As filed with the Securities and Exchange Commission on April 27, 2000
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. 16 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 |X|
AMENDMENT NO. 16 |X|
(Check appropriate box or boxes)
CLEARWATER INVESTMENT TRUST
(Exact name of registrant as specified in charter)
332 Minnesota Street, Suite 2100, St. Paul, Minnesota 55101-1394
(Address of principal executive office) Zip Code
Registrant's Telephone Number, including Area Code: (651) 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, 2000, pursuant to paragraph (b)(2) of Rule 485
under the Securities Act
<PAGE>
CLEARWATER INVESTMENT TRUST
CLEARWATER GROWTH FUND
CLEARWATER SMALL CAP FUND
CLEARWATER TAX-EXEMPT BOND FUND
PROSPECTUS
April 30, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES AS AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
CONTENTS
Investment objectives, key investments, strategies, risks and expenses:
Things you should know before investing.......................2
Clearwater Growth Fund........................................3
Clearwater Small Cap Fund.....................................5
Clearwater Tax-Exempt Bond Fund...............................7
Other investments and investment strategies..................................9
Management..................................................................10
Buying shares...............................................................11
Exchanging and redeeming shares.............................................12
Other things to know about share transactions...............................13
Dividends, distributions and taxes..........................................14
Financial highlights........................................................15
THINGS YOU SHOULD KNOW BEFORE INVESTING
ABOUT MUTUAL FUND RISKS
An investment in a fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
ABOUT EACH FUND'S INVESTMENT OBJECTIVE
Each fund's investment objective is classified as nonfundamental and may be
changed by the fund's trustees without shareholder approval.
CLEARWATER INVESTMENT TRUST -2
<PAGE>
CLEARWATER GROWTH FUND
INVESTMENT OBJECTIVES
The fund seeks long-term growth of capital. Current income, to the extent income
is produced by the stocks included in the Russell 1000 Index, is a secondary
objective.
KEY INVESTMENTS AND STRATEGIES
The fund is passively managed to track but not replicate the Russell 1000 Index,
an unmanaged, capitalization weighted index of the largest 1000 public companies
in the United States. The fund holds a broadly diversified portfolio of common
stocks comparable to stocks in the Index in terms of economic sector weightings,
market capitalization and liquidity.
HOW THE SUBADVISER SELECTS THE FUND'S INVESTMENTS
The subadviser manages the fund so that the fund's holdings match the holdings
of the Index as closely as possible without requiring the fund to realize
taxable gains. This means that the fund will not buy and sell securities to
match changes in the composition of securities in the Index. Instead, the
manager adjusts the fund's portfolio periodically to reflect the holdings and
weightings of the Index but only after consideration of the fund's policy to
minimize realization of taxable gains.
Prior to 1998, the fund was actively managed to meet a different investment
objective. To reduce potential realized capital gain from the sale of portfolio
securities acquired prior to 1998, the subadviser is gradually adjusting the
fund's portfolio to align it with the Index over a period of several years.
Until the fund's portfolio is aligned with the Index, the fund may continue to
hold securities in amounts that do not match Index weightings and will be
subject to the risks of such securities.
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
o The Russell 1000 Index declines generally or performs poorly relative to
other U.S. equity indexes or individual stocks.
o An adverse company specific event, such as an unfavorable earnings report,
negatively affects the stock price of one of the larger companies in the
Index.
o The stocks of companies which comprise the Index fall out of favor with
investors.
Even though the fund invests substantially all of its assets in the common
stocks of companies represented in the Russell 1000 Index, the fund will not
mirror the Index perfectly because
o The fund must have an amount of cash or other liquid securities available
to meet redemption requests;
o The subadviser manages the fund to reduce the tax liability to the fund's
shareholders; and
o The fund bears certain expenses the Index does not bear.
Clearwater Investment Trust-3
<PAGE>
Total return and comparative performance
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's shares for each of the past 10 calendar years. The
total return table indicates the risk of investing in the fund by comparing the
average annual total return of the fund for the periods shown to that of the
Russell 1000 Index, an unmanaged index of common stocks of the largest 1000
public companies in the United States. The table assumes redemption of shares at
the end of the period and the reinvestment of distributions and dividends. Past
performance does not necessarily indicate how the fund will perform in the
future.
[GRAPHIC OMITTED]
% Total Return
- -4.1 42.8 4.4 2.2 1.2 32.8 21.5 28.4 22.7 24.3
90 91 92 93 94 95 96 97 98 99
Calendar years ended December 31
Quarterly returns
Highest: 21.9% in 4th quarter 1998
Lowest: (16.8)% in 3rd quarter 1990
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (CALENDAR YEARS ENDED DECEMBER 31, 1999)
<S> <C> <C> <C> <C> <C>
1 Year 5 Years 10 Years Since Inception Inception Date
Clearwater Growth Fund 24.3% 25.8% 16.7% 14.7% 6/19/87
Russell 1000 Index 20.9% 28.1% 18.1% 16.3%
</TABLE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
Shareholder fees (paid directly from your investment) None
Annual fund operating expenses (paid by the fund as a % of fund net assets)
Management fees 0.45%
Other expenses 0.00%
-----
Total annual fund operating expenses 0.45%
=====
Example
This example helps you compare the costs of investin in the fund with other
mutual funds. Your actual costs may be higher or lower.
Number of years you own your shares 1 year* 3 years* 5 years* 10 years*
$ 46 $ 144 $ 252 $ 567
*The example assumes: o You invest $10,000 for the period shown
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
o Your investment has a 5% return each year
o You redeem all of your shares at the end of the
period shown
Clearwater Investment Trust-4
<PAGE>
CLEARWATER SMALL CAP FUND
INVESTMENT OBJECTIVES
The fund seeks long-term growth of capital. Current income is a secondary
objective.
KEY INVESTMENTS AND STRATEGIES
The fund invests primarily in equity securities of small companies. The fund
defines "small companies" as issuers with market capitalizations no greater than
the range of capitalizations of the companies included in the Russell 2000 Index
at the time of investment. Equity securities consist primarily of exchange
traded common and preferred stocks and convertible securities.
HOW THE SUBADVISER SELECTS THE FUND'S INVESTMENTS
The subadviser uses a "bottom up" investment approach in selecting securities
based on its fundamental analysis of a security's value. In selecting individual
companies for investment, the subadviser looks for companies with:
o Growing and accelerating sales, earnings and cash flow.
o Above average growth rates at reasonable market valuations.
o Low valuations relative to long term potential because the market has
overlooked them or because they are temporarily out of favor in the market
due to poor economic conditions, adverse regulatory changes or market
declines.
The subadviser also employs an active sell discipline and will generally sell
stock if it determines:
o The company's future fundamentals have deteriorated.
o The company's stock has reached full or excessive valuation level.
Proceeds are then reinvested in new securities exhibiting desirable investment
characteristics as described above.
Principal risks of investing in the fund
o The stock market goes down. This risk may be greater if you are a
short-term investor.
o Small company stocks fall out of favor with investors.
o The manager's judgment about the attractiveness or relative value of a
particular security proves to be incorrect.
The fund also has risks associated with investing in small companies. Compared
to large companies, small companies, and the market for their common stocks, are
likely to:
o Be more sensitive to changes in the economy, earnings results and investor
expectations.
o Have more limited product lines and capital resources.
o Experience sharper swings in market values.
o Be harder to sell at the times and prices the fund thinks appropriate.
o Offer greater potential for gain and loss .
Clearwater Investment Trust-5
<PAGE>
Total return and comparative performance
The bar chart indicates the risks of investing in the fund by showing the
performance of the fund's shares for each calendar year since the fund's
inception. The total return table indicates the risk of investing in the fund by
comparing the average annual total return of the fund for the periods shown to
that of the russell 2000 index, an unmanaged index of small capitalization
stocks. The table assumes redemption of shares at the end of the period and the
reinvestment of distributions and dividend. Past performance does not
necessarily indicate how the fund will perform in the future.
[GRAPHIC OMITTED]
% Total Return
- -6.7 26.3 15.0 40.2 -7.1 27.3
94 95 96 97 98 99
Calendar years ended December 31
Quarterly returns
Highest: 25.5% in 3rd quarter 1997
Lowest: (25.1)% in 3rd quarter 1998
Previous periods during which the Fund was advised by another
investment subadviser are not shown.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (CALENDAR YEARS ENDED DECEMBER 31, 1999)
<S> <C> <C> <C> <C> <C>
1 Year 5 Years 10 Years Since Inception Inception Date
Clearwater Small Cap Fund 27.3% 19.2% n/a 14.4% 12/31/93
Russell 2000 Index 21.3% 16.7% n/a 13.4%
</TABLE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in
shares of the fund.
Shareholder fees (paid directly from your investment) None
Annual fund operating expenses (paid by the fund as a % of fund net assets)
Management fees 1 .35%
Other expenses 0 .00%
------
Total annual fund operating expenses 1 .35%
======
Example
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
Number of years you own your shares 1 year* 3 years* 5 years* 10 years*
$ 137 $ 428 $ 739 $ 1,624
*The example assumes: o You invest $10,000 for the period shown
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
o Your investment has a 5% return each year
o You redeem all of your shares at the end of the
period shown
Clearwater Investment Trust-6
<PAGE>
CLEARWATER TAX-EXEMPT BOND FUND
INVESTMENT OBJECTIVE
The fund seeks high current income that is exempt from federal income tax,
consistent with preservation of capital.
KEY INVESTMENTS AND STRATEGIES
The fund invests at least 80% of its assets in municipal securities, which are
debt obligations issued by or for the U.S. states, territories and possessions
and the District of Columbia. The interest on these securities is generally
exempt from regular federal income tax and may also be exempt from federal
alternative minimum tax. However, the fund may invest up to 20% of its assets in
these securities that generate interest income subject to federal alternative
minimum tax.
The fund invests in both revenue bonds, which are backed by and payable only
from the revenues derived from a specific facility or specific revenue source,
and in general obligation bonds, which are secured by the full faith, credit and
taxation power of the issuing municipality. The fund generally invests a
significant portion of its assets in revenue bonds of health care related
facilities and in obligations of municipal housing authorities, which include
single family and multi-family mortgage revenue bonds.
The fund primarily invests in securities rated investment grade at the time of
purchase or, if unrated, determined to be of comparable quality by the fund's
subadviser. However, the fund may invest up to 30% of its assets in securities
rated below investment grade or determined to be of comparable quality by the
subadviser. The fund may not invest in securities rated at the time of purchase
lower than B3 by Moody's or B- by Standard and Poor's Corporation, Fitch IBCA or
Duff & Phelps.
The subadviser attempts to maintain an average effective duration for the
portfolio of approximately 4 to 8 years. Duration is a measure of total price
sensitivity relative to changes in interest rates. Portfolios with longer
durations are typically more sensitive to changes in interest rates.
HOW THE SUBADVISER SELECTS THE FUND'S INVESTMENTS
The subadviser selects securities that offer high tax-exempt income. In
selecting securities for the fund, the subadviser analyzes the general outlook
on the economy and interest rate forecasts, while also evaluating a security's
structure, credit quality, yield, maturity, and liquidity.
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if any of the following occurs:
o Call or prepayment risk: As a result of declining interest rates, the issuer
of a security exercises its right to prepay principal earlier than
scheduled, forcing the fund to reinvest in lower yielding securities.
Declining interest rates may compel borrowers to prepay mortgages and debt
obligations underlying the mortgage-backed securities and manufactured home
loan pass-through securities owned by the fund. The proceeds received by the
fund from prepayments will likely be reinvested at interest rates lower than
the original investment, thus resulting in a reduction of income to the
fund. Likewise, rising interest rates could reduce prepayments and extend
the life of securities with lower interest rates, which may increase the
sensitivity of the fund's value to rising interest rates.
o Credit risk: The issuers or guarantors of securities owned by the fund may
default on the payment of principal or interest, or on other obligations to
the fund, causing the value of the fund to decrease. The revenue bonds in
which the fund invests may entail greater credit risk than the fund's
investments in general obligation bonds. In particular, weaknesses in
federal housing subsidy programs and their administration may result in a
decrease of subsidies available for the payment of principal and interest on
certain multi-family housing authority bonds.
o Interest rate risk: An increase in interest rates may lower the fund's value
and the overall return on your investment.
o Political and economic risk: Because the fund invests primarily in municipal
securities issued by states and their political subdivisions, the fund may
be particularly affected by the political and economic conditions and
developments in those states. The value of the fund may be adversely
affected by future changes in federal or state income tax laws.
o The manager's judgment about the attractiveness or relative value of a
particular security proves to be incorrect.
o The fund could generate some taxable income and may realize taxable gains on
the sale of its securities or other transactions. Generally, distributions
of interest income from the fund's tax-exempt securities are exempt from
federal income tax, and distributions from other sources, including capital
gain distributions, are not. You should consult a tax adviser about whether
an alternative minimum tax applies to you and state and local taxes on your
fund distribution.
CLEARWATER TAX-EXEMPT BOND FUND IS NOT A SUITABLE
INVESTMENT FOR TAX-DEFERRED ACCOUNTS.
Clearwater Investment Trust-7
<PAGE>
Total return and comparative performance
No past performance data is available yet for this new fund.
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in shares
of the fund.
Shareholder fees (paid directly from your investment) None
Annual fund operating expenses (paid by the fund as a % of fund net assets)
Management fees 0.60%
Other expenses 0.00%
-----
Total annual fund operating expenses 0.60%
=====
Example
This example helps you compare the costs of investing in the fund with other
mutual funds. Your actual costs may be higher or lower.
Number of years you own your shares 1 year* 3 years* 5 years* 10 years*
$61 $192 $335 $750
*The example assumes: o You invest $10,000 for the period shown
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
o Your investment has a 5% return each year
o You redeem all of your shares at the end of th
period shown
Clearwater Investment Trust-8
<PAGE>
OTHER INVESTMENTS AND INVESTMENT STRATEGIES
Fixed income securities. Each fund may invest in fixed income securities
including bonds and notes. Clearwater Growth Fund will generally only invest in
fixed income securities represented in the Russell 1000 Index, if any. The
funds' fixed income securities may have all types of interest rate payment and
reset terms, including fixed rate, adjustable rate, zero coupon, deferred,
payment in kind and auction rate features. Each fund's fixed income securities
may be of any maturity. Clearwater Growth Fund and Clearwater Small Cap Fund
will only invest in fixed income securities rated investment grade.
Credit quality and risk. Securities are investment grade if:
o They are rated in one of the top four long-term rating categories of a
nationally recognized statistical rating organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the subadviser believes to be of comparable
quality.
The value of a fund's fixed income securities may go down if:
o Interest rates rise, which will make the prices of fixed income securities
go down.
o The issuer of a security owned by the fund has its credit rating downgraded
or defaults on its obligation to pay principal and/or interest.
Derivatives. Each fund may utilize securities, and securities index futures
contracts and options in order to invest cash balances, to maintain liquidity,
to meet shareholder redemptions, or to minimize trading costs. Clearwater Growth
Fund's use of derivatives will be limited by its avoidance of tax liability and
its low turnover rate.
Even a small investment in derivative contracts can have a big impact on the
funds' market exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains when market prices are
changing. A fund may not fully benefit from or may lose money on derivatives if
changes in their value do not correspond accurately to changes in the value of
the fund's holdings. The other parties to certain derivative contracts present
the same types of credit risk as issuers of fixed income securities. Derivatives
can also make a fund less liquid and harder to value, especially in declining
markets.
Foreign securities. Clearwater Growth Fund and Clearwater Small Cap Fund may
each invest up to 25% of its total assets in securities of foreign issuers from
a variety of countries, including emerging markets. Clearwater Growth Fund's
foreign securities will primarily be limited to those that are represented in
the Russell 1000 Index. The fund may, however, hold foreign securities not
contained in the Index. Many foreign countries in which the funds may invest
have markets that are less liquid and more volatile than markets in the U.S. In
some foreign countries, less information is available about foreign issuers and
markets because of less rigorous accounting and regulatory standards than in the
U.S. Currency fluctuations could erase investment gains or add to investment
losses. The risk of investing in foreign securities is greater in the case of
emerging markets.
Portfolio turnover. The subadviser for Clearwater Growth Fund believes that a
passive portfolio management strategy, combined with tax management techniques,
provides the best opportunity for optimal after tax total return. The subadviser
also believes that passive portfolio management will limit the fund's portfolio
turnover rate to a lower level than if the fund were actively managed. Although
the fund does not purchase or sell securities for short-term profits, the fund
will sell portfolio securities without regard to the time they have been held
whenever such action seems advisable.
Although neither Clearwater Small Cap Fund nor Clearwater Tax-Exempt Bond Fund
purchase or sell securities for short-term profits, either fund may engage in
active and frequent trading to achieve its principal investment strategies.
Frequent trading increases transaction costs, which could decrease a fund's
performance, and may result in increased net short-term capital gains,
distributions of which are taxable to shareholders as ordinary income.
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 and cash equivalents. If a fund takes
a temporary defensive position, it may be unable to achieve its investment goal.
Clearwater Investment Trust-9
<PAGE>
MANAGEMENT
Management services and fees
Clearwater Management Co. serves as the funds' manager. Clearwater is a
privately owned registered investment adviser. The manager has been in the
investment management business since 1987. As of December 31, 1999, Clearwater
had $229 million in assets under management. Clearwater selects and supervises
subadvisers for the funds and administers the funds' business operations. For
these services for the fiscal year ended December 31, 1999, the manager received
a fee from Clearwater Growth Fund, Clearwater Small Cap Fund and Clearwater
Tax-Exempt Bond Fund equal to 0.45%, 1.35% and 0.60% respectively, of each
fund's average daily net assets.
The manager has engaged Parametric Portfolio Associates as subadviser to select
investments for Clearwater Growth Fund, Kennedy Capital Management as subadviser
to select investments for Clearwater Small Cap Fund and Sit Fixed Income
Advisors II, L.L.C., a subsidiary of Sit Investment Associates, Inc., as
subadviser to select investments for Clearwater Tax-Exempt Bond Fund.
Clearwater Investment Trust and the adviser have filed an application for an
exemptive order from the Securities and Exchange Commission permitting the
adviser, subject to the approval of the board of trustees, to select subadvisers
to serve as portfolio managers of the funds or to materially modify an existing
subadvisory contract without obtaining shareholder approval of a new or amended
subadvisory contract. The adviser has ultimate responsibility to oversee and to
recommend the hiring, termination and replacement of any subadviser.
<TABLE>
<CAPTION>
The portfolio managers
The portfolio managers are primarily responsible for the day-to-day operation of
the funds indicated beside their names.
<S> <C> <C> <C> <C>
FUND SUBADVISER PORTFOLIO SINCE PAST 5 YEARS' BUSINESS EXPERIENCE
MANAGER
Growth Fund Parametric Portfolio Brian 1997 Managing director of Parametric since 1990.
Associates Langstraat
Small Cap Fund Kennedy Capital Richard Sinise 1994 Chief Investment Officer of Kennedy Capital since
Management 1999 and Vice President since 1979.
Tax-Exempt Bond Fund Sit Fixed Income Michael C. 1999 President of Sit Fixed Income and Senior Vice
Advisors II, L.L.C. Brilley President of Sit Investment Associates since 1984.
Debra A. Sit 1999 Vice President of Sit Fixed Income since 1987.
</TABLE>
Clearwater Investment Trust-10
<PAGE>
BUYING SHARES
Investment minimums
Initial and subsequent investments in any fund must be at least $1,000.
Buying shares by mail
Initial purchases
o For initial purchases of any fund's shares, complete the Purchase Order and
Account Application and send it with your check to Fiduciary Counselling,
Inc., the funds' transfer agent. An account application is included with
this prospectus. If you need additional copies, call 1-888-228-0935.
o Send completed purchase application together with a check for the amount of
the investment to:
Clearwater Investment Trust
(specify fund)
c/o Fiduciary Counselling, Inc.
332 Minnesota Street, Suite 2100
St. Paul, MN 55101-1394
o Checks drawn on foreign banks must be payable in U.S. dollars and have the
routing number of the U.S. bank encoded on the check.
o All purchase orders must include a date on which the order is to be
effective. If no date is specified, the purchase order will be filled at the
net asset value next computed.
Subsequent purchases
o Send a check for the amount of the subsequent purchase by mail directly to
the transfer agent at the address above.
o Be sure to include your fund and account number on checks for subsequent
investments.
Clearwater Investment Trust-11
<PAGE>
EXCHANGING AND REDEEMING SHARES
Exchange privilege
Contact the transfer agent to exchange into other Clearwater funds. An exchange
of shares from one fund to another is a taxable transaction.
o You may exchange shares only for shares of another Clearwater fund.
o You must meet the minimum investment amount for each fund unless you are
exchanging into a fund you already own.
o Your fund may suspend or terminate your exchange privilege if you engage in
an excessive pattern of exchanges.
To learn more about the exchange privilege contact the transfer agent or consult
the statement of additional information.
Exchanging and redeeming shares by phone
You may exchange or redeem shares by telephone. Redemption proceeds can be sent
by check to your address of record. You may be asked to provide proper
identification information. Telephone exchange and redemption requests may be
made by calling the transfer agent at (888) 228-0935 between 9:00 a.m. and 4:00
p.m. Eastern time on any day the New York Stock Exchange is open. If telephone
exchange or redemptions are not available for any reason, you may use the fund's
exchange or redemption by mail procedure described elsewhere in this prospectus.
Redemptions by mail
You may redeem some or all of your shares by sending a written request to:
Clearwater Investment Trust
(specify fund)
c/o Fiduciary Counselling, Inc.
332 Minnesota Street, Suite 2100
St. Paul, MN 55101-1394
The written request for redemption must be in good order. A request in good
order means that you have provided the following information. Your request will
not be processed without this information.
o Name of the fund
o Account number
o Dollar amount or number of shares being redeemed
o Signature of each owner exactly as account is registered
o Other documentation required by Fiduciary Counselling, Inc. including, if
applicable, endorsed share certificates
o To be in good order, your request must include a signature guarantee. You
can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loans, but not from a notary public.
REDEMPTION PAYMENTS
In all cases, your redemption price is the net asset value per share next
determined after your request is received in good order. Redemption proceeds
normally will be sent within seven days. However, if you recently purchased your
shares by check, your redemption proceeds will not be sent to you until your
original check clears. Your redemption proceeds will be sent by check to your
address of record. Redemption proceeds may be sent to an address other than that
of record if the request includes a signature guarantee.
Clearwater Investment Trust-12
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
Each fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
o Pay redemption proceeds consisting of portfolio securities or non-cash
assets for redemptions of greater than $1 million
Small account balances
If your account falls below $1,000 because of a redemption of fund shares, the
fund may ask you to bring your account up to the minimum requirement. If your
account is still below $1,000 after 30 days, the fund may close your account and
send you the redemption proceeds.
Share price
You may buy, exchange or redeem shares at the net asset value per share next
determined after receipt of your request in good order. Each fund's net asset
value per share is the value of its assets minus its liabilities divided by the
total shares outstanding. Each fund calculates its net asset value when regular
trading closes on the New York Stock Exchange (normally 4:00 p.m., Eastern time)
if such calculation is then required to properly process a purchase order,
redemption request or exchange request for shares of the fund. The New York
Stock Exchange is closed on weekends and certain holidays listed in the
Statement of Additional Information.
Each fund generally values its securities based on market prices or quotations.
When market prices are not available, or when the manager believes they are
unreliable or that the value of a security has been materially affected by
events occurring after a foreign exchange closes, the funds may price those
securities at fair value. Fair value is determined in accordance with procedures
approved by the funds' board. A fund that uses fair value to price securities
may value those securities higher or lower than another fund using market
quotations to price the same securities. International markets may be open on
days when U.S. markets are closed and the value of foreign securities owned by a
fund could change on days when you cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with the transfer agent before the New York Stock Exchange closes. If
the New York Stock Exchange closes early, you must place your order prior to the
actual closing time. Otherwise, you will receive the next business day's price.
You may have difficulty contacting the funds by telephone during times of market
volatility or disruption in telephone service. On New York Stock Exchange
holidays or on days when the exchange closes early, the telephone center will
adjust its hours accordingly. If you are unable to reach the fund by telephone,
you should communicate with the funds in writing.
Household delivery of fund documents
With your consent, Clearwater may send a single prospectus and shareholder
report to your residence for you and any other member of your household who has
an account with any of the funds. If you wish to revoke your consent to this
practice, you may do so by notifying Clearwater by telephone or in writing.
Clearwater will begin mailing separate prospectuses and shareholder reports to
you within 30 days after receiving your notice.
Clearwater Investment Trust-13
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The funds normally pay dividends and distribute capital gain, if any, as
follows:
Dividends, distributions and taxes
Annual distributions of income and capital gain are made at the end of the year
in which the income or gain is realized, or the beginning of the next year.
Clearwater Growth Fund and Clearwater Small Cap Fund each expects to make annual
distributions primarily from capital gain. The funds may pay additional
distributions and dividends at other times if necessary to avoid a federal
income or excise tax.
Clearwater Tax-Exempt Bond Fund declares any dividends from net investment
income daily and pays the dividends monthly. The fund intends to meet certain
federal tax requirements so that distributions of tax-exempt interest income may
be treated as "exempt-interest dividends." These dividends are not subject to
regular federal income tax. The fund may invest up to 20% of its assets in
municipal securities subject to the alternative minimum tax. Any portion of
exempt interest dividends attributable to interest on these securities may
increase some shareholders' alternative minimum tax. All exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax, if
any. The fund expects that its distributions will consist primarily of
exempt-interest dividends. The fund's exempt-interest dividends may be subject
to state and local taxes. Any capital gains distributed by the fund may be
taxable.
Capital gain distributions and dividends are reinvested in additional fund
shares. Alternatively, you can instruct the transfer agent to have your
distributions and/or dividends paid in cash. You can change your choice at any
time to be effective as of the next distribution or dividend, except that any
change given to the transfer agent less than five days before the payment date
will not be effective until the next distribution or dividend is made.
In general, redeeming and exchanging shares and receiving distributions other
than exempt-interest dividends (whether in cash or additional shares) are all
taxable events.
TRANSACTION FEDERAL INCOME TAX STATUS
Redemption or exchange of shares Usually capital gain
or loss in an amount
equal to the
difference between the
net amount of the
redemption proceeds
(or in the case of an
exchange, the fair
market value of the
shares) that you
receive and your tax
basis for the shares
you redeem or
exchange; long-term
only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Taxable dividends Ordinary income
Exempt-interest dividends (Tax-Exempt Bond Fund only) Exempt
from regular federal
income tax; may in
some cases increase
liability for
alternative minimum
tax
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when a fund is about to declare a capital gain distribution or a
taxable dividend, because it will be taxable to you even though it may actually
be a return of a portion of your investment.
After the end of each year, the funds will provide you with information about
the distributions and dividends that you received and any redemptions of shares
during the previous year. If you do not provide a fund with your correct
taxpayer identification number and any required certifications or if a fund is
otherwise legally required to do so, you may be subject to back-up withholding
of 31% of your distributions, dividends (other than exempt-interest dividends)
and redemption proceeds. Because each shareholder's circumstances are different
and special tax rules may apply, you should consult your tax adviser about your
investment in a fund.
Clearwater Investment Trust-14
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each share for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG LLP, independent auditors, whose report, along with the fund's
financial statements, are included in the annual report (available upon
request). Financial highlights for Clearwater Tax-Exempt Bond Fund are not shown
because the fund had not yet commenced investment operations during the periods
shown.
For a share of capital stock outstanding throughout each year ended December 31:
<TABLE>
<CAPTION>
CLEARWATER GROWTH FUND
For the year ended December 31
1999 1998 1997(A) 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $25.92 $21.17 $17.88 $17.01 $13.62
- -------------------------------------------------------------- ----------- ------------- ------------ ---------- ------------
Income from investment operations
Net investment income (loss) 0.11 0.09 (0.01) (0.01) 0.01
Net realized and unrealized gain (loss) 6.18 4.71 5.08 3.68 4.43
- -------------------------------------------------------------- ----------- ------------- ------------ ---------- ------------
TOTAL FROM INVESTMENT OPERATIONS 6.29 4.80 5.07 3.67 4.44
- -------------------------------------------------------------- ----------- ------------- ------------ ---------- ------------
Less distributions:
Dividends from net investment income (0.14) (0.05) 0.00 0.00 (0.01)
Distributions from realized gains (0.09) 0.00 (1.78) (2.80) (1.04)
Return of capital (0.04) 0.00 0.00 0.00 0.00
- -------------------------------------------------------------- ----------- ------------- ------------ ---------- ------------
TOTAL DISTRIBUTIONS (0.27) (0.05) (1.78) (2.80) (1.05)
NET ASSET VALUE, END OF PERIOD $31.94 $25.92 $21.17 $17.88 $17.01
- -------------------------------------------------------------- ----------- ------------- ------------ ---------- ------------
TOTAL RETURN(B) 24.3% 22.7% 28.4% 21.6% 32.6%
Net assets, end of period (000's) 169,913 134,773 106,859 93,922 84,775
- -------------------------------------------------------------- ----------- ------------- ------------ ---------- ------------
Ratio of expenses to average net assets 0.45% 0.45% 0.98% 1.08% 1.08%
Ratio of net investment income (loss) to average net assets 0.39% 0.39% (0.06)% (0.07)% 0.06%
Portfolio turnover rate (excluding short-term securities) 12.19% 3.65% 38.16% 75.90% 58.64%
<FN>
(a) Effective November 1, 1997, Parametric Portfolio Associates became the
subadviser to the fund.
(b) 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.
</FN>
</TABLE>
Clearwater Investment Trust-15
<PAGE>
For a share of capital stock outstanding throughout each year ended December 31:
<TABLE>
<CAPTION>
CLEARWATER SMALL CAP FUND
For the year ended December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.08 $15.24 $12.74 $11.47 $9.89
- ----------------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
Income from investment operations
Net investment income (loss) (0.05) (0.04) (0.02) 0.00 0.04
Net realized and unrealized gain (loss) 3.57 (1.04) 5.14 1.71 2.56
- ----------------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 3.52 (1.08) 5.12 1.71 2.60
- ----------------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 0.00 (0.04)
Excess distributions from net investment income 0.00 0.00 0.00 (0.01) 0.00
Distributions from realized gains (1.47) (1.08) (2.62) (0.42) (0.98)
Return of capital 0.00 0.00 0.00 (0.01) 0.00
- ----------------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (1.47) (1.08) (2.62) (0.44) (1.02)
NET ASSET VALUE, END OF PERIOD $15.13 $13.08 $15.24 $12.74 $11.47
- ----------------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
TOTAL RETURN(B) 27.3% (7.1)% 40.2% 15.0% 26.3%
Net assets, end of period (000's) $59,196 39,217 40,838 32,774 26,826
- ----------------------------------------------------------------- ------------ ----------- ----------- ----------- -----------
Ratio of expenses to average net assets 1.34% 1.36% 1.35% 1.37% 1.35%
Ratio of net investment income (loss) to average net assets (0.35%) (0.26)% (0.17)% 0.00% 0.36%
Portfolio turnover rate (excluding short-term securities) 112.63% 88.27% 92.22% 89.25% 77.46%
<FN>
(a) Total return figures are based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value.
</FN>
</TABLE>
Clearwater Investment Trust-16
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
Clearwater Tax-Exempt Bond Fund
Additional information about the funds
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the funds' investments. These reports discuss the
market conditions and investment strategies that significantly affected each
fund's performance during its last fiscal year.
Statement of additional information. The statement of additional information
provides more detailed information about each fund. It is incorporated by
reference into (is legally a part of) this combined prospectus.
How to obtain additional information.
o You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting the
transfer agent, by calling 1-888-228-0935 or writing the funds at 332
Minnesota Street, Suite 2100, St. Paul, Minnesota 55101-1394.
o You can also review the funds' shareholder reports, prospectus and statement
of additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information about the public reference
room may be obtained by calling 1-202-942-8090. Copies of these materials
may be obtained, upon payment of a duplicating fee, by sending an electronic
request to [email protected] or by writing to the Public Reference Section
of the Commission, Washington, D.C. 20549-0102. You can get the same reports
and information free from the Commission's EDGAR Database on its internet
web site--http://www.sec.gov.
<TABLE>
<CAPTION>
<S> <C>
EXECUTIVE OFFICERS TRUSTEES
Philip W. Pascoe, President, CEO &Treasurer Lucy R Jones
Frederick T. Weyerhaeuser, Vice President & Lawrence H. King
Secretary Laura R. Rasmussen
Charles W. Rasmussen
Frederick T. Weyerhaeuser
INVESTMENT MANAGER CLEARWATER GROWTH FUND SUBADVISER
Clearwater Management Co., Inc. Parametric Portfolio Associates
332 Minnesota Street, Suite 2100 701 Fifth Avenue, Suite 7
St. Paul, MN 55101 Seattle, WA 98104-7090
CUSTODIAN CLEARWATER SMALL CAP FUND SUBADVISER
State Street Bank & Trust Co. Kennedy Capital Management
801 Pennsylvania 10829 Olive Boulevard
Kansas City, MO 64105 St. Louis, MO 63141-7739
COUNSEL CLEARWATER TAX-EXEMPT BOND FUND SUBADVISER
Hale and Dorr LLP Sit Fixed Income Advisors II, L.L.C.
60 State Street 4600 Norwest Center
Boston, MA 02109 Minneapolis, MN 55402
INDEPENDENT ACCOUNTANTS TRANSFER AGENT AND SHAREHOLDER SERVICES
KPMG LLP Fiduciary Counselling, Inc.
4200 Norwest Center 332 Minnesota Street, Suite 2100
90 South 7th Street St. Paul, MN 55101-1394
Minneapolis, MN 55402 (888) 228-0935
</TABLE>
If someone makes a statement about the funds that is not in this prospectus, you
should not rely upon that information. The funds are not offering to sell shares
of the funds to any person to whom the funds may not lawfully sell their shares.
(Investment Company Act file no. 811-05038)
<PAGE>
April 30, 2000
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
Clearwater Tax-Exempt Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (SAI) is not a Prospectus, but should
be read in conjunction with the Prospectus dated April 30, 2000 of Clearwater
Growth Fund ("Growth Fund"), Clearwater Small Cap Fund ("Small Cap Fund") and
Clearwater Tax-Exempt Bond Fund ("Tax-Exempt Bond Fund"). A copy of the
Prospectus can be obtained free of charge by calling Fiduciary Counselling, Inc.
at 888-228-0935 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
accompanies this SAI and is incorporated herein.
CONTENTS
Investment Objectives And Policies 2
Risk Factors 10
Investment Restrictions 13
Portfolio Turnover 15
Brokerage 15
Management, Advisory and Other Services 16
Executive Officers and Trustees 20
Net Asset Value 21
How Are Shares Purchased? 22
Exchange of Shares 22
How Are Shares Redeemed? 23
Taxes 24
Performance Data 29
More Information About the Funds 31
Financial Statements 32
Appendix A - Descriptions of Ratings 33
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.
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives and Policies
General. Growth Fund, Small Cap Fund and Tax-Exempt Bond 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 prospectus of Growth Fund,
Small Cap Fund and Tax-Exempt Bond Fund dated April 30, 2000, identifies the
investment objectives and principal investment policies of the funds.
Under normal circumstances, Growth Fund will invest substantially all of its
assets in the common stocks of companies represented in the Russell 1000 Index.
The 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 fund's total assets. Under normal market
conditions, Small Cap Fund invests at least 65% of its total assets in equity
and fixed income securities of companies that have total equity market
capitalizations no greater than the range of capitalizations of companies
contained in the Russell 2000 Index. Under normal circumstances, Tax-Exempt Bond
Fund primarily invests in municipal securities, which are debt obligations
issued by or for the U.S. states, territories and possessions and the District
of Columbia.
Other policies of the funds are set forth below.
EQUITY SECURITIES (each fund)
Each of Growth Fund's and Small Cap 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 securities convertible into such common or
preferred stocks. Tax-Exempt Bond Fund's investment in equity securities will be
limited to other open-end and closed-end tax exempt investment companies.
Common Stocks. Each fund invests primarily in common stocks. Common stocks are
shares of a corporation or other entity that entitle the holder to a pro rata
share of the profits of the corporation, if any, without preference over any
other shareholder or class of shareholders, including holders of the entity's
preferred stock and other senior equity. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so.
Preferred Stocks and Convertible Securities. Each fund may invest in convertible
debt and preferred stocks. Convertible debt securities and preferred stock
entitle the holder to acquire the issuer's stock by exchange or purchase at a
predetermined rate. Convertible securities are subject both to the credit and
interest rate risks associated with fixed income securities and to the stock
market risk associated with equity securities.
Warrants. Each fund may invest in warrants. Warrants acquired entitle the fund
to buy common stock from the issuer at a specified price and time. Warrants are
subject to the same market risks as stocks, but may be more volatile in price.
Each fund's investment in warrants
2
<PAGE>
will not entitle it to receive dividends or exercise voting rights and will
become worthless if the warrants cannot be profitably exercised before the
expiration dates.
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. Growth Fund may invest in these securities to
the extent that foreign securities are represented in the Russell 1000 Index.
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.
FIXED INCOME SECURITIES (Each fund)
Corporate Debt Obligations (Growth Fund and Small Cap Fund only). Growth Fund
and Small Cap Fund each may invest in corporate debt obligations and zero coupon
securities issued by financial institutions and corporations. 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). Growth Fund invests in
short-term fixed income securities primarily for temporary defensive purposes.
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, each fund will invest in such securities only if they are
rated, at the time of investment, BBB or better by Standard & Poor's Ratings
Group ("Standard & Poor's") or Baa or better by Moody's Investors Service, Inc.
("Moody's") or, if unrated, determined to be of equivalent quality by the
subadviser (i.e., investment grade). Fixed income securities in the lowest
investment grade category (i.e., BBB or Baa) may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities. Neither fund is required
to dispose of securities whose ratings drop below investment grade, but a fund
may do so if considered appropriate by its portfolio subadviser. See Appendix A
for a description of the corporate bond ratings assigned by Moody's and Standard
& Poor's.
U.S. Government Securities. 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.
3
<PAGE>
MUNICIPAL OBLIGATIONS (Tax-Exempt Bond Fund only)
Tax-Exempt Bond Fund invests primarily in municipal securities. The yields on
municipal securities are dependent on a variety of factors, including the
general level of interest rates, the financial condition of the issuer, general
conditions of the tax-exempt securities market, the size of the issue, the
maturity of the obligation and the rating of the issue. Ratings are general, and
not absolute, standards of quality. Consequently, securities of the same
maturity, interest rate and rating may have different yields, while securities
of the same maturity and interest rate with different ratings may have the same
yield.
Certain types of municipal bonds known as private activity bonds are issued to
obtain funding for privately operated facilities. Under current tax law, the
fund's distribution (as an exempt-interest dividend) of interest income earned
by the fund from certain private activity bonds is an item of tax preference for
a shareholder that is subject to the alternative minimum tax.
Municipal securities in which the fund invests include securities that are
issued by a state or its agencies, instrumentalities, municipalities and
political subdivisions, or by territories or possessions of the United States.
Tax-exempt municipal securities include municipal bonds, municipal notes,
municipal commercial paper and municipal leases.
Municipal Bonds. Municipal bonds generally have maturities at the time of
issuance ranging from one to thirty years, or more. Municipal bonds are issued
to raise money for various public purposes. The two principal types of municipal
bonds are general obligation bonds and revenue bonds. The fund may invest in
both in any proportion. General obligation bonds are secured by the full faith,
credit and taxing power of the issuing municipality and not from any particular
fund or revenue source. Revenue bonds are not backed by the municipality's
general taxing power but by the revenues derived from a facility or class of
facilities or from the proceeds of a special excise or other specific revenue
source.
Municipal Notes. Municipal notes generally mature in three months to three
years.
Municipal Commercial Paper. Municipal commercial paper generally matures in one
year or less.
Municipal Leases. Tax-Exempt Bond Fund may invest up to 25% of its net assets in
municipal lease obligations issued by state and local governments or authorities
to finance the acquisition of equipment and facilities. Municipal leases may
take the form of a lease, an installment purchase contract, a conditional sales
contract or a participation certificate in any of the above. In determining
leases in which the fund will invest, the subadviser will carefully evaluate the
outstanding credit rating of the issuer (and the probable secondary market
acceptance of such credit rating). Additionally, the subadviser may require that
certain municipal lease obligations be issued or backed by a letter of credit or
put arrangement with an independent financial institution.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. The constitutions and statutes of all
states contain requirements that the state or a municipality must meet to incur
debt. These often include voter referendum, interest rate limits and public sale
requirements. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to acquire
property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts of
4
<PAGE>
"nonappropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis.
In addition to the "nonappropriation" risk, municipal leases have additional
risk aspects because they do not have the depth of marketability associated with
conventional bonds; moreover, although the obligations will be secured by the
leased equipment, the disposition of the equipment in the event of
non-appropriation or foreclosure might, in some cases, prove difficult. In
addition, in certain instances the tax-exempt status of the obligations will not
be subject to the legal opinion of a nationally recognized "bond counsel," as is
customarily required in larger issues of municipal securities.
Municipal lease obligations, except in certain circumstances, are considered
illiquid by the staff of the Securities and Exchange Commission ("SEC").
Municipal lease obligations held by the fund will be treated as illiquid unless
they are determined to be liquid pursuant to guidelines established by the
fund's Board of Trustees. Under these guidelines, the subadviser will consider
factors including, but not limited to 1) whether the lease can be canceled, 2)
what assurance there is that the assets represented by the lease can be sold, 3)
the issuer's general credit strength (e.g. its debt, administrative, economic
and financial characteristics), 4) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operations of the municipality (e.g. the
potential for an "event of non-appropriation"), and 5) the legal recourse in the
event of failure to appropriate.
Housing Authority Bonds. Tax-Exempt Bond Fund may invest without limitation in
obligations of municipal housing authorities which include both single family
and multifamily mortgage revenue bonds. Weaknesses in federal housing subsidy
programs and their administration may result in a decrease of subsidies
available for payment of principal and interest on multifamily housing authority
bonds. Economic developments, including fluctuations in interest rates and
increasing construction and operating costs, may also adversely impact revenues
of housing authorities. In the case of some housing authorities, inability to
obtain additional financing could also reduce revenues available to pay existing
obligations. Mortgage revenue bonds are subject to extraordinary mandatory
redemption at par in whole or in part from the proceeds derived from prepayments
of underlying mortgage loans and also from the unused proceeds of the issue
within a stated period of time.
The exclusion from gross income for federal income tax purposes of the interest
on certain housing authority bonds depends on qualification under relevant
provisions of the Internal Revenue Code of 1986, as amended (the "Tax Code") and
on other provisions of federal law. These provisions of federal law contain
certain ongoing requirements relating to the cost and location of the residences
financed with the proceeds of the single family mortgage bonds and the income
levels of occupants of the housing units financed with the proceeds of the
single and multifamily housing bonds. While the issuers of the bonds, and other
parties, including the originators and servicers of the single family mortgages
and the owners of the rental projects financed with the multifamily housing
bonds, covenant to meet these ongoing requirements and generally agree to
institute procedures designed to insure that these requirements are met, there
can be no assurance that these ongoing requirements will be consistently met.
The failure to meet these requirements could cause the interest on the bonds to
become taxable, possibly retroactively from the date of issuance, thereby
reducing the value of the bonds, subjecting shareholders to unanticipated tax
liabilities and possibly requiring the fund to sell the bonds at the reduced
value. Furthermore, any failure to meet these ongoing requirements might not
constitute an event of default under the applicable mortgage which might
otherwise permit the holder to accelerate payment of the bond or require the
issuer to redeem the bond. In any event, where the
5
<PAGE>
mortgage is insured by the Federal Housing Administration ("FHA"), the consent
of the FHA may be required before insurance proceeds would become payable to
redeem the mortgage subsidy bonds.
Industrial Development Revenue Bonds. Tax-Exempt Bond Fund may invest in
industrial development revenue bonds. Industrial development revenue bonds are
backed by the user of the facilities and the specific revenues of the project to
be financed. The credit quality of industrial development bonds is usually
directly related to the credit standing of the user of the facilities or the
credit standing of a third-party guarantor or other credit enhancement
participant, if any.
Zero Coupon Securities. Tax-Exempt Bond Fund may invest in zero coupon
securities. Such securities are debt obligations which do not entitle the holder
to periodic interest payments prior to maturity and are issued and traded at a
discount from their face amounts. The discount varies depending on the time
remaining until maturity, prevailing interest rates, liquidity of the security
and the perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity of the
security approaches and this accretion (adjusted for amortization) is recognized
as interest income. Zero coupon securities can be sold prior to their due date
in the secondary market at the then-prevailing market value which depends
primarily on the time remaining to maturity, prevailing levels of interest rates
and the perceived credit quality of the issuer. The market prices of zero coupon
securities are more volatile than the market prices of securities of comparable
quality and similar maturity that pay interest periodically and may respond to a
greater degree to fluctuations in interest rates than do such non-zero coupon
securities.
DERIVATIVES
Options on Securities and Securities Indices (each fund). 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. Growth Fund's use of derivatives will be
limited by its intention to seek generally to avoid realizing taxable gains and
its low turnover rate.
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 quoted in a NASDAQ market, provided that Small Cap
Fund continues to own the securities covering each call until the call has been
exercised or has expired, or until Small Cap Fund has purchased a closing call
to offset its obligations to deliver securities pursuant to the call it has
written.
Neither Growth Fund nor Small Cap 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.
Tax-Exempt Bond Fund may purchase and sell exchange traded put and call options
on debt securities of an amount up to 5% of its net assets for the purpose of
hedging. The fund may, from time to time, write exchange-traded call options on
debt securities, but the fund will not write put options. A put option
(sometimes called a standby commitment) gives the purchaser of the option, in
return for a premium paid, the right to sell the underlying security at a
specified price during the term of the option. The writer of the put option
receives the premium and has the
6
<PAGE>
obligation to buy the underlying securities upon exercise at the exercise price
during the option period. A call option (sometimes called a reverse standby
commitment) gives the purchaser of the option, in return for a premium, the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option receives
the premium and has the obligation at the exercise of the option, to deliver the
underlying security against payment of the exercise price during the option
period. A principal risk of standby commitments is that the writer of a
commitment may default on its obligation to repurchase or deliver the
securities.
Futures Contracts and Options on Futures Contracts (Growth Fund and Tax-Exempt
Bond Fund). To seek to increase total return or to hedge against changes in
interest rates or securities prices, 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 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 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.
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 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 fund's net assets. These
transactions involve brokerage costs, require margin deposits and, in the case
of contracts and options obligating the fund to purchase securities, require the
fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the fund's obligations.
Tax-Exempt Bond Fund may invest in interest rate futures contracts, index
futures contracts and may buy options on such contracts for the purpose of
hedging its portfolio of fixed income securities (and not for speculative
purposes) against the adverse effects of anticipated movements in interest
rates. As a result of entering into futures contracts, no more than 5% of the
fund's total assets may be committed to margin.
An interest rate futures contract is an agreement to purchase or deliver an
agreed amount of debt securities in the future for a stated price on a certain
date. The fund may use interest rate futures solely as a defense or hedge
against anticipated interest rate changes and not for speculation. The fund
presently could accomplish a similar result to that which it hopes to achieve
through the use of futures contracts by selling debt securities with long
maturities and investing in debt securities with short maturities when interest
rates are expected to increase, or conversely, selling short-term debt
securities and investing in long-term debt securities when interest rates are
expected to decline. However, because of the liquidity that is often available
in the futures market, such protection is more likely to be achieved, perhaps at
a lower cost and without changing the rate of interest being earned by the fund,
through using futures contracts.
Tax-Exempt Bond Fund may purchase and sell put and call options and options on
interest rate futures contracts which are traded on a United States exchange or
board of trade as a hedge against changes in interest rates, and will enter into
closing transactions with respect to such options to terminate existing
positions. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of a specific
financial instrument (debt security) at a specified price, date, time and place.
An option on an interest rate
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futures contract, as contrasted with the direct investment in such a contract,
gives the purchaser the right, in return for the premium paid, to assume a
position in an interest rate futures contract at a specified exercise price at
any time prior to the expiration date of the option. Options on interest rate
futures contracts are similar to options on securities, which give the purchaser
the right, in return for the premium paid, to purchase or sell securities.
A call option gives the purchaser of such option the right to buy, and obliges
its writer to sell, a specified underlying futures contract at a stated exercise
price at any time prior to the expiration date of the option. A purchaser of a
put option has the right to sell, and the writer has the obligation to buy, such
contract at the exercise price during the option period. Upon exercise of an
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account, which represents the amount by which the
market price of the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the interest rate futures contract on the expiration date. The
potential loss related to the purchase of an option on interest rate futures
contracts is limited to the premium paid for the option (plus transaction
costs). Because the value of the option is fixed at the point of sale, there are
no daily cash payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset values of the fund.
Purchase of Put Options on Futures Contracts. Tax-Exempt Bond Fund may purchase
put options on futures contracts if the subadviser anticipates a rise in
interest rates. Because the value of an interest rate or municipal bond index
futures contract moves inversely in relation to changes in interest rates, a put
option on such a contract becomes more valuable as interest rates rise. By
purchasing put options on futures contracts at a time when the Adviser expects
interest rates to rise, the fund will seek to realize a profit to offset the
loss in value of its portfolio securities.
Purchase of Call Options on Futures Contracts. Tax-Exempt Bond Fund may purchase
call options on futures contracts if the subadviser anticipates a decline in
interest rates. The purchase of a call option on an interest rate or index
futures contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. Because the value of an interest rate or index
futures contract moves inversely in relation to changes to interest rates, a
call option on such a contract becomes more valuable as interest rates decline.
The fund will purchase a call option on a futures contract to hedge against a
decline in interest rates in a market advance when the fund is holding cash. The
fund can take advantage of the anticipated rise in the value of long-term
securities without actually buying them until the market is stabilized. At that
time, the options can be liquidated and the fund's cash can be used to buy
long-term securities.
The fund expects that new types of futures contracts, options thereon, and put
and call options on securities and indexes may be developed in the future. As
new types of instruments are developed and offered to investors, the subadviser
will be permitted to invest in them provided that the subadviser believes their
quality is equivalent to the fund's quality standards.
Swap Agreements (Tax-Exempt Bond Fund only). Tax-Exempt Bond Fund may enter into
swap agreements. Swap agreements are two party contracts entered into primarily
by institutional
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investors in which two parties agree to exchange the returns (or differential
rates of return) earned or realized on particular predetermined investments or
instruments.
The fund may enter into swap agreements for purposes of attempting to obtain a
particular investment return at a lower cost to the fund than if the fund had
invested directly in an instrument that provided that desired return. The fund
bears the risk of default by its swap counterparty and may not be able to
terminate its obligations under the agreement when it is most advantageous to do
so. In addition, certain tax aspects of swap agreements are not entirely clear
and their use, therefore, may be limited by the requirements relating to the
qualification of the fund as a regulated investment company under the Tax Code.
OTHER INVESTMENT TECHNIQUES
Repurchase Agreements (each fund). 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. 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). 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 (Growth Fund and Small Cap Fund only). Both
Growth Fund and Small Cap 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, neither fund will 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.
Temporary Defensive Investments (each fund). 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.
Short Sales Against the Box (each fund). Each fund may engage in short sales
against the box. In a short sale against the box, the fund sells a security that
it borrows from a securities lender while either contemporaneously owning the
security or having the right to acquire the security
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at no extra cost. If the price of the security has declined at the time the fund
repays the loan with the security it owns, the fund will benefit from the
difference in the price. If the price of the security has increased, the fund
will realize a loss.
When-Issued Securities (each fund). Each 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.
RISK FACTORS
Foreign Securities (Growth Fund and Small Cap Fund). 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 presents 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.
Fixed Income Securities (each fund). Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
obligations and may also be subject to price volatility due to such factors as
market interest rates, market perception of creditworthiness of the issuer and
general market liquidity. Zero coupon securities are securities sold at a
discount to par value and on which interest payments are not made during the
life of the security. Each fund's investments in zero coupon, stripped or
certain other fixed income securities with original issue discount (or market
discount if an election is made to take market discount into account annually)
could require the fund to sell certain of its portfolio securities in order to
generate sufficient cash to satisfy certain income distribution requirements.
High Yield Securities (Tax-Exempt Bond Fund only) Tax-Exempt Bond Fund may
invest up to 30% of its assets in securities rated below investment-grade.
Securities rated below investment-grade are referred to as high yield securities
or "junk bonds." Junk bonds are regarded as being predominantly speculative as
to the issuer's ability to make payments of principal and interest. Investment
in such securities involves substantial risk. Issuers of junk bonds may be
highly leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks associated with acquiring the securities of such
issuers generally are greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, issuers of junk bonds may be more likely to experience financial stress,
especially if such issuers are highly leveraged. In addition, the market for
junk bonds is relatively new and has not weathered a major economic recession,
and it is unknown what effects such a recession might have on such securities.
During such periods, such issuers may not have sufficient cash flows to meet
their interest payment obligations. The issuer's ability to service its debt
obligations also may be adversely affected by specific issuer developments, or
the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of junk bonds because such
securities may be unsecured and may be subordinated to the creditors of the
issuer. While most of the junk bonds in which the funds may invest do not
include securities
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which, at the time of investment, are in default or the issuers of which are in
bankruptcy, there can be no assurance that such events will not occur after the
fund purchases a particular security, in which case the fund may experience
losses and incur costs. Junk bonds frequently have call or redemption features
that would permit an issuer to repurchase the security from the fund. If a call
were exercised by the issuer during a period of declining interest rates, the
fund likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends to
shareholders.
Junk bonds tend to be more volatile than higher-rated fixed income securities,
so that adverse economic events may have a greater impact on the prices of junk
bonds than on higher-rated fixed income securities. Factors adversely affecting
the market value of such securities are likely to affect adversely the fund's
net asset value. Like higher-rated fixed income securities, junk bonds generally
are purchased and sold through dealers who make a market in such securities for
their own accounts. However, there are fewer dealers in the junk bond market,
which may be less liquid than the market for higher-rated fixed income
securities, even under normal economic conditions. Also there may be significant
disparities in the prices quoted for junk bonds by various dealers. Adverse
economic conditions and investor perceptions thereof (whether or not based on
economic fundamentals) may impair the liquidity of this market and may cause the
prices the fund receives for its junk bonds to be reduced. In addition, the fund
may experience difficulty in liquidating a portion of its portfolio when
necessary to meet the fund's liquidity needs or in response to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Under such conditions, judgment may play a greater role in valuing certain of
the fund's portfolio securities than in the case of securities trading in a more
liquid market. In addition, the fund may incur additional expenses to the extent
that it is required to seek recovery upon a default on a portfolio holding or to
participate in the restructuring of the obligation.
Derivative Instruments (each fund). In accordance with its investment policies,
each fund may invest in certain derivative instruments which are securities or
contracts that provide for payments based on or "derived" from the performance
of an underlying asset, index or other economic benchmark. Essentially, a
derivative instrument is a financial arrangement or a contract between two
parties (and not a true security like a stock or a bond). Transactions in
derivative instruments can be, but are not necessarily, riskier than investments
in conventional stocks, bonds and money market instruments. A derivative
instrument is more accurately viewed as a way of reallocating risk among
different parties or substituting one type of risk for another. Every investment
by a fund, including an investment in conventional securities, reflects an
implicit prediction about future changes in the value of that investment. Every
fund investment also involves a risk that the subadviser's expectations will be
wrong. Transactions in derivative instruments often enable a fund to take
investment positions that more precisely reflect the subadviser's expectations
concerning the future performance of the various investments available to the
fund. Derivative instruments can be a legitimate and often cost-effective method
of accomplishing the same investment goals as could be achieved through other
investment in conventional securities.
Derivative contracts include options, futures contracts, forward contracts,
forward commitment and when-issued securities transactions, forward foreign
currency exchange contracts and interest rate, mortgage and currency swaps. The
following are the principal risks associated with derivative instruments.
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Market risk: Market risk is the risk that the instrument will decline
in value or that an alternative investment would have appreciated more, but this
is no different from the risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market changes, but
this risk may be consistent with the investment objective of even a conservative
fund in order to achieve an average portfolio volatility that is within the
expected range for that type of fund.
Credit risk: The issuer of the instrument may default on its obligation
to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many derivative
instruments are actively traded and can be priced with as much accuracy as
conventional securities. Derivative instruments that are custom designed to meet
the specialized investment needs of a relatively narrow group of institutional
investors such as the funds are not readily marketable and are subject to a
fund's restrictions on illiquid investments.
Correlation risk: There may be imperfect correlation between the price
of the derivative and the underlying asset. For example, there may be price
disparities between the trading markets for the derivative contract and the
underlying asset.
Each derivative instrument purchased for a fund is reviewed and analyzed by the
fund's subadviser to assess the risk and reward of each such instrument in
relation the fund's investment strategy. The decision to invest in derivative
instruments or conventional securities is made by measuring the respective
instrument's ability to provide value to the fund and its shareholders.
Options on Securities and Securities Indices (each fund). 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.
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Futures Contracts and Options on Futures Contracts (each fund). While
transactions in futures contracts and options on futures may reduce certain
risks, such transactions themselves entail certain risks. Thus, while a 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 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 fund may be exposed to risk of loss. The loss incurred by a
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 fund's net asset value. The profitability of a 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
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 (each fund). 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.
Lending of Portfolio Securities (Growth Fund and Small Cap Fund only). 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 that
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 any 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.
When-Issued Securities (each fund). There may be a risk of loss to a fund that
engages in these transactions if the value of the security declines prior to the
settlement date.
INVESTMENT RESTRICTIONS
Fundamental 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 SAI, 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.
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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 of portfolio transactions;
(5) borrow money or issue senior securities, except as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act");
(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 manager 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.
Nonfundamental Investment Restrictions. 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;
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(2) invest in companies for the purpose of exercising control or
management;
(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.
As a non-fundamental policy, Tax-Exempt Bond Fund will not invest more than 25%
of its assets in revenue bonds payable only from revenues derived from
facilities or projects within a single industry; however, because other
appropriate available investments may be in limited supply, the industry
limitation does not apply to housing authority obligations or securities issued
by governments or political subdivisions of governments. Appropriate available
investments may be in limited supply from time to time in the opinion of the
subadviser due to the fund's investment policy of investing primarily in
"investment grade" securities.
PORTFOLIO TURNOVER
Although none of the funds 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. 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. The
resulting rate of portfolio turnover is not a consideration. A high rate of
portfolio turnover (100% or more) involves correspondingly greater transaction
costs which must be borne by a fund and its shareholders.
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
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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, 1997, 1998 and 1999, Growth Fund paid
brokerage commissions in the amounts of $88,681, $8,659 and $49,439
respectively. During the fiscal year ended 1999, the manager's efforts to
improve Growth Fund's tracking error in relation to its benchmark led to an
overall increase in transactions and brokerage commissions paid by the fund.
During the three years ended December 31, 1997, 1998 and 1999, Small Cap Fund
paid brokerage commissions in the amounts of $165,105, $82,266 and $130,935
respectively.
MANAGEMENT, ADVISORY AND OTHER SERVICES
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.
Manager
Clearwater Management Co., Inc. Clearwater Investment Trust has contracted with
Clearwater Management Co., Inc., 332 Minnesota Street, Suite 2100, 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. The initial term of the contract for the
management of the Growth Fund and Small Cap Fund commenced on March 1, 1998. The
initial term of the contract for the management of the Tax-Exempt Bond Fund
commenced on December 3, 1999.
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
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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%, 1.35% and 0.60% of the
net assets of Growth Fund, Small Cap Fund and Tax-Exempt Bond Fund,
respectively. Prior to November 1, 1997, the management fee for Growth Fund was
1.10% of the fund's average annual net assets. 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, 1997, 1998 and 1999, the
total dollar amounts paid to the manager by Growth Fund were $1,012,399,
$558,531 and $655,350, respectively. During the three years ended December 31,
1997, 1998 and 1999 the total dollar amounts paid to the manager by Small Cap
Fund were $534,172, $606,738 and $623,390,respectively. The Tax-Exempt Bond Fund
was not in operation prior to 2000.
Portfolio Subadvisers
General. 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. The trust and the manager have filed an application for
an exemptive order with the SEC permitting the manager, subject to the approval
of the board of trustees of the trust, to select subadvisers to serve as
portfolio managers of the funds or to materially modify an existing subadvisory
contract without obtaining shareholder approval of a new or amended subadvisory
contract.
Parametric Portfolio Associates. In connection with the management of 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, a registered investment adviser under the
Investment Advisers Act of 1940, was founded in 1987 as a global equity manager
and is a sub-partnership of PIMCO Advisors, L.P. ("PIMCO"), a publicly traded
investment management organization. On October 31, 1999, PIMCO entered into a
merger agreement pursuant to which majority ownership of PIMCO would be acquired
by Allianz of America, Inc. The consummation of this agreement will result in
the change in control of PIMCO and thereby Parametric. The consummation of the
merger agreement is expected to occur in May of 2000. In anticipation of this
event, the shareholders of the Growth Fund approved a new subadvisory contract
(the "new subadvisory contract") with Parametric at a special meeting of
shareholders held February 22, 2000. The new subadvisory contract is
substantially identical to the current Growth subadvisory contract and will
become effective upon the consummation of the merger agreement. Should the
merger agreement not be consummated, the current Growth subadvisory contract
will continue in force. 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 (as well as the new subadvisory contract,
should it become effective), Parametric develops, recommends and implements an
investment program and strategy for Growth Fund which is consistent with the
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 Growth Fund's net assets. This fee is calculated
and accrued on a monthly basis as a percentage of Growth Fund's month-end net
assets. The compensation paid to Parametric with respect to Growth Fund for the
year ended
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December 31, 1999 was 0.15% of Growth Fund's net assets. Under the Growth
subadvisory contract, the manager, and not Growth Fund, is responsible for
payment of subadvisory fees to Parametric.
During the period January 1, 1997 through October 31, 1997 the manager paid
subadvisory fees of $450,753 to Sit Investment Associates, Inc. (the previous
subadviser). During the period from November 1, 1997 through December 31, 1997,
and the full years ended December 31, 1998 and 1999, the manager paid
subadvisory fees of $28,999, $184,724 and $ 219,915, respectively, to
Parametric.
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 Small Cap Fund's portfolio since January 1,
1994. In connection with the management of Small Cap Fund, the trust, the
manager and KCM entered into asubadvisory contract (the "Small Cap subadvisory
contract") dated April 16, 1999. 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 Small Cap Fund which is
consistent with the 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 Small Cap Fund's net assets. This fee is
calculated and accrued on a monthly basis as a percentage of Small Cap Fund's
month-end net assets.
Fees payable to KCM are calculated and accrued monthly on the basis of month-end
net assets, and are paid quarterly by the manager according to the following
schedule:
Percent .........Net Assets
0.85% .........Up to and including $50 million
0.80% .........More than $50 million
The compensation paid to KCM with respect to the Small Cap Fund for the year
ended December 31, 1999 was 0.84% of Small Cap Fund's net assets.
Small Cap Fund is not responsible for payment of the subadvisory fees to KCM.
During the years ended December 31, 1997, 1998 and 1999, the manager paid
subadvisory fees of $346,861, $357,313 and $390,568, respectively, to KCM.
Sit Fixed Income Advisors II, L.L.C. In connection with the management of
Tax-Exempt Bond Fund, the trust, the manager and Sit Fixed Income Advisors II
L.L.C. ("Sit"), a subsidiary of Sit Investment Associates, Inc. entered into a
subadvisory contract dated December 15, 1999 ("Tax-Exempt Bond subadvisory
contract"). Sit, which is organized under the laws of the State of Minnesota and
is registered under the Investment Advisers Act of 1940, devotes full time to
investment counseling and provides advice, management and other services to
investors and accounts, including other mutual funds. Sit 's address is 4600
Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402-4130.
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Under the Tax-Exempt Bond subadvisory contract, Sit develops, recommends and
implements an investment program and strategy for Tax-Exempt Bond Fund which is
consistent with the fund's investment objectives and policies. Sit is also
responsible for making all portfolio and brokerage decisions. As compensation,
Sit receives a fee that is based on Tax-Exempt Bond Fund's net assets. This fee
is calculated and accrued on a monthly basis as a percentage of Tax-Exempt Bond
Fund's month-end net assets.
Fees payable to Sit are calculated and accrued monthly on the basis of month-end
net assets, and are paid quarterly by the manager according to the following
schedule:
Percent .........Net Assets
0.40% .........Up to and including $20 million
0.30% .........Next $30 million
0.25% .........Next $25 million
0.20% .........Over $75 million
Other Provisions of the Contracts. Any amendment to either of the management
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
management 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.
Personal Securities Transactions. The trust, the manager and each subadviser
have each adopted a code of ethics under Rule 17j-1 of the 1940 Act which is
applicable to officers, trustees/directors and designated employees. Each code
permits such persons to engage in personal securities transactions for their own
accounts, including securities that may be purchased or held by a fund, and is
designed to prescribe the means reasonably necessary to prevent conflicts of
interest from arising in connection with personal securities transactions. Each
code is on public file with and available from the SEC.
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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.
Philip W. Pascoe* (54),
President, CEO and Treasurer of the Trust
Chairman of
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 98401
Frederick T. Weyerhaeuser* (68), Trustee
Vice President and Secretary 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
Lucy R. Jones (58) Trustee
Private Investor
562 Harrington Road
Wayzata, Minnesota 55391
Lawrence H. King (44), Trustee
President & CEO, Treessentials Company (1989/present)
5 Beebe Avenue
Mendota Heights, Minnesota 55118
Charles W. Rasmussen (33), Trustee
Financial Analyst, U.S. Bank, N.A. (1998/present)
MBA student (1997/1998)
Production Forester, Weyerhaeuser Company (1989/1997)
667 Ivy Falls Court
Mendota Heights, Minnesota 55118
Laura E. Rasmussen (36), Trustee
Private Investor
4365 Virginia Avenue
Shoreview, Minnesota 55126
The business address of all officers of the trust is 332 Minnesota Street, Suite
2100, St. Paul, Minnesota 55101.
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Mr. Lawrence H. King, Mr. Charles W. Rasmussen and Ms. Laura E. Rasmussen are
first cousins. Mr. Frederick T. Weyerhaeuser is an uncle of all three of the
foregoing.
As of March 31, 2000, all of the trustees and officers of the trust, as a group,
owned of record 1.21% of the outstanding shares of Growth Fund, 1.32% of the
outstanding shares of Small Cap Fund and 1.99% of the outstanding shares of the
Tax-Exempt Bond Fund.
*Messrs. Philip W. Pascoe and Frederick T. Weyerhaeuser are "interested persons"
(as defined in the 1940 Act) 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, paid each of the
trustees an annual fee of $2,000, plus $500 per meeting attended prior to the
year 2000. After 1999 the trustees are paid $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, 1999. Mr. Weyerhaeuser
was the only current trustee serving in 1999.
Compensation With Respect
Name of Trustees to Trust/Complex
Frederick T. Weyerhaeuser $3,500
Total $3,500
NET ASSET VALUE
The net asset value per share of each fund is determined as of the close of
regular trading on the New York Stock Exchange (the "Closing Time") on each day
that the Exchange is open for trading if such determination is then required to
properly process a purchase order, redemption request or exchange request for
shares of such fund. 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 and the previous Friday or following Monday if any holiday falls
on a Saturday or Sunday. 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
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transfer agent, unless a later computation date is specified by the investor on
the purchase order.
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.
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.
Minimum Account Size. If a shareholder holds shares of a fund in an account
which, as a result of redemptions, has an aggregate net asset value of less than
$1,000, the fund may redeem the shares held in such account at net asset value
if the shareholder has not increased the net asset value of such shares in the
account to at least $1,000 within three months of notice in writing by the fund
to the shareholder of the fund's intention to redeem such shareholder's shares.
During the three months following the mailing of such notice, each shareholder
so notified has the opportunity to increase the value of his or her account to
$1,000 and avoid redemption. An involuntary redemption consummated at a price
below the shareholder's cost would result in a loss to the shareholder.
The trust reserves the right in its sole discretion to withdraw all or any part
of the offering of shares of the funds when, in the judgment of the trustees or
the manager, such withdrawal is in the best interests of the trust. An order to
purchase shares is not binding on, and may be rejected by, the trust until it
has been confirmed in writing.
Fund Accounts. When a shareholder first purchases shares of a 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.
Share Certificates. 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.
EXCHANGE OF SHARES
Subject to the restrictions set forth below, some or all of the shares of a
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.
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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 followed by the
purchase of new shares 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.
HOW ARE SHARES REDEEMED?
Any shareholder of any of the Clearwater funds has the right to offer shares for
redemption by the trust. Redemptions will 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 a 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.
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Net asset value per share for the purpose of redemption is determined in the
manner described in "Net Asset Value." The net asset value per share received
upon redemption may be more or less than the cost of shares to an investor, and
a redemption is a taxable transaction for the redeeming shareholder.
Redemptions may be suspended or payment postponed during any period in which any
of the following conditions exists: the New York Stock Exchange is closed or
trading on the 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 SEC, by order, so permits.
TAXES
General. Under 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.
Each fund has elected to be treated as a "regulated investment company" under
the Tax Code, and intends to qualify for such treatment for each taxable year.
To qualify as a regulated investment company under the Tax Code and be free from
any federal income tax on investment company taxable income and net capital
gains distributed to shareholders in accordance with the Tax Code, each fund
must satisfy certain requirements relating to the sources of its income,
diversification of its assets and timely distribution of its income to
shareholders.
4% Excise Tax. Under the Tax Code, each of the funds will be subject to a
nondeductible 4% excise tax on a portion of its undistributed ordinary income
(not including tax-exempt interest) and capital gain if it fails to meet certain
distribution requirements by the end of each calendar year.
In order to qualify as a regulated investment company under the Tax Code, each
fund must, among other things, derive at least 90% of its gross income for each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies ("the 90% income test") and satisfy certain annual
distribution and quarterly diversification requirements. For purposes of the 90%
income test, the character of income earned by certain entities in which a fund
invests that are not treated as corporations (e.g. partnerships or trusts) for
U.S. tax purposes will generally pass through to such fund. Consequently, a fund
may be required to limit its equity investments in such entities that earn fee
income, rental income or other nonqualifying income.
Each of Growth Fund and Small Cap Fund may be subject to foreign withholding or
other foreign taxes on its income (including, taxes on interest, dividends and
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.
Foreign Exchange Gains and Losses. Foreign exchange gains and losses realized by
a fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain options and futures contracts
relating to foreign currency, foreign currency forward
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contracts (if any), foreign currencies, or payables or receivables denominated
in a foreign currency are subject to Section 988 of the Tax 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. Under future regulations, any such transactions that are not
directly related to a fund's investments in stock or securities (or its options
contracts or futures contracts with respect to stock or securities) may have to
be limited in order to enable a fund to satisfy the 90% income test. If the net
foreign exchange loss for a year were to exceed a fund's investment company
taxable income (computed without regard to such loss), the resulting ordinary
loss for such year would not be deductible by a fund or its shareholders in
future years.
Passive Foreign Investment Companies. If Growth Fund or Small Cap Fund acquires
any equity interest (under future regulations, generally including not only
stock but also an option to acquire stock such as is inherent in a convertible
bond), 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 that 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 on 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. A fund may limit and/or manage
its holdings in passive foreign investment companies to limit its tax liability
or maximize its return from these investments.
Other Investments. 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) 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. However, a fund
must distribute at least annually, all or substantially all of its net taxable
and tax-exempt income, including such accrued income, to shareholders to qualify
as a regulated investment company under the Code and avoid federal income and
excise taxes. Therefore, a fund may have to dispose of its securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements. Management of the
funds will consider these potential adverse tax consequences in evaluating the
appropriateness of these investments.
Options written or purchased and futures contracts entered into by a fund on
certain securities, indices and foreign currencies, as well as certain forward
currency contracts, may cause a fund to recognize gains or losses from
marking-to-market even though such options may not have lapsed, been closed out,
or exercised, or such futures or forward contracts may not have been performed
or closed out. The tax rules applicable to these contracts may affect the
characterization of some capital gains and losses realized by a fund as
long-term or short-term. Certain options, futures and forward contracts relating
to foreign currency may be subject to Section 988 as described above, and
accordingly may produce ordinary income or loss. Additionally, a fund may be
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required to recognize gain if an option, futures contract, short sale against
the box or other transaction that is not subject to the mark-to-market rules is
treated as a "constructive sale" of an appreciated financial position" held by a
fund under Section 1259 of the Tax Code. Any net mark-to-market gains and/or
gains from constructive sales may also have to be distributed to satisfy the
distribution requirements referred to above even though a fund may receive no
corresponding cash amounts, possibly requiring the disposition of fund
securities or borrowing to obtain the necessary cash. Losses on certain options,
futures or forward contracts and/or offsetting positions (fund securities or
other positions with respect to which a fund's risk of loss is substantially
diminished by one or more options, future or forward contracts) may also be
deferred under the tax straddle rules of the Tax Code, which may also affect the
characterization of capital gains or losses from straddle positions and certain
successor positions as long-term or short-term. Certain tax elections may be
available to ameliorate some adverse effects of the tax rules described in this
paragraph. The tax rules applicable to options, forward contracts and straddles
may affect the amount, timing and character of the fund's income and gains or
losses and hence of its distributions to shareholders.
Taxation of Shareholders. Both Growth Fund and Small Cap 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. Tax-Exempt
Bond Fund will declare its dividends from investment income daily and distribute
these dividends monthly. Distributions from investment company taxable income,
which includes net investment income (other than exempt-interest dividends paid
by Tax-Exempt Bond Fund, as described below), certain net foreign exchange gains
and the excess of net short-term capital gain over net long-term capital loss
("net capital gain") will be taxable to shareholders as ordinary income.
Distributions from the excess of net long-term capital gain over net short-term
capital loss will be taxable to shareholders as long-term capital gain,
regardless of the shareholder's holding period for the shares. Certain
distributions paid by a fund in January of a given year will be taxable to
shareholders as if received on December 31 of the prior year.
Dividends and/or capital gain distributions, if any, may be taken in cash or
automatically reinvested in additional shares (at the net asset value per
share). All distributions are taxable as described above whether a shareholder
takes them in cash or reinvests them in additional shares of a fund.
Shareholders who purchase shares prior to a taxable distribution will
nevertheless be required to treat the distribution as ordinary income or
long-term capital gain as described above, even though economically it may
represent a return of a portion of their investment. Information regarding the
tax status of each year's distributions will be provided to shareholders
annually.
Special Tax Issues Affecting Tax-Exempt Bond Fund's Shareholders. The Tax Code
permits tax-exempt interest received by a fund to flow through as tax-exempt
"exempt-interest dividends" to the fund's shareholders, provided that the fund
qualifies as a regulated investment company and at least 50% of the value of the
fund's total assets at the close of each quarter of its taxable year consists of
tax-exempt obligations, i.e., obligations described in Section 103(a) of the Tax
Code. That part of a fund's net investment income which is attributable to
interest from tax-exempt obligations and which is distributed to shareholders
will be designated by Tax-Exempt Bond Fund as an "exempt-interest dividend"
under the Tax Code.
Tax-Exempt Bond Fund intends to take all actions required under the Tax Code to
ensure that the fund may pay "exempt-interest dividends." Distributions of net
interest income from tax-exempt
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obligations that are designated by the fund as exempt-interest dividends are
excludable from the gross income of the fund's shareholders. The fund's present
policy is to designate exempt-interest dividends annually. The fund will
calculate exempt-interest dividends based on the average annual method and the
percentage of income designated as tax-exempt for any particular distribution
may be substantially different from the percentage of income that was tax-exempt
during the period covered by the distribution. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax return. Distributions paid from taxable interest income,
from any net realized short-term capital gains and certain other taxable sources
(possibly including certain swap payments, income from securities lending or
repurchase agreements, certain income from options or futures contracts or
certain stripped tax-exempt obligations or their coupons, income from
disposition of rights to when-issued securities prior to issuance, realized
market discount, or certain other income) will be taxable to shareholders as
ordinary income, whether received in cash or in additional shares.
Under the Tax Code and applicable regulations, interest on indebtedness incurred
or continued to purchase or carry shares of an investment company paying
exempt-interest dividends, such as Tax-Exempt Bond Fund, will not be deductible
by a shareholder in proportion to the ratio of exempt-interest dividends to all
dividends (both taxable and tax-exempt) other than those treated as long-term
capital gains. Indebtedness may be allocated to shares of Tax-Exempt Bond Fund
even though not directly traceable to the purchase of such shares. Federal law
also restricts the deductibility of other expenses allocable to shares of such
fund.
For federal income tax purposes, an alternative minimum tax ("AMT") is imposed
on taxpayers to the extent that such tax exceeds a taxpayer's regular income tax
liability (with certain adjustments). Exempt-interest dividends attributable to
interest income on certain tax-exempt obligations issued after August 7, 1986 to
finance certain private activities ("private activity bonds") are treated as an
item of tax preference that is included in alternative minimum taxable income
for purposes of computing the federal AMT for all taxpayers. The Tax-Exempt Bond
Fund may invest up to 20% of its assets in securities that generate interest
that is treated as an item of tax preference. In addition, a portion of all
other tax-exempt interest received by a corporation, including exempt-interest
dividends, will be included in adjusted current earnings and in earnings and
profits for purposes of determining the federal corporate AMT and the branch
profits tax imposed on foreign corporations under Section 884 of the Tax Code.
Because liability for the AMT depends upon the regular tax liability and tax
preference items of a specific taxpayer, the extent, if any, to which any tax
preference items resulting from investment in Tax-Exempt Bond Fund will be
subject to the tax will depend upon each shareholder's individual situation. For
shareholders with substantial tax preferences, the AMT could reduce the
after-tax economic benefits of an investment in Tax-Exempt Bond Fund. Each
shareholder is advised to consult his or her tax adviser with respect to the
possible effects of such tax preference items.
Shares of Tax-Exempt Bond Fund may not be an appropriate investment for persons
who are "substantial users" of facilities financed by industrial development or
private activity bonds, or persons related to "substantial users." Consult your
tax adviser if you think this may apply to you.
In addition, shareholders who are or may become recipients of Social Security or
certain railroad retirement benefits should be aware that exempt-interest
dividends are includable in computing "modified adjusted gross income" for
purposes of determining the amount of such benefits, if any, that is required to
be included in gross income. The maximum amount of Social Security benefits
includable in gross income is 85%.
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The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt bonds
which, if not satisfied, could result in loss of tax exemption for interest on
such bonds, even retroactively to the date of issuance of the bonds. Proposals
may be introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the federal income tax exemption for tax-exempt
securities. Tax-Exempt Bond Fund cannot predict what additional legislation may
be enacted that may affect shareholders. The fund will avoid investment in
tax-exempt securities which, in the opinion of the investment adviser, pose a
material risk of the loss of tax exemption. Further, if a tax-exempt security in
the fund's portfolio loses its exempt status, the fund will make every effort to
dispose of such investment on terms that are not detrimental to the fund.
Dividends-Received Deduction. Dividends received by Growth Fund or Small Cap
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) extended before and after each dividend held in an unleveraged
position and distributed and properly designated by the fund (except for capital
gain dividends received from a regulated investment company) may be eligible for
the 70% dividends received deduction generally available to corporations under
the Tax Code.. 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
transactions or 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 or otherwise incur debt attributable to 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.
Redemptions. Redemptions and exchanges are taxable events for shareholders that
are subject to tax. Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in fund shares is properly treated as a sale for tax purposes, as
the following discussion assumes, and the tax treatment of any gains or losses
recognized in such transactions. Any loss realized by a shareholder upon the
redemption, exchange or other disposition of shares with a tax holding period of
six months or less will be disallowed to the extent of any exempt-interest
dividends paid with respect to such shares, and any portion of such loss that
exceeds the amount disallowed will be treated as a long-term capital loss to the
extent of any amounts treated as distributions of long-term capital gain with
respect to such shares. Losses on redemptions or other dispositions of shares
may be disallowed under "wash sale" rules in the event of other investments in a
fund (including those made pursuant to reinvestment of dividends and/or capital
gain distributions) within a period of 61 days beginning 30 days before and
ending 30 days after a redemption or other disposition of shares. In such a
case, the disallowed portion of any loss would be included in the federal tax
basis of the shares acquired in the other investments.
Back Up Withholdings and Other Rules. Dividends (other than exempt-interest
dividends), capital gain distributions and the proceeds of redemptions,
exchanges or repurchases of shares
28
<PAGE>
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. Backup withholding may be inapplicable by the Tax-Exempt
Bond Fund for any year in which such fund reasonably estimates that at least 95%
of its dividends paid with respect to such year are exempt-interest dividends.
Special tax rules apply to IRA or other retirement plans or accounts and to
other special classes of investors, such as tax-exempt organizations, financial
institutions and insurance companies. You should consult with your own tax
adviser regarding the application of any such rules in your particular
circumstances.
Applicability to Shareholders
U.S. Shareholders. 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. The exemption of exempt-interest dividends for federal income tax
purposes does not necessarily result in exemption under the tax laws of any
state or local taxing authority, which vary with respect to the taxation of such
income. Each shareholder is advised to consult his own tax adviser regarding the
exemption, if any, of exempt-interest dividends under the state and local tax
laws applicable to the shareholder Shareholders also may inquire about these and
other matters by calling the Transfer Agent at (888) 228-0935.
Non-U.S. Shareholders. Shareholders who are not U.S. persons, as defined above,
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, possibly 31%
backup withholding unless an effective IRS Form W-8, Form W-8BEN, or other
authorized withholding certificate is on file, and should consult their tax
advisers for information on the application of these rules to their particular
situations.
PERFORMANCE DATA
The funds' average annual total return quotations, as they may appear in the
Prospectus, this SAI 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
29
<PAGE>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 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%. Computations of average annual total return of a fund
will not take into account any required payments of federal or state income
taxes.
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 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.
The average annual total return of Growth Fund for the one, five and ten year
periods ended December 31, 1999, were 24.28%, 25.83% and 16.65% respectively.
The average annual total return of Small Cap Fund for the one and five year
periods ended December 31, 1999 and the period during which the Small Cap Fund
has been managed by KCM, January 1, 1994 through December 31, 1999, were 27.30%,
19.21% and 14.44%, respectively. The foregoing average annual total return
figures were determined based on expenses in effect for the funds during the
covered periods.
Yield. Yield is computed by dividing the net investment income per share (as
defined under SEC rules and regulations) earned during the computation period by
the maximum offering price per share on the last day of the period, according to
the following formula:
6
Yield = 2([((a-b)/cd)+1] -1)
a = dividends and interest earned during the periods;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
30
<PAGE>
The formula assumes values for a, b, c, and d will be calculated based on a
30-day period.
Taxable Equivalent Yield. The Tax-Exempt Bond Fund may state a taxable
equivalent yield which is computed by dividing that portion of the yield of the
fund which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the yield of the fund that is not
tax-exempt.
MORE INFORMATION ABOUT THE FUNDS
General. 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 the Commonwealth of the Commonwealth of Massachusetts.
Unless otherwise required by the 1940 Act, 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.
Voting. 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
31
<PAGE>
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 1940 Act, 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.
<TABLE>
<CAPTION>
As of March 31, 2000, each of the following persons owned five percent
or more of the voting securities of each such fund:
<S> <C> <C> <C>
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Name Total Shares Total Shares Total Shares
Clearwater Growth Fund Clearwater Small Cap Clearwater
Fund Tax-Exempt Bond Fund
- ----------------------------------------- ------------------------ ----------------------- -------------------------
W. John Driscoll* 12.58% 11.32% 20.37%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Frank W. Piasecki* 6.25%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Walter S. Rosenberry, III* 8.56% 6.73% 15.63%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
John W. Titcomb, Jr.** 5.97%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Annette B. Weyerhaeuser 7.83%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Charles A. Weyerhaeuser* 11.44% 9.16%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
David C. Weyerhaeuser* 6.06%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
David M. Weyerhaeuser** 9.18% 8.46%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Frederick T. Weyerhaeuser* 13.77% 17.70% 18.93%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
George H. Weyerhaeuser** 23.69% 17.28%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
William T. Weyerhaeuser** 27.03% 20.89% 28.00%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Wendy W. Weyerhaeuser** 10.73%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
Anne E. Zaccaro* 5.26%
- ----------------------------------------- ------------------------ ----------------------- -------------------------
</TABLE>
* 332 Minnesota Street, Suite 2100, Saint Paul, Minnesota 55101-1394
** 1145 Broadway, Suite 1500, P.O. Box 1278, Tacoma, Washington 98401
Independent Accountants. KPMG LLP serves as independent public accountants to
the trust. In this capacity, KPMG LLP audits and renders an opinion on the
funds' financial statements.
FINANCIAL STATEMENTS
The trust's annual report for the fiscal year ended December 31, 1999
accompanies this SAI and is incorporated herein by reference in its entirety.
32
<PAGE>
APPENDIX A
Description of Ratings
BOND RATINGS
Moody's Investors Service, Inc.
Rating Definition
Aaa Judged to be the best quality, carry the smallest degree of
investment risk .
Aa Judged to be of high quality by all standards.
A Possess many favorable investment attributes and are to be
considered as higher medium grade obligations
Baa Medium grade obligations. Lack outstanding investment
characteristics.
Ba Judged to have speculative elements. Protection of interest
and principal payments may be very moderate.
B Generally lack characteristics of a desirable investment.
Assurance of interest and principal payments over any long
period of time may be small.
Moody's also applies numerical indicators, 1, 2, and 3, to rating categories Aa
through Ba. The modifier 1 indicates that the security is in the higher end of
the rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of the category.
Standard & Poor's Corporation
Rating Definition
AAA Highest grade obligations and possess the ultimate degree of
protection as to principal and interest.
AA Also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in small degree.
A Regarded as upper medium grade, have considerable investment
strength but are not entirely free from adverse effects of
changes in economic and trade conditions, interest and
principal are regarded as safe.
BBB Considered investment grade with adequate capacity to pay
interest and repay principal.
BB Judged to be speculative with some inadequacy to meet timely
interest and principal payments.
B Has greater vulnerability to default than other speculative
grade securities. Adverse economic conditions will likely
impair capacity or willingness to pay interest and principal.
Standard & Poor's applies indicators "+", no character, and "-" to the above
rating categories AA through B. The indicators show relative standing within the
major rating categories.
Fitch IBCA
Rating Definition
AAA Highest credit quality with exceptional ability to pay
interest and repay principal.
AA Investment grade and very high credit quality ability to pay
interest and repay principal is very strong, although not
quite as strong as AAA.
33
<PAGE>
A Investment grade with high credit quality. Ability to pay
interest and repay principal is strong.
BBB Investment grade and has satisfactory credit quality. Adequate
ability to pay interest and repay principal
BB Considered speculative. Ability to pay interest and repay
principal may be affected over time by adverse economic
changes.
B Considered highly speculative. Currently meeting interest and
principal obligations, but probability of continued payment
reflects limited margin of safety.
+ and - indicators indicate the relative position within the rating category,
but are not used in AAA category.
Duff & Phelps Credit Rating Co.
Rating Definition
AAA Highest credit quality, risk factors are negligible.
AA High credit quality with moderate risk.
A Protection factors are average but adequate, however, risk
factors are more variable and greater in periods of economic
stress.
BBB Below average protection factors, but still considered
sufficient for prudent investment.
BB Below investment grade but likely to meet obligations when
due.
B Below investment grade and possessing risk that obligations
will not be met when due.
+ and - indicators indicate the relative position within the rating category,
but are not used in AAA category.
COMMERCIAL PAPER RATINGS
Moody's
Commercial paper rated "Prime" carries the smallest degree of investment risk.
The modifiers 1, 2, and 3 are used to denote relative strength within this
highest classification.
Standard & Poor's
The rating A-1 is the highest commercial paper rating assigned by Standard &
Poor's Corporation. The modifier "+" indicates that the security is in the
higher end of this rating category.
Fitch IBCA
F-1+ Exceptionally strong credit quality.
F-1 Strong credit quality.
Duff & Phelps
Category 1 (top grade):
Duff1+ Highest certainty of timely payment.
Duff1 Very high certainty of timely payment.
34
<PAGE>
Duff1- High certainty of timely payment.
MUNICIPAL BOND, MUNICIPAL NOTE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
Municipal Bond Ratings
Standard & Poor's Corporation:
Rating Definition
AAA Highest rating; extremely strong security.
AA Very strong security; differs from AAA in only a small degree.
A Strong capacity but more susceptible to adverse economic
effects than two above categories.
BBB Adequate capacity but adverse economic conditions more likely
to weaken capacity.
BB Judged to be speculative with some inadequacy to meet timely
interest and principal payments.
B Has greater vulnerability to default than other speculative
grade securities. Adverse economic conditions will likely
impair capacity or willingness to pay interest and principal.
Standard & Poor's applies indicators "+", no character, and "-" to the above
rating categories AA through B. The indicators show relative standing within the
major rating categories.
Moody's Investors Services, Inc.:
Rating Definition
Aaa Best quality; carry the smallest degree of investment risk.
Aa High quality; margins of protection not quite as large as the
Aaa bonds.
A Upper medium grade; security adequate but could be susceptible
to impairment.
Baa Medium grade; neither highly protected nor poorly
secured--lack outstanding investment characteristics and
sensitive to changes in economic circumstances.
Ba Judged to have speculative elements. Protection of interest
and principal payments may be very moderate.
B Generally lack characteristics of a desirable investment.
Assurance of interest and principal payments over any long
period of time may be small.
Moody's also applies numerical indicators, 1, 2, and 3, to rating categories Aa
through Ba. The modifier 1 indicates that the security is in the higher end of
the rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of the category.
Fitch IBCA:
Rating Definition
AAA Highest credit quality with exceptional ability to pay
interest and repay principal.
AA Investment grade and very high credit quality ability to pay
interest and repay principal is very strong, although not
quite as strong as AAA.
A Investment grade with high credit quality. Ability to pay
interest and repay principal is strong.
35
<PAGE>
BBB Investment grade and has satisfactory credit quality. Adequate
ability to pay interest and repay principal.
BB Considered speculative. Ability to pay interest and repay
principal may be affected over time by adverse economic
changes.
B Considered highly speculative. Currently meeting interest and
principal obligations, but probability of continued payment
reflects limited margin of safety.
+ and - indicators indicate the relative position within the rating category,
but are not used in AAA category.
Duff & Phelps Credit Rating Co.:
Rating Definition
AAA Highest credit quality, risk factors are negligible. AA High
credit quality with moderate risk.
A Protection factors are average but adequate, however, risk
factors are more variable and greater in periods of economic
stress.
BBB Below average protection factors, but still considered
sufficient for prudent investment.
BB Below investment grade but likely to meet obligations when
due.
B Below investment grade and possessing risk that obligations
will not be met when due.
+ and - indicators indicate the relative position within the rating category,
but are not used in AAA category.
Municipal Note Ratings
Standard & Poor's Corporation:
Rating Definition
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc.:
Rating* Definition
MIG 1 Best quality.
MIG 2 High quality.
MIG 3 Favorable quality.
MIG 4 Adequate quality.
* A short-term issue having a demand feature, i.e., payment relying on
external liquidity and usually payable upon demand rather than fixed
maturity dates, is differentiated by Moody's with the use of the symbols
VMIG1 through VMIG4.
36
<PAGE>
Tax-Exempt Commercial Paper Ratings
Standard & Poor's Corporation:
Rating Definition
A-1+ Highest degree of safety.
A-1 Very strong degree of safety.
Moody's Investors Service, Inc.:
Rating Definition
Prime 1 (P-1) Superior capacity for repayment.
37
<PAGE>
CLEARWATER INVESTMENT TRUST
Clearwater Growth Fund
Clearwater Small Cap Fund
Clearwater Tax-Exempt Bond Fund
332 Minnesota Street, Suite 2100
St. Paul, MN 55101
EXECUTIVE OFFICERS: TRUSTEES:
Philip W. Pascoe, President, CEO Lucy R. Jones
&Treasurer Lawrence H. King
Charles W. Rasmussen
Frederick T. Weyerhaeuser, Vice Laura E. Rasmussen
President & Treasurer Frederick T. Weyerhaeuser
INVESTMENT MANAGER: CLEARWATER GROWTH FUND
SUBADVISER:
Clearwater Management Co., Inc. Parametric Portfolio Associates
332 Minnesota Street, Suite 2100 701 Fifth Avenue, Suite 7310
St. Paul, MN 55101 Seattle, WA 98014-7090
CUSTODIAN: CLEARWATER SMALL CAP FUND
SUBADVISER:
State Street Bank and Trust Company Kennedy Capital Management
801 Pennsylvania 10829 Olive Boulevard
Kansas City , MO 64105 St. Louis, MO 63141-7739
COUNSEL FOR THE FUNDS: CLEARWATER TAX-EXEMPT BOND
FUND SUBADVISER:
Hale and Dorr LLP Sit Fixed Income Advisors II, L.L.C.
60 State Street 4600 Norwest Center
Boston, MA 02109 Minneapolis, MN 55402
INDEPENDENT ACCOUNTANTS: TRANSFER AGENT AND
SHAREHOLDER SERVICES:
KPMG LLP Fiduciary Counselling, Inc.
4200 Norwest Center 332 Minnesota Street, Suite 2100
90 South 7th Street St. Paul, MN 55101-1394
Minneapolis, MN 55402 (888) 228-0935
STATEMENT OF ADDITIONAL INFORMATION
April 30, 2000
38
<PAGE>
CLEARWATER INVESTMENT TRUST
FORM N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Declaration of Trust dated January 12, 1987 1
(a)(2) Amendment to Declaration of Trust dated March 25, 1994 1
(a)(3) Amended and Restated Declaration of Trust dated March 1, 1998 2
(a)(4) Certificate of Designation with respect to Clearwater Municipal
Bond Fund 4
(b)(1) By-Laws 1
(b)(2) Amended and Restated By-Laws dated March 1, 1998 2
(c) None.
(d)(1) Management Contract dated May 1, 1994 1
(d)(2) Management Contract, as amended, dated March 1, 1998 2
(d)(3) Form of Management Contract by and among Clearwater Investment
Trust, on behalf of its series, Clearwater Tax-Exempt Bond Fund
and Clearwater Management Co., Inc. 4
(d)(4) Subadvisory Contract with SIT Investment Associates, Inc.for
Clearwater Growth Fund dated May 1, 1994 1
(d)(5) Subadvisory Contract with Parametric Portfolio Associates for
Clearwater Growth Fund dated November 1, 1997 2
(d)(6) Subadvisory Contract with Kennedy Capital Management for
Clearwater Small Cap Fund dated May 1, 1994 1
(d)(7) Amendment to the Subadvisory Contract with Kennedy Capital
Management for Clearwater Small Cap Fund dated January 1, 1998 2
1
<PAGE>
(d)(8) Form of Subadvisory Contract by and among Clearwater
Investment Trust, on behalf of its series, Clearwater Municipal
Bond Fund and Sit Investment Associates, Inc. 4
(e) None.
(f) None.
(g)(1) Custodian Agreement with Norwest Bank Minnesota, N.A. dated
March 31, 1987 1
(g)(2) Amendment to Custodian Agreement dated March 27, 1991 1
(g)(3) Amendment to Custodian Agreement dated November 4, 1992 1
(g)(4) Custodian Agreement with Investors Fiduciary Trust Company
dated September 29, 1997 2
(g)(5) Amendment to Custodian Agreement dated March 1, 1998 3
(h)(1) Investment Company Service Agreement dated March 2, 1987 1
(h)(2) Amendment to Investment Company Service Agreement dated
May 1, 1995 1
(h)(3) Accounting Services Agreement dated April 3, 1995 1
(i) None.
(j)(1) Consent of Independent Accountants +
(k) None.
(l)(1) Stock Purchase Agreement dated February 19, 1987 1
(m) None.
(n) None.
(o) None.
(p)(1) Code of Ethics of Clearwater Investment Trust and Clearwater
Management Company, Inc.+
(p)(2) Code of Ethics of Parametric Portfolio Associates, subadviser to
Clearwater Growth Fund+
(p)(3) Code of Ethics of Kennedy Capital Managment, Inc., subadviser to
Clearwater Small Cap Fund+
(p)(4) Code of Ethics of Sit Fixed Income Advisers, LLC, subadviser to
Clearwater Tax-Exempt Bond Fund+
n/a Powers of Attorney +
2
<PAGE>
------------
+ Filed herewith
1 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).
2 Previously filed as exhibits to post-effective
amendment no. 12 to the Registration Statement on
February 27, 1998 and incorporated herein by
reference (File No. 33-12289).
3 Previously filed as exhibits to post-effective
amendment no. 14 to the Registration Statement on
April 13, 1999 and incorporated herein by reference
(File No. 33-12289).
4 Previously filed as exhibits to post-effective
amendment no. 15 to the Registration Statement on
October 15, 1999 and incorporated herein by reference
(File No. 33-12289).
Item 24. Persons Controlled by or Under Common Control with the Fund
The Registrant is not directly or indirectly controlled by or
under common control with any other person.
Item 25. 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 26. 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 27. Principal Underwriter
Not applicable
3
<PAGE>
Item 28. 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 29. Management Services
The Registrant is a party to five 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, Kennedy Capital Management and Sit
Fixed Income Advisers II, LLC.
Item 30. Undertaking
Not applicable.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
rule 485(b) under the Securities Act of 1993 and has duly caused this
Post-Effective Amendment 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 27th day of April, 2000.
CLEARWATER INVESTMENT TRUST
By: /s/Philip W. Pascoe
----------------------
Philip W. Pascoe
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment 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/Philip W. Pascoe April 27, 2000
- ----------------------
Philip W. Pascoe
President and Treasurer
THE BOARD OF TRUSTEES:
/s/Lucy R. Jones*
Lucy R. Jones
/s/Lawrence H. King*
Lawrence H. King
/s/Laura E. Rasmussen*
Laura E. Rasmussen
/s/Charles W. Rasmussen*
Charles W. Rasmussen
/s/Frederick T. Weyerhaeuser*
Frederick T. Weyerhaeuser
*By /s/Philip W. Pascoe April 27, 2000
----------------------------------
Philip W. Pascoe
Power-of-Attorney
5
<PAGE>
Exhibit Index
Exhibit
Number
(j) Consent of Independent Accountants
(p)(1) Code of Ethics of Clearwater Investment Trust and Clearwater
Management Company, Inc.
(p)(2) Code of Ethics of Parametric Portfolio Associates, subadviser to
Clearwater Growth Fund
(p)(3) Code of Ethics of Kennedy Capital Managment, Inc., subadviser to
Clearwater Small Cap Fund
(p)(4) Code of Ethics of Sit Fixed Income Advisers, LLC, subadviser to
Clearwater Tax-Exempt Bond Fund
n/a Powers of Attorney
6
<PAGE>
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 Accountants" in Part B of
the Registration Statement.
KPMG LLP
Minneapolis, Minnesota
April 24, 2000
CLEARWATER INVESTMENT TRUST
CLEARWATER MANAGEMENT CO., INC.
PARAMETRIC PORTFOLIO ASSOCIATES
KENNEDY CAPITAL MANAGEMENT, INC.
SIT FIXED INCOME ADVISORS II, LLC
CODE OF ETHICS
1. DEFINITIONS
1.1 ACCESS PERSON. The term "Access Person" means any trustee or
director, officer or Advisory Employee of Clearwater Investment
Trust (the "Trust"); Clearwater Management Co., Inc. or any other
Advisor to the Trust (the "Advisor"); Parametric Portfolio
Associates, Kennedy Capital Management, Inc., Sit Fixed Income
Advisors II, LLP or any other subadviser to the Trust (the
"subadvisers").
1.2 ADVISORY EMPLOYEE. The term "Advisory Employee" means (i) any
employee of any of the Trust, the Advisor or the subadvisers who,
in connection with his or her regular functions or duties, makes,
participates in or obtains information regarding the purchase or
sale of a security by the Trust or whose functions relate to the
making of any recommendations with respect to such purchases or
sales, and (ii) any natural person in a control relationship to
any of the Trust, the Advisor or the subadvisers who obtains
information concerning recommendations made to the Trust with
regard to the purchase or sale of a security.
1.3 BEING CONSIDERED FOR PURCHASE OR SALE. A security is "being
considered for purchase or sale" when a recommendation to
purchase or sell a security has been made and communicated and,
with respect to the person making the recommendation, when such
person seriously considers making such a recommendation.
1.4 BENEFICIAL OWNERSHIP. "Beneficial Ownership" of a security means
the direct or indirect ownership of any right to any pecuniary
benefit (other than a broker's commission, advisory fee based on
a percentage of net assets or annual Trustees' fee) from holding,
purchasing and/or selling such security. No person shall be
considered to have "beneficial ownership" of a security for
purposes of this Code of Ethics solely by reason of his or her
possessing any voting and/or dispositive power with respect to
the security.
1.5 CONTROL. "Control" has the meaning set forth in Section 2(a)(9)
of the Investment Company Act of 1940 (see Appendix hereto).
1.6 DISINTERESTED DIRECTOR. "Disinterested Director" means a trustee
of the Trust who is not an "interested person" of the Trust
within the meaning of Section 2(a)(19) of the Investment Company
Act of 1940.
1 REVISED MARCH 1, 2000
<PAGE>
1.7 PURCHASE OR SALE OF A SECURITY. The purchase or sale of a
security includes the writing of an option to purchase or sell a
security.
1.8 SECURITY. "Security" has the meaning set forth in Section
2(a)(36) (see Appendix hereto) of the Investment Company Act,
except that "security" shall not include securities issued by the
government of the United States or any agency thereof, cash
equivalents, commercial paper or shares of mutual funds.
1.9 SECURITY IN PLAY. A "Security in Play" is a security (as defined
herein) which (a) has been purchased or sold by the Trust within
the preceding 10 days or is expected to be purchased or sold
within the next 10 days or (b) is being considered by the
Advisor, the subadvisers or any Advisory Employee for purchase or
sale by the Trust.
2. PROHIBITED TRANSACTIONS AND CONDUCT
2.1 No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has or, by reason of such
transaction, acquires any direct or indirect beneficial ownership
if he or she knew or should have known that, such security was a
Security in Play.
2.2 No Access Person shall purchase or sell, or cause to be purchased
or sold, for any account as to which he or she is an investment
adviser, trustee or other fiduciary, any Security in Play if any
such purchase or sale might prejudice the interests of the Trust
in purchasing or selling such security. Transactions which might
prejudice the interests of the Trust include transactions which
may (a) increase the price of a Security in Play which is being
purchased or considered for purchase or (b) decrease the price of
a Security in Play which is being sold or considered for sale.
2.3 No Access Person shall communicate to any person who is not an
Access Person any material information relating to (a) purchases
or sales of securities by the Trust (except to the extent
previously disclosed in a periodic report of the Trust) or (b)
Securities in Play.
2.4 No Access Person shall acquire directly or indirectly any
beneficial ownership in any securities in an initial public
offering or private placement without first obtaining approval
from the Treasurer or other authorized person of the Trust.
3. EXEMPT TRANSACTIONS
The prohibitions in Section 2 of this Code shall not apply to:
3.1 Purchases or sales for an account with respect to which no Access
Person has any direct or indirect influence or control.
3.2 Purchases or sales which are non-volitional on the part of an
Access Person.
3.3 Purchases which are part of an automatic dividend reinvestment
plan.
3.4 Purchases effected upon the exercise of rights issued by an
issuer pro-rata to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired.
2 REVISED MARCH 1, 2000
<PAGE>
3.5 Purchases or sales which receive the prior approval of the
Treasurer or other authorized person of the Trust, which approval
has been given after a determination that the purchase or sale
would not be prejudicial to the Trust.
4. REPORTING BY ACCESS PERSONS
4.1 Each Access Person, except disinterested Trustees described in
Section 4.2, shall report to the Trust the information described
in sections 4.3, 4.4 And 4.5, Provided that no report shall be
required where such a report is a duplication of a report filed
with the Treasurer or other authorized person of the Trust
pursuant to the Investment Advisers Act of 1940 or any rule
promulgated thereunder.
4.2 The reporting requirements of Section 4.1 shall not apply to a
Trustee who is not an "interested person" within the meaning of
Section 2 (a) (19) of the Investment Company Act of 1940, and
would be required to make such a report solely by reason of being
a Trustee of the Trust, except where such Trustee had, or in the
ordinary course of fulfilling his official duties as a Trustee,
should have had knowledge of Securities in Play.
4.3 Initial holdings report. Not later than ten (10) days after
becoming an Access Person, such person shall file an initial
holdings report with the Treasurer or other authorized person of
the Trust listing name, number of shares and principal amount of
all securities beneficially owned by such person; and listing any
securities account such person maintains with a broker, dealer or
other person.
4.4 Annual holdings report. On or before January 30 of each year,
each Access Person shall file with the Treasurer or other
authorized person of the Trust an annual holdings report
containing the following information as of December 31 of the
previous year: the title, number of shares and principal amount
of each security beneficially owned, and the name of any broker,
dealer or other person with whom such person maintains an account
in which any securities are held for benefit of such person.
4.5 Quarterly Securities Transaction report. Not later than ten (10)
days after the end of every calendar quarter, each Access Person
shall file a Quarterly Securities Transaction report with the
Treasurer or other authorized person of the Trust which shall
state the title and amount of the security or securities
involved; the interest rate and maturity date (if applicable);
the date and nature of each transaction (i.e., purchase, sale or
other acquisition or disposition); the price at which each
transaction was effected; and the name of the broker, dealer or
other person with or through whom each transaction was effected;
and the date the report was submitted. If no transactions
occurred during the period, the report shall so indicate. With
respect to any account established during the quarter by the
access person in which any securities were held for the benefit
of such person, the report shall contain the name of the broker,
dealer or other person with whom the Access Person established
the account and the date the account was established. Each report
may state that the reporting of any transaction should not be
construed as an admission that the Access Person making the
report has any direct or indirect beneficial ownership in the
security to which the report relates. An Access Person need not
make a Quarterly Securities Transaction Report if the
3 REVISED MARCH 1, 2000
<PAGE>
report would duplicate information contained in broker trade
confirmations or account statements received by the Treasurer or
other authorized person of the Trust within the, above, time
period.
5. REPORTS REQUIRED TO BE MADE BY SUBADVISERS TO THE TRUST
5.1 The subadvisers shall, upon engagement, provide the Trust with a
copy of their Codes of Ethics together with a written
certification that they have adopted procedures reasonably
necessary to prevent access persons from violating the Codes of
Ethics.
5.2 Upon the adoption of any material amendment to its Code of Ethics
a copy of such amendment shall be immediately provided to the
trust.
5.3 In the event of a violation of the Trust's Code of Ethics or a
subadviser's Code of Ethics, the subadviser shall immediately
provide specific information about the violation, including
sanctions that may have been imposed, to the Trust sufficient to
allow the Trustees to make an independent determination whether
the reported violation had a material affect on the Trust.
5.4 The subadvisers shall provide annual written certification to the
Trust that there have been no violations of the subadviser's and
the Trust's Code of Ethics other than those reported pursuant to
section 5.1.
5.5 The subadvisers shall provide annual written certification to the
Trust that they have adopted procedures reasonably necessary to
prevent access persons from violating the Codes of Ethics.
5.6 The subadvisers shall provide annual written certification to the
Trust that all material amendments, if any, to their Codes of
Ethics have been provided to the Trust.
6. FAILURE TO COMPLY
Upon learning of a failure to comply with the provisions of this code,
whether advertent or inadvertent, the Board of the Trust or the advisor
may take such action as it deems appropriate under the circumstances.
4 REVISED MARCH 1, 2000
<PAGE>
PARAMETRIC PORTFOLIO ASSOCIATES
CODE OF ETHICS
EFFECTIVE MAY 1, 1996
INTRODUCTION
FIDUCIARY DUTY
This code of ethics is based on the principle that you, as a director,
officer or employee of parametric portfolio associates (partnership), owe a
fiduciary duty to the shareholders of the registered investment companies (the
funds) and other clients (together with the funds, the advisory clients) for
which partnership serves as an adviser or subadviser. Accordingly, you must
avoid activities, interests and relationships that might interfere or appear to
interfere with making decisions in the best interests of our advisory clients.
At all times, you must:
1. PLACE THE INTERESTS OF OUR ADVISORY CLIENTS FIRST. In other
words, as a fiduciary you must scrupulously avoid serving your
own personal interests ahead of the interests of our Advisory
Clients. You may not cause an Advisory Client to take action,
or not to take action, for your personal benefit rather than
the benefit of the Advisory Client. For example, you would
violate this Code if you caused an Advisory Client to purchase
a Security you owned for the purpose of increasing the price
of that Security. If you are a portfolio manager or an
employee who provides information or advice to a portfolio
manager or helps execute a portfolio manager's decisions
(each, a Portfolio Employee), you would also violate this Code
if you made a personal investment in a Security that might be
an appropriate investment for an Advisory Client without first
considering the Security as an investment for the Advisory
Client.
2. CONDUCT ALL OF YOUR PERSONAL SECURITIES TRANSACTIONS IN FULL
COMPLIANCE WITH THIS CODE AND THE PARTNERSHIP INSIDER TRADING
POLICY. The Partnership encourages you and your family to
develop personal investment programs. However, you must not
take any action in connection with your personal investments
that could cause even the appearance of unfairness or
impropriety. Accordingly, you must comply with the policies
and procedures set forth in this Code under the heading
Personal Securities Transactions. In addition, you must comply
with the policies and procedures set forth in the Partnership
Insider Trading Policy, which is attached to this Code as
Appendix I. Doubtful situations should be resolved against
your personal trading.
<PAGE>
3. AVOID TAKING INAPPROPRIATE ADVANTAGE OF YOUR POSITION. The
receipt of investment opportunities, gifts or gratuities from
persons seeking business with the Partnership directly or on
behalf of an Advisory Client could call into question the
independence of your business judgment. Accordingly, you must
comply with the policies and procedures set forth in this Code
under the heading Fiduciary Duties. Doubtful situations should
be resolved against your personal interest.
APPENDICES
The following appendices are attached to this Code and are a part of
this Code:
I. The Partnership Insider Trading Policy.
II. Form for preclearance of Non Exempt Securities
transactions.
III. Form for annual report of personal Securities
holdings.
IV. Form for quarterly report of Securities transactions.
V. Form for acknowledgment of receipt of this Code.
VI. Form for annual certification of compliance with this
Code.
QUESTIONS
Questions regarding this Code should be addressed to a Compliance
Officer. As of the effective date of this Code, the Compliance Officers for your
organization are Kenneth M. Poovey, Newton B. Schott, Sharon A. Cheever, Richard
Weil, Mark Porterfield and Linda Mauzy.
2
<PAGE>
PERSONAL SECURITIES TRANSACTIONS
TRADING IN GENERAL
You may not engage, and you may not permit any other person or entity
to engage, in any purchase or sale of Securities (other than Exempt Securities)
of which you have, or by reason of the transaction will acquire, Beneficial
Ownership, unless the transaction is an Exempt Transaction.
SECURITIES
THE FOLLOWING ARE SECURITIES:
Any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option or privilege on
any security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof), or
any put, call, straddle, option or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any interest
or instrument commonly known as a security, or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, or warrant or right to subscribe to or purchase, any security.
THE FOLLOWING ARE NOT SECURITIES:
Commodities, futures and options traded on a commodities exchange,
including currency futures. However, futures and options on any group or index
of Securities are Securities.
EXEMPT SECURITIES
THE FOLLOWING ARE EXEMPT SECURITIES:
1. Securities issued by the government of the united states.
2. Bankers' acceptances, bank certificates of deposit, commercial
paper, bank repurchase agreements and such other money market
instruments as may be designated from time to time by the
committee appointed by the partnership to administer this code
(the compliance committee). The parametric compliance
committee consists of the following members: kenneth m.
Poovey, newton b. Schott, sharon a. Cheever, richard weil,
mark j. Porterfield, and linda mauzy.
3. Shares of registered open-end investment companies.
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BENEFICIAL OWNERSHIP
You are considered to have beneficial ownership of securities if you
have or share a direct or indirect pecuniary interest in the securities.
You have a pecuniary interest in securities if you have the
opportunity, directly or indirectly, to profit or share in any profit derived
from a transaction in the securities.
The following are examples of an indirect pecuniary interest in
securities:
1. Securities held by members of your immediate family sharing
the same household; however, this presumption may be rebutted
by convincing evidence that profits derived from transactions
in these securities will not provide you with any economic
benefit.
Immediate family means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, and includes any adoptive
relationship.
2. Your interest as a general partner in securities held by a
general or limited partnership.
3. Your interest as a manager-member in the securities held by a
limited liability company.
You do not have an indirect pecuniary interest in securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the securities held by the entity.
The following circumstances constitute beneficial ownership by you of
securities held by a trust:
1. Your ownership of securities as a trustee where either you or
members of your immediate family have a vested interest in the
principal or income of the trust.
2. Your ownership of a vested beneficial interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all
of the beneficiaries is required in order for you to revoke
the trust.
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EXEMPT TRANSACTIONS
THE FOLLOWING ARE EXEMPT TRANSACTIONS:
1. Any transaction in securities in an account over which you do
not have any direct or indirect influence or control. There is
a presumption that you can exert some measure of influence or
control over accounts held by members of your immediate family
sharing the same household, but this presumption may be
rebutted by convincing evidence.
2. Purchases of securities under dividend reinvestment plans.
3. Purchases of securities by exercise of rights issued to the
holders of a class of securities pro rata, to the extent they
are issued with respect to securities of which you have
beneficial ownership.
4. Acquisitions or dispositions of securities as the result of a
stock dividend, stock split, reverse stock split, merger,
consolidation, spin-off or other similar corporate
distribution or reorganization applicable to all holders of a
class of securities of which you have beneficial ownership.
5. Subject to the restrictions on participation in private
placements set forth below under private placements,
acquisitions or dispositions of securities of a private
issuer. A private issuer is an issuer which has no outstanding
publicly-traded securities, and no outstanding securities
which are convertible into or exchangeable for, or represent
the right to purchase or otherwise acquire, publicly-traded
securities. However, you will have beneficial ownership of
securities held by a private issuer whose equity securities
you hold, unless you are not a controlling equityholder and do
not have or share investment control over the securities held
by the entity.
6. Such other classes of transactions as may be designated from
time to time by the compliance committee based upon a
determination that the transactions do not involve any
realistic possibility of a violation of rule 17j-1 under the
investment company act of 1940, as amended. The compliance
committee may exempt designated classes if transactions from
any of the provisions of this code except the provisions set
forth below under reporting.
7. Such other specific transactions as may be exempted from time
to time by a compliance officer. On a case-by-case basis when
no abuse is involved, a compliance officer may exempt a
specific transaction from any of the provisions of this code
except the provisions set forth below under reporting.
5
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CIRCUMSTANCES REQUIRING PRECLEARANCE
If you have beneficial ownership of securities which are not exempt
securities and which cannot be sold in exempt transactions, such securities may
be sold only in compliance with the procedures set forth below under
preclearance procedures.
The compliance committee may designate as exempt transactions purchases
and sales of securities which are purchased or sold in compliance with the
procedures set forth below under preclearance procedures.
PRECLEARANCE PROCEDURES
If a Securities transaction requires preclearance:
1. The securities may not be purchased or sold on any day during
which there is a pending buy or sell order in the same
security on behalf of an advisory client until that order is
executed or withdrawn.
2. If you are a portfolio manager, the securities may not be
purchased or sold during the period which begins seven days
before and ends seven days after the day on which a portfolio
you manage trades in the same security.
3. The securities may be purchased or sold only if you have asked
a compliance officer to preclear the purchase or sale, the
compliance officer has given you preclearance in writing, and
the purchase or sale is executed by the close of business on
the day preclearance is given. Preclearance will not be given
unless a determination is made that the purchase or sale
complies with this code and the foregoing restrictions. The
form for requesting preclearance is attached to this code as
appendix iI.
INITIAL PUBLIC OFFERINGS
If you are a portfolio employee, you may not acquire beneficial
ownership of any securities (other than exempt securities) in an initial public
offering.
PRIVATE PLACEMENTS
If you are a portfolio employee, you may not acquire beneficial
ownership of any securities (other than exempt securities) in a private
placement, unless you have received the prior written approval of the chief
executive officer and a compliance officer of the partnership. Approval will be
not be given unless a determination is made that the investment opportunity
should not be reserved for one or more advisory clients, and that the
opportunity to invest has not been offered to you by virtue of your position.
If you have acquired beneficial ownership of securities in a private
placement, you must disclose your investment when you play a part in any
consideration of an investment by
6
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an advisory client in the issuer of the securities, and any decision to make
such an investment must be independently reviewed by a portfolio manager who
does not have beneficial ownership of any securities of the issuer.
SHORT-TERM TRADING PROFITS
If you are a portfolio employee, you may not profit from the purchase
and sale, or sale and purchase, within 60 calendar days, of the same (or
equivalent) securities (other than exempt securities) of which you have
beneficial ownership. Any such short-term trade must be unwound, or if that is
not practical, the profits must be contributed to a charitable organization.
You are considered to profit from a short-term trade if securities of
which you have beneficial ownership are sold for more than their purchase price,
even though the securities purchased and the securities sold are held of record
or beneficially by different persons or entities.
REPORTING
USE OF BROKER-DEALERS
Unless you are an independent director, you may not engage, and you may
not permit any other person or entity to engage, in any purchase or sale of
publicly-traded Securities (other than Exempt Securities) of which you have, or
by reason of the transaction will acquire, Beneficial Ownership, except through
a registered broker-dealer.
REPORTING OF TRANSACTIONS
Unless you are an independent director, you must cause each
broker-dealer who maintains an account for Securities of which you have
Beneficial Ownership, to provide to the Compliance Officer of the Partnership,
on a timely basis, duplicate copies of confirmations of all transactions in the
account and of periodic statements for the account and you must report to the
Compliance Officer of the Partnership, on a timely basis, all transactions
effected without the use of a broker in Securities (other than Exempt Securities
of which you have Beneficial Ownership).
ANNUAL REPORTS
If you are a Portfolio Employee, you must disclose your holdings of all
Securities (other than Exempt Securities) of which you have Beneficial Ownership
upon commencement of your employment by the Partnership or the effective date of
this Code, whichever occurs later, and annually thereafter. The form for this
purpose is attached to this Code as Appendix III.
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INDEPENDENT DIRECTORS
If you are an independent director, you must provide a quarterly report
of any transaction in Securities (other than Exempt Securities) of which you
had, or by reason of the transaction acquired, Beneficial Ownership, and as to
which you knew, or in the ordinary course of fulfilling your official duties as
a director should have known, that during the 15-day period immediately
preceding or after the date of the transaction, such Securities were purchased
or sold, or considered for purchase or sale, on behalf of an Advisory Client.
The report must be provided to the Compliance Officer of the Partnership within
10 days after the end of each calendar quarter. The form for this purpose is
attached to this Code as Appendix IV.
As of the effective date of this Code, there are no independent
directors.
8
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FIDUCIARY DUTIES
GIFTS
You may not accept any investment opportunity, gift, gratuity or other
thing of more than nominal value, from any person or entity that does business,
or desires to do business, with the Partnership directly or on behalf of an
Advisory Client. You may accept gifts from a single giver so long as their
aggregate annual value does not exceed $100, and you may attend business meals,
sporting events and other entertainment events at the expense of a giver, so
long as the expense is reasonable and both you and the giver are present.
SERVICE AS A DIRECTOR
If you are a Portfolio Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, unless you have
received the prior written approval of the Chief Executive Officer and the
General Counsel of Partnership. Approval will be not be given unless a
determination is made that your service on the board would be consistent with
the interests of OUR ADVISORY CLIENTS. IF YOU ARE PERMITTED TO SERVE ON THE
BOARD OF A PUBLICLY TRADED ENTITY, YOU WILL BE ISOLATED from those Portfolio
Employees who make investment decisions with respect to the securities of that
entity, through a "Chinese Wall" or other procedures.
9
<PAGE>
COMPLIANCE
CERTIFICATE OF RECEIPT
You are required to acknowledge receipt of your copy of this Code. A
form for this purpose is attached to this Code as Appendix V.
CERTIFICATE OF COMPLIANCE
Unless you are an independent director, you are required to certify
upon commencement of your employment or the effective date of this Code,
whichever occurs later, and annually thereafter, that you have read and
understand this Code and recognize that you are subject to this Code. Each
annual certificate will also state that you have complied with the requirements
of this Code during the prior year, and that you have disclosed, reported, or
caused to be reported all transactions during the prior year in Securities of
which you had or acquired Beneficial Ownership. A form for this purpose is
attached to this Code as Appendix VI.
REMEDIAL ACTIONS
If you violate this Code, you are subject to remedial actions, which
may include, but are not limited to, disgorgement of profits, imposition of a
substantial fine, demotion, suspension or termination.
REPORTS TO DIRECTORS AND TRUSTEES
REPORTS OF SIGNIFICANT REMEDIAL ACTION
The managing directors of the Partnership, the supervisory partner and
the directors or trustees of each Fund which is an Advisory Client will be
informed on a timely basis of each significant remedial action taken in response
to a violation of this CODE. FOR THIS PURPOSE, A SIGNIFICANT REMEDIAL ACTION
will include any action that has a significant financial effect on the violator,
such as disgorgement of profits, imposition of a substantial fine, demotion,
suspension or termination.
ANNUAL REPORTS
Management of the Partnership will report annually to the managing
directors and the supervisory partner of the Partnership and the directors or
trustees of each Fund which is an Advisory Client with regard to efforts to
ensure compliance by the directors, officers and employees of the Partnership
with their fiduciary obligations to our Advisory Clients.
10
<PAGE>
The annual report will, at a minimum:
1. Summarize existing procedures regarding personal Securities
transactions, and any changes in such procedures during the
prior year;
2. Summarize the violations of this Code, if any, which resulted
in significant remedial action during the prior year; and
3. Describe any recommended changes in existing procedures or
restrictions based upon experience with this Code, evolving
industry practices, or developments in applicable laws or
regulations.
11
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PARAMETRIC PORTFOLIO ASSOCIATES
EXEMPT TRANSACTIONS
EFFECTIVE MAY 1, 1996
INTRODUCTION
The Partnership Code of Ethics provides that no director, officer or
employee may engage, or permit any other person or entity to engage, in any
purchase or sale of a Security (other than an Exempt Security) of which such
director, officer or employee has, or by reason of the transaction will acquire,
Beneficial Ownership, unless the transaction is an Exempt Transaction.
The Code further provides that, in addition to the Exempt Transactions
described in the Code, other transactions may be designated as Exempt
Transactions by the Compliance Committee.
DESIGNATION OF EXEMPT TRANSACTIONS
In accordance with the Code, the Partnership Compliance Committee
designates the following transactions as Exempt Transactions, based upon a
determination that the transactions do not involve any realistic possibility of
a violation of Rule 17j-1 under the Investment Company Act of 1940, as amended:
EXEMPT TRANSACTIONS NOT REQUIRING PRECLEARANCE
The following Exempt Transactions do not require preclearance:
1. Purchases or sales of up to $100,000 per issuer per calendar
month of fixed-income Securities.
2. Any purchases or sales of fixed-income Securities issued by
agencies or instrumentalities of, or unconditionally
guaranteed by, the Government of the United States.
3. Purchases or sales of up to $1,000,000 per issuer per calendar
month of fixed-income securities issued by qualified foreign
governments.
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A QUALIFIED FOREIGN GOVERNMENT is a national government of a
developed foreign country with outstanding fixed-income
securities in excess of fifty billion dollars.
A list of qualified foreign governments will be prepared as of
last business day of each calendar quarter, will be available
for review with any Compliance Officer, and will be effective
for the following calendar quarter.
4. Purchases or sales of up to 500 shares per day, but not more
than 1,000 shares per week, per issuer, of stock of large-cap
issuers.
A large-cap issuer is an issuer with a total market
capitalization in excess of one billion dollars, based on the
closing sale price of its stock on the last trading day of the
preceding calendar month, and an average daily trading volume
during the preceding calendar month, on the principal
securities exchange (including NASDAQ) on which its shares are
traded, in excess of 50,000 shares.
A list of large-cap issuers will be prepared as of the last
business day of each calendar month, will be available for
review with any Compliance Officer, and will be effective for
the following calendar month.
5. Purchases or sales of up to the lesser of 500 shares or $5,000
per calendar week, per issuer, of stock of issuers other than
large-cap issuers.
6. Purchases or sales of up to $1,000,000 in total notional open
interest per calendar month, per index, of exchange-traded
options on broadly-based indices.
A broadly-based index is an index with an average notional
open interest during the preceding calendar quarter in excess
of one billion dollars.
A list of broadly-based indices will be prepared as of the
last business day of each calendar quarter, will be available
for review with any Compliance Officer, and will be effective
for the following calendar quarter.
7. Any purchase or sale of shares of closed-end mutual funds
other than PIMCO Commercial Mortgage Security Trust, Inc.
8. Other than those securities that may be purchased pursuant to
the provisions above, shares of any issuer not owned by any of
the Partnership Client accounts and not contemplated for
purchase for any client accounts, based upon the investment
discipline of the Partnership that such securities are not
eligible for purchase.
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EXEMPT TRANSACTIONS REQUIRING PRECLEARANCE
The following Exempt Transactions require preclearance in compliance
with the procedures set forth in the Code:
1. Purchases or sales in excess of $100,000 per issuer per
calendar month, of municipal bonds.
2. Any purchase or sale of shares of PIMCO Commercial Mortgage
Security Trust, Inc.
CAUTION
You should keep in mind the following:
1. If you are a Portfolio Employee, Exempt Transactions are
subject to the prohibition against short-swing trading profits
set forth in the Code.
2. Unless you are an independent director, Exempt Transactions
must be reported to the Partnership by your broker-dealer.
3. The lists of qualified foreign governments, large-cap issuers
and broadly-based indices may change from month to month.
Accordingly, you may purchase Securities in an Exempt
Transaction, only to find that you cannot sell them later in
an Exempt Transaction. In that case, you will be able to sell
them only if you preclear the sale in compliance with the
procedures set forth in the Code.
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SECTION 100 INTRODUCTION
.10 Fiduciary Obligations
AN INVESTMENT ADVISER IS A FIDUCIARY WITH RESPECT TO ITS CLIENTS.1 This
relationship has important implications for the activities of the investment
adviser and the necessity for an active and effective compliance program. As a
fiduciary, the investment adviser has an affirmative duty of good faith to the
client. This means that the investment adviser must in all instances act in the
best interest of the client, eliminating where feasible conflicts of interest
between the client and the investment adviser.
There are, however, instances in which it is not feasible to eliminate potential
conflicts of interest, and in certain cases, such as acquiring research with the
commissions paid by clients on transactions (so-called soft dollar arrangements)
conflicts of interest ARE SPECIFICALLY PERMITTED.2 Where a potential conflict
between the interests of the adviser and the client exists, the adviser must
make full and fair disclosure of all material relevant facts to the clients. A
material fact is one which a reasonable person would consider important in
making a decision as to whether to select or retain the investment adviser.
Where an adviser has overlapping motivations, and one of the motivations is the
adviser's economic self-interest, the adviser must disclose the material fact of
this economic self-interest.
Together with compliance with federal securities laws, the duties of good faith
and disclosure of material facts to clients are the basis for KCM's compliance
program. A substantial portion of this Compliance and Supervisory Procedures
Manual (the "Manual") is devoted to articulating policies and procedures
designed to ensure that KCM fulfills this fiduciary duty to its clients in the
day-to-day operation of its business. No manual can, however, address every
situation that may arise. If no specific procedure applies to a situation that
arises, employees are directed to consult the Compliance Officer or a member of
senior management.
Compliance with the federal securities laws and fulfilling our fiduciary duty is
not the sole responsibility of the Compliance Officer, senior management, or any
other individual or group within KCM. Rather, all employees have a continuing
responsibility to learn KCM's legal responsibilities and to perform their jobs
in a manner consistent with those responsibilities. KCM expects that every
employee will understand and meet the standard of conduct implied by this
policy, and that any employee will bring to the attention of the Compliance
Officer any conduct of another employee which is inconsistent with KCM's
announced policies and procedures.
- --------
1 SEC v. Capital Gains Research Bureau, 375 U.S. 180,194 (1963).
2 See Section 28(e) of the Securities Exchange Act of 1934, as amended, and
Section 900 of this Manual.
Issued: October 1998 Distribution: A
Approved: GTK
CODE OF ETHICS
FOR
SIT INVESTMENT ASSOCIATES, INC.,
SIT INVESTMENT FIXED INCOME ADVISORS, INC.
SIT FIXED INCOME ADVISORS II, LLC
SIT/KIM INTERNATIONAL INVESTMENT ASSOCIATES, INC.
SIT/KIM INTERNATIONAL INVESTMENT ASSOCIATES II, LLC
AND SIT MUTUAL FUNDS
I. PURPOSE AND CONSTRUCTION
This Code of Ethics ("Code") is adopted by Sit Investment Associates, Inc.
("Adviser"), Sit Investment Fixed Income Advisors, Inc. ("Fixed Income"), Sit
Fixed Income Advisors II, LLC ("Fixed Income II") Sit/Kim International
Investment Associates, Inc. ("International"), Sit/Kim International Investment
Associates II, LLC ("International II") and the Sit Mutual Funds ("Funds") in an
effort to prevent violations of Section 17 of the 1940 Act and the Rules and
Regulations thereunder. This Code is designed to prevent investment activities
by persons with access to certain information that might be harmful to the Funds
or which might enable such persons to illicitly profit from their relationship
with the Funds. This Code is also designed to codify the written policies and
procedures designed to prevent the misuse of material, nonpublic information in
violation of the 1934 Act or the Advisers Act, or the Rules and Regulations
thereunder, as required by Section 15(f) of the 1934 Act and Section 204A of the
Advisers Act. Each Associated Person must read and retain a copy of this Code,
and execute the acknowledgment attached hereto.
II. DEFINITIONS
A. "ACCESS PERSON" means any director, officer, general partner, or
Advisory Person of a Fund or of Adviser, Fixed Income, Fixed Income II,
International, or International II.
B. "ADVISERS ACT" means the Investment Advisers Act of 1940, 15
U.S.C.ss.30b-1 toss.30b-21.
C. "ADVISORY PERSON" means:
1. Any employee of a Fund or of Adviser, Fixed Income, Fixed Income
II, International, or International II (or of any company in a
control relationship to a Fund or to Adviser, Fixed Income, Fixed
Income II, International, or International II) who, in connection
with his regular functions or duties, makes, participates in, or
obtains information regarding the purchase or sale of a security
by a Fund, or whose functions or duties relate to the making of
any recommendations with respect to such purchases or sales; and
2. Any natural person in a control relationship to a Fund or to
Adviser, Fixed Income, Fixed Income II, International, or
International II who obtains information concerning
recommendations made to a Fund with regard to the purchase or
sale of a security.
D. "AFFILIATED PERSON" of another person means:
1. Any person directly or indirectly owning, controlling, or holding
with power to vote, five percent (5%) or more of the outstanding
voting securities of such other person
2. Any person, five percent (5%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held
with power to vote, by such other person;
3. Any person directly or indirectly controlling, controlled by, or
under common control with, such other person;
4. Any officer, director, partner, co-partner, or employee of such
other person;
5. If such other person is an investment company, any investment
adviser thereof or any member of an advisory board thereof; and
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6. If such other person is an unincorporated investment company
not having a board of directors, the depositor thereof.
E. "ASSOCIATED PERSON" means any partner, officer, director, or branch
manager of Adviser, Fixed Income, Fixed Income II, International, or
International II (or any person occupying a similar status or performing similar
functions), any person directly or indirectly controlling, controlled by, or
under common control with adviser, Fixed Income, Fixed Income II, or
International, or International II, or any employee of Adviser, Fixed Income,
Fixed Income II, Or International, or International II.
F. "CONTROL" shall have the meaning as that set forth in section 2(a)(9) of
the 1940 Act.
G. "FUND" means any investment company registered under the 1940 Act for
which Adviser, Fixed Income, Fixed Income II, International, or International II
acts as the investment adviser and manager; provided, however, that for purposes
of Sections III.A, D., E., and F., "Fund" shall also include all other accounts
managed by Adviser, Fixed Income, Fixed Income II, International, and
International II. References herein to "Adviser" shall be deemed to include
Fixed Income, Fixed Income II, International, and International II, unless the
context clearly implies to the contrary.
H. "INSIDER" means Adviser or the Funds, or an Associated Person of Adviser
or the Funds, or any Affiliated Person thereof, or any member of his immediate
family. Additionally, a person is deemed an "Insider" if he enters into a
special confidential relationship in the conduct of the affairs of Adviser or
the Funds, or any Affiliated Person thereof, and as a result is given access to
material, nonpublic information. Examples of such Insiders include accountants,
consultants, advisers, attorneys, bank lending officers, and the employees of
such organizations.
I. "INSIDER TRADING" means the use of material, nonpublic information to
trade in a Security (whether or not one is an Insider) or the communication of
material, nonpublic information to others. While the meaning of the term is not
static, "Insider Trading" generally includes:
1. Trading in a Security by an Insider, while in possession of
material, nonpublic information;
2. Trading in a Security by a person who is not an Insider, while in
possession of material, nonpublic information, where the
information either was disclosed to such person in violation of
an Insider's duty to keep it confidential or was misappropriated;
and
3. Communicating material, nonpublic information to any person, who
then trades in a Security while in possession of such
information.
J. "MATERIAL INFORMATION" means information for which there is a
substantial likelihood that a reasonable investor would consider it important in
making investment decisions, or information that is reasonably certain to have a
substantial effect on the price of a company's securities. Examples of material
information include information regarding dividend changes, earnings estimates,
changes in previously released earnings estimates, significant merger or
acquisition proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
K. "MEMBER OF IMMEDIATE FAMILY" of a person includes such person's spouse,
children under the age of twenty-five years residing with such person, and any
trust or estate in which such person or any other member of his immediate family
has a substantial beneficial interest, unless neither such person nor any other
member of his immediate family is able to control or participate in the
investment decisions of such trust or estate.
L. "NONPUBLIC INFORMATION" means information that has not been effectively
communicated to the market place.
M. "PURCHASE OR SALE OF A SECURITY" INCLUDES, INTER ALIA, the writing of an
option to purchase or sell a Security.
N. "SECURITY" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act, except that it shall not include securities issued by the Government
of the United States, bankers' acceptances, bank certificates of deposit,
commercial paper, shares of registered open-end investment companies; provided,
however, that for purposes of the Insider Trading prohibition of Section III.A.,
"Security" shall include all securities set forth in Section 2(a)(36) of the
1940 Act.
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O. "SECURITY HELD OR TO BE ACQUIRED" by a registered investment company
means any Security which, within the most recent 15 days, (i) is or has been
held by such company, or (ii) is being or has been considered by such company or
its investment adviser for purchase by such company.
P. "1934 ACT" means the Securities Exchange Act of 1934, 15 U.S.C.ss.78a to
78kk.
Q. "1940 ACT" means the Investment Company Act of 1940, 15 U.S.C.ss.80a-1
toss.80a-64.
R. "RESTRICTED LIST" means a list of Securities maintained by the Adviser
in which proprietary and personal transactions are prohibited.
III. RESTRICTIONS
A. NONPUBLIC INFORMATION.
1. An Insider shall use due care to ensure that material, nonpublic
information remains secure and shall not divulge to any person
any material, nonpublic information, except in the performance of
his duties. For example, files containing material, nonpublic
information should be sealed, and access to computer files
containing material, nonpublic information should be restricted.
2. No Insider shall engage in Insider Trading, on behalf of himself
or others.
3. An Access Person shall not divulge to any person contemplated or
completed securities transactions of a Fund, except in the
performance of his duties, unless such information previously has
become a matter of public knowledge.
4. Questions regarding whether the information is material and/or
nonpublic may be directed to the Chairman of Adviser
or his designee.
B. SECTION 17(D) LIMITATIONS. No Affiliated Person of a Fund, or any
Affiliated Person of such person, acting as principal, shall effect any
transaction in which a Fund, or a company controlled by a Fund, is a joint or a
joint and several participant with such person or Affiliated Person, in
contravention of such rules and regulations as the Securities and Exchange
Commission may prescribe under Section 17(d) of the 1940 Act for the purpose of
limiting or preventing participation by the Funds or controlled companies on a
basis different from or less advantageous than that of such other participant.
C. PRESCRIBED ACTIVITIES UNDER RULE 17J-L(A). Rule 17j-l(a) under the
1940 Act provides: It shall be unlawful for any affiliated person of
or principal underwriter for a registered investment company, or any
affiliated person of an investment adviser of or principal underwriter
for a registered investment company in connection with the purchase or
sale, directly, or indirectly, by such a person of a security held or
to be acquired, as defined in this section, by such registered
investment company--
(1) To employ any device, scheme or artifice to defraud such
registered investment company;
(2) To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they were
made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
(4) To engage in any manipulative practice with respect to such
registered investment company.
Any violation of Rule 17j-1(a) shall be deemed to be a violation
of the Code.
D. COVENANT TO EXERCISE BEST JUDGMENT. An Advisory Person shall act on his
best judgment in effecting, or failing to effect, any Fund transaction and such
Advisory Person shall not take into consideration his personal financial
situation in connection with decisions regarding Fund portfolio transactions.
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E. LIMITATIONS ON TRANSACTIONS.
1. An executive officer or an Advisory Person of Adviser, or any
member of his or her immediate family, shall not purchase or sell
any Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
if at the time of such purchase or sale such Security
(a) is included on the Restricted List maintained by the
Adviser; or
(b) is held or to be acquired by the Fund.
However, the purchase or sale of a Security more than ten (10)
trading days prior to or ten (10) trading days after a Fund's
purchase or sale of such Security shall not be a violation of
this Paragraph III.E.1(b) and provided that the ten day waiting
period does not apply if a Fund has sold all its interest in that
Security.
2. An executive officer or an Advisory Person of Adviser, or any
member of his or her immediate family shall not purchase
securities offered in an Initial Public Offering.
3. An executive officer or an Advisory Person of Adviser, or any
member of his or her immediate family, shall not purchase and
sell the same (or equivalent) securities within 60 calendar days;
and shall not sale and purchase the same (or equivalent)
securities within 60 calendar days.
4. An executive officer or an Advisory Person of Adviser, or any
member of his or her immediate family, shall not effect more than
the lesser of the following number of purchase and/or sale
transactions a.) twenty (20) transactions within one calendar
quarter or b.) fifty (50) transactions within one calendar year,
without the advance written approval of the Chairman of the
Adviser or his designee. Multiple purchases or sales of the same
security effected contemporaneously shall be considered a single
transaction for purposes of this Paragraph III.E.4.
F. PRIOR CLEARANCE. Prior to the sale or purchase of Securities, an
executive officer or an Advisory Person of Adviser, orany member of his
immediate family, must obtain written clearance for the transaction from the
Chairman of Adviser or his designee.
IV. REPORTING REQUIREMENTS
A. INITIAL HOLDINGS REPORT. Not later than ten (10) days after becoming an
Associated Person or Access Person, such person shall submit an initial holdings
report listing all securities beneficially owned by such person, and listing any
securities account such person maintains with a broker, dealer or bank.
B. ANNUAL HOLDINGS REPORT. On or before January 30 of each year, each
Associated Person and each Access Person shall submit an annual holdings report
containing the following information: the title, number of shares and principal
amount of each security in which such person had any direct or indirect
beneficial ownership, and the name of any broker, dealer or bank with whom such
person maintains an account in which any securities are held for the direct or
indirect benefit of such person.
C. QUARTERLY REPORT. Not later than ten (10) days after the end of each
calendar quarter, each Associated Person and each Access Person shall submit a
report which shall specify the following information with respect to
transactions during the then ended calendar quarter in any Security in which
such Associated Person or Access Person has, or by reason of such transaction
acquired, any direct or indirect beneficial ownership in the Security:
1. The date of the transaction, the title and the number of shares,
and the principal amount of each Security involved;
2. The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
3. The price at which the transaction was effected;
4. The name of the broker, dealer, or bank with or through whom the
transaction was effected; and
5. The date the report was submitted.
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If no transactions have occurred during the period, the report shall so
indicate. With respect to any account established by the Associated Person or
Access Person in which any securities were held during the quarter for the
direct or indirect benefit of such person, the report shall contain the name of
the broker, dealer or bank with whom the Access Person established the account
and the date the account was established.
D. BROKER STATEMENTS AND CONFIRMATIONS. Each Associated Person and each
Access Person shall insure that the Adviser receives duplicate copies of his or
her and any member of his or her immediate family's, including for purposes of
this section any relative living in the same household, confirmations and
statements directly from all brokerage firms.
E. DISCLOSURE OF HOLDINGS. An executive officer or an Advisory Person of
the Adviser shall immediately notify the Adviser of any Security held by him or
her (including any member of his or her immediate family) that he or she knows
or should know is included on the Restricted List maintained by the Adviser or
which is being considered for purchase by a Fund. A Security is being considered
for purchase or sale when a recommendation to purchase or sell a security has
been made and communicated and, with respect to the persons making the
recommendation, when such person seriously considers making such a
recommendation.
F. LIMITATION ON REPORTING REQUIREMENTS. Notwithstanding the provisions of
Sections IV.A., B., C., D. and E., no AccessPerson shall be required to make a
report:
1. With respect to transactions effected for any account over which
such person does not have any direct or indirect influence or
control; or
2. If such a person is not an "interested person" of a Fund as
defined in Section 2(a)(19) of the 1940 Act and would be required
to make such a report solely by reason of begin a director of a
Fund, except where such director knew or, in the ordinary course
of fulfilling his official duties as a director of a Fund, should
have known that during the 15-day period immediately preceding or
after the date of the transaction in a Security by the director,
such Security is or was purchased or sold by a Fund or such
purchase or sale by a Fund is or was considered by such Fund or
Adviser, such director is required to file a quarterly report
pursuant to the provisions of Section IV. C.; or
3. Where a report made to Adviser would duplicate information
recorded pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the
Advisers Act.
G. REPORTS OF VIOLATIONS. In addition to the quarterly reports required
under this Article IV, Associated Persons and Access Persons promptly shall
report any transaction which is, or might appear to be, in violation of this
Code. Such report shall contain the information required in quarterly reports
filed pursuant to Sections IV.A.
H. FILING OF REPORTS. All reports prepared pursuant to this Article IV
shall be filed with the Chairman of Adviser or his designee.
I. CERTIFICATION TOGENERAL COUNSEL OF FUNDS. Prior to February 1 of each
year, Adviser shall prepare and deliver to the General Counsel of the Funds a
report which shall describe in detail violations of this Code for the prior
calendar year, unless such violations have previously been reported to the
General Counsel of the Funds.
J. DISSEMINATION OF REPORTS. The General Counsel of the Funds shall have
the right at any time to receive copies of any reports submitted pursuant to
this Article IV. Such General Counsel shall keep all reports confidential except
as disclosure thereof to the Boards of Directors of the Funds or of Adviser or
other appropriate persons may be reasonably necessary to accomplish the purposes
of this Code.
V. SUPERVISORY PROCEDURES
The following supervisory procedures shall be implemented:
A. PREVENTION OF INSIDER TRADING. To prevent Insider Trading, the Chairman
of Adviser or his designee shall:
1. Take appropriate measures to familiarize Associated Persons with
the Code;
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2. Answer questions regarding the Code;
3. Resolve issues of whether information received by an Insider is
material and/or nonpublic; and
4. Review and update the Code as necessary.
B. DETECTION OF INSIDER TRADING. To detect Insider Trading, the Chairman of
Adviser or his designee shall:
1. Review the trading activity and holdings reports filed by each
Associated Person and Access Person; and
2. Review the trading activity of Adviser and the Funds.
C. ADMINISTRATION OF THE CODE. The Chairman of Adviser or his designee
shall, at least annually, provide the Funds' Board with a written report that:
1. Describes any issues arising under the Code or procedures since
the last report to the Boards of Directors, including, but not
limited to, information aboutmaterial violations of the Code or
procedures and sanctions imposed in response to the material
violations; and
2. Certifies that the fund, investment adviser or principal
underwriter, as applicable, has adopted procedures reasonable
necessary to prevent Associated Persons and Access Persons from
violating the Code.
VI. ENFORCEMENT AND SANCTIONS
A. GENERAL. Any Affiliated Person of Adviser who is found to have violated
any provision of this Code may be permanently dismissed, reduced in salary or
position, temporarily suspended from employment, or sanctioned in such other
manner as may be determined by the Board of Directors of Adviser in its
discretion. If an alleged violator is not affiliated with Adviser, the Board of
Directors of the Fund or Funds involved shall have the responsibility for
enforcing this Code and determining appropriate sanctions. In determining
sanctions to be imposed for violations of this Code, the Board of Directors may
consider any factors deemed relevant, including without limitation:
1. The degree of willfulness of the violation;
2. The severity of the violation;
3. The extent, if any, to which the violator profited or benefited
from the violation.
4. The adverse effect, if any, of the violation on the Fund or
Funds;
5. The market value and liquidity of the class of Securities
involved in the violation;
6. The prior violations of the Code, if any, by the violator;
7. The circumstances of discovery of the violation; and
8. If the violation involved the purchase or sale of Securities in
violation of this Code, (a) the price at which the Fund purchase
or sale was made and (b) the violator's justification for making
the purchase or sale, including the violator's tax situation, the
extent of the appreciation or depreciation of the Securities
involved, and the period the Securities have been held.
B. VIOLATIONS OF SECTION III.E.
1. At its election, a Fund may choose to treat a transaction
prohibited under Section III.E. of this Code as having been made
for its account. Such an election may be made only by a majority
vote of the directors of the Fund who are not Affiliated Persons
of Adviser. Notice of an election under this Paragraph B.1 shall
not be effective unless given to Adviser within sixty (60) days
after the Fund is notified of such transaction. In the event of a
violation involving more than one Fund, recovery shall be
allocated between the affected Funds in proportion to the
relative net asset values of the Funds as of the date of the
violation. A violator shall be obligated to pay the Fund any sums
due to said Fund pursuant to paragraph B.2 below due to a
violation by a member of the immediate family of such violator.
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2. If Securities purchased in violation of Section III.E. of this
Code have been sold by the violator in a bona fide sale, the Fund
shall be entitled to recover the profit made by the violator. If
such Securities are still owned by the violator, or have been
disposed of by such violator other than by a bona fide sale at
the time notice of election is given by the Fund, the Fund shall
be entitled to recover the difference between the cost of such
Securities to the violator and the fair market value of such
Securities on the date the Fund acquired such Securities. If the
violation consists of a sale of Securities in violation of
Section III.E. of this Code, the Fund shall be entitled to
recover the difference between the net sale price per share
received by the violator and the net sale price per share
received by the Fund, multiplied by the number of shares sold by
the violator. Each violation shall be treated individually and no
offsetting or netting of violations shall be permitted.
3. Knowledge on the part of the General Counsel of a Fund of a
transaction in violation of Section III.E. of this Code shall be
deemed to be notice to the Fund under Paragraph VI.B.1. Knowledge
on the part of a director or officer of a Fund who is an
Affiliated Person of Adviser of a transaction in violation of
this Code shall not be deemed to be notice under Paragraph
VI.B.1.
4. If the Board of Directors of a Fund determine that a violation of
this Code has caused financial detriment to such Fund, upon
reasonable notice to Adviser, Adviser shall use its best efforts,
including such legal action as may be required, to cause a person
who has violated this Code to deliver to the Fund such
Securities, or to pay to the Fund such sums, as the Fund shall
declare to be due under this Section VI.B., provided that:
a. Adviser shall not be required to bring legal action if
the amount recoverable reasonably would not be expected to
exceed $2,500;
b. In lieu of bringing a legal action against the violator,
Adviser may elect to pay to the Fund such sums as the Fund
shall declare to be due under this Section VI.B.; and
c. Adviser shall have no obligation to bring any legal
action if the violator was not an Affiliated Person of
Adviser.
C. RIGHTS OF ALLEGED VIOLATOR. A person charged with a violation of this
Code shall have the opportunity to appear before the Board of Directors as may
have authority to impose sanctions pursuant to this Code, at which time such
person shall have the opportunity, orally or in writing, to deny any and all
charges, set forth mitigating circumstances, and set forth reasons why the
sanctions for any violations should not be severe.
D. NOTIFICATION TO GENERAL COUNSEL OF FUNDS. The General Counsel of the
Fund involved shall be advised promptly of theinitiation and outcome of any
enforcement actions hereunder.
E. DELEGATION OF DUTIES. The Board of Directors may delegate its
enforcement duties under this Article VI to a special committee of the Board of
Directors comprised of at least three persons; provided, however, that no
director shall serve on such committee or participate in the deliberations of
the Board of Directors hereunder who is charged with a violation of this Code.
F. NON-EXCLUSIVITY OF SANCTIONS. The imposition of sanctions hereunder by
the Board of Directors of Adviser shall not preclude the imposition of
additional sanctions by the Board of Directors of the Funds and shall not be
deemed a waiver of any rights by the Funds. In addition to sanctions which may
be imposed by the Boards of Directors of Adviser and the Funds, persons who
violate this Code may be subject to various penalties and sanctions including,
for example, (i) injunctions; (ii) treble damages; (iii) disgorgement of
profits; (iv) fines to the person who committed the violation of up to three
times the profit gained or loss avoided, whether nor not the person actually
benefited; and (v) jail sentences.
VII. MISCELLANEOUS PROVISIONS
A. Identification of Associated Persons and Access Persons. Adviser shall,
on behalf of the Funds, identify all Associated Persons and Access Persons who
are under a duty to make reports under Section IV.A. and shall inform such
persons of such duty.
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B. Maintenance of Records. Adviser shall, on behalf of the Funds, maintain
and make available records as required by Rule
17j-l(d).
C. Prior Clearance Procedure. Prior to effecting a transaction in a
Security, an Insider (other than persons covered under Section III.F.) may
notify Adviser of the proposed transaction, and the name, title, and amount of
the Security involved. Adviser shall determine whether such proposed transaction
would, may, or would not be consistent with this Code. Such conclusion shall be
promptly communicated to the Insider making such request. Absent extraordinary
circumstances, no Insider shall be deemed to have violated this Code for
effecting a Securities transaction, if such Insider has been advised by Adviser
that the transaction would be consistent with this Code. Adviser shall make
written records of actions under this Section VII.C., which records shall be
maintained and made available in the manner required by Rule 17j-l(d).
D. Effective Date. The effective date of this Code shall be April 28, 1989.
E. Disclosure of Code of Ethics. This Code is on public file with, and
available from, the Securities and Exchange Commission ("SEC"), as an exhibit to
the Funds' Registration Statement.
8
<PAGE
POWER OF ATTORNEY
I, the undersigned trustee of Clearwater Investment Trust, a Massachusetts
business trust, do hereby severally constitute and appoint Philip W. Pascoe 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/Lucy R. Jones April 24, 2000
- ---------------------------------------------
Lucy R. Jones, Trustee
POWER OF ATTORNEY
I, the undersigned trustee of Clearwater Investment Trust, a Massachusetts
business trust, do hereby severally constitute and appoint Philip W. Pascoe 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/Lawrence H. King April 24, 2000
- ---------------------------------------------
Lawrence H. King, Trustee
POWER OF ATTORNEY
I, the undersigned trustee of Clearwater Investment Trust, a Massachusetts
business trust, do hereby severally constitute and appoint Philip W. Pascoe 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/Laura E. Rasmussen April 24,2000
- ---------------------------------------------
Laura E. Rasmussen, Trustee
POWER OF ATTORNEY
I, the undersigned trustee of Clearwater Investment Trust, a Massachusetts
business trust, do hereby severally constitute and appoint Philip W. Pascoe 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/Charles W. Rasmussen April 24, 2000
- ---------------------------------------------
Charles W. Rasmussen, Trustee
POWER OF ATTORNEY
I, the undersigned trustee of Clearwater Investment Trust, a Massachusetts
business trust, do hereby severally constitute and appoint Philip W. Pascoe 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/Frederick T. Weyerhaeuser April 24, 2000
- ---------------------------------------------
Frederick T. Weyerhaeuser, Trustee
