shareholders will be current, accurate and complete in all
material respects at the time we provide it to you or cause it to be provided to
you, and that any supplements or Amendments thereto will be promptly furnished
to you. You agree that, in distributing a Fund's Shares, you will use only the
most current versions of the Prospectus and Statement of Additional Information,
and the most current Annual and Semi-Annual Reports to Shareholders, each as
supplied, supplemented, or revised by us.
11. MARKETING MATERIALS. Other than each Fund's current Prospectus,
Statement of Additional Information, and Annual and Semi-Annual Report to
Shareholders naming you as principal underwriter, you will not issue any
advertising, sales, or marketing material or statements, or disseminate to the
public any information whatsoever about the Funds, without our prior approval.
You acknowledge that all advertising, sales, and marketing materials or other
statements about the Funds that are disseminated to the public must conform to
the requirements of all applicable securities laws and regulations, and must be
filed, where necessary, with the appropriate regulatory authorities. You agree
to furnish us on a timely basis with copies of all such material prior to use,
and no such material as you may propose for our review.
12. CONDUCT OF BUSINESS. You shall comply with the applicable securities
laws and regulations of the jurisdiction where the Shares are offered for sale,
and conduct your affairs with us and with dealers, brokers or investors in
accordance with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
13. OTHER ACTIVITIES. Your services pursuant to this Agreement shall not be
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering and sale of their shares.
<PAGE>
14. TERM OF AGREEMENT. This Agreement shall become effective as of the
effective date of the Trust's Registration Statement on Form N-1A and shall
remain in effect for a period of two years from such effective date. This
Agreement shall continue thereafter for periods not exceeding one year if
approved at least annually (i) by a vote of a majority of the outstanding voting
securities of the Fund or by a vote of the Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees of the Trust who are not interested persons
or parties to this Agreement (other than as Trustees of the Trust), cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement: (i) may at any time be terminated without the payment of
any penalty by vote of the Trustees of the Trust on sixty (60) days' prior
written notice to you; (ii) shall immediately terminate in the event of its
assignment; and (iii) may be terminated by you on sixty (60) days' prior written
notice to us.
15. SUSPENSION OF SALES. We reserve the right at all times to suspend or
limit the public offering of the Shares upon written notice to you, and to
reject any order for the purchase of the Shares in whole or in part.
16. MISCELLANEOUS. This Agreement shall be subject to the laws of the State
of California and shall be interpreted and construed to further and promote the
operation of the Trust as an open-end investment company. As used herein the
terms "net asset value," "offering price," "investment company," "open-end
investment company," "assignment," "principal underwriter," "interested person,"
"parents," and "majority of the outstanding voting securities," shall have the
meanings set forth in the 1933 Act and the 1940 Act and the rules and
regulations thereunder.
17. LIABILITY. Nothing herein shall be deemed to protect you against any
liability to us or to our securities holders to which you would otherwise be
subject by reason of your willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
18. INDEMNIFICATION. We agree to indemnify and hold you harmless from and
against any and all losses; claims, damages or liabilities to which you may
become subject under the 1933 Act, the 1940 Act, or any state securities
statute, and to reimburse you for any legal or other expenses reasonably
incurred by you in connection with any claim or litigation, whether or not
resulting in any liability, insofar as such losses, claims, damages,
liabilities, or litigation arise out of or are based upon any untrue statement
or omission or alleged untrue statement or omission of a material fact contained
in the Registration Statement of the Trust, including any Amendment or
supplement thereto (the "Registration Statement"); PROVIDED, HOWEVER, that this
indemnity shall not apply to any such losses, claims, damages, liabilities, or
litigation arising out of or based upon any untrue statement or omission or
alleged untrue statement or omission of a material fact contained in the
Registration Statement, which statement or omission was made in reliance upon
information furnished by you to us for inclusion in the Registration Statement.
<PAGE>
You agree to indemnify and hold us harmless from and against any and all
losses, claims, damages or liabilities to which we may become subject under the
1933 Act, the 1940 Act, or any state securities statute, and reimburse us for
any legal or other expenses reasonably incurred by us in connection with (i) any
claim or litigation, whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities, or litigation arise out of or are based
upon any sale of Shares in states where you have been advised that the Shares
are not registered and/or qualified (or sales in excess of amounts that have
been registered and/or qualified); (ii) sales of Shares that have been made at
your own risk as specified in Paragraph 7 hereof; and (iii) any untrue statement
or omission or alleged untrue statement or omission of a material fact contained
in the Registration Statement which statement or omission was made in reliance
upon information furnished by you to us for inclusion in the Registration
Statement.
19. LIMITATION ON LIABILITY. You acknowledge that you have received notice
of and accept the limitations on liability set forth in the Trust's Agreement
and Declaration of Trust, as amended from time to time. In accordance there
with, you agree that each Fund's obligations hereunder shall be limited
exclusively to the Fund and the assets of such Fund, and no party shall seek
satisfaction of any such obligation from any shareholders or from any other Fund
within the Trust, nor from the Trust generally, nor from any Trustee, officer,
employee or agent of the Trust.
<PAGE>
If the foregoing meets with your approval, please acknowledge your
acceptance by signing each of the enclosed counterparts hereof and returning two
such counterparts to us, whereupon this shall constitute a binding agreement as
of the date first above written.
Very truly yours,
CALIFORNIA INVESTMENT TRUST II on behalf of
each Fund set forth in Appendix A (as may be
amended)
By: /s/ Richard F. Shelton
------------------------
Richard F. Shelton
President
Accepted:
RFS PARTNERS
By: /s/ Richard F. Shelton
-------------------------------
Richard F. Shelton, Inc.
General Partner
By: /s/ Richard F. Shelton
-------------------------------
Richard F. Shelton
President
<PAGE>
APPENDIX "A"
TO THE
CALIFORNIA INVESTMENT TRUST II
UNDERWRITING AGREEMENT
DATED: APRIL 13, 1992
This agreement applies to the following Funds:
1. U.S. Government Securities Fund
2. The United States Treasury Trust
3. S&P 500 Index Fund
4. S&P MidCap Index Fund
<PAGE>
EXHIBIT A
RFS Partners
44 Montgomery Street
Suite 2100
San Francisco, CA 94111
MASTER
SELLING GROUP AGREEMENT
__________________________________
Name of Firm
__________________________________
Address of Principal Office
__________________________________
City State Zip Code
Gentlemen:
In connection with offerings of investment company ("Fund") securities
("Shares") in which RFS Partners acts as underwriter and distributor, or as the
representative or one of the representatives of a group of underwriters and
distributors (the "Distributors"), you may be offered the opportunity, as a
selected dealer, to participate in the sale of the subject securities. This
Agreement shall apply to any such offering of securities in which you are
invited to participate, and elect to participate, as a selected dealer, and with
respect to which we shall advise you that this Agreement shall apply. We
understand that you are a member of the National Association of Securities
Dealers, Inc., and, on the basis of such understanding, invite you to become a
member of the Selling Group to distribute the Shares of the Fund(s) on the
following terms:
1. You and ourselves agree to abide by the Rules of Fair Practice, the
Constitution and By-Laws of the National Association of Securities Dealers,
Inc., and to all other rules and regulations that are now or may become
applicable to transactions hereunder.
2. You will be advised that you are being offered the opportunity to
participate in any offering of Shares by a telegram, telex, graphic scanning
message or other form of written communication. Such communication, or written
communications (collectively "Written Communications") subsequently sent to you
will set forth, or refer to a prospectus setting forth, the issuer, certain
terms of the Shares, the selling concession, the re-allowance (if any) to
dealers and the time when selected dealers may commence selling the Shares to
the public. Your election to participate and agreement to the terms of this
Agreement shall be evidenced by (i) the placement of an order for Shares in any
such offering or (ii) receipt by us of a written communication indicating your
intention to sell Shares in an offering. Orders for Shares of a Fund received
from you and
<PAGE>
accepted by us will be at the public offering price applicable to each order in
accordance with such Fund's then current effective Prospectus. The procedure
relating to the handling of orders shall be subject to instructions which we
shall forward from time to time to all members of the Selling Group. All orders
are subject to acceptance by us and we reserve the right in our sole discretion
to reject any order in whole or in part.
3. As compensation for selling Shares of a Fund, you shall be entitled to
receive from the public offering price the amount of concession, if any, as set
forth in the then current effective Prospectus of such Fund, plus, where
applicable, the payments set forth on Exhibit A hereto. The current effective
Prospectus of each Fund shall at all times reflect the applicable amount of
concessions, if any, available to you. There shall be no concession on the
purchase of a Fund's Shares through the reinvestment of any distributions made
by such Fund, which shall be at net asset value.
4. All purchases of Shares of a Fund made under any cumulative purchase
privilege as set forth in a Fund's then current effective Prospectus shall be
considered an individual transaction for the purpose of determining the
concession from the public offering price to which you are entitled as set forth
in paragraph 3 hereof.
5. As a member of the Selling Group, you agree to purchase Shares of the
Fund(s) only through us or from your customers. Purchases through us shall be
made only for your own investment purposes or for the purpose of covering
purchase orders already received from your customers, and we agree that we will
not place orders for the purchase of Shares from a Fund except to cover purchase
orders already received by us. Purchases from your customers shall be at a price
not less than the net asset value quoted by each such Fund at the time of such
purchase. Nothing herein contained shall prevent you from selling any Shares of
a Fund for the account of the record holder to us or to such Fund at the net
asset value quoted by us and charging your customer a fair commission for
handling the transaction.
6. You agree that you will not withhold placing customers' orders so as to
profit yourself as a result of such withholding. We will accept conditional
orders only on the basis of a specified definite price.
7. You agree to sell Shares of the Fund(s) only (a) to your customers at
the public offering prices then in effect or (b) to us as agent for the Fund(s)
or to each such Fund itself at the redemption price, as described in each Fund's
then current effective Prospectus (unless after reasonable investigation by you,
you are able to obtain a better price for the Shares).
8. Settlement shall be made promptly, but in no case later than ten (10)
business days after our acceptance of the order or, if so specified by you, we
will make delivery by draft on you, the amount of which draft you agree to pay
on presentation to you. If payment is not so received or made, the right is
reserved forthwith to cancel the sale or, at our option, to resell the Shares to
the applicable Fund, at the then prevailing bid price in which latter case you
agree to be responsible for any loss resulting to such Fund or to us from your
failure to make payment as aforesaid.
<PAGE>
9. If any Shares sold to you under the terms of this Agreement are
repurchased by a Fund or by us as agent, or for the account of that Fund or are
tendered to that Fund for purchase at liquidating value under the terms of the
Agreement and Declaration of Trust or other documents governing such Fund within
seven (7) business days after the date of our confirmation to you of your
original purchase order therefor, you agree to pay forthwith to us the full
amount of any concession allowed to you on the original sale and we agree to pay
such amount to the Fund when received by us. We shall notify you of such
repurchase within ten (10) days of the effective date of such repurchase.
10. All sales will be subject to receipt of Shares by us from the Funds. We
reserve the right in our discretion without notice to you to suspend sales or
withdraw the offering of Shares entirely, or to modify or cancel this Agreement,
which shall be construed in accordance with the laws of the State of California.
All sales shall be subject to the terms and provision set forth in each Fund's
then current effective Prospectus.
11. No person is authorized to make any representations concerning a Fund
or Shares of a Fund except those contained in each Fund's then current effective
Prospectus of Statement of Additional Information and any such information as
may be released by a Fund as information supplemental to such Prospectus or
Statement of Additional Information. In purchasing Shares through us you shall
rely solely on the representations contained in each Fund's then current
effective Prospectus or Statement of Additional Information and supplemental
information above-mentioned.
12. Additional copies of each such Prospectus or Statement of Additional
Information and any printed information issued as supplemental to each such
Prospectus or Statement of Additional Information will be supplied by us to
members of the Selling Group in reasonable quantities upon request.
13. In no transaction shall you have any authority whatever to act as agent
of a Fund, or series thereof, or of us or of any other member of the Selling
Group, and nothing in this Agreement shall constitute either of us the agent of
the other or shall constitute you or the Fund the agent of the other. In all
transactions in these Shares between you and us, we are acting as agent for the
Fund and not as principal.
14. All communications to us shall be sent to us at 44 Montgomery Street,
Suite 2100, San Francisco, California, 94104. Any notice to you shall be duly
given if mailed or telegraphed to you at your address as registered from time to
time with the National Association of Securities Dealers, Inc.
15. This Agreement may be terminated upon written notice by either party at
any time, and shall automatically terminate upon its attempted assignment by
you, whether by operation of law or otherwise, or by us otherwise than by
operation of law.
<PAGE>
16. By accepting this Agreement, you represent that you are registered as a
broker states or other jurisdictions where you transact business, and are a
member in good standing of the National Association of Securities Dealers, Inc.,
and you agree that you will maintain such registrations, qualifications, and
membership in good standing and in full force and effect throughout the term of
this Agreement. You further agree to comply with all applicable Federal laws,
the laws of the states or other jurisdictions concerned, and the rules and
regulations promulgated thereunder and with the Constitution, By-Laws and Rules
of Fair Practice of the National Association of Securities Dealers, Inc., and
that you will not offer or sell Shares of a Fund in any state or jurisdiction
where they may not lawfully be offered and/or sold.
If you are offering and selling Shares of a Fund in jurisdictions outside
the several states, territories, and possessions of the United States and are
not otherwise required to be registered, qualified, or a member of the National
Association of Securities Dealers, Inc., as set forth above, you nevertheless
agree to observe the applicable laws of the jurisdiction in which such offer
and/or sale is made, to comply with the full disclosure requirements of the
Securities Act of 1933 and the regulations promulgated thereunder, to conduct
your business in accordance with the spirit of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and to obey all applicable
military and naval regulations.
17. This Agreement and all amendments to this Agreement shall take effect
with respect to and on the date of any orders placed by you after the date set
forth below or, as applicable, after the date of the notice of amendment sent to
you by the undersigned.
<PAGE>
RFS PARTNERS
By: ____________________________________
Richard F. Shelton, Inc.
Its General Partner
By: ____________________________________
Richard F. Shelton
President
The undersigned accepts your invitation to become a member of the Selling
Group and agrees to abide by the foregoing terms and conditions.
Firm Name: _____________________________
Address: _____________________________
_____________________________
_____________________________
Date: ____________________________ By _____________________________________
(Authorized Signature)
The above Agreement should be executed in duplicate and one copy returned
to RFS Partners.
- --------------------------------------------------------------------------------
Exhibit 23 (g)
Form of Custodian Agreement
- --------------------------------------------------------------------------------
<PAGE>
CUSTODIAN AGREEMENT
-------------------
THIS AGREEMENT made on April. 24, 1994, between California Investment Trust Fund
Group, which currently consists of two diversified, open-end management
investment companies, both organized as Massachusetts business trusts
(hereinafter called the ("Funds"), and FIRSTAR TRUST COMPANY, a corporation
organized under the laws of the State of Wisconsin (hereinafter called
"Custodian").
WITNESSETH:
WHEREAS, the Fund desires that its securities and cash shall be hereafter
held and administered by Custodian pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian agree as follows:
1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Funds by any two of the
President, a Vice President, the Secretary and the Treasurer of the Funds, or
any other persons duly authorized to sign by the Boards of Trustees.
The word "Boards" shall mean Boards of Trustees of California Investment
Trust Fund Group.
2. Names, Titles, and Signatures of the Officers
An officer of the Funds will certify to Custodian the names and signatures
of those persons authorized to sign the officers' certificates described in
Section 1 hereof, and the names of the members of the Boards of Trustees,
together with any changes which may occur from time to time.
In the event that the California Investment Trust Fund Group establishes
one or more series of shares with respect to which it desires to have Custodian
render custodian services, under the terms hereof, it shall so notify Custodian
in writing, and if Custodian agrees in writing to provide such services, such
series will be subject to the terms and conditions of this Agreement. The Funds
currently covered by this Agreement are: The California Tax-Free Income Fund,
the California Tax-Free Money Market Fund, the U.S. Government Securities Fund,
The United States Treasury Trust, the California Insured TaxFree Income Fund,
the S&P 500 index Fund and the S&P MidCap Index Fund.
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate account or accounts in the
name of each of the Funds, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of each of the Funds. Custodian shall make payments of cash to, or
for the account of, each of the Funds from such cash only:
(a) for the purchase of securities for the portfolio of the Funds upon the
delivery of such securities to Custodian, registered in the name of
the Funds or of the nominee of Custodian referred to in Section 7 or
in proper form for transfer;
<PAGE>
(b) for the purchase or redemption of shares of the common stock of the
Funds upon delivery thereof to Custodian, or upon proper instructions
from the California Investment Trust Fund Group;
(c) for the payment of interest, dividends, taxes, investment adviser's
fees or operating expenses (including, without limitation thereto,
fees for legal, accounting, auditing, transfer agency and custodian
services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Funds held by or to be
delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of the
Boards of Trustees of the California Investment Trust Fund Group, 44
Montgomery Street, Suite 2200. San Francisco. California 94104.
Before making any such payment, Custodian shall receive (and may rely upon)
an officers' certificate requesting such payment and stating that it is for a
purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e). upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Funds issues appropriate oral
instructions confirmed in writing or facsimile instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two business
days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks, drafts
or other orders for the payment of money received by Custodian for the account
of each of the Funds.
C. Custodian shall, upon receipt of proper instructions, make federal funds
available to each of the Funds as of specified times agreed upon from time to
time by the Funds and the custodian in the amount of checks received in payment
for shares of any of the Funds which are deposited into the appropriate Fund's
account.
4. Segregated Accounts
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of each of the Funds, into
which account(s) may be transferred cash and/or securities.
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or deliver any securities for
each of the Funds held by it pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Funds upon receipt
by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone or
other securities and cash whether pursuant to any plan of merger,
consolidation, reorganization, recapitalization or readjustment, or
otherwise;
(e) upon conversion of such securities pursuant to their terms into other
securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
<PAGE>
(g) for the purpose of exchanging interim receipts or temporary securities
for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of the
Funds upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(a). (f), and (g), securities or cash receivable in exchange therefore shall be
deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e). (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Funds issues appropriate oral
instructions confirmed in writing or facsimile instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two business
days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of each of the Funds, which call for payment
upon presentation and hold the cash received by it upon such payment for the
account of the Funds; (b) collect interest and cash dividends received, with
notice to the appropriate Fund, for the account of that fund; (c) hold for the
account of each of the Funds hereunder all stock dividends, rights and similar
securities issued with respect to any securities held by it hereunder; and (d)
execute, as agent on behalf of each of the Funds, all necessary ownership
certificates required. by the internal Revenue Code or the income Tax
Regulations of the United States Treasury Department or under the laws of any
state now or hereafter in effect, inserting the appropriate Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers' certificate, Custodian shall
register all securities, except such as are in bearer form, in the name of a
registered nominee of Custodian as defined in the internal Revenue Code and any
Regulations of the Treasury Department issued hereunder or in any provision of
any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall maintain its records so that securities held
by it hereunder shall be at all times identifiable in its records.
The Funds shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of any of the Funds and which may from time to time be
registered in the name of the appropriate Fund.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of any of the Funds, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the Funds all
notices, proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the particular Fund),
but without indicating the manner in which such proxies are to be voted.
<PAGE>
9. Transfer Tax and Other Disbursements
The Funds shall bay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection with
securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptible transfers and/or deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties. Until modified in writing, such compensation shall be
as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith and with
reasonable care upon any certificate herein described or certified copy of any
resolution of the Board, and may rely on the genuineness of any such document
which it may in good faith believe to have been validly executed.
Each of the Funds agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct. Custodian is authorized to charge any account of the Funds for such
items. In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of any one of the Funds, or in the event
that Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of any one of the Funds shall be security
therefore.
Custodian agrees to indemnify and hold harmless each of the Funds from all
taxes, charges, expenses, assessments, claims and liabilities (including counsel
fees) incurred or assessed against any Fund as a result of the negligent action,
negligent failure to act or willful misconduct of Custodian, and in connection
with the performance of this Agreement.
11. Subcustodians
Custodian is hereby authorized to engage another bank or trust company as a
Subcustodian for all or any part of any one of the Fund's assets, so long as any
such bank or trust company is a bank or trust company organized under the laws
of any state of the United States, having an aggregate capital, surplus and
undivided profit, as shown by its last published report, of not less than Two
Million Dollars ($2.000.000) and provided further that, if the Custodian
utilizes the services of a Subcustodian, the Custodian shall remain fully liable
and responsible for any losses caused to any one of the Funds by the
Subcustodian as fully as if the Custodian was directly responsible for any such
losses under the terms of the Custodian Agreement.
Notwithstanding anything contained herein, if any one of the Funds requires
the Custodian to engage specific Subcustodians for the safekeeping and/or
clearing of assets, the particular Fund(s) agrees to indemnify and hold harmless
Custodian from all claims, expenses and liabilities incurred or assessed against
it in connection with the use of such Subcustodian in regard to each affected
Fund's assets, except as may arise from its own negligent action, negligent
failure to act or willful misconduct.
<PAGE>
12. Reports by Custodian
Custodian shall furnish the Funds periodically as agreed upon with a
statement summarizing all transactions and entries for the account of each of
the Funds. Custodian shall furnish to the Funds, at the end of every month, a
list of the portfolio securities showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of, and of
auditors employed by, any one of the Funds.
13. Termination or Assignment
This Agreement may be terminated by the Funds, or by Custodian, on ninety
(90) days notice, given in writing and sent by registered mail to Custodian at
P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Funds at 44 Montgomery
Street, Suite 2200, San Francisco, California 94104, as the case may be. Upon
any termination of this Agreement, pending appointment of a successor to
Custodian or a vote of the shareholders of the Funds to dissolve or to function
without a custodian of its cash, securities and other property, Custodian shall
not deliver cash, securities or other property of any one of the Funds to the
particular Fund, but may deliver them to a bank or trust company of its own
selection, having an aggregate capital, surplus and undivided profits, as shown
by its last published report of not less than Two Million Dollars ($2,000,000)
as a Custodian for the particular Fund(s) to be held under terms similar to
those of this Agreement, provided, however, that until full payment shall have
been made by each Fund of all liabilities constituting a charge on or against
the properties then held by Custodian or on or against Custodian, and until full
payment shall have been made to Custodian of all its fees, compensation, costs
and expenses, subject to the provisions of Section 10 of this Agreement,
Custodian shall have a security interest in and shall have a right of setoff
against properties then held by Custodian for the account of any one of the
Funds.
This Agreement may not be assigned by Custodian without the consent of the
Funds, authorized or approved by a resolution of its Boards of Trustees.
14. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Boards of Trustees of the Funds approves by resolution the
use of such central securities clearing agency or securities depository.
15. Records
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Funds pursuant to the
provisions of the Investment Company Act of 1940. as amended. or the rules and
regulations promulgated thereunder. Custodian agrees to make any such records
available to any one of the Funds upon request and to preserve such records for
the periods prescribed in Rule 31a-2 under the Investment Company Act of 1940.
as amended. All such records shall be the property of the Funds.
16. Limitation of Liability of the Trustees and Shareholders
Custodian acknowledges that it has received notice of and accepts the
limitations of the Trusts' liability set forth in Article VIII of their
Agreements and Declarations of Trust. Custodian agrees that the Trusts'
obligations hereunder shall be limited to the Trusts and that Custodian shall
not seek satisfaction of any such obligation from the shareholders of the Trusts
nor from any Trustee. Officer, employee, or agent of the Trusts.
IN WITNESS WHEREOF. the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly authorized.
<PAGE>
Executed in several counterparts; each of which is an original.
Attest: Firstar Trust Company
____________________________ By _________________________________
Assistant Secretary Vice President
Attest: California Investment Trust Fund Group
____________________________ By _________________________________
<PAGE>
FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES
CALIFORNIA INVESTMENT TRUST
Annual Custody Fee Schedule for
Domestic Portfolios
Effective June 1, 1994
thru June 1, 1997
o Annual fee based on market value of assets
$0.15 per $1,000 (1 1/2 basis points)
o Investment transactions: (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery)
$12.00 per book entry security (depository or Federal Reserve system)
$25.00 per definitive security (physical)
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$ 7.50 per variation margin transaction
$ 7.50 per Fed wire deposit or withdrawal
o Variable Amount Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is
1/4 of 1%, is deducted from the variable amount note income at the time it
is credited to your account.
o Extraordinary expenses: Based on time and complexity involved.
o Out-of-pocket expenses: Charged to the account.
o Fees are billed quarterly, based on market value at the beginning of the
quarter.
- --------------------------------------------------------------------------------
Exhibit 23 (i)
Opinion of Counsel
- --------------------------------------------------------------------------------
<PAGE>
Law Offices of
Paul, Hastings, Janofsky & Walker LLP
A Limited Liability Partnership Including Professional Corporations
345 California Street
San Francisco, California 94104-2635
Telephone (415) 835-1600
Facsimile (415) 217-5333
Internet www.phjw.com
December 22, 1999
CCM Partners
44 Montgomery Street, Suite 2100
San Francisco, California 94104
Attn: Mr. Stephen C. Rogers
Re: California Investment Trust II (the "Registrant")
Ladies and Gentlemen:
We hereby consent to the continued use in the Registrant's Registration
Statement, until its withdrawal, of our opinion (the "Prior Opinion") respecting
the legality of the shares of beneficial interest for the following series of
California Investment Trust: U.S. Government Securities Fund, The United States
Treasury Trust, S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap Index
Fund and Equity Income Fund.
The Prior Opinion was filed as an exhibit to Form 24F-2 filed with the
Commission on October 30, 1996.
Very truly yours,
Paul, Hastings, Janofsky & Walker LLP
- --------------------------------------------------------------------------------
Exhibit 23 (j)
Independent Auditors Consent
- --------------------------------------------------------------------------------
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective Amendment to the
Registration Statement on Form N-1A of California Investment Trust II and to the
use of our report dated September 30, 1999 on the financial statements and
financial highlights of U.S. Government Securities Fund, The United States
Treasury Trust, S&P 500 Index Fund, and S&P MidCap Index, Equity Income Fund,
and S&P SmallCap Index Fund. Each a series of shares of California Investment
Trust II. Such financial statements and financial highlights appear in the 1999
Annual Report to Shareholders which are incorporated by reference in the
Registration Statement and Prospectus.
/s/ TAIT, WELLER & BAKER
------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 21, 1999
