As filed with the Securities and Exchange Commission on January 13, 2000
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. 30
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 32
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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)
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It is proposed that this filing will become effective:
___ immediately upon filing pursuant to Rule 485(b)
_x_ on January 13, 2000 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)
___ on __________________ pursuant to Rule 485(a)
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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 the European Growth &
Income Fund, the Nasdaq-100 Index Fund and the Short-Term
U.S. Government Bond Fund
Part B - Statement of Additional Information for shares of the
European Growth & Income Fund, the Nasdaq-100 Index Fund and
the Short-Term U.S. Government Bond Fund
Part C - Other Information
Signature page
Exhibits
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CALIFORNIA INVESTMENT TRUST II
FORM N-1A
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PART A
PROSPECTUS FOR
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
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<PAGE>
PROSPECTUS
January 18, 2000
CALIFORNIA
INVESTMENT TRUST
----------------
FUND GROUP
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
(800) 225-8778
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.
<PAGE>
PROSPECTUS
January 18, 2000
TABLE OF CONTENTS
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ABOUT THE FUNDS
European Growth & Income Fund 1
Nasdaq-100 Index Fund 4
Short-Term U.S. Government Bond Fund 7
INVESTING IN THE FUNDS
Fund Management 9
Opening an Account 11
Buying and Selling Shares 12
Other Policies 21
Dividends and Taxes 23
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EUROPEAN GROWTH & INCOME FUND
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GOAL
The Fund's goal is to provide long-term capital appreciation and income by
investing in large-sized European companies.
STRATEGY
The Fund seeks to invest primarily in the stocks of large-sized companies
located in Europe. In selecting securities, the Fund attempts to use the Dow
Jones European Stoxx 50 Index as a target portfolio and basis for selecting the
investments. Most companies considered for the Fund will have market
capitalizations of at least $10 billion in U.S. dollars.
The Fund intends to invest using American Depository Receipts, commonly referred
to as ADRs. ADRs are traded on U.S. stock exchanges and are available for some,
but not all securities that make up the target portfolio. If a company that is
in the target portfolio does not have an ADR available on a U.S. exchange or if,
in the Manager's opinion, the Fund is better served, the Manager will invest in
ADRs of other companies that the Manager believes best serve the Fund and its
investors.
The Fund is not considered an index fund because it will not attempt to
precisely track the performance or invest in securities that make up the Dow
Jones European Stoxx 50 Index. However, similar to index funds, the Fund will
generally remain fully invested and its performance will track the Dow Jones
European Stoxx 50 Index to the extent that the Fund is successful in investing
in the companies that make up the index. Additionally, the Manager will attempt
to minimize portfolio turnover.
Under normal circumstances, it is the Fund's policy to invest 80% of its total
assets in ADRs (65% if total Fund assets are under $25 million). At the
Manager's option, the Manager may elect to purchase futures contracts to attempt
to remain fully invested in the markets. This percentage of futures held in the
portfolio will typically not exceed the cash (or cash equivalents) balance of
the Fund.
MAIN RISKS
The stock markets go up and down every day. As with any investment whose
performance is linked to these markets, the value of your investment in the Fund
will fluctuate. If the Fund's value drops during the period in which you hold
the Fund, you could lose money.
1
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Because foreign stock markets operate differently from the U.S. markets, the
Fund may encounter risks not typically associated with those of U.S. companies.
For instance, foreign companies are not subject to the same accounting,
auditing, and financial reporting standards and procedures as required from U.S.
companies; and their stocks may not be as liquid as the stocks of similar U.S.
companies. In addition, foreign stock exchanges, brokers, and companies
generally have less government supervision and regulation than their
counterparts in the United States. These factors, among others, could negatively
impact the returns of the Fund.
When investing in an international fund such as this Fund, there is always
country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.
There is also currency risk which is the chance that returns will be hurt by a
rise in the value of one currency against the value of another. Non-U.S.
dollar-denominated securities may experience adverse foreign currency
fluctuation which could also lower the value of the Fund's share price.
There is liquidity risk in that the Fund buys ADRs, some of which may have low
daily trading volume. In the event the Fund was forced to liquidate its holdings
of a security with limited trading volume, it is likely that the Fund would be
forced to sell the security at a price lower than what it might otherwise
receive.
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 futures contracts and options.
Losses (or gains) involving futures and options can sometimes be substantial -
in part because a relatively small price movement in a futures contract or an
option 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 or
options for speculative purposes or as leverage. It is the Fund's policy to hold
cash deposits equal to or greater than the total market value of any futures
and/or options positions. The value of all futures and options contracts and/or
options in which the Fund acquires an interest will not exceed 20% of current
total assets (35% if under $25 million in total net assets).
IS THE FUND RIGHT FOR YOU?
The Fund may be a suitable investment for you if you wish to add an
international stock fund to your existing holdings, which could include other
stock, bond and money market investments. You should be willing to accept the
additional risks associated with international investments. If you are seeking
growth of capital and income over the long-term (at least five years) this Fund
may be an attractive investment for you.
2
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PERFORMANCE
Performance results have not been provided because the Fund has not been in
existence for a full calendar year.
FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
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SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
(Expenses that are deducted from Fund Assets)
Management fees 0.85%
Distribution (12b-1) fees none
other expenses ** 0.10%
-----
TOTAL ANNUAL FUND OPERATING EXPENSE 0.95%*
* The Manager has limited the Fund's expenses at 0.95%. This limitation is
guaranteed for a term of one year.
** Other expenses are based on estimated amounts for the current fiscal year.
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EXAMPLE OF FEES
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
FUNDS $97 $304 $528 $1,170
3
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The NASDAQ-100 INDEX FUND
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GOAL
The Fund attempts to replicate the performance of the largest non-financial
companies as measured by The Nasdaq-100 Index(R).
STRATEGY
The Fund is managed passively, which means the Manager is trying to replicate
the performance of The Nasdaq-100 Index(R). To do this, the Fund invests
primarily in the stocks comprising the Index. The Fund will attempt to buy
stocks so that the holdings in the portfolio approximate those of The Nasdaq-100
Index(T). The Manager's goal is to maintain a return correlation of at least .95
to The Nasdaq-100 Index(T) (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 stocks comprising the Index (65% if total Fund assets are
under $25 million).
The Fund may invest in securities issued by other investment companies if those
companies invest in securities consistent with the Fund's investment objective
and policies.
Like most index funds, the Fund will invest in futures contracts. The Fund
generally maintains some short-term securities and cash equivalents in the
portfolio to meet redemptions and needs for liquidity. The Manager will
typically buy futures contracts so that the market value of the futures
contracts is as close to the cash balance as possible. This helps minimize the
tracking error of the Fund.
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THE NASDAQ-100 INDEX(R)
The Nasdaq-100 Index(R) is made up of the 100 largest non-financial stocks
traded on the Nasdaq Stock Market. The stocks that make up this Index are
currently heavily weighted in the technology sector. Because of the
concentration in a specific sector, high volatility or poor performance of the
sector will directly affect the Fund's performance.
The individual stocks that make up the Index have total market values ranging in
size from $516 million to $478 billion as of November 1, 1999.
- --------------------------------------------------------------------------------
MAIN RISKS
The stock markets go up and down every day. As with any investment whose
performance is linked to these markets, the value of your investment in the Fund
will fluctuate. If the Fund's value drops during the period in which you hold
the Fund, you could lose money.
4
<PAGE>
The Fund primarily invests in U.S. stocks and is designed to track the overall
performance of The Nasdaq-100 Index(T). In an attempt to accurately represent
the Index, the Fund will typically not take steps to reduce its market exposure
so that in a declining market, the Manager will not take steps to minimize the
exposure of the Fund.
Many factors will affect the performance of the stock markets. Two major factors
that may have both a positive and negative effect on the stock markets are
economic and political news. These effects may be short-term by causing a change
in the market that is corrected in a year or less; or they may have long-term
impacts which may cause changes in the market that can last years. Some factors
may affect changes in one sector of the economy or one stock, but don't have an
impact on the overall market. The particular sector of the economy or the
individual stock may be affected for a short or long-term.
The Fund invests in the largest, non-financial companies that are traded on the
Nasdaq Stock Market. They may comprise various sectors of the economy, but are
currently concentrated in the technology sector. During periods in which The
Nasdaq-100 Index(T) underperforms alternative investments such as bond, money
market and alternative stock sectors, the Manager expects the performance of the
Fund to underperform other mutual funds that invest in these alternative
categories.
The Nasdaq-100 Index(T) is subject to concentration risk. First, it is a
modified-capitalization weighted index, meaning that except for some
modifications, 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. Additionally, the significant concentration of technology
stocks makes the Fund's performance particularly sensitive to this specific
sector. Negative performance in the technology sector will result in negative
Fund performance.
OTHER RISKS OF THE FUND
The Fund's primary risks are associated with changes in the stock market,
however, 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 the
futures contracts owned by the Fund do not track the Index, the Fund's
performance relative to the Index will change.
Some mutual funds are able to lend portfolio securities in order to offset
expenses. The Fund does not expect to engage in this strategy; however, in the
event that it did, there is a slight risk that this practice could negatively
impact the net assets value of the Fund.
IS THE FUND RIGHT FOR YOU?
If you are looking for an aggressive growth 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 are not trying to time movements in the market by
trading in and out of Fund. Short-term trading of the Fund's shares is strongly
discouraged. Recently, the Index has shown more volatility in comparison to
other broader benchmarks such as the S&P 500.
5
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PERFORMANCE
Performance results have not been provided because the Fund has not been in
existence for a full calendar year.
FEES & EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
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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 ** 0.15%
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TOTAL ANNUAL FUND OPERATING EXPENSES 0.65%*
* The Manager has limited the Fund's expenses at 0.65%. This limitation is
guaranteed for a term of one year.
** Other expenses are based on estimated amounts for the current fiscal year.
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EXAMPLE OF FEES
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:
one year three years five years ten years
$67 $209 $363 $812
Nasdaq(R), Nasdaq-100(R) and Nasdaq-100 Index(R) are trade or service marks of
The Nasdaq Stock Market, Inc. (which with its affiliates are the "Corporations")
and are licensed for use by the Fund. The Fund has not been passed on by the
Corporations as to its legality or suitability. The Fund is not issued,
endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND DISCLAIM ALL WARRANTIES INCLUDING ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE FUND/INDEX (MEANING THE INDEX, THE FUND, THEIR USE, THE RESULTS TO BE
OBTAINED FROM THEIR USE, OR ANY DATA INCLUDED THEREIN). THE CORPORATIONS SHALL
HAVE NO LIABILITY FOR ANY DAMAGES, CLAIMS, LOSSES, OR EXPENSES WITH RESPECT TO
THE FUND/INDEX. THE CORPORATIONS SHALL HAVE NO LIABILITY FOR ANY LOST PROFITS OR
SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
6
<PAGE>
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SHORT-TERM U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
GOAL
The Fund will attempt to maximize current income and preserve investor's
principal.
STRATEGY
The Fund typically invests in short and intermediate-term fixed income
securities whose principal and interest are backed by the full faith and credit
of the United States Federal Government. In addition, the Manager may invest in
higher yielding securities which are not backed by the full faith and credit of
the U.S. Federal Government. The Fund intends to maintain an average maturity
between 2 and 6 years in an effort to reduce share price volatility.
The Fund's Manager intends 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's investments will typically consist of full faith and
credit obligations of the U.S. Federal Government and its agencies or
instrumentalities, as well as other securities which the Manager believes will
enhance the Fund's total return. The Manager will invest at least 65% of the
Fund's assets in short-term U.S. Government notes and bonds. 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 from a bond or note 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
This Fund tends to be very conservative in nature. However, it 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.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund. Income risk is generally moderate for short
and intermediate-term bonds.
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.
Manager risk, which is the chance that the Manager's security selection strategy
may cause the Fund to underperform other mutual funds with similar investment
objectives.
7
<PAGE>
IS THE FUND RIGHT FOR YOU?
The Fund may be suitable for you if you have a short to intermediate-term
investment horizon and want to earn dividend income from your investment. The
Fund may be appropriate for investors in regular accounts and retirement
accounts who want to avoid credit risk but are comfortable with some volatility
of the Fund's share price.
PERFORMANCE
Performance results have not been provided because the Fund has not been in
existence for a full calendar year.
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 ** 0.10%
-----
Total annual operating expense 0.60%
Expense reimbursement 0.05%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.55%*
* The Manager has limited the Fund's expenses at 0.55%. This limitation is
guaranteed for a term of one year.
** Other expenses are based on estimated amounts for the current fiscal year.
- --------------------------------------------------------------------------------
EXAMPLE OF FEES
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 $187 $329 $744
8
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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. As the Portfolio Manager,
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 based on assets under
management. For the Short-Term U.S. Government Bond Fund and the Nasdaq-100
Index Fund, the contractual management fees are 0.50% of average net assets up
to $500 million, 0.45% of average net assets above $500 million and below $1
billion, and 0.40% of average net assets above $1 billion. The contractual
management fees for the European Growth & Income Fund are 0.85% of average net
assets.
Roderick G. Baldwin is the portfolio manager for the Nasdaq-100 Index Fund and
the European Growth & 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 Wharton in 1970. He has approximately 30 years of
experience with equity fund management. Mr. Baldwin is also the manager of four
other stock funds offered by the California Investment Trust II.
Michael J. Conn is the portfolio manager for the Short-Term U.S. Government Bond
Fund. Mr. Conn joined CCM Partners in 1996 and is the Portfolio Manager of the
California Tax-Free Money Market Fund. Prior to his employment with CCM
Partners, he spent three years at Gruntal & Co. He worked as a trader and as an
institutional sales person in fixed income securities. Mr. Conn graduated from
the Leavy School of Business at Santa Clara University. Mr. Conn is also the
portfolio manager of the California Tax-Free Money Market Fund offered by
California Investment Trust.
9
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ADDITIONAL INVESTMENT RELATED RISKS
THE EURO
Several European countries, including Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain,
adopted a single uniform currency known as the "euro," effective January 1,
1999. During the transition, the euro conversion could have potential adverse
effects on the European Growth & Income Fund's ability to value its portfolio
holdings in foreign securities, and could increase Fund operating expenses. The
Fund and the Manager are working with the providers of services to the Fund in
the areas of clearance and settlement of trades in an effort to avoid any
material impact on the Fund due to the euro conversion. There can be no
assurance, however, the steps taken by the Fund or the Manager will be
sufficient to avoid any adverse impact on the Fund.
PORTFOLIO TURNOVER
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 in the best interest of a Fund and its shareholders.
Additionally, portfolio holdings may be sold sooner than anticipated due to
unexpected changes in the markets. Buying and selling securities may involve
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
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. Annual
portfolio turnover of 100% or more may be considered high for some funds.
10
<PAGE>
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 from
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
---- ---------- ---------- -------
Nasdaq-100 Index Fund $5,000 $250 none
European Growth & Income Fund $5,000 $250 none
Short-Term U.S. Govt. Bond Fund $10,000 $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 (800) 225-8778.
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BUYING & SELLING SHARES
If you need an account application call us at (800) 225-8778 or download 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.
o If your shares were purchased by check, the Fund will not release
redemption proceeds from a sale until 15 business days after the purchase
or until payment of the check can be verified.
o Exchange purchases must meet 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
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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, Pacific
Time) 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.
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.
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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 Bank Milwaukee, the
Fund's custodian, 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 Fund. 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 Funds' offices. Your order will be forwarded promptly to
the Funds' agent for processing. You will receive the the share price next
calculated after your check has been received by the Funds.
The Funds do not consider the U.S. Postal Service or other independent delivery
14
<PAGE>
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 BY CHECK
Make your check payable to the name of the Fund in which you are investing,
write your account number on the check, and mail it with a deposit ticket to the
Funds' Agent. There is a $250 minimum for subsequent investments. Please note
that orders to buy, sell or exchange become irrevocable when they are mailed to
the Funds.
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 Fund 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.
15
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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 order 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 Funds will vary over time as interest rates and the
value of their securities vary. Portfolio securities of the European Growth &
Income Fund and The Nasdaq-100 Fund 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
Short-Term U.S. Government Bond Fund are valued by an independent pricing
service that uses market quotations representing the latest available mean
between the bid and ask 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 on the amortized cost basis as reflecting fair value. All other
securities are valued at their fair value as determined in good faith by the
Board 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
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<PAGE>
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 13.
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.
17
<PAGE>
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 amount
is $500. There is no charge for this service and you may write an unlimited
number of checks.
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,
internet or mail redemption feature to close your account. The checkwriting
feature is not available for the Nasdaq-100 or the European Growth & Income
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
that 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
sale of your securities. There is no fee for this service.
18
<PAGE>
ON-LINE
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,
online, 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 the seller to give a special authorization
number. Provided these procedures are followed, you further agree that neither a
Fund nor the Transfer Agent will be responsible for any loss, damage, cost or
expense arising out of any instructions received for an account.
You should realize that by electing the telephone 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
19
<PAGE>
in amounts of not less than $100 per payment. Details of this plan may be
obtained by calling the Funds.
OTHER REDEMPTION POLICIES
Retirement Plan shareholders should complete a Rollover-Distribution Election
Form to sell shares of the Funds so 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 not later than 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 the Nasdaq-100 and European Growth & Income 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 Nasdaq-100 and
European Growth & Income 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.
20
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o To suspend the right to sell shares back to a Fund, and delay sending
proceeds, during times when trading on the principal markets for the Fund
is restricted or halted, or otherwise as permitted by the SEC.
o To withdraw or suspend any part of the offering made by this prospectus.
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 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.
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 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
21
<PAGE>
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
Investors who own solely the Nasdaq-100 Index Fund and/or the European Growth &
Income Fund shares will receive statements at least quarterly and after every
transaction that affects their share balance and/or account registration.
Investors of the Short-Term U.S. Government Bond Fund 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.
We pay for regular reporting services, but not for special services, such as
requests for historical records of an account. You may be required to pay a
separate fee for these special services. If you have on-line access to your
account, you may obtain a recent transaction history for your accounts 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
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<PAGE>
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.
DIVIDENDS & 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 the Funds.
As a shareholder, you are entitled to your share of the dividends your Fund
earns. The Short-Term U.S. Government Bond Fund distributes substantially all
its investment income monthly. Shareholders of record on the second to last
business day of the month will receive the dividends. The Nasdaq-100 Index Fund
and European Growth & 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.
Long-term and short-term capital gains are usually paid on the last business day
of November (pay date) each year. The record date is always one business day
prior to the pay date, so that shareholders on the "record date" will receive
the distributions.
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.
At the beginning of every year, shareholders are provided with information
detailing the tax status of any dividends 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
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
---------------------------
<PAGE>
CALIFORNIA INVESTMENT TRUST FUND GROUP
44 Montgomery Street, Suite 2100
San Francisco, California 94104
(800) 225-8778
Statement of Additional Information for the European Growth & Income Fund, the
Nasdaq-100 Index Fund and the Short-Term U.S. Government Bond Fund- January 18,
2000.
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 a "Trust" and
collectively, the "Trusts"). Each Trust was organized as a Massachusetts
Business Trust on September 11, 1985. The Agreement and Declaration of Trust for
each Trust permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest without par value, which may be issued
in any number of series (called Funds). Such shares have no preemptive,
conversion, or sinking rights. You have equal and exclusive rights to dividends
and distributions declared by your Fund and to the net assets of your Fund upon
liquidation or dissolution.
This Statement of Additional Information relates to the following series of
CIT II (herein referred to as the "Trust"): Short-Term U.S. Government Bond Fund
("Bond Fund"), the Nasdaq-100 Index Fund ("Nasdaq-100 Fund"), and the European
Growth & Income Fund ("European Fund"). Collectively, the Nasdaq-100 Fund and
the European Fund are sometimes referred to herein as the "Stock Funds" and
together with the Bond Fund as the "Funds".
As a business trust, the Trust is not required, nor does it intend, to hold
annual shareholder meetings. However, the Trust may hold special meetings for a
specific Fund or the Trust as a whole for purposes such as electing Trustees,
changing fundamental policies, or approving an investment management agreement.
You have equal rights as to voting and to vote separately by Fund as to issues
affecting only your Fund (such as changes in fundamental investment policies and
objectives). Your voting rights are not cumulative, so that the holders of more
than 50% of the shares voting in any election of Trustees can, if they choose to
do so, elect all of the Trustees. Meetings of shareholders may be called by the
Trustees in their discretion or upon demand of the holders of 10% or more of the
outstanding shares of any Fund for the purpose of electing or removing Trustees.
The Board of Trustees may from time to time offer other Funds of the Trust,
the assets and liabilities of which will likewise be separate and distinct from
any other Funds of the Trust. Although this offering of shares of each of the
Funds constitutes a separate and distinct offering of such shares, it is
possible that a Fund might become liable for any misstatements of or omissions
from the Prospectus or the Statement of Additional Information about one of the
other Funds. The Board of Trustees of the Trust has considered this factor with
respect to the Trust in approving the use of a single, combined Prospectus and a
joint Statement of Additional Information for all of the Funds.
The combined Prospectus for the Funds dated January 18, 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 Trust
and each Fund, and should be read in conjunction with the Prospectus.
<PAGE>
CONTENTS Page
About the California Investment Trust Fund Group ...................... B-1
Investment Objectives and Policies of the Bond Fund .................. B-3
Investment Objectives and Policies of the Stock Funds ................. B-4
Description of Investment Securities and
Portfolio Techniques ............................................... B-4
American Depository Receipts (ADRS) ................................... B-7
Securities & Other Investment Companies - Closed End Funds ............ B-8
Investment Restrictions ............................................... B-8
Trustees and Officers ................................................. B-10
Investment Management and Other Services .............................. B-11
Policies Regarding Broker-Dealers Used for Portfolio Transactions ..... B-14
Additional Information Regarding Purchases and
Redemptions of Fund Shares ......................................... B-15
Taxation .............................................................. B-16
How are Dividends, Distributions & Taxes Handled ...................... B-17
Yield Disclosure and Performance Information .......................... B-19
Miscellaneous Information ............................................. B-20
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE BOND FUND
The following information supplements the investment objectives and basic
policies of the Fund as set forth in the Prospectus.
The Fund will typically invest in short-and intermediate-term bills, notes
and bonds whose principal and interest are backed by the full faith and credit
of the United States Federal Government. In addition, the Manager may invest in
higher yielding securities which are not backed by the full faith and credit of
the U.S. Federal Government. The Fund intends to maintain an average maturity
between 2 and 6 years in an effort to reduce share price volatility.
A Government National Mortgage Association ("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 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 Fund may also purchase "variable rate" GNMA Certificates or any
other type which may be issued with GNMA's guarantee. The balance of the Fund's
assets is invested in other securities issued or guaranteed by the U.S. Federal
Government, including U.S. Treasury bills, notes, and bonds.
Securities of the type to be included in the Fund have historically
involved little risk of loss 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 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.
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 Federal
Government. 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 Certificate holders (such as the 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 Fund as a holder of the GNMA
Certificates which constitutes a return of principal is added to the Fund's cash
available for investment in additional GNMA Certificates or other U.S.
Government guaranteed securities. The interest portion received by the Fund is
distributed as net investment income to the Fund's shareholders.
B-1
<PAGE>
The Manager continually monitors the Fund's investments, and changes are
made as market conditions warrant. However, the Fund typically does not engage
in the trading of securities for the purpose of realizing short-term profits.
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS
As stated in the Prospectus, the investment objective of the Nasdaq-100
Fund is to seek to replicate performance of the largest and most actively traded
non-financial stocks as measured by The Nasdaq-100 Stock Index. Companies
included in the Index range from $516 million to $478 billion in market
capitalization as of November 1, 1999. The majority of portfolio transactions in
the Fund (other than those made in response to shareholder activity) will be
made to adjust the Fund's portfolio to track the Index or to reflect occasional
changes in the Index's composition.
The investment objective of the European Fund is to provide long-term
capital appreciation and income by investing in large-sized European companies
located in Western Europe. The Fund expects to invest primarily in ADRs that
trade on U.S. equity exchanges. The Manager may elect at some future period to
invest in non-U.S. dollar denominated securities but does not intend to do so at
this time.
DESCRIPTION OF INVESTMENT SECURITIES AND PORTFOLIO TECHNIQUES
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 Congress and
include, but are not limited to, the GNMA, the Tennessee Valley Authority, the
Bank for Cooperatives, the Farmer's Home Administration, The Federal Home Loan
Banks, the FHA, The Federal Intermediate Credit Banks, The 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 full faith and credit of the U.S.
Government.
Repurchase Transactions. The Bond 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 a Fund at a mutually agreed upon
time and price. It may also be viewed as the loan of money by a 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 Bond Fund invests in repurchase
agreements with a term of more than one year. 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 a
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, a 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 that Fund's total assets would be
invested in such repurchase agreements. With respect to the Bond 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 Funds is to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by the Manager.
B-2
<PAGE>
When-Issued Purchases and Forward Commitments. New issues of U.S.
Government securities and municipal securities may be offered on a when-issued
basis. Accordingly, Bond Fund may purchase securities on a when-issued or
forward commitment basis. When-issued purchases and forward commitments involve
a commitment by the Fund 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.
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 the Fund's net asset value
starting on the day the Fund agrees to purchase the securities. Therefore, if
the 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. The
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 Fund makes 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, the 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, the Fund may realize a capital
gain or loss.
When the Fund enters into a when-issued purchase or a forward commitment to
purchase securities, the Fund's custodian, Firstar Bank Milwaukee (the
"Custodian"), will establish and maintain on a daily basis, a separate account
for 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. 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. The lending Fund will continue to retain any voting rights with respect
to the securities loaned. 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
a 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.
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 Index and the S&P 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, Standard & Poor's 100
Stock Index, The Nasdaq-100 Index, Dow Jones Euro Stoxx, and the MSCI (Morgan
Stanley Capital International) Euro Index.
B-3
<PAGE>
Additionally, each Stock Fund may take advantage of opportunities in the
area of futures contracts and options on futures contracts and any other
derivative investments which are not presently contemplated for use by such Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with each Stock Fund's investment
objective and legally permissible for such Fund. Before entering into such
transactions or making any such investment, the Fund will provide appropriate
disclosure in its Prospectus.
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 securities of particular types of issuers, or
securities of issuers in particular industries, than the indices underlying its
index futures positions. Therefore, while a Fund's index futures positions
should provide exposure to changes in value of the underlying indices (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 that 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 a Fund's investment limitations. In the event of the bankruptcy of a FCM that
holds margin on behalf of a Fund, that Fund may be entitled to 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 total assets 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 Fund 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 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.
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
B-4
<PAGE>
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 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. Government Securities, other high
grade debt obligations, or other allowable securities) 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 Stock
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 seven days for some types of securities, the futures
markets can provide liquidity superior 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
B-5
<PAGE>
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.
American Depository Receipts (ADRS)
-----------------------------------
The European Fund typically invests in sponsored and unsponsored ADRs under
normal circumstances. Such investments may subject the Fund to significant
investment risks that are different from, and in addition to, those related to
investments of U.S. domestic issuers or in the U.S. markets. Unsponsored ADRs
may involve additional risks in that they are organized without the cooperation
of the issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as that for sponsored ADRs.
The value of securities denominated in or indexed to foreign currencies and
of dividends and interest from such securities can change significantly when
foreign currencies strengthen or weakened relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
the U.S. markets, and prices on some foreign securities can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may seem more difficult
to obtain reliable information regarding an issuer's financial conditions and
operations.
Settlement of transaction in some foreign markets may be delayed or may be
less frequent than in the U.S., which could affect the liquidity of the Fund's
investments. In addition, the cost of foreign investing, including withholding
taxes, brokerage commissions and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of the broker-dealer,
which may result in substantial delays in settlement. It may also be more
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restriction on U.S.
investments or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government sponsored enterprises.
Investments in foreign countries also involve the risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Manager will be able to
anticipate these potential events or counter their effects.
Options on Securities, Securities Indices and Currencies.
---------------------------------------------------------
The European Fund may purchase put and call options on securities in which
it has invested, on foreign currencies represented in its portfolios and on any
securities index based in whole or in part on securities in which the Fund may
invest. In an effort to minimize risks, the Fund usually will not use options
for speculative purposes or as leverage.
The Fund normally will purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest or a
positive change in the currency in which such securities are denominated. The
purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or a specified amount of a foreign
currency at a specified price during the option period.
The Fund may purchase and sell options traded on U.S. and foreign
exchanges. Although the Fund will generally purchase only those options for
which there appears to be an active secondary market, there can be no assurance
that a liquid secondary market on an exchange will exist for any particular
option or at any particular time. For some options, no secondary market on an
exchange may exist. In such event, it might not be possible to effect closing
transactions in particular options, with the result that the Fund would have to
exercise its options in order to realize any profit and would incur transaction
costs upon the purchase or sale of the underlying securities.
Secondary markets on an exchange may not exist or may not be liquid for a
variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current trading volume at all times; or (vi)
discontinuance in the future by one or more exchanges for economic or other
reasons, of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or series
of options) would cease to exist, although outstanding options on that exchange
that had been issued by the Options Clearing Corporation as a result of trades
on that exchange would continue to be exercisable in accordance with their
terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and result in the institution by an
exchange of special procedures that may interfere with the timely execution of
the Fund's orders.
Securities of Other Investment Companies
----------------------------------------
The European Fund may purchase closed end funds that invest in foreign
securities. Unlike open-end investment companies, like the Fund, closed end
funds issue a fixed number of shares that trade on major stock exchanges or over
the counter. Additionally, closed-end funds do not stand ready to issue or
redeem on a continuous basis. Closed-end funds often sell at a discount to net
asset value.
The Nasdaq-100 Index Fund may invest in securities issued by other
investment companies. Those investment companies must invest in securities that
the Fund can invest in a manner consistent with the Fund's investment objective
and policies.
Applicable provisions of the Investment Company Act of 1940, as amended
(the "1940 Act") require that a Fund limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than
10% of the value of that Fund's total assets will be invested in the aggregate
in securities of investment companies as a group; and (b) either (i) that Fund
and affiliated persons of that Fund not own together more than 3% of the total
outstanding shares of any one investment company at the time of purchase (and
that all shares of the investment company held by that Fund in excess of 1% of
the
B-6
<PAGE>
company's total outstanding shares be deemed illiquid), or (ii) that Fund not
invest more than 5% of its total assets in any one investment company and the
investment not represent more than 3% of the total outstanding voting stock of
the investment company at the time of purchase. As a shareholder in an
investment company, a Fund bear its ratable share of that investment company's
expenses, including advisory and administration fees, resulting in an additional
layer of management fees and expenses for shareholders. This duplication of
expenses would occur regardless of the type of investment company, i.e.,
open-end (mutual fund) or closed-end.
INVESTMENT RESTRICTIONS
Except as noted with respect to a Fund, the Trust has adopted the following
restrictions as additional fundamental policies of its Funds (unless otherwise
noted) which means that they may not be changed without the approval of a
majority of the outstanding voting securities of that Fund. Under the 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 or intermediary shall
be considered issuers of a participation certificate).
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.
B-7
<PAGE>
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).
(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 Bond Fund may
purchase, hold, and dispose of "obligations with puts attached" in accordance
with its investment policies (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 (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).
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. Except for The Nasdaq-100 Fund, 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.
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 such investment will not constitute a violation of that restriction,
except as otherwise noted.
B-8
<PAGE>
TRUSTEES AND OFFICERS
The Trustees of the Trust have the responsibility for the overall
management of the Trust, including general supervision and review of its Funds'
investment activities. The Trustees elect the officers of the Trust who are
responsible for administering the day-to-day operations of the 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 the 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 Date of Birth with the Trusts within the Past 5 years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Stephen C. Rogers 6/27/66 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
1993-1998; Marketing Representative,
CCM Partners, 1992 to 1993.
*Phillip W. McClanahan 12/26/35 Vice President, Director of Investments, CCM Partners
44 Montgomery Street Treasurer and 1984-1985; Vice President and Portfolio
Suite 2100 Trustee Manager, Transamerica Investment
San Francisco, CA 94104 Services; 1966-1984; Vice President and
Portfolio Manager, Fireman's Fund
Insurance Company and Amfire, Inc.
Harry Holmes 12/5/25 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 1/22/27 Trustee President and CEO, Chronicle
C/O Chronicle Publishing Publishing Company, 1993 to
901 Mission Street Present; Director and Executive Vice
San Francisco, CA 94105 President, Capital Cities/ABC Inc.
and President, ABC Network T.V. Group.
Guy Rounsaville, Jr. 11/26/43 Trustee Partner, Allen, Matkins, Leck, Gamble &
333 Bush Street, #1700 Mallory LLP: General Counsel, Wells
San Francisco, CA 94104 Fargo Bank; 1977-1999: Corporate
Secretary, Wells Fargo & Company;
1978-1999.
</TABLE>
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 CIT as of August 31, 1999.
<TABLE>
<CAPTION>
Pension or Estimated Total compensation
retirement benefits annual respecting registrant
Aggregate 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 $12,000 None None $12,000
Trustee
</TABLE>
As of December 31, 1999 Trustees and Officers as a group owned less than 1%
of the outstanding shares of each Fund.
B-9
<PAGE>
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 January 18th,
1999 (the "Agreements"). CCM Partners is indirectly controlled by a privately
held corporation, RFS, Inc., which in turn is controlled by a family Trust 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 Trust 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 the
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, the Bond Fund and the Nasdaq-100 Fund each pay
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 $500
million; plus 45/100 of 1% (0.45%) per annum of average net assets over $500
million; and 4/10 of 1% (0.40%) per annum of average net assets over $1 billion.
For the Manager's services, the Manager is entitled to a monthly fee from the
European Fund computed at the annual rate of 85/100 of 1% (0.75%) of the value
of the Funds' average daily net assets.
Each Agreement provides that the Manager is obligated to reimburse each of
the 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
reduce its fees in excess of its obligations under the Agreement.
The Manager has agreed to waive its fees and absorb expenses to the extent
necessary to limit total Fund operating expenses through August 31, 2000 to the
following annual rates of average net assets of each Fund: Bond Fund-0.55%, the
Nasdaq-100 Fund-0.65% and the European Fund-0.95%. The operating expenses,
including the management fee and all other expenses (excluding extraordinary
expenses), incurred by a Fund in excess of this expense ratio limitation will be
reimbursed to that Fund by the Manager out of the management fee.
The Agreements with respect to the Funds are currently in effect until
January 18, 2002. 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 Trust 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 or 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.
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Each Agreement may be terminated without penalty at any time by the Trust
with respect to one or more of the Funds to which the Agreement applies (either
by the 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.
Information regarding advisory fees actually paid to the Manager has not
been provided since the Funds were launched on January 18, 2000.
Principal Underwriter
RFS Partners (the "Distributor"), 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, a Trustee of the
Trust, 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.
Other Services
Firstar Mutual Fund Services, LLC (the "Shareholder Servicing Agent") is
the shareholder servicing agent for the Trust and acts as the Trust's transfer
and dividend-paying agent. In such capacities, it performs many services,
including portfolio and net asset valuation, bookkeeping, and shareholder
recordkeeping.
Firstar Bank Milwaukee (the "Custodian") acts as custodian of the
securities and other assets of the Trust. 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, is the independent auditor for the Trust. 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, San
Francisco, California 94104.
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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 Bond Fund will be principal
transactions at net prices, that Fund will incur few or no brokerage costs. The
Bond Fund will normally 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 normally 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 broker-dealer,
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
Agreement, 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.
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.
Information regarding brokerage commissions has not been provided since the
Funds were launched on January 18, 2000.
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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 normally 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 Trust's 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 also be required.
The 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 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 the Funds' 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 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 Trust 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, the Trust reserves the right to
suspend redemptions or postpone the date of payment (1) for any periods during
which the NYSE is closed (other than for the customary weekend and holiday
closings), (2) when trading in the markets the Trust usually utilizes 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, the 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 Trust
understands that the NYSE 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 Trust has 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.
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<PAGE>
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose accounts in the Funds 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 the 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 account 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 days' prior notice
to shareholders.
Redemptions in Kind
The 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 portfolio securities of the Bond Fund and the Stock Funds are generally
valued at the last reported sale price. Securities held by a Stock Fund that
have no reported last sale for any day that that 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
Bond Fund for which market quotations are readily available are valued at the
latest available mean between the bid and ask 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 Trust may also utilize a pricing service, bank,
or broker/dealer experienced in such matters to perform any of the pricing
functions.
TAXATION
Each Fund is treated as a separate entity and intends to qualify in each
year to be treated as a separate "regulated investment company" under the
Internal Revenue Code of 1986 (the "Code"). Each of the Funds has elected such
treatment. 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
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<PAGE>
stock 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 Stock Fund may be required to postpone recognition for tax purposes of
losses incurred in certain closing transactions in futures.
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.
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 Bond Fund 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 will apply to the
proceeds of redemption or repurchase of Fund (except the Bond Fund) 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).
HOW ARE DIVIDENDS, DISTRIBUTIONS AND TAXES HANDLED
Each business day, we credit the Bond Fund shareholder account with a
dividend consisting of substantially all of the net investment income earned by
the Fund since the last dividend. Such dividends are then paid on the last
business day of each month. If you redeem all shares in Bond Fund account at any
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time during a month, all dividends credited to your account are paid to you
along with the proceeds of redemption. On the last business day of the month
(payment date), we will distribute dividends to Short-Term Government Fund
shareholders substantially equal to all the net investment income earned by each
Fund during that month. Shareholders eligible for the dividend are those who
hold shares as of the date of record, which is the next to the last business day
of that month.
Shareholders who reinvest their dividends will have their dividends
reinvested on the payment date of that month, at that day's closing price. We
will mail dividends to shareholders typically on the next business day following
the payment date. Investors who select our Electronic Funds Transfer ("EFT")
option will have their personal accounts credited normally within three business
days following the payment date.
Each Stock Fund ordinarily pays dividends from net investment income
quarterly and distributes net realized securities gains, if any, annually, but
may make distributions on a more frequent basis to comply with the distribution
requirements of the Code, and in all events in a manner consistent with the
provisions of the 1940 Act. On the last business day of March, June, September
and December we distribute dividends to shareholders of each Stock Fund
substantially equal to all the net investment income earned by each Stock Fund
during the prior three months payable to shareholders of record as of the second
to the last business day of March, June, September and December, respectively.
Unless you otherwise indicate on your account application or notify the
Shareholder Servicing Agent in writing later that you wish to receive cash, we
will automatically reinvest all income dividends and capital gains distributions
in additional shares of the Fund from which they were paid at no cost to you.
Distributions are treated in the same manner for tax purposes whether paid in
cash or reinvested in additional shares.
The Funds will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized by each Fund or have
expired. Fund expenses are accrued daily and deducted before declaration of
dividends to investors.
For tax purposes, each Fund is treated as a separate taxable entity. Thus,
any distributions of capital gains are on a per Fund basis rather than
aggregated for the Trust as a whole. Any capital gains you may receive on your
investment in the Funds are taxable (unless you are a tax-exempt organization
that has not borrowed money to purchase shares). One annual payment from net
realized capital gains (after offsetting any available capital loss carryovers)
of each Fund, if any, will be distributed for the 12-month period ending October
31. When these distributions represent a Fund's long-term capital gains, the
Code treats them that way for you, whether you take them in cash or reinvest
them in additional shares, and regardless of how long you have been a
shareholder. The determining factor is how long the Fund held the securities
that produced the gains. You also may receive distributions of short-term
capital gains, which will be taxed as ordinary income. Any dividend or
distribution declared in October, November or December as of a record date in
such months and paid in the following January will be treated as received on
December 31 for federal tax purposes. Shareholders will be informed after the
close of each calendar year as to the federal income tax consequences of
distributions made each year.
You may also realize a gain or a loss in any year in which you redeem
(sell) shares since the net asset value of the Funds fluctuate. The tax
treatment will depend, of course, on how long you owned your shares and on your
individual tax position. Any loss realized upon the redemption of shares within
six months from the date of their purchase will be disallowed to the extent of
tax-exempt dividends received during such period or will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gains during such six-month period. In addition, all or a
portion of any such loss will be disallowed to the extent other shares of the
same Fund are acquired (including by reinvestment of dividends) within 30 days
before or after such redemption.
We use the accounting practice called equalization for the Funds in order
to avoid the dilution of the dividends payable to existing shareholders. Under
this procedure, that portion of the net asset value per share of the Fund which
is attributable to undistributed income is allocated as a credit to
undistributed income in connection with the purchase of shares or a debit to
undistributed income in connection with the redemption of shares. Thus, after
every distribution, the value of a share drops by the amount of the
distribution. If you purchase shares of one of these Funds before the record
date of a distribution (the next
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to the last business day of the month) and elect to have distributions paid to
you in cash, you will pay the full price for the shares and then receive some
portion of that price back in the form of a taxable distribution. This is
sometimes referred to as buying a dividend. Dividends and distributions from net
realized short-term securities gains paid or credited to accounts maintained by
U.S. nonresident shareholders also may be subject to U.S. nonresident
withholding taxes.
Notice as to the tax status of your dividends and distributions is mailed
to you annually. We will send you a statement of your account at least quarterly
and after every transaction that affects your share balance or registration.
YIELD DISCLOSURE AND PERFORMANCE INFORMATION
As noted elsewhere in this Statement of Additional Information, 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.
Total Return
Total return for the Funds may be stated for any relevant period as
specified in the advertisement or communication. From time to time each Fund may
publish its total return. Yield information for the Short-Term Government Fund
will be accompanied by total return information on the Fund. Total return
information will state each Fund's average annual compounded rates of return
over the most recent four calendar quarters and over the life of the Fund, based
upon the value of shares acquired through a hypothetical $1,000 investment at
the beginning of the specified period and the net asset value of such shares at
the end of the period assuming reinvestment of all distributions at net asset
value. Each Fund also may advertise aggregate and average total return
information over different periods of time. 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 information is calculated by the following formula:
ERV - P
-------
P
P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the
beginning of a 1-, 5- or 10-year period at the end of a 1-, 5- or 10- year
period (or fractional portion thereof), assuming reinvestment of all
dividends and distributions and complete redemption of the hypothetical
investment at the end of the measuring period.
Yield
As stated elsewhere in this Statement of Additional Information, the Bond
Fund may also quote its current yield and, where appropriate, effective yield
and tax equivalent yield in advertisements and investor communications.
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<PAGE>
The current yield for the Bond 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:
6
Yield = 2[(((a-b)/cd)+1) - 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.
Information regarding total return, aggregate total return and yield of the
Funds was not provided since the Funds were launched on January 18, 2000.
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 the 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 that Fund's yield, as well as
interest income received by that Fund and distributed to shareholders which is
reflected in that Fund's yield. The distribution rate does not reflect capital
appreciation or depreciation in the price of a Fund's shares and should not be
considered to be a complete indicator of the return to the investor on his/her
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 to evaluate better
how an investment in a particular Fund might satisfy his/her investment
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 Bond 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 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.
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MISCELLANEOUS INFORMATION
Other than the Stock Funds, shareholders of a Fund 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.
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The 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
Trust. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. All such rights
are limited to the assets of the Fund(s) of which a shareholder holds shares.
The Declaration of Trust further provides that the 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 Trust as an investment company as
distinguished from an operating company 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.
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 misstatements in this Statement of Additional Information
or in the Prospectus about one of the other Funds. The Board of Trustees of the
Trust has considered this possibility in approving the use of a joint Prospectus
and Statement of Additional Information.
Among the Board's powers enumerated in the Declaration of Trust is the
authority to terminate the Trust or any of its series, or to merge or
consolidate the Trust or one or more of its series with another trust or company
without the need to seek shareholder approval of any such action.
As of January 18, 2000, the sole initial shareholder of the Funds, the
Distributor, held substantially all of the shares of the Funds for
organizational purposes.
Financial Statements
There are no financial statements for the Funds since the Funds were
launched on January 18, 2000.
B-19
<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
---------------------------
PART C
OTHER INFORMATION
---------------------------
<PAGE>
Item 23. Exhibits
(a) Agreement and Declaration of Trust dated September 11, 1985 is
incorporated by reference to Post-Effective Amendment No. 28 to
the Registration Statement as filed on December 22, 1999
("Post-Effective Amendment No. 28").
(b) By-Laws is incorporated by reference Post-Effective Amendment No.
28.
(c) Instruments Defining Rights of Security Holder - Not applicable.
(d) Investment Advisory Contracts
(1) Investment Management Agreement dated January 13, 2000.
(2) Investment Management Agreement dated January 13, 2000.
(3) Investment Management Agreement dated January 13, 2000.
(e) Underwriting Agreement dated April 13, 1992 is incorporated by
reference Post-Effective Amendment No. 28.
(f) Bonus or Profit Sharing Contracts - Not applicable.
(g) Form of Custodian Agreement is incorporated by reference
Post-Effective Amendment No. 28.
(h) Other Material Contracts - Not applicable.
(i) Opinion of Counsel as to legality of shares - Filed herewith.
(j) Other opinions - Not applicable.
(k) Omitted Financial Statements - Not applicable.
(l) Initial Capital Agreement - Not applicable.
(m) Rule 12b-1 Plan - Not Applicable.
C-1
<PAGE>
(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.
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 as well as other series of the
Trust. 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-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all the requirements for effectiveness of this Amendment
pursuant to Rule 485(b) under the Securities Act of 1933, as amended, and that
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 12th
day of January, 2000.
CALIFORNIA INVESTMENT TRUST II
---------------------------
(Registrant)
By:/s/ 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, January 12, 2000
- ---------------------- Secretary and Trustee
Stephen C. Rogers
Phillip W. McClanahan* Principal Financial and Accounting January 12, 2000
- ---------------------- Officer and Trustee
Philip W. McClanahan
Harry Holmes* Trustee January 12, 2000
- ----------------------
Harry Holmes
John B. Sias* Trustee January 12, 2000
- ----------------------
John B. Sias
Guy Rounsaville* Trustee January 12, 2000
- ----------------------
Guy Rounsaville, Jr.
* By: /s/ Julie Allecta
----------------------------------------
Julie Allecta, Attorney-in-Fact Pursuant
to Power of Attorney previously filed.
C-4
- --------------------------------------------------------------------------------
Exhibit 23 (d) (1)
- --------------------------------------------------------------------------------
Investment Management Agreement
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made as of January 13, 2000, by and between
California Investment Trust II, a Massachusetts business trust (the "Trust"), on
behalf the series of the Trust identified in the Appendix attached hereto (the
"Fund"), 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 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 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
and shall supervise investments of the Fund on behalf of the Fund in accordance
with the investment objectives, programs and restrictions of the Fund 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 Fund. Without limiting the generality of the foregoing, the
Manager shall: (i) furnish the Fund with advice and recommendations with respect
to the investment of the Fund's assets and the purchase and sale of portfolio
securities for the Fund, including the taking of such other steps as may be
necessary to implement such advice and recommendations; (ii) furnish the Fund
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, 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 (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 the
<PAGE>
Trust's Board of Trustees such periodic and special reports with respect to the
Fund's investment activities as the Board may reasonably request.
(b) Brokerage. 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 the 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 the 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 may act as one of the Fund's brokers
in the purchase and sale of portfolio securities for the Fund, consistent with
the requirements of the 1940 Act.
It is also understood that it may be desirable for the Fund that the
Manager 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 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 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 the Fund benefits, directly
or indirectly, from such practice. It is understood by both parties that the
Manager may select broker-dealers for the execution of the Fund's portfolio
transactions who provide research and analysis as the Manager 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 in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as of other clients, the Manager, 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 in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. BEST EFFORTS AND JUDGMENT. The Manager shall use its best judgment and
efforts in rendering the advice and, services to the Fund 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 in any way, or in any way be deemed an agent for the Trust or
for the Fund. It is expressly understood and agreed that the services to be
rendered by the Manager to the Fund under the provisions of this Agreement are
not to be deemed exclusive, and the Manager shall be free to render similar or
<PAGE>
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 FUND TO MANAGER. Each Fund from time to time will furnish to
the Manager 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 the Fund's investments as may be in its possession or available to it,
together with such other information as the Manager 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 the 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) The 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 including all fees and expenses of its custodian,
shareholder 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 the 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 the 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
<PAGE>
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, 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 the Fund as set forth herein, the 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 the Fund is obligated to pay are performed by the Manager, the Manager
shall be entitled to recover from the Fund to the extent of the Manager's actual
costs for providing such services.
8. INVESTMENT ADVISORY AND MANAGEMENT FEE
(a) The 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 the Fund pursuant to this Agreement, a
management fee as set forth in the Fee Schedule attached hereto 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 the 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.
(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
the 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.
Except as the Manager may otherwise agree with respect to the Fund, 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 8(d) from the Manager shall be
reimbursed by the 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.
<PAGE>
(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 the Fund. 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 the 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 AND INDEMNIFICATION.
(a) The Manager shall have responsibility for the accuracy and completeness
(and liability for the lack thereof) of the statements in the Fund's offering
materials (including the prospectus, the statement of additional information,
advertising and sales materials), except for information supplied by the Trust
or another third party for inclusion therein.
(b) The Manager shall be liable to the Fund for any loss (including
brokerage charges) incurred by the Fund as a result of any improper investment
made by the Manager.
(c) 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
or to any shareholder of the Fund 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.
(d) 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
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,
<PAGE>
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 10(b)
within thirty (30) days after a bill or statement has been received from the
Trust therefor. 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.
(e) 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.
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
the Fund 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.
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 the Fund shall be limited to the Fund and to its
<PAGE>
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
series of the Trust.
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 CCM PARTNERS
a Massachusetts Business Trust a California Limited Partnership
By: /s/ Phillip W. McClanahan By: /s/ Stephen C. Rogers
------------------------- ---------------------
Phillip W. McClanahan RFS Partners,
Vice President its General Partner
By: /s/ Stephen C. Rogers
----------------------
Richard F. Shelton, Inc.,
its General Partner
By: /s/ Stephen C. Rogers
----------------------
Stephen C. Rogers, Co-trustee
of Richard F. Shelton Trust,
Sole Shareholder of Richard F.
Shelton, Inc.
<PAGE>
APPENDIX
TO MANAGEMENT AGREEMENT
Dated January 13, 2000 (the "Management Agreement")
The provisions of the Management Agreement between the Trust and the
Manager apply to the following series of the Trust: European Growth & Income
Fund.
FEE SCHEDULE
------------
The Fund shall pay to the Manager, as full compensation for all investment
management, advisory and administrative services furnished or provided to the
Fund, pursuant to the Management Agreement, a management fee based upon the
Fund's average daily net assets at the per annum rate of 0.85%.
FEE LIMITATIONS
---------------
California Investment Trust Funds: To the extent that the gross operating costs
and expenses of the Fund (excluding any extraordinary expenses, such as
litigation) exceed 1.00% of the Fund's average daily net asset value for any one
fiscal year, the Manager shall reimburse the Fund for the amount of such excess
expenses.
- --------------------------------------------------------------------------------
Exhibit 23 (d) (2)
- --------------------------------------------------------------------------------
Investment Management Agreement
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made as of January 13, 2000, by and between
California Investment Trust II, a Massachusetts business trust (the "Trust"), on
behalf the series of the Trust identified in the Appendix attached hereto (the
"Fund"), 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 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 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
and shall supervise investments of the Fund on behalf of the Fund in accordance
with the investment objectives, programs and restrictions of the Fund 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 Fund. Without limiting the generality of the foregoing, the
Manager shall: (i) furnish the Fund with advice and recommendations with respect
to the investment of the Fund's assets and the purchase and sale of portfolio
securities for the Fund, including the taking of such other steps as may be
necessary to implement such advice and recommendations; (ii) furnish the Fund
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, 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 (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 the
<PAGE>
Trust's Board of Trustees such periodic and special reports with respect to the
Fund's investment activities as the Board may reasonably request.
(b) Brokerage. 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 the 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 the 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 may act as one of the Fund's brokers
in the purchase and sale of portfolio securities for the Fund, consistent with
the requirements of the 1940 Act.
It is also understood that it may be desirable for the Fund that the
Manager 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 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 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 the Fund benefits, directly
or indirectly, from such practice. It is understood by both parties that the
Manager may select broker-dealers for the execution of the Fund's portfolio
transactions who provide research and analysis as the Manager 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 in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as of other clients, the Manager, 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 in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. BEST EFFORTS AND JUDGMENT. The Manager shall use its best judgment and
efforts in rendering the advice and, services to the Fund 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 in any way, or in any way be deemed an agent for the Trust or
for the Fund. It is expressly understood and agreed that the services to be
rendered by the Manager to the Fund under the provisions of this Agreement are
not to be deemed exclusive, and the Manager shall be free to render similar or
<PAGE>
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 FUND TO MANAGER. Each Fund from time to time will furnish to
the Manager 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 the Fund's investments as may be in its possession or available to it,
together with such other information as the Manager 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 the 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) The 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 including all fees and expenses of its custodian,
shareholder 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 the 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 the 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
<PAGE>
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, 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 the Fund as set forth herein, the 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 the Fund is obligated to pay are performed by the Manager, the Manager
shall be entitled to recover from the Fund to the extent of the Manager's actual
costs for providing such services.
8. INVESTMENT ADVISORY AND MANAGEMENT FEE
(a) The 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 the Fund pursuant to this Agreement, a
management fee as set forth in the Fee Schedule attached hereto 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 the 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.
(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
the 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.
Except as the Manager may otherwise agree with respect to the Fund, 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 8(d) from the Manager shall be
reimbursed by the 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.
<PAGE>
(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 the Fund. 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 the 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 AND INDEMNIFICATION.
(a) The Manager shall have responsibility for the accuracy and completeness
(and liability for the lack thereof) of the statements in the Fund's offering
materials (including the prospectus, the statement of additional information,
advertising and sales materials), except for information supplied by the Trust
or another third party for inclusion therein.
(b) The Manager shall be liable to the Fund for any loss (including
brokerage charges) incurred by the Fund as a result of any improper investment
made by the Manager.
(c) 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
or to any shareholder of the Fund 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.
(d) 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
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,
<PAGE>
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 10(b)
within thirty (30) days after a bill or statement has been received from the
Trust therefor. 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.
(e) 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.
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
the Fund 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.
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 the Fund shall be limited to the Fund and to its
<PAGE>
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
series of the Trust.
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 CCM PARTNERS
a Massachusetts Business Trust a California Limited Partnership
By: /s/ Phillip W. McClanahan By: /s/ Stephen C. Rogers
------------------------- ---------------------
Phillip W. McClanahan RFS Partners,
Vice President its General Partner
By: /s/ Stephen C. Rogers
---------------------
Richard F. Shelton, Inc.,
its General Partner
By: /s/ Stephen C. Rogers
---------------------
Stephen C. Rogers, Co-trustee
of Richard F. Shelton Trust,
Sole Shareholder of Richard F.
Shelton, Inc.
<PAGE>
APPENDIX
TO MANAGEMENT AGREEMENT
Dated January 13, 2000 (the "Management Agreement")
The provisions of the Management Agreement between the Trust and the
Manager apply to the following series of the Trust: Nasdaq-100 Index Fund.
FEE SCHEDULE
------------
The Fund shall pay to the Manager, as full compensation for all investment
management, advisory and administrative services furnished or provided to the
Fund, pursuant to the Management Agreement, a management fee based upon the
Fund's average daily net assets at the per annum rates:
--------------------------------------------------------------------------
0.50% of average net assets up to $500
million, plus
--------------------------------------------------------------------------
0.45% of average net assets above $500
million and below $1 billion, plus
--------------------------------------------------------------------------
0.40% of average net assets over $1
billion
--------------------------------------------------------------------------
-------------------------------------------------
FEE LIMITATIONS
---------------
California Investment Trust Funds: To the extent that the gross operating costs
and expenses of the Fund (excluding any extraordinary expenses, such as
litigation) exceed 1.00% of the Fund's average daily net asset value for any one
fiscal year, the Manager shall reimburse the Fund for the amount of such excess
expenses.
- --------------------------------------------------------------------------------
Exhibit 23 (d) (3)
- --------------------------------------------------------------------------------
Investment Management Agreement
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made as of January 13, 2000, by and between
California Investment Trust II, a Massachusetts business trust (the "Trust"), on
behalf the series of the Trust identified in the Appendix attached hereto (the
"Fund"), 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 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 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
and shall supervise investments of the Fund on behalf of the Fund in accordance
with the investment objectives, programs and restrictions of the Fund 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 Fund. Without limiting the generality of the foregoing, the
Manager shall: (i) furnish the Fund with advice and recommendations with respect
to the investment of the Fund's assets and the purchase and sale of portfolio
securities for the Fund, including the taking of such other steps as may be
necessary to implement such advice and recommendations; (ii) furnish the Fund
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, 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 (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 the
<PAGE>
Trust's Board of Trustees such periodic and special reports with respect to the
Fund's investment activities as the Board may reasonably request.
(b) Brokerage. 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 the 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 the 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 may act as one of the Fund's brokers
in the purchase and sale of portfolio securities for the Fund, consistent with
the requirements of the 1940 Act.
It is also understood that it may be desirable for the Fund that the
Manager 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 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 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 the Fund benefits, directly
or indirectly, from such practice. It is understood by both parties that the
Manager may select broker-dealers for the execution of the Fund's portfolio
transactions who provide research and analysis as the Manager 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 in
connection with its services to other clients.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as of other clients, the Manager, 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 in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients.
3. BEST EFFORTS AND JUDGMENT. The Manager shall use its best judgment and
efforts in rendering the advice and, services to the Fund 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 in any way, or in any way be deemed an agent for the Trust or
for the Fund. It is expressly understood and agreed that the services to be
rendered by the Manager to the Fund under the provisions of this Agreement are
not to be deemed exclusive, and the Manager shall be free to render similar or
<PAGE>
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 FUND TO MANAGER. Each Fund from time to time will furnish to
the Manager 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 the Fund's investments as may be in its possession or available to it,
together with such other information as the Manager 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 the 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) The 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 including all fees and expenses of its custodian,
shareholder 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 the 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 the 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
<PAGE>
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, 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 the Fund as set forth herein, the 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 the Fund is obligated to pay are performed by the Manager, the Manager
shall be entitled to recover from the Fund to the extent of the Manager's actual
costs for providing such services.
8. INVESTMENT ADVISORY AND MANAGEMENT FEE
(a) The 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 the Fund pursuant to this Agreement, a
management fee as set forth in the Fee Schedule attached hereto 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 the 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.
(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
the 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.
Except as the Manager may otherwise agree with respect to the Fund, 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 8(d) from the Manager shall be
reimbursed by the 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.
<PAGE>
(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 the Fund. 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 the 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 AND INDEMNIFICATION.
(a) The Manager shall have responsibility for the accuracy and completeness
(and liability for the lack thereof) of the statements in the Fund's offering
materials (including the prospectus, the statement of additional information,
advertising and sales materials), except for information supplied by the Trust
or another third party for inclusion therein.
(b) The Manager shall be liable to the Fund for any loss (including
brokerage charges) incurred by the Fund as a result of any improper investment
made by the Manager.
(c) 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
or to any shareholder of the Fund 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.
(d) 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
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,
<PAGE>
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 10(b)
within thirty (30) days after a bill or statement has been received from the
Trust therefor. 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.
(e) 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.
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
the Fund 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.
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 the Fund shall be limited to the Fund and to its
<PAGE>
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
series of the Trust.
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 CCM PARTNERS
a Massachusetts Business Trust a California Limited Partnership
By: /s/ Phillip W. McClanahan By: /s/ Stephen C. Rogers
------------------------- ---------------------
Phillip W. McClanahan RFS Partners,
Vice President its General Partner
By: /s/ Stephen C. Rogers
---------------------
Richard F. Shelton, Inc.,
its General Partner
By: /s/ Stephen C. Rogers
---------------------
Stephen C. Rogers, Co-trustee
of Richard F.
Shelton Trust, Sole Shareholder of
Richard F. Shelton, Inc.
<PAGE>
APPENDIX
TO MANAGEMENT AGREEMENT
Dated January 13, 2000 (the "Management Agreement")
The provisions of the Management Agreement between the Trust and the
Manager apply to the following series of the Trust: Short-Term U.S. Government
Bond Fund.
FEE SCHEDULE
------------
The Fund shall pay to the Manager, as full compensation for all investment
management, advisory and administrative services furnished or provided to the
Fund, pursuant to the Management Agreement, a management fee based upon the
Fund's average daily net assets at the per annum rates:
--------------------------------------------------------------------------
0.50% of average net assets up to $500
million, plus
--------------------------------------------------------------------------
0.45% of average net assets above $500
million and below $1 billion, plus
--------------------------------------------------------------------------
0.40% of average net assets over $1
billion
--------------------------------------------------------------------------
-------------------------------------------------
FEE LIMITATIONS
---------------
California Investment Trust Funds: To the extent that the gross operating costs
and expenses of the Fund (excluding any extraordinary expenses, such as
litigation) exceed 1.00% of the Fund's average daily net asset value for any one
fiscal year, the Manager shall reimburse the Fund for the amount of such excess
expenses.
- --------------------------------------------------------------------------------
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
January 12, 2000
CCM Partners
44 Montgomery Street, Suite 2100
San Francisco, California 94104
Re: California Investment Trust II (the "Registrant")
Ladies and Gentlemen:
We have acted as counsel to California Investment Trust II, a Massachusetts
business trust (the "Trust"), in connection with Post-Effective Amendments to
the Trust's Registration Statement filed on Form N-1A with the Securities and
Exchange Commission (each a "Post-Effective Amendment" and collectively,
"Post-Effective Amendments") and relating to the issuance of the Trust of an
indefinite number of shares of beneficial interest with no par value (the
"Shares") for the following series of the Trust: European Growth & Income Fund,
Nasdaq-100 Index Fund and Short-Term U.S. Government Bond Fund (each a "Fund"
and collectively, the "Funds").
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents and instruments:
(a) the Trust's Agreement and Declaration of Trust dated September 11,
1985, as amended on or about February 20, 1986, March 18, 1987,
February 27, 1989 and February 6, 1992 (as so amended, the
"Declaration of Trust"), certified to us by an officer of the Trust as
being true and complete and in full force effect from September 11,
1985 through the date hereof;
<PAGE>
(b) the Bylaws of the Trust, as amended, certified to us by an officer of
the Trust as being true and complete and in full force and effect from
the original date of its adoption through the date hereof;
(c) resolutions adopted by the Board of Trustees of the Trust at meeting
of the Board held on October 26, 1999, certified by an officer of the
Trust as being in full force and effect through the date hereof; and
(e) a certificate of an officer of the Trust concerning certain factual
matters.
Our opinion below is limited to the federal law of the United States of
America and the business trust law of the Commonwealth of Massachusetts. We are
not licensed to practice law in the Commonwealth of Massachusetts, and we have
based our opinion below solely on our review of Chapter 182 of the General Laws
of the Commonwealth of Massachusetts and the case law interpreting such Chapter
as reported in Massachusetts Corporation Law & Practice (Aspen Law & Business
1997 & Supp. 1999). We have not undertaken a review of other Massachusetts law
or of any administrative or court decisions in connection with rendering this
opinion. We disclaim any opinion as to any law other than that of the United
States of America and the business trust law of the Commonwealth of
Massachusetts as described above, and we disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental authority.
We note that pursuant to certain decisions of the Supreme Judicial Court of
the Commonwealth of Massachusetts, shareholders of a Massachusetts business
trust may, in certain circumstances, be held personally liable as partners for
the obligations or liabilities of the trust. However, we also note that Article
VIII, Section 1 of the Declaration of Trust provides that all persons extending
credit to, contracting with or having any claim against the Trust or the Funds
shall look only to the assets of the Trust or the Funds for payment thereof and
that the shareholders shall not be personally liable therefor, and further
provides that every note, bond, contract, instrument, certificate or undertaking
made or issued on behalf of the Trust may include a notice that such instrument
was executed on behalf of the Trust and that the obligations of such instruments
are not binding upon any of the shareholders of the Trust individually, but are
binding only on the assets and property of the Trust.
Based on the foregoing and our examination of such questions of law as we
have deemed necessary and appropriate for the purpose of this opinion, and
assuming that (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendment
and in accordance with the Trust instrument, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all
<PAGE>
applicable securities laws will be complied with, it is our opinion that, when
issued and sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Post-Effective
Amendments and is solely for your benefit. This opinion may not be relied upon
by you for any other purpose or relied upon by any other person, firm,
corporation or other entity for any purpose, without our prior written consent.
We disclaim any obligation to advise you of any developments in areas covered by
this opinion that occur after the date of this opinion.
We hereby consent to (i) the reference to our firm as Legal Counsel in the
Prospectus included in the applicable Post-Effective Amendments, and (ii) the
filing of this opinion as an exhibit to those Post-Effective Amendments.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP