As filed with the Securities and Exchange Commission on April 30, 1997
File No. 33-12289
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
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Pre-Effective Amendment No. / /
Post-Effective Amendment No. 11 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 11 /X/
(Check appropriate box or boxes)
CLEARWATER INVESTMENT TRUST
(Exact name of registrant as specified in charter)
W-2090 First National Bank Building, St. Paul, Minnesota 55101-1394
(Address of principal executive office) Zip Code
Registrant's Telephone Number, including Area Code: (612) 228-0935
Joseph P. Barri, Hale and Dorr LLP, 60 State
Street, Boston, MA 02109 (Name and address
of agent for service)
It is proposed that this filing will become effective (check appropriate box)
/X/ on April 30, 1997, pursuant to paragraph (b) of Rule 485 under the
Securities Act
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of securities under the
Securities Act of 1933. The Registrant filed the notice required by Rule 24f-2
for its most recent fiscal year on March 19, 1997.
<PAGE>
CLEARWATER INVESTMENT TRUST
Cross-Reference Sheet Showing Location in Prospectus and Statement of Additional
Information of Information Required by Items of the Registration Form
Location in Prospectus
or Statement of
Form N-1A Item Number and Caption Additional Information
- --------------------------------- ----------------------
1. Cover Page............................Prospectus - Cover Page
2. Synopsis..............................Prospectus - Expense Information
3. Condensed Financial Information.......Prospectus - Financial Highlights
4. General Description of Registrant.....Prospectus - Cover Page; What Are
the Funds' Investment Objectives and
Important Policies?; Other
Information
5. Management of the Fund................Prospectus - How Are the Funds
Managed?
6. Capital Stock and Other Securities...Prospectus - What Are the Funds'
Investment Objectives and
Important Policies?; Dividends,
Distribution and Taxation; Other
Information
7. Purchase of Securities Being Offered..Prospectus - How Are Shares
Purchased?; Exchange of Shares
8. Redemption or Repurchase..............Prospectus - How Are Shares
Redeemed?; Exchange of Shares
9. Pending Legal Proceedings.............Not Applicable
<PAGE>
Location in Prospectus
or Statement of
Form N-1A Item Number and Caption Additional Information
- --------------------------------- ----------------------
10. Cover Page............................Statement of Additional
Information - Cover Page
11. Table of Contents.....................Statement of Additional
Information - Cover Page
12. General Information and History.......Statement of Additional
Information - Cover Page; The Trust
13. Investment Objectives and Policies....Statement of Additional
Information - Objectives, Investment
Policies and Restrictions
14. Management of the Fund................Statement of Additional
Information - Management, Advisory
and Other Services; Executive
Officers and Trustees
15. Control Persons and Principal Holders
of Securities.......................Statement of Additional
Information - Management, Advisory
and Other Services; Executive
Officers and Trustees
16. Investment Advisory and Other
Services............................Statement of Additional
Information - Management, Advisory
and Other Services; Independent
Public Accountants
17. Brokerage Allocation and Other
Practices...........................Statement of Additional
Information - Brokerage
18. Capital Stock and Other Securities....Statement of Additional
Information - The Trust
19. Purchase, Redemption and Pricing of
Securities Being Offered............Statement of Additional
Information - Determination of Net
Asset Value Per Share
-2-
<PAGE>
Location in Prospectus
or Statement of
Form N-1A Item Number and Caption Additional Information
- --------------------------------- ----------------------
20. Tax Status............................Statement of Additional
Information - Taxes
21. Underwriters..........................Statement of Additional
Information - None
22. Calculation of Performance Data.......Statement of Additional
Information - Calculation of
Performance Data
23. Financial Statements..................Statement of Additional
Information - Cover Page
-3-
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
Prospectus - April 30, 1997
Clearwater Growth Fund (the "Growth Fund") and Clearwater Small Cap Fund (the
"Small Cap Fund") (each, a "Fund") are each separate, diversified investment
portfolios of Clearwater Investment Trust (the "Trust"), an open-end, management
investment company organized under the laws of The Commonwealth of
Massachusetts.
The primary investment objective of each Fund is long-term growth of capital. As
a secondary objective, each Fund seeks current investment income. Each Fund
seeks to achieve its objectives by investing in a broad list of carefully
selected, reasonably priced securities, consisting primarily of common stocks,
preferred stocks and convertible and on-convertible fixed income securities.
This Prospectus concisely sets forth information about the Growth Fund and the
Small Cap Fund that you should know before investing. You should retain this
Prospectus for future reference. More information about the Funds is included in
the Statement of Additional Information, dated April 30, 1997, which is
incorporated herein by reference in its entirety and a copy of which may be
obtained free of charge by calling the Trust's transfer agent, Fiduciary
Counselling, Inc. at (612) 228-0935 or by written request addressed to Fiduciary
Counselling, Inc., 332 Minnesota Street, Suite 2100, St. Paul, Minnesota
55101-1394 (attention: Clearwater Investment Trust). Other information about the
Funds has been filed with the Securities and Exchange Commission and is
available upon request and without charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
Expense Information...................................................3
Financial Highlights..................................................4
What Are the Funds' Investment Objectives and
Important Policies?...................................................6
How Are the Funds Managed?............................................9
How Are Shares Purchased?............................................11
How Are Shares Redeemed?.............................................12
Exchange of Shares...................................................13
Dividends, Distributions and Taxation................................14
Performance Data.....................................................15
Other Information....................................................15
Appendix--Description of Bond Ratings................................17
2
<PAGE>
EXPENSE INFORMATION
The following table sets forth the annual operating expenses of each Fund,
expressed as a percentage of the average net assets of the Fund and based on
expenses for the fiscal year ended December 31, 1996, and restated to reflect
estimated annual operating expenses for 1997. The example set forth below shows
the amount of operating expenses that would be incurred by an investor
purchasing $1,000 of shares of each Fund whether or not the investor redeems his
or her investment at the end of one, three, five and ten years.
GROWTH SMALL CAP
FUND FUND
Shareholder Transaction Expenses: None None
Annual Fund Operating Expenses (as % of average net assets):
Management Fees............................................. 1.10% 1.35%
Other Fees and Expenses..................................... 0.00% 0.00%
Total Operating Expenses 1.10% 1.35%
Example:
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (with or without redemption at the end of each time period):
One Year................................................... $ 11 $ 14
Three Years................................................ $ 35 $ 43
Five Years................................................. $ 61 $ 74
Ten Years.................................................. $ 134 $ 162
The purpose of the above table and example is to assist an investor in
understanding the various costs and expenses of each Fund that will be borne
directly or indirectly by an investor in such Fund. The costs and expenses
included in the table and example should not be considered representative of
past or future expenses. Actual returns and expenses of the Funds may vary
significantly from the returns and expenses assumed in the above table and
example. For more information regarding management fees and other expenses of
the Funds, including information regarding the basis upon which management fees
are paid, see "How Are The Funds Managed?" in the Prospectus and "Management,
Advisory and Other Services" in the Statement of Additional Information.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following audited information is covered by the independent auditor's report
on the Funds' financial statements and selected per share data and ratios and is
included in the Funds' 1996 Annual Report to Shareholders, which is incorporated
by reference in the Statement of Additional Information. The information
presented below should be read in conjunction with the Annual Report, which
includes more information about each Fund's performance and is available free of
charge by calling the Trust's transfer agent at (612)228-0935.
Selected data for a Fund share outstanding throughout each period are as
follows:
<TABLE>
<CAPTION>
Clearwater Growth Fund
Seven
Years ended December 31, Months
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1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year 17.01 13.62 14.49 15.98 15.42 10.91 11.55 8.52 8.32 10.00
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Income from investment operations
Net investment Income (loss) (0.01) 0.01 0.06 0.09 0.11 0.14 0.16 0.13 0.12 0.08
Net realized and unrealized
gain (loss) 3.68 4.43 0.11 0.27 0.56 4.51 (0.64) 3.03 0.20 (1.68)
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Total from investment operations 3.67 4.44 0.17 0.36 0.67 4.65 (0.48) 3.16 0.32 (1.60)
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Less distributions:
Dividends from net investment
income 0.00 (0.01) (0.06) (0.09) (0.11) (0.14) (0.16) (0.13) (0.12) (0.08)
Distributions from realized gains (2.80) (1.04) (0.98) (1.76) 0.00 0.00 0.00 0.00 0.00 0.00
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Total Distributions (2.80) (1.05) (1.04) (1.85) (0.11) (0.14) (0.16) (0.13) (0.12) (0.08)
Net asset value, end of year 17.88 17.01 13.62 14.49 15.98 15.42 10.91 11.55 8.52 8.32
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Total Return (a) 21.6% 32.6% 1.2% 2.2% 4.4% 42.8% -4.1% 37.2% 3.8% -16.1%
Net assets, end of period
(000's omitted) $93,922 84,775 65,999 61,037 67,554 65,818 42,407 42,458 30,200 27,939
Ratio of expenses to average
net assets (b) (d) 1.08% 1.08% 1.07% 1.08% 1.10% 1.17% 1.23% 1.24% 1.38% 1.45%
Ratio of net investment income
(loss) to average net assets (d) -0.07% 0.06% 0.39% 0.55% 0.74% 1.05% 1.45% 1.22% 1.38% 3.26%
Average brokerage commission
rate (c) $0.0547 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) 75.90% 58.64% 70.69% 52.76% 32.08% 29.27% 36.19% 53.03% 70.20% 54.87%
<FN>
(a) Total return figures are based on the change in net asset value of a share during the period and assumes reinvestment
of distributions at net asset value
(b) The year 1996 includes federal and state taxes of 0.01%
(c) For fiscal years beginning on or after September 1, 1995, the fund is required to disclose the average commission rate
per share it paid on trades for which commissions were charged .
(d) The ratios for the seven month period ended December 31, 1987, are adjusted to an annual basis.
</FN>
</TABLE>
4
<PAGE>
>
<TABLE>
<CAPTION>
Clearwater Small Cap Fund
Eleven
Years ended December 31, Months
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1996 1995 1994 1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $11.47 9.89 12.26 11.50 11.30 9.37 10.16 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment Income (loss) 0.00 0.04 0.17 0.17 0.29 0.37 0.43 0.36
Net realized and unrealized
gain (loss) 1.71 2.56 (0.99) 1.60 0.25 1.93 (0.79) 0.32
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Total from investment operations 1.71 2.60 (0.82) 1.77 0.54 2.30 (0.36) 0.68
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Less distributions:
Dividends from net investment
income 0.00 (0.04) (0.17) (0.17) (0.29) (0.37) (0.43) (0.36)
Excess distributions from net
investment income (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from realized gains (0.42) (0.98) (1.38) (0.84) (0.05) 0.00 0.00 (0.16)
Tax return of capital (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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Total Distributions (0.44) (1.02) (1.55) (1.01) (0.34) (0.37) (0.43) (0.52)
Net asset value, end of year $12.74 11.47 9.89 12.26 11.50 11.30 9.37 10.16
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 15.0% 26.3% -6.7% 15.4% 4.9% 24.9% -3.6% 6.8%
Net assets, end of period
(000's omitted) $32,774 26,826 17,998 13,972 13,128 12,537 7,936 7,650
Ratio of expenses to average
net assets (b) (d) 1.37% 1.35% 1.40% 1.47% 1.49% 1.62% 1.91% 2.44%
Ratio of net investment income
(loss) to average net assets (d) 0.00% 0.36% 1.61% 1.38% 2.54% 3.64% 4.37% 4.64%
Average brokerage commission
rate (c) $0.0424 n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) 89.25% 77.46% 122.88% 58.49% 73.07% 67.42% 36.95% 42.63%
<FN>
Effective May 1, 1994 a change was implemented in the fund's investment policies whereby the fund must invest at
least 65% of its total assets in securities of companies that have a total equity market capitalizations of $1 billion or
lower. Prior to this change, the fund was permitted to invest in a broad list of equity and fixed income securities. Also,
the fund's name was changed from Clearwater Value Fund to Clearwater Small Cap Fund. Also effective January 1,
1994, Kennedy Capital Management became the sub-advisor for the fund.
(a) Total return figures are based on the change in net asset value of a share during the period and assumes reinvestment
of distributions at net asset value
(b) The year 1996 includes federal and state taxes of 0.04%
(c) For fiscal years beginning on or after September 1, 1995, the fund is required to disclose the average commission rate
per share it paid on trades for which commissions were charged .
(d) The ratios for the eleven month period ended December 31, 1989, are adjusted to an annual basis.
</FN>
</TABLE>
5
<PAGE>
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES AND IMPORTANT POLICIES?
Growth Fund
The primary investment objective of the Growth Fund is long-term capital growth.
As a secondary objective, the Growth Fund seeks current investment income. The
Growth Fund pursues these objectives by investing in a broad list of carefully
selected securities which, in the opinion of the Growth Fund's portfolio
Subadviser, are reasonably priced and whose prices do not reflect a premium
based upon current market perception. In managing the investment portfolio of
the Growth Fund, the Growth Fund's portfolio Subadviser focuses on long-term
growth and avoids speculating on broad changes in market levels. As a result,
assets of the Growth Fund are usually substantially fully invested in
securities.
Under normal circumstances, at least 80% of the Growth Fund's assets will be
invested in securities which, in the opinion of the Subadviser, offer the
potential for capital growth. Such securities consist principally of common
stocks, but may also consist of preferred stocks and convertible and
non-convertible fixed income securities. The balance of the Growth Fund's
portfolio, up to 20% of the Growth Fund's assets, may be invested in securities
which are income-producing but which may not have significant capital growth
potential. Such securities consist principally of dividend-paying common and
preferred stocks, short-term notes and cash equivalents. Fixed income securities
purchased by the Growth Fund will consist of obligations of the United States
Government and its agencies and instrumentalities ("U.S. Government Securities")
and investment grade corporate bonds and commercial paper.
Small Cap Fund
The primary investment objective of the Small Cap Fund is long-term capital
growth. As a secondary objective, the Small Cap Fund seeks current investment
income. Under normal market conditions, the Small Cap Fund pursues these
objectives by investing at least 65% of its total assets in equity and fixed
income securities of companies that have total equity market capitalizations of
$1 billion or lower. The proportions among the types of securities in which the
Small Cap Fund's assets are invested will vary from time to time depending on
the outlook for the economy and the securities markets, the quality of available
investments, the level of interest rates and other factors.
* * * * * *
The investment objectives of the Growth Fund and the Small Cap Fund and certain
investment restrictions described in the Statement of Additional Information are
fundamental and may not be changed without shareholder approval. Each Fund has
also adopted fundamental investment policies relating to industry concentration
and issuer diversification that may not be changed without shareholder approval.
See "Objectives, Investment Policies and Restrictions" in the Statement of
Additional Information.
6
<PAGE>
Since all investments are subject to inherent market risks and fluctuations in
value due to earnings, economic conditions and other factors, neither the Growth
Fund nor the Small Cap Fund can assure that its investment objectives will be
achieved.
Investment Policies and Investments Common To Both Funds
Equity Securities. Each Fund's portfolio of equity securities may consist of
common and preferred stocks that trade on national securities exchanges or are
quoted on the National Association of Securities Dealers' NASDAQ National Market
and either have the potential for capital appreciation or pay dividends or both,
as well as fixed income securities that are convertible into such common or
preferred stocks.
Fixed Income Securities. Each Fund may invest in long-term fixed income
securities (with maturities exceeding ten years), intermediate-term fixed income
securities (with maturities ranging from one to ten years) and short-term fixed
income securities (with maturities of less than one year). Because fixed income
securities tend to decrease in value when interest rates rise and increase in
value when interest rates fall, each Fund's performance may be affected by its
portfolio Subadviser's ability to anticipate and respond to fluctuations in
market interest rates.
In order to reduce the risk of nonpayment of principal or interest on fixed
income securities, each Fund will invest in such securities only if they are
rated, at the time of investment, BBB or better by Standard & Poor's Ratings
Group ("Standard & Poor's") or Baa or better by Moody's Investors Service, Inc.
("Moody's") or, if unrated, determined to be of equivalent quality by the Fund's
portfolio Subadviser (i.e., investment grade). Fixed income securities in the
lowest investment grade category (i.e., BBB or Baa) may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities. Neither Fund is required
to dispose of securities whose ratings drop below investment grade, but each
Fund may do so if considered appropriate by its portfolio Subadviser. See the
Appendix to this Prospectus for a description of the corporate bond ratings
assigned by Moody's and Standard & Poor's.
A Fund's investments in zero coupon, stripped or certain other fixed income
securities with original issue discount or market discount could require the
Fund to sell certain of its portfolio securities in order to generate sufficient
cash to satisfy certain income distribution requirements. See "Taxes" in the
Statement of Additional Information.
Foreign Securities. Each Fund may invest up to 25% of its total assets in equity
and fixed income securities of foreign issuers from developed and developing
countries throughout the world. Changes in foreign currency exchange rates will
affect the value of foreign securities that are denominated in foreign
currencies and investment in such securities may result in higher expenses due
to costs associated with converting U.S. dollars to foreign currencies. In
addition, investment in foreign securities generally may present a greater
degree of risk than investment in domestic securities because of the possibility
of less publicly-available financial and other
7
<PAGE>
information, more volatile and less liquid securities markets, less securities
regulation, higher brokerage costs, imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental actions.
U.S. Government Securities. The U.S. Government Securities in which each Fund
may invest include (1) U.S. Treasury obligations, which differ only in their
interest rates, maturities and dates of issuance and include U.S. Treasury bills
(maturities of one year or less), U.S. Treasury notes (maturities of one to ten
years) and U.S. Treasury bonds (generally maturities of greater than ten years);
and (2) obligations of varying maturities issued or guaranteed by agencies or
instrumentalities of the U.S. Government, for which the U.S. Treasury
unconditionally guarantees payment of principal and interest. The Funds'
investments in U.S. Government Securities may include GNMA Certificates of
varying maturities guaranteed by the Government National Mortgage Association
("GNMA"). The GNMA guarantee is backed by the full faith and credit of the
United States Government. For more information on GNMA Certificates, see
"Objectives, Investment Policies and Restrictions" in the Statement of
Additional Information.
Although the payment when due of interest and principal on U.S. Government
Securities is backed by the full faith and credit of the United States, such
guarantee does not extend to the market value of such securities and,
accordingly, each Fund's investments in such securities will cause its net asset
value to fluctuate.
Temporary Defensive Investments. When in the judgment of its Subadviser adverse
market conditions warrant, each Fund may adopt a temporary defensive position by
investing up to 100% of its assets in cash, repurchase agreements and money
market instruments, including short-term U.S. Government Securities, bankers'
acceptances, commercial paper rated at least A3 by Standard & Poor's, Prime by
Moody's or, if not rated, determined to be of equivalent quality by the Fund's
Subadviser.
Portfolio Turnover. Each Fund pursues the policy of selling that security in its
portfolio which seems the least attractive security owned whenever it is desired
to obtain funds not otherwise available for the purchase of a security that is
considered more attractive. While the resulting rate of portfolio turnover is
not a consideration, it is not expected that such rate will exceed 75% in most
years. A high rate of portfolio turnover (100% or more) involves correspondingly
greater transaction costs which must be borne by a Fund and its shareholders,
and may, under certain circumstances, make it more difficult for the Fund to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"). Although neither Fund purchases and sells
securities for short-term profits, each Fund will sell portfolio securities
without regard to the time they have been held whenever such action seems
advisable.
As described in the Statement of Additional Information, each Fund may also
invest in GNMA Certificates, write (sell) covered call options with respect to
portfolio securities, make loans of portfolio securities and enter into
repurchase agreements. See "Objectives, Investment Policies and Restrictions" in
the Statement of Additional Information.
8
<PAGE>
HOW ARE THE FUNDS MANAGED?
Trustees and Officers
The Trust's Board of Trustees has overall responsibility for management and
supervision of the Funds. By virtue of the functions performed by Clearwater
Management Co., Inc., the Trust's Manager (the "Manager"), the Trust requires no
employees other than its executive officers, all of whom receive their
compensation from the Manager or other sources.
The Manager and Portfolio Subadvisers
Clearwater Management Co., Inc. The Manager is a privately-owned investment
adviser registered under the Investment Advisers Act of 1940, and advises the
Trust in accordance with a management contract dated May 1, 1994 (the
"Management Contract"). The Manager is organized as a Minnesota corporation and
the Manager's office is located at 332 Minnesota Street, Suite 2090, St. Paul,
Minnesota 55101.
Under the Management Contract, the Manager, subject to the general supervision
of the Trust's Board of Trustees, supervises the Trust's business operations and
is responsible for administrative and other management functions necessary for
the conduct of the Funds' affairs. Under the Management Contract, the Manager
also is responsible for the payment or reimbursement of all of the Funds'
expenses, except brokerage, taxes, interest and extraordinary expenses. As
compensation for the services provided to the Funds and expenses assumed, the
Manager receives a management fee at an annual rate of 1.10% and 1.35% of the
net assets of the Growth Fund and the Small Cap Fund, respectively. The
Manager's fees are calculated and accrued on a monthly basis as a percentage of
each Fund's month-end net assets. Under the Management Contract, the Manager
assumes various Fund expenses that most other investment companies pay out of
their own assets. The Manager's fees with respect to the Growth Fund and the
Small Cap Fund for the year ended December 31, 1996 were 1.06% of the Growth
Fund's net assets and 1.32% of the Small Cap Fund's net assets, respectively.
SIT Investment Associates, Inc. In connection with the management of the Growth
Fund, the Trust, the Manager and SIT Investment Associates, Inc. ("SIT") entered
into a Subadvisory Contract dated May 1, 1994 (the "Growth Subadvisory
Contract"). SIT, which is incorporated in Minnesota and is registered under the
Investment Advisers Act of 1940, devotes full time to investment counseling and
provides advice, management and other services to investors and accounts,
including other mutual funds. SIT's address is 4600 Norwest Center, 90 South
Seventh Street, Minneapolis, Minnesota 55402-4130.
Under the Growth Subadvisory Contract, SIT develops, recommends and implements
an investment program and strategy for the Growth Fund which is consistent with
the Growth Fund's investment objectives and policies. SIT is also responsible
for making all portfolio and brokerage decisions. As compensation, SIT receives
a fee that is based on the Growth Fund's net assets. This fee is calculated and
accrued on a monthly basis as a percentage of the Growth Fund's month-end net
assets. The compensation paid to SIT with respect to the Growth Fund for
9
<PAGE>
the year ended December 31, 1996 was .55% of the Growth Fund's net assets. For
more information on SIT's Subadvisory fee, see "Management, Advisory and Other
Services" in the Statement of Additional Information. Under the Growth
Subadvisory Contract, the Manager, and not the Growth Fund, is responsible for
payment of Subadvisory fees to SIT. For more information on SIT's Subadvisory
fee, see "Management, Advisory and Other Services" in the Statement of
Additional Information.
Kennedy Capital Management. Kennedy Capital Management ("KCM"), a Missouri
corporation that is a registered investment adviser under the Investment
Advisers Act of 1940, has managed the Small Cap Fund's portfolio since January
1, 1994. In connection with the management of the Small Cap Fund, the Trust, the
Manager and KCM have entered into a Subadvisory contract dated May 1, 1994 (the
"Small Cap Subadvisory Contract"). KCM devotes full time to investment
counseling and provides advice, management and other services to investors and
accounts. KCM's address is 10829 Olive Boulevard, St. Louis, Missouri
63141-7739.
Under the Small Cap Subadvisory Contract, KCM develops, recommends and
implements an investment program and strategy for the Small Cap Fund which is
consistent with the Small Cap Fund's investment objectives and policies. KCM is
also responsible for making all portfolio and brokerage decisions. As
compensation, KCM receives a fee that is based on the Small Cap Fund's net
assets. This fee is calculated and accrued on a monthly basis as a percentage of
the Small Cap Fund's month-end net assets. The compensation paid to KCM with
respect to the Small Cap Fund for the year ended December 31, 1996 was 1.01% of
the Small Cap Fund's net assets. For more information on KCM's Subadvisory fee,
see "Management, Advisory and Other Services" in the Statement of Additional
Information. Under the Small Cap Subadvisory Contract, the Manager, and not the
Small Cap Fund, is responsible for payment of Subadvisory fees to KCM.
Portfolio Managers
Growth Fund. Peter Mitchelson, the President of SIT, is primarily responsible
for the day-to-day management of the Growth Fund's portfolio and has been since
the Growth Fund's inception in 1987.
Small Cap Fund. Richard Sinise, a Vice President and the Director of Research of
KCM, is primarily responsible for the day-to-day management of the Small Cap
Fund's portfolio and has been since January 1, 1994. As an officer of KCM, Mr.
Sinise has been responsible for developing investment strategies for clients of
KCM and KCM affiliates since 1979.
Transfer Agent and Custodian
Fiduciary Counselling, Inc. (the "Transfer Agent") is the transfer agent for
shares of the Funds. The Transfer Agent services the Funds' shareholder
accounts, and its duties include: (i) effecting sales, redemptions and exchanges
of shares; (ii) distributing income dividends and capital gain dividends; and
(iii) maintaining account records and responding to shareholder inquiries. The
10
<PAGE>
Transfer Agent's offices are located at 332 Minnesota Street, Suite 2100, St.
Paul, Minnesota 55101-1394, and inquiries to the Transfer Agent should be mailed
to the Transfer Agent at that address.
Norwest Bank Minnesota, N.A. (the "Custodian") serves as the custodian of the
Funds' assets. The Custodian's responsibilities include determining the Funds'
net asset values, safekeeping and controlling the Funds' cash and portfolio
securities, handling the receipt and delivery of the Funds' portfolio securities
and determining income and collecting interest and dividends on the Funds'
investments. The Custodian does not determine the investment policies of the
Funds or decide which portfolio securities will be purchased or sold. The Funds
may, however, invest in securities, including repurchase agreements, issued by
the Custodian and may deal with the Custodian as principal in securities
transactions. The principal business address of the Custodian is Norwest Center,
Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479-0065.
HOW ARE SHARES PURCHASED?
Shares may be purchased directly from each Fund. There is no sales charge or
underwriting commission on purchases of shares of the Funds. In order to
purchase shares of either Fund, an investor must either send a check or wire
funds to the Transfer Agent and deliver to the Transfer Agent a completed
Purchase Order and Account Application.
Pricing of Shares
Net asset value per share of each Fund is determined as of the close of regular
trading on the New York Stock Exchange (the "Closing Time") on each day that the
Exchange is open for trading if such determination is then required to properly
process a purchase order, redemption request or exchange request for shares of
such Fund. Net asset value per share is determined by dividing the value of all
of a Fund's assets, less its liabilities, by the number of shares outstanding.
Investments in securities are valued at the Closing Time at the last available
sale price on the principal exchange or market where they are traded. Securities
which have not traded on the date of valuation or securities for which sales
prices are not generally reported are valued at the mean between the last bid
and asked prices. Securities for which no market quotations are readily
available (including those for which trading has been suspended) will be valued
at fair value as determined in good faith by the Board of Trustees, although the
actual computations may be made by persons acting at the direction of the Board
of Trustees. The price at which a Purchase Order is filled is the net asset
value per share next computed after payment and a properly completed application
are received by the Transfer Agent, unless a later computation date is specified
by the investor on the Purchase Order.
Minimum Purchases
No initial or subsequent investment of less than $1,000 will be accepted by the
Funds. However, reinvestments of dividends and capital gain distributions will
be permitted, even if the amount of any such reinvestment is less than $1,000.
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<PAGE>
If a shareholder holds shares of either Fund in an account which, as a result of
redemptions, has an aggregate net asset value of less than $1,000, the Fund may
redeem the shares held in such account at net asset value if the shareholder has
not increased the net asset value of such shares in the account to at least
$1,000 within three months of notice in writing by the Fund to the shareholder
of the Fund's intention to redeem such shareholder's shares. During the three
months following the mailing of such notice, each shareholder so notified has
the opportunity to increase the value of his or her account to $1,000 and avoid
redemption. An involuntary redemption consummated at a price below the
shareholder's cost would result in a loss to the shareholder.
The Trust reserves the right in its sole discretion to withdraw all or any part
of the offering of shares of the Funds when, in the judgment of the Trustees or
the Manager, such withdrawal is in the best interests of the Trust. An order to
purchase shares is not binding on, and may be rejected by, the Trust until it
has been confirmed in writing.
Fund Accounts
When a shareholder first purchases shares of either Fund, an account is opened
in his or her name on the records of that Fund. This account provides a
convenient means to make additional investments and provides for regular
transaction statements without the necessity of receiving and storing
certificates. When a shareholder purchases or sells shares of a Fund, an account
statement showing the details of such transaction will be sent to the
shareholder.
Certificates representing shares of a Fund ordinarily will not be issued.
However, the Board of Trustees may, in its sole discretion, authorize the
issuance of certificates for shares of a Fund to shareholders who make a
specific written request for share certificates.
HOW ARE SHARES REDEEMED?
Any shareholder of either Fund has the right to offer shares for redemption by
the Trust. Redemptions shall be effected at the net asset value per share next
determined after receipt by the Transfer Agent of all required documents from
the redeeming shareholder, unless a later redemption date is specified by the
investor on the Redemption Request. Payment will be made within seven days after
a redemption has been effected. However, if shares to be redeemed were recently
purchased by check, a Fund may delay transmittal of redemption proceeds until it
has assured itself that good funds have been collected for the purchase of such
shares. This may take up to 15 days. A Fund may effect redemptions in kind
(i.e., pay redemption proceeds consisting of portfolio securities or other
non-cash assets) for redemptions in excess of $1 million if the Manager
determines, in its sole discretion, that any such redemption would be in the
best interests of the Fund. In order to redeem shares of either Fund, a
shareholder must deliver to the Transfer Agent a Redemption Request which has
been endorsed by the recordholder(s) exactly as the shares are registered with
signature(s) guaranteed by any one of the following institutions: (i) a bank;
(ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or has
net capital of at least $100,000; (iii) a
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<PAGE>
credit union having authority to issue signature guarantees; (iv) a savings and
loan association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a registered
securities exchange or a clearing agency, provided that any such institution
satisfies the standards established by the Transfer Agent. If a share
certificate has been issued at the discretion of the Trustees, the shares
represented by such certificate may be redeemed only if the share certificate is
included with such Redemption Request and the certificate is properly endorsed
with signature(s) so guaranteed or is accompanied by a properly endorsed stock
power with signature(s) so guaranteed.
Net asset value per share for the purpose of redemption is determined in the
manner described above under "Pricing of Shares." The net asset value per share
received upon redemption may be more or less than the cost of shares to an
investor, and a redemption is a taxable transaction for the redeeming
shareholder.
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exists: the New York Stock Exchange is closed or
trading on said Exchange is restricted; an emergency exists as a result of which
disposal by the Trust of securities owned by a Fund is not reasonably
practicable or it is not reasonably practicable for the Custodian fairly to
determine the value of the Fund's net assets; or the Securities and Exchange
Commission, by order, so permits.
EXCHANGE OF SHARES
Subject to the restrictions set forth below, some or all of the shares of either
Fund, including shares purchased with reinvested dividends and/or capital gain
distributions, may be exchanged for shares of the other Fund on the basis of the
net asset value per share of each Fund at the time of exchange. The exchange
privilege is available to shareholders residing in any state in which shares of
both Funds may legally be sold.
Instructions for exchanges are made by delivery to the Transfer Agent of an
Exchange Request signed by the record owner(s) exactly as the shares being
exchanged are registered. New accounts must be established with the same
registration information as the account from which the exchange is to be made.
The dollar amount exchanged must at least equal the $1,000 minimum investment
required for each of the Funds. However, exchanges of shares of one Fund for
shares of the other Fund in which the shareholder has an existing account will
be permitted, even if the value of the shares exchanged is less than $1,000.
A shareholder should consider the differences in investment objectives and
policies of the Funds, as described in this Prospectus, before making any
exchange. For federal and (generally) state income tax purposes, an exchange of
shares is treated as a redemption of the shares exchanged and, therefore, is a
taxable transaction for the shareholder making the exchange.
Currently, there is no charge for the exchange privilege or limitation as to the
frequency of exchanges. The Trust may terminate or suspend the right to make
Exchange Requests, or impose
13
<PAGE>
a limit on the number of exchanges that may be effected by a shareholder within
any calendar year, or impose a transaction fee in connection with any exchange,
at any time with notice to shareholders as required by law.
DIVIDENDS, DISTRIBUTIONS AND TAXATION
Each Fund is treated as a separate entity for federal income tax purposes, has
elected to be treated and has qualified as a "regulated investment company"
under the Code, and intends to continue to qualify for such treatment for each
taxable year. To qualify as a regulated investment company under the Code and be
free from any federal income tax on income and gains distributed to shareholders
in accordance with the Code, each Fund must satisfy certain requirements
relating to the sources of its income, diversification of its assets and
distribution of its income to shareholders.
Each Fund intends to distribute all of its net investment income, any excess of
net short-term capital gain over net long-term capital loss, and any excess of
net long-term capital gain over net short-term capital loss, after taking into
account any capital loss carryovers of the Fund, if any, at least once each
year. Distributions from net investment income, certain net foreign currency
gains and the excess of net short-term capital gain over net long-term capital
loss will be taxable to shareholders as ordinary income. Distributions from the
excess of net long-term capital gain over net short-term capital loss will be
taxable to shareholders as long-term capital gain, regardless of the
shareholder's holding period for the shares. Certain distributions paid by a
Fund in January of a given year will be taxable to shareholders as if received
on December 31 of the prior year.
Dividends and/or capital gain distributions, if any, may be taken in cash or
automatically reinvested in additional shares (at the net asset value per
share). All distributions are taxable as described above whether a shareholder
takes them in cash or reinvests them in additional shares of a Fund.
Shareholders who purchase shares immediately prior to a distribution will be
required to treat the distribution as ordinary income or long-term capital gain
as described above, even though economically it represents a return of a portion
of their investment. Information regarding the tax status of each year's
distributions will be provided to shareholders annually.
Each Fund may be subject to foreign withholding or other foreign taxes on its
income (possibly including, in some cases, capital gains) from certain of its
foreign investments, if any, and neither Fund will be eligible to elect to pass
such taxes and associated foreign tax credits or deductions through to its
shareholders.
Dividends, capital gain distributions and the proceeds of redemptions, exchanges
or repurchases of shares of a Fund paid to an individual or other non-exempt
payee will be subject to 31% backup withholding of federal income tax if such
shareholder does not provide the Fund with his or her correct taxpayer
identification number and certain certifications required by the Internal
Revenue Service ("IRS") or if the Trust is notified by the IRS or a broker that
the shareholder is
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<PAGE>
subject to such withholding. Please refer to the Purchase Order and Account
Application for additional information.
Special tax rules, including a penalty on premature distributions, apply to IRA
accounts and to other special classes of investors, such as tax-exempt
organizations, banks and insurance companies.
The description above relates only to U.S. federal income tax consequences for
shareholders who are U.S. persons (i.e., U.S. citizens or residents or U.S.
corporations, partnerships, trusts, or estates) and who are subject to federal
income tax. In addition to federal taxes, a shareholder may be subject to
foreign, state and local taxes on distributions or on the value of shares of a
Fund, depending on the laws of the shareholder's place of residence. For further
information on the tax consequences of an investment in a Fund, see "Taxes" in
the Statement of Additional Information. Shareholders also may inquire about
these and other matters by calling the Transfer Agent at (612) 228-0935.
PERFORMANCE DATA
The Trust may furnish to existing or prospective shareholders information
concerning the average annual total return on an investment in the Funds for a
designated period of time. Average annual total return for a given period is
computed by determining the average annual compounded rate of return that would
cause a hypothetical investment made on the first day of the designated period
(assuming all dividends and distributions are reinvested) to equal the resulting
net asset value of such hypothetical investment on the last day of the
designated period. Computations of average annual total return of a Fund will
not take into account any required payments of federal or state income taxes.
The average annual total return of each Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating returns should be considered when comparing
performance information regarding a Fund to information published for other
investment companies and other investment vehicles. Any return quotation should
also be considered relative to changes in the values of a Fund's shares and the
risks associated with that Fund's investment objectives and policies. At any
time in the future, any return quotation may be higher or lower than a past
return quotation and there can be no assurance that any historical return
quotation will continue in the future. For more information regarding the
computation of average annual total return, see the Statement of Additional
Information.
OTHER INFORMATION
Each Fund is a series of the Trust, which was established as a Massachusetts
business trust under the laws of Massachusetts by a Declaration of Trust dated
January 12, 1987 (the "Declaration of Trust"). Under the Declaration of Trust,
the Board of Trustees is authorized to issue an unlimited
15
<PAGE>
number of shares of beneficial interest which may, without shareholder approval,
be divided into an unlimited number of series. The Growth Fund is the first such
series and the Small Cap Fund is the second such series. Shares of the Trust are
freely transferable, are entitled to dividends as declared by the Board of
Trustees and, in liquidation, are entitled to receive the net assets of their
series, but not of any other series. Shareholders are entitled to cast one vote
per share (with proportional voting for fractional shares) on any matter
requiring a shareholder vote. Shareholders of each series vote separately as a
class on any matter submitted to shareholders except when otherwise required by
the Investment Company Act of 1940, in which case the shareholders of all series
affected by the matter in question will vote together as one class. If the Board
of Trustees determines that a matter does not affect the interests of a series,
then the shareholders of that series will not be entitled to vote on that
matter.
Under Massachusetts law, there is a remote possibility that shareholders of a
Massachusetts business trust could, under certain circumstances, be held
personally liable as partners for the obligations of such trust. For further
information regarding potential shareholder liability, see "The Trust" in the
Statement of Additional Information.
16
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APPENDIX
Description of Bond Ratings
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's Ratings Group
AAA: Bonds rated AAA are the highest grade obligations. This rating indicates an
extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
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<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
332 Minnesota Street
St. Paul, MN 55101-1394
EXECUTIVE OFFICERS: TRUSTEES:
Frederick T. Weyerhaeuser Frederick T. Weyerhaeuser
Chairman of the Board Samuel B. Carr, Jr.
Treasurer Stanley R. Day, Jr.
Robert J. Phares
INVESTMENT MANAGER: CLEARWATER GROWTH FUND
Clearwater Management Co., Inc. SUBADVISOR:
332 Minnesota Street, Suite 2090 Sit Investment Associates, Inc.
St. Paul, MN 55101 4600 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4130
CUSTODIAN: CLEARWATER SMALL CAP FUND
Norwest Bank Minnesota, N.A. SUBADVISOR:
Norwest Center, Sixth Street Kennedy Capital Management
and Marquette Avenue 10829 Olive Boulevard
Minneapolis, MN 55479-0065 St. Louis, MO 63141-7739
COUNSEL FOR THE FUNDS: TRANSFER AGENT AND
Hale and Dorr LLP SHAREHOLDER SERVICES:
60 State Street Fiduciary Counselling, Inc.
Boston, MA 02109 332 Minnesota Street, Suite 2100
St. Paul, MN 55101-1394
(612) 228-0935
PROSPECTUS
April 30, 1997
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus dated April 30,1997 of Clearwater Growth Fund
(the "Growth Fund") and Clearwater Small Cap Fund, formerly named Clearwater
Value Fund (the "Small Cap Fund"). A copy of the Prospectus can be obtained free
of charge by calling Fiduciary Counselling, Inc. at 612-228-0935 or by written
request to Fiduciary Counselling, Inc. at 332 Minnesota Street, Suite 2100, St.
Paul, Minnesota 55101-1394 (Attention: Clearwater Investment Trust). The most
recent Annual Report to Shareholders of the Growth Fund and the Small Cap Fund
accompanies this Statement of Additional Information and is hereby incorporated
herein.
TABLE OF CONTENTS
Objectives, Investment Policies and Restrictions...................B-2
Management, Advisory and Other Services............................B-5
Executive Officers and Trustees....................................B-6
Determination of Net Asset Value Per Share.........................B-8
Brokerage..........................................................B-8
Taxes............................................................. B-8
Calculation of Performance Data....................................B-10
The Trust..........................................................B-10
Independent Public Accountants.....................................B-11
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
April 30, 1997
<PAGE>
OBJECTIVES, INVESTMENT POLICIES AND RESTRICTIONS
The Prospectus of the Growth Fund and the Small Cap Fund (each a "Fund") dated
April 30, 1997 identifies the investment objectives and the principal investment
policies of the Funds. Other investment policies of the Funds are set forth
below.
Covered Call Options. Each Fund may seek to augment its investment income by
writing (selling) covered call options on its portfolio securities. When a Fund
writes a covered call option on a security, it agrees to sell a particular
portfolio security (if the option is exercised) at a specified price on or
before a set date. A Fund may write (sell) covered call options in standard
contracts traded on national securities exchanges or those which may be traded
over-the-counter ("OTC") and quoted on a NASDAQ market, provided that the Fund
continues to own the securities covering each call until the call has been
exercised or has expired, or until the Fund has purchased a closing call to
offset its obligations to deliver securities pursuant to the call it has
written.
A Fund may not write covered call options on more than 25% of the market value
of any single portfolio security. In addition, neither Fund has a present
intention of writing covered call options on portfolio securities with an
aggregate market value exceeding 5% of the Fund's net assets. As the writer of a
call option, a Fund receives a premium less commission and, in exchange, forgoes
the opportunity to profit from increases in the market value of the security
covering the call above the sum of the premium and the exercise price of the
option during the life of the option. The purchaser of such a call has the
ability to purchase the security from the Fund's portfolio at the option price
at any time during the life of the option. Portfolio securities on which options
may be written are purchased solely on the basis of investment considerations
consistent with the Fund's investment objectives.
A Fund will purchase a call option only when entering into a "closing purchase
transaction," i.e., a purchase of a call option on the same security with the
same exercise price and expiration date as a covered call already written by the
Fund. There can be no assurance that a Fund will be able to effect such a
closing purchase transaction at a favorable price; if a Fund cannot enter into
such a transaction, it may be required to hold a security that it might
otherwise have sold. Each Fund's portfolio turnover may increase through the
exercise of options written by the Fund if the market prices of the underlying
securities go up and such Fund has not entered into a closing purchase
transaction. The commission on the purchase or sale of a call option is higher
in relation to the premium than the commission in relation to the price on
purchase or sale of the underlying security.
The staff of the Securities and Exchange Commission (the "SEC") has taken the
view that OTC options purchased by a Fund and the securities covering OTC
options written by a Fund are illiquid securities. Among the investment
restrictions adopted by each Fund is the restriction that such Fund may invest
no more than 15% of its net assets in illiquid securities, which include certain
restricted securities (i.e., securities that must be registered under the
Securities Act of 1933, as amended (the "1933 Act"), before they may be offered
or sold to the public), securities not readily marketable, repurchase agreements
maturing in more than seven days, OTC options purchased by such Fund and assets
covering OTC options written by such Fund.
GNMA Certificates. Each Fund currently intends to invest no more than 5% of its
net assets in certificates of the Government National Mortgage Association
("GNMA Certificates"). Each GNMA Certificate evidences an interest in a specific
pool of mortgages. Scheduled payments of principal and interest are "passed
through" to the registered holders of GNMA Certificates. Interest on GNMA
Certificates is paid monthly rather than semiannually as for traditional bonds.
The full faith and credit of the United States Government is pledged to the
timely payment of principal and interest due on GNMA Certificates.
The average life of pools of mortgages underlying GNMA Certificates varies with
the maturities of the underlying mortgage instruments. In addition, a pool's
term may be shortened by unscheduled or early payments of principal and interest
on the underlying mortgages. The occurrence of mortgage prepayments is affected
by factors including the level of market interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. Because prepayment rates vary widely, it is not possible
to accurately predict the average life of a particular pool.
B-2
<PAGE>
However, statistics indicate that the average life of the type of mortgages
backing the majority of GNMA Certificates is approximately 12 years. For this
reason, it is standard practice to treat GNMA Certificates as 30 year
mortgage-backed securities which prepay fully in the twelfth year. Pools of
mortgages with other maturities or different characteristics will have varying
assumptions for average life. The assumed average life of pools of mortgages
having terms of less than 30 years is less than 12 years, but typically not less
than 5 years.
Yields on mortgage pass-through securities, such as GNMA Certificates, are
typically quoted by investment dealers on the basis of the maturity of the
underlying mortgages and the associated average life assumption. The actual
yield of a GNMA Certificate is influenced by the prepayment experience of the
underlying mortgage pool. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgages. Conversely, in periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Reinvestment by a Fund of prepayments may occur at higher or lower
interest rates than the original investment. Historically, actual average life
has been consistent with the 12-year assumption referred to above.
Repurchase Agreements. In order to earn income for periods as short as
overnight, each Fund may enter into repurchase agreements with commercial and
investment banks that furnish collateral at least equal in value or market price
to the amount of their repurchase obligations. However, each Fund currently does
not intend to enter into repurchase agreements with respect to more than 5% of
its net assets. Under a repurchase agreement, a Fund acquires a money market
instrument (generally a U.S. Government Security) which is subject to resale by
the Fund on a specified date (within one week) at a specified price (which price
reflects an agreed-upon interest rate effective for the period of time the Fund
holds the investment and is unrelated to the interest rate on the instrument).
If the other party or "seller" defaults on its repurchase obligation, a Fund
might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund in connection with
the related repurchase agreement are less than the repurchase price. In
addition, in such event, a Fund could suffer a loss of interest on or principal
of the security and could incur costs associated with delay and enforcement of
the repurchase agreement. Repurchase agreements entered into by a Fund will be
fully collateralized by obligations with a market value, monitored daily by the
portfolio manager, of not less than 100% of the obligation plus accrued
interest. Collateral will be held in a segregated, safekeeping account for the
benefit of the Fund. The staff of the SEC has taken the position that repurchase
agreements of more than seven days' duration are illiquid securities.
Lending of Portfolio Securities. Each Fund may earn additional income by lending
portfolio securities to broker/dealers that are members of the New York Stock
Exchange and other financial institutions under agreements which require that
the loans be secured continuously by collateral in cash, cash equivalents or
United States Treasury Bills maintained on a current basis at an amount at least
equal to the market value of the securities loaned. However, each Fund currently
does not intend to make loans of portfolio securities that represent more than
5% of its net assets. A Fund will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and also will
receive compensation based on investment of the collateral. A Fund will not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but will attempt to call the loan in anticipation of an
important vote to be taken among holders of the securities or of an opportunity
to give or withhold consent on a material matter affecting the investment.
Lending portfolio securities involves risk of delay in recovery of the loaned
securities and in some cases loss of rights in the collateral should the
borrower fail financially. Loans of portfolio securities will be made only to
borrowers which have been approved in advance by the Trust's Board of Trustees.
The Board of Trustees will monitor the creditworthiness of such firms on a
continuing basis. At no time will the value of securities loaned by the Growth
Fund or the Small Cap Fund exceed 10% of the value of such Fund's total assets.
Investment Restrictions. Each Fund has adopted certain fundamental investment
restrictions which may not be changed without the affirmative vote of the
holders of a majority of that Fund's outstanding voting
B-3
<PAGE>
securities which, as used in the Prospectus and the Statement of Additional
Information, means approval of the lesser of (1) the holders of 67% or more of
the shares represented at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (2) the holders of more
than 50% of the outstanding shares.
A Fund may not:
(1) invest more than 5% of its assets in commodities or commodity
contracts, except that each Fund may invest without regard to the
5% limitation in interest rate futures contracts, options on
securities, securities indices, currency and other financial
instruments, futures contracts on securities, securities indices,
currency and other financial instruments, options on such futures
contracts, forward commitments, securities index put and call
warrants and repurchase agreements entered into in accordance with
the Fund's investment policies;
(2) underwrite any issue of securities;
(3) make loans in an aggregate amount in excess of 10% of the value
of the Fund's total assets, taken at the time any loan is made;
provided, that (i) the purchase of debt securities pursuant to
such Fund's investment objectives shall not be deemed loans for
the purposes of this restriction, (ii) loans of portfolio
securities from time to time as described in the then effective
Prospectus and/or Statement of Additional Information of the
Funds shall be made only in accordance with the terms and
conditions therein set forth and (iii) in seeking a return on
temporarily available cash, the Fund may engage in repurchase
transactions maturing in one week or less and involving
obligations of the U.S. Government, its agencies or
instrumentalities (i.e., U.S. Government Securities);
(4) sell securities short, except to the extent that the Fund
contemporaneously owns or has the right to acquire at no
additional cost securities identical to those sold short;
(5) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio
transactions;
(6) borrow money, except that, as a temporary measure for
extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow up to 5% of the value of its total
assets at the time of the borrowing; or
(7) mortgage, pledge, or hypothecate any of its assets.
Each Fund has also adopted fundamental investment policies relating to industry
concentration and issuer diversification, which may not be changed without the
affirmative vote of the holders of a majority of that Fund's outstanding voting
securities. Specifically, neither Fund may invest more than 25% of its total
assets in securities of issuers in any one industry, except that this limitation
does not apply to obligations of the U.S. Government or any of its agencies or
instrumentalities (i.e., U.S. Government Securities). In addition, in order to
assure diversification, with respect to 75% of its total assets, neither Fund
may purchase any security (other than U.S. Government Securities) if,
immediately after and as a result of such purchase, (a) more than 5% of the
value of the Fund's total assets would be invested in securities of the issuer
or (b) the Fund would hold more than 10% of the voting securities of the issuer.
The following investment restrictions are designated as nonfundamental and may
be changed by the Trust's Board of Trustees without shareholder approval. A Fund
may not:
(1) buy or sell real estate in the ordinary course of its business;
provided, however, that the Fund may (i) invest in readily
marketable debt securities secured by real estate or interests
therein or issued by companies, including real estate investment
trusts, which invest in real estate or interests therein and (ii)
hold and sell real estate acquired as the result of its ownership
of securities;
(2) invest in companies for the purpose of exercising control or
management; or
(3) purchase any security, including any repurchase agreement maturing
in more than seven days, which is not readily marketable, if more
than 15% of the net assets of the Fund, taken at market value,
would be invested in such securities. (The staff of the Securities
and Exchange
B-4
<PAGE>
Commission considers over-the-counter options to be illiquid
securities subject to the 15% limit);
MANAGEMENT, ADVISORY AND OTHER SERVICES
Clearwater Management Co., Inc. Clearwater Investment Trust (the "Trust") has
contracted with Clearwater Management Co., Inc. (the "Manager"), 332 Minnesota
Street, Suite 2090, St. Paul, Minnesota, to act as manager of the Trust. The
current term of the Management Contract between the Trust and the Manager (the
"Management Contract") ends on December 31, 1997, and it is renewable annually.
Under the terms of the Management Contract, the Manager supervises all of the
Trust's business operations and is responsible for formulating and implementing
investment strategies for the Funds. The Manager performs all administrative and
other management functions necessary to the supervision and conduct of the
affairs of the Funds.
Pursuant to the Management Contract, the Manager pays for office space and
equipment, clerical, secretarial and administrative services and executive and
other personnel as are necessary to fulfill its responsibilities and all other
ordinary operating expenses related to its services for the Trust, including
executive salaries of the Trust. Pursuant to the Management Contract, the
Manager also pays all of the Funds' other expenses, except brokerage, taxes,
interest and extraordinary expenses.
As compensation for its management services and expenses assumed, the Manager
receives a management fee at the annual rate of 1.10% and 1.35% of the net
assets of the Growth Fund and the Small Cap Fund, respectively. The Manager's
fees are calculated and accrued monthly as a percentage of each Fund's month-end
net assets, and are paid quarterly. During the three years ended December 31,
1994, 1995 and 1996, the total dollar amounts paid to the Manager by the Growth
Fund were $672,955, $831,562 and $977,321, respectively. The net assets of
Growth Fund at December 31, 1996 were $93,922,148. During the three years ended
December 31, 1994, 1995 and 1996 the total dollar amounts paid to the Manager by
the Small Cap Fund were $198,417, $312,702 and $392,202, respectively. The net
assets of the Small Cap Fund at December 31, 1996 were $32,773,532.
Subadvisory Contracts. Under the terms of the Management Contract, the Manager
is authorized to enter into Subadvisory contracts with one or more investment
advisers which will have responsibility for rendering investment advice to all
or a portion of the Funds' portfolios.
As described in the Prospectus, the Trust, on behalf of the Growth Fund, the
Manager and SIT Investment Associates, Inc. ("SIT") have entered into a
Subadvisory Contract, whereby SIT develops, recommends and implements an
investment program and strategy for the Growth Fund, subject to approval of the
Board of Trustees. Fees payable to SIT are calculated and accrued monthly on the
basis of month-end net assets, and are paid quarterly by the Manager according
to the following schedule:
Percent Net Assets
0.75% Up to $10 million
0.70% More than $10 million, up to $20 million
0.65% More than $20 million, up to $30 million
0.60% More than $30 million, up to $40 million
0.55% More than $40 million, up to $50 million
0.50% More than $50 million, up to $60 million
0.45% More than $60 million, up to $70 million
0.40% More than $70 million, up to $80 million
0.35% More than $80 million
The Growth Fund is not responsible for payment of the Subadvisory fees to SIT.
During the three years ended December 31, 1994, 1995 and 1996, the Manager paid
Subadvisory fees of $406,149, $451,103 and $507,628, respectively, to SIT.
B-5
<PAGE>
The Trust, on behalf of the Small Cap Fund, the Manager and Kennedy Capital
Management ("KCM") have entered into a Subadvisory Contract, whereby KCM
develops, recommends and implements an investment program and strategy for the
Small Cap Fund, subject to approval of the Board of Trustees. Fees payable to
KCM are calculated and accrued monthly on the basis of month-end net assets, and
are paid quarterly by the Manager according to the following schedule:
Percent Net Assets
1.00% Up to $30 million
0.90% More than $30 million, up to $50 million
0.80% More than $50 million
The Small Cap Fund is not responsible for payment of the Subadvisory fees to
KCM. During the years ended December 31, 1994, 1995 and 1996, the Manager paid
Subadvisory fees of $155,498, $235,243 and $298,894, respectively to KCM.
Other Provisions of the Contracts. Any amendment to the Management Contract or
either of the Subadvisory Contracts requires approval by vote of (a) a majority
of the outstanding voting securities of the affected Fund and (b) a majority of
the Trustees who are not interested persons of the Trust or of any other party
to such Contract. Each Contract terminates automatically in the event of its
assignment and the Subadvisory Contracts terminate automatically upon
termination of the Management Contract. Also, each Contract may be terminated by
not more than 60 days nor less than 30 days' written notice by either the Trust
or the Manager or upon not less than 120 days' notice by the Subadviser. Each
Contract provides that the Manager or the Subadviser shall not be liable to the
Trust, to any shareholder of the Trust, or to any other person, except for loss
resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
Subject to the above-described termination provisions, each Contract will
continue in effect until December 31, 1997, and will continue in effect
thereafter if such continuance is approved at least annually by (a) a majority
of the Trustees who are not interested persons of the Trust or of any other
party to such Contract and (b) either (i) a majority of all of the Trustees of
the Trust or (ii) by vote of a majority of the outstanding voting securities of
the affected Funds.
EXECUTIVE OFFICERS AND TRUSTEES
The Trustees and executive officers of the Trust are listed below, together with
their principal occupations during the past five years and their ages and
addresses.
Frederick T. Weyerhaeuser* (65), Trustee
Chairman and Treasurer of the Trust
Chairman, Clearwater Management Co., Inc. (1987/1996)
Director, Potlatch Corporation, a forest products company (1960/present)
Trustee, The Minnesota Mutual Life Insurance Company (1968/present)
Director, Weeden Securities Corporation (1987/present)
332 Minnesota Street, Suite 2090
St. Paul, Minnesota 55101
B-6
<PAGE>
Samuel B. Carr, Jr. (41), Trustee
President and Chief Investment Officer, S. B. Carr Investments, Inc.
(1990/present)
124 Auburn Street, Suite 200 North
Cambridge, Massachusetts 02138-5700
Stanley R. Day, Jr. (38), Trustee
President and Director, SRAM Corporation, (1987/present)
361 West Chestnut Street
Chicago, Illinois 60611
Robert J. Phares (33), Trustee
Chief Executive Officer, Battle Ridge Ranch Company, (1986/present)
Route One, Box 258
Wilsall, Montana 59086
Daniel C. Titcomb (43), Vice President and Secretary
President and Director, Research Engineering and Design, Inc., (1994/Present)
President and Director, Titcomb Associates, Inc., (1987/1994)
332 Minnesota Street, Suite 2090
St. Paul, Minnesota 55101
The business address of all officers of the Trust is 332 Minnesota Street,Suite
2090, St. Paul, Minnesota 55101.
As of April 1, 1997, all of the Trustees and officers of the Trust, as a group,
owned of record 1.34% of the outstanding shares of the Growth Fund and 6.78% of
the outstanding shares of the Small Cap Fund.
- ------------------------
*Mr. Frederick T. Weyerhaeuser is an "interested person" (as defined in the
Investment Company Act of 1940, as amended) of the Trust.
Compensation of Trustees and Officers
The Trust pays no salaries or compensation to any of its officers. Pursuant to
the Management Contract, the Manager pays each of the Trustees an annual fee of
$2,000, plus $500 per meeting attended; expenses incurred by Trustees in
attending meetings are reimbursed. Such fees and expenses are reimbursed by the
Manager to the Trust under the Management Contract.
B-7
<PAGE>
The following table sets forth the amounts of compensation received by each
Trustee from the Manager during the fiscal year ended December 31, 1996:
Compensation With Respect
Name of Trustees to Trust/Complex
Frederick T. Weyerhaeuser $ 4,000
Samuel B. Carr, Jr. $ 4,000
Stanley R. Day, Jr. $ 4,000
Robert J. Phares $ 4,000
---------------- --------
Total $16,000
DETERMINATION OF NET ASSET VALUE PER SHARE
The net asset value per share of each Fund is determined as of the close of
regular trading on the New York Stock Exchange on each day that the Exchange is
open for trading if such determination is then required to properly process a
purchase order, redemption request or exchange request for shares of such Fund.
The New York Stock Exchange is closed on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
BROKERAGE
Decisions relating to the purchase and sale of portfolio securities for each
Fund, the allocation of portfolio transactions and, where applicable, the
negotiation of commission rates or transaction costs are made by the respective
portfolio Subadvisers. It is the primary consideration in all portfolio
transactions to seek the most favorable price and execution and to deal directly
with principal market makers in over-the-counter transactions except when, in
the opinion of such subadviser, an equal or better market exists elsewhere.
The determination of what may constitute best price and execution by a
broker-dealer in effecting a securities transaction involves a number of
considerations (some of which are subjective), including, without limitation,
the overall net economic result to the portfolio (involving price paid or
received, any commissions and other costs paid) and the efficiency with which
the transaction is effected, the ability to effect the transaction at all where
a large block is involved, availability of the broker to stand ready to execute
possibly difficult transactions in the future and the financial strength and
stability of the broker. Because of such factors, a broker-dealer effecting a
transaction may be paid a commission higher than that charged by another
broker-dealer. As permitted by Section 28(e) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and subject to such policies as the Trustees
may adopt, each Fund may pay an unaffiliated broker or dealer that provides
"brokerage and research services" (as defined in the 1934 Act) an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the applicable portfolio subadviser determines in good faith
that the amount of commissions charged by the broker is reasonable in relation
to the value of the brokerage and research services provided by such broker. The
Subadvisers of the Funds have advised the Manager that neither of them has paid
any such excess in connection with brokerage transactions for the Funds.
Nevertheless, the Subadvisers have received brokerage and research services
consisting of written research reports, access to investment analysis and
information services and related electronic components, all of which may be used
for any of their respective clients.
During the three years ended December 31, 1994, 1995 and 1996, the Growth Fund
paid brokerage commissions in the amounts of $131,135, $133,636 and $156,583
respectively. During the three years ended December 31, 1994, 1995 and 1996, the
Small Cap Fund paid brokerage commissions in the amounts of $81,297, $64,979 and
$94,093 respectively.
B-8
<PAGE>
During the three years ended December 31, 1994, 1995 and 1996, (i) the Growth
Fund paid brokerage commissions of $1,100.00 (0.84% of brokerage commissions
paid), $770.00 (0.58% of brokerage commissions paid) and $495.00 (0.32% of
brokerage commissions paid), respectively, and (ii) the Small Cap Fund paid no
brokerage commissions to Weeden & Co, LP. One of the Funds' Trustees is also a
director of Weeden Securities Corporation, the general partner of Weeden & Co,
LP.
TAXES
Under the Internal Revenue Code of 1986, as amended (the "Tax Code"), each Fund
is treated as a separate taxpayer for federal income tax purposes. The Funds do
not expect to incur other than nominal state income tax liability in 1997.
For purposes of the 70% dividends-received deduction available to corporations,
dividends received by either Fund, if any, from U.S. domestic corporations in
respect of any share of stock with a tax holding period of at least 46 days (91
days in the case of certain preferred stock) in an unleveraged position and
distributed and properly designated by the Fund may be treated as qualifying
dividends. Any corporate shareholder should consult its tax advisor regarding
the possibility that its tax basis in its shares may be reduced, for Federal
income tax purposes, by reason of "extraordinary dividends" received with
respect to the shares. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days), taking into account any holding
period reductions from certain hedging or other positions that diminish risk of
loss, with respect to their Fund shares in order to qualify for the deduction
and, if they borrow to acquire Fund shares, may be denied a portion of the
dividends-received deduction. The entire qualifying dividend, including the
otherwise deductible amount, will be included in determining the excess (if any)
of a corporation's adjusted current earnings over its alternative minimum
taxable income, which may increase a corporation's alternative minimum tax
liability.
Under the Tax Code, each of the Funds will be subject to a nondeductible 4%
excise tax on all or a portion of its undistributed ordinary income and capital
gain if it fails to meet certain distribution requirements by the end of each
calendar year.
Foreign exchange gains and losses realized by a Fund in connection with certain
transactions involving foreign currency denominated debt securities, forward
foreign currency contracts (if any), foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders.
If either Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. A Fund would not
be able to pass through to its shareholders any credit or deduction for such a
tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash.
Investment by a Fund in zero coupon, stripped or certain other securities with
original issue discount or market discount (if the Fund elects to include market
discount in income on a current basis) or in certain options that are subject to
mark-to-market rules could require the Fund to recognize income or gain prior to
the receipt of cash and hence require it to liquidate investments in order to
generate cash for distributions required by the Tax Code with respect to such
income or gain. Management of the Funds will consider these potential adverse
tax consequences in evaluating the appropriateness of these investments.
A Fund's transactions involving options will be subject to special tax rules,
the effect of which may be to accelerate the Fund's recognition of income, defer
Fund losses, cause adjustments in the holding periods
B-9
<PAGE>
of securities or otherwise affect the treatment as long-term or short-term of
certain capital gains or losses. These rules could therefore affect the amount,
timing and character of distributions to shareholders and could increase the
amount of gains realized from the disposition of securities and other
investments treated as held for less than three months, which must be less than
30% of a Fund's gross income in any taxable year in order for the Fund to
qualify as a regulated investment company for that year.
All or a portion of a loss realized on a redemption of shares may be disallowed
or recharacterized under tax rules relating to wash sales or redemptions of
shares held for six months or less.
Shareholders who are not U.S. persons, as defined in the Prospectus, are subject
to different tax rules, including a possible U.S. withholding tax at rates up to
30% on certain dividends treated as ordinary income, and should consult their
tax advisers for information on the application of these rules to their
particular situations.
CALCULATION OF PERFORMANCE DATA
The Funds' average annual total return quotations, as they may appear in the
Prospectus, this Statement of Additional Information or in advertising and sales
material, are calculated by standard methods prescribed by the SEC.
Average annual total return quotations are computed by finding the average
annual compounded rates of return that would cause a hypothetical investment
made on the first day of a designated period (assuming all dividends and
distributions are reinvested) to equal the ending redeemable value of such
hypothetical investment on the last day of the designated period in accordance
with the following formula:
P (1 + T) n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1000 payment made at the
beginning of a designated period at the
end of the designated period (or
fractional portion thereof)
For purposes of the above computation, it is assumed that all dividends and
distributions made by the Funds are reinvested at net asset value during the
designated period. The average annual total return quotation is determined to
the nearest 1/100 of 1%.
In determining the average annual total return (calculated as provided above) of
each Fund, recurring fees, if any, that are charged to all shareholder accounts
are taken into consideration. For any account fees that vary with the size of
the account, the account fees used for purposes of the above computation are
assumed to be the fees that would be charged to the mean account size of such
Fund.
The average annual total return of the Growth Fund for the year ended December
31, 1996, for the five years ended December 31, 1996 and for the period since
the Growth Fund commenced operations on June 19, 1987 through December 31, 1996
were 21.6%, 11.7% and 11.6% respectively. The average annual total return for
the Small Cap Fund for the year ended December 31, 1996, for the five years
ended December 31, 1996 and for the period since the Small Cap Fund commenced
operations on January 31, 1989 through December 31, 1996 were 15.0%, 10.4% and
9.9%, respectively. The foregoing average annual total return figures were
determined based on expenses in effect for the Funds during the covered periods.
B-10
<PAGE>
THE TRUST
As a Massachusetts business trust, the Trust's operations are governed by its
Declaration of Trust dated January 12, 1987 (the "Declaration of Trust"), a copy
of which is on file with the office of the Secretary of State of The
Commonwealth of Massachusetts. Unless otherwise required by the Investment
Company Act of 1940, as amended, ordinarily it will not be necessary for the
Trust to hold annual meetings of shareholders. As a result, shareholders may not
consider the election of Trustees or the appointment of independent accountants
for the Trust on an annual basis. The Board of Trustees, however, will call a
special meeting of shareholders for the purpose of electing Trustees if, at any
time, less than a majority of Trustees holding office at the time were elected
by shareholders. Shareholders may remove a Trustee by the affirmative vote of at
least two-thirds of the Trust's outstanding shares and the Trustees must
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the outstanding shares of the Trust.
Under certain circumstances, shareholders may communicate with other
shareholders in connection with requesting a special meeting of shareholders.
Under Massachusetts law, shareholders of a Massachusetts business trust may,
under certain circumstances, be held personally liable for the obligations of
such trust. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or its Trustees. Moreover, the Declaration
of Trust provides for the indemnification out of Trust property of any
shareholders held personally liable for any 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. Thus, the risk of a shareholder
incurring financial loss beyond his or her investment because of shareholder
liability would be limited to circumstances in which the Trust itself would be
unable to meet its obligations. In light of the nature of the Trust's business
and the nature and amount of its assets, the possibility of the Trust's
liabilities exceeding its assets, and therefore a shareholder's risk of personal
liability, is extremely remote.
The Declaration of Trust further provides that the Trust shall indemnify each of
its Trustees and officers against liabilities and expenses reasonably incurred
by them, in connection with, or arising out of, any action, suit or proceeding,
threatened against or otherwise involving such Trustee or officer, directly or
indirectly, by reason of being or having been a Trustee or officer of the Trust.
The Declaration of Trust does not authorize the Trust to indemnify any Trustee
or officer against any liability to which he or she would otherwise be subject
by reason of or for willful misfeasance, bad faith, gross negligence or reckless
disregard of such person's duties.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP serves as independent public accountants to the Trust. In
this capacity, KPMG Peat Marwick LLP audits and renders an opinion on the Funds'
financial statements.
B-11
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
332 Minnesota Street
St. Paul, MN 55101
EXECUTIVE OFFICERS: TRUSTEES:
Frederick T. Weyerhaeuser Frederick T. Weyerhaeuser
Chairman of the Board Samuel B. Carr, Jr.
Treasurer Stanley R. Day, Jr.
Robert J. Phares
INVESTMENT MANAGER: CLEARWATER GROWTH FUND
Clearwater Management Co., Inc. SUBADVISOR:
332 Minnesota Street, Suite 2090 Sit Investment Associates, Inc.
St. Paul, MN 55101 4600 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4130
CUSTODIAN: CLEARWATER SMALL CAP FUND
Norwest Bank Minnesota, N.A. SUBADVISOR:
Norwest Center, Sixth Street Kennedy Capital Management
and Marquette Avenue 10829 Olive Boulevard
Minneapolis, MN 55479-0065 St. Louis, MO 63141-7739
COUNSEL FOR THE FUNDS: TRANSFER AGENT AND
Hale and Dorr LLP SHAREHOLDER SERVICES:
60 State Street Fiduciary Counselling, Inc.
Boston, MA 02109 332 Minnesota Street, Suite 2100
St. Paul, MN 55101-1394
(612) 228-0935
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1997
B-12
<PAGE>
CLEARWATER INVESTMENT TRUST
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights for Clearwater Growth Fund for the period from
inception (June 19, 1987) to 1996.
Financial Highlights for Clearwater Small Cap Fund for the period from
inception (January 31, 1989) to 1996.
Included in Part B:
Incorporated by reference to the annual report of the Funds, dated
December 31, 1996, filed electronically pursuant to Section 30(b)(2) of
the Investment Company Act of 1940 (Accession No.
0000811161-97-000002)
For Clearwater Growth Fund and Clearwater Small Cap Fund:
Portfolio of Investments, December 31, 1996 Statement of Assets and
Liabilities, December 31, 1996 Statement of Operations for the year
ended December 31, 1996 Statement of Changes in Net Assets for each of
the two years in the period ended December 31, 1996 Financial
Highlights for the years ended December 31, 1996 Notes to Financial
Statements Independent Auditors' Report
(b) Exhibits:
1. Declaration of Trust dated January 12, 1987*
1.1 Amendment to Declaration of Trust dated March 25, 1994*
2. By-Laws*
3. None
C-1
<PAGE>
4. None
5.1 Management Contract dated May 1, 1994*
5.2 Subadvisory Contract for Clearwater Growth Fund dated May 1,1994*
5.3 Subadvisory Contract for Clearwater Small Cap Fund dated May 1,
1994*
6. None
7. None
8. Custodian Agreement dated March 31, 1987*
8.1 Amendment to Custodian Agreement dated March 27, 1991*
8.2 Amendment to Custodian Agreement dated November 4, 1992*
9. Investment Company Service Agreement dated March 2, 1987*
9.1 Amendment to Investment Company Service Agreement dated May 1,
1995*
9.2 Accounting Services Agreement dated April 3, 1995*
10. None
11. Consent of Independent Accountants+
12. None
13. Stock Purchase Agreement dated February 19, 1987*
14. None
15. None
C-2
<PAGE>
16.1 Computations of Average Annual Total Return of Clearwater Growth
Fund*
16.2 Computations of Average Annual Total Return of Clearwater Small
Cap Fund*
17.1 Financial Data Schedule - Clearwater Growth Fund+
17.2 Financial Data Schedule - Clearwater Small Cap Fund+
18. None
19. Powers of Attorney*
------------
+ Filed herewith
* Previously filed as exhibits to post-effective amendment no. 10 to
the Registration Statement on April 29, 1996 and incorporated
herein by reference (File No. 33-12289).
Item 25. Persons Controlled by or Under
Common Control with Registrant
The Registrant is not directly or indirectly controlled by or under
common control with any other person.
Item 26. Number of Holders of Securities
The following sets forth the approximate number of record holders
of each series of securities of the Registrant as of April 1, 1997:
Title of Class Number of Record Holders
Clearwater Growth Fund 316
Clearwater Small Cap Fund 195
C-3
<PAGE>
Item 27. Indemnification
Except for the Declaration of Trust, dated January 12, 1987,
establishing the Registrant as a trust under Massachusetts law, there is no
contract, arrangement or statute under which any director, officer, underwriter
or affiliated person of the Registrant is insured or indemnified. The
Declaration of Trust provides that no Trustee or officer will be indemnified
against any liability to which the Registrant would otherwise be subject by
reason of or for willful misfeasance, bad faith, gross negligence or reckless
disregard of such person's duties. See the Registrant's undertaking with respect
to indemnification in Item 32 below.
Item 28. Business and Other Connections of Investment Adviser
All of the information required by this item is set forth in the
Forms ADV, as amended, of the Manager and the Subadvisers. The following
sections of such Forms ADV are incorporated herein by reference:
(a) Items 6 and 8 of Part II;
(b) Section 6, Business Background, of each Schedule D.
Item 29. Principal Underwriter
Not applicable
Item 30. Location of Accounts and Records
The accounts, books, and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are in the possession of Fiduciary Counselling, Inc., 332 Minnesota
Street, Suite 2100, St. Paul, Minnesota 55101-1394.
Item 31. Management Services
The Registrant is a party to three contracts, described in the
Prospectus and Statement of Additional Information, under which it receives
management services from Clearwater Management Co., Inc. and advisory services
from SIT Investment Associates, Inc. and Kennedy Capital Management.
C-4
<PAGE>
Item 32. Undertaking
The Registrant undertakes (i) to call special meetings of any
series upon the written request of shareholders owning at least one-fourth of
the outstanding shares entitled to vote thereat and (ii) to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940 with respect
to providing its shareholders access to the list of shareholders of record of
the Registrant or the mailing of materials to such shareholders of record
whenever ten or more shareholders meeting the qualifications set forth in
Section 16(c) of the Investment Company Act of 1940 seek the opportunity of
furnishing materials to the other shareholders with a view to obtaining
signatures on a request for a special meeting.
The Registrant hereby undertakes to deliver or cause to be
delivered with the Statement of Additional Information, to each person to whom
the Statement of Additional Information is sent or given, a copy of the
Registrant's report to shareholders furnished pursuant to and meeting the
requirements of Rule 30d-1 from which the specified information is incorporated
by reference, unless such person currently holds securities of the Registrant
and otherwise has received a copy of such report, in which case the Registrant
shall state in the Statement of Additional Information that it will furnish,
without charge, a copy of such report on request, and the name, address and
telephone number of the person to whom such a request should be directed.
The Registrant further undertakes to limit indemnification of
officers and Trustees to the extent set forth in its Declaration of Trust.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment No. 11 to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 11 to such Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Paul and the State of Minnesota, on the 25th day
of April, 1997.
CLEARWATER INVESTMENT TRUST
By: /s/ Frederick T. Weyerhaeuser
Frederick T. Weyerhaeuser
Chairman and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 11 to the Registration Statement of Clearwater
Investment Trust has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Date
PRINCIPAL EXECUTIVE, FINANCIAL
AND ACCOUNTING OFFICER:
/s/ Frederick T. Wyerhaeuser April 25, 1997
- ------------------------------------
Frederick T. Weyerhaeuser
Chairman and Treasurer
THE BOARD OF TRUSTEES:
/s/Samuel B. Carr, Jr*
Samuel B. Carr, Jr.
/s/Stanley R. Day, Jr.*
Stanley R. Day, Jr.
/s/Robert J. Phares*
Robert J. Phares
*By:/s/ Frederick T. Weyerhaeuser April 25, 1997
-----------------------------
Frederick T. Weyerhaeuser
Power-of-Attorney
C-6
<PAGE>
Exhibit Index
Exhibit
Number
11. Consent of Independent Accountants
17.1 Financial Data Schedule - Clearwater Growth Fund
17.2 Financial Data Schedule - Clearwater Small Cap Fund
C-7
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
Clearwater Investment Trust:
We consent to the use of our report incorporated by reference herein and to the
reference to our Firm under the heading "INDEPENDENT PUBLIC ACCOUNTANTS" in Part
B of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 28, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> CLEARWATER GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 59,084,186
<INVESTMENTS-AT-VALUE> 94,082,376
<RECEIVABLES> 19,496
<ASSETS-OTHER> 107,754
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,209,626
<PAYABLE-FOR-SECURITIES> 25,282
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 261,636
<TOTAL-LIABILITIES> 287,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,866,357
<SHARES-COMMON-STOCK> 5,252,780
<SHARES-COMMON-PRIOR> 4,983,002
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 57,601
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,998,190
<NET-ASSETS> 93,922,148
<DIVIDEND-INCOME> 688,403
<INTEREST-INCOME> 232,931
<OTHER-INCOME> 0
<EXPENSES-NET> 988,180
<NET-INVESTMENT-INCOME> (66,846)
<REALIZED-GAINS-CURRENT> 13,625,055
<APPREC-INCREASE-CURRENT> 4,478,299
<NET-CHANGE-FROM-OPS> 18,103,354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 13,567,454
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 500
<NUMBER-OF-SHARES-REDEEMED> 137,983
<SHARES-REINVESTED> 407,261
<NET-CHANGE-IN-ASSETS> 9,147,483
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 27,712
<OVERDISTRIB-NII-PRIOR> 2,342
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 977,321
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 988,180
<AVERAGE-NET-ASSETS> 91,833,219
<PER-SHARE-NAV-BEGIN> 17.01
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 3.68
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.80
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.88
<EXPENSE-RATIO> 1.077
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMANTION
EXTRACTED FROM THE 1996 ANNUAL REPORT TO SHAREHOLDERS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> CLEARWATER SMALL CAP FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 27,601,784
<INVESTMENTS-AT-VALUE> 32,755,534
<RECEIVABLES> 188,524
<ASSETS-OTHER> 14,201
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,989,398
<PAYABLE-FOR-SECURITIES> 112,476
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,390
<TOTAL-LIABILITIES> 215,866
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,619,782
<SHARES-COMMON-STOCK> 2,571,795
<SHARES-COMMON-PRIOR> 2,338,666
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 18,195
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,153,750
<NET-ASSETS> 32,773,532
<DIVIDEND-INCOME> 343,155
<INTEREST-INCOME> 63,759
<OTHER-INCOME> 0
<EXPENSES-NET> 405,450
<NET-INVESTMENT-INCOME> 1,464
<REALIZED-GAINS-CURRENT> 1,056,580
<APPREC-INCREASE-CURRENT> 3,060,523
<NET-CHANGE-FROM-OPS> 4,118,567
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,953
<DISTRIBUTIONS-OF-GAINS> 1,059,022
<DISTRIBUTIONS-OTHER> 36,781
<NUMBER-OF-SHARES-SOLD> 171,783
<NUMBER-OF-SHARES-REDEEMED> 2,467
<SHARES-REINVESTED> 63,812
<NET-CHANGE-IN-ASSETS> 5,947,999
<ACCUMULATED-NII-PRIOR> 1,489
<ACCUMULATED-GAINS-PRIOR> 20,569
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 392,202
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 405,450
<AVERAGE-NET-ASSETS> 29,625,978
<PER-SHARE-NAV-BEGIN> 11.47
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.71
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .42
<RETURNS-OF-CAPITAL> .01
<PER-SHARE-NAV-END> 12.74
<EXPENSE-RATIO> 1.374
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
