As filed with the Securities and Exchange Commission on February 27, 1998
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. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 12 [X]
(Check appropriate box or boxes)
CLEARWATER INVESTMENT TRUST
(Exact name of registrant as specified in charter)
2100 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, 1998, pursuant to paragraph (a)(1) of Rule 485
under the Securities Act
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<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
<TABLE>
<CAPTION>
Item Number in Part A Prospectus Caption
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Expense Information
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Cover Page; What Are the Funds'
Investment Objectives and Important
Policies?; Other Information
5. Management of the Fund..................................... How Are the Funds Managed?
6. Capital Stock and Other Securities......................... What Are the Funds' Investment
Objectives and Important Policies?;
Dividends, Distribution and Taxation;
Other Information
7. Purchase of Securities Being Offered....................... How Are Shares Purchased?; Exchange of
Shares
8. Redemption or Repurchase................................... How Are Shares Redeemed?; Exchange of
Shares
9. Pending Legal Proceedings.................................. Not Applicable
-1-
<PAGE>
Item Number in Part B Statement of Additional Information
Caption
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... Cover Page
12. General Information and History............................ Cover Page; The Trust
13. Investment Objectives and Policies......................... Objectives, Investment Policies and
Restrictions
14. Management of the Fund..................................... Management, Advisory and Other
Services; Executive Officers and Trustee
15. Control Persons and Principal Holders
of Securities........................................... Management, Advisory and Other
Services; Executive Officers and Trustees
16. Investment Advisory and Other
Services................................................ Management, Advisory and Other
Services; Independent Public Accountants
17. Brokerage Allocation and Other
Practices............................................... Brokerage
18. Capital Stock and Other Securities......................... The Trust
19. Purchase, Redemption and Pricing of
Securities Being Offered ........................ Determination of Net Asset Value Per
Share
20. Tax Status................................................. Taxes
21. Underwriters............................................... None
22. Calculation of Performance Data............................ Calculation of Performance Data
23. Financial Statements....................................... Cover Page
</TABLE>
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<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
Prospectus - April 30, 1998
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. To achieve its
objectives, the Growth Fund will be passively managed to track the Russell 1000
Index (the "Index"). The Index is comprised of securities of the largest 1000
public companies in the United States equity markets and is capitalization
weighted. To achieve its objective the Small Cap Fund invests in a broad list of
carefully selected, reasonably priced securities, consisting primarily of common
stocks, preferred stocks and convertible and non-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, 1998, 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 NOR HAS THE SECURITIES AND EXCHANGE 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?..............................................12
How Are Shares Redeemed?...............................................13
Exchange of Shares.....................................................14
Dividends, Distributions and Taxation..................................14
Performance Data.......................................................16
Other Information......................................................16
Appendix--Description of Bond Ratings..................................18
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 based on
expenses for the fiscal year ended December 31, 1997, and restated to reflect
estimated annual operating expenses for 1998. 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):
1
Management Fees.............................................. 0.45% 1.35%
Other Fees and Expenses...................................... 0.00% 0.00%
Total Operating Expenses 0.45% 1.35%
1
As of November 1, 1997, the management fee payable to Clearwater Management
Co., Inc. by the Growth Fund was reduced from 1.10% to 0.45%
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..................................................... $ 5 $ 14
Three Years.................................................. $ 14 $ 43
Five Years................................................... $ 25 $ 74
Ten Years.................................................... $ 57 $ 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' 1997 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
Years ended December 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year 17.88 17.01 13.62 14.49 15.98 15.42 10.91 11.55 8.52 8.32
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income (loss) (0.01) (0.01) 0.01 0.06 0.09 0.11 0.14 0.16 0.13 0.12
Net realized and unrealized
gain (loss) 5.08 3.68 4.43 0.11 0.27 0.56 4.51 (0.64) 3.03 0.20
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Total from investment operations 5.07 3.67 4.44 0.17 0.36 0.67 4.65 (0.48) 3.16 0.32
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Less distributions:
Dividends from net investment
income 0.00 0.00 (0.01) (0.06) (0.09) (0.11) (0.14) (0.16) (0.13) (0.12)
Distributions from realized gains (1.78) (2.80) (1.04) (0.98) (1.76) 0.00 0.00 0.00 0.00 0.00
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Total Distributions (1.78) (2.80) (1.05) (1.04) (1.85) (0.11) (0.14) (0.16) (0.13) (0.12)
Net asset value, end of year 21.17 17.88 17.01 13.62 14.49 15.98 15.42 10.91 11.55 8.52
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 28.4% 21.6% 32.6% 1.2% 2.2% 4.4% 42.8% -4.1% 37.2% 3.8%
Net assets, end of period
(000's omitted) $106,859 93,922 84,775 65,999 61,037 67,554 65,818 42,407 42,458 30,200
Ratio of expenses to average
net assets (b) 0.98% 1.08% 1.08% 1.07% 1.08% 1.10% 1.17% 1.23% 1.24% 1.38%
Ratio of net investment income
(loss) to average net assets -0.06% -0.07% 0.06% 0.39% 0.55% 0.74% 1.05% 1.45% 1.22% 1.38%
Average brokerage commission
rate (c) $0.0571 0.0547 n/a n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) 38.16% 75.90% 58.64% 70.69% 52.76% 32.08% 29.27% 36.19% 53.03% 70.20%
<FN>
Effective November 1, 1997, Parametric Portfolio Associates became the subadviser to the Growth 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 0.01%.
(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.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Clearwater Small Cap Fund
Eleven
Years end December 31, Months
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.74 11.47 9.89 12.26 11.50 11.30 9.37 10.16 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment Income (loss) (0.02) 0.00 0.04 0.17 0.17 0.29 0.37 0.43 0.36
Net realized and unrealized
gain (loss) 5.14 1.71 2.56 (0.99) 1.60 0.25 1.93 (0.79) 0.32
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.12 1.71 2.60 (0.82) 1.77 0.54 2.30 (0.36) 0.68
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income 0.00 0.00 (0.04) (0.17) (0.17) (0.29) (0.37) (0.43) (0.36)
Excess distributions from net
investment income 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from realized gains (2.62) (0.42) (0.98) (1.38) (0.84) (0.05) 0.00 0.00 (0.16)
Tax return of capital 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.62) (0.44) (1.02) (1.55) (1.01) (0.34) (0.37) (0.43) (0.52)
Net asset value, end of year $15.24 12.74 11.47 9.89 12.26 11.50 11.30 9.37 10.16
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 40.2% 15.0% 26.3% -6.7% 15.4% 4.9% 24.9% -3.6% 6.8%
Net assets, end of period
(000's omitted) $40,838 32,774 26,826 17,998 13,972 13,128 12,537 7,936 7,650
Ratio of expenses to average
net assets (b) (c) 1.35% 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 (c) -0.17% 0.00% 0.36% 1.61% 1.38% 2.54% 3.64% 4.37% 4.64%
Average brokerage commission
rate (d) $0.0503 0.0424 n/a n/a n/a n/a n/a n/a n/a
Portfolio turnover rate (excluding
short-term securities) 92.22% 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. 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) The ratios for the eleven month period ended December 31, 1989, are adjusted to an annual basis.
(d) 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 .
</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. To
achieve its objective, the Growth Fund will be passively managed to track the
Russell 1000 Index (the "Index"). The Index is comprised of securities of the
largest 1000 public companies in the United States equity markets and is
capitalization weighted. The Growth Fund attempts to track the investment
results of the Index by investing in all 1000 or a statistical sampling of the
common stocks that comprise the Index. Unlike other equity funds that seek to
outperform stock market averages, the Growth Fund seeks to track the Index to
provide a return that matches that of the benchmark. However, because the Growth
Fund is also managed to reduce tax liability to the Growth Fund's shareholders
and bears certain expenses not factored into the performance of the Index, the
Growth Fund will not track the performance of the Index perfectly. To the extent
the Growth Fund tracks the Index, the Growth Fund will not pursue opportunities
for total return by investing in companies that are not included in the Index.
Under normal circumstances, the Growth Fund will invest substantially all of its
assets in the common stocks of companies represented in the Index. The Growth
Fund may invest in certain short-term fixed income securities such as cash
equivalents, although cash and cash equivalents are normally expected to
represent less than 1% of the Growth Fund's total assets. The Growth Fund
intends to remain fully invested, to the extent practicable, in a pool of
securities which will duplicate the investment characteristics of the Index.
The Growth Fund may also utilize securities and securities index futures
contracts and options in order to invest uncommitted cash balances, to maintain
liquidity to meet shareholder redemptions, or to minimize trading costs. The
Growth Fund's use of futures and options will be limited by the Growth Fund's
avoidance of tax liability and its low turnover rate. The Growth Fund may engage
in short sales, purchase securities on a when-issued basis, may purchase or sell
securities on a delayed delivery basis, make loans of portfolio securities and
enter into repurchase agreements. See "Objectives, Investment Policies and
Restrictions" in the Statement of Additional Information.
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 Small Cap Fund
may also write (sell) covered call options with
6
<PAGE>
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.
* * * * * *
The investment objectives of the Growth Fund and the Small Cap Fund and the
investment policies described in the Prospectus and Statement of Additional
Information are non-fundamental and may be changed by the Trustees without
shareholder approval. Each Fund has adopted certain fundamental investment
restrictions that may not be changed without shareholder approval. See
"Objectives, Investment Policies and Restrictions" in the Statement of
Additional Information.
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
To reduce the potential for realization of capital gain from disposition of
portfolio securities, Parametric intends to gradually align the Growth Fund's
portfolio with the Index over a period of several years. Until the Growth Fund's
portfolio is aligned with the Index, the Growth Fund may continue to hold common
stocks, preferred stocks, fixed income securities and foreign securities in
amounts that do not match the weightings in the Index and be subject to the
risks of such securities.
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. The Small Cap Fund may invest in long-term fixed income
securities (with maturities exceeding ten years) and intermediate-term fixed
income securities (with maturities ranging from one to ten years) and each Fund
may invest in 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 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, the Small Cap 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 Small Cap Fund's portfolio Subadviser (i.e., investment grade). Fixed
income securities in
7
<PAGE>
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. The Small Cap Fund is
not required to dispose of securities whose ratings drop below investment grade,
but 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.
The Small Cap 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. To the extent that foreign securities are
represented in the Index, the Growth Fund may invest in these securities.
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 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. Although the payment when due of
interest and principal on U.S. Treasury 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. Parametric Portfolio Associates, the Growth Fund's
Subadviser, believes that a passive portfolio management strategy, combined with
tax management techniques, will provide the best opportunity for the optimal
level of after tax total return for the Growth Fund's
8
<PAGE>
shareholders. Passive portfolio management will limit the Growth Fund's
portfolio turnover rate to the lowest possible level. Low turnover improves the
opportunity for higher after-tax performance because realization of capital
gains can be deferred.
The Small Cap 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. A high rate of portfolio turnover (100% or more) involves
correspondingly greater transaction costs which must be borne by a Fund and its
shareholders. 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.
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 March 1, 1998 (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 0.45% and 1.35% of the
net assets of the Growth Fund and the Small Cap Fund, respectively. Prior to
November 1, 1997, the Manager received a management fee at an annual rate of
1.10% of the net assets of the Growth Fund. The Manager's fees are calculated
and accrued on a daily basis as a percentage of each Fund's daily 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, 1997 were 0.98% of the Growth Fund's net assets and 1.35% of the
Small Cap Fund's net assets, respectively.
9
<PAGE>
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. That
failure could have a negative impact on handling securities trades pricing and
account services. The Adviser and the Funds' service providers have taken steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to the computer systems that they use and expect that their systems will
be adapted in time for that event.
Parametric Portfolio Associates. In connection with the management of the Growth
Fund, the Trust, the Manager and Parametric Portfolio Associates ("Parametric ")
entered into a Subadvisory Contract dated November 1, 1997 (the "Growth
Subadvisory Contract"). Parametric was founded in 1987 as a global equity
manager and is a sub-partnership of PIMCO Advisors, L.P., a publicly traded
investment management organization. Parametric is located at 701 Fifth Avenue,
Suite 7310, Seattle, Washington 98104-7090. Parametric combines indexing with
tax management to increase the potential for higher after-tax return for taxable
investors.
Under the Growth Subadvisory Contract, Parametric 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. Parametric
is also responsible for making all portfolio and brokerage decisions. As
compensation, Parametric 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 annualized compensation paid to
Parametric with respect to the Growth Fund for the period from November 1, 1997
through December 31, 1997 was .15% of the Growth Fund's net assets. For the
period January 1, 1997 to October 31, 1997 Sit Investment Associates, Inc.
("Sit") served as the Subadviser to the Fund. The annualized compensation paid
to Sit with respect to the Growth Fund for the period January 1, 1997 to October
31, 1997, was .53% of the Growth Fund's net assets. Under the Growth Subadvisory
Contract, the Manager, and not the Growth Fund, is responsible for payment of
Subadvisory fees to Parametric. For more information on Parametric'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
10
<PAGE>
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, 1997 was 0.88% 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. David Stein, Managing Director and Chief Investment Officer of
Parametric, leads the investment, research and product development activities at
Parametric. In addition, Mr. Stein chairs Parametric's Investment Policy
Committee. Prior to joining Parametric in 1996, Mr. Stein held positions as
Director of Investment Research at GTE Investment Management (1995-1996);
Director of Active Equity Strategies at the Vanguard Group (1994-1995); and
Director of Quantitative Portfolio Management and Research at IBM Retirement
Funds (1977-1994).
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
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.
Investors Fiduciary Trust Company (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 801
Pennsylvania, Kansas City, Missouri 64105.
11
<PAGE>
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 after 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.
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.
12
<PAGE>
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 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.
13
<PAGE>
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.
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 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.
14
<PAGE>
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 capital gain, regardless of the shareholder's holding
period for the shares. These capital gain distributions are taxable at different
maximum federal tax rates (which will be indicated in the annual tax information
the Funds provide to shareholders) for individuals and other noncorporate
shareholders, depending generally upon the source of, and a Fund's holding
periods for the assets that produce, the gains. 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 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 subject to such withholding. Please refer to the Purchase
Order and Account Application for additional information.
Special tax rules apply to IRA or other retirement plans or accounts and to
other special classes of investors, such as tax-exempt organizations, banks and
insurance companies. You should consult with your own tax adviser regarding the
application of any such rules in your particular circumstances.
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 from or on the value of shares
of a Fund, depending on the laws of the shareholder's place of residence. For
further information on
15
<PAGE>
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, as amended and restated March 1, 1998 (the "Declaration of
Trust"). Under the Declaration of Trust, the Board of Trustees is authorized to
issue an unlimited number of shares of beneficial interest which may, without
shareholder approval, be divided into an unlimited number of 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.
16
<PAGE>
As of April 1, 1998, Mr. William T. Weyerhaeuser, 1145 Broadway, Suite 1500,
P.O. Box 1278, Tacoma, WA 98402, owned or had the power to vote more than 25% of
the shares of Clearwater Growth Fund. Such a holding may make it more difficult
for shareholders with smaller holdings to affect the outcome of a shareholder
vote.
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.
17
<PAGE>
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.
18
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
332 Minnesota Street, Suite 2100
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.
Philip W. Pascoe
Robert J. Phares
INVESTMENT MANAGER: CLEARWATER GROWTH FUND
Clearwater Management Co., Inc. SUBADVISOR:
332 Minnesota Street, Suite 2090 Parametric Portfolio Associates
St. Paul, MN 55101 701 Fifth Avenue, Suite 7310
Seattle, Washington 98104-7090
CUSTODIAN: CLEARWATER SMALL CAP FUND
Investors Fiduciary Trust Company SUBADVISOR:
801 Pennsylvania Kennedy Capital Management
Kansas City, MO 64105 10829 Olive Boulevard
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, 1998
19
<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 30,1998 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 incorporated herein.
TABLE OF CONTENTS
Objectives, Investment Policies and Restrictions.........B-5
Executive Officers and Trustees..........................B-6
Determination of Net Asset Value Per Share...............B-8
Brokerage................................................B-8
Taxes....................................................B-9
Calculation of Performance Data..........................B-10
The Trust................................................B-10
Independent Public Accountants...........................B-12
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, 1998
<PAGE>
OBJECTIVES, INVESTMENT POLICIES AND RESTRICTIONS
The Prospectus of the Growth Fund and the Small Cap Fund (each a "Fund"), dated
April 30, 1998, identifies the investment objectives and principal investment
policies of the Funds. Other policies of the Funds are set forth below.
Options on Securities and Securities Indices. The Growth Fund may write (sell)
covered call and put options and purchase call and put options on any securities
in which it may invest or on any securities index composed of securities in
which it may invest. The writing of options will be limited by the Growth Fund's
policy to have a low portfolio turnover rate.
The Small Cap 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 quotes in a NASDAQ market, provided that the Small
Cap Fund continues to own the securities covering each call until the call has
been exercised or has expired, or until the Small Cap Fund has purchased a
closing call to offset its obligations to deliver securities pursuant to the
call it has written.
Neither Fund may 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.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if the Subadviser is incorrect
in its expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Subadviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Subadviser is
incorrect in its expectation of changes in securities prices or determination of
the correlation between the securities indices on which options are written and
purchased and the securities in a Fund's investment portfolio, the investment
performance of the Fund will be less favorable than it would have been in the
absence of such options transactions.
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.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or to hedge against changes in interest rates, securities prices or
currency exchange rates, the Growth Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. The Growth Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities and securities indices. The Growth
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. The Growth Fund may not purchase or sell futures contracts or
purchase or sell related options to seek to increase total return, except for
closing purchase or sale transactions, if immediately thereafter the sum of the
amount of initial margin deposits and premiums paid on the Growth Fund's
outstanding positions in futures and related options entered into for the
purpose of seeking to increase total return would exceed 5% of the market value
of the Growth Fund's net assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating the
Growth Fund to purchase securities or currencies, require the Growth Fund to
segregate and maintain cash or liquid assets with a value equal to the amount of
the Growth Fund's obligations.
B-2
<PAGE>
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain risks. Thus, while
the Growth Fund may benefit from the use of futures and options on futures,
unanticipated changes in securities prices may result in poorer overall
performance than if the Growth Fund had not entered into any futures contracts
or options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and the Growth Fund may be
exposed to risk of loss. The loss incurred by the Growth Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets are
highly volatile and the use of futures may increase the volatility of the Growth
Fund's net asset value. The profitability of Growth Fund's trading in futures to
seek to increase total return depends upon the ability of the Subadviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price movement
in a futures contract may result in substantial losses to the Growth Fund.
Further, futures contracts and options on futures may be illiquid, and exchanges
may limit fluctuations in futures contract prices during a single day.
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 33% of the value of such Fund's total assets.
The Funds have no current intention to loan securities in excess of 5% of the
Funds' total assets.
Short Sales Against the Box. The Growth Fund may engage in short sales against
the box. In a short sale against the box, the Fund agrees to sell at a future
date a security that it either contemporaneously owns or has the right to
acquire at no extra cost. If the price of the security has declined at the time
the Fund is required to deliver the security, the Fund will benefit from the
difference in the price. If the price of the security has increased, the Fund
will be required to pay the difference.
B-3
<PAGE>
When-Issued Securities. The Growth Fund may purchase securities on a when-issued
basis and may purchase or sell securities on a delayed delivery basis. These
terms refer to securities that have been created and for which a market exists,
but which are not available for immediate delivery. There may be a risk of loss
to the Growth Fund if the value of the security declines prior to the settlement
date.
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 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 to any person except by (a) the acquisition of debt
securities and making portfolio investments, (b) entering into
repurchase agreements, or (c) lending portfolio securities;
(4) purchase securities on margin, except for short-term credit
necessary for clearance or portfolio transactions;
(5) borrow money or issue senio securities, excep as permitted by
the Investment Company Act of 1940;
(6) invest more than 25% of its total assets in securities of issuers
in any one industry except that this limitation does not apply to
(i) obligations of the U.S. Government or any of its agencies or
instrumentalities (i.e., U.S. Government Securities), or (ii)
Clearwater Growth Fund to the extent that the adviser or
subadviser determines that investment without regard to the stated
limits is necessary in order to pursue Clearwater Growth Fund's
policy of tracking the Russell 1000 Index or any substitute index.
(7) with respect to 75% of its total assets, 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;
B-4
<PAGE>
(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; or
(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;
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
initial term of the Management Contract between the Trust and the Manager is two
years and is renewable annually for successive one year terms.
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 0.45% and 1.35% of the net
assets of the Growth Fund and the Small Cap Fund, respectively. The management
fee for the Growth Fund was previously 1.10% of the Fund's average annual net
assets. The reduction in the management fee to 0.45% of net assets was effective
November 1, 1997. The Manager's fees are calculated and accrued daily as a
percentage of each Fund's daily net assets, and are paid quarterly. During the
three years ended December 31, 1995, 1996 and 1997, the total dollar amounts
paid to the Manager by the Growth Fund were $831,562 $977,321 and $1,012,399,
respectively. The net assets of Growth Fund at December 31, 1997 were
$106,859,255. During the three years ended December 31, 1995, 1996 and 1997 the
total dollar amounts paid to the Manager by the Small Cap Fund were $312,702,
$392,202 and $534,172, respectively. The net assets of the Small Cap Fund at
December 31, 1997 were $40,838,409.
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 Parametric Portfolio Associates ("Parametric") have entered into a
Subadvisory Contract, whereby Parametric develops, recommends and implements an
investment program and strategy for the Growth Fund, subject to approval of the
Board of Trustees. Fees payable to Parametric are calculated and accrued monthly
on the basis of month-end net assets, and are paid quarterly by the Manager at
an annual rate of 0.15% of the Fund's net assets.
The Growth Fund is not responsible for payment of the Subadvisory fees to
Parametric. During the years ended December 31, 1995 and 1996 and the period
January 1, 1997 through October 31, 1997, the Manager paid Subadvisory fees of
$450,103, $507,628 and $450,753, respectively to Sit Investment Associates, Inc.
(the previous subadviser). During the period from November 1, 1997 through
December 31, 1997, the Manager paid subadvisory fees of $28,999 to Parametric.
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:
B-5
<PAGE>
Percent Net Assets
0.85% Up to and including $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, 1995, 1996 and 1997, the Manager paid
Subadvisory fees of $235,243, $298,894 and $346,861 respectively to KCM. On
February 24, 1998, shareholders of the Trust ratified a reduction in the
subadvisory fee paid to KCM that had previously been approved by the Board of
Trustees. The reduction in the rate of the subadvisory fee will be retroactive
to January 1, 1997 and ongoing as of January 1, 1998. The new rate that CMC will
pay to KCM is 0.85% of the Fund's net assets up to and including $50 million and
0.80% of such assets over $50 million.
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 has an
initial term of two years 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* (66), 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
Samuel B. Carr, Jr. (42), Trustee
President and Chief Investment Officer, S. B. Carr Investments,
Inc. (1990/present)
124 Auburn Street, Suite 200 North
Cambridge, Massachusetts 02138-5700
B-6
<PAGE>
Stanley R. Day, Jr. (39), Trustee
President and Director, SRAM Corporation, (1987/present)
361 West Chestnut Street
Chicago, Illinois 60611
Philip W. Pascoe* (51), Trustee
Chairman, Clearwater Management Co., Inc. (1996/Present) Managing
Director, Investments of Piper Jaffray, Inc. (1996/Present)
Senior Vice President, Dean Witter Reynolds, Inc. (1996)
Associate Vice President, Dean Witter Reynolds, Inc. (1982-1996)
1145 Broadway, Suite 1500
P.O. Box 1278
Tacoma, Washington 98402
Robert J. Phares (34), Trustee
Chief Executive Officer, Battle Ridge Ranch Company,
(1986/present)
Route One, Box 258
Wilsall, Montana 59086
Daniel C. Titcomb (44), 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
2100, St. Paul, Minnesota 55101.
As of January 30, 1998, all of the Trustees and officers of the Trust, as a
group, owned of record 1.49% of the outstanding shares of the Growth Fund and
6.84% of the outstanding shares of the Small Cap Fund.
- ------------------------
*Messrs. Frederick T. Weyerhaeuser and Philip W. Pascoe are "interested persons"
(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, on behalf of the Trust, 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. The following table sets forth the amounts of compensation received by
each Trustee during the fiscal year ended December 31, 1997. Mr. Pascoe was
elected as a Trustee on February 24, 1998. He received no compensation during
the fiscal year ended December 31, 1997.
B-7
<PAGE>
Compensation With Respect
Name of Trustees to Trust/Complex
Frederick T. Weyerhaeuser $ 4,000
Samuel B. Carr, Jr. $ 4,000
Stanley R. Day, Jr. $ 3,000
Philip W. Pascoe $ 0
Robert J. Phares $ 3,500
---------------- --------
Total $ 14,500
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,
Martin Luther King, Jr. 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, 1995, 1996 and 1997, the Growth Fund
paid brokerage commissions in the amounts of $133,636, $156,583 and $88,681
respectively. During the three years ended December 31, 1995, 1996 and 1997, the
Small Cap Fund paid brokerage commissions in the amounts of $64,979, $94,093 and
$165,105 respectively.
During the three years ended December 31, 1995, 1996 and 1997, (i) the Growth
Fund paid brokerage commissions of $770.00 (0.58% of brokerage commissions
paid), $495.00 (0.32% of brokerage commissions paid) and $0 (0% of brokerage
commissions paid), respectively, and (ii) the Small Cap Fund
B-8
<PAGE>
paid brokerage commissions of $3,402 (2.52% of brokerage commissions paid) to
Weeden & Co., LP in 1997 only. 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 1998.
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) that is satisfied during a
prescribed period before and after each dividend 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 and, to the extent such basis would be reduced below zero,
current recognition of income may be required. 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 substantially all 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, including certain options, in certain non-U.S.
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and 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. An election may generally
be available that would ameliorate these adverse tax consequences, but any such
election could require the Fund to recognize taxable income or gain (subject to
tax distribution requirements) without the concurrent receipt of cash. These
investments could also result in the treatment of associated capital gains as
ordinary income.
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 or futures
contracts 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 and futures contracts 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 of securities or otherwise affect the treatment as long-term or
short-term of certain
B-9
<PAGE>
capital gains or losses. A Fund may also be required to recognize gain upon
entering into a short sale against the box or any other transaction that is
treated under the Code as a constructive sale of an appreciated financial
position of the Fund. These rules could therefore affect the amount, timing and
character of distributions to shareholders.
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:
n
P (1 + T) = 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 one, five and ten
year periods ended December 31, 1997, were 28.4%, 16.4% and 15.9% respectively.
The average annual total return for the Small Cap Fund for the year ended
December 31, 1997, for the five years ended December 31, 1997 and for the period
since the Small Cap Fund commenced operations on January 31, 1989 through
December 31, 1997 were 40.20%, 17.0% and 12.9%, respectively. The foregoing
average annual total return figures were determined based on expenses in effect
for the Funds during the covered periods.
THE TRUST
As a Massachusetts business trust, the Trust's operations are governed by its
Declaration of Trust dated January 12, 1987 as amended and restated March 1,
1998 (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
B-10
<PAGE>
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. The Board of Trustees
may remove a Trustee by the affirmative vote of at least a majority of the
remaining Trustees. 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. 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 for any neglect or wrongdoing of any advisory board member,
officer, agent, employee, consultant, investment adviser or other adviser,
administrator, distributor or principal underwriter, custodian or transfer,
dividend disbursing, shareholder servicing or accounting agent of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee.
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.
As of January 30, 1998, each of the following persons owned five percent or more
of the voting securities of each such Fund,
- ------------------------------ ------------------------- ----------------------
Name % Total Shares % Total Shares
Clearwater Growth Fund Clearwater Small Cap
Fund
- ------------------------------ ------------------------- ----------------------
Stanley R. Day, Jr.* NA 7.65%
- ------------------------------ ------------------------- ----------------------
W. John Driscoll* 15.92% 13.34%
- ------------------------------ ------------------------- ----------------------
Frank W. Piasecki* NA 5.00%
- ------------------------------ ------------------------- ----------------------
Walter S. Rosenberry III* 8.64% 8.28%
- ------------------------------ ------------------------- ----------------------
Edward R. Titcomb* NA 13.19%
- ------------------------------ ------------------------- ----------------------
John W. Titcomb, Jr.** 5.71% NA
- ------------------------------ ------------------------- ----------------------
Charles A. Weyerhaeuser* 11.99% 8.73%
- ------------------------------ ------------------------- ----------------------
David C. Weyerhaeuser* 5.31% 12.10%
- ------------------------------ ------------------------- ----------------------
David M. Weyerhaeuser** 9.98% 6.99%
- ------------------------------ ------------------------- ----------------------
Frederick T. Weyerhaeuser* 16.14% 24.45%
- ------------------------------ ------------------------- ----------------------
George H. Weyerhaeuser** 24.26% 20.03%
- ------------------------------ ------------------------- ----------------------
Wendy W. Weyerhaeuser** 10.87% NA
- ------------------------------ ------------------------- ----------------------
William T. Weyerhaeuser** 28.87% 20.03%
- ------------------------------ ------------------------- ----------------------
* 332 Minnesota Street, Suite 2100, Saint Paul, Minnesota 55101-1394
** 1145 Broadway, Suite 1500, P.O. Box 1278, Tacoma, Washington 98402
B-11
<PAGE>
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-12
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
332 Minnesota Street, Suite 2100
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.
Philip W. Pascoe
Robert J. Phares
INVESTMENT MANAGER: CLEARWATER GROWTH FUND
Clearwater Management Co., Inc. SUBADVISOR:
332 Minnesota Street, Suite 2090 Parametric Portfolio Associates
St. Paul, MN 55101 701 Fifth Avenue, Suite 7310
Seattle, WA 98014-7090
CUSTODIAN: CLEARWATER SMALL CAP FUND
Investors Fiduciary Trust Company SUBADVISOR:
801 Pennsylvania Kennedy Capital Management
Kansas City , MO 64105 10829 Olive Boulevard
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, 1998
B-13
<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 1988 to 1997.
Financial Highlights for Clearwater Small Cap Fund
for the period from inception (January 31, 1989) to
1997.
Included in Part B:
Incorporated by reference to the annual report of the
Funds, dated December 31, 1997, filed electronically
on February 24, 1998 pursuant to Section 30(b)(2) of
the Investment Company Act of 1940 (Accession No.
000081116-98-000006)
For Clearwater Growth Fund and Clearwater Small Cap
Fund:
Portfolio of Investments, December 31, 1997
Statement of Assets and Liabilities, December 31,
1997
Statement of Operations for the year ended December
31, 1997
Statement of Changes in Net Assets for each of the
two years in the period ended December 31, 1997
Financial Highlights for the years ended December 31,
1997
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*
1.2 Amended and Restated Declaration of Trust
dated March 1, 1998+
C-1
<PAGE>
2. By-Laws*
2.1 Amended and Restated By-Laws dated March 1,
1998+
3. None
4. None
5.1 Management Contract dated May 1, 1994*
5.2 Management Contract, as amended, dated March
1, 1998+
5.3 Subadvisory Contract with SIT Investment
Associates, Inc.for Clearwater Growth Fund
dated May 1, 1994*
5.4 Subadvisory Contract with Parametric
Portfolio Associatesfor Clearwater Growth
Fund dated November 1, 1997+
5.5 Subadvisory Contract with Kennedy Capital
Management for Clearwater Small Cap Fund
dated May 1, 1994*
5.6 Amendment to the Subadvisory Contract with
Kennedy Capital Management for Clearwater
Small Cap Fund dated January 1, 1998+
6. None
7. None
8. Custodian Agreement with Norwest Bank
Minnesota, N.A. dated March 31, 1987*
8.1 Amendment to Custodian Agreement dated
March 27, 1991*
8.2 Amendment to Custodian Agreement dated
November 4, 1992*
8.3 Custodian Agreement with Investors Fiduciary
Trust Company dated September 29, 1997+
9. Investment Company Service Agreement dated
March 2, 1987*
C-2
<PAGE>
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
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*
19.1 Power of Attorney of Philip W. Pascoe+
------------
+ 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.
C-3
<PAGE>
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 January 30, 1998:
Title of Class Number of Record Holders
Clearwater Growth Fund 318
Clearwater Small Cap Fund 242
Item 27. Indemnification
Except for the Declaration of Trust, dated January 12, 1987,
as amended and restated March 1, 1998, 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
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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 Parametric Portfolio Associates and Kennedy Capital Management.
Item 32. Undertaking
(a) 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.
(b) 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.
(c) The Registrant further undertakes to limit indemnification
of officers and Trustees to the extent set forth in its Declaration of Trust.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 12 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 26th day of February, 1998.
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. 12 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. Weyerhaeuser February 26, 1998
- ---------------------------------
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
/s/Philip W. Pascoe*
Philip W. Pascoe
*By:/s/ Frederick T. Weyerhaeuser February 26, 1998
-----------------------------
Frederick T. Weyerhaeuser
Power-of-Attorney
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Exhibit Index
Exhibit
Number
1.2 Amended and Restated Declaration of Trust dated March 1, 1998
2.1 Amended and Restated By-Laws dated March 1, 1998
5.2 Management Contract, as amended, dated March 1, 1998
5.4 Subadvisory Contract with Parametric Portfolio Associates for
Clearwater Growth Fund dated November 1, 1997
5.6 Amendment to the Subadvisory Contract with Kennedy Capital Management
for Clearwater Small Cap Fund dated January 1, 1998.
8.3 Custodian Agreement with Investors Fiduciary Trust Company dated
September 29, 1997.
11. Consent of Independent Accountants
17.1 Financial Data Schedule - Clearwater Growth Fund
17.2 Financial Data Schedule - Clearwater Small Cap Fund
19.1 Power of Attorney of Philip W. Pascoe+
C-7
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
CLEARWATER INVESTMENT TRUST
2100 First National Bank Building
St. Paul, Minnesota, 55101
AMENDED AND RESTATED DECLARATION OF TRUST made effective as of the 1st day
of March, 1998 by the undersigned (together with all other persons from time to
time duly elected, qualified and serving as Trustees in accordance with the
provisions of Article II hereof, the "Trustees");
WHEREAS, pursuant to a declaration of trust executed and delivered on
January 12, 1987 (the "Original Declaration"), the Trustees established a trust
for the investment and reinvestment of funds contributed thereto:
WHEREAS, the Trustees divided the beneficial interest in the trust assets
into transferable shares of beneficial interest, as provided therein;
WHEREAS, the Trustees declared that all money and property contributed to
the trust established thereunder be held and managed in trust for the benefit of
the holders, from time to time, of the shares of beneficial interest issued
thereunder and subject to the provisions thereof;
WHEREAS, the Trustees desire to amend and restate the Original Declaration;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the trustees of the
trust, hereby amend and restate the Original Declaration as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is Clearwater
Investment Trust (the "Trust").
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings.
(a) "Administrator" means the party, other than the Trust, to a contract
described in Section 3.3 hereof.
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(b) "By-Laws" means the By-Laws referred to in Section 2.5 hereof, as from
time to time amended.
(c) "Class" means any division or Class of Shares within a Series or Fund,
which Class is or has been established within such Series or Fund in accordance
with the provisions of Article V.
(d) "Commission" has the meaning given it in the 1940 Act.
(e) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(f) "Declaration" means this Declaration of Trust, as amended from time to
time. Reference in this Declaration of Trust to "Declaration," "hereof," and
"hereunder" shall be deemed to refer to this Declaration rather than exclusively
to the article or section in which such words appear.
(g) "Fund" or "Funds," individually or collectively, means the separate
Series of Shares of the Trust, together with the assets and liabilities
belonging and allocated thereto.
(h) "His" shall include the feminine and neuter, as well as the masculine,
genders.
(i) The term "Interested Person" has the meaning specified in the 1940 Act
subject, however, to such exceptions and exemptions as may be granted by the
Commission in any rule, regulation or order.
(j) "Investment Adviser" means the party, other than the Trust, to an
agreement described in Section 3.2 hereof.
(k) The "1940 Act" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.
(l) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, firms, joint ventures and other entities, whether or not
legal entities,
as well as governments, instrumentalities, and agencies and political
subdivisions thereof, and quasi-governmental agencies and instrumentalities.
(m) "Principal Underwriter" means the party, other than the Trust, to a
contract described in Section 3.1 hereof.
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(n) "Prospectus" means the Prospectus and Statement of Additional
Information included in the Registration Statement of the Trust under the
Securities Act of 1933 as such Prospectus and Statement of Additional
Information may be amended or supplemented and filed with the Commission from
time to time.
(o) "Series" individually or collectively means such separately managed
component(s) or Fund(s) of the Trust (or, if the Trust shall have only one such
component or Fund, then that one) as may be established and designated from time
to time by the Trustees pursuant to Section 5.5 hereof.
(p) "Shareholder" means a record owner of Outstanding Shares. A Shareholder
of Shares of a Series shall be deemed to own a proportionate undivided
beneficial interest in such Series equal to the number of Shares of each Series
of which he is the record owner divided by the total number of Outstanding
Shares of such Series. A Shareholder of Shares of a Class within a Series shall
be deemed to own a proportionate undivided beneficial interest in such Class
equal to the number of Shares of such Class of which he is the record owner
divided by the total number of Outstanding Shares of such Class. As used herein
the term "Shareholder" shall, when applicable to one or more Series or Funds or
to one or more Classes thereof, refer to the record owners of Outstanding Shares
of such Series, Fund or Funds or of such Class or Classes of Shares.
(q) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series or of any Class within any Series (as the
context may require) which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. "Outstanding Shares" means those
Shares shown from time to time on the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(r) "Transfer Agent" means any Person other than the Trust, appointed by
the Trustees pursuant to Section 3.5 hereof, who maintains the Shareholder
records of the Trust, such as the list of Shareholders, the number of Shares
credited to each account, and the like.
(s) "Trust" means Clearwater Investment Trust. As used herein the term
Trust shall, when applicable to one or more Series or Funds, refer to such
Series or Funds.
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(t) The "Trustees" means the persons who have signed this Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who now serve or may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions of Article
II hereof and the By- Laws of the Trust, and reference herein to a Trustee or
the Trustees shall refer to such person or persons in this capacity or their
capacities as Trustees hereunder.
(u) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of the Trust or the
Trustees, including any and all assets of or allocated to any Series or Class,
as the context may require.
(v) Except as such term may be otherwise defined by the Trustees in
connection with any meeting or other action of Shareholders or in conjunction
with the establishment of any Series or Class of Shares, the term "vote" when
used in connection with an action of Shareholders shall include a vote taken at
a meeting of Shareholders or the consent or consents of Shareholders taken
without such a meeting.
ARTICLE II
TRUSTEES
Section 2.1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees and they shall have all powers and authority
necessary, appropriate or desirable to perform that function. The number, term
of office, manner of election, resignation, filling of vacancies and procedures
with respect to meetings and actions of the Trustees shall be as prescribed in
the By-Laws of the Trust.
Section 2.2. General Powers. The Trustees in all instances shall act as
principals for and on behalf of the Trust and the applicable Series thereof, and
their acts shall bind the Trust and the applicable Series. The Trustees shall
have full power and authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider necessary, appropriate
or desirable in connection with the management of the Trust. The Trustees shall
not be bound or limited in any way by present or future laws, practices or
customs in regards to trust investments or to other investments which may be
made by fiduciaries, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
promote, implement or accomplish the various objectives and interests of the
Trust and of its Series of Shares. The Trustees shall have full power and
authority to adopt such accounting and tax accounting practices as they consider
appropriate for the Trust and for any Series or Class of Shares. The Trustees
shall have exclusive and absolute control over the Trust Property and over the
business of the Trust to the same extent as if the Trustees were the sole owners
of the Trust Property and business in their own right, and with such full powers
of delegation as the Trustees may exercise from time to time. The Trustees shall
have
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power to conduct the business of the Trust and carry on its operations in any
and all of its branches and maintain offices both within and without The
Commonwealth of Massachusetts, in any and all states of the United States of
America, in the District of Columbia, and in any and all commonwealths,
territories, dependencies, colonies, possessions, agencies or instrumentalities
of the United States of America and of foreign governments, and to do all such
other things as they deem necessary, appropriate or desirable in order to
promote or implement the interests of the Trust or of any Series or Class of
Shares although such things are not herein specifically mentioned. Any
determination as to what is in the best interests of the Trust or of any Series
or Class of Shares made by the Trustees in good faith shall be conclusive and
binding upon all Shareholders. In construing the provisions of this Declaration,
the presumption shall be in favor of a grant of plenary power and authority to
the Trustees.
The enumeration of any specific power in this Declaration
shall not be construed as limiting the aforesaid general and plenary powers.
Section 2.3. Investments. The Trustees shall have full power and authority:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To acquire or buy, and invest Trust Property in, own, hold for
investment or otherwise, and to sell or otherwise dispose of, all types and
kinds of securities including, but not limited to, stocks, profit-sharing
interests or participations and all other contracts for or evidences of equity
interests, bonds, debentures, warrants and rights to purchase securities,
certificates of beneficial interest, bills, notes and all other contracts for or
evidences of indebtedness, money market instruments including bank certificates
of deposit, finance paper, commercial paper, bankers' acceptances and other
obligations, and all other negotiable and non-negotiable securities and
instruments, however named or described, issued by corporations, trusts,
associations or any other Persons, domestic or foreign, or issued or guaranteed
by the United States of America or any agency or instrumentality thereof, by the
government of any foreign country, by any State, territory or possession of the
United States, by any political subdivision or agency or instrumentality of any
State or foreign country, or by any other government or other governmental or
quasi-governmental agency or instrumentality, domestic or foreign; to acquire
and dispose of interests in domestic or foreign loans made by banks and other
financial institutions; to deposit any assets of the Trust in any bank, trust
company or banking institution or retain any such assets in domestic or foreign
cash or currency; to purchase and sell gold and silver bullion, precious or
strategic metals, coins and currency of all countries; to engage in "when
issued" and delayed delivery transactions; to enter into repurchase agreements,
reverse repurchase agreements and firm commitment agreements; to employ all
types and kinds of hedging techniques
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and investment management strategies; and to change the investments of the Trust
and of each Series.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend and to pledge any Trust Property or any of the
foregoing securities, instruments or investments; to purchase and sell (or
write) options on securities, currency, precious metals and other commodities,
indices, futures contracts and other financial instruments and assets, and enter
into closing and other transactions in connection therewith; to enter into all
types of commodities contracts, including without limitation the purchase and
sale of futures contracts on securities, currency, precious metals and other
commodities, indices and other financial instruments and assets; to enter into
forward foreign currency exchange contracts and other foreign exchange and
currency transactions of all types and kinds; to enter into transactions in
interest rate, currency and other swaps, swaptions, and interest rate caps,
floors and collars; and to engage in all types and kinds of hedging and risk
management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities and other assets included in the Trust Property, including
without limitation the right to vote thereon and otherwise act with respect
thereto; and to do all acts and things for the preservation, protection,
improvement and enhancement in value of all such securities and assets.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, lease, develop and dispose of (by sale or otherwise) any type or kind
of property, real or personal, including domestic or foreign currency, and any
right or interest therein.
(f) To borrow money and in this connection issue notes, commercial paper or
other evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security all or any part of the Trust Property; to
endorse, guarantee, or undertake the performance of any obligation or engagement
of any other Person; and to send all or any part of the Trust Property to other
Persons.
(g) To aid, support or assist by further investment or other action any
Person, any obligation of or interest in which is included in the Trust Property
or in the affairs of which the Trust or any Series has any direct or indirect
interest; to do all acts and things designed to protect, preserve, improve or
enhance the value of such obligation or interest; and to guarantee or become
surety on any or all of the contracts, securities and other obligations of any
such Person.
(h) To carry on any other business in connection with or incidental to any
of the foregoing powers referred to in this Declaration, to do everything
necessary, appropriate or desirable for the accomplishment of any purpose or the
attainment of
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any object or the furtherance of any power referred to in this Declaration,
either alone or in association with others, and to do every other act or thing
incidental or appurtenant to or arising out of or connected with such business
or purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
shall not be held to limit or restrict in any manner the general and plenary
powers of the Trustees.
Notwithstanding any other provision herein, the Trustees shall have full
power in their discretion, without any requirement of approval by Shareholders,
to invest part or all of the Trust Property (or part or all of the assets of any
Fund), or to dispose of part or all of the Trust Property (or part or all of the
assets of any Fund) and invest the proceeds of such disposition, in securities
issued by one or more other investment companies registered under the 1940 Act.
Any such other investment company may (but need not) be a trust (formed under
the laws of the State of New York or of any other state) which is classified as
a partnership for federal income tax purposes.
Section 2.4. Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees who from time to time shall be in office. The Trustees
may hold any security or other Trust Property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, and may cause
legal title to any security or other Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust or any Series, or in
the name of a custodian, subcustodian, agent, securities depository, clearing
agency, system for the central handling of securities or other book-entry
system, or in the name of a nominee or nominees of the Trust or a Series, or in
the name of a nominee or nominees of a custodian, subcustodian, agent,
securities depository, clearing agent, system for the central handling of
securities or other book-entry system, or in the name of any other Person as
nominee. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee. Upon
the termination of the term of office, resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in any
of the Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees.
Section 2.5. By-Laws. The Trustees shall have full power and authority to
adopt By-Laws providing for the conduct of the business of the Trust and
containing such other provisions as they deem necessary, appropriate or
desirable, and to amend and repeal such By-Laws. Unless the By-Laws specifically
require that Shareholders authorize or approve the amendment or repeal of a
particular provision of the By- Laws, any provision of the By-Laws may be
amended or repealed by the Trustees without Shareholder authorization or
approval.
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Section 2.6. Distribution and Repurchase of Shares. The Trustees shall have
full power and authority to issue, sell, repurchase, redeem, retire, cancel,
acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in
Shares. Shares may be sold for cash or property or other consideration whenever
and in such amounts and manner as the Trustees deem desirable. The Trustees
shall have full power to provide for the distribution of Shares either through
one or more principal underwriters or by the Trust itself, or both. The Trustees
shall have full power and authority to cause the Trust and any Series and Class
of Shares to finance distribution activities in the manner described in Section
3.7, and to authorize the Trust, on behalf of one or more Series or Classes of
Shares, to adopt or enter into one or more plans or arrangements whereby
multiple Series and Classes of Shares may be issued and sold to various types of
investors.
Section 2.7. Advisory Board. The Trustees shall have full power and
authority to establish advisory boards and to appoint members thereto. Any such
advisory board shall have the duties assigned to it by the Trustees and shall be
as set forth in the By-Laws. The Trustees may terminate any advisory board in
their sole discretion.
Section 2.8. Delegation. The Trustees shall have full power and authority
to delegate from time to time to such of their number or to officers, advisory
board members, employees or agents of the Trust or to other Persons the doing of
such things and the execution of such agreements or other instruments either in
the name of the Trust or any Series of the Trust or the names of the Trustees or
otherwise as the Trustees may deem desirable or expedient.
Section 2.9. Collection and Payment. The Trustees shall have full power and
authority to collect all property due to the Trust; to pay all claims, including
taxes, against the Trust or Trust Property; to prosecute, defend, compromise,
settle or abandon any claims relating to the Trust or Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.10. Expenses. The Trustees shall have full power and authority to
incur on behalf of the Trust or any Series or Class of Shares and pay any costs
or expenses which the Trustees deem necessary, appropriate, desirable or
incidental to carry out, implement or enhance the business or operations of the
Trust or any Series thereof, and to pay compensation from the funds of the Trust
to themselves as Trustees. The Trustees shall determine the compensation of all
officers, employees and Trustees of the Trust. The Trustees shall have full
power and authority to cause the Trust to charge all or any part of any cost,
expense or expenditure (including without limitation any expense of selling or
distributing Shares) or tax against the principal or capital of the Trust or any
Series or Class of Shares, and to credit all or any part of the profit, income
or receipt (including without limitation any deferred sales charge or fee,
whether contingent or otherwise, paid or payable to the Trust or
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any Series or Class of Shares on any redemption or repurchase of Shares) to the
principal or capital of the Trust or any Series or Class of Shares.
Section 2.11. Manner of Acting. Except as otherwise provided herein or in
the By-Laws, the Trustees and committees of the Trustees shall have full power
and authority to act in any manner which they deem necessary, appropriate or
desirable to carry out, implement or enhance the business or operations of the
Trust or any Series thereof.
Section 2.12. Miscellaneous Powers. The Trustees shall have full power and
authority to: (a) distribute to Shareholders all or any part of the earnings or
profits, surplus (including paid-in surplus), capital (including paid-in
capital) or assets of the Trust or of any Series or Class of Shares, the amount
of such distributions and the manner of payment thereof to be solely at the
discretion of the Trustees; (b) employ, engage or contract with such Persons as
the Trustees may deem desirable for the transaction of the business or
operations of the Trust or any Series thereof; (c) enter into or cause the Trust
or any Series thereof to enter into joint ventures, partnerships (whether as
general partner, limited partner or otherwise) and any other combinations or
associations; (d) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees or other Persons as they consider appropriate, and appoint from their
own number, and terminate, any one or more committees which may exercise some or
all of the power and authority of the Trustees as the Trustees may determine;
(e) purchase, and pay for out of Trust Property, insurance policies which may
insure such of the Shareholders, Trustees, officers, employees, agents,
investment advisers, administrators, principal underwriters, distributors or
independent contractors of the Trust as the Trustees deem appropriate against
loss or liability arising by reason of holding any such position or by reason of
any action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such loss or liability; (f) establish pension,
profit-sharing, share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (g)
indemnify or reimburse any Person with whom the Trust or any Series thereof has
dealings, including without limitation the Investment Adviser, Administrator,
Principal Underwriter, Transfer Agent and financial service firms, to such
extent as the Trustees shall determine; (h) guarantee the indebtedness or
contractual obligations of other Persons; (i) determine and change the fiscal
year of the Trust or any Series thereof and the methods by which its and their
books, accounts and records shall be kept; and (j) adopt a seal for the Trust,
but the absence of such seal shall not impair the validity of any instrument
executed on behalf of the Trust or any Series thereof.
Section 2.13. Litigation. The Trustees shall have full power and authority,
in the name and on behalf of the Trust, to engage in and to prosecute, defend,
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compromise, settle, abandon, or adjust by arbitration or otherwise, any actions,
suits, proceedings, disputes, claims and demands relating to the Trust, and out
of the assets of the Trust or any Series thereof to pay or to satisfy any
liabilities, losses, debts, claims or expenses (including without limitation
attorneys' fees) incurred in connection therewith, including those of
litigation, and such power shall include without limitation the power of the
Trustees or any committee thereof, in the exercise of their or its good faith
business judgment, to dismiss or terminate any action, suit, proceeding,
dispute, claim or demand, derivative or otherwise brought by any Person,
including a Shareholder in his own name or in the name of the Trust or any
Series thereof, whether or not the Trust or any Series thereof or any of the
Trustees may be named individually therein or the subject matter arises by
reason of business for or on behalf of the Trust or any Series thereof. No
Shareholder may bring any action, suit, proceeding, dispute, claim or demand,
derivative or otherwise, in the name of any Series of which the Shareholder does
not hold Shares. The power of the Trustees, or any committee thereof, to dismiss
or terminate any action, suit, proceeding, dispute, claim or demand, derivative
or otherwise, brought by any Person, as described in this Section 2.13, shall
not be affected by any Trustee's service on one or more boards of directors or
trustees of investment companies affiliated with the Trust.
ARTICLE III
CONTRACTS
Section 3.1. Principal Underwriter. The Trustees may in their discretion
from time to time authorize the Trust to enter into one or more exclusive or
non-exclusive contracts providing for the sale of the Shares. Pursuant to any
such contract the Trust may either agree to sell the Shares to the other party
to the contract or appoint such other party its sales agent for such Shares. In
either case, any such contract shall be on such terms and conditions as the
Trustees may in their discretion determine; and any such contract may also
provide for the repurchase or sale of Shares by such other party as principal or
as agent of the Trust.
Section 3.2. Investment Adviser. The Trustees may in their discretion from
time to time authorize the Trust to enter into one or more investment advisory
agreements with respect to one or more Series whereby the other party or parties
to any such agreements shall undertake to furnish the Trust or such Series
investment advisory and research facilities and services and such other
facilities and services, if any, as the Trustees shall consider desirable and
all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of this Declaration, the Trustees may
authorize the Investment Adviser, in its discretion and without any prior
consultation with the Trust, to buy, sell, lend and otherwise trade and deal in
any and all securities, commodity contracts and other investments and
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assets of the Trust and of each Series and to engage in and employ all types of
transactions and strategies in connection therewith. Any such action taken
pursuant to such agreement shall be deemed to have been authorized by all of the
Trustees.
The Trustees may also authorize the Trust to employ, or authorize the
Investment Adviser to employ, one or more sub-investment advisers from time to
time to perform such of the acts and services of the Investment Adviser and upon
such terms and conditions as may be agreed upon between the Investment Adviser
and such sub-investment adviser and approved by the Trustees.
Section 3.3. Administrator. The Trustees may in their discretion from time
to time authorize the Trust to enter into one or more administration agreements
with respect to one or more Series or Classes, whereby the other party to such
agreement shall undertake to furnish to the Trust or a Series or a Class thereof
with such administrative facilities and services and such other facilities and
services, if any, as the Trustees consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine.
Section 3.4. Other Service Providers. The Trustees may in their discretion
from time to time authorize the Trust to enter into one or more agreements with
respect to
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one or more Series or Classes of Shares whereby the other party or parties to
any such agreements will undertake to provide to the Trust or Series or Class or
Shareholders or beneficial owners of Shares such services as the Trustees
consider desirable and all upon such terms and conditions as the Trustees in
their discretion may determine.
Section 3.5. Transfer Agents. The Trustees may in their discretion from
time to time appoint one or more transfer agents for the Trust or any Series
thereof. Any contract with a transfer agent shall be on such terms and
conditions as the Trustees may in their discretion determine.
Section 3.6. Custodian. The Trustees may appoint a bank or trust company,
having an aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least $1,000,000, or a company which is a member of a
national securities exchange as defined in the Securities Exchange Act of 1934
as the principal custodian of the Trust (the "Custodian") with authority as its
agent to hold cash and securities owned by the Trust and to release and deliver
the same upon such terms and conditions as may be agreed upon between the Trust
and the Custodian.
Section 3.7. Plans of Distribution. The Trustees may in their discretion
authorize the Trust, on behalf of one or more Series or Classes of Shares, to
adopt or enter into a plan or plans of distribution and any related agreements
whereby the Trust or Series or Class may finance directly or indirectly any
activity which is
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primarily intended to result in sales of Shares or any distribution activity
within the meaning of Rule 12b-1 (or any successor rule) under the 1940 Act.
Such plan or plans of distribution and any related agreements may contain such
terms and conditions as the Trustees may in their discretion determine, subject
to the requirements of the 1940 Act and any other applicable rules and
regulations.
Section 3.8. Affiliations. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, creditor, director, officer, partner, trustee or employee of or has
any interest in any Person or any parent or affiliate of any such Person, with
which a contract or agreement of the character described in Sections 3.1, 3.2,
3.3, 3.4, 3.5 or 3.6 above has been or will be made or to which payments have
been or will be made pursuant to a plan or related agreement described in
Section 3.7 above, or that any such Person, or any parent or affiliate thereof,
is a Shareholder of or has an interest in the Trust, or that
(ii) any such Person also has similar contracts, agreements or plans with
other investment companies (including, without limitation, the investment
companies referred to in the last paragraph of Section 2.3) or organizations, or
has other business activities or interests, shall not affect in any way the
validity of any such contract, agreement or plan or disqualify any Shareholder,
Trustee or officer of the Trust from authorizing, voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Advisory
Board Members, Officers and Employees. No Shareholder shall be subject to any
personal liability whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust or any Series thereof. All Persons
dealing or contracting with the Trustees as such or with the Trust or any Series
thereof shall have recourse only to the Trust or such Series for the payment of
their claims or for the payment or satisfaction of claims, obligations or
liabilities arising out of such dealings or contracts. No Trustee, advisory
board member, officer or employee of the Trust, whether past, present or future,
shall be subject to any personal liability whatsoever to any such Person, and
all such Persons shall look solely to the Trust Property, or to the assets of
one or more specific Series of the Trust if the claim arises from the act,
omission or other conduct of such Trustee, advisory board member,
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officer or employee with respect to only such Series, for satisfaction of claims
of any nature arising in connection with the affairs of the Trust or such
Series. If any Shareholder, Trustee, advisory board member, officer or employee,
as such, of the Trust or any Series thereof, is made a party to any suit or
proceeding to enforce any such liability of the Trust or any Series thereof, he
shall not, on account thereof, be held to any personal liability.
Section 4.2. Trustee's Good Faith Action; Advice of Others; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. A Trustee shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any advisory
board member, officer, agent, employee, consultant, investment adviser or other
adviser, administrator, distributor or principal underwriter, custodian or
transfer, dividend disbursing, shareholder servicing or accounting agent of the
Trust, nor shall any Trustee be responsible for the act or omission of any other
Trustee. The Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration and their duties as Trustees,
and shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. In discharging their duties, the
Trustees, when acting in good faith, shall be entitled to rely upon the records,
books and accounts of the Trust and upon reports made to the Trustees by any
advisory board member, officer, employee, agent, consultant, accountant,
attorney, investment adviser or other adviser, principal underwriter, expert,
professional firm or independent contractor. The Trustees as such shall not be
required to give any bond, surety or other security for the performance of their
duties. No provision of this Declaration shall protect any Trustee or officer of
the Trust against any liability to the Trust or its Shareholders to which he
would otherwise be subject by reason of his own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4.3. Indemnification. The Trustees may provide, whether in the
By-Laws or by contract, vote or other action, for the indemnification by the
Trust or by one or more Series thereof (if the claim arises from conduct with
respect to only such Series) of the Shareholders, Trustees, advisory board
members, officers and employees of the Trust and of such other Persons as the
Trustees in the exercise of their discretion may deem appropriate or desirable.
Any such indemnification may be mandatory or permissive, and may be insured
against by policies maintained by the Trust.
Section 4.4. No Duty of Investigation. No purchaser, lender or other Person
dealing with the Trustees or any officer, employee or agent of the Trust or a
Series thereof shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by said officer, employee
or agent or be liable for the application of money or property paid, loaned, or
delivered to or on the
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order of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
any such recital shall not operate to bind the Trustees or Shareholders
individually.
Section 4.5. Reliance on Records and Experts. Each Trustee, advisory board
member, officer or employee of the Trust or a Series thereof shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the records, books and accounts of the Trust or a Series thereof, upon an
opinion or other advice of legal counsel, or upon reports made or advice given
to the Trust or a Series thereof by any Trustee or any of its officers or
employees or by the Investment Adviser, the Administrator, the Custodian, the
Principal Underwriter, Transfer Agent, accountants, appraisers or other experts,
advisers, consultants or professionals selected with reasonable care by the
Trustees or officers of the Trust, regardless of whether the person rendering
such report or advice may also be a Trustee, officer or employee of the Trust.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest
without par value. The number of such Shares of beneficial interest authorized
hereunder and the number of Shares of each Series or Class thereof that may be
issued hereunder is unlimited. The Trustees shall have the exclusive authority
without the requirement of Shareholder authorization or approval to establish
and designate one or more Series of Shares and one or more Classes thereof as
the Trustees deem necessary, appropriate or desirable. Each Share of any Series
shall represent a beneficial interest only in the assets of that Series. Subject
to the provisions of Section 5.5 hereof, the Trustees may also authorize the
creation of additional Series of Shares (the proceeds of which may be
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invested in separate and independent investment portfolios) and additional
Classes of Shares within any Series. All Shares issued hereunder including,
without limitation, Shares issued in connection with a dividend or distribution
in Shares or a split in Shares, shall be fully paid and nonassessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business of the Trust are vested
exclusively in the Trustees, and the Shareholders shall have no interest therein
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust or of any Series nor can they be called upon to
share or assume any losses of the Trust or of any Series or suffer an assessment
of any kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may specifically determine
with respect to any Series or Class of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association, limited
liability company, corporation, bailment or any form of legal relationship other
than a Massachusetts business trust. Nothing in this Declaration shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or member of a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may, from
time to time and without any authorization or vote of the Shareholders, issue
Shares, in addition to the then issued and outstanding Shares and Shares held in
the treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times and on such
terms as the Trustees may deem appropriate or desirable, except that only Shares
previously contracted to be sold may be issued during any period when the right
of redemption is suspended pursuant to Section 6.9 hereof, and may in such
manner acquire other assets (including the acquisition of assets subject to, and
in connection with the assumption of, liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and
reissue and resell full and fractional Shares held in the treasury. The Trustees
may from time to time divide or combine the Shares of the Trust or, if the
Shares be divided into Series or Classes, of any Series or any Class thereof of
the Trust, into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust or in the Trust Property
allocated or belonging to such Series or Class. Contributions to the Trust or
Series thereof may be accepted for, and Shares shall be redeemed as, whole
Shares and/or fractional Shares as the Trustees may in their discretion
determine. The Trustees may authorize the
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issuance of certificates of beneficial interest to evidence the ownership of
Shares. Shares held in the treasury shall not be voted nor shall such Shares be
entitled to any dividends or other distributions declared with respect thereto.
Section 5.5. Series and Class Designations. Without limiting the exclusive
authority of the Trustees set forth in Section 5.1 to establish and designate
any further Series or Classes, it is hereby confirmed that the Trust consists of
the presently Outstanding Shares of the following Series: Clearwater Growth Fund
and Clearwater Small Cap Fund (the "Existing Series"). The Shares of any Series
and Classes thereof that may from time to time be established and designated by
the Trustees shall be established and designated, and the variations in the
relative rights and preferences as between the different Series and Classes
shall be fixed and determined, by the Trustees (unless the Trustees otherwise
determine with respect to Series or Classes at the time of establishing and
designating the same); provided, that all Shares shall be identical except that
there may be variations so fixed and determined between different Series or
Classes thereof as to investment objective, policies and restrictions, sales
charges, purchase prices, determination of net asset value, assets, liabilities,
expenses, costs, charges and reserves belonging or allocated thereto, the price,
terms and manner of redemption or repurchase, special and relative rights as to
dividends and distributions and on liquidation, conversion rights, exchange
rights, and voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Series or Classes as the context may require.
As to any division of Shares of the Trust into Series or Classes, the following
provisions shall be applicable:
(i) The number of authorized Shares and the number of Shares of each
Series or Class thereof that may be issued shall be unlimited. The Trustees
may classify or reclassify any unissued Shares or any Shares previously
issued and reacquired of any Series or Class into one or more other Series
or one or more other Classes that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other Series or Class), reissue for such consideration and on such terms as
they may determine, or cancel any Shares of any Series or Class reacquired
by the Trust at their discretion from time to time.
(ii) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the
rights of creditors of such Series and except as may otherwise be required
by applicable tax laws, and shall be so recorded on the books of account of
the Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds,
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or payments which are not readily identifiable as belonging to any
particular Series, the Trustees or their delegate shall allocate them among
any one or more of the Series established and designated from time to time
in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. Each such allocation by the Trustees or their
delegate shall be conclusive and binding upon the Shareholders of all
Series for all purposes. No holder of Shares of any Series shall have any
claim on or right to any assets allocated or belonging to any other Series.
(iii) Any general liabilities, expenses, costs, charges or reserves of
the Trust which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees or their delegate to
and among any one or more of the Series established and designated from
time to time in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. The assets belonging to each particular
Series shall be charged with the liabilities, expenses, costs, charges and
reserves of the Trust so allocated to that Series and all liabilities,
expenses, costs, charges and reserves attributable to that Series which are
not readily identifiable as belonging to any particular Class thereof. Each
allocation of liabilities, expenses, costs, charges and reserves by the
Trustees or their delegate shall be conclusive and binding upon the
Shareholders of all Series and Classes for all purposes. The Trustees shall
have full discretion to determine which items are capital; and each such
determination shall be conclusive and binding upon the Shareholders. The
assets of a particular Series of the Trust shall, under no circumstances,
be charged with liabilities, expenses, costs, charges and reserves
attributable to any other Series or Class thereof of the Trust. All Persons
extending credit to, or contracting with or having any claim against a
particular Series of the Trust shall look only to the assets of that
particular Series for payment of such credit, contract or claim.
(iv) Dividends and distributions on Shares of a particular Series or
Class may be paid or credited in such manner and with such frequency as the
Trustees may determine, to the holders of Shares of that Series or Class,
from such of the earnings or profits, surplus (including paid-in surplus),
capital (including paid-in capital) or assets belonging to that Series, as
the Trustees may deem appropriate or desirable, after providing for actual
and accrued liabilities, expenses, costs, charges and reserves belonging
and allocated to that Series or Class. Such dividends and distributions may
be paid daily or otherwise pursuant to the offering prospectus relating to
the Shares or pursuant to a standing vote or votes of the Trustees adopted
only once or from time to time or pursuant to other authorization or
instruction of the Trustees. All dividends and distributions on Shares of a
particular Series or Class shall be distributed pro rata to the
Shareholders of that Series or Class in proportion to the number of Shares
of that Series or Class held by such Shareholders at
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the time of record established for the payment or crediting of such
dividends or distributions.
(v) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a
Series or Class thereof shall be entitled to receive his pro rata Share of
distributions of income and capital gains made with respect to such Series
or Class net of liabilities, expenses, costs, charges and reserves
belonging and allocated to such Series or Class. Upon redemption of his
Shares or indemnification for liabilities incurred by reason of his being
or having been a Shareholder of a Series, such Shareholder shall be paid
solely out of the funds and property of such Series of the Trust. Upon
liquidation or termination of a Series or Class thereof of the Trust, a
Shareholder of such Series or Class thereof shall be entitled to receive a
pro rata Share of the net assets of such Series based on the net asset
value of his Shares. A Shareholder of a particular Series of the Trust
shall not be entitled to commence or participate in a derivative or class
action on behalf of any other Series or the Shareholders of any other
Series of the Trust.
(vi) On any matter submitted to a vote of Shareholders, the Shares
entitled to vote thereon and the manner in which such Shares shall be voted
shall be as set forth in the By-Laws or proxy materials for the meeting or
other solicitation materials or as otherwise determined by the Trustees,
subject to any applicable requirements of the 1940 Act. The Trustees shall
have full power and authority to call meetings of the Shareholders of a
particular Class or Classes of Shares or of one or more particular Series
of Shares, or otherwise call for the action of such Shareholders on any
particular matter.
(vii) Except as otherwise provided in this Article V, the Trustees
shall have full power and authority to determine the designations,
preferences, privileges, sales charges, purchase prices, assets,
liabilities, expenses, costs, charges and reserves belonging or allocated
thereto, limitations and rights, including without limitation voting,
dividend, distribution and liquidation rights, of each Class and Series of
Shares. Subject to any applicable requirements of the 1940 Act, the
Trustees shall have the authority to provide that the Shares of one Class
shall be automatically converted into Shares of another Class of the same
Series or that the holders of Shares of any Series or Class shall have the
right to convert or exchange such Shares into Shares of one or more other
Series or Classes of Shares, all in accordance with such requirements,
conditions and procedures as may be established by the Trustees.
(viii) The establishment and designation of any Series or Class of
Shares shall be effective upon the execution by a majority of the then
Trustees
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of an instrument setting forth such establishment and designation and the
relative rights and preferences of such Series or Class, or as otherwise
provided in such instrument. The Trustees may by an instrument subsequently
executed by a majority of their number amend, restate or rescind any prior
instrument relating to the establishment and designation of any such Series
or Class. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration in accordance with Section 8.4
hereof, and a copy of each such instrument shall be filed in accordance
with Section 9.1 hereof.
Section 5.6. Assent to Declaration of Trust and By-Laws. Every Shareholder,
by virtue of having become a Shareholder, shall be held to have expressly
assented and agreed to all the terms and provisions of this Declaration and of
the By-Laws of the Trust.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. (a) Shares of the Trust shall be
redeemable, at such times and in such manner as may be permitted by the Trustees
from time to time. The Trustees shall have full power and authority to vary and
change the right of redemption applicable to the various Series and Classes of
Shares established by the Trustees. Redeemed or repurchased Shares may be resold
by the Trust. The Trust may require any Shareholder to pay a sales charge to the
Trust, the Principal Underwriter or any other Person designated by the Trustees
upon redemption or repurchase of Shares in such amount and upon such conditions
as shall be determined from time to time by the Trustees.
(b) The Trust shall redeem the Shares of the Trust or any Series or Class
thereof at the price determined as hereinafter set forth, upon the appropriately
verified written application of the record holder thereof (or upon such other
form of request as the Trust may use for the purpose) deposited at such office
or agency as may be designated from time to time for that purpose by the
Trustees. The Trust may from time to time establish additional requirements,
terms, conditions and procedures, not inconsistent with the 1940 Act, relating
to the redemption of Shares.
Section 6.2. Price. Shares shall be redeemed at a price based on their net
asset value determined as set forth in Section 7.1 hereof as of such time as the
Trustees shall prescribe. The amount of any sales charge or redemption fee
payable upon redemption of Shares may be deducted from the proceeds of such
redemption.
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Section 6.3. Payment. Payment of the redemption price of redeemed Shares
shall be made in cash or in property to the Shareholder at such time and in the
manner, not inconsistent with the 1940 Act, as may be specified from time to
time in the then effective Prospectus relating to such Shares, subject to the
provisions of Sections 6.4 and 6.9 hereof. Notwithstanding the foregoing, the
Trust or its agent may withhold from such redemption proceeds any amount arising
(i) from a liability of the redeeming Shareholder to the Trust, or (ii) in
connection with any federal or state tax withholding requirements.
Section 6.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 7.1 hereof, the Trust shall declare a suspension of the
determination of net asset value with respect to Shares of the Trust or of any
Series or Class thereof, the rights of Shareholders (including those who shall
have applied for redemption pursuant to Section 6.1 hereof but who shall not yet
have received payment) to have Shares redeemed and paid for by the Trust or a
Series shall be suspended until the termination of such suspension is declared.
Any record holder who shall have his redemption right so suspended may, during
the period of such suspension, by appropriate written notice at the office or
agency where his application or request for redemption was made, withdraw his
application or request and withdraw any Share certificates on deposit.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Principal Underwriter or another agent designated for
the purpose, by agreement with the owner thereof at a price not exceeding the
net asset value per share determined as of such time as the Trustees shall
prescribe. The Trust may from time to time establish the requirements, terms,
conditions and procedures relating to such repurchases, and the amount of any
sales charge or repurchase fee payable on any repurchase of Shares may be
deducted from the proceeds of such repurchase.
Section 6.6. Redemption of Shareholder's Interest. The Trustees, in their
sole discretion, may cause the Trust to redeem all of the Shares of one or more
Series or Classes thereof held by any Shareholder if (a) the value of such
Shares held by such Shareholder is less than the minimum amount established from
time to time by the Trustees or (b) the aggregate value of the assets of any
Series or Class is less than the minimum amount determined by the Trustees to be
the minimum for maintaining and operating the Series or Class as a viable
economic entity.
Section 6.7. Disclosure of Holding. The holders of Shares or other
securities of the Trust shall upon demand disclose to the Trustees in writing
such information with respect to direct and indirect ownership of Shares or
other securities of the Trust as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code of 1986, or to comply with the
requirements of any other taxing authority.
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Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
of the Trust or of any Series or Class thereof pursuant to the provisions of
Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or a Fund
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust or a Fund fairly to determine the value of its net
assets, or (iv) as the Commission may by order permit for the protection of
security holders of the Trust. Such suspension shall take effect at such time as
the Trust shall specify but not later than the close of business on the business
day next following the declaration of suspension, and thereafter there shall be
no right of redemption or payment on redemption until the Trust shall declare
the suspension at an end, except that the suspension shall terminate in any
event on the first day on which said stock exchange shall have reopened or the
period specified in clauses (ii) or (iii) shall have expired (as to which in the
absence of an official ruling by the Commission, the determination of the Trust
shall be conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his application or request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET
VALUE, NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The net asset value of each outstanding Share
of the Trust or of each Series or Class thereof shall be determined on such days
and at or as of such time or times as the Trustees may determine. Any reference
in this Declaration to the time at which a determination of net asset value is
made shall mean the time as of which the determination is made. The power and
duty to determine net asset value may be delegated by the Trustees from time to
time to the Investment Adviser, the Administrator, the Custodian, the Transfer
Agent or such other Person or Persons as the Trustees may determine. The value
of the assets of the Trust or any Series thereof shall be determined in a manner
authorized by the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, amounts determined and declared as a dividend or
distribution and all other
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items in the nature of liabilities which shall be deemed appropriate, as
incurred by or allocated to the Trust or any Series or Class thereof. The
resulting amount, which shall represent the total net assets of the Trust or
Series or Class thereof, shall be divided by the number of Shares of the Trust
or Series or Class thereof outstanding at the time and the quotient so obtained
shall be deemed to be the net asset value of the Shares of the Trust or Series
or Class thereof. The Trust may declare a suspension of the determination of net
asset value to the extent permitted by the 1940 Act. It shall not be a violation
of any provision of this Declaration if Shares are sold, redeemed or repurchased
by the Trust at a price other than one based on net asset value if the net asset
value is affected by one or more errors inadvertently made in the pricing of
portfolio securities or other investments or in accruing or allocating income,
expenses, reserves or liabilities. No provision of this Declaration shall be
construed to restrict or affect the right or ability of the Trust to employ or
authorize the use of pricing services, appraisers or any other means, methods,
procedures, or techniques in valuing the assets or calculating the liabilities
of the Trust or any Series or Class thereof.
Section 7.2. Dividends and Distributions. (a) The Trustees may from time to
time distribute ratably among the Shareholders of the Trust or of a Series or
Class thereof such proportion of the net earnings or profits, surplus (including
paid-in surplus), capital (including paid-in capital), or assets of the Trust or
such Series held by the Trustees as they may deem appropriate or desirable. Such
distributions may be made in cash, additional Shares or property (including
without limitation any type of obligations of the Trust or Series or Class or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders of the Trust or Series or Class thereof additional Shares of the
Trust or Series or Class thereof issuable hereunder in such manner, at such
times, and on such terms as the Trustees may deem appropriate or desirable. Such
distributions may be among the Shareholders of the Trust or Series or Class
thereof at the time of declaring a distribution or among the Shareholders of the
Trust or Series or Class thereof at such other date or time or dates or times as
the Trustees shall determine. The Trustees may in their discretion determine
that, solely for the purposes of such distributions, Outstanding Shares shall
exclude Shares for which orders have been placed subsequent to a specified time.
The Trustees may always retain from the earnings or profits such amounts as they
may deem appropriate or desirable to pay the expenses and liabilities of the
Trust or a Series or Class thereof or to meet obligations of the Trust or a
Series or Class thereof, together with such amounts as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extensions of the business or operations of the Trust or such Series. The Trust
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or other distribution plans as the Trustees may deem
appropriate or desirable. The Trustees may in their discretion determine that an
account administration fee or other similar charge may be deducted directly from
the income and other distributions paid on Shares to a Shareholder's account in
any Series or Class.
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(b) The Trustees may prescribe, in their absolute discretion, such bases
and times for determining the amounts for the declaration and payment of
dividends and distributions as they may deem necessary, appropriate or
desirable.
(c) Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books of account, the
above provisions shall be interpreted to give the Trustees full power and
authority in their absolute discretion to distribute for any fiscal year as
dividends and as capital gains distributions, respectively, additional amounts
sufficient to enable the Trust or a Series thereof to avoid or reduce liability
for taxes.
Section 7.3. Constant Net Asset Value; Reduction of Outstanding Shares. The
Trustees may determine to maintain the net asset value per Share of any Series
or Class at a designated constant amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the continuing declarations of
income attributable to that Series or Class as dividends payable in additional
Shares of that Series or Class or in cash or in any combination thereof and for
the handling of any losses attributable to that Series or Class. Such procedures
may provide that, if, for any reason, the income of any such Series or Class
determined at any time is a negative amount, the Trust may with respect to such
Series or Class (i) offset each Shareholder's pro rata share of such negative
amount from the accrued dividend account of such Shareholder, or (ii) reduce the
number of Outstanding Shares of such Series or Class by reducing the number of
Shares in the account of such Shareholder by that number of full and fractional
Shares which represents the amount of such excess negative income, or (iii)
cause to be recorded on the books of the Trust an asset account in the amount of
such negative income, which account may be reduced by the amount, provided that
the same shall thereupon become the property of the Trust with respect to such
Series or Class and shall not be paid to any Shareholder, of dividends declared
thereafter upon the Outstanding Shares of such Series or Class on the day such
negative income is experienced, until such asset account is reduced to zero, or
(iv) combine the methods described in clauses (i), (ii) and (iii) of this
sentence, in order to cause the net asset value per Share of such Series or
Class to remain at a constant amount per Outstanding Share immediately after
such determination and declaration. The Trust may also fail to declare a
dividend out of income for the purpose of causing the net asset value of any
such Share to be increased. The Trustees shall have full discretion to determine
whether any cash or property received shall be treated as income or as principal
and whether any item of expense shall be charged to the income or the principal
account, and their determination made in good faith shall be conclusive upon all
Shareholders. In the case of stock dividends or similar distributions received,
the Trustees shall have full discretion to determine, in the light of the
particular circumstances, how much if any of the value thereof shall be treated
as income, the balance, if any, to be treated as principal.
Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding any
provisions contained in this Declaration, the Trustees may prescribe, in their
absolute discretion, such other means, methods, procedures or techniques for
determining the per Share net asset value of a Series or Class thereof or the
income of the Series of Class thereof, or for the declaration and payment of
dividends and distributions on any Series or Class of Shares.
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ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A
SERIES OR CLASS; MERGERS; AMENDMENTS
Section 8.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article VIII. The death, declination,
resignation, retirement, removal or incapacity of the Trustees, or any one of
them, shall not operate to terminate or annul the Trust or to revoke any
existing agency or delegation of authority pursuant to the terms of this
Declaration or of the By-Laws.
Section 8.2. Termination of the Trust or a Series or a Class. (a) The Trust
or any Series or Class thereof may be terminated by: (1) the affirmative vote of
the holders of not less than two-thirds of the Shares outstanding and entitled
to vote at any meeting of Shareholders of the Trust or the appropriate Series or
Class thereof, or by an instrument or instruments in writing without a meeting,
consented to by the holders of two-thirds of the Shares of the Trust or a Series
or Class thereof, provided, however, that, if such termination is recommended by
the Trustees, the vote of a majority of the outstanding voting securities of the
Trust or a Series or Class thereof entitled to vote thereon shall be sufficient
authorization; or (2) by means of an instrument in writing signed by a majority
of the Trustees, to be followed by a written notice to Shareholders stating that
a majority of the Trustees has determined that the continuation of the Trust or
a Series or a Class thereof is not in the best interest of the Trust, such
Series or Class or of their respective Shareholders. Such determination may (but
need not) be based on factors or events adversely affecting the ability of the
Trust, such Series or Class to conduct its business and operations in an
economically viable manner. Such factors and events may include (but are not
limited to) the inability of a Series or Class or the Trust to maintain its
assets at an appropriate size, changes in laws or regulations governing the
Series or Class or the Trust or affecting assets of the type in which such
Series or Class or the Trust invests, or political, social, legal or economic
developments or trends having an adverse impact on the business or operations of
such Series or Class or the Trust. Upon the termination of the Trust or the
Series or Class,
(i) The Trust, Series or Class shall carry on no business except for
the purpose of winding up its affairs.
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(ii) The Trustees shall proceed to wind up the affairs of the Trust,
Series or Class and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust, Series or Class
shall have been wound up, including the power to fulfill or discharge the
contracts of the Trust, Series or Class, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property or assets allocated or belonging to such Series or
Class to one or more persons at public or private sale for the
consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust property or the remaining property of the
terminated Series or Class, in cash or in kind or in any combination
thereof, among the Shareholders of the Trust or the Series or Class
according to their respective rights.
(b) After termination of the Trust, Series or Class and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust and file with the Massachusetts Secretary
of State an instrument in writing setting forth the fact of such termination,
and the Trustees shall thereupon be discharged from all further liabilities and
duties with respect to the Trust or the terminated Series or Class, and the
rights and interests of all Shareholders of the Trust or the terminated Series
or Class shall thereupon cease.
Section 8.3. Merger, Consolidation or Sale of Assets of a Series. A
particular Series may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of its property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by the Trustees and
without any authorization, vote or consent of the Shareholders; and any such
merger, consolidation, sale, lease or exchange shall be deemed for all purposes
to have been accomplished under and pursuant to the statutes of The Commonwealth
of Massachusetts. The Trustees may also at any time sell and convert into money
all the assets of a particular Series. Upon making provision for the payment of
all outstanding obligations, taxes, and other liabilities, accrued or
contingent, of the particular Series, the Trustees shall distribute the
remaining assets of such Series among the Shareholders of such Series according
to their respective rights. Upon completion of the distribution of the remaining
proceeds or the remaining assets, the Series shall terminate and the Trustees
shall take the action provided in Section 8.2(b) hereof and the Trustees shall
thereupon be discharged from all further liabilities and duties with respect to
such
25
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Series, and the rights and interests of all Shareholders of the terminated
Series shall thereupon cease.
Section 8.4. Amendments.
(a) This Declaration may be amended by a vote of the holders of a majority
of the Shares outstanding and entitled to vote or by any instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
holders of a majority of the Shares outstanding and entitled to vote.
(b) This Declaration may be amended by a vote of a majority of Trustees,
without approval or consent of the Shareholders, except that no amendment can be
made by the Trustees to impair any voting or other rights of shareholders
prescribed by Federal or state law. Without limiting the foregoing, the Trustees
may amend this Declaration without the approval or consent of Shareholders (i)
to change the name of the Trust or any Series; (ii) to add to their duties or
obligations or surrender any rights or powers granted to them herein; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other provisions
with respect to matters or questions arising under this Declaration which will
not be inconsistent with the provisions of this Declaration; and (iv) to
eliminate or modify any provision of this Declaration which (a) incorporates,
memorializes or sets forth an existing requirement imposed by or under any
Federal or state statute or any rule, regulation or interpretation thereof or
thereunder or (b) any rule, regulation, interpretation or guideline of any
Federal or state agency, now or hereafter in effect, including without
limitation, requirements set forth in the 1940 Act and the rules and regulations
thereunder (and interpretations thereof), to the extent any change in applicable
law liberalizes, eliminates or modifies any such requirements, but the Trustees
shall not be liable for failure to do so.
(c) The Trustees may also amend this Declaration without the approval or
consent of Shareholders if they deem it necessary to conform this Declaration to
the requirements of applicable Federal or state laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code of 1986, as amended, or if requested or required to do so by any
Federal agency, but the Trustees shall not be liable for failing so to do.
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<PAGE>
(d) Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Trustees or by the
Shareholders as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Filing of Copies, References, Headings and Counterparts. The
original or a copy of this instrument, of any amendment hereto and of each
declaration of trust supplemental hereto, shall be kept at the office of the
Trust. A copy of this instrument, or any amendment hereto, and of each
supplemental declaration of trust shall be filed with the Massachusetts
Secretary of State and with any other governmental office where such filing may
from time to time be required. Anyone dealing with the Trust may rely on a
certificate by a Trustee or an officer of the Trust as to whether or not any
such amendments or supplemental declarations of trust have been made and as to
any matters in connection with the Trust hereunder, and with the same effect as
if it were the original, may rely on a copy certified by a Trustee or an officer
of the Trust to be a copy of this instrument or of any such amendment hereto or
supplemental declaration of trust.
In this instrument or in any such amendment or supplemental declaration of
trust, references to this instrument, and all expressions such as "herein",
"hereof", and "hereunder", shall be deemed to refer to this instrument as
amended or affected by any such supplemental declaration of trust. Headings are
placed herein for convenience of reference only and in case of any conflict, the
text of this instrument, rather than the headings, shall control. This
instrument shall be executed in any number of counterparts each of which shall
be deemed an original, but such counterparts shall constitute one instrument. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees then in office and filed with the
Massachusetts Secretary of State. A restated Declaration shall, upon execution,
be conclusive evidence of all amendments and supplemental declarations contained
therein and may hereafter be referred to in lieu of the original Declaration and
the various amendments and supplements thereto.
Section 9.2. Applicable Law. The Trust set forth in this instrument is made
in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth.
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The Trust shall be of the type commonly called a Massachusetts business trust,
and without limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
Section 9.3. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of legal counsel, that any of such provisions is in
conflict with the 1940 Act, the Internal Revenue Code of 1986, as amended, or
with other applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Declaration; provided, however,
that such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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IN WITNESS WHEREOF, the undersigned, being all of the current Trustees of
the Trust, have executed this instrument this 1st day of March, 1998.
/s/Samuel B. Carr, Jr.
Samuel B. Carr, Jr.
/s/Stanley R. Day, Jr.
Stanley R. Day, Jr.
/s/Philip W.Pascoe
Philip W.Pascoe
/s/Robert J. Phares
Robert J. Phares
/s/Frederick T. Weyerhaeuser
Frederick T. Weyerhaeuser
29
BY-LAWS
of
CLEARWATER INVESTMENT TRUST
ARTICLE I
Officers and Their Election
SECTION 1. Officers. The officers of the Trust shall be a Chairman, a Vice
President, a Treasurer, a Secretary, and such other officers with such other
titles as provided for herein or as the Trustees may from time to time elect. It
shall not be necessary for any Trustee or other officer to be a holder of shares
in the Trust.
SECTION 2. Election of Officers. The Treasurer and Secretary shall be chosen
annually by the Trustees. The Chairman and Vice President shall be chosen
annually by and from the Trustees.
Two or more offices may be held by a single person except the offices of
Chairman and Secretary. The officers shall hold office until their successors
are chosen and qualified.
SECTION 3. Resignations and Removals. Any officer of the Trust may resign by
filing a written resignation with the Chairman or with the Trustees or with the
Secretary, which shall take effect on being so filed unless it is specified to
be effective at some other time or upon the happening of some other event. Any
officer may be removed at any time, with or without cause, by vote of a majority
of the entire number of Trustees.
SECTION 4. Vacancies. The Trustees may fill any vacancy occurring in any office
for any reason and may, in its discretion, leave unfilled for such period as it
may determine any offices other than those of Chairman, Vice President,
Treasurer and Secretary. Each such successor shall hold office until his
successor is chosen and qualified.
ARTICLE II
Powers and Duties of Officers and Trustees
SECTION 1. Trustees. The business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to fully
carry out that responsibility.
SECTION 2. Executive and other Committees. The Trustees may elect from their own
number an Executive Committee to consist of not less than three nor more than
five members, which shall have the power and duty to conduct the current and
ordinary business of the Trust, and such other powers and duties as the Trustees
may from time to time delegate to such Committee. The Trustees may also elect
from their own number other Committees from time to time, the number composing
such Committees and the powers conferred upon the same to be determined by vote
of the Trustees.
SECTION 3. Chairman of the Trustees The Chairman shall preside at all meetings
to the Trustees, shall be the chief executive officer and may be the chief
operating officer of the Trust. The Chairman may also perform such other duties
as the Trustees may from time to time designate.
The Chairman, subject to the Trustees, shall have general supervision over
the business and policies of the Trust. The Chairman shall have full power and
authority to bind the Trust and in connection therewith may execute and deliver
in the name and on behalf of the Trust any and all agreements, instruments,
notes and writings of any nature that he may consider necessary or appropriate
in connection with the management of the Trust. The Chairman shall perform such
duties additional to all of the foregoing as the Trustees may from time to time
designate.
SECTION 4. Treasurer. Subject to Section 4 of Article V of the Declaration of
Trust, the Treasurer may be the principal financial and accounting officer of
the Trust. He shall deliver all funds and securities of the Trust which may come
into his hands to such bank(s) or trust compan(ies) as the Trustees shall employ
as Custodian(s) in accordance with Article IX of the Declaration of Trust and
these By-Laws. He shall have the custody of the seal of the Trust. He shall make
annual reports in writing of the business conditions of the Trust, which reports
shall be preserved upon its records, and he shall furnish such other reports
regarding its business and condition as the Trustees may from time to time
require. The Treasurer shall perform such duties additional to all of the
foregoing as the Trustees or the Chairman may from time to time designate.
SECTION 5. Secretary. The Secretary shall record in books kept for the purpose
all votes and proceedings of the Trustees and the shareholders at their
respective meetings.
The Secretary shall perform such duties and possess such powers additional
to the foregoing as the Trustees or the Chairman may from time to time
designate.
SECTION 6. Vice Presidents. Each Vice President of the Trust shall perform such
duties and possess such powers as the Trustees or the Chairman may from time to
time designate. In the event of the absence, inability or refusal to act of the
Chairman, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Trustees) shall perform the duties of
the Chairman and when so performing shall have all the powers of and be subject
to all the restrictions upon the Chairman.
SECTION 7. Assistant Treasurer. The Assistant Treasurer of the Trust shall
perform such duties and possess such powers as the Trustees, the Chairman or the
Treasurer may from time to time designate.
SECTION 8. Assistant Secretary. The Assistant Secretary of the Trust shall
perform such duties and possess such powers as the Trustees, the Chairman or the
Secretary may from time to time designate.
ARTICLE III
Shareholders' Meetings
SECTION 1. Voting powers and meetings of Shareholders shall be governed by
applicable provisions of law, the Declaration of Trust and as hereinafter
provided by these By-Laws.
SECTION 2. Special Meetings. A special meeting of the Shareholders of any Series
shall be called by the Secretary whenever ordered by the Trustees or requested
in writing by the holder or holders of at least one-fourth of the outstanding
Shares of any such Series entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than two days to call such special
meeting, the Trustees or the Shareholders so requesting may, in the name of the
Secretary, call the meeting by giving notice thereof in the manner required when
notice is given by the Secretary.
SECTION 3. Notices. Except as above provided, notices of any special meeting of
the Shareholders shall be given by the Secretary by delivering or mailing,
postage prepaid, to each Shareholder entitled to vote at said meeting, a written
or printed notification of such meeting, at least fifteen days before the
meeting, to such address as may be registered with the Trust by the Shareholder.
SECTION 4. Place of Meeting All special meetings of the Shareholders shall be
held at such place in the United States as the Trustees may designate.
ARTICLE IV
Trustees' Meetings
SECTION 1. Meetings. Meetings of the Trustees shall be called orally or in
writing by the Chairman or at his order or direction or by any two other
Trustees, and if the Secretary when so requested refuses or fails for more than
one day to call such meeting, the Chairman, or such two other Trustees, may in
the name of the Secretary call such meeting by giving due notice in the manner
required when notice is given by the Secretary.
SECTION 2. Quorum. A majority of the Trustees shall constitute a quorum for the
transaction of business.
SECTION 3. Notices. Except as otherwise provided, notice of any meeting of the
Trustees shall be given by the Secretary to each Trustee, by mailing to him,
postage prepaid, addressed to him at his address as registered on the books of
the Trust or, if not so registered, at his last known address, a written or
printed notification of such meeting at least three days before the meeting or
by overnight delivery of such notice to him at least one day before the meeting,
or by telephoning him or by sending to him at least one day before the meeting,
by prepaid telegram, addressed to him at his said registered address, if any, or
if he has no such registered address, at his last known address, notice of such
meeting.
SECTION 4. Place of Meeting All meetings of the Trustees shall be held at the
principal place of business of the Trust in St. Paul, Minnesota, or such other
place within or without the State as the person or persons requesting said
meeting to be called may designate, but any meeting may adjourn to any other
place.
SECTION 5. Special Action. When all the Trustees shall be present at any
meeting, however called, or wherever held, or shall assent to the holding of the
meeting without notice, or after the meeting shall sign a written assent thereto
on the record of such meeting, the acts of such meeting shall be valid as if
such meeting had been regularly held.
SECTION 6. Action by Consent. Any action by the Trustees may be taken without a
meeting if a written consent thereto is signed by all the Trustees and filed
with the records of the Trustees meetings, or by telephone consent provided a
quorum of Trustees participate in any such telephone meeting. Such consent shall
be treated as a vote of the Trustees for all purposes.
ARTICLE V
Shares of Beneficial Interest
SECTION 1. Beneficial Interest. The beneficial interest in the Trust and the
status of the owners thereof shall be defined, established and governed by
applicable provisions of law, the Declaration of Trust and as herein provided by
these By-Laws.
SECTION 2. Certificate of Shares of Beneficial Interest. The shares of the Trust
shall be registered with the Trust in "book entry" form. A certificate of shares
of beneficial interest of the Trust shall be issued to a shareholder only if the
Trustees, in their sole discretion after consideration of a written request from
such shareholder, determine that a certificate may be so issued. Any certificate
so issued shall be signed by the Chairman or a Vice President, and by the
Treasurer or an Assistant Treasurer, but when a certificate is countersigned by
a transfer agent or a registrar, other than a Trustee, officer or employee of
the Trust, such signature may be a facsimile. In case any officer who has signed
or whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the Trust with the same effect as if he were such officer at the time of its
issue.
Every certificate for shares of beneficial interest which are subject to
any restriction on transfer pursuant to the Declaration of Trust, the By-Laws,
applicable securities laws or any agreement to which the Trust is a party, shall
have conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restrictions and
a statement that the Trust will furnish a copy of the restrictions to the holder
of such certificate upon written request and without charge. Every certificate
issued when the Trust is authorized to issue more than one class or series of
shares of beneficial interest shall set forth on its face or back either the
full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series authorized to be issued
or a statement of the existence of such preferences, powers, qualifications and
rights and a statement that the Trust will furnish a copy thereof to the holder
of such certificate upon written request and without charge.
SECTION 3. Transfers. At the discretion of the Trustees and subject to the
restrictions, if any, stated or noted on any share certificates, shares may be
transferred on the books of the Trust by (a) a properly executed stock
assignment or (b) with respect to shares represented by a share certificate, the
surrender to the Trust or its transfer agent of such certificate representing
such shares properly endorsed or accompanied by a written assignment or power of
attorney properly executed; and with such proof of authority or the authenticity
of signature as the Trust or its transfer agent may reasonably require. Except
as may be otherwise required by law, by the Declaration of Trust or by these
By-Laws, the Trust shall be entitled to treat the record holder of shares of
beneficial interest as shown on its books as the owner of such shares for all
purposes, including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such shares
until the shares have been transferred on the books of the Trust in accordance
with the requirements of these By-Laws.
SECTION 4. Replacement of Certificates. In case of the alleged loss or
destruction or the mutilation of a certificate of shares of beneficial interest,
a duplicate certificate may be issued in place of the lost, destroyed or
mutilated certificate, upon such terms as the Trustees may prescribe, including
the presentation of reasonable evidence of such loss, destruction or mutilation
and the giving of such indemnity as the Trustees may require for the protection
of the Trust or any transfer agent or registrar.
ARTICLE VI
Inspection of Books
The Trustees shall from time to time determine whether and to what extent,
and at what times and places, and under what conditions and regulations the
accounts and books of the Trust or any of them shall be open to the inspection
of the shareholders; and no shareholder shall have any right to inspect any
account or book or document of the Trust except as conferred by law or otherwise
by the Trustees or by resolution of the shareholders.
ARTICLE VII
Custodian
The Custodian(s) employed by the Trust pursuant to Article IX of the
Declaration of Trust shall be required to enter into a contract with the Trust
which shall contain in substance the following provisions:
(a) The Trust will cause all securities and funds owned by the Trust to be
delivered or paid to the Custodian(s).
(b) The Custodian(s) will receive and receipt for any moneys due to the
Trust and deposit the same in its own banking department and in such
other banking institutions, if any, as the Custodian(s) and the
Trustees may approve. The Custodian(s) shall have the sole power to
draw upon any such account.
(c) The Custodian(s) shall release and deliver securities owned by the
Trust in the following cases only:
(1) Upon the sale of such securities for the account of the Trust and
receipt of payment therefor;
(2) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that in any such case, the cash is to be delivered to the
Custodian(s);
(3) To the issuer thereof or its agent for transfer in- to the name
of the Trust, the Custodian(s) or a nominee of either, or for
exchange for a different number of bonds or certificates
representing the same aggregate face amount or number of units;
provided that in any such case the new securities are to be
delivered to the Custodian(s);
(4) To the broker selling the same for examination, in accord with
the "street delivery" custom;
(5) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities or pursuant to
provisions to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian(s);
(6) In the case of warrants, rights, or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(7) To any pledge by way of pledge or hypothecation to secure any
loan, but only within the limits permitted to the Trust by
Article V, Section 1(r) of the Declaration of Trust.
(8) For deposit in a system for the central handling of securities in
accordance with the provisions of Article IX, Section 2 of the
Declaration of Trust.
(d) The Custodian(s) shall pay out moneys of the Trust only upon the
purchase of securities for the account of the Trust and the delivery
in due course of such securities to the Custodian(s), or in connection
with the conversion, exchange or surrender of securities owned by the
Trust as set forth in (c), or for the redemption or repurchase of
shares issued by the Trust or for the making of any disbursements
authorized by the Trustees pursuant to the Declaration of Trust or
these By-laws, or for the payment of any expense or liability incurred
by the Trust; provided that, in every case where payment is made by
the Custodian(s) in advance of receipt of the securities purchased,
the Custodian(s) shall be absolutely liable to the Trust for such
securities to the same extent as if the securities had been received
by the Custodian(s).
(e) The Custodian(s) shall make deliveries of securities and payments of
cash only upon written instructions signed or initialed by such
officer or officers or other agent or agents of the Trust as may be
authorized to sign or initial such instructions by resolution of the
Trustees; it being understood that the Trustees may from time to time
authorize a different person or persons to sign or initial
instructions for different purposes.
The contract between the Trust and the Custodian(s) may contain any such
other provisions not inconsistent with the provisions of Article IX of the
Declaration of Trust or with these By-laws as the Trustees may approve.
Such contract shall be terminable by either party upon written notice to
the other within such time not exceeding sixty (60) days as may be specified in
the contract; provided, however, that upon termination of the contract or
inability of the Custodian(s) to continue to serve, the Custodian(s) shall, upon
written notice of appointment of another bank or trust company as custodian,
deliver and pay over to such successor custodian all securities and moneys held
by it for account of the Trust. In such case, the Trustees shall promptly
appoint a successor custodian, but in the event that no successor custodian can
be found having the required qualifications and willing to serve, it shall be
the duty of the Trustees to call as promptly as possible a special meeting of
the Shareholders to determine whether the Trust shall function without a
custodian or shall be liquidated. If so directed by vote of the holders of a
majority of the outstanding Shares, the Custodian(s) shall deliver and pay over
all property of the Trust held by it as specified in such vote.
Such contract shall also provide that, pending appointment of a successor
custodian or a vote of the shareholders specifying some other disposition of the
funds and property, the Custodian(s) shall not deliver funds and property of the
Trust to the Trust, but it may deliver them to a bank or trust company doing
business in Minnesota, of its own selection having aggregate capital, surplus
and undivided profits, as shown by its last published report, of not less than
$1,000,000 as the property of the Trust to be held under terms similar to those
on which they were held by the retiring custodian.
Any sub-custodian employed by the Custodian(s) pursuant to authorization to
do so granted by the Trust pursuant to Article IX of the Declaration of Trust
shall be required to enter into a contract with the Custodian containing in
substance the same provisions as those described in paragraphs (a) through (e)
above, except that any contract with a sub-custodian performing its duties
outside the United States and its territories and possessions, may omit or limit
any of such conditions, provided that, any such omission or limitation shall be
expressly approved by a majority of the Trustees of the Trust.
ARTICLE VIII
Miscellaneous Provisions
SECTION 1. Seal. The seal of the Trust shall be circular in
form bearing the inscription:
"CLEARWATER INVESTMENT TRUST"
"A MASSACHUSETTS BUSINESS TRUST 1987"
SECTION 2. Fiscal Year. The fiscal year of the Trust shall be the period of
twelve months ending on the 31st day of October in each calendar year.
SECTION 3. Reports to Shareholders. The Trustees shall at least semi-annually
submit to the shareholders a written financial report of the transactions of the
Trust including financial statements which shall at least annually be certified
by independent public accountants.
SECTION 4. Voting of Securities. Except as the Trustees may otherwise designate,
the Chairman or Treasurer may waive notice of, and act as, or appoint any person
or persons to act as, proxy or attorney-in-fact for the Trust (with or without
power of substitution) at, any meeting of stockholders or shareholders of any
corporation or other organization, the securities of which may be held by the
Trust.
SECTION 5. Evidence of Authority. A certificate by the Secretary or Assistant
Secretary, or a temporary Secretary, as to any action taken by the shareholders,
Trustees, any committee or any officer or representative of the Trust shall as
to all persons who rely on the certificate in good faith be conclusive evidence
of such action.
SECTION 6. Declaration of Trust. All references in these By-Laws to the
Declaration of Trust shall be deemed to refer to the Declaration of Trust of the
Trust dated January 12, 1987, as amended and in effect from time to time.
SECTION 7. Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws or the Declaration of Trust.
SECTION 8. Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
MANAGEMENT CONTRACT
AGREEMENT made as of the 1st day of March, 1998, by and between CLEARWATER
INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), and CLEARWATER
MANAGEMENT CO., INC., a Minnesota corporation (the "Manager").
WITNESSETH:
WHEREAS, the Trust desires to utilize the services of the Manager as the
manager for the Trust and of the existing series of the Trust, Clearwater Growth
Fund and Clearwater Small Cap Fund (each a "Fund"), and any further series of
the Trust as may be set forth on Appendix A hereto; and
WHEREAS, the Manager is willing to perform such services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, it is agreed as follows:
1. The Manager's Services.
(a) Subject always to the supervision of the Trustees of the Trust and the
investment policies and restrictions applicable to each Fund as set forth in the
registration statement of the Trust filed with the Securities and Exchange
Commission (the "SEC"), the Manager is hereby authorized and directed and hereby
agrees to develop, recommend and implement such investment programs and
strategies for the Funds as may from time to time in the circumstances appear
most appropriate to the achievement of the respective investment objectives of
the Funds as stated in the aforesaid registration statement, to provide research
and analysis relative to the investment program and investments of each Fund, to
determine what securities should be purchased and sold and what portion of the
assets of each Fund should be held in cash or cash equivalents or other assets
and to monitor on a continuing basis the performance of the portfolio securities
of the Fund. In addition, the Manager will place orders for the purchase and
sale of securities and will advise the custodian for each Fund on a prompt basis
of each purchase and sale of a portfolio security for such Fund specifying the
name of the issuer, the description and amount or number of shares of the
security purchased, the market price, commission and gross or net price, trade
date, settlement date and identity of the effecting broker or dealer. From time
to time as the Trustees of the Trust may reasonably request, the Manager will
furnish to the Trust's officers and to each of its Trustees reports on portfolio
transactions and reports on issues of securities held in each Fund, all in such
detail as
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any such Trustee may reasonably request. The Manager will also inform the
Trust's officers and Trustees on a current basis of changes in investment
strategy or tactics. The Manager will make its officers and employees available
to meet with the Trust's officers and Trustees at least quarterly on due notice
to review the investments and investment program of each Fund in the light of
current and prospective economic and market conditions. In the performance of
its duties hereunder, the Manager will comply with the provisions of the
Declaration of Trust and By-laws of the Trust, each as amended from time to
time, and will use its best efforts to safeguard and promote the welfare of the
Trust and to comply with other policies which the Trustees may from time to time
adopt and shall exercise the same care and diligence expected of the Trustees.
(b) Except as otherwise provided herein, the Manager, at its own expense,
shall furnish the Trust with office space in the offices of the Manager or in
such other place as may be agreed upon from time to time, and all necessary
office facilities, equipment and personnel for managing the affairs and
investments of the Funds, and shall arrange, if desired by the Trust, for
members of the Manager's organization to serve as officers or agents of the
Trust.
(c) The Manager shall pay directly or reimburse the Trust for all expenses
not hereinafter specifically assumed by the Trust or a Fund. The Trust on behalf
of each Fund will pay commissions and other direct charges relating to the
purchase and sale of portfolio securities and other assets, taxes, interest and
extraordinary expenses, including without limitation litigation expenses.
(d) It shall be the duty of the Manager to furnish to the Trustees of the
Trust such information as may reasonably be necessary in order for the Trustees
to evaluate this Contract or any proposed amendments hereto for the purposes of
casting a vote pursuant to Sections 5 or 7 hereof.
(e) In the performance of its duties hereunder, the Manager is and shall be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Trust in any way
or otherwise be deemed to be an agent of the Trust.
2. Subadvisers. It is understood that the Manager may employ one or more
subinvestment advisers (each a "Subadviser") to provide investment advisory
services to the Funds by entering into a written agreement with each such
Subadviser; provided, that any such agreement first shall be approved on behalf
of the respective Fund in accordance with the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), as such requirements are
modified by rule, regulation, interpretation or order of the SEC. The authority
given to the Manager in Sections 1 through 7 hereof may be delegated by it under
any such agreement; provided, that any Subadviser shall be subject to the same
restrictions and limitations
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on investments and brokerage discretion as the Manager. The Trust agrees that
the Manager shall not be accountable to the Trust or either Fund or either
Fund's shareholders for any loss or other liability relating to specific
investments directed by any Subadviser, even though the Manager retains the
right to reverse any such investment, because, in the event a Subadviser is
retained, the Trust and the Manager will rely almost exclusively on the
expertise of such Subadviser for the selection and monitoring of specific
investments.
3. Other Agreements, etc. It is understood that any of the shareholders,
trustees, officers and employees of the Trust may be a shareholder, director,
officer or employee of, or be otherwise interested in, the Manager, any
interested person (as defined in the 1940 Act) of the Manager, any organization
in which the Manager may have an interest or any organization which may have an
interest in the Manager, and that the Manager, any such interested person or any
such organization may have an interest in the Trust. It is also understood that
the Trust and the Manager may have advisory, management, service or other
contracts with other individuals or entities, and may have other interests and
business; provided, that the Manager shall not undertake any seriously
conflicting duties or loyalties which would affect its prior fiduciary duty to
the Trust.
4. Manager's Compensation.
(a) The Trust on behalf of Clearwater Growth Fund ("Growth Fund") shall pay
to the Manager, as compensation for the Manager's services to the Growth Fund
and as reimbursement to the Manager for the payment of the Growth Fund's
expenses, a fee at the annual rate of 0.45% of the Growth Fund's average daily
net assets. The management fee payable by the Growth Fund hereunder shall be
calculated and accrued daily as a percentage of such Fund's average daily net
assets and shall be payable quarterly after the end of each calendar quarter on
or before the 15th day of January, April, July and October with respect to the
preceding quarter. In the event of termination of this Contract with respect to
the Growth Fund, the fee provided for in this paragraph shall be computed on the
basis of the period ending on the last business day on which this Contract is in
effect subject to a pro rata adjustment based on the number of days elapsed in
the current quarter as a percentage of the total number of days in such quarter.
(b) The Trust on behalf of Clearwater Small Cap Fund ("Small Cap Fund")
shall pay to the Manager, as compensation for the Manager's services to the
Small Cap Fund and as reimbursement to the Manager for the payment of the Small
Cap Fund's expenses, a fee at the annual rate of 1.35% of the Small Cap Fund's
average daily net assets. The management fee payable by the Small Cap Fund
hereunder shall be calculated and accrued daily as a percentage of such Fund's
average daily net assets and shall be payable quarterly after the end of each
calendar quarter on or before the 15th day of January, April, July and October
with respect to
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the preceding quarter. In the event of termination of this Contract with respect
to the Small Cap Fund, the fee provided for in this paragraph shall be computed
on the basis of the period ending on the last business day on which this
Contract is in effect subject to a pro rata adjustment based on the number of
days elapsed in the current quarter as a percentage of the total number of days
in such quarter.
(c) The method of determining the net assets of each Fund for purposes of
calculating the fee payable to the Manager hereunder shall be the same as the
method of determining net assets for purposes of establishing the offering and
redemption price of shares of the Fund. If this Contract shall be effective for
only a portion of a calendar quarter with respect to a Fund, the applicable fee
shall be prorated for that portion of such calendar quarter during which this
Contract is in effect.
(d) The Manager may from time to time agree not to impose all or a portion
of its fee with respect to either Fund otherwise payable hereunder (in advance
of the time such fee or a portion thereof would otherwise accrue) and/or
undertake to pay or reimburse such Fund for all or a portion of its expenses not
otherwise required to be borne or reimbursed by the Manager. Any such fee
reduction or undertaking may be discontinued or modified by the Manager at any
time.
5. Assignment and Amendment. This Contract shall automatically terminate,
without the payment of any penalty, in the event of its assignment (as defined
in the 1940 Act); provided, that such termination shall not relieve either party
of any liability incurred hereunder. The terms of this Contract shall not be
changed unless such change is approved in accordance with the requirements of
the 1940 Act, as such requirements are modified by rule, regulation,
interpretation or order of the SEC.
6. Avoidance of Inconsistent Position.
(a) In connection with purchases and sales of portfolio securities for the
account of each Fund, neither the Manager nor any of its Directors, officers or
employees will act as a principal or agent or receive any commission except as
permitted by the 1940 Act. The Manager shall arrange for the placing of all
orders for the purchase and sale of portfolio securities for each Fund's account
with brokers or dealers selected by the Manager. In the selection of such
brokers or dealers and the placing of such orders, the Manager is directed at
all times to seek for each Fund the most favorable execution and net price
available except as described herein. It is understood that it is desirable for
each Fund that the Manager have access to supplemental investment and market
research and security and economic analyses provided by brokers who may execute
brokerage transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of
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seeking the most favorable price and efficient execution. Therefore, the Manager
is authorized to place orders for the purchase and sale of securities for a Fund
with such brokers, subject to review by the Trust's Trustees from time to time
with respect to the extent and continuation of this practice. It is understood
that the services provided by such brokers may be useful to the Manager in
connection with the Manager's services (or its affiliates' services) to other
clients.
(b) On occasions when the Manager deems the purchase or sale of a security
to be in the best interest of a Fund as well as other clients, the Manager, to
the extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased in order to obtain the best execution and
lower brokerage commissions, if any. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Manager in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such clients.
7. Effective Period and Termination of this Contract.
(a) This Contract shall become effective on the date hereof and shall
remain in full force and effect as to each Fund until two years from the date
set forth above and from year to year thereafter, but only so long as its
continuance is approved in accordance with the requirements of the 1940 Act, as
such requirements are modified by rule, regulation, interpretation or order of
the SEC, subject to the respective rights of the Trust and the Manager to
terminate this contract as provided in paragraphs (b) and (c) hereof.
(b) The Trust may at any time and without penalty terminate this Contract
as to any Fund or as to the Trust as a whole by not more than sixty (60) days'
nor less than thirty (30) days' written notice given to the Manager; or
(c) The Manager may at any time and without penalty terminate this Contract
as to any Fund or as to the Trust as a whole by not less than one hundred twenty
(120) days' written notice given to the Trust.
8. Complete Agreement. This Contract states the entire agreement of the
parties hereto, and is intended to be the complete and exclusive statement of
the terms hereof. It may not be added to or changed orally, and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with Section 5 hereof and the applicable requirements of the 1940 Act
as such requirements are modified by rule, regulation, interpretation or order
of the SEC.
9. Nonliability of the Manager. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Manager, or of reckless disregard
of its obligations and duties hereunder, the Manager shall not be subject to any
liability to
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the Trust, to any shareholder of the Trust, or to any person, firm or
organization, for any act or omission in the course of, or connected with,
rendering services hereunder. Nothing herein, however, shall derogate from the
Manager's obligations under applicable federal and state securities laws.
10. Limitation of Liability of the Trustees, Officers and Shareholders. A
copy of the Declaration of Trust of the Trust is on file with the Secretary of
State of The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees and
not individually and that the obligations of this instrument with respect to a
Fund or to the Trust in general are not binding upon any of the Trustees,
officers or shareholders of the Trust but are binding only upon the assets and
property of that Fund or of the Trust, as the case may be.
11. Notices. Any notice, instruction, request or other communications
required or contemplated by this Contract shall be in writing and shall be duly
given when deposited by first-class mail, postage prepaid, or consigned to a
nationally recognized overnight delivery service addressed to (or delivered by
hand with confirmation to) the Trust or the Manager at the applicable address
set forth below:
If to Trust:
Clearwater Investment Trust
332 Minnesota Street, Suite 2100
St. Paul, Minnesota 55101
If to Manager:
Clearwater Management Co., Inc.
332 Minnesota Street, Suite 2100
St. Paul, Minnesota 55101
12. Disclosure Statement. The Trust acknowledges receipt of the Manager's
written disclosure statement required by Rule 204-3 under the Investment
Advisers Act of 1940 not less than 48 hours prior to entering into this
Contract.
13. Governing Law. This Contract and all performance hereunder shall be
governed by, interpreted, construed and enforced in accordance with the laws of
the State of Minnesota.
14. Severability. Any term or provision of this Contract which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Contract or affecting the
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validity or enforceability of any of the terms or provisions of this Contract in
any other jurisdiction.
15. Counterparts. This Contract may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their duly authorized officers and as of the day and year first
written above.
CLEARWATER INVESTMENT TRUST
By: /s/Frederick T. Weyerhaeuser
Name: Frederick T. Weyerhaeuser
Title: Chairman
CLEARWATER MANAGEMENT CO., INC.
By: /s/Philip. W. Pascoe
Name: Philip. W. Pascoe
Title: Chairman
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SUBADVISORY CONTRACT
AGREEMENT made as of the 1st day of November 1997, by and among CLEARWATER
INVESTMENT TRUST, a Massachusetts business trust (the "Trust"), CLEARWATER
MANAGEMENT CO., INC., a Minnesota corporation (the "Manager"), and PARAMETRIC
PORTFOLIO ASSOCIATES (the "Subadviser").
W I T N E S S E T H:
WHEREAS, the Manager desires to utilize the services of the Subadviser as
financial counsel with respect to the Clearwater Growth Fund (the "Fund"), a
separate series of the Trust; and
WHEREAS, the Subadviser is willing to perform such services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits
herein contained, it is agreed as follows:
1. The Subadviser's Services. The Subadviser will serve the Manager as
financial counsel with respect to the Fund which is under the management of the
Manager pursuant to the Management Contract dated May 1, 1994 between the
Manager and the Trust. Subject to the supervision of the Manager, the investment
policies and restrictions applicable to the Fund as set forth in the
registration statement of the Trust filed with the Securities and Exchange
Commission and such resolutions as from time to time may be adopted by the
Trust's Trustees and furnished to the Subadviser, the Subadviser is hereby
authorized and directed and hereby agrees to develop, recommend and implement
such investment program and strategy for the Fund as may from time to time in
the circumstances appear most appropriate to the achievement of the investment
objectives of the Fund as stated in the aforesaid registration statement, to
provide research and analysis relative to the investment program and investments
of the Fund, to determine what securities should be purchased and sold and what
portion of the assets of the Fund should be held in cash or cash equivalents or
other assets and to monitor on a continuing basis the performance of the
portfolio securities of the Fund. In addition, the Subadviser will place orders
for the purchase and sale of portfolio securities and will advise the Manager
and the custodian for the Fund on a prompt basis of each purchase and sale of a
portfolio security specifying the name of the issuer, the description and amount
or number of shares of the security purchased, the market price, commission and
gross or net price, trade date, settlement date and identity of the effecting
broker or dealer. From time to time as the Trustees of the Trust or the Manager
may reasonably request, the Subadviser will furnish to the Trust's officers and
to each of its Trustees reports on portfolio transactions and reports on issues
of securities held by the Fund, all in such detail as any such Trustee or the
Manager may reasonably request. The Subadviser also will inform the Trust's
officers and Trustees on a current basis of changes in investment strategy or
tactics. The Subadviser will make its officers and employees available to meet
with the Trust's officers and Trustees and the Manager's officers and Directors
at least quarterly on due notice to review the investments and investment
program of the Fund in the light of current and prospective economic and market
conditions.
2. Avoidance of Inconsistent Position.
(a) In connection with purchases and sales of portfolio securities for the
account of the Fund, the Subadviser will not act as a principal or agent or
receive any commission except as permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). The Subadviser shall arrange for the placing
of all orders for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers selected by the Subadviser. In the selection of
such brokers or dealers and the placing of such orders, the Subadviser is
directed at all times to seek for the Fund the most favorable execution and net
price available except as otherwise described herein. It is understood that it
is desirable for the Fund that the Subadviser have access to supplemental
investment and market research and security and economic analyses provided by
brokers who may execute brokerage transactions at a higher cost to the Fund than
may result when allocating brokerage to other brokers on the basis of seeking
the most favorable price and efficient execution. Therefore, the Subadviser is
authorized to place orders for the purchase and sale of securities for the Fund
with such brokers consistent with the requirements of Section 28(e) of the
Securities Exchange Act of 1934, subject to review by the Trust's Trustees from
time to time with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to the
Subadviser in connection with its services (and the services of the Subadviser's
affiliates) to other clients.
(b) On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients, the
Subadviser, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased in order to obtain the best
execution and lower brokerage commissions, if any. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligations to the Fund and to
such clients.
3. Other Agreements, etc. It is understood that any of the shareholders,
Trustees, officers and employees of the Trust may be a shareholder, director,
officer or employee of, or be otherwise interested in, the Subadviser, any
interested person (as defined in the 1940 Act) of the Subadviser, any
organization in which the Subadviser may have an interest or any organization
which may have an interest in the Subadviser and that the Subadviser, any such
interested person or any such organization may have an interest in the Trust. It
is also understood that the Subadviser, the Manager and the Trust may have
advisory, management, service or other contracts with other individuals or
entities, and may have other interests and businesses. When a security proposed
to be purchased or sold for the Trust is also to be purchased or sold for other
accounts managed by the Subadviser at the same time, the Subadviser shall make
such purchases or sales on a pro rata, rotating or other equitable basis so as
to avoid any one account being preferred over any other account.
4. Subadviser's Compensation. The Manager shall pay to the Subadviser for
its services hereunder a fee at the annual rate of 0.15% of the Fund's net
assets under the Subadviser's management. Such fee shall be calculated and
accrued on a monthly basis as a percentage of the Fund's month end net assets
under the Subadviser's management, and shall be payable quarterly after the end
of each calendar quarter on or before the 15th day of January, April, July and
October of each year with respect to the preceding quarter. If this Contract
shall be effective for only a portion of a calendar quarter, the aforesaid fee
shall be prorated for that portion of such calendar quarter during which this
Contract is in effect.
5. Assignment and Amendment. This Contract shall automatically terminate,
without the payment of any penalty, in the event of its assignment (as defined
in the 1940 Act) or in the event of the termination of the Management Contract
between the Trust and the Manager insofar as it applies to the Fund; provided,
that such termination shall not relieve either party of any liability incurred
hereunder. The terms of this Contract shall not be changed unless such change is
approved in accordance with the requirements of the 1940 Act, and as such
requirements may be modified by rule, regulation or order of the Securities and
Exchange Commission (the "SEC").
6. Effective Period and Termination of this Contract.
(a) This Contract shall become effective on the date hereof and shall
remain in full force and effect until two years from the date hereof and from
year to year thereafter, but only so long as its continuance is approved
annually in accordance with the requirements of the 1940 Act, and as such
requirements may be modified by rule, regulation or order of the SEC, subject to
the respective rights of the Trust, the Manager and the Subadviser to terminate
this Contract as provided in paragraphs (b) and (c) hereof.
(b) The Trust or the Manager may at any time terminate this Contract by not
more than sixty (60) days' nor less than thirty (30) days' written notice given
to the Subadviser.
(c) The Subadviser may at any time terminate this Contract by not less than
one hundred twenty (120) days' written notice given to the Trust and the
Manager.
7. Complete Agreement. This Contract states the entire agreement of the
parties hereto, and is intended to be the complete and exclusive statement of
the terms hereof. It may not be added to or changed orally, and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with Section 5 hereof and the applicable requirements of the 1940
Act.
8. Nonliability of the Subadviser. In the absence of willful misfeasance,
bad faith or gross negligence on the part of the Subadviser, or of reckless
disregard of its obligations and duties hereunder, the Subadviser shall not be
subject to any liability to the Manager or the Trust, to any shareholder of the
Fund, or to any person, firm or organization, for any act or omission in the
course of, or connected with, rendering services hereunder. Nothing herein,
however, shall derogate from the Subadviser's obligations under applicable
federal and state securities laws.
9. Limitation of Liability of the Trustees, Officers and Shareholders. A
copy of the Declaration of Trust of the Trust is on file with the Secretary of
State of The Commonwealth of Massachusetts, and notice is hereby given that this
Contract is executed on behalf of the Trustees of the Trust as Trustees and not
individually and that the obligations under this Contract are not binding upon
any of the Trustees, officers or shareholders of the Trust but are binding only
upon the assets and property of the Fund.
10. Notices. Any notice, instruction, request or other communications
required or contemplated by this Contract shall be in writing and shall be duly
given when deposited by first class mail, postage prepaid, addressed to (or
delivered by hand with confirmation to) the Trust, the Manager or the Subadviser
at the applicable address set forth below:
If to Subadviser:
Parametric Portfolio Associates
701 Fifth Avenue
Suite 7310
Seattle, Washington 98104-7090
If to Trust:
Clearwater Investment Trust
2100 First National Bank Building
St. Paul, Minnesota 55101
If to Manager:
Clearwater Management Co., Inc.
2100 First National Bank Building
St. Paul, Minnesota 55101
11. Disclosure Statement. The Manager and the Trust acknowledge receipt of
the Subadviser's written disclosure statement required by Rule 204-3 under the
Investment Advisers Act of 1940 not less than 48 hours prior to entering into
this Contract.
12. Governing Law. This Contract and all performance hereunder shall be
governed by, interpreted, construed and enforced in accordance with the laws of
the State of Minnesota.
13. Any term or provision of this Contract which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms or provisions of this Contract or affecting
the validity or enforceability of any of the terms or provisions of this
Contract in any other jurisdiction.
14. This Contract may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their duly authorized officers and as of the day and year first
written above.
CLEARWATER INVESTMENT TRUST
By: /s/Frederick T. Weyerhaeuser
Name: Frederick T. Weyerhaeuser
Title: Chairman
CLEARWATER MANAGEMENT CO., INC.
By: /s/Philip W. Pascoe
Name: Philip W. Pascoe
Title: Chairman
PARAMETRIC PORTFOLIO ASSOCIATES
By: /s/David M. Stein
Name: David M. Stein
Title: Managing Director
AMENDMENT TO SUBADVISORY CONTRACT
WHEREAS, Clearwater Investment Trust, on behalf of Clearwater Small Cap
Fund, Kennedy Capital Management ("KCM") and Clearwater Management Co., Inc.
("CMC") are parties (the "Parties") to a Subadvisory Contract, dated May 1,
1994; and
WHEREAS, the Parties intend to amend the Subadvisory Contract as of the
date set forth below;
NOW THEREFORE, in consideration of the mutual promises set forth in the
Subadvisory Contract, the Parties hereby agree as follows:
1. Section 4 of the Subadvisory Contract is deleted and the following Section is
added.
4. Subadviser's Compensation. The Manager shall pay to the Subadviser
for services hereunder a fee at the annual rate provided in the
following schedule based on the Fund's net assets under the
Subadviser's management:
Percent Net Assets
0.85% Up to and including $50 million
0.80% Over $50 million
Such fee shall be calculated and accrued on a monthly basis as a
percentage of the Fund's month end net assets under the Subadviser's
management, and shall be payable quarterly after the end of each
calendar quarter on or before the 15th day of January, April, July and
October of each year with respect to the preceding quarter. If this
Contract shall be effective for only a portion of a calendar quarter,
the aforesaid fee shall be prorated for that portion of such calendar
quarter during which this Contract is in effect.
2. The rate of the Subadviser's compensation as set forth in P. 1 herein is
retroactive to January 1, 1997 and the aggregate amount of the difference
between the compensation accrued and owing to KCM as of the fiscal year ended
December 31, 1997 and what would have been accrued and owed had the rate of
compensation described in P. 1 been in effect during such fiscal year is to be
paid to CMC.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Amendment.
CLEARWATER INVESTMENT TRUST CLEARWATER MANAGEMENT
on behalf of the Clearwater Small Cap Fund CO., INC.
/s/Frederick T. Weyerhaeuser /s/Philip W. Pascoe
- ---------------------------- ---------------------
By: Frederick T. Weyerhaeuser By: Philip W. Pascoe
Title: Chairman Title: Chairman
KENNEDY CAPITAL MANAGEMENT
/s/Richard Sinese
- --------------------------
By: Richard Sinese
Title: Vice President
January 1, 1998
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT is made effective the 29th day of September, 1997, by and
between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the
laws of the state of Missouri, having its trust office located at 801
Pennsylvania Street, Kansas City, Missouri 64105 ("IFTC"), and CLEARWATER
INVESTMENT TRUST, a Massachusetts business trust, having its principal office
and place of business at 332 Minnesota Street, Suite 2100, St. Paul, Minnesota
55101 ("Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint IFTC as custodian of the assets of the
Fund's investment portfolio or portfolios (each a "Portfolio", and collectively
the "Portfolios") and as its agent to perform certain investment accounting and
recordkeeping functions; and
WHEREAS, IFTC is willing to accept such appointment on the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. Fund hereby constitutes and appoints
IFTC as:
A. Custodian of the investment securities, interests in loans and other
non-cash investment property, and monies at any time owned by each of
the Portfolios and delivered to IFTC as custodian hereunder
("Assets"); and
B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered
investment company under Rules 31a-1, a-2 and a-3 of the Investment
Company Act of 1940, as amended (the "1940 Act") and to calculate the
net asset value of the Portfolios.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to IFTC:
1. That it is a Massachusetts Business trust duly organized and in
good standing under the laws of the Commonwealth of
Massachusetts, and that it is registered under the 1940 Act; and
2. That it has the requisite power and authority under applicable
law, and its declaration of trust to enter into this Agreement;
that it has taken all requisite action necessary to appoint IFTC
as custodian and investment accounting and recordkeeping agent;
that this Agreement has been duly executed and delivered by Fund;
and that this Agreement constitutes a legal, valid and binding
obligation of Fund, enforceable in accordance with its terms.
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B. IFTC hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by IFTC; and that this Agreement constitutes a legal,
valid and binding obligation of IFTC, enforceable in accordance
with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. Delivery of Assets. Except as permitted by the 1940 Act, Fund will
deliver or cause to be delivered to IFTC on the effective date hereof,
or as soon thereafter as practicable, and from time to time
thereafter, all Assets acquired by, owned by or from time to time
coming into the possession of each of the Portfolios during the term
hereof. IFTC has no responsibility or liability whatsoever for or on
account of Assets not so delivered.
B. Delivery of Accounts and Records. Fund will turn over or cause to be
turned over to IFTC all accounts and records previously maintained by
the Fund's prior custodian that IFTC needs in order to fully and
properly establish each Portfolio's accounts and records on the
System, as hereinafter defined, and to fully and accurately prepare
reports and information pursuant to Section 3.S hereof. IFTC may rely
conclusively on the completeness and correctness of such accounts and
records.
C. Delivery of Assets to Third Parties. IFTC will accept delivery of and
keep safely the Assets of each Portfolio segregated at all times from
those of any other person, firm or corporation and held by IFTC with
commercially reasonable precautions for safekeeping. IFTC will not
deliver, assign, pledge or hypothecate any such Assets to any person
except as permitted by the provisions of this Section 3.C or any
agreement executed according to the terms of Section 3.Q hereof. Upon
delivery of any such Assets to a subcustodian appointed pursuant to
Section 3.Q (hereinafter referred to as "Subcustodian"), IFTC will
create and maintain records identifying such Assets as belonging to
the applicable Portfolio. IFTC is responsible for the safekeeping of
the Assets only until they have been transmitted to and received by
other persons as permitted under the terms of this Agreement, except
for Assets transmitted to Subcustodians, for which IFTC remains
responsible to the extent provided in Section 3.Q. IFTC may
participate directly or indirectly through a Subcustodian in the
Depository Trust Company (DTC), Treasury/Federal Reserve Book Entry
System (Fed System), Participant Trust Company (PTC) or other
depository approved by Fund (as such entities are defined at 17 CFR
Section 270.17f-4(b)) (each a "Depository" and collectively the
"Depositories"); provided, however, that such securities are
maintained in an account of IFTC or such Subcustodian in Depositaries
which shall not include any assets of IFTC or such Subcustodian or any
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<PAGE>
other person other than assets held by IFTC or such Subcustodian as a
fiduciary, custodian, or otherwise for its customers. The records of
IFTC with respect to securities of the Fund which are maintained in a
Depository shall identify by book-entry those securities belonging to
the Fund, and IFTC shall be fully and completely responsible for
maintaining a recordkeeping system capable of accurately and currently
stating the Fund's holdings maintained in each such Depository. IFTC
shall be liable to the Fund for any loss or damage to the Fund
resulting from use of the Depositaries by reason of any negligence,
misfeasance or misconduct of IFTC or any of its agents or
Subcustodians or any of its or their employees or from any failure of
IFTC or any such agent or Subcustodian to use reasonable efforts to
enforce such rights as it may have against the Depositaries or any
other person; at the election of the Fund, the Fund shall be entitled
to be subrogated to the rights of IFTC with respect to any claim
against the Depositaries or any other person which IFTC may have as a
consequence of any such loss or damage if and to the extent that the
Fund has not been made whole for any such loss or damage.
D. Registration. IFTC will at all times hold Registered Assets
("Registered Assets") in the name of IFTC as custodian, the applicable
Portfolio, or a nominee of either of them, unless specifically
directed by Instructions, as hereinafter defined, to hold Registered
Assets in so-called "street name;" provided that, in all cases, IFTC
will hold all Assets in an account of IFTC as custodian containing
only Assets of the applicable Portfolio, or only assets held by IFTC
as a fiduciary or custodian for customers; and provided further,
IFTC's records will at all times indicate the Portfolio or other
customer for which Assets are held and the respective interests
therein. If, however, Fund directs IFTC to maintain Assets in "street
name", notwithstanding anything contained herein to the contrary, IFTC
will be obligated only to utilize its best efforts to timely collect
income due a Portfolio on such Assets and to notify the Portfolio of
relevant information, such as maturities and pendency of calls, and
corporate actions including, without limitation, calls for redemption,
tender or exchange offers, declaration, record and payment dates and
amounts of any dividends or income, reorganization, recapitalization,
merger, consolidation, split-up of shares, change of par value, or
conversion ("Corporate Actions"). All Assets and the ownership thereof
by each Portfolio will at all times be identifiable on the records of
IFTC. Fund agrees to hold IFTC and its nominee harmless for any
liability as a shareholder of record of securities held in custody.
E. Exchange. Upon receipt of Instructions, IFTC will exchange, or cause
to be exchanged, Assets held for the account of a Portfolio for other
Assets issued or paid in connection with any Corporate Action or
otherwise, and will deposit any such Assets in accordance with the
terms of any such Corporate Action. Without Instructions, IFTC is
authorized to exchange Assets in temporary form for Assets in
definitive form, to effect an exchange of shares when the par value of
stock is changed, and, upon receiving payment therefor, to surrender
bonds or other Assets at maturity or when advised of earlier call for
redemption, except that IFTC will receive Instruction prior to
surrendering any convertible security.
3
<PAGE>
F. Purchases of Investments -- Other Than Options and Futures. On each
business day on which a Portfolio makes a purchase of Assets other
than options and futures, Fund will deliver to IFTC Instructions
specifying with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the Asset;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
9. Whether the Asset is to be received in certificated form or via a
specified Depository.
In accordance with such Instructions, IFTC will pay for out of
monies held for the purchasing Portfolio, but only insofar as
such monies are available for such purpose, and receive the
Assets so purchased by or for the account of such Portfolio,
except that IFTC, or a Subcustodian, may in its sole discretion
advance funds to such Portfolio which may result in an overdraft
because the monies held on behalf of such Portfolio are
insufficient to pay the total amount payable upon such purchase.
Except as otherwise instructed by Fund, IFTC will make such
payment only upon receipt of Assets: (a) by IFTC; (b) by a
clearing corporation of a national exchange of which IFTC is a
member; or (c) by a Depository. Notwithstanding the foregoing,
(i) IFTC may release funds to a Depository prior to the receipt
of advice from the Depository that the Assets underlying a
repurchase agreement have been transferred by book-entry into the
account maintained with such Depository by IFTC on behalf of its
customers; provided that IFTC's instructions to the Depository
require that the Depository make payment of such funds only upon
transfer by book-entry of the Assets underlying the repurchase
agreement in such account; (ii) IFTC may make payment for time
deposits, call account deposits, currency deposits and other
deposits, foreign exchange transactions, futures contracts or
options, before receipt of an advice or confirmation evidencing
said deposit or entry into such transaction; and (iii) IFTC may
make, or cause a Subcustodian to make, payment for the purchase
of Assets the settlement of which occurs outside of the United
States of America in accordance with generally accepted local
custom and market practice.
G. Sales and Deliveries of Investments -- Other Than Options and Futures.
On each business day on which a Portfolio makes a sale of Assets other
than options and futures, Fund will deliver to IFTC Instructions
specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
4
<PAGE>
2. The name of the issuer and description of the Asset;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the Assets sold were purchased or other
information identifying the Assets sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such sale;
and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
IFTC will deliver or cause to be delivered the Assets thus designated
as sold for the account of the selling Portfolio as specified in the
Instructions. Except as otherwise instructed by Fund, IFTC will make
such delivery upon receipt of: (a) payment therefor in such form as is
satisfactory to IFTC; (b) credit to the account of IFTC with a
clearing corporation of a national securities exchange of which IFTC
is a member; or (c) credit to the account maintained by IFTC on behalf
of its customers with a Depository. Notwithstanding the foregoing: (i)
IFTC will deliver Assets held in physical form in accordance with
"street delivery custom" to a broker or its clearing agent; or (ii)
IFTC may make, or cause a Subcustodian to make, delivery of Assets the
settlement of which occurs outside of the United States of America
upon payment therefor in accordance with generally accepted local
custom and market practice.
H. Purchases or Sales of Options and Futures. On each business day on
which a Portfolio makes a purchase or sale of the options and/or
futures listed below, Fund will deliver to IFTC Instructions
specifying with respect to each such purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. In the case of options on indices:
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<PAGE>
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
Instructions, and if not already in the possession of IFTC,
Fund will deliver a substantially complete and executed
custodial safekeeping account and procedural agreement,
incorporated herein by this reference); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for purchase of securities for the
account of the Fund is made by IFTC in advance of receipt of the
securities purchased in the absence of specific written Instructions
to so pay in advance, IFTC shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been
received by IFTC; except that in the case of a repurchase agreement
entered into by the Fund with a bank which is a member of the Federal
Reserve System, IFTC may transfer
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<PAGE>
funds to the account of such bank prior to the receipt of (i) the
securities in certificate form subject to such repurchase agreement or
(i) written evidence that the securities subject to such repurchase
agreement have been transferred by book-entry into a segregated
non-proprietary account of IFTC maintained with the Federal Reserve
Bank of Kansas City or (iii) the safekeeping receipt, provided that
such securities have in fact been so transferred by book-entry and the
written repurchase agreement is received by IFTC in due course; and
except that if the securities are to be purchased outside the United
States, payment may be made in accordance with generally accepted
local custom and market practice.
J. Segregated Account. IFTC shall upon receipt of proper Instructions
establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account
by IFTC pursuant to Section 3.C hereof, (i) in accordance with the
provisions of any agreement among the Fund, IFTC and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange (or of the Commodity
Futures Trading Commission or of any contract market or commodities
exchange), or of any similar organization of organizations, regarding
escrow or deposit or other arrangements in connection with
transactions by the Fund, (ii) for the purposes of segregating cash or
liquid securities in connection with options purchased, sold or
written by the Fund or futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance by the Fund
with the procedures required by Investment Company act Release No.
10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies; and (iv) for other proper purposes
as instructed by the Designated Representative.
K. Routine Matters. IFTC will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with the Assets
except as may be otherwise provided herein or upon Instruction from
Fund.
L. Deposit Accounts. IFTC will open and maintain one or more special
purpose deposit accounts for each Portfolio in the name of IFTC in
such banks or trust companies (including, without limitation,
affiliates of IFTC) as may be designated by it or Fund in writing
("Accounts"), subject only to draft or order by IFTC upon receipt of
Instructions. IFTC will deposit all monies received by IFTC from or
for the account of a Portfolio in an Account maintained for such
Portfolio. Subject to Section 5.K hereof, IFTC agrees:
1. To make Fed Funds available to the applicable Portfolio at 9:00
a.m., Kansas City time, on the second business day after deposit
of any check into an Account, in the amount of the check;
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<PAGE>
2. To make funds available immediately upon a deposit made by
Federal Reserve wire; and
3. To make funds available on the next business day after
deposit of ACH wires.
M. Income and Other Payments. IFTC will:
1. Collect, claim and receive and deposit for the account of the
applicable Portfolio all income (including income from the
Accounts) and other payments which become due and payable on or
after the effective date hereof with respect to the Assets, and
credit the account of such Portfolio in accordance with the
schedule attached hereto as Exhibit A. If, for any reason, a
Portfolio is credited with income that is not subsequently
collected, IFTC may reverse that credited amount. If monies are
collected after such reversal, IFTC will credit the Portfolio in
that amount;
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with (a) the collection, receipt and deposit of such
income and other payments, including but not limited to the
presentation for payment of all coupons and other income items
requiring presentation; and all other Assets which may mature or
be called, redeemed, retired or otherwise become payable and
regarding which IFTC has actual knowledge, or should reasonably
be expected to have knowledge; and (b) the endorsement for
collection, in the name of Fund or a Portfolio, of all checks,
drafts or other negotiable instruments.
IFTC, however, will not be required to institute suit or take
other extraordinary action to enforce collection except upon
receipt of Instructions and upon being indemnified to its
satisfaction against the costs and expenses of such suit or other
actions. IFTC will receive, claim and collect all stock
dividends, rights and other similar items and will deal with the
same pursuant to Instructions.
N. Proxies and Notices. IFTC will promptly deliver or mail or have
delivered or mailed to Fund all proxies properly signed, all notices
of meetings, all proxy statements and other notices, requests or
announcements affecting or relating to Assets and will, upon receipt
of Instructions, execute and deliver or mail (or cause its nominee to
execute and deliver or mail) such proxies or other authorizations as
may be required. Except as provided herein or pursuant to Instructions
hereafter received by IFTC, neither it nor its nominee will exercise
any power inherent in any such Assets, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such Assets, or give any consent, approval or
waiver with respect thereto, or take any other similar action.
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<PAGE>
O. Disbursements. IFTC will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations of
each Portfolio (including but not limited to obligations in connection
with the conversion, exchange or surrender of Assets, interest
charges, dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating expenses
of such Portfolio) pursuant to Instructions setting forth the name of
the person or account to whom payment is to be made, and the amount
and purpose of the payment.
P. Daily Statement of Accounts. IFTC will, within a reasonable time,
render to Fund a detailed statement of the amounts received or paid
and of Assets received or delivered for the account of each Portfolio
during each business day. IFTC will maintain such books and records as
are necessary to enable it to render, from time to time upon request
by Fund, a detailed statement of the Assets. IFTC will permit, and
upon Instruction will cause any Subcustodian to permit, such persons
as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, IFTC will permit, and will cause any Subcustodian to permit,
federal and state regulatory agencies to examine the Assets, books and
records of the Portfolio.
Q. Appointment of Subcustodians. Notwithstanding any other provisions
hereof:
1. All or any of the Assets will be held in IFTC's own custody or,
in IFTC's sole discretion, in the custody of one or more other
banks or trust companies (including, without limitation,
affiliates of IFTC) acting as Subcustodians as may be selected by
IFTC. Any such Subcustodian selected by IFTC must have the
qualifications required for a custodian under the 1940 Act. IFTC
will be responsible to the applicable Portfolio for any loss,
damage or expense suffered or incurred by such Portfolio
resulting from the actions or omissions of any Subcustodians
selected and appointed by IFTC (except Subcustodians appointed at
the request of Fund and as provided in Subsections 2 or 3 below)
to the same extent IFTC would be responsible to Fund hereunder if
it committed the act or omission itself.
2. Upon request of Fund, IFTC will contract with other Subcustodians
reasonably acceptable to IFTC for purposes of (a) effecting
third-party repurchase transactions with banks, brokers, dealers,
or other entities through the use of a common custodian or
subcustodian, or (b) providing depository and clearing agency
services with respect to certain variable rate demand note
securities, or (c) for other reasonable purposes specified by
Fund; provided, however, that IFTC will be responsible to Fund
for any loss, damage or expense suffered or incurred by Fund
resulting from the actions or omissions of any such Subcustodian
only to the same extent such Subcustodian is responsible to IFTC.
Fund may review IFTC's contracts with such Subcustodians.
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3. Each Portfolio's foreign securities (as defined in Rule
17f-5(c)(1) under the 1940 Act) and cash or cash equivalents, in
amounts deemed by Fund to be reasonably necessary to effect such
Portfolio's foreign securities transactions, may be held in the
custody of one or more banks or trust companies acting as
Subcustodians ("Global Subcustodian"), and thereafter, pursuant
to a written contract or contracts as approved by Fund, may be
transferred to accounts maintained by any such Global
Subcustodian with eligible foreign custodians, as defined in Rule
17f-5(c)(2)("Eligible Foreign Custodian"). IFTC will be
responsible to Fund for any loss, damage or expense suffered or
incurred by Fund resulting from the actions or omissions of any
Eligible Foreign Custodian only to the same extent such
subcustodian is liable to the Global Subcustodian. The
appointment of a Global Subcustodian will not relieve IFTC of any
of its responsibilities or liabilities hereunder and, as between
the Fund and IFTC, IFTC shall be fully responsible for the acts
and omissions of the Global Subcustodian
R. Accounts and Records. IFTC will prepare and maintain, with the
direction and as interpreted by Fund,Fund's or Portfolio's accountants
and/or other advisors, in complete, accurate and current form all
accounts and records: (1) required to be maintained by Fund with
respect to portfolio transactions under Rules 31a-1, a-2, a-3 of the
1940 Act; (2) required to be maintained as a basis for calculation of
each Portfolio's net asset value; and (3) as otherwise agreed upon by
the parties. Fund will advise IFTC in writing of all applicable record
retention requirements, other than those set forth in the 1940 Act.
IFTC will preserve such accounts and records in the manner and for the
periods prescribed in the 1940 Act or for such longer period as is
agreed upon by the parties. Fund will furnish, in writing or its
electronic or digital equivalent, accurate and timely information
needed by IFTC to complete such accounts and records, including
Corporate Actions, when such information is not readily available from
generally accepted securities industry services or publications.
S. Accounts and Records Property of Fund. IFTC acknowledges that all of
the accounts and records maintained by IFTC pursuant hereto are the
property of Fund, and will be made available to Fund for inspection or
reproduction within a reasonable period of time, upon request. IFTC
will surrender such accounts, books and records to Fund if requested
by the Fund to do so. IFTC will make all accounts and records
available to the Fund's independent auditors, and, upon approval of
Fund, or upon demand of any regulatory body, IFTC will make all
accounts and records available to such regulatory body; provided,
however, that Fund will reimburse IFTC for all expenses and employee
time invested in any such review outside of routine and normal audits
and examinations. Upon receipt from Fund of the necessary information
or instructions, IFTC will supply information from the books and
records it maintains for Fund that Fund needs for tax returns,
questionnaires, periodic reports to shareholders and such other
reports and information requests as Fund and IFTC agree upon from time
to time.
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T. Adoption of Procedures. IFTC and Fund hereby adopt the Funds Transfer
Operating Guidelines attached hereto as Exhibit B. IFTC and Fund may
from time to time adopt such additional procedures as they agree upon,
and IFTC may conclusively assume that no procedure approved or
directed by Fund, Fund's or Portfolio's accountants or other advisors
conflicts with or violates any requirements of the prospectus,
declaration of trust, any applicable law, rule or regulation, or any
order, decree or agreement by which Fund may be bound. Fund will be
responsible to notify IFTC of any changes in statutes, regulations,
rules, requirements or policies which relate to any of the Portfolios,
and of any changes therein, which may materially impact IFTC's
performance of its responsibilities described herein, or its related
operational policies and procedures as they relate to such Portfolios
in a manner different from or in addition to investment companies
registered under the 1940 Act in general.
U. Calculation of Net Asset Value. Fund will give Instructions to IFTC
specifying the outside pricing sources to be utilized as sources of
Asset prices ("Pricing Sources"). In the event that Fund specifies
Reuters America, Inc., it will enter into the Agreement attached
hereto as Exhibit C. IFTC will calculate each Portfolio's net asset
value, in accordance with the Portfolio's prospectus. IFTC will price
the Assets, including foreign currency holdings, of each Portfolio for
which market quotations are available from the Pricing Sources; all
other Assets will be priced in accordance with Fund's Instructions.
V. Advances. Subject to Section 3.I hereof, Fund will pay on demand any
advance of cash or securities made by IFTC or any Subcustodian, in its
sole discretion, for any purpose (including but not limited to
securities settlements, purchase or sale of foreign exchange or
foreign exchange contracts and assumed settlement) for the benefit of
any Portfolio. Any such cash advance will be subject to an overdraft
charge at the rate set forth in the then-current fee schedule from the
date advanced until the date repaid. As security for each such
advance, Fund hereby grants IFTC and such Subcustodian a lien on and
security interest in all Assets at any time held for the account of
the applicable Portfolio, including without limitation all Assets
acquired with the amount advanced. Should Fund fail to promptly repay
the advance, IFTC and such Subcustodian may obtain reimbursement of
the amount advanced and any related overdraft charges by (a) utilizing
available cash and, (b) to the extent cash is not available, acting
upon Instruction to dispose of such of such Portfolio's Assets as is
necessary, or (c) if such Instruction is not received within 5
business days, by disposing of such Portfolio's Assets pursuant to
applicable law to the extent necessary.
W. Exercise of Rights; Tender Offers. In the case of tender offers,
similar offers to purchase or exercise rights affecting or relating to
securities held by IFTC under this Agreement, IFTC shall have
responsibility for promptly notifying the Fund of all such offers,
after IFTC obtains knowledge of the offers. For all such offers for
which IFTC is responsible as provided in this Section 3.W, Fund shall
have responsibility for providing IFTC with Instructions in timely
fashion. Upon receipt of Instructions,
11
<PAGE>
IFTC will: (1) deliver warrants, puts, calls, rights or similar
securities to the issuer or trustee thereof, or to the agent of such
issuer or trustee, for the purpose of exercise or sale, provided that
the new Assets, if any, are to be delivered to IFTC; and (2) deposit
securities upon invitations for tenders thereof, provided that the
consideration for such securities is to be paid or delivered to IFTC
or the tendered securities are to be returned to IFTC.
W. Fund Shares.
1. Fund will deliver to IFTC Instructions with respect to the
declaration and payment of any dividend or other distribution on
the shares of capital stock of a Portfolio ("Fund Shares") by a
Portfolio. On the date specified in such Instruction, IFTC will
pay out of the monies held for the account of the Portfolio,
insofar as it is available for such purposes, and credit to the
account of the Dividend Disbursing Agent for the Portfolio, the
amount specified in such Instructions.
2. Whenever Fund Shares are repurchased or redeemed by a Portfolio,
Portfolio or its agent will give IFTC Instructions regarding the
aggregate dollar amount to be paid for such shares. Upon receipt
of such Instruction, IFTC will charge such aggregate dollar
amount to the account of the Portfolio and either deposit the
same in the account maintained for the purpose of paying for the
repurchase or redemption of Fund Shares or deliver the same in
accordance with such Instruction. IFTC has no duty or
responsibility to determine that Fund Shares have been removed
from the proper shareholder accounts or that the proper number of
Fund Shares have been canceled and removed from the shareholder
records.
3. Whenever Fund Shares are purchased from Fund, Fund or its agent
will deposit or cause to be deposited with IFTC the amount
received for such shares. IFTC has no duty or responsibility to
determine that Fund Shares purchased from Fund have been added to
the proper shareholder account or that the proper number of such
shares have been added to the shareholder records.
4 INSTRUCTIONS.
A. The term "Instructions", as used herein, means written (including
telecopied, telexed, or electronically transmitted) or oral
instructions which IFTC reasonably believes were given by a Designated
Representative of Fund. The term "Designated Representative" shall
mean any person authorized to give Instructions to the Custodian;
provided, however, that such person has been authorized in writing to
give such instructions by any of the officers or agents of the Trust
authorized by the Board of Trustees to make such authorizations. Fund
will deliver to IFTC, prior to delivery of any Assets to IFTC and
thereafter from time to time as changes therein are necessary, written
Instructions naming one or more Designated Representatives to give
Instructions in the name and on behalf of Fund, which Instructions may
be
12
<PAGE>
received and accepted by IFTC as conclusive evidence of the authority
of any Designated Representative to act for Fund and may be considered
to be in full force and effect until receipt by IFTC of notice to the
contrary. Unless such written Instructions delegating authority to a
Designated Representative to give Instructions specifically limit such
authority to specific matters or require that the approval of anyone
else will first have been obtained, IFTC will be under no obligation
to inquire into the right of such Designated Representative, acting
alone, to give any Instructions whatsoever. If Fund fails to provide
IFTC any such Instructions naming Designated Representatives, any
Instructions received by IFTC from a person reasonably believed to be
an appropriate representative of Fund will constitute valid and proper
Instructions hereunder. "Designated Representatives" may include
Fund's or a Portfolio's employees and agents, including investment
managers and their employees.
B. No later than the next business day immediately following each oral
Instruction, Fund will send IFTC written confirmation of such oral
Instruction. At IFTC's sole discretion, IFTC may record on tape, or
otherwise, any oral Instruction whether given in person or via
telephone, each such recording identifying the date and the time of
the beginning and ending of such oral Instruction.
C. Fund will provide, upon IFTC's request, a certificate signed by an
officer or designated representative of Fund, as conclusive proof of
any fact or matter required to be ascertained from Fund hereunder.
Fund will also provide IFTC Instructions with respect to any matter
concerning this Agreement requested by IFTC. If IFTC reasonably
believes that it could not prudently act according to the
Instructions, or the instruction or advice of Fund's or a Portfolio's
accountants or counsel, it may in its discretion, with notice to Fund,
not act according to such Instructions.
5 LIMITATION OF LIABILITY OF IFTC. IFTC is not responsible or liable for, and
Fund will indemnify and hold IFTC harmless from and against, any and all
costs, expenses, losses, damages (other than consequential, special, or
punitive damages), charges, counsel fees, payments and liabilities which
may be asserted against or incurred by IFTC or for which IFTC may be held
to be liable, arising out of or attributable to:
A. IFTC's action or omission to act pursuant hereto; provided that IFTC
has acted in good faith and with due diligence and reasonable care
consistent with industry standards; and provided further, that IFTC is
not liable for consequential, special, or punitive damages in any
event. Nothing contained in this Agreement shall exempt IFTC from
liability due to its negligence or willful misconduct and IFTC will
indemnify the Fund and each Portfolio for any damages (other than
consequential, special and punitive damages) incurred by the Fund or
the Portfolios resulting therefrom.
B. IFTC's payment of money as requested by Fund, or the taking of any
action which might make it or its nominee liable for payment of monies
or in any other way;
13
<PAGE>
provided, however, that nothing herein obligates IFTC to take any such
action or expend its own moneys except in its sole discretion.
C. IFTC's action or omission to act hereunder upon any Instructions,
advice, notice, request, consent, certificate or other instrument or
paper appearing to it to be genuine and to have been properly
executed, including any Instructions, communications, data or other
information received by IFTC by means of the Systems, as hereinafter
defined, or any electronic system of communication.
D. IFTC's action or omission to act in good faith reliance on the advice
or opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, which advice or opinion may be obtained
by IFTC at the expense of Fund, or on the Instructions, advice or
statements of any officer or employee of Fund, or Fund's accountants
or other authorized individuals, and other persons believed by it in
good faith to be expert in matters upon which they are consulted.
E. The purchase or sale of any securities or foreign currency positions.
Without limiting the generality of the foregoing, IFTC is under no
duty or obligation to inquire into:
1. The validity of the issue of any securities purchased by or for
any Portfolio, or the legality of the purchase thereof or of
foreign currency positions, or evidence of ownership required by
Fund to be received by IFTC, or the propriety of the decision to
purchase or the amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for any Portfolio, or the propriety of the amount
for which the same are sold; or
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor, the legality
of the repurchase or redemption of any Fund Shares, or the
propriety of the amount to be paid therefor, or the legality of
the declaration of any dividend by Fund, or the legality of the
issue of any Fund Shares in payment of any stock dividend.
F. Any error, omission, inaccuracy or other deficiency in any Portfolio's
accounts and records or other information provided by or on behalf of
a Portfolio to IFTC, including the accuracy of the prices quoted by
the Pricing Sources or for the information supplied by Fund to price
the Assets, or the failure of Fund to provide, or provide in a timely
manner, any accounts, records, or information needed by IFTC to
perform hereunder.
G. Fund's refusal or failure to comply with the terms hereof (including
without limitation Fund's failure to pay or reimburse IFTC under
Section 5 hereof), Fund's negligence or willful misconduct, or the
failure of any representation or warranty of Fund hereunder to be and
remain true and correct in all respects at all times.
14
<PAGE>
H. The authorized or unauthorized use of the Systems or any secure
electronic system of communication used to transmit data or other
information hereunder (other than the telephone or video conferences)
(i) by Fund or (ii) by any person who acquires access through the
terminal device, passwords, access instructions or other means of
access utilized by or assigned to Fund, except to the extent
attributable to any negligence or willful misconduct by IFTC or where
Fund's passwords, access instructions or other means of access are
acquired through IFTC's computer hardware.
I. Any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment
of money to be received by IFTC on behalf of a Portfolio until
actually received; provided, however, that IFTC will advise Fund
promptly if it fails to receive any such money in the ordinary course
of business and will cooperate with Fund toward the end that such
money is received.
J. The failure or delay in performance of its obligations hereunder, or
those of any entity for which it is responsible hereunder, arising out
of or caused, directly or indirectly, by circumstances beyond its or
such entity's reasonable control, including, without limitation: any
interruption, loss or malfunction of any non-IFTC owned utility,
transportation, computer (hardware or software) or communication
service; a delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike, riot,
emergency, civil disturbance, terrorism, explosions, tornados, acts of
God or public enemy, revolutions, or insurrection; provided however,
that IFTC shall at all times maintain commercially reasonable back-up
procedures and contingency plans.
6. COMPENSATION. In consideration for its services hereunder, Fund will pay or
direct its management company to pay to IFTC the compensation set forth in
a separate fee schedule, incorporated herein by this reference, to be
agreed to by Fund and IFTC from time to time. IFTC shall also be entitled
to receive, and Fund agrees to pay or direct its management company to pay
to IFTC, on demand, reimbursement for (i) IFTC's cash disbursements and
reasonable out-of-pocket costs and expenses, including reasonable
attorney's fees, incurred by IFTC in connection with the performance of
services hereunder, and (ii) the amount of any loss, damage, liability,
advance, overdraft or expense for which it is entitled to reimbursement
from Fund, including but not limited to fees and expenses due to IFTC for
other services provided to Fund by IFTC. IFTC will be entitled to
reimbursement by Fund for the losses, damages, liabilities, advances,
overdrafts and expenses of Subcustodians only to the extent that (a) IFTC
would have been entitled to reimbursement hereunder if it had incurred the
same itself directly, and (b) IFTC is obligated to reimburse the
Subcustodian therefor. In connection with any fees or other amounts due to
IFTC as described above, IFTC shall submit its request for payment in
writing to the management company designated by Fund. If within 30 days
after such request is submitted, IFTC shall not have received such fees or
other amounts as are due to it
15
<PAGE>
hereunder from the management company, then IFTC shall submit its request
for payment in writing directly to the Fund. If within 30 days after such
request is submitted, IFTC has not received such fees or other amounts as
are due to it hereunder, then IFTC may charge such compensation against
monies held by it for the account of the Portfolios.
7. TERM AND TERMINATION. The initial term of this Agreement is for a period of
one (1) year and will remain in effect thereafter indefinitely. Fund or
IFTC may terminate the same by notice in writing, delivered or mailed,
postage prepaid, to the other party and received not less than sixty (60)
days prior to the date upon which such termination will take effect. The
Fund may at any time by action of its Board of Trustees immediately
terminate this Agreement in the event of the appointment of a conservator
or receiver for IFTC by the Federal Deposit Insurance Corporation or by the
Commissioner of Finance of the State of Missouri or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction. Upon termination hereof:
A. Fund will pay IFTC its fees and compensation due hereunder and its
reimbursable disbursements, costs and expenses paid or incurred to
such date; and
B. Fund will designate a successor investment accounting and
recordkeeping agent (which may be Fund) by Instruction to IFTC; and
C. Fund will designate a successor custodian by Instruction to IFTC. In
the event no such Instruction has been delivered to IFTC on or before
the date when such termination becomes effective, then IFTC may, at
its option, (i) choose as successor custodian a bank or trust company
meeting the qualifications for custodian set forth in the 1940 Act and
having not less than Two Million Dollars ($2,000,000) aggregate
capital, surplus and undivided profits, as shown by its last published
report, or (ii) apply to a court of competent jurisdiction for the
appointment of a successor or other proper relief, or take any other
lawful action under the circumstances; provided, however, that Fund
will reimburse IFTC for its reasonable costs and expenses, including
reasonable attorney's fees, incurred in connection therewith; and
D. IFTC will, upon payment of all sums due to IFTC from Fund hereunder or
otherwise, deliver at IFTC's office (i) all accounts and records to
the successor investment accounting and recordkeeping agent or, if
none, to Fund; and (ii) all Assets, duly endorsed and in form for
transfer, to the successor custodian, or as specified by the court.
IFTC will co-operate in effecting changes in book-entries at all
Depositories. Upon delivery to a successor or as specified by the
court, IFTC will have no further obligations or liabilities hereunder.
In the event that accounts, records or Assets remain in the possession of
IFTC after the date of termination hereof for any reason other than IFTC's
failure to deliver the same, IFTC is entitled to compensation as provided
in the then-current fee schedule for its services during such period, and
the provisions hereof relating to the duties and obligations of IFTC will
8 NOTICES. All notices, requests and instructions must be in writing and
addressed to Fund at the address set forth above, or at such other address
as Fund may have designated to IFTC
16
<PAGE>
in writing. All notices, requests and Instructions must be in writing and
addressed to IFTC at the address set forth above, Attention: Custody
Department, or to such other address as it may have designated to Fund in
writing. All notices, requests and instruction will be deemed to have been
properly given if delivered in person, by telecopier, by nationally
recognized overnight delivery service, or by first class mail, postage
prepaid.
9 THE SYSTEMS; CONFIDENTIALITY.
A. If IFTC provides Fund direct access to the computerized investment
portfolio custody, recordkeeping and accounting systems used by IFTC
("Systems") or if IFTC and Fund agree to utilize any secure electronic
system of communication to transmit data or other information, Fund
agrees to implement and enforce appropriate security policies and
procedures reasonably designed to prevent unauthorized or improper
access to or use of the Systems or such other system.
B. Fund agrees to use its best efforts to preserve the confidentiality of
the Systems and the tapes, books, reference manuals, instructions,
records, programs, documentation and information of, and other
materials relevant to, the Systems and the business of IFTC
("Confidential Information"). Fund agrees that it will not voluntarily
disclose any such Confidential Information to any other person other
than its own employees who reasonably have a need to know such
information pursuant hereto. Fund will return all such Confidential
Information to IFTC upon termination or expiration hereof.
C. Fund has been informed that the Systems are licensed for use by IFTC
from one or more third parties ("Licensors"), and Fund acknowledges
that IFTC and Licensors have proprietary rights in and to the Systems
and all other IFTC or Licensor programs, code, techniques, know-how,
data bases, supporting documentation, data formats, and procedures,
including without limitation any changes or modifications made at the
request or expense or both of Fund (collectively, the "Protected
Information"). Fund acknowledges that the Protected Information
constitutes confidential material and trade secrets of IFTC and
Licensors. Fund will use its best efforts to preserve the
confidentiality of the Protected Information, and Fund hereby
acknowledges that any unauthorized use, misuse, disclosure or taking
of Protected Information, residing or existing internal or external to
a computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. Fund will so
inform employees and agents who have access to the Protected
Information or to any computer equipment capable of accessing the
same. Licensors are intended to be and are third party beneficiaries
of Fund's obligations and undertakings contained in this Section.
D. Fund hereby represents and warrants to IFTC that, to its knowledge,
the Systems are appropriate and suitable for its use. THE SYSTEMS ARE
PROVIDED ON AN AS IS, AS AVAILABLE BASIS. IFTC EXPRESSLY DISCLAIMS ALL
17
<PAGE>
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS OF A
PARTICULAR PURPOSE.
10 MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio will be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered hereby,
every reference herein to Fund is deemed to relate solely to the
particular Portfolio to which such transaction relates. Under no
circumstances will the rights, obligations or remedies with respect to
a particular Portfolio constitute a right, obligation or remedy
applicable to any other Portfolio. The use of this single document to
memorialize the separate agreement of each Portfolio is understood to
be for clerical convenience only and will not constitute any basis for
joining the Portfolios for any reason.
B. Fund may appoint IFTC as its custodian and investment accounting and
recordkeeping agent for additional Portfolios from time to time by
written notice, provided that IFTC consents to such addition. Rates or
charges for each additional Portfolio will be as agreed upon by IFTC
and Fund in writing.
11 MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights and
liabilities of the parties hereto will be governed by, the laws of the
State of Missouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions hereof will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9 hereof are intended to and
will continue after and survive the expiration, termination or
cancellation hereof.
D. No provisions hereof may be amended or modified in any manner except
by a written agreement properly authorized and executed by each party
hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions hereof or to enforce any rights resulting from any
breach of any of the terms or conditions hereof, including the payment
of damages, will not be construed as a continuing or permanent waiver
of any such terms, conditions, rights or privileges, but the same will
continue and remain in full force and effect as if no such forbearance
or waiver had occurred. No waiver, release or discharge of any party's
rights hereunder will be effective unless contained in a written
instrument signed by the party sought to be charged.
18
<PAGE>
F. The captions herein are included for convenience of reference only,
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which is deemed an original but all of which together constitute one
and the same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining
provisions hereof will be considered severable and will not be
affected thereby, and every remaining provision hereof will remain in
full force and effect and will remain enforceable to the fullest
extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance hereof will be deemed to create
a partnership or joint venture by and between IFTC and Fund or any
Portfolio.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder will not
affect any rights or obligations of the other party hereunder.
L. Notice is hereby given that a copy of Fund's Trust Agreement and all
amendments thereto is on file with the Secretary of State of the state
of its organization; that this Agreement has been executed on behalf
of Fund by the undersigned duly authorized representative of Fund in
his/her capacity as such and not individually; and that the
obligations of this Agreement are binding only upon the assets and
property of Fund and not upon any trustee, officer of shareholder of
Fund individually. No portfolio shall have any liability for the
obligations of any other Portfolios under this Agreement
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST CLEARWATER INVESTMENT TRUST
COMPANY
By: /s/Allen A. Strain By: /s/Frederick T. Weyerhaeuser
Title: EVP Title: Chairman
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A -- INCOME AVAILABILITY SCHEDULE
Foreign--Income will be credited contractually on pay day in the markets noted
with Contractual Income Policy. The markets noted with Actual income policy will
be credited income when it is received.
<S> <C> <C> <C> <C> <C>
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Market Income Policy Market Income Policy Market Income Policy
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Argentina Actual Hong Kong Contractual Poland Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Australia Contractual Hungary Actual Portugal Contractual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Austria Contractual India Actual Russia Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Bahrain Actual Indonesia Actual Singapore Contractual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Bangladesh Actual Ireland Actual Slovak Republic Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Belgium Contractual Israel Actual South Africa Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Bermuda Actual Italy Contractual South Korea Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
* Bolivia Actual Ivory Coast Actual Spain Contractual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Botswana Actual * Jamaica Actual Sri Lanka Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Brazil Actual Japan Contractual Swaziland Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Canada Contractual Jordan Actual Sweden Contractual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Chile Actual Kenya Actual Switzerland Contractual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
China Actual Lebanon Actual Taiwan Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Colombia Actual Luxembourg Actual Thailand Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Cyprus Actual Malaysia Actual * Trinidad & Actual
Tobago
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Czech Republic Actual Mauritius Actual * Tunisia Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Denmark Contractual Mexico Actual Turkey Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Ecuador Actual Morocco Actual United Kingdom Contractual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Egypt Actual Namibia Actual United States See Attached
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
**Euroclear Contractual/ Netherlands Contractual Uruguay Actual
Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Euro CDs Actual New Zealand Contractual Venezuela Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Finland Contractual Norway Contractual Zambia Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
France Contractual Oman Actual Zimbabwe Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Germany Contractual Pakistan Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- =====================
Ghana Actual Peru Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
Greece Actual Philippines Actual
- --------------- --------------------- --------------------- --------------------- -------------------- --------------------
20
<PAGE>
<FN>
* Market is not 17F-5 eligible
** For Euroclear, contractual income paid only in markets listed with Income
Policy of Contractual.
</FN>
</TABLE>
<TABLE>
<CAPTION>
United States--
<S> <C> <C> <C> <C>
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
Income Type DTC FED PTC Physical
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
Dividends Contractual N/A N/A Actual
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
Fixed Rate Contractual Contractual N/A Actual
Interest
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- =========================
Variable Rate Contractual Contractual N/A Actual
Interest
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
GNMA I N/A N/A Contractual PD +1 N/A
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
GNMA II N/A N/A Contractual PD *** N/A
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
Mortgages Actual Contractual Contractual Actual
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
Maturities Actual Contractual N/A Actual
- ------------------- ------------------------- -------------------------- ------------------------- -------------------------
<FN>
Exceptions to the above Contractual Income Policy include securities that
are:
Involved in a trade whose settlement either failed, or is pending over
the record date, (excluding the United States)
On loan under a self directed securities lending program other than
IFTC's own vendor lending program;
Known to be in a condition of default, or suspected to present a risk
of default or payment delay;
In the asset categories, without limitation, of Private Placements,
Derivatives, Options, Futures, CMOs, and Zero Coupon Bonds
Securities whose amount of income and redemption cannot be calculated
in advance of payable date, or determined in advance of actual
collection, examples include ADRs;
Payments received as the result of a corporate action, not limited to,
bond calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business
day, Payable/Distribution Date is the next business day. If the 19th
is not a business day, but the 20th is a business day,
Payable/Distribution date is the first business day after the 20th. If
both the 19th and 20th are not business days, Payable/Distribution
will be the next business day thereafter.
</FN>
</TABLE>
21
<PAGE>
EXHIBIT B -- FUNDS TRANSFER OPERATING GUIDELINES
1 OBLIGATION OF THE SENDER: IFTC is authorized to promptly debit Fund's
("Client's") account(s) upon the receipt of a payment order in compliance with
any of the Security Procedures chosen by the Client, from those offered on the
attached selection form (and any updated selection forms hereafter executed by
the Client), for funds transfers and in the amount of money that IFTC has been
instructed to transfer. IFTC is hereby instructed to accept funds transfer
instructions only via the delivery methods and Security Procedures indicated on
the attached selection form (and any updated executed by the Client). The Client
agrees that the Security Procedures are reasonable and adequate for its wire
transfer transactions and agrees to be bound by any payment orders, amendments
and cancellations, whether or not authorized, issued in its name and accepted by
IFTC after being confirmed by any of the selected Security Procedures. The
Client also agrees to be bound by any other valid and authorized payment order
accepted by IFTC. IFTC shall execute payment orders in compliance with the
selected Security Procedures and with the Client's/Investment Manager's
instructions on the execution date provided that such payment order is received
by the customary deadline for processing such a request, unless the payment
order specifies a later time. IFTC will use reasonable efforts to execute on the
execution date payment orders received after the customary deadline, but if it
is unable to execute any such payment order on the execution date, such payment
order will be deemed to have been received on the next business day.
2 SECURITY PROCEDURES: The Client acknowledges that the selected Security
Procedures were selected by the Client from Security Procedures offered by IFTC.
The Client shall restrict access to confidential information relating to the
Security Procedures to authorized persons as communicated in writing to IFTC.
The Client must notify IFTC immediately if it has reason to believe unauthorized
persons may have obtained access to such information or of any change in the
Client's authorized personnel. IFTC shall verify the authenticity of all
instructions according to the selected Security Procedures.
3 ACCOUNT NUMBERS: IFTC shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number, the
account number shall take precedence and govern. Financial institutions that
receive payment orders initiated by IFTC at the instruction of the Client may
also process payment orders on the basis of account numbers, regardless of any
name included in the payment order. IFTC will also rely on any financial
institution identification numbers included in any payment order, regardless of
any financial institution name included in the payment order.
4 REJECTION: IFTC reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of IFTC's receipt of such payment order;
(b) if initiating such payment order would cause IFTC, in IFTC's sole judgment,
to exceed any applicable volume, aggregate dollar, network, time, credit or
similar limits upon wire transfers; or (c) if IFTC, in good faith, is unable to
satisfy itself that the transaction has been properly authorized.
22
<PAGE>
5 CANCELLATION OR AMENDMENT: IFTC shall use reasonable efforts to act on all
authorized requests to cancel or amend payment orders received in compliance
with the selected Security Procedures provided that such requests are received
in sufficient time to afford IFTC a reasonable opportunity to act prior to
executing the payment order. However, IFTC assumes no liability if the request
for amendment or cancellation cannot be satisfied by IFTC's reasonable efforts.
6 ERRORS: IFTC shall assume no responsibility for failure to detect any
erroneous payment order provided that IFTC complies with the payment order
instructions as received and IFTC complies with the selected Security
Procedures. The Security Procedures are established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7 INTEREST AND LIABILITY LIMITS: IFTC shall assume no responsibility for lost
interest with respect to the refundable amount of any unauthorized payment
order, unless IFTC is notified of the unauthorized payment order within thirty
(30) days of notification by IFTC of the acceptance of such payment order. In no
event (including but not limited to failure to execute a payment order) shall
IFTC be liable for special, indirect or consequential damages, even if advised
of the possibility of such damages.
8 AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When the
Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the Mid-America Payment Exchange or other similar body, IFTC or its agent
will act as an Originating Depository Financial Institution and/or Receiving
Depository Financial Institution, as the case may be, with respect to such
entries. Credits given with respect to an ACH credit entry are provisional until
final settlement for such entry is received from the Federal Reserve Bank. If
such final settlement is not received, the Client agrees to promptly refund the
amount credited to the Client in connection with such entry, and the party
making payment to the Client via such entry shall not be deemed to have paid the
amount of the entry.
9 CONFIRMATIONS: Confirmation of IFTC's execution of payment orders shall
ordinarily be provided within 24 hours. Notice may be delivered through IFTC's
account statements, advices, information systems, or by facsimile or callback.
The Client must report any objections to the execution of a payment order within
30 days.
10 MISCELLANEOUS: IFTC may use the Federal Reserve System Fedwire to execute
payment orders, and any payment order carried in whole or in part through
Fedwire will be subject to applicable Federal Reserve Board rules and
regulations. IFTC and the Client agree to cooperate to attempt to recover any
funds erroneously paid to wrong parties, regardless of any fault of IFTC or the
Client, but the party responsible for the erroneous payment shall bear all costs
and expenses incurred in trying to effect such recovery. These Guidelines may
not be amended except by a written agreement signed by the parties.
23
<PAGE>
SECURITY PROCEDURES SELECTION FORM
Please select one or more of the funds transfer security procedures indicated
below.
[] SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication)
is a cooperative society owned and operated by member financial
institutions that provides telecommunication services for its membership.
Participation is limited to securities brokers and dealers, clearing and
depository institutions, recognized exchanges for securities, and
investment management institutions. SWIFT provides a number of security
features through encryption and authentication to protect against
unauthorized access, loss or wrong delivery of messages, transmission
errors, loss of confidentiality and fraudulent changes to messages.
Selection of this security procedure would be most appropriate for existing
SWIFT members.
[] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via
Computer-to-Computer (CPU-CPU) data communications between the Client
and/or its agent and IFTC and/or its agent. Security procedures include
encryption and/or the use of a test key by those individuals authorized as
Automated Batch Verifiers or a callback procedure to those individuals.
Clients selecting this option should have an existing facility for
completing CPU-CPU transmissions. This delivery mechanism is typically used
for high-volume business such as shareholder redemptions and dividend
payments.
X TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized verifiers.
IFTC will verify that the instruction contains the signature of an
authorized person and prior to execution of the payment order, will contact
someone other than the originator at the Client's location to authenticate
the instruction. Non-repetitive wire transfers with the original signatures
of 2 authorized persons are acceptable and do not require a call back.
Selection of this alternative is appropriate for Clients who do not have
the capability to use other security procedures.
[] TEST KEY Test Key confirmation will be used to verify all non-repetitive
funds transfer instructions received via facsimile or phone. IFTC will
provide test keys if this option is chosen. IFTC will verify that the
instruction contains the signature of an authorized person and prior to
execution of the payment order, will authenticate the test key provided
with the corresponding test key at IFTC. Non-repetitive wire transfers with
the original signatures of 2 authorized persons are acceptable and do not
require a test key. Selection of this alternative is appropriate for
Clients who do not have the capability to use other security procedures.
X REPETITIVE WIRES For situations where funds are transferred periodically
from an existing authorized account to the same payee (destination bank and
account number) and only the date and currency amount are variable, a
repetitive wire may be implemented. Repetitive wires will be subject to a
$10 million limit. If the payment order exceeds the $10 million limit, the
instruction will be confirmed by telephone or test key prior to execution.
Repetitive wire instructions must be reconfirmed annually. Clients may
establish Repetitive Wires by following the agreed upon security procedures
for Non-Repetitive Wire Transfers as described by Telephone Confirmation
(Call Back) or Test Key. This alternative is recommended whenever funds are
frequently transferred between the same two accounts.
24
<PAGE>
[] STANDING INSTRUCTIONS Funds are transferred by IFTC to a counter party on
the Client's established list of authorized counter parties. Only the date
and the dollar amount are variable. Clients may establish Standby
Instructions by following the agreed upon security procedures for
Non-Repetitive Wire Transfers as described by Telephone Confirmation (Call
Back) or Test Key. This option is used for transactions that include but
are not limited to Foreign Exchange Contracts, Time Deposits and Tri-Party
Repurchase Agreements.
[] AUTOMATED CLEARING HOUSE (ACH) IFTC or its agent receives an automated
transmission from a Client for the initiation of payment (credit) or
collection (debit) transactions through the ACH network. The transactions
contained on each transmission or tape must be authenticated by the Client.
The transmission is sent from the Client's or its agent's system to IFTC's
or its agent's system with encryption.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
Jay Narverud Rick Hol
Name Name
332 Minnesota St. Suite 2100 332 Minnesota St. Suite 2100
Address Address
St. Paul, MN 55101-1394 St. Paul, MN 55101-1394
City/State/Zip Code City/State/Zip Code
612-215-4428 612-215-4414
Telephone Number Telephone Number
612-228-0776 612-228-0776
Facsimile Number Facsimile Number
SWIFT Number
CLEARWATER INVESTMENT TRUST
By: /s/Frederick T. Weyerhaeuser
Title: Chairman
9/29/97
Date:
25
<PAGE>
EXHIBIT C--REUTERS DATA SERVICE AGREEMENT
The undersigned acknowledges and agrees that some of the data being provided in
the service by IFTC to Fund contains information supplied to IFTC by Reuters
America Inc. ("Reuters") (the "Data"). Fund agrees that:
(i) although Reuters makes every effort to ensure the accuracy and
reliability of the Data, Fund acknowledges that Reuters, its
employees, agents, contractors, subcontractors, contributors
and third party providers will not be liable for any loss,
cost or damage suffered or incurred by Fund arising out of any
fault, interruption or delays in the Data or out of any
inaccuracies, errors or omissions in the Data however such
faults, interruptions, delays, inaccuracies, errors or
omissions arise, unless due to the gross negligence or willful
misconduct of Reuters;
(ii) it will not transfer, transmit, recirculate by digital or
analogue means, republish or resell all or part of the Data;
and
(iii certain parts of the Data are proprietary and unique to Reuters.
The undersigned further agrees that the benefit of this clause will inure to the
benefit of Reuters.
CLEARWATER INVESTMENT TRUST
By: /s/Frederick T. Weyerhaeuser
Title: Chairman
Date: 9/29/97
26
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
February 26, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 12/31/97 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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 64154251
<INVESTMENTS-AT-VALUE> 116074499
<RECEIVABLES> 87717
<ASSETS-OTHER> 1832
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116164048
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9304793
<TOTAL-LIABILITIES> 9304793
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54939981
<SHARES-COMMON-STOCK> 5047760
<SHARES-COMMON-PRIOR> 5252780
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (975)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51920249
<NET-ASSETS> 106859255
<DIVIDEND-INCOME> 749020
<INTEREST-INCOME> 198921
<OTHER-INCOME> 0
<EXPENSES-NET> 1012399
<NET-INVESTMENT-INCOME> (64458)
<REALIZED-GAINS-CURRENT> 8928506
<APPREC-INCREASE-CURRENT> 16922059
<NET-CHANGE-FROM-OPS> 25786107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 8987082
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24071
<NUMBER-OF-SHARES-REDEEMED> 230550
<SHARES-REINVESTED> 1459
<NET-CHANGE-IN-ASSETS> 12937107
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 57061
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1012399
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1013399
<AVERAGE-NET-ASSETS> 103523596
<PER-SHARE-NAV-BEGIN> 17.88
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 5.08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.78
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.17
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE 12/31/97 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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 36706842
<INVESTMENTS-AT-VALUE> 48369167
<RECEIVABLES> 446941
<ASSETS-OTHER> (42426)
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48773682
<PAYABLE-FOR-SECURITIES> 758060
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7177213
<TOTAL-LIABILITIES> 7935273
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29166125
<SHARES-COMMON-STOCK> 2679104
<SHARES-COMMON-PRIOR> 2571795
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9958
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11662326
<NET-ASSETS> 40838409
<DIVIDEND-INCOME> 347182
<INTEREST-INCOME> 121556
<OTHER-INCOME> 0
<EXPENSES-NET> 534172
<NET-INVESTMENT-INCOME> (65434)
<REALIZED-GAINS-CURRENT> 7097859
<APPREC-INCREASE-CURRENT> 6508576
<NET-CHANGE-FROM-OPS> 13541001
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 7022467
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 144088
<NUMBER-OF-SHARES-REDEEMED> 36779
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8064877
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 18195
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 534172
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 534172
<AVERAGE-NET-ASSETS> 39622652
<PER-SHARE-NAV-BEGIN> 12.74
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 5.14
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.62
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.24
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
POWER OF ATTORNEY
I, the undersigned officer and trustee of Clearwater Investment Trust, a
Massachusetts business trust, do hereby severally constitute and appoint
Frederick T. Weyerhaeuser and Joseph P. Barri and each of them acting singly to
be my true, sufficient and lawful attorneys, with full power to each of them and
each of them acting singly to sign for me, in my name in the capacity indicated
below, the Amendment to the Registration Statement on Form N-1A to be filed by
Clearwater Investment Trust under the Investment Company Act of 1940 and under
the Securities Act of 1933 with respect to the offering of its shares of
beneficial interest, and any and all subsequent amendments to such Registration
Statement and any and all other documents and papers relating thereto, and
generally to do all such things in my name and on my behalf in the capacity
indicated, to enable Clearwater Investment Trust to comply with the Investment
Company Act of 1940 and the Securities Act of 1933 and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any and
all amendments of said Registration Statement.
IN WITNESS WHEREOF, I have hereunder set my hand on the date set opposite
my signature.
Signature Date
/s/Philip W. Pascoe February 10, 1998
- ---------------------------------------------
Philip W. Pascoe, Trustee
