PRE 14A 1 v038112_pre14a.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the registrant: /x/ Filed by a party other than the registrant: / / Check the appropriate box: /x/ Preliminary proxy statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) / / Definitive proxy statement / / Definitive additional materials / / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 CALIFORNIA INVESTMENT TRUST II --------------------------------------- (Name of Registrant as Specified in its Charter) Payment of Filing Fee (Check the appropriate box): /x/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: -------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: -------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): -------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: -------------------------------------------------------------- (5) Total fee paid: / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by the registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: CALIFORNIA INVESTMENT TRUST FUND GROUP 44 MONTGOMERY STREET, SUITE 2100 SAN FRANCISCO, CA 94104 [______], 2006 Dear Shareholder: Enclosed are proxy materials related to your shares in a fund of the California Investment Trust Fund Group (the "Group"). Please take a few minutes to read the proxy statement and cast your vote. Your vote must be received by no later than [_____], 2006, in order to be cast at the Special Shareholders Meeting on May 12, 2006. The meeting will begin at 10:00 a.m., Mountain Standard Time, at the offices of ALPS Mutual Fund Services, Inc., the Funds' transfer agent and fund accountant, at 1625 Broadway, Suite 2200, Denver, Colorado, 80202. The proxy statement attached requests your vote to elect six trustees for the Group to serve for an indefinite term. Three of the Group's current four trustees were previously elected by the shareholders and you would be re-electing them. One current Trustee was previously appointed to fill a vacancy in 2001 and two independent Trustee nominees are being recommended for election to serve as additional Board members to fill two new Board seats. You would be electing that Trustee and those nominees for the first time. You are also being asked to approve new investment management agreements between the Group and CCM Partners, the Group's investment adviser. [There will be no change in the advisory fee. The new investment advisory agreements between each Fund and CCM would clarify the services that CCM is responsible for providing under the management agreements currently in effect and that that non-investment management services that were not clearly covered under the current management agreements are, in fact, not covered as part of the advisory arrangements between CCM and the Funds. Finally, you are being asked to approve an Agreement and Plan of Reorganization that provides for the reorganization of each Trust from a Massachusetts business trust into a single Delaware statutory trust. The proposed reorganization provides an opportunity for the Fund group to achieve operational efficiencies and savings by eliminating the duplication associated with operating two separate Trusts. In addition, Funds that are formed as Delaware statutory trusts are granted a significant amount of operational flexibility, resulting in additional efficiencies of operation that may translate into savings for the Funds. Please review the enclosed material and complete, sign, date and return the enclosed Proxy Card(s). It is important that you submit your vote to ensure that your shares are represented at the Special Meeting. If you have any questions about the proxy, please call us at (800) 225-8778. The Trustees have carefully reviewed the proposals and unanimously recommend that you approve them. Your vote is important for the proper administration of the Group. Thank you in advance for your participation and prompt response in this matter. Page 2 Sincerely, Stephen C. Rogers Chairman and President Enclosures CALIFORNIA INVESTMENT TRUST FUND GROUP California Tax-Free Income Fund S&P 500 Index Fund U.S. Government Securities Fund California Insured Intermediate Fund S&P MidCap Index Fund The United States Treasury Trust California Tax-Free Money Market Fund S&P SmallCap Index Fund Short-Term U.S. Government Bond Equity Income Fund Fund European Growth & Income Fund Nasdaq-100 Index Fund ----------------------------- 44 Montgomery Street, Suite 2100 San Francisco, CA 94104 (800) 225-8778
-------------------------------------------------------------------------------- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To be held May 12, 2006 -------------------------------------------------------------------------------- To the Shareholders: A Special Meeting of Shareholders of each Fund listed above will be held on May 12, 2006 at 10:00 a.m., mountain standard time, at the offices of ALPS Mutual Fund Services, Inc., the Funds' transfer agent and fund accountant, at 1625 Broadway, Suite 2200, Denver, Colorado, 80202, for the following purposes: 1. To elect six trustees to serve until their successors are elected and qualified; 2. To approve new Investment Advisory Agreements between each Trust, on behalf of their respective Funds, and CCM Partners ("CCM"), with no change in the advisory fee payable to CCM; 3. To approve an Agreement and Plan of Reorganization that provides for the reorganization of each Trust from a Massachusetts business trust into a single Delaware statutory trust. 4. To transact such other business as may properly come before the Meeting of Shareholders or any adjournments thereof. Shareholders of record at the close of business on February 28, 2006 are entitled to notice of, and to vote at, the Meeting. Your attention is called to the accompanying Proxy Statement. Regardless of whether you plan to attend the Meeting, please complete, sign and promptly return the enclosed proxy card so that a quorum will be present and a maximum number of shares may be voted. If you are present at the Meeting, you may change your vote, if desired, at that time. By Order of the Board of Trustees Stephen C. Rogers, Secretary [______], 2006 CALIFORNIA INVESTMENT TRUST FUND GROUP California Tax-Free Income Fund S&P 500 Index Fund U.S. Government Securities Fund California Insured Intermediate Fund S&P MidCap Index Fund The United States Treasury Trust California Tax-Free Money Market Fund S&P SmallCap Index Fund Short-Term U.S. Government Bond Equity Income Fund Fund European Growth & Income Fund Nasdaq-100 Index Fund
-------------------------------------------------------------------------------- PROXY STATEMENT SPECIAL MEETING OF SHAREHOLDERS To be held May 12, 2006 -------------------------------------------------------------------------------- A Special Meeting (the "Meeting") of Shareholders of each Fund listed above will be held on May 12, 2006 at 10:00 a.m., mountain standard time, at the offices of ALPS Mutual Fund Services, Inc., the Funds' transfer agent and fund accountant, at 1625 Broadway, Suite 2200, Denver, Colorado, 80202, for the following purposes: 1. To elect six trustees to serve until their successors are elected and qualified; 2. To approve new Investment Advisory Agreements between each Trust, on behalf of their respective Funds, and CCM Partners ("CCM"), with no change in the advisory fee payable to CCM; 3. To approve an Agreement and Plan of Reorganization that provides for the reorganization of each Trust from a Massachusetts business trust into a single Delaware statutory trust. 4. To transact such other business as may properly come before the Meeting or any adjournments thereof. This proxy statement was first mailed to shareholders on or about [April 1], 2006. This is a combined proxy statement for all of the Funds. Each Fund is a series of California Investment Trust or of California Investment Trust II, each of which is a registered investment company (each investment company is referred to in this proxy as a "Trust" and, collectively, as the "Trusts"). The following table identifies the Trusts to which this proxy relates and the Funds that are series thereof: California Investment Trust California Investment Trust II California Tax-Free Income Fund S&P 500 Index Fund California Insured Intermediate Fund S&P MidCap Index Fund California Tax-Free Money Market Fund S&P SmallCap Index Fund Equity Income Fund European Growth & Income Fund Nasdaq-100 Index Fund U.S. Government Securities Fund The United States Treasury Trust Short-Term U.S. Government Bond Fund -1- As illustrated in the following table, all shareholders of all Funds who were shareholders of record on the Record Date will be asked to vote at the Meeting on all Proposals described in this proxy statement:
Fund Proposal 1 Proposal 2 Proposal 3 ---- ---------- ---------- ---------- California Tax-Free Income Fund ("Income Fund") |X| |X| |X| California Insured Intermediate Fund ("Insured Fund") |X| |X| |X| California Tax-Free Money Market Fund ("Money Fund") |X| |X| |X| U.S. Government Securities Fund ("Government Fund") |X| |X| |X| The United States Treasury Trust ("Treasury Trust") |X| |X| |X| Short-Term U.S. Government Bond Fund ("Short-Term Government Fund") |X| |X| |X| S&P 500 Index Fund ("500 Fund") |X| |X| |X| S&P MidCap Index Fund ("MidCap Fund") |X| |X| |X| S&P SmallCap Index Fund ("SmallCap Fund") |X| |X| |X| Equity Income Fund ("Equity Income Fund") |X| |X| |X| European Growth & Income Fund ("Euro Fund") |X| |X| |X| Nasdaq-100 Index Fund ("Nasdaq-100 Fund") |X| |X| |X|
-2- SUMMARY OF PROPOSALS While you should read the full text of the Proxy Statement, here's a brief summary of each of the proposals and how they will affect the Trusts and the Funds. Proposal 1 (All shareholders) Under this proposal, the Board recommends that you elect six individuals to Board of Trustees of the Trusts (the "Boards"). The nominees are Stephen C. Rogers, Harry Holmes, John B. Sias, James W. Miller, Jr., Kevin T. Kogler and Stephen H. Sutro. If the slate of nominees is elected, the Board of each Trust will consist of six Trustees, one of whom will be an "interested person" of the Trusts, because of his positions with CCM. Proposal 2 (All shareholders) Under this proposal, the Boards recommend that you approve new investment advisory agreements between each Trust, on behalf of their respective Funds, and CCM, that would clarify the services that CCM is responsible for providing under the management agreements currently in effect. As more fully described in this proxy statement, the proposed amendment will clarify which non-investment management services are, in fact, covered as part of the advisory arrangements between CCM and the Funds. Proposal 3 (All shareholders) Under this proposal, the Boards recommend that you approve an Agreement and Plan of Reorganization that provides for the reorganization of each Trust from a Massachusetts business trust into a single Delaware statutory trust. As more fully described in this proxy statement, the Boards believe that the proposed reorganization provides an opportunity for the Fund group to achieve operational efficiencies and savings by eliminating the duplication and regulatory and administrative burdens associated with operating two separate Trusts. In addition, Funds that are formed as Delaware statutory trusts under the Delaware Statutory Trust Act are granted a significant amount of operational flexibility, resulting in additional efficiencies of operation that may translate into savings for the Funds. The Board of Trustees recommends that you vote FOR each proposal. -3- PROPOSAL NO. 1 ELECTION OF TRUSTEES Why is the Fund seeking to elect Trustees? The Board of Trustees of each Trust is currently comprised of four individuals, three of whom were elected by the shareholders and one of whom was appointed by each Board to fill an interim vacancy. A majority of the individuals serving on each Board of Trustees are required by the Investment Company Act of 1940 (the "1940 Act") to have been elected by Shareholders. That is currently the case with the Board of Trustees of each Trust. In the event of a future vacancy on the Board of Trustees, however, the Board would not be able to fill that vacancy or add another independent Trustee by appointment. Its authority to do so under the Declaration of Trust and Bylaws of each Trust would be limited by the 1940 Act, which permits such an appointment, with certain exceptions, only when, after giving effect to the appointment, two thirds of the Trustees would have been elected by the shareholders. In addition, the Board of Trustees proposes to expand to six total members and add two additional Trustees who are not "interested persons" as that term is defined in the 1940 Act ("Independent Trustees") of each Trust. The Board has nominated for election by shareholders two individuals to serve as the two new Independent Trustees. Consequently, one purpose of the Meeting is to elect or re-elect, as the case may be, all four current Trustees of each Trust's Board of Trustees and to elect the two nominees as additional Independent Trustees of each Trust's Board. If elected, each will serve on the respective Boards for an indefinite term, so that any future additions that need to be made to the Board can be handled by the Trustees by appointment. How were the nominees selected? The Trusts do not have formal standing nominating committees, and accordingly do not have charters for such committees. Instead, in the view of the Board of Trustees of each Trust, it is appropriate for the Independent Trustees of each Board to be collectively responsible for the selection, evaluation and nomination of independent trustee candidates. During a search process, the Independent Trustees may consult with the interested Trustee on suggestions of potential candidates. In evaluating the nominees submitted for election in this Proxy Statement, the Independent Trustees of each Board considered a variety of factors, including, as appropriate: o the candidate's ability to qualify as an independent director for purposes of the 1940 Act, the candidate's independence from each Trust's service providers and the existence of any other relationships that might give rise to conflict of interest or the appearance of a conflict of interest; o the candidate's knowledge in matters relating to the investment company industry; o any experience possessed by the candidate as a director or senior officer of public or private companies; o the candidate's educational background; o the candidate's reputation for high ethical standards and personal and professional integrity; -4- o any specific financial, technical or other expertise possessed by the candidate, and the extent to which such expertise would complement each Board's existing mix of skills and qualifications; o the candidate's perceived ability to contribute to the ongoing functions of each Board, including the candidate's ability and commitment to attend meetings regularly and work collaboratively with other members of each Board; and o such other factors as each Board determined to be relevant in light of the existing composition of each Board of Trustees. Prior to making a final recommendation to each Board, the Independent Trustees reviewed the qualifications of other possible candidates and determined that the two nominated individuals possessed outstanding qualifications and offered the best fit with the current Board. One or more of the Independent Trustees of each Board met with each of Messrs. Kogler and Sutro before recommending to each Board of Trustees that they each be nominated to stand for election as an Independent Trustee of each Board. As nominees for election to the Board of Trustees of each Trust, each of Messrs. Kogler and Sutro has consented to be named in this Proxy Statement and to serve as a Trustee if elected. None of the members of the Board of Trustees of either Trust has any reason to believe that either nominee will become unavailable for election as a Trustee. Who are the new nominees for Trustees and who are the current Trustees and officers of each Trust? Listed below are the names, ages, business experience during the past five years and other directorships of the current trustees and nominees for new trustees (as furnished to the Trusts). The address of all Trustees, nominees and officers is California Investment Trust Fund Group, P.O. Box 387, San Francisco, CA 94104. The Trustees of each Trust are identical. Trustee who is an interested person:
Number of Portfolios Position and Term of Office Principal Occupation(s) (including in Fund Complex Offices with and Length of any other directorships) Overseen by Trustee Name and Date of Birth the Trusts Time Served within the Past 5 Years or Nominee ---------------------- ---------- ----------- ----------------------- ---------- *Stephen C. Rogers Chairman, Indefinite/ Chief Executive Officer, CCM 12 (06/27/66) President, Served as Partners, 1999 to present; Chief Secretary and trustee since Operating Officer, CCM Partners 1997 Trustee 1998 to 1999, Administrative Officer, CCM Partners 1994-1997; Marketing Representative, CCM Partners, 1993 to 1994.
*Mr. Rogers is considered to be an interested person of each Trust, as defined under Section 2(a)(19) of the 1940 Act, because of his relationship and position with CCM. -5- Trustees and nominees who are not interested persons:
Number of Portfolios Position and Term of Office Principal Occupation(s) (including in Fund Complex Offices with and Length of any other directorships) Overseen by Trustee Name and Date of Birth the Trusts Time Served within the Past 5 Years or Nominee ---------------------- ---------- ----------- ----------------------- ---------- Harry Holmes Trustee Indefinite/ Principal, Harry Holmes & Associates 12 (12/5/25) Served as (consulting); President and Chief trustee since Executive Officer, Aspen Skiing 1985 Company, 1982-1984; President and Chief Executive Officer, Pebble Beach Company (property management), 1973-1984. John B. Sias Trustee Indefinite/ Director Enzo Biochem, Inc., 1982 to 12 (01/22/27) Served as present: Chairman, President and CEO, trustee since Chronicle Publishing Company, 1993 to 1990 2000; Executive Vice President, Capital Cities/ABC Inc. and President, ABC Network T.V. Group, 1986 to 1992. James W. Miller, Jr. Trustee Indefinite/ Vice President, Jones Lange LaSalle 12 (05/28/66) Served as Americas, Inc. 1999 to present; trustee since Associate, Orrick Herrington & 2001 Sutcliffe LLP (law firm), 1996-1999; Associate, Gordon & Rees LLP (law firm), 1992-1993 Kevin T. Kogler Nominee for Indefinite** Senior Vice President, Technology 12** (2/21/66) Trustee Investment Banking, Friedman Billings Ramsey, 2003 to present; Director, Technology Investment Banking, Salomon Smith Barney, 2001-2002;Vice President, Technology Investment Banking, CS First Boston/Donaldson Lufkin & Jenrette, 1997-2001; Associate, PaineWebber, Inc., 1995-1997 Stephen H. Sutro Nominee for Indefinite** Partner, Duane Morris LLP (law firm), 12** (04/09/69) Trustee 2003 to present; Associate, Duane Morris LLP, 2000-2002; Associate, Hancock Rothert & Bunshoft LLP (law firm), 1994-1999
**The Information furnished indicates the responses that would be disclosed in the event the nominees are elected by shareholders. -6- Officers of the Trust: The affiliations of the officers and their principal occupations for the past five years are listed below. Information as to Mr. Rogers, President and Secretary of the Trusts, is provided above. The officers of each Trust are identical.
Position and Term of Office Offices with the and Length of Principal Occupation(s) Name and Date of Birth Trusts Time Served within the Past 5 Years ---------------------- ------ ----------- ----------------------- Michael O'Callaghan Chief Compliance Elected Chief Compliance Officer, CIT Funds, 2004 to present; (07/14/67) Officer annually/ Fund Operations, CCM Partners, 2003 -2004; Senior Tax Since 2004 and Financial Reporting Analyst, Dresdner RCM Global Investors, 2000-2003; Christopher P. Browne Treasurer Elected Portfolio Manager, CIT Funds, 2004 to present; Manager, (02/07/67) annually/ Autodesk, 2000-2004; Principal, Baystar Capital, Since 2004 1998-2004
Listed below is a dollar range of equity holdings in the respective Funds beneficially owned by each Trustee and nominee as of the Record Date:
Name of Trustee or Nominee Income Fund Insured Fund Money Fund Govt. Fund Nasdaq-100 Fund Treasury Trust -------------------------- ----------- ------------ ---------- ---------- --------------- -------------- Stephen C. Rogers ........ None None $50,001-$100,000 None $50,001-$100,000 $10,001-$50,000 Harry Holmes ............. None None None None None None John B. Sias ............. None None None None None Above $100,000 James W. Miller, Jr. .... None None $10,001-$50,000 None $10,001-$50,000 $1-$10,000 Kevin T. Kogler .......... None $1-$10,000 None None $50,001-$100,000 None Stephen H. Sutro ......... None None None None None None Equity Income Short-Term Name of Trustee or Nominee 500 Fund MidCap Fund SmallCap Fund Fund Govt. Fund Euro Fund -------------------------- -------- ----------- ------------- ---- ---------- --------- Stephen C. Rogers ........ $10,001-$50,000 Above $100,000 Above $100,000 $50,001-$100,000 $50,001-$100,000 $50,001-$100,000 Harry Holmes ............. None None None Above $100,000 None None John B. Sias ............. None Above $100,000 None None None None James W. Miller, Jr. .... $10,001-$50,000 $50,001-$100,000 $50,001-$100,000 None $10,001-$50,000 $10,001-$50,000 Kevin T. Kogler .......... Above $100,000 None None None None None Stephen H. Sutro ......... None None None None None None
Listed below is an aggregate dollar range of equity securities in the Trusts and Fund Complex beneficially owned by each Trustee and nominee as of the Record Date: -7-
Name of Trustee or Nominee CIT CIT II CIT Fund Group -------------------------- --- ------ -------------- Stephen C. Rogers ........... $50,001-$100,000 Above $100,000 Above $100,000 Harry Holmes ................ None Above $100,000 Above $100,000 John B. Sias ................ None Above $100,000 Above $100,000 James W. Miller, Jr. ....... $10,001-$50,000 Above $100,000 Above $100,000 Kevin T. Kogler ............. $1-$10,000 Above $100,000 Above $100,000 Stephen H. Sutro ............ None None None
Additional Information Regarding each Board of Trustees Each Board met five times during the fiscal year ended August 31, 2005. All of the Trustees then serving attended at least 75% of the meetings of the Board of Trustees and applicable committees held during the fiscal year. Currently, each Board has an Audit Committee and a Pricing Committee. The responsibilities of each committee and its members are described below. Audit Committee. Each Board has an Audit Committee comprised only of the Independent Trustees (currently, Messrs. Holmes, Sias, and Miller). Each Audit Committee has the responsibility, among other things, to (1) recommend the selection of the Funds' independent auditors; (2) review and approve the scope of the independent auditors' audit activity; (3) review the financial statements which are the subject of the independent auditor's certifications; and (4) review with such independent auditors the adequacy of the Funds' basic accounting system and the effectiveness of the Funds' internal accounting controls. During the fiscal year ended August 31, 2005, there were two meetings of each Audit Committee. Each Audit Committee operates under a written charter (the "Audit Committee Charter"). Each Audit Committee Charter is attached hereto as Appendix A. Each Audit Committee normally meets at least once during each full fiscal year with representatives of the independent auditors in a separate executive session to discuss and review various matters. The members of each Audit Committee are not professionally engaged in the practice of auditing or accounting. In the performance of its oversight function, the Audit Committee has considered and discussed the Funds' audited financial statements with management and the independent auditors of the Fund. The Audit Committee also has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, "Communication with Audit Committees," as currently in effect. Finally, the Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees," and has discussed with the independent auditors the independence of the independent auditors. Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in the Audit Committee Charter, the Audit Committee recommended to the Board of each Trust that the audited financial statements of the Funds be included in each Trust's annual report to shareholders for the fiscal year ended August 31, 2005. Pricing Committee. The Board has a Pricing Committee, comprised of one Trustee of the Trust, certain officers of the Trust and of the CCM, which reviews and monitors the pricing policies adopted by the Board. The Pricing Committee is responsible for determining the fair value of each Fund's securities as needed in accordance with the pricing policies and performs such other tasks as the Board deems necessary. The Pricing Committee meets on an ad hoc basis to discuss issues relating to the valuation of securities held by the Funds. Committee members are required to report actions taken at their meetings at the next scheduled Board meeting following the Pricing Committee's meeting. During the fiscal year ended August 31, 2005, there were eleven meetings of the Pricing Committee. -8- As shown on the following table, the Funds pay the fees of the Trustees who are not affiliated with the CCM, which are currently $2,500 per quarter and $500 for each meeting attended. Mr. Miller is compensated $3,000 annually for his services as Audit Committee Chair. The following table provides information regarding compensation of the Trustees as of August 31, 2005. Neither of Messrs. Kogler and Sutro received any compensation from the Funds as of such date.
Pension or Estimated Total Compensation retirement benefits accrued respecting Registrant and Name/Position Aggregate as Annual Benefits Fund complex with Trust compensation Fund Expenses upon Retirement paid to Trustees ---------- ------------ --------------------------- --------------- ------------------------- Stephen C. Rogers None None None None Chairman, President, Secretary and Trustee Harry Holmes $12,000 None None $12,000 Trustee John B. Sias $12,000 None None $12,000 Trustee James W. Miller, Jr. $15,000 None None $15,000 Trustee
The Board of Trustees of each Trust has procedures whereby shareholders may bring matters to the attention of the Board of Trustees. To communicate with the Board of Trustees, please send your correspondence to: Board of Trustees, California Investment Trust Group, 44 Montgomery Street, Suite 2100, San Francisco, CA 94104. Vote Required Shareholders of each Trust must separately approve the election of Nominees for that Trust. When a quorum is present, the affirmative vote of a plurality of the shares of each Trust voted at the meeting is required to approve the election of each Nominee for that Trust. The Board of Trustees of each Trust, including the independent Trustees, unanimously recommends that shareholders vote "For" each of the Trustees and Nominees under Proposal No. 1. -9- PROPOSAL NO. 2 APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS Why are shareholders being asked to approve New Investment Advisory Agreements? The shareholders of each Fund are being asked to approve new Investment Advisory Agreements (the "New Agreements") between each Trust, on behalf of their respective Funds, and CCM. The description of the New Agreements provided below is qualified in its entirety by reference to the forms of the New Agreements set forth in Appendix B to this Proxy Statement. CCM currently acts as investment adviser to the Funds under Investment Management Agreements dated January 18, 2000 and January 28, 2000 (the "Current Agreements"). The New Agreements are intended to clarify the services to be provided by CCM under the Current Agreements and remove antiquated provisions relating to no longer existent state laws. As discussed further below, among other changes, the New Agreements would: o specify in greater detail CCM's responsibilities as investment adviser of the Funds; o clarify which non-investment management services are, in fact, covered as part of the advisory arrangement between CCM and the Funds; and o clarify matters related to expenses and responsibilities for which the Fund and CCM, respectively, are responsible under the New Agreements Generally, the New Agreements will update the Funds' advisory relationship with CCM from the Current Agreements to reflect the current investment management operations and environment relevant to the Funds and will specify more clearly which investment management services CCM is responsible for providing under the New Agreements to the Funds. CCM currently receives separate compensation from the Funds under the Restated Fund Administration Servicing Agreements ("Administration Agreements") that took effect in February 2005 for specific administrative services. What effect will these changes have on management fees? None. CCM's fee rates for its services to the Funds under the New Agreements are the same as its fee rates under the Current Agreements. What are the terms of the Current and New Agreements? Although the language of many provisions in the New Agreements will vary from their corresponding provisions in the Current Agreements, the terms of the New Agreements and the Current Agreements are substantively similar in all material respects. For example, pursuant to the New Agreements, CCM will continue to provide investment research and portfolio management, including the selection of securities for the Funds to purchase, hold, or sell and the selection of brokers or dealers through whom the portfolio transactions of each fund are executed. Like the Current Agreements, the New Agreements provide that CCM's activities are subject to review and supervision by the Trustees to whom CCM renders periodic or special reports of the Funds' investment activities. -10- The New Agreements, however, are modernized and contain clearer language with respect to CCM's responsibilities as investment adviser of the Funds. For example, the New Agreements make explicit that CCM will provide a continuous program for the evaluation, investment, sales and reinvestment of the assets of the Fund and determine the purchase, retention, closing, exchange or sale of the securities, cash and other investments for the Funds, and when and in what portions such actions should take place. The Current Agreements contain a more generalized and frequently redundant formulation that CCM will furnish the Funds with advice and recommendations with respect to the investment of the Fund's assets and the purchase and sale of portfolio securities. Since some Funds may utilize certain investment instruments like futures for hedging purposes that would not normally be characterized as portfolio securities, the more detailed description in the New Agreements will allow the Fund's advisory contracts to more precisely reflect current investment management operations relevant to the Funds. In addition, the New Agreements specify certain procedures that are to be followed in connection with the retention or change of individual portfolio managers of the Funds, identify certain material events for mandatory notice to the parties and expressly require that records and other information related to the Funds be treated as confidential and proprietary information of the Funds. It is the intention of the Board in proposing the New Agreements to make clear that non-investment management services that were not clearly covered under the Current Agreements are, in fact, not covered as part of the advisory arrangement between CCM and the Funds. As initially disclosed to shareholders in the Funds' prospectus and in other filings with the SEC in January 2005, CCM is separately compensated by the Funds under the Administration Agreements between CCM and each Trust for such services and benefits, as well as for certain other additional administrative and regulatory support functions. Under such Administration Agreements, as compensation for the performance of its duties, CCM receives fees of 0.10% on the first $100 million in combined assets of the Trusts, 0.08% on the next $400 million in combined assets of the Trusts, and 0.06% on the Trusts combined assets over $500 million. As with the management fees and other non-extraordinary expenses, fees payable under the Fund Administration Agreement are subject to applicable contractual expense limitations agreed to by CCM under the New Agreements (which are identical to the expense limitations under the Current Agreements). As provided in the Current Agreements, each Fund under the New Agreements will to continue to pay for its own operating expenses and for its share of its respective Trust's expenses not assumed by CCM, including, but not limited to, costs of custodian services, brokerage fees, taxes, interest, costs of reports and notices to shareholders, costs of dividend disbursing and shareholder record-keeping services (including telephone costs), auditing and legal fees, the fees of the independent Trustees, its pro-rata portion of premiums on the fidelity bond covering the Funds, and the salaries of any officers or employees who are not affiliated with CCM, provided that the New Agreements clarify that the Funds will be responsible for the compensation and related costs of the Funds' Chief Compliance Officer ("CCO") (a new position on which the Current Agreements are silent). To the extent the CCO has responsibilities that he/she performs for CCM and is paid by CCM, the Funds will reimburse CCM for that portion of the salary of the CCO of each Trust (who is affiliated with CCM) that is allocated to his duties as the CCO of the Trusts. -11- As stated above, there will be no increase in management fees for any of the Funds from the fee rates payable under the Current Agreements or diminution of the investment management services provided by CCM. The annual advisory fees under the New Agreements for each Fund are as follows: Fund Name Advisory Fees --------- ------------- California Tax-Free Income Fund A monthly fee computed at the annual California Insured Intermediate Fund rate of 0.50% of average daily net California Tax-Free Money Market Fund assets up to and including $100 U.S. Government Securities Fund million; plus 0.45% of average daily The United States Treasury Trust net assets over $100 million up to and including $500 million; plus 0.40% of average daily net assets above $500 million. S&P MidCap Index Fund A monthly fee computed at the annual rate of 0.40% of average daily net assets. S&P 500 Index Fund A monthly fee computed at the annual rate of 0.25% of average daily net assets. European Growth and Income Fund A monthly fee computed at the annual rate of 0.85% of average daily net assets. S&P SmallCap Index Fund A monthly fee computed at the annual Equity Income Fund rate of 0.50% of average daily net Short-Term U.S. Government Bond Fund assets up to and including $500 Nasdaq-100 Index Fund million; plus 0.45% of average daily net assets up to and including $1 billion; plus 0.40% of average daily net assets above $1 billion. Like the Current Agreements, the New Agreements provide that CCM is obligated to reimburse each of the Funds of each Trust (through a reduction of its management fees and otherwise) for all expenses (except for extraordinary expenses such as litigation) in excess of 1.00% of each Fund's average daily net assets. On a voluntary basis, CCM may also, and has to date for all Funds except Equity Income Fund and Income Fund, reduced its fees even more than it is required to do under the Current Agreements. The New Agreements, like the Current Agreements, provide that CCM shall not be liable thereunder for any for any losses suffered by the Funds in connection with the services provided by CCM under the agreements except that nothing in the agreements will protect CCM against liability for willful misfeasance, bad faith or gross negligence in the performance of its duties by reason of CCM's reckless disregard of its obligations and duties under the agreements, except that the New Agreements also apply such provisions to affiliated and control persons of CCM (the corresponding provisions of the Current Agreements are silent as to such matters). The New Agreements, like the Current Agreements, provide that CCM shall reimburse the Trusts for certain costs and expenses incurred by the Trusts as a result of the actions (or failures to act) of CCM or its partners that relate to transactions or matters in which CCM has an interest or which are in CCM's control. Notwithstanding any indemnification provision in the New Agreements, the 1940 Act and the Investment CCMs Act of 1940 limit the circumstances under which an investment adviser may be indemnified. -12- The terms of the New Agreements like the Current Agreements permit CCM to serve as investment manager to other persons, firms or corporations, including other investment companies so long as CCM's ability to render the services provided for in the Agreements are not impaired. As with the Current Agreements, the New Agreements may be terminated without penalty at any time by the applicable Trust with respect to one or more of the Funds to which the relevant Agreement applies (either by the applicable Board of Trustees or by a majority vote of the terminating Fund's outstanding shares); or by the CCM on 60-days' written notice, and will automatically terminate in the event of its assignment as defined in the 1940 Act. What factors did the Board of Trustees consider in recommending shareholder approval of the New Agreements? At a meeting held in person on February 14, 2006, the Board of Trustees, including the Trustees who are not "interested persons" as that term is defined in the 1940 Act (the "Independent Trustees"), discussed whether to renew the Current Agreements and, subject to obtaining requisite approval by Fund shareholders, approve the New Agreements. Prior to the February 14, 2006 meeting, the renewals of the Current Agreements were last approved by the Board at an in-person meeting called for such purpose on March 1, 2005. In determining whether to approve the New Agreements and to recommend their approval to the shareholders, the Board considered information provided by CCM regarding the new requirements and increased levels of administrative responsibilities required to operate the Funds and the fact that CCM had been voluntarily assuming responsibility for performing these new and additional services even though CCM believed they were not clearly within the scope of the Current Agreement. The Board and its independent members were advised by independent legal counsel that the Current Agreements were outdated and contain many antiquated provisions. In addition to the factors discussed below, the Board took into account the following: (1) that the principal purpose of the Current Agreements is to secure investment management services for the assets of the Fund; (2) CCM's representation that the same persons responsible for management of the Funds under the Current Agreements are currently expected to continue to manage the Funds under the New Agreements; (3) that the management fees to be received by CCM under the New Agreements is the same as the management fees paid under the Current Agreements; (4) that the senior management personnel responsible for the management of CCM are expected to continue to be responsible for the management of CCM; (5) the substantive similarity of many terms and provisions of the New Agreements and Current Agreements; (6) that CCM does not expect any diminution in the level of required management services it provides under the Current Agreement; (7) that CCM, prior to the adoption of the Administration Agreements was performing many administrative services that CCM believed were not clearly covered by the Current Agreements at CCM's own expense; (8) that although the office of CCO was not anticipated at the time the Current Agreements were first approved or last ratified, and that SEC rules currently require each Trust to fill the office of CCO, and that the performance of his duties under the supervision of the Board is viewed as benefiting each Fund and the allocation of the cost of the Funds' CCO to the Funds is viewed as enhancing the independence of the CCO; (9) that currently CCM bears certain expenses and is separately compensated by the Funds for certain administrative and regulatory support functions under the Administration Agreements that are not covered by the Current Agreements; and (10) that when the Current Agreements were initially entered into, neither CCM nor the Funds contemplated the scope of obligations that are currently involved with respect to the non-investment management operation of the Funds, and that these increased obligations largely fall outside of the core investment management function for which CCM was appointed under the Current Agreements. -13- Prior to the meeting, the Independent Trustees requested information from CCM. This information together with other information provided by CCM and the information provided to the Independent Trustees throughout the course of year formed the primary (but not exclusive) basis for the Board's determinations as summarized below. In addition to the factors identified above, the information, other material factors and conclusions that formed the basis for the Board's subsequent approval are described below. Information Received Materials reviewed. During the course of each year, the independent Trustees receive a wide variety of materials relating to the services provided by CCM, including reports on each Fund's investment results; portfolio composition; portfolio trading practices; shareholder services; and other information relating to the nature, extent and quality of services provided by CCM to the Funds. In addition, the Board requests and reviews supplementary information that includes materials regarding each Fund's investment results, advisory fee and expense comparisons, the costs of operating the Funds and the financial and profitability information regarding CCM (the principal business activity of which is managing the Funds), descriptions of various functions such as compliance monitoring and portfolio trading practices, and information about the personnel providing investment management services to each Fund. Review Process. The Board received assistance and advice regarding legal and industry standards from independent counsel to the independent Trustees. The Board discussed the renewal of the Current Agreements and the approval of the New Agreements with CCM representatives and in a private session with independent legal counsel at which no representatives of CCM were present. In deciding to approve the renewal of the Current Agreements and recommend the approval of the New Agreements to the shareholders, the independent Trustees considered the total mix of information requested by and made available to them and did not identify any single issue or particular information that, in isolation, was the controlling factor. This summary describes the most important, but not all, of the factors considered by the Board. Nature, Extent and Quality of Services CCM, its personnel and its resources. The Board considered the depth and quality of CCM's investment management process; the experience, capability and integrity of its senior management and other personnel; the turnover rates of its personnel; and the overall financial strength and stability of its organization. The Board also considered that CCM made available to its investment professionals a variety of resources relating to investment management, compliance, trading, performance and portfolio accounting, and that CCM is currently exploring the acquisition of a higher quality analytics package and performance attribution tools. The Board further considered CCM's continuing need to attract and retain qualified personnel and, noting CCM's recent retention of a new chief operating officer with extensive industry experience and proposed additions to CCM's administrative support staff, determined that CCM was adequately managing matters related to the Funds. -14- Other Services. The Board considered, in connection with the performance of its investment management services to the Funds, the following: CCM's policies, procedures and systems to ensure compliance with applicable laws and regulations and its commitment to these programs; its efforts to keep the Trustees informed; and its attention to matters that may involve conflicts of interest with the Funds. As a point of comparison, the Board also considered the nature, extent, quality and cost of certain non-investment related administrative services provided by CCM to the Funds under the Administration Agreements. The Board concluded that the CCM had the quality and depth of personnel and investment methods essential to performing its duties under the Current Agreements and which would be essential to performing its duties under the New Agreements, and that the nature, extent and overall quality of such services are satisfactory and reliable. Investment Performance The Board considered each Fund's unique, balanced pursuit of its investment objectives and the investment results of each Fund in light of its objectives. The Trustees reviewed the short-term and long-term performance of each of the Funds on both an absolute basis and in comparison to benchmark indices. The Trustees also reviewed the Morningstar or iMoneyNet rankings for each of the Funds, as applicable. In assessing performance of certain Funds, the Trustees took into consideration the fact that Fund performance is expected to mirror the appropriate benchmarks as closely as possible given certain practical constraints imposed by the 1940 Act, the Fund's investment restrictions, the Fund's size and similar factors. o For the California Insured Intermediate Fund, it was noted that the performance of the Fund was in the third quartile for the 3-year (annualized) period and in the second quartile for the 5-year (annualized) and 10-year (annualized) periods. Although performance in recent periods was in the bottom quartile, the Board took into consideration the fact that the Fund's investment restrictions require it to maintain a higher credit quality portfolio than the Morningstar comparison group for the Fund, and accordingly that the Fund's ranking may reflect a comparison to certain other funds with lower credit quality portfolios. o For the California Tax-Free Money Market Fund, it was noted that the performance of the Fund was in the third quartile for the 1-month (annualized) and second quartile for 12-month-to-date periods. o For the California Tax-Free Income Fund, although the Board noted that under the Morningstar California Municipal Long comparison group the performance of the Fund was in the bottom quartile for all periods considered, the Trustees also took into account CCM's representation that that the Morningstar California Municipal Intermediate/Short comparison group provided a more suitable category for peer analysis for the Fund. Under such comparison group, the performance of the Fund ranked in the second quartile for all periods considered. The Trustees also took into consideration the composition of the portfolio inherited from the Fund's prior portfolio manager and the continued efforts to reposition the portfolio with minimal realization of capital gain pending an eventual inversion of the yield curve. -15- o For the Equity Income Fund, it was noted that although performance of the most recent quarter was unfavorable due to a slight overweight in certain sectors that dragged in November and December of 2005, the performance of the Fund was in the second quartile for the 3-year and 5-year periods. The Board also noted that the Fund outperformed the benchmark index in the 5-year (annualized) period. o For the European Growth & Income Fund, it was noted that the performance of the Fund was in the bottom quartile for the 1-year, 3-year and 5-year periods. The Fund underperformed the benchmark index in the quarterly, 1-year and 3-year (annualized) periods, but outperformed the benchmark index in the 5-year (annualized) period. The Board also noted the Fund's total return for the 1-year and 3-year (annualized) periods was 6.99% and 18.24%, respectively. The Board considered that although the Fund is not technically considered an index fund because it primarily invests in American Depositary Receipts instead of the underlying securities of the foreign issuers, the Fund's seeks to act as an index fund that tracks the Dow Jones European Stoxx 50 Index as a target portfolio. Although the Board expressed concern about the Fund's performance, the Board considered that a review of Statistical R Squared Data against the Dow Jones European Stoxx 50 Index may assist in future evaluations of performance. o For the Nasdaq-100 Index Fund, it was noted that the performance of the Fund was in third and fourth quartile for the quarter and 1-year periods, respectively, Fund performance was in the second quartile for the 3-year and 5-year periods. The Board also noted with approval that the Fund was tracking its asset class tightly. o For the S&P 500 Index Fund, it was noted that the performance of the Fund was in the second quartile over the 3-year and 5-year periods and in the top quartile for the 10-year period. The Trustees noted with approval that the Fund was tracking its asset class tightly. o For the S&P MidCap Index Fund, it was noted that the performance of the Fund was in the top quartile over the quarterly, 1-year and 10-year periods and in the second quartile over the 3-year and 5-year periods. The Board also noted the Fund's positive absolute performance over every period measured. The Trustees noted with approval that the Fund was tracking its asset class tightly. o For the S&P SmallCap Index Fund, it was noted that the performance of the Fund was in the second quartile for the 1-year and 3-year periods. The Board also noted the Fund's positive absolute performance over every period measured. The Trustees noted that in general the Fund was tracking its asset class tightly. -16- o For the Short-Term U.S. Govt. Bond Fund, the Trustees noted that the performance of the Fund was in the second quartile for the quarterly and 1-year periods. o For the U.S. Government Securities Fund, it was noted that the performance of the Fund was in the second quartile for the quarterly period, and the third quartile for other periods considered. o For The United States Treasury Trust, it was noted that the performance of the Fund was in the top quartile for the 1-month (annualized) period and in the second quartile for the 12-month-to-date period. The Board ultimately concluded that CCM's performance record in managing each Fund was satisfactory and in some cases excellent, supporting the determination that CCM's continued management under the Current Agreements and, subject to shareholder approval, the New Agreements would be consistent with the best interests of each Fund and its shareholders. Management Fees and Total Operating Expenses The Board reviewed the management fees and total operating expenses of each Fund and compared such amounts with the industry average fees and expense levels of other Funds in applicable Morningstar categories. The Board noted that the total management fees charged to each Fund were below the industry average and that with respect to two-thirds of the Funds the management fees charged by CCM were significantly lower than the industry averages for such Funds. The Board observed that with certain exceptions each Fund's total operating expenses were well below the industry average of the other Funds. With respect to the exceptions, the Board noted that the operating expenses of one Fund equaled the industry average for its category and the Class K shares of two Funds exceeded the industry average for its category, but not by a significant amount. The Board also noted the voluntary advisory fee limitation that CCM had put into effect during 2005 with respect to all but two of the Funds. The Trustees noted that although additional new administrative services are now paid for by the Funds under Fund Administration Agreements that took effect during February of 2005, these services were previously provided to the Funds by CCM at its own expense. The Board concluded that the relatively low level of the fees charged by CCM should benefit the Fund and its shareholders, and considering that no increase in management fees was contemplated under the New Agreements, such benefit should continue under the New Agreements. Adviser, Costs, Level of Profits, Economies of Scale and Ancillary Benefits The Board reviewed information regarding CCM's costs of providing services to the Funds, as well as the resulting level of profits to CCM. The independent Trustees received a representation from CCM that its profits were not excessive and that CCM's profitability was low by industry standards. The Board considered CCM's need to invest in technology, infrastructure and staff to reinforce and offer new services and obtain the tools necessary to improve the provision of investment advisory services to the Funds. They further considered that breakpoints in the advisory fee structure of certain Funds provide for reductions in the level of fees charged by CCM to such Fund as Fund assets increase, reflecting the fact that economies of scale in the cost of operations will be shared with such Fund's shareholders. The Trustees also noted that CCM has contractually agreed to limit its advisory fees of the Funds so that those Funds do not exceed their respective specified operating expense limitations, and that in the case of certain Funds CCM imposed a voluntary fee limitation, although such voluntary limitations may be decreased or eliminated at the option of CCM. The Board also considered that CCM does not receive substantial indirect benefits from managing the Funds (one example of an indirect benefit is research paid for by Fund brokerage commissions -- CCM currently does not seek to supplement its fees with such "soft-dollar" benefits). On the basis of the foregoing, the Board concluded that each Fund's cost structure was reasonable and that CCM was committed to sharing economies of scale with each Fund and its shareholders, to their benefit. -17- Conclusions Based on their review, including their consideration of each of the factors referred to above, the Board concluded that the Current Agreements and the New Agreements, taking into account the separate administration fees, are and would be fair and reasonable to each Fund and its shareholders, that each Fund's shareholders received or should receive reasonable value in return for the advisory fees and other amounts paid to CCM by the Fund, and that the renewal of the Current Agreements and the approval of the New Agreements were in the best interests of each Fund and its shareholders. Additional Information about the New Agreements If approved by shareholders of the Funds, the New Agreements will take effect immediately upon their approval by the respective Funds' shareholders, and the New Agreements, like the Current Agreements, would continue in effect for an initial two-year period, and from year to year thereafter, subject to termination, if such continuance is specifically approved at least annually (i) by a vote of the holders of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a vote of the Trustees, and (ii) by a vote of a majority of the Trustees who are not parties to the New Agreements or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. The New Agreements like the Current Agreements will terminate automatically upon their assignment and are terminable at any time without penalty on 60 days' written notice by the Trustees or by a vote of a majority of the outstanding voting securities of the Fund, or by CCM upon 90 days' written notice. If the shareholders of any Fund should fail to approve the New Agreement pertaining to that Fund, CCM will continue to provide the Fund with investment advisory services under the Current Agreement pertaining to that Fund. Shareholders of the Fund last approved the Current Agreements on January 28, 2000, in connection with a change of control of CCM. Additional Information about CCM Partners CCM, a California limited partnership, is the investment adviser for the Funds under the Current Agreements. CCM is registered as an investment advisor with the Securities and Exchange Commission. As of February 28, 2006 CCM managed approximately $672 million in assets. Other than the Trusts, CCM does not act as investment adviser to any other registered investment companies. -18- The general partner of CCM is RFS Partners, a California limited partnership ("RFS Partners"), the Funds' Distributor. The general partner of RFS Partners is Richard F. Shelton, Inc., a corporation, 100% of the voting shares of which are held by Richard F. Shelton Irrevocable Trust. Richard F. Shelton Irrevocable Trust is a family trust, the trustees of which are Stephen C. Rogers, Celia Rogers and Curtis B. Cutter. Stephen C. Rogers is the portfolio manager for the S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap Index Fund, European Growth & Income Fund, Nasdaq-100 Index Fund and the Equity Income Fund. Mr. Rogers is a member of the portfolio management team for the fixed income funds. He joined CCM Partners in 1993 and serves as Chief Executive Officer of CCM Partners. Mr. Rogers graduated from the University of Iowa in 1988 and earned his MBA from the University of California at Berkeley in 2000. The officers of CCM and its general partner, RFS Partners, are shown below: Principal Occupation Name and Address Within the Past 5 years -------------------------------------------------------------------------------- Stephen C. Rogers Chief Executive Officer, CCM 44 Montgomery Street Partners, 1999 to present; Chief Suite 2100 Operating Officer, CCM Partners San Francisco, CA 94104 1997 to 1999, Administrative Officer, CCM Partners 1994-1997; Marketing Representative, CCM Partners, 1993 to 1994. President, RFS Partners, 1999 to present. Rodney D. Yee Chief Operating Officer - CCM 44 Montgomery Street Partners 2005 - Present; CFO - Suite 2100 Matthews International Capital San Francisco, CA 94104 Management LLC 2004-2005; CFO & CCO - Sand Hill Advisors, Inc. 2002-2004; Controller - Firsthand Capital Management, Inc. 1998-2002; Interim Controller / Accounting Manager - Fremont Investment Advisors, Inc. 1994-1998; Supervisor Fund Accounting - Franklin Resources, Inc. 1987-1994; Sales Representative - Metropolitan Life 1984-1987 -19- As stated above, Mr. Rogers is also an officer and interested trustee of the Trusts. Because of Mr. Rogers' position and ownership interest in CCM, Mr. Rogers may be deemed to have a substantial interest in the approval of the New Agreements. The following management fees were paid to CCM under the Current Agreements for the fiscal year ended August 31, 2005: Fund Fee Reimbursement Net to CCM ---- --- ------------- ---------- Money Fund $375,619 $148,649 $226,970 Income Fund $710,619 $0 $710,619 Government Fund $146,870 $23,631 $123,239 Treasury Trust $211,178 $111,758 $99,420 Insured Fund $123,272 $32,208 $91,064 S&P 500 $276,585 $149,088 $127,497 S&P MidCap $607,173 $56,893 $550,280 S&P SmallCap $139,183 $42,321 $96,862 Equity Income $87,331 $2,762 $84,569 European Growth & Income $56,851 $38,812 $18,039 Nasdaq-100 $89,140 $43,017 $46,123 Short-Term Gov't Fund $84,377 $48,289 $36,088 The following administrative fees were paid to CCM under the Administration Agreements for the fiscal year ended August 31, 2005: Fund Fee ---- --- Money Fund $26,972 Income Fund $56,720 Government Fund $11,500 Treasury Trust $17,076 Insured Fund $9,290 S&P 500 $43,406 S&P MidCap $62,972 S&P SmallCap $11,433 Equity Income $7,375 European Growth & Income $2,941 Nasdaq-100 $7,121 Short-Term Gov't Fund $6,839 The following fees were paid by the respective Funds to RFS Partners, the general partner of CCM, pursuant to distribution plans adopted under Rule 12b-1 of the 1940 Act by the Funds of California Investment Trust II, for the fiscal year ended August 31, 2005: Fund Rule 12b-1Fee ---- ------------- Government Fund $7,999 Treasury Trust $4,192 Short-Term Gov't Fund $3,444 S&P 500 $9,118 S&P MidCap $9,448 S&P SmallCap $11,083 Equity Income $5,747 European Growth & Income $5,405 Nasdaq-100 $6,375 -20- During the year ended August 31, 2005, the Funds paid no commissions to its affiliated broker-dealer RFS Partners. Vote Required Shareholders of each Fund must separately approve the applicable New Agreement with respect to that Fund. Approval of this Proposal No. 2 by a Fund requires an affirmative vote of the lesser of (i) 67% or more of the shares of the Fund present at the Meeting if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the outstanding shares of the Fund. The Board of Trustees of the Funds, including a majority of the independent Trustees, unanimously recommends that you vote "FOR" this Proposal No. 2. -21- PROPOSAL NO. 3 APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION THAT PROVIDES FOR THE REORGANIZATION OF EACH TRUST FROM A MASSACHUSETTS BUSINESS TRUST INTO A SINGLE DELAWARE STATUTORY TRUST The Trustees unanimously recommend that you approve an Agreement and Plan of Reorganization (the "Plan"), substantially in the form attached to this Proxy Statement as Appendix C, which would change the state of organization of each Trust. The description of the Plan provided below is qualified in its entirety by reference to the form of the Plan set forth in Appendix C. This proposed change calls for the reorganization of each Trust from a Massachusetts business trust into a combined, single newly formed Delaware statutory trust. This proposed reorganization is referred to throughout this Proxy Statement as the "Reorganization." To implement the Reorganization, the Trustees have approved the Plan, which contemplates the continuation of the current business of each Trust in the form of a combined, single newly formed Delaware statutory trust, named "California Investment Trust" (the "DE Trust"). As of the effective date of the Reorganization, the DE Trust will have series that correspond to each of the then current Funds of each Trust and that will have the same names as their corresponding Fund (each a "DE Fund" and, together, the "DE Funds"). What will the Reorganization mean for the Funds and for you? If the Plan is approved by shareholders and the Reorganization is implemented, the DE Funds would have the same investment goals, policies, and restrictions as their corresponding Funds. The Board, including any new Trustees elected under Proposal 1, and officers of the DE Trust would be the same as those of each Trust, and would operate the DE Trust and the DE Funds in the same manner as these persons previously operated each Trust and their Funds, except as otherwise described below. Thus, on the effective date of the Reorganization, you would hold an interest in the applicable DE Fund that is equivalent to your then interest in the corresponding Fund. For all practical purposes, a shareholder's investment in each Trust and their Funds would not change. Why are the Trustees recommending approval of the Plan and the Reorganization? The Trustees have determined that the Reorganization offers the opportunity to achieve operational efficiencies and savings by eliminating the duplication and regulatory and administrative burdens associated with operating two separate Trusts through the reorganization of each Trust into a single DE Trust. CIT and CIT II were originally organized as two separate Massachusetts business trusts because former income tax laws of the state of California that were in effect at the time the Trusts were organized in the 1980's (but which have since been superceded) permitted pass-through tax treatment of interest income derived from fund investments in municipal bonds issued by California municipalities only at the trust level rather than at the fund level. Consequently, under such prior laws, if California municipal bond funds were issued as series of the same trust as funds with other investment policies, shareholders of the California municipal bond funds would not be able to obtain the same state income tax benefits than if such municipal bond funds were organized as series of a separate trust. Because such laws are no longer in effect, there are no longer the same potential adverse state income tax consequences associated with the organization of the Funds of CIT as series of the same trust as the Funds of CIT II. Currently, although the Trusts are distinct legal entities, CIT and CIT II have substantially identical charter documents, make substantially similar regulatory filings and generally conduct joint operations as if they were a single trust. The Reorganization is expected to have the benefit of eliminating certain administrative burdens and expenses associated with operating two Trusts. -22- In addition, the Trustees have determined that investment companies formed as Delaware statutory trusts have certain advantages over investment companies organized a Massachusetts business trusts. Under Delaware law, investment companies are able to simplify their operations by reducing administrative burdens. For example, Delaware law does not require that the Declaration of Trust and any amendments to the Declaration of Trust be filed with the State of Delaware while Massachusetts law requires that the Declaration of Trust and any amendments to the Declaration of Trust be filed with the Commonwealth of Massachusetts and the clerk of the city in Massachusetts in which the fund has a usual place of business. In addition, the simpler Delaware procedures allow the DE Trust to file a one-page Certificate of Trust with the State of Delaware, which rarely needs to be amended. Massachusetts business trusts, like each Trust, are required to file an Officer's Certificate with the Commonwealth of Massachusetts with resolutions adopted by the Board of Trustees of each Trust each time the Board determines to designate and create additional classes of shares of each Trust or to change or eliminate classes of shares of each Trust. Such filings are not required in Delaware. Delaware law also allows greater flexibility in drafting and amending an investment company's governing documents, which can result in greater efficiencies of operation and savings for an investment company and its shareholders. Another advantage of Delaware statutory trusts is greater certainty regarding limiting the liability of shareholders for obligations of the trust or its trustees and regarding limiting the liability of one series for obligations of other series within the trust. Furthermore, as described below, in Delaware there is a well-established body of legal precedent in the area of corporate law that may be relevant in deciding issues pertaining to the DE Trust. This could benefit the DE Trust and its shareholders by, for example, making litigation involving the interpretation of provisions in the DE Trust's governing documents less likely or, if litigation should be initiated, less burdensome or expensive. Accordingly, the Trustees believe that it is in the best interests of the shareholders to approve the Plan. How do the Massachusetts business trust law and each Trust's governing documents compare to the Delaware statutory trust law and the DE Trust's governing documents? The following summary compares certain rights and characteristics of the shares of each Trust to the shares of the DE Trust. The summary is qualified in its entirety by the more complete comparisons of Massachusetts business trust law and Delaware statutory trust law, and a comparison of the relevant provisions of the governing documents of each Trust and the DE Trust, attached as Appendix D to this proxy statement, which is entitled "A Comparison of Governing Documents and State Law." Reorganizing each Trust from a Massachusetts business trust to a single Delaware statutory trust is expected to provide benefits to each Trust and its shareholders. Funds formed as Delaware statutory trusts under the Delaware Statutory Trust Act (the "Delaware Act") are granted a significant amount of operational flexibility, resulting in efficiencies of operation that may translate into savings for a Fund, such as the DE Trust, and the Fund's shareholders. For example, the Delaware Act authorizes trust management to take various actions without requiring shareholder approval if permitted by the governing instrument, such as fund mergers or the sale of all or substantially all of the assets of a trust, or a series thereof (see discussion below). Additionally, unlike Massachusetts business trust law, the Delaware Act permits any amendment to the statutory trust's governing instrument without the need for a state or city filing, which can reduce administrative burdens and costs. -23- The operations of a Delaware statutory trust formed under the Delaware Act are governed by a declaration of trust and by-laws. The DE Trust's Agreement and Declaration of Trust ("Declaration of Trust") and By-Laws ("By-Laws") streamline some of the provisions in each Trust's Declaration of Trust and By-Laws, and, thus, should lead to enhanced flexibility in management and administration as compared to each Trusts current separate operations as Massachusetts business trusts with separate Agreements and Declarations of Trust and By-Laws. As a Delaware statutory trust, the DE Trust may be able to adapt more quickly and cost effectively to new developments in the mutual fund industry and the financial markets. Moreover, to the extent provisions in the DE Trust's Declaration of Trust and By-Laws are addressed by rules and principles established under Delaware corporate law and the laws governing other Delaware business entities (such as limited partnerships and limited liability companies), the Delaware courts may look to such other laws to help interpret provisions of the DE Trust's Declaration of Trust and By-Laws. Applying this body of law to the operation of the DE Trust should prove beneficial because these laws are extensively developed and business-oriented. In addition, Delaware's Chancery Court is dedicated to business law matters, which means that the judges tend to be more specialized in the nuances of the law that will be applied to the DE Trust. These legal advantages tend to make more certain the resolution of legal controversies and help to reduce legal costs resulting from uncertainty in the law. Shares of the DE Trust and each Trust each have one vote per full share and a proportionate fractional vote for each fractional share. Both the DE Trust and each Trust provide for noncumulative voting in the election of their Trustees. Like each Trust, the DE Trust is not required by its governing instrument to hold annual shareholder meetings. Shareholder meetings may be called at any time by the DE Trust Board, by the chairperson of the DE Trust Board or by the president or any vice president of the DE Trust for the purpose of taking action upon any matter deemed by the DE Trust Board to be necessary or desirable and, in the sole discretion of the board, taking action upon any matter requested by shareholders at the request of shareholders holding not less than 10% of the DE Trust's outstanding shares. A meeting of the shareholders for the purpose of electing trustees, or removing one or more trustees, also (i) may be called by the DE Trust Board, the chairperson of the DE Trust Board or such officers, and (ii) shall be called by the president or any vice-president of the DE Trust at the request of the shareholders holding not less than 10% of the DE Trust's outstanding shares. Any shareholders' meeting called at the request of shareholders shall be called and held, if, in the sole discretion of the DE Trust Board, the shareholders requesting the meeting make payment to the DE Trust of certain related expenses. With respect to shareholder rights to inspect a fund's books and records, the Trusts and the DE Trust each provides certain inspection rights to its shareholders. The DE Trust provides such rights at least to the extent required by applicable law. Each Trust provides certain rights of inspection with respect to financial statements, accounting books and records and minutes of proceedings of the shareholders and the Board of Trustees and committees thereof, and By-Laws of each Trust. -24- While shareholders of the DE Trust will have similar distribution and voting rights as they currently have as shareholders of the respective Trusts, there are certain differences. For example, the organizational structures differ in record date parameters for determining shareholders entitled to notice, to vote, and to a distribution. In addition, under the DE Trust's Declaration of Trust, (i) all or substantially all of the DE Trust's assets may be sold to another fund or trust in exchange for cash or securities (including securities of the other fund or trust in a reorganization) and (ii) the DE Trust or DE Fund may be liquidated or dissolved, in each case by the Trustees without shareholder approval, but only upon at least 30 days' prior written notice to shareholders and, in the case of the sale of substantially all of the assets, unless such shareholder approval is required by the 1940 Act. These differences can reduce time delays and costs, including the costs of preparing proxy solicitation materials, soliciting proxies and holding a shareholders meeting. Under each Trust's Agreement and Declaration of Trust, shareholder approval is required for each of those actions. Massachusetts business trust law does not specifically provide that the shareholders of the Trusts are not subject to any personal liability for any claims against, or liabilities of, the respective Trusts solely by reason of being or having been a shareholder of the respective Trusts or that the liabilities of one series are not enforceable against another series of that respective Trust. Under the Delaware Act, shareholders of the DE Trust will be entitled to the same limitation of personal liability as is extended to shareholders of a private corporation organized for profit under the General Corporation Law of the State of Delaware. In addition the Delaware Act permits the DE Trust to limit the enforceability of the liabilities of one DE Fund solely to the assets of that DE Fund. What are the procedures and consequences of the Reorganization? Upon completion of the proposed Reorganization, the DE Trust will continue the business of each Trust in a single entity, and each DE Fund: (i) will have the same investment goals, policies, and restrictions as those of its corresponding Fund existing on the date of the Reorganization; (ii) will hold the same portfolio of securities previously held by such corresponding Fund; and (iii) will be operated under substantially identical overall management, investment management, distribution, and administrative arrangements as those of its corresponding Fund. As the successor to the Trusts' operations, the DE Trust will adopt each Trust's registration statement under the federal securities laws as a single registration statement with amendments to show the new Delaware statutory trust structure. The DE Trust was created solely for the purpose of becoming the successor organization to, and carrying on the business of, the Trusts. To accomplish the Reorganization, the Plan provides that each Trust, on behalf of each of their respective Funds, will transfer all of their respective portfolio securities, any other assets and liabilities of their respective Funds to the DE Trust, on behalf of each corresponding DE Fund. In exchange for these assets and liabilities, the DE Trust will issue shares of each DE Fund to the corresponding Trust, which will then distribute those shares pro rata to shareholders of the corresponding Fund. Through this procedure, you will receive exactly the same number, class, and dollar amount of shares of each DE Fund as you held in the corresponding Fund immediately prior to the Reorganization. You will retain the right to any declared, but undistributed, dividends or other distributions payable on the shares of a Fund that you may have had as of the effective date of the Reorganization. As soon as practicable after the date of the Reorganization, the Trusts will each be dissolved and will cease their respective existences. -25- The Trustees may terminate the Plan and abandon the Reorganization at any time prior to the effective date of the Reorganization if the Trustees determine that proceeding with the Reorganization is inadvisable. If the Reorganization is not approved by shareholders of each Trust, or if the Trustees abandon the Reorganization, each Trust will continue to operate as a separate Massachusetts business trust. If the Reorganization is approved by shareholders, it is expected to be completed in the first half of 2006. What effect will the Reorganization have on the current and proposed investment advisory agreements? As a result of the Reorganization, the DE Trust will be subject to new investment advisory agreements between the DE Trust, on behalf of each DE Fund, and CCM Partners, that will be identical in all material respects to the current investment advisory agreements between CCM Partners and each Trust, or, if Proposal 2 is approved by the shareholders of a Fund, the new investment advisory agreements between CCM Partners and each Trust described in Proposal 2. Specifically, such new agreements with the DE Trust will provide for the same fees, and rights and responsibilities of the parties thereunder as the current agreements (or if Proposal 2 is approved, the same fees, and rights and responsibilities of the parties thereunder as the new advisory agreements described in Proposal 2) and have the same parties except as needed to reflect the change in each Trust's state and form of organization. Rather than call another shareholder meeting to vote on the new investment advisory agreements between the DE Trust, on behalf of each DE Fund, and CCM after the Reorganization, we will treat shareholder approval of the Reorganization as approval of a new investment advisory agreement between CCM Partners and the DE Trust on behalf of each DE Fund (and if Proposal 2 is approved by the shareholders of a Fund, as approval of the new investment advisory agreements described in Proposal 2 between CCM Partners and the DE Trust on behalf of each corresponding DE Fund). What effect will the Reorganization have on the fund accounting and servicing, administration and underwriting agreements and distribution plans? The DE Trust, on behalf of the DE Funds, will succeed each Trust as a party to a fund accounting servicing agreement and a transfer agent servicing agreement with ALPS Mutual Fund Services, LLC ("ALPS"), such that the fund accounting, transfer agency, dividend disbursing and shareholder services provided to the DE Trust will be substantially identical to those provided under the respective agreements currently in place for each Trust with ALPS. Similarly, CCM will serve as the administrator to the DE Trust and DE Funds under the Administration Agreements on terms that are substantially identical to the Administration Agreements currently in effect for each Trust with CCM. RFS Partners will serve as the distributor for the shares of the DE Funds under a underwriting agreement on terms that are substantially identical to the underwriting agreement currently in effect for each Trust with RFS. US Bank, N.A. ("US Bank") will serve as the custodian for the of the securities and other assets of the DE Trust under a custodian agreement on terms that are substantially identical to the custodian agreement currently in effect for each Trust with US Bank. In the case of the foregoing agreements, if the Plan is approved by shareholders and the Reorganization is consummated, each service provider will provide an acknowledgement of the effect of the Reorganization and that the DE Trust has succeeded each Trust as a party to their respective agreements. -26- As of the effective date of the Reorganization, each corresponding DE Fund will have a distribution plan under Rule 12b-1 of the 1940 Act relating to the distribution of that DE Fund's classes of shares, which is identical in all material respects to the distribution plan currently in place for the corresponding classes of shares of each corresponding Fund that currently has a distribution plan under Rule 12b-1 of the 1940 Act. It is anticipated that there will be no material change to the distribution plans as a result of the Reorganization. What is the effect of shareholder approval of the Plan? Under the 1940 Act, the shareholders of a mutual fund must elect trustees and approve the initial investment advisory agreement(s) for the fund. Theoretically, if the Plan is approved by shareholders and each Trust is reorganized to a Delaware statutory trust, the shareholders would need to vote on these two items for the DE Trust. The DE Trust and the DE Funds must obtain shareholder approval of these items in order to comply with the 1940 Act and to operate after the Reorganization. The Trustees, however, have determined that it is in the best interests of the shareholders to avoid the considerable expense of another shareholder meeting to obtain these approvals after the Reorganization. The Trustees, therefore, have determined that, by approving the Plan, you are also approving, for purposes of the 1940 Act: (1) the election of the Trustees of each Trust who are in office at the time of the Reorganization as trustees of the DE Trust (including any new Trustees that are elected under Proposal 1); and (2) new investment advisory agreements between the DE Trust and CCM Partners, which are identical in all material respects to the investment advisory agreements currently in place for the Funds (and if Proposal 2 is also approved by the shareholders of a Fund, as approval of the new investment advisory agreements described in Proposal 2 between CCM Partners and the DE Trust on behalf of each corresponding DE Fund). Prior to the Reorganization, if the Plan is approved by shareholders of each Trust, the officers will cause each Trust, as the shareholders of the DE Trust and each DE Fund, to vote its shares FOR the matters specified above. This action will enable the DE Trust to satisfy the requirements of the 1940 Act without involving the time and expense of another shareholder meeting. What is the capitalization and structure of the DE Trust? The DE Trust was formed as a Delaware statutory trust on [_____], 2006 pursuant to the Delaware Act. As of the effective date of the Reorganization, the DE Trust will have separate series, each of which will correspond to the similarly named series of the respective Trusts, each with an unlimited number of shares of beneficial interest without par value authorized. The shares of each DE Fund will be allocated into classes to correspond to the current classes of shares of the corresponding Fund. -27- As of the effective date of the Reorganization, as with the existing shares you hold, outstanding shares of the DE Trust will be fully paid, nonassessable (e.g., you will not owe any further money to the respective Trust to own your shares), and have no preemptive or subscription rights (e.g., no special rights to purchase shares in advance of other investors). The DE Trust will also have the same fiscal year as the Trusts. Who will bear the expenses of the Reorganization? Since the Reorganization is expected to benefit each Trust and their respective shareholders, the Board has authorized that the expenses incurred in the Reorganization, including the estimated costs associated with soliciting proxies with respect to this proposal, shall be paid by each Trust (and, therefore, indirectly by shareholders), whether or not the Reorganization is approved by shareholders. Are there any tax consequences for shareholders? The Reorganization is designed to be "tax-free" for federal income tax purposes so that you will not experience a taxable gain or loss when the Reorganization is completed. Generally, the basis and holding period of your shares in a DE Fund will be the same as the basis and holding period of your shares in the corresponding Fund. The Reorganization is not expected to give rise to the recognition of income, gain, or loss for federal income tax purposes to the Trusts, the Funds, the DE Trust, or the DE Funds, or to their respective shareholders. The Funds do not hold any securities that are listed on foreign exchanges or custodied out of the U.S.; nor do the Funds sell their shares out of the U. S., so foreign tax consequences are not generally relevant. Nevertheless shareholders subject to foreign taxes should note that, as a result of the Reorganization, there may be adverse tax consequences in a foreign country, including possible taxes on capital gains and forfeiture of capital loss carry forwards. If a foreign country treats the Reorganization as a "sale" and "purchase" of portfolio securities that are registered in that country, the applicable Fund may be required to pay taxes on any capital gains arising from the "sale" of those portfolio securities. Similarly, such treatment by a foreign country may prevent the Fund from retaining the capital losses it previously incurred on securities registered in that country to offset future capital gains, if any, incurred on securities registered in that country. Each Trust, however, does not believe that any Fund or any Fund shareholders will experience a materially adverse impact as a result of a foreign country's tax treatment of the Reorganization. What if I choose to sell my shares at any time? A request to sell Fund shares that is received and processed prior to the effective date of the Reorganization will be treated as a redemption of shares of that Fund. A request to sell shares that is received and processed after the effective date of the Reorganization will be treated as a request for the redemption of the same number of shares of the corresponding DE Fund. What is the effect of my voting "For" the Plan? By voting "FOR" the Plan, you will be agreeing to become a shareholder of a single mutual fund organized as a Delaware statutory trust, with trustees, investment advisory agreements, administration agreements, a distribution plan, and other service arrangements that are substantially identical to those currently in place for your corresponding Fund or Funds. In addition, you will have the same exchange rights that you have currently, including counting the time you held shares of a Fund for purposes of calculating any redemption fee on shares you receive of the corresponding DE Fund. -28- Vote Required Shareholders of each Trust must separately approve the Agreement and Plan of Reorganization for that Trust. When a quorum is present, the affirmative vote of a majority of the shares of each Trust voted at the meeting is required to approve the Agreement and Plan of Reorganization for that Trust. The Board of Trustees of the Funds, including a majority of the independent Trustees, unanimously recommends that you vote "FOR" this Proposal No. 3. -29- GENERAL INFORMATION General The Funds' Distributor is RFS Partners, 44 Montgomery Street, Suite 2100, San Francisco, California, 94104. The Funds' Custodian is US Bank, N.A., 425 Walnut Street, M.L. CN-OH-W6TC, Cincinnati, Ohio, 45202. ALPS Mutual Fund Services, Inc., 1625 Broadway, Suite 2200, Denver, Colorado, 80202, acts as fund accountant, the shareholder servicing agent for the Trusts and acts as the Trusts' transfer and dividend-paying agent. Voting Rights and Procedures and Shareholder Meeting Costs Each share of each Fund is entitled to one vote. Shareholders of each Fund at the close of business on February 28, 2006 (the "Record Date") will be entitled to be present and give voting instructions for the Funds at the Meeting with respect to their shares owned as of the Record Date. For each Fund, as of the Record Date, the total number of shares outstanding and entitled to vote, the total net assets represented by those shares, the number of shares held by the Trustees and officers of the Trusts and percentage of total shares outstanding held by Trustees and officers of the Trusts was as follows:
Number of Shares Percent of Total Total Number Total Net Held by Trustees Shares Held by Fund of Shares Assets and Officers Trustees and Officers ---- ------------ --------- ---------------- ---------------- California Tax Free Income 11,312,491.811 $135,259,432 None *** Fund California Insured 1,913,211.206 $20,129,317 84.955 *** Intermediate Fund California Tax-Free Money 61,392,067.936 $61,325,440 71,478.580 *** Market Fund U.S. Government Securities 2,596,885.352 $26,630,165 None *** Fund The United States Treasury 34,855,412.217 $34,848,566 840,332.970 2.4% Trust Short-Term U.S. Government 1,655,200.218 $16,296,558 8,378.147 *** Bond Fund S&P 500 Index Fund 4,305,617.894 $111,288,225 8,983.059 *** S&P MidCap Index Fund 7,708,247.484 $182,423,404 52,236.255 *** S&P SmallCap Index Fund 1,650,079.736 $32,645,513 18,209.074 1.1% Equity Income Fund 1,290,949.699 $20,961,990 18,465.976 1.4% European Growth & Income 993,140.952 $9,016,740 14,868.839 1.5% Fund Nasdaq-100 Index Fund 4,355,621.840 $18,275,638 36,463.978 ***
-30- *** Less than 1% of the outstanding shares of the Fund as of the Record Date. Except as indicated in the above table, as of the Record Date, to the knowledge of the Trusts' management, the officers and Trustees of the Trusts owned, collectively, less than 1% of the shares of each Fund. To the knowledge of the Trusts' management, at the close of business on February 28, 2006, the only persons owning beneficially more than five percent of the outstanding shares of each Fund were those listed in Appendix E. The Declaration of Trust of each Trust provides that except where a larger quorum is required by applicable law, the presence at a shareholder meeting in person or by proxy of forty percent (40%) of the shares entitled to vote at the Meeting on a matter constitutes a quorum with respect to that matter. Thus, a shareholder vote on Proposals No. 1 and No. 3 will take place on its scheduled date if forty percent (40%) or more of the shares of each Trust entitled to vote are represented in person or by proxy. Because the 1940 Act requires that the Proposal No. 2 be approved by the affirmative vote of a "majority of the outstanding voting securities" (as defined in the 1940 Act) of each Fund, a shareholder vote on Proposal No. 2 for each Fund will take place on its scheduled date if more than fifty percent (50%) or more of the shares of the series of each Fund entitled to vote are represented in person or by proxy. If a quorum is not present or if a quorum is present but sufficient votes in favor of any of the Proposals are not received, the meeting may be held for the purposes of voting on those proposals for which sufficient votes have been received and the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies with respect to any proposal for a Fund for which sufficient votes have not been received. Any such adjournment will require the affirmative vote of a majority of the votes cast on the question of adjournment in person or by proxy. The persons named as proxies will vote in favor of such adjournment those proxies, which they are entitled to vote in favor of a proposal. They will vote against any such adjournment those proxies required to be voted against a proposal. Any proxy may be revoked at any time prior to the exercise thereof (i) by submitting another proxy bearing a later date or by giving written notice of the revocation to the Secretary of the respective Trust at the address indicated above or by voting in person at the meeting, or (ii) if written notice of the death or incapacity of the maker of the proxy is received by the Trust before the vote pursuant to that proxy is counted, provided, however, that no proxy shall be valid after the expiration of 11 months from the date of the proxy. The shareholders may adjourn the Meeting to another date and time by the vote of a majority of votes represented at the meeting whether in person or by proxy, whether or not a quorum is present, and the meeting may be held on the new date and time with no other notice of the adjourned meeting at which the adjournment is taken, unless a new record date of the adjourned meeting is fixed or unless adjournment is for more than 60 days from the original date of the meeting (in which case the Board will set a new record date). If the adjournment requires setting a new record date, the Trust will give notice of the adjourned meeting to shareholders of record entitled to vote at the adjourned meeting. Business may be conducted once a quorum is present and may continue until adjournment of the Meeting. In tallying shareholder votes, abstentions (i.e., shares for which a proxy is presented, but which abstains from voting on one or more matters) and "nominee non-votes" (i.e., shares held by nominees for which proxies are presented but as to which (i) instructions have not been received from the beneficial owners or persons entitled to vote and (ii) the nominee does not have discretionary voting power on a particular matter) will be counted for purposes of determining whether a quorum, or majority of voting shares, is present for the conduct of business at the Meeting and will be voted in favor of any adjournment proposed. With respect to Proposal 1, abstention and nominee non-votes, if any, will have no effect. With respect to Proposals 2 and 3, abstention and nominee non-votes effectively result in a vote "against" such Proposals. If no instructions are given on an executed proxy that has been returned to the Trusts, that proxy will be voted "FOR" each Proposal. Shareholders do not have any appraisal or dissenter rights in connection with any of the matters discussed in this proxy statement. -31- The cost of preparing, printing and mailing the enclosed proxy, accompanying notice and proxy statement and all other costs in connection with solicitation of proxies related to the required approvals will be paid by the Trusts, including any additional solicitation made by letter, telephone or facsimile. In addition to solicitation by mail, certain officers and representatives of the Trusts, officers and employees of CCM, who will receive no extra compensation for their services, may solicit proxies by telephone, facsimile or personally. In addition, CCM has retained [ ], at an anticipated cost of approximately $[ ], to solicit proxies from brokers, banks, other institutional holders and individual shareholders. Further Information You can find more information about the Fund's investment policies in its Prospectus and Statement of Additional Information (SAI), which are available free of charge. To request a free copy of the Prospectus or SAI, call us at (800) 225-8778. You can review and copy further information about the Fund, including the Prospectus or SAI, at the Securities and Exchange Commission's (SEC's) Public Reference Room in Washington, D.C. To obtain information on the operation of the Public Reference Room please call (202) 942-8090. Reports and other information about the Fund are available at the SEC's Web site at www.sec.gov. You can also obtain copies of this information, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, Washington, D.C., 20549-6009 or by e-mailing the SEC at publicinfo@sec.gov. You can find further information about the Funds in the Trusts' annual and semiannual shareholder reports, which discuss the market conditions and investment strategies that significantly affected the Funds' performance during its most recent fiscal period. To request a free copy of the most recent annual or semiannual report, please contact us at (800) 225-8778 or California Investment Trust Fund Group, 44 Montgomery Street, Suite 2100, San Francisco, CA 94104. Other Matters to Come Before the Meeting Neither Board of Trustees is aware of any matters that will be presented for action at the Meeting other than the matters set forth herein. Should any other matters requiring a vote of shareholders arise, the proxy in the accompanying form will confer upon the person or persons entitled to vote the shares represented by such proxy the discretionary authority to vote matters in accordance with their best judgment. -32- Shareholder Proposals The Meeting is a special meeting of shareholders. Neither Trust is required to, nor does either intend to, hold regular meetings of its shareholders. If such a meeting is called, any shareholder who wishes to submit a proposal for consideration at the meeting should submit the proposal promptly to the respective Trust. The Independent Trustees do not consider trustee candidates recommended by shareholders except as required by law. PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. By order of the Board of Trustees, Stephen C. Rogers Chairman and President March [_], 2006 APPENDIX A AUDIT COMMITTEE CHARTER CALIFORNIA INVESTMENT TRUST CALIFORNIA INVESTMENT TRUST II AUDIT COMMITTEE CHARTER March, 2006 The Board of Trustees (the "Board") of each of California Investment Trust and California Investment Trust II (each a "Trust" and collectively, the "Trusts") shall establish an Audit Committee for the Trusts (the "Audit Committee"). I. Statement of Purpose and Function The function of the Audit Committee is oversight. It is the responsibility of management to maintain appropriate systems for accounting and internal controls, and the responsibility of the Trusts' independent public accountant (the "Auditor") to plan and carry out the audit of the Trusts in accordance with auditing standards generally accepted in the United States. The Auditor is ultimately responsible to the Board of Trustees and the Audit Committee, as representatives of the shareholders. The purposes of the Audit Committee are to: o assist the Board in its oversight of the Trusts' accounting and financial reporting policies and practices by reviewing disclosures made to the Audit Committee by the Trusts' certifying officers and the Auditor about any significant deficiency in, or material change in the operation of, the Trusts' internal controls or material weaknesses therein, and any fraud involving CCM Partners (the "Adviser") or any employees or other persons who have a significant role in the Trusts' internal controls; o assist the Board in its oversight of the quality and objectivity of the Trusts' financial statements and the independent audit thereof; and o select, oversee and set the compensation of the Auditor and to act as liaison between the Auditor and the full Board of Trustees. The Audit Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other experts or consultants at the expense of the Trusts. II. Audit Committee Composition The Audit Committee shall be comprised solely of "Independent Trustees" (i.e., Trustees who are not "interested persons" of the Trusts as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), and who are free of any other relationship that, in the opinion of the Board, would interfere with their exercise of independent judgment as Audit Committee members). Appointment to the Audit Committee shall conform to all applicable legal and regulatory criteria. Each member shall be appointed by the full Board, and a majority of the Independent Trustees of the Board also shall approve each appointment. Appendix A-1 The Board shall designate one member as the Chairman of the Audit Committee. Members of the Audit Committee shall be, or seek to become, generally knowledgeable in financial and auditing matters as they pertain to the Trusts. At least annually, the Audit Committee shall consider whether one or more members of the Audit Committee is an "audit committee financial expert," as such term is defined by the Securities and Exchange Commission, and whether any such expert is "independent."(1) The Audit Committee shall report the results of its deliberations to the full Board for further action as appropriate, including, but not limited to, a determination by the Board that the Audit Committee membership includes or does not include one or more "Audit Committee financial experts" and any related disclosure to be made concerning this matter. III. Meetings and Reporting The Audit Committee shall meet at least once a year and shall hold special meetings as circumstances require. The Audit Committee shall cause minutes of all meetings of the Audit Committee to be prepared. The Chairman of the Audit Committee shall report to the Board on the results of the Audit Committee's reviews and make such recommendations as are deemed appropriate. The Audit Committee shall meet with the finance and other personnel of the Trusts and the Adviser as necessary and appropriate to fulfill the Audit Committee's oversight role. The Audit Committee shall have unrestricted access to the Auditor and the Trusts' administrator. IV. Duties and Responsibilities To carry out its purposes, the Audit Committee shall have the following duties and powers (such listing is not intended to limit the authority of the Audit Committee in achieving its purposes): 1. Selection of Auditor and Approval of Fees. (a) The Audit Committee shall pre-approve the selection of the Auditor and shall recommend the selection, retention or termination of the Auditor to the full Board and, in connection therewith, shall evaluate the independence of the Auditor, including an evaluation of the extent to which the Auditor provides any consulting, auditing or non-audit services to the Adviser or its affiliates. The Audit Committee shall review the Auditor's specific representations as to its independence. ---------- (1) For purposes of this finding of independence only, in order to be considered "independent," any such expert must not only be independent for purposes of the Investment Company Act but also must satisfy the additional requirement that he or she may not, other than in his or her capacity as a member of the Audit Committee, the Board, or any other Board committee, accept directly or indirectly any consulting, advisory, or other compensatory fee from the Trust. Appendix A-2 (b) The Audit Committee shall review and approve the fees charged by the Auditor for audit and non-audit services to be provided to the Trusts in accordance with the pre-approval requirements set forth below. The Trusts shall provide for appropriate funding, as determined by the Audit Committee, to compensate the Auditor for any authorized service provided to the Trusts. 2. Meetings with Auditor. The Audit Committee shall meet with the Auditor, including private meetings, prior to the commencement of substantial work on the audit and following the conclusion of the audit, as well as such other times as the Audit Committee shall deem necessary or appropriate. The Auditor shall report directly to the Audit Committee. The Auditor shall report at least annually, concerning the following and other pertinent matters: (a) to review the arrangements for and scope of the annual audit and any special audits; (b) to provide the Auditor the opportunity to report to the Audit Committee, on a timely basis, all critical accounting policies and practices to be used; (c) to discuss any matters of concern relating to the Trusts' financial statements, including: (i) any adjustments to such statements recommended by the Auditor, or other results of said audit(s), and (ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the Auditor; (d) to provide the Auditor the opportunity to report to the Audit Committee, on a timely basis, any material written communication between the Auditor and management such as any management letter or schedule of unadjusted differences; (e) to provide the Auditor the opportunity to report all non-audit services provided to any entity in the "Investment Company Complex"(3) that were not pre-approved by the Audit Committee; ---------- (2) "Investment Company Complex" means the Trusts, the Adviser and any entity controlled by, controlling or under common control with the Adviser if such entity is an investment adviser or is engaged in the business of providing administrative, custodian, underwriting or transfer agent services to the Trusts or the Adviser. Appendix A-3 (f) to discuss with the Auditor the amount of all fees received by the Auditor for providing services of any type to the Adviser and any affiliate of the Adviser; (g) to consider the Auditor's comments with respect to the Trusts' financial policies, procedures and internal accounting controls and responses thereto by the Trusts' officers, the Adviser and administrator, as well as other personnel; (h) to review and receive confirmation of the form of written opinion the Auditor proposes to render to the Board and shareholders of the Trusts; (i) to review the adequacy and effectiveness of relevant internal controls and procedures and the quality of the staff implementing those controls and procedures; (j) to receive periodic reports concerning regulatory changes and new accounting pronouncements that significantly affect the value of the Trusts' assets and its financial reporting; and, (k) to provide the Auditor the opportunity to report on any other matter that the Auditor deems necessary or appropriate to discuss with the Audit Committee. If the Auditor's report on the above-listed (and other pertinent) matters is not made in person to the Audit Committee within 60 days following the end of the Trusts' fiscal year, the Auditor shall deliver a written report to the Audit Committee concerning these matters within such 60-day period. 3. Change in Accounting Principles. The Audit Committee shall consider the effect upon the Trusts of any changes in accounting principles or practices proposed by the Auditor or the Trusts' officers. 4. Audit Related Services and Permissible Non-Audit Services The Audit Committee shall evaluate all audit-related services and permissible non-audit services performed or to be performed by the Auditor to ensure that such services do not impair the independence of the Auditor. Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Trusts' financial statements or that are traditionally performed by the independent auditor and that do not impair the independence of the Auditor. Permissible non-audit services include tax compliance, tax planning, tax advice and other routine and recurring services that do not impair the independence of the Auditor. Appendix A-4 5. Pre-Approval of Auditor Services. (a) Pre-Approval Requirements. Before the Auditor is engaged by the Trusts to render audit related or permissible non-audit services, either: (i) The Audit Committee shall pre-approve all audit related services and permissible non-audit services (e.g., tax services) to be provided to the Trusts; or (ii) The Audit Committee shall establish policies and procedures governing the Auditor's engagement. Any such policies and procedures must (1) be detailed as to the particular service and (2) not involve any delegation of the Audit Committee's responsibilities to the Adviser. The Audit Committee may delegate to one or more of its members the authority to grant pre-approvals. The pre-approval policies and procedures shall include the requirement that the decisions of any member to whom authority is delegated under this Section 5 shall be presented to the full Audit Committee at its next scheduled meeting. (b) De Minimis Exceptions to Pre-Approval Requirements. Pre-approval for a service provided to the Trusts other than audit, review or attest services is not required if: (1) the aggregate amount of all such non-audit services provided to the Trusts constitutes not more than 5 percent of the total amount of revenues paid by the Trusts to the Auditor during the fiscal year in which the non-audit services are provided; (2) such services were not recognized by the Trusts at the time of the engagement to be non-audit services; and (3) such services are promptly brought to the attention of the Audit Committee and are approved by the Audit Committee or by one or more members of the Audit Committee to whom authority to grant such approvals has been delegated by the Audit Committee. (c) Pre-Approval of Non-Audit Services Provided to the Adviser and Certain Control Persons. With respect to services that have a direct impact on the operations or financial reporting of the Trusts, the Audit Committee shall pre-approve all such non-audit services proposed to be provided by the Auditor to (i) the Adviser and (ii) any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the Trusts. Application of De Minimis Exception: The de minimis exceptions set forth above under Section 5(b) apply to pre-approvals under this Section (c) as well, except that the "total amount of revenues" calculation for Section 5(c) services is based on the total amount of revenues paid to the Auditor by the Trusts and any other entity that has its services approved under this Section (i.e., the Adviser or any control person). Appendix A-5 6. Prohibited Activities of the Auditor. The Audit Committee shall confirm with the Auditor that the Auditor who is performing the audit for the Trusts is not performing contemporaneously (during the audit and professional engagement period) the following non-audit services for the Trusts, the Adviser, or any other entity in the Investment Company Complex, any non-audit services prohibited by Section 10A(g) of the Securities Exchange Act of 1934, including any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. The Audit Committee may also establish additional prohibited activities based on the principles that the Auditor should not: (i) audit its own work; (ii) function as a part of management of the Trusts, the Adviser, or any other entity in the Investment Company Complex; or (iii) act as an advocate of the Trusts, the Adviser, or any other entity in the Investment Company Complex. The Auditor will be responsible for informing the Audit Committee of whether it believes that a particular non-audit service is permissible or prohibited pursuant to applicable regulations and standards. V. Amendment The Audit Committee shall review this Charter on an annual basis and recommend any changes to the full Board. This Charter may be amended by a vote of a majority of the Board. Appendix A-6 APPENDIX B FORM OF NEW INVESTMENT ADVISORY AGREEMENT FORM OF INVESTMENT ADVISORY AGREEMENT THIS INVESTMENT ADVISORY AGREEMENT is made this ___ day of _________, 2006 (this "Agreement"), by and between [California Investment Trust] [California Investment Trust II], a Massachusetts business trust (the "Trust"), on behalf of the series of the Trust identified herein, and CCM Partners, a limited partnership organized and existing under the laws of the State of California (the "Adviser"). WHEREAS, the Trust is registered with the Securities and Exchange Commission ("SEC") as an open-end, management investment company under the Investment Company Act of 1940 and the rules and regulations thereunder, as amended from time to time (the "1940 Act"); WHEREAS, the Trust is authorized to issue shares of beneficial interest ("Shares") in separate series, with each such series representing interests in a separate portfolio, and the Trust has established multiple series; WHEREAS, the Adviser is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 and the rules and regulations thereunder, as amended from time to time (the "Advisers Act"); and WHEREAS, the Trust desires to retain the Adviser to furnish investment advisory services and certain specifically identified administrative services to one or more of the series of the Trust, and the Adviser is willing to furnish such services to such series and the Trust in the manner and on the terms hereinafter set forth. NOW THEREFORE, in consideration of the premises and the promises and mutual covenants herein contained, it is agreed between the Trust and the Adviser as follows: 1. Appointment. The Trust hereby appoints CCM Partners to act as Adviser to [California Tax-Free Income Fund, California Insured Intermediate Fund and California Tax-Free Money Market Fund][S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap Index Fund, Equity Income Fund, NASDAQ-100 Index Fund, European Growth & Income Fund, U.S. Government Securities Fund, Short-Term U.S. Government Bond Fund and The United States Treasury Trust] (each, a "Fund" and, together, the "Funds") for the periods and on the terms set forth in this Agreement. The Adviser accepts such appointment and agrees to furnish the services herein set forth for the compensation herein provided. In the event the Trust wishes to retain the Adviser to render investment advisory services to one or more series of the Trust other than the Funds, the Trust shall notify the Adviser in writing. If the Adviser is willing to render such services, it shall notify the Trust in writing, whereupon such series shall become a Fund hereunder, and be subject to this Agreement. Appendix B-1 2. Portfolio Management Duties. Subject to the ultimate supervision and direction of the Trust's Board of Trustees and the Trust, the Adviser shall regularly provide the Funds with investment research, advice, management and supervision and shall furnish a provide a continuous investment program for the assets of the Funds and determine the composition of the assets of the Funds, including determination of the purchase, retention, or sale of the securities, cash, and other investments for the Funds. The Adviser will provide investment research and analysis, which may consist of computerized investment methodology, and will conduct a continuous program of evaluation, investment, sales, and reinvestment of the Funds' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, or exchanged for the Funds, when these transactions should be executed, and what portion of the assets of the Funds should be held in the various securities and other investments in which it may invest, and the Adviser is hereby authorized to execute and perform such services on behalf of the Funds. The Adviser will also provide to the Funds the administrative services set forth in Sections 2(c), 2(d) and 2(e) hereof. The Adviser will provide the services under this Agreement in accordance with the Funds' investment objective or objectives, investment policies, and investment restrictions as stated in the Trust's prospectuses and statement of additional information, each as supplemented or amended from time to time (as so supplemented or amended, the "Prospectus and Statement of Additional Information"), copies of which shall be sent to the Adviser by the Trust. Without limiting the generality of the foregoing provisions, in performing these duties, the Adviser: (a) Is responsible, in connection with its responsibilities under this Section 2, for decisions to buy and sell securities and other investments for the Funds, for broker-dealer and futures commission merchant ("FCM") selection, and for negotiation of commission rates. The Adviser's primary consideration in effecting a security or other transaction will be to obtain the best execution for the Funds, taking into account the factors specified in the Prospectus and Statement of Additional Information for the Trust, as they may be amended or supplemented from time to time. Subject to such policies as the Board of Trustees may determine and consistent with Section 28(e) of the Securities Exchange Act of 1934 and applicable regulatory interpretations thereof, the Adviser shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused a Fund to pay a broker or dealer, acting as agent, for effecting a portfolio transaction at a price in excess of the amount of commission another broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the Adviser's overall responsibilities with respect to the Funds and to its other clients as to which it exercises investment discretion. To the extent consistent with these standards, and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-(2)(T) thereunder, and subject to any other applicable laws and regulations, the Adviser is further authorized to allocate the orders placed by it on behalf of the Funds to any affiliate that is registered as a broker or dealer with the SEC, or to such brokers and dealers that also provide research or statistical research and material, or other services to the Funds or the Adviser. Such allocation shall be in such amounts and proportions as the Adviser shall determine consistent with the above standards, and, upon request, the Adviser will report on said allocations to the Trust and the Board of Trustees of the Trust, indicating the brokers or dealers to which such allocations have been made and the basis therefor. Appendix B-2 (b) May, on occasions when the purchase or sale of a security is deemed to be in the best interest of a Fund as well as any other investment advisory clients, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser in a manner that is fair and equitable in the judgment of the Adviser in the exercise of its fiduciary obligations to the Trust and to such other clients. (c) Will provide persons satisfactory to the Trust's Board of Trustees to act as officers and employees of the Trust and a Fund (such officers and employees, as well as certain Trustees, may be trustees, directors, officers, partners, or employees of the Adviser or its affiliates). (d) Will furnish a Fund with office space and equipment reasonably necessary for the investment operation of the Fund. (e) Will furnish a Fund with reports, statements and other data on securities, economic conditions and other pertinent subjects which the Trust's Board of Trustees may reasonably request. (f) Will regularly report to the Trust's Board of Trustees on the investment program for the Funds and the issuers and securities represented in the Fund's portfolio and render to the Trust's Board of Trustees such periodic and special reports with respect to the Fund's investment activities as the Board may reasonably request; (g) Shall be responsible for making reasonable inquiries and for reasonably ensuring that any employee or other affiliated person of the Adviser has not, to the best of the Adviser's knowledge: (i) been convicted, in the last ten (10) years, of any felony or misdemeanor involving the purchase or sale of any security or arising out of such person's conduct as an underwriter, broker, dealer, investment adviser, municipal securities dealer, government securities broker, government securities dealer, transfer agent, or entity or person required to be registered under the Commodity Exchange Act, or as an affiliated person, salesman, or employee of any investment company, bank, insurance company, or entity or person required to be registered under the Commodity Exchange Act; or (ii) been permanently or temporarily enjoined by reason of any misconduct, by order, judgment, or decree of any court of competent jurisdiction from acting as an underwriter, broker, dealer, investment adviser, municipal securities dealer, government securities broker, government securities dealer, transfer agent, or entity or person required to be registered under the Commodity Exchange Act, or as an affiliated person, salesman or employee of any investment company, bank, insurance company, or entity or person required to be registered under the Commodity Exchange Act, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security. Appendix B-3 (h) Will treat confidentially and as proprietary information of the Funds all records and other information related to the Funds, including the performance records of such Funds, and will not use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Funds or when so requested by the Funds; provided, however, that records and information need not be treated as confidential if required to be disclosed under applicable law or regulation or otherwise in connection with investigations or inquiries contemplated under Section 9 hereof, or if generally available to the public through means other than by disclosure by the Adviser, or if available from a source other than the Trust, the Adviser or the Funds which does not owe a duty of confidentiality to the Trust, the Adviser or the Funds. (i) Will use its reasonable best efforts (i) to retain the services of the Portfolio Employees who manage the portfolios of the Funds, from time to time and (ii) to promptly obtain the services of a Portfolio Employee acceptable to the Trust if the services of any of the Portfolio Employees are no longer available to the Adviser. (j) Will obtain the approval of the Trust prior to designating a new Portfolio Employee, which consent shall not be unreasonably withheld; provided, however, that, if the services of a Portfolio Employee are no longer available to the Adviser due to circumstances beyond the reasonable control of the Adviser (e.g., voluntary resignation, death or disability), the Adviser may designate an interim Portfolio Employee who (i) shall be reasonably acceptable to the Trust and (ii) shall function for a reasonable period of time until the Adviser designates an acceptable permanent replacement; provided, however, that if the Trust does not consent to the designation of a Portfolio Employee, Trust and Adviser agree to cooperate in good faith to identify a replacement Portfolio Employee. (k) Will, to the extent practicable, notify the Trust in advance of any impending change in Portfolio Employee, portfolio management or any other material matter that may require disclosure to the Board, shareholders of the Funds or dealers in Fund shares. 3. Disclosure about Adviser. The Adviser has reviewed the Registration Statement and represents and warrants that, with respect to the disclosure about the Adviser or information relating, directly or indirectly, to the Adviser, such Registration Statement contains, as of the date hereof, no untrue statement of any material fact and does not omit any statement of a material fact which was required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. The Adviser further represents and warrants that it is a duly registered investment adviser under the Advisers Act and a duly registered investment adviser in all states in which the Adviser is required to be registered. The Trust has received a current copy of the Adviser's Uniform Application for Investment Trust Registration on Form ADV, as filed with the SEC. The Adviser agrees to provide the Trust with current copies of the Adviser's Form ADV, and any supplements or amendments thereto. Appendix B-4 4. Expenses. During the term of this Agreement: (a) The Adviser shall bear and pay the costs of rendering the services to be performed by it under this Agreement. In addition, with respect to the operation of the Fund, the Adviser is responsible for (i) the compensation of any of the Trust's trustees, officers, and employees who are affiliates of the Adviser (except for the salary or other compensation of the Chief Compliance Officer ("CCO") of the Trust who may be an affiliate of the Adviser, as to which a portion of such compensation and related costs allocable to his or her duties as the CCO of the Trust will be reimbursed by the Trust to Adviser to the extent the CCO has responsibilities that he/she performs for CCM and is paid by CCM, which amount shall be determined by the Trustees of the Trust), (ii) the expenses of printing and distributing the Fund's prospectuses, statements of additional information, and sales and advertising materials (but not the legal, auditing or accounting fees attendant thereto) to prospective investors (but not to existing shareholders), and (iii) providing office space and equipment reasonably necessary for the operation of the Fund. (b) The Fund is responsible for and has assumed the obligation for payment of all of its expenses, other than as stated in Section 4(a) hereof, including but not limited to: fees and expenses incurred in connection with the issuance, registration and transfer of its shares; brokerage and commission expenses; all expenses of transfer, receipt, safekeeping, servicing and accounting for the cash, securities and other property of the Trust for the benefit of a Fund including all fees and expenses of its custodian, shareholder services agent and accounting services agent; interest charges on any borrowings; costs and expenses of pricing and calculating its daily net asset value and of maintaining its books of account required under the 1940 Act; taxes, if any; expenditures in connection with meetings of the Fund's shareholders and Board of Trustees that are properly payable by the Fund; salaries and expenses of officers and fees and expenses of members of the Trust's Board of Trustees or members of any advisory board or committee who are not members of, affiliated with or interested persons of the Adviser (except as otherwise provided in Section 4(a) hereof with respect to the CCO's compensation and related costs); insurance premiums on property or personnel of a Fund which inure to its benefit, including liability and fidelity bond insurance; the cost of preparing and printing reports, proxy statements, prospectuses and statements of additional information of a Fund or other communications for distribution to existing shareholders; legal, auditing and accounting fees; trade association dues; fees and expenses (including legal fees) of registering and maintaining registration of its shares for sale under federal and applicable state and foreign securities laws; all expenses of maintaining and servicing shareholder accounts, including all charges for transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents for the benefit of the Fund, if any; and all other charges and costs of its operation plus any extraordinary and non-recurring expenses, except as herein otherwise prescribed. Appendix B-5 (c) In the execution of its duties under this Agreement, the Adviser is entitled to reimbursement of actual costs incurred by the Adviser for expenses which are otherwise the obligation of the Funds. The Fund shall promptly reimburse the Adviser for such costs and expenses, except to the extent the Adviser has otherwise agreed to bear such expenses. 5. Compensation. (a) The Fund shall pay to the Adviser, and the Adviser agrees to accept, as full compensation for all specifically identified administrative services and investment management and advisory services furnished or provided to a Fund pursuant to this Agreement, a management fee as set forth in on Schedule A attached hereto, as may be amended in writing from time to time by the Trust and the Adviser. (b) The management fee shall be accrued daily by each Fund and paid to the Adviser on the first business day of the succeeding month. (c) The initial fee under this Agreement shall be payable on the first business day of the first month following the effective date of this Agreement and shall be prorated as set forth below. If this Agreement is terminated prior to the end of any month, the fee to the Adviser shall be prorated for the portion of any month in which this Agreement is in effect which is not a complete month according to the proportion which the number of calendar days in the month during which the Agreement is in effect bears to the number of calendar days in the month, and shall be payable within ten (10) days after the date of termination. (d) The fees payable to the Adviser under this Agreement will be reduced to the extent required under the most stringent expense limitation applicable to a Fund imposed by any state in which shares of the Fund are qualified for sale. The Adviser may reduce any portion of the compensation or reimbursement of expenses due to it pursuant to this Agreement and may agree to make payments to limit the expenses that are the responsibility of a Fund under this Agreement. Except as the Adviser may otherwise agree with respect to the Fund, any such reduction or payment shall be applicable only to such specific reduction or payment and shall not constitute an agreement to reduce any future compensation or reimbursement due to the Adviser hereunder or to continue future payments. Any such reduction will be agreed to prior to accrual of the related expense or fee and will be estimated daily and reconciled and paid on a monthly basis. Any fee withheld pursuant to this paragraph 5(d) from the Adviser shall be reimbursed by a Fund to the Adviser in the first fiscal year or the second fiscal year next succeeding the fiscal year of the withholding. Appendix B-6 (e) The Adviser may agree not to require payment of any portion of the compensation or reimbursement of expenses otherwise due to it pursuant to this Agreement prior to the time such compensation or reimbursement has accrued as a liability of the Fund. Any such agreement shall be applicable only with respect to the specific items covered thereby and shall not constitute an agreement not to require payment of any future compensation or reimbursement due to the Adviser hereunder. 6. Notice of Certain Events. (a) The Adviser agrees that, if legally permitted, it shall immediately notify the Trust and the Trust in the event (i) that the SEC or any state has censured the Adviser; placed limitations upon its activities, functions or operations; suspended or revoked its registration as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, and (ii) upon having a reasonable basis for believing that any Fund has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. The Adviser further agrees to notify the Trust and the Trust immediately of any material fact known to the Adviser that is not contained in the Registration Statement or prospectus for the Trust that relates to the Adviser or any Fund, or any amendment or supplement thereto, or of any statement contained therein that becomes untrue in any material respect. (b) The Trust agrees that, if legally permitted, it shall immediately notify the Adviser in the event (i) that the SEC or any state has censured the Trust; placed limitations upon either of their activities, functions, or operations; suspended or revoked the Trust's registration as an investment adviser; or has commenced proceedings or an investigation that may result in any of these actions, and (ii) upon having a reasonable basis for believing that a Fund has ceased to qualify or might not qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. 7. Independent Contractor. The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Trust from time to time, have no authority to act for or represent the Trust in any way or otherwise be deemed its agent. The Adviser understands that unless expressly provided herein or authorized from time to time by the Trust, the Adviser shall have no authority to act for or represent the Trust in any way or otherwise be deemed the Trust's agent. 8. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records which it maintains for the Funds are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's or the Trust's request, although the Adviser may, at its own expense, make and retain a copy of such records. The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the records required by Rule 204-2 under the Advisers Act for the period specified in that Rule. Appendix B-7 9. Cooperation. Each party to this Agreement agrees to cooperate with each other party and with all appropriate governmental authorities having the requisite jurisdiction (including, but not limited to, the SEC) in connection with any investigation or inquiry relating to this Agreement, the Trust or the Funds. 10. Services Not Exclusive. It is expressly understood and agreed that the services to be rendered by the Adviser to the Funds are not exclusive, and nothing in this Agreement shall prevent the Adviser (or its affiliates) from providing similar or different services to other clients (whether or not their investment objectives and policies are similar to those of the Funds) or from engaging in other activities so long as its ability to render the services provided for in this Agreement shall not be impaired thereby. The Trust's employment of the Adviser is not an exclusive arrangement, and the Trust may from time to time employ other individuals or entities to furnish it with the services provided for herein. 11. Adviser's Liability and Indemnification. (a) The Adviser shall have responsibility for the accuracy and completeness (and liability for the lack thereof) of the statements in the Fund's offering materials (including the prospectus, the statement of additional information, advertising and sales materials), except for information supplied by the Trust or another third party for inclusion therein. (b) The Adviser shall be liable to the Fund for any loss (including brokerage charges) incurred by the Fund as a result of any improper investment made by the Adviser. (c) Except as provided in Section 11(b) hereof and as may otherwise be required by the 1940 Act or other applicable law, the Trust agrees that the Adviser, any affiliated person of the Adviser, and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act") controls the Adviser shall not be liable to the Trust, or any Fund or any shareholder of any Fund, for, or subject to any damages, expenses, or losses in connection with, any act or omission connected with or arising out of any services rendered under this Agreement (including any losses that may be sustained in the purchase, holding or sale of any security by the Funds), except by reason of willful misfeasance, bad faith or gross negligence in the performance of the Adviser's duties, or by reason of reckless disregard of the Adviser's obligations and duties under this Agreement. (d) The Adviser agrees to reimburse the Trust for any and all costs, expenses, and counsel and Trustees' fees reasonably incurred by the Trust in the preparation, printing and distribution of proxy statements, amendments to its Registration Statement, holdings of meetings of its shareholders or Trustees, the conduct of factual investigations, any legal or administrative proceedings (including any applications for exemptions or determinations by the Securities and Exchange Commission) which the Trust incurs as the result of action or inaction of the Adviser or any of its partners where the action or inaction necessitating such expenditures (i) is directly or indirectly related to any transactions or proposed transaction in the interests or control of the Adviser or its affiliates (or litigation related to any pending or proposed future transaction in such interests or control) which shall have been undertaken without the prior, express approval of the Trust's Board of Trustees; or (ii) is within the sole control of the Adviser or any of its affiliates or any of their officers, partners, employees, or agents. So long as this Agreement is in effect, the Adviser shall pay to the Trust the amount due for expenses subject to this subparagraph 11(b) within thirty (30) days after a bill or statement has been received from the Trust therefor. This provision shall not be deemed to be a waiver of any claim which the Trust may have or may assert against the Adviser or others for costs, expenses, or damages heretofore incurred by the Trust or for costs, expenses or damages the Trust may hereafter incur which are not reimbursable to it hereunder. Appendix B-8 (e) No provision of this Agreement shall be construed to protect any Trustee or officer of the Trust, or partner or officer of the Adviser, from liability in violation of Sections 17(h) and (i) of the 1940 Act. 12. Best Efforts and Judgment. The Adviser shall use its best judgment and efforts in rendering the advice and, services to a Fund as contemplated by this Agreement. 13. Adviser's Personnel. The Adviser shall, at its own expense (except as may be otherwise provided in Section 4(a) hereof), maintain such staff and employ or retain such personnel and consult with such other persons as it shall from time to time determine to be necessary to the performance of its obligations under this Agreement. Without limiting the generality of the foregoing, the staff and personnel of the Adviser shall be deemed to include persons employed or retained by the Adviser to furnish statistical information, research, and other factual information, advice regarding economic factors and trends, information with respect to technical and scientific developments, and such other information, advice and assistance as the Adviser or the Trust's Board of Trustees may desire and reasonably request. 14. Reports by Fund to Adviser. Each Fund from time to time will furnish to the Adviser detailed statements of its investments and assets, and information as to its investment objective and needs, and will make available to the Adviser such financial reports, proxy statements, legal and other information relating to the Fund's investments as may be in its possession or available to it, together with such other information as the Adviser may reasonably request. 15. Duration and Termination. (a) This Agreement shall take effect with respect to each Fund as of the date hereof or, if later, as of the date set forth next to such Fund's name on Schedule A hereto, and shall remain in effect for two years from such date, and continue thereafter on an annual basis with respect to such Fund; provided that such annual continuance is specifically approved at least annually (a) by the vote of a majority of the entire Board of Trustees of the Trust, or (b) by the vote of a majority of the outstanding voting securities (as such term is defined in the 1940 Act) of such Fund, and provided that continuance is also approved by the vote of a majority of the members of the Board of Trustees of the Trust who are not parties to this Agreement or "interested persons" (as such term is defined in the 1940 Act) of the Trust, the Trust, or the Adviser, cast in person at a meeting called for the purpose of voting on such approval. This Agreement may not be materially amended with respect to a Fund without the vote of a majority of the outstanding voting securities (as such term is defined in the 1940 Act) of such Fund, except to the extent permitted by any exemption or exemptions that may be granted upon application made to the SEC or by any applicable SEC rule or No-Action precedent. This Agreement may be terminated: Appendix B-9 (i) by the Trust at any time with respect to the services provided by the Adviser, without the payment of any penalty, by vote of a majority of the entire Board of Trustees of the Trust or by vote of a majority of the outstanding voting securities (as such term is defined in the 1940 Act) of the Trust or, with respect to a particular Fund, by vote of a majority of the outstanding voting securities of that Fund, on 60 days' written notice to the Adviser; (ii) by the Adviser at any time, without the payment of any penalty, upon 60 days' written notice to the Trust; (iii) by the Trust at any time, without the payment of any penalty, upon 60 days' written notice to the Adviser. However, any approval of this Agreement by the holders of a majority of the outstanding voting securities (as such term is defined in the 1940 Act) of a particular Fund shall be effective to continue this Agreement with respect to that Fund notwithstanding (a) that this Agreement has not been approved by the holders of a majority of the outstanding voting securities of any other Fund or other series of the Trust or (b) that this Agreement has not been approved by the vote of a majority of the outstanding voting securities of the Trust, unless such approval shall be required by any other applicable law or otherwise. This Agreement will terminate automatically with respect to the services provided by the Adviser in the event of its assignment, as that term is defined in the 1940 Act, by the Adviser, or upon the termination of the Investment Advisory Agreement. (b) The Trust and Adviser will cooperate with each other to ensure that portfolio or other transactions in progress at the date of termination of this Agreement shall be completed in accordance with the terms of such transactions, and to this end each party shall provide the other party with all reasonably necessary information and documentation to secure the implementation thereof. 16. Agreement and Declaration of Trust. A copy of the Agreement and Declaration of Trust of the Trust and amendments thereto, is on file with the Secretary of State of the Commonwealth of Massachusetts. The Adviser acknowledges that it has received notice of and accepts the limitations of the Trust's liability set forth in Article III, Section 6(b) of its Agreement and Declaration of Trust. The Adviser agrees that the Trust's obligations under this Agreement with respect to a Fund shall be limited to the Fund and to its assets, and that the Adviser shall not seek satisfaction of any such obligation from the shareholders of the Fund nor from any trustee, officer, employee or agent of the Trust or the Fund, nor from the assets of shareholders of any other series of the Trust. Notice is hereby given that this Agreement is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Trust individually. Appendix B-10 17. Trading in Fund Shares. The Adviser agrees that neither it nor any of its partners, officers or employees shall take any short position in the shares of the Fund. This prohibition shall not prevent the purchase of such shares by any of the officers and partners or bona fide employees of the Adviser or any trust, pension, profit-sharing or other benefit plan for such persons or affiliates thereof, at a price not less than the net asset value thereof at the time of purchase, as allowed pursuant to rules promulgated under the 1940 Act. 18. Conflicts with Trust's Governing Documents and Applicable Laws. Nothing herein contained shall be deemed to require the Trust or any Fund to take any action contrary to the Trust's Agreement and Declaration of Trust, By-Laws, or any applicable statute or regulation, or to relieve or deprive the Board of Trustees of the Trust of its responsibility for and control of the conduct of the affairs of the Trust and the Fund. 19. Miscellaneous. (a) This Agreement shall be governed by the laws of the State of California without giving effect to the conflict of laws principles thereof, provided that nothing herein shall be construed to preempt, or to be inconsistent with, any federal law, regulation, order or rule, including the 1940 Act and the Advisers Act and any rules, regulations or orders of the SEC promulgated thereunder. (b) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (c) This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby, and to this extent, the provisions of this Agreement shall be deemed to be severable. To the extent that any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise with regard to any party hereunder, such provisions with respect to other parties hereto shall not be affected thereby. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] Appendix B-11 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below on the day and year first above written. [CALIFORNIA INVESTMENT TRUST] CCM PARTNERS [CALIFORNIA INVESTMENT TRUST II] a Massachusetts business trust a California limited partnership By: _________________ By: _________________ [ ] RFS Partners, [ ] its General Partner By: ____________________ Richard F. Shelton, Inc., its General Partner By:_________________ Stephen C. Rogers, Co-trustee of Richard F. Shelton Trust, Sole Shareholder of Richard F. Shelton, Inc. Appendix B-12 SCHEDULE A FEE SCHEDULE Each Fund shall pay to the Adviser, as full compensation for all specifically identified administrative and investment management and advisory services furnished or provided to that Fund, pursuant to the Investment Advisory Agreement, a management fee based upon the Fund's average daily net assets at the following per annum rates: -------------------------------------------------------------------------------- California Tax-Free Income Fund 0.50% of the value of the average daily net assets up to and including assets of $100 million; plus 0.45% of the average daily net assets over $100 million up to and including $500 million; plus 0.40% of the average daily net assets over $500 million. -------------------------------------------------------------------------------- California Insured Intermediate Fund 0.50% of the value of the average daily net assets up to and including assets of $100 million; plus 0.45% of the average daily net assets over $100 million up to and including $500 million; plus 0.40% of the average daily net assets over $500 million. -------------------------------------------------------------------------------- California Tax-Free Money Market Fund 0.50% of the value of the average daily net assets up to and including assets of $100 million; plus 0.45% of the average daily net assets over $100 million up to and including $500 million; plus 0.40% of the average daily net assets over $500 million. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. Government Securities Fund 0.50% of the value of the average daily net assets up to and including assets of $100 million; plus 0.45% of the average daily net assets over $100 million up to and including $500 million; plus 0.40% of the average daily net assets over $500 million. -------------------------------------------------------------------------------- The United States Treasury Trust 0.50% of the value of the average daily net assets up to and including assets of $100 million; plus 0.45% of the average daily net assets over $100 million up to and including $500 million; plus 0.40% of the average daily net assets over $500 million. -------------------------------------------------------------------------------- Short-Term U.S. Government Bond Fund 0.50% of the value of the average daily net assets up to and including assets of $500 million; plus 0.45% of the average daily net assets over $500 million up to and including $1 billion; plus 0.40% of the average daily net assets over $1 billion. -------------------------------------------------------------------------------- Appendix B-13 -------------------------------------------------------------------------------- S&P 500 Index Fund 0.25% of the value of the average daily net assets. -------------------------------------------------------------------------------- S&P MidCap Index Fund 0.40% of the value of the average daily net assets. -------------------------------------------------------------------------------- S&P SmallCap Index Fund 0.50% of the value of the average daily net assets up to and including assets of $500 million; plus 0.45% of the average daily net assets over $500 million up to and including $1 billion; plus 0.40% of the average daily net assets over $1 billion. -------------------------------------------------------------------------------- NASDAQ-100 Index Fund 0.50% of the value of the average daily net assets up to and including assets of $500 million; plus 0.45% of the average daily net assets over $500 million up to and including $1 billion; plus 0.40% of the average daily net assets over $1 billion. -------------------------------------------------------------------------------- European Growth & Income Fund 0.85% of the value of the average daily net assets. -------------------------------------------------------------------------------- Equity Income Fund 0.50% of the value of the average daily net assets up to and including assets of $100 million; plus 0.45% of the average daily net assets over $100 million up to and including $500 million; and plus 0.40% of the average daily net assets over $500 million.] -------------------------------------------------------------------------------- FEE LIMITATIONS California Investment Trust Funds: To the extent that the gross operating costs and expenses of each Fund (excluding any extraordinary expenses, such as litigation) exceed 1.00% of that Fund's average daily net asset value for any one fiscal year, the Adviser shall reimburse that Fund for the amount of such excess expenses. Appendix B-14 APPENDIX C AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION AMONG CALIFORNIA INVESTMENT TRUST, A MASSACHUSETTS BUSINESS TRUST, CALIFORNIA INVESTMENT TRUST II, A MASSACHUSETTS BUSINESS TRUST, AND [CALIFORNIA INVESTMENT TRUST], A A DELAWARE STATUTORY TRUST This Agreement and Plan of Reorganization (this "Agreement") is made as of this [ ] day of [ ], 2006 by and among California Investment Trust ("CIT") and California Investment Trust II ("CIT II"), each a Massachusetts business trust (each a "MA-Trust" and collectively, the "MA-Trusts"), and [California Investment Trust], a Delaware statutory trust (the "DE-Trust") (the MA-Trusts and the DE-Trust are hereinafter collectively referred to as the "parties"). In consideration of the mutual promises contained herein, and intending to be legally bound, the parties hereto agree as follows: 1. Plan of Reorganization. (a) Upon satisfaction or wavier of the conditions precedent described in Section 3 hereof, each MA-Trust, on behalf of itself and each of its respective separately designated series, as listed on Exhibit A hereto (collectively, the "MA-Funds"), will convey, transfer and deliver to the DE-Trust, on behalf of each of its separately designated series (collectively, the "DE-Funds") (each of which corresponds to the MA-Fund with the same name, as set forth in Exhibit A), at the closing provided for in Section 2 (hereinafter referred to as the "Closing"), all of each MA-Trust's then-existing assets, including the assets of each MA-Fund (the "Assets"). In consideration thereof, the DE-Trust, on behalf of each DE-Fund, agrees at the Closing (i) to assume and pay when due all obligations and liabilities of the corresponding MA-Fund (including such MA-Fund's pro rata portion of any obligation and liability of the corresponding MA-Trust), existing on or after the Effective Date of the Reorganization (as defined in Section 2 hereof), whether absolute, accrued, contingent or otherwise, including all fees and expenses in connection with this Agreement, which fees and expenses shall, in turn, include, without limitation, costs of legal advice, accounting, printing, mailing, proxy solicitation and transfer taxes, if any (collectively, the "Liabilities"), such Liabilities to become the obligations and liabilities of the corresponding DE-Fund; and (ii) to deliver to the corresponding MA-Trust, on behalf of each MA-Fund, in accordance with paragraph (b) of this Section 1, full and fractional shares of each class of shares of beneficial interest, without par value, of the corresponding DE-Fund, equal in number to the number of full and fractional shares of the corresponding class of shares of beneficial interest, no par value, of that MA-Fund outstanding at the close of business on the business day immediately preceding the Effective Date of the Reorganization. The reorganizations contemplated hereby are each intended to qualify as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). The MA-Trusts, on behalf of each MA-Fund, shall distribute to the MA-Funds' shareholders the shares of the corresponding DE-Funds in accordance with this Agreement and the resolutions of the Board of Trustees of each MA-Trust (each individually and together, the "Board of Trustees") authorizing the transactions contemplated by this Agreement. Appendix C-1 (b) In order to effect the delivery of shares described in Section 1(a)(ii) hereof, the DE-Trust will establish an open account on the records of the DE-Funds for each shareholder of the corresponding MA-Funds and, on the Effective Date of the Reorganization, will credit to such account full and fractional shares of beneficial interest, without par value, of the appropriate class of the DE-Funds equal to the number of full and fractional shares of beneficial interest such shareholder holds in the corresponding class of the corresponding MA-Funds at the close of business on the business day immediately preceding the Effective Date of the Reorganization. At the close of business on the business day immediately preceding the Effective Date of the Reorganization, the net asset value per share of each class of shares of each DE-Fund shall be deemed to be the same as the net asset value per share of the corresponding class of shares of the corresponding MA-Funds. On the Effective Date of the Reorganization, each certificate representing shares of a class of an MA-Fund will be deemed to represent the same number of shares of the corresponding class of the corresponding DE-Fund, provided, however, new certificates representing DE-Trust shares will not be issued to shareholders. Simultaneously with the crediting of the shares of the DE-Funds to the shareholders of record of the corresponding MA-Funds, the shares of the MA-Funds held by such shareholders shall be cancelled. (c) As soon as practicable after the Effective Date of the Reorganization, each MA-Trust shall take all necessary steps under Massachusetts business trust law to effect a complete dissolution of such MA-Trust. (d) The expenses of entering into and carrying out this Agreement will be borne by the MA-Trusts in such proportion that the net assets of each MA-Trust bears to the total net assets of both MA-Trusts. 2. Closing and Effective Date of the Reorganization. The Closing shall consist of (i) the conveyance, transfer and delivery of the Assets to the DE-Trust, on behalf of the DE-Funds, in exchange for the assumption and payment, when due, by the DE-Trust, on behalf of the DE-Funds, of the Liabilities of the corresponding MA-Funds; and (ii) the issuance and delivery of the DE-Funds' shares in accordance with Section 1(b), together with related acts necessary to consummate such transactions. The Closing shall occur either on (a) the business day immediately following the later of the receipt of all necessary regulatory approvals and the final adjournment of the meeting of shareholders of each MA-Trust at which this Agreement is considered and approved, or (b) such later date as the parties may mutually agree ("Effective Date of the Reorganization"). Solely for purposes of subsection (a) above, the effectiveness of one or more post-effective amendments to each MA-Trust's Registration Statement as described below in Section 3(b)(i) shall not be deemed to be a necessary regulatory approval. 3. Conditions Precedent. The obligations of the MA-Trusts and the DE-Trust to effectuate the transactions hereunder shall be subject to the satisfaction of each of the following conditions, unless waived by the parties: Appendix C-2 (a) Such authority and orders from the U.S. Securities and Exchange Commission (the "Commission") and state securities commissions as may be necessary to permit the parties to carry out the transactions contemplated by this Agreement shall have been received; (b) (i) One or more post-effective amendments to each MA-Trust's Registration Statement on Form N-lA ("Registration Statement") under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (the "1940 Act"), containing such amendments to such Registration Statement as are determined by the officers of each Trust to be necessary and appropriate as a result of this Agreement, shall have been filed with the Commission; (ii) the DE-Trust shall have adopted as its own such Registration Statement, as so amended; (iii) the most recent post-effective amendment or amendments to each MA-Trust's Registration Statement shall have become effective, and no stop order suspending the effectiveness of the Registration Statement shall have been issued, and no proceeding for that purpose shall have been initiated or threatened by the Commission (other than any such stop order, proceeding or threatened proceeding which shall have been withdrawn or terminated); and (iv) for each MA-Trust, an amendment of the Form N-8A Notification of Registration filed pursuant to Section 8(a) of the 1940 Act ("Form N-8A") reflecting the change in legal form of such MA-Trust to a Delaware statutory trust shall have been filed with the Commission and the DE-Trust shall have expressly adopted each such amended Form N-8A as its own for purposes of the 1940 Act; (c) Each party shall have received legal opinion(s), to the effect that, assuming the reorganization contemplated hereby is carried out in accordance with this Agreement and the laws of the State of Delaware, and in accordance with customary representations provided by the parties in a certificate(s) delivered to counsel, the reorganizations contemplated by this Agreement each qualify as a "reorganization" under Section 368 of the Code, and thus will not give rise to the recognition of income, gain or loss for federal income tax purposes to the MA-Funds, the DE-Funds or the shareholders of the MA-Funds or the DE-Funds; (d) Each MA-Trust shall have received legal opinion(s), dated the Effective Date of the Reorganization, addressed to and in form and substance reasonably satisfactory to the MA-Trusts, to the effect that (i) the DE-Trust is a statutory trust duly formed, validly existing, and in good standing under the laws of the State of Delaware; (ii) this Agreement and the transactions contemplated thereby and the execution and delivery of this Agreement have been duly authorized and approved by all requisite statutory trust action of the DE-Trust and this Agreement, assuming due execution and delivery by the DE-Trust, is a legal, valid and binding agreement of the DE-Trust, enforceable in accordance with its terms; and (iii) the shares of the DE-Trust to be issued in the reorganization have been duly authorized and, upon issuance thereof in accordance with this Agreement, will have been validly issued and fully paid and will be nonassessable by the DE-Trust; (e) The DE-Trust shall have received legal opinion(s), dated the Effective Date of the Reorganization, addressed to and in form and substance reasonably satisfactory to the DE-Trust, to the effect that: (i) each MA-Trust is validly existing and is in good standing under the laws of the Commonwealth of Massachusetts; (ii) each MA-Trust is an open-end investment company of the management type registered under the 1940 Act; and (iii) this Agreement and the transactions contemplated hereby and the execution and delivery of this Agreement have been duly authorized and approved by all requisite business trust action of each MA-Trust and this Agreement, assuming due execution and delivery by the MA-Trusts, is a legal, valid and binding agreement of each MA-Trust, enforceable against each MA-Trust in accordance with its terms; Appendix C-3 (f) The shares of the DE-Funds are eligible for offering to the public in those states of the United States and jurisdictions in which the shares of the corresponding MA-Funds are currently eligible for offering to the public so as to permit the issuance and delivery by the DE-Trust, on behalf of the DE-Funds, of the shares contemplated by this Agreement to be consummated; (g) This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by the appropriate action of the Board of Trustees and the shareholders of the MA-Trusts; (h) The shareholders of each MA-Trust shall have voted to direct the corresponding MA-Trust to vote, and each MA-Trust shall have voted, as the initial shareholders of each class of the DE-Trust, to: (1) Elect as Trustees of the DE-Trust the following individuals: Messrs. Stephen C. Rogers, James W. Miller, Jr., Harry Holmes and John B. Sias [and Kevin T. Kogler and Stephen H. Sutro]; (2) Approve an Investment Advisory Agreement between CCM Partners ("CCM") and the DE-Trust which is substantially identical to the then-current Investment Advisory Agreement, as amended to date, between CCM and CIT, on behalf of each of its respective series; (3) Approve an Investment Advisory Agreement between CCM and the DE-Trust, which is substantially identical to the then-current Investment Advisory Agreement, as amended to date, between CCM and CIT II, on behalf of each of its respective series; (i) The Trustees of the DE-Trust shall have duly adopted and approved this Agreement and the transactions contemplated hereby and shall have taken the following actions at a meeting duly called for such purposes: (1) Approval of the Investment Advisory Agreements described in paragraphs (h)(2) and (3) of this Section 3 between CCM and the DE-Trust; (2) Approval of the assignment to the DE-Trust of the Custody Agreement, dated January 3, 2005, as amended to date, among CIT, CIT II and U.S. Bank National Association; (3) Selection of Tait, Weller & Baker LLP as the DE-Trust's independent auditors for the fiscal year ending August 31, 2006; Appendix C-4 (4) Approval of the assignment to the DE-Trust of the Fund Accounting and Services Agreement, dated December 3, 2004, among CIT, CIT II and ALPS Mutual Funds Services, Inc.; (5) Approval of the assignment to the DE-Trust of the Transfer Agency and Service Agreement, dated December 3, 2004, among CIT, CIT II and ALPS Mutual Funds Services, Inc.; (6) Approval of the assignment to the DE-Trust of the Underwriting Agreement between CIT and RFS Partners; (7) Approval of the assignment to the DE-Trust of the Underwriting Agreement between CIT II and RFS Partners; (8) Approval of the assignment to the DE-Trust of the Restated Fund Administration Servicing Agreement between CIT and CCM; (9) Approval of the assignment to the DE-Trust of the Restated Fund Administration Servicing Agreement between CIT II and CCM; (10) Approval of the assignment to the DE-Trust of (a) the Distribution Plan of CIT II pursuant to Rule 12b-1 under the 1940 Act; and (b) the Rule 18f-3 Plan of CIT II; (11) Authorization of the issuance by the DE-Trust, on behalf of each DE-Fund, prior to the Effective Date of the Reorganization, of one share of each series of shares of beneficial interest of each DE-Fund to the corresponding MA-Trust, on behalf of the corresponding MA-Fund, in consideration for the payment of $1.00 for each such share for the purpose of enabling each MA-Trust to vote on the matters referred to in paragraph (h) of this Section 3, it being agreed that each such share issued shall be redeemed immediately prior to the consummation of the Reorganization; (12) Submission of the matters referred to in paragraph (h) of this Section 3 to the MA-Trusts as initial shareholders of each class of each DE-Fund; and (13) Authorization of the issuance and delivery by the DE-Trust, on behalf of each DE-Fund, of shares of the DE-Funds on the Effective Date of the Reorganization and the assumption by the DE-Funds of the Liabilities of the corresponding MA-Funds in exchange for the Assets of the corresponding MA-Funds pursuant to the terms and provisions of this Agreement. At any time prior to the Closing, any of the foregoing conditions may be waived or amended, or any additional terms and conditions may be fixed, in the discretion of the management or the Board of Trustees of either MA-Trust or the management or Board of Trustees of the DE-Trust. Appendix C-5 4. Dissolution of the MA-Trusts. Promptly following the consummation of the distribution of each class of shares of the DE-Funds to holders of the corresponding class of shares of the corresponding MA-Funds under this Agreement, the officers of each MA-Trust shall take all steps necessary under Massachusetts business trust law to dissolve its business trust status, including publication of any necessary notices to creditors. 5. Termination. The Board of Trustees of either MA-Trust may terminate this Agreement and abandon the reorganization contemplated hereby, notwithstanding approval thereof by the shareholders of the MA-Trusts, at any time prior to the Effective Date of the Reorganization if, in the judgment of such Board, the facts and circumstances make proceeding with this Agreement inadvisable. 6. Entire Agreement. This Agreement embodies the entire agreement between the parties hereto and there are no agreements, understandings, restrictions or warranties among the parties hereto other than those set forth herein or herein provided for. 7. Further Assurances. The MA-Trusts and the DE-Trust shall each take such further action as may be reasonably requested by another party or necessary or desirable and proper to consummate the transactions contemplated hereby. 8. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 9. Governing Law. This Agreement and the transactions contemplated hereby shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. [Remainder of page intentionally left blank] Appendix C-6 IN WITNESS WHEREOF, the MA-Trusts and the DE-Trust have each caused this Agreement and Plan of Reorganization to be executed on its behalf by its duly authorized representatives, all as of the day and year first-above written. CALIFORNIA INVESTMENT TRUST, a Massachusetts business trust By __________________________________ Name: ________________________________ Title: CALIFORNIA INVESTMENT TRUST II, a Massachusetts business trust By __________________________________ Name: ________________________________ Title: [CALIFORNIA INVESTMENT TRUST], a Delaware statutory trust By____________________________________ Name: ________________________________ Title: _______________________________ Appendix C-7 Exhibit A Corresponds to: MA-Funds DE-Funds -------- -------- California Tax-Free Income Fund California Tax-Free Income Fund California Insured Intermediate Fund California Insured Intermediate Fund California Tax-Free Money Market Fund California Tax-Free Money Market Fund S&P 500 Index Fund S&P 500 Index Fund S&P MidCap Index Fund S&P MidCap Index Fund S&P SmallCap Index Fund S&P SmallCap Index Fund Equity Income Fund Equity Income Fund European Growth & Income Fund European Growth & Income Fund Nasdaq-100 Index Fund Nasdaq-100 Index Fund U.S. Government Securities Fund U.S. Government Securities Fund The United States Treasury Trust The United States Treasury Trust Short-Term U.S. Government Bond Fund Short-Term U.S. Government Bond Fund Appendix C-8 APPENDIX D A COMPARISON OF GOVERNING DOCUMENTS AND STATE LAW A COMPARISON OF GOVERNING DOCUMENTS AND STATE LAW A Comparison of: The Law Governing Delaware Statutory Trusts and The Charter Documents of California Investment Trust and California Investment Trust Under Such Law With The Law Governing Massachusetts Business Trusts and The Charter Documents of California Investment Trust and California Investment Trust II Under Such Law Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Governing Documents/ A Delaware statutory trust The Massachusetts business Governing Body (a "DST") is formed by a trusts, California governing instrument and Investment Trust and the filing of a California Investment certificate of trust with Trust II (collectively, the Delaware Secretary of the "MBT"), are created by State. The Delaware law filing a declaration of governing a DST is trust with the Secretary referred to in this of the Commonwealth of the comparison as the Commonwealth of "Delaware Act." Massachusetts and with the clerk of every city or town in Massachusetts where the trust has a usual place of business. A DST is an unincorporated The MBT is an association organized unincorporated association under the Delaware Act organized under the whose operations are Massachusetts statute governed by its governing governing business trusts instrument (which may (the "Massachusetts consist of one or more Statute") and is instruments). Its considered to be a hybrid, business and affairs are having characteristics of managed by or under the both corporations and direction of one or more common law trusts. The trustees (referred to MBT's operations are herein as the "trustees" governed by a trust or the "board"). instrument and by-laws. The business and affairs of the MBT are managed by or under the direction of a board of trustees (referred to herein as the "trustees" or "the board"). If a DST is, becomes, or will become, prior to or within 180 days following its first issuance of beneficial interests, a registered investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), such DST is not required to have a trustee who is a resident of Delaware or who has a principal place of business in Delaware; provided that notice that the DST is or will become such a registered investment company is set forth in the DST's certificate of trust and the DST has a registered office and a registered agent for service of process in Delaware. Appendix D-1 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- The governing instrument The governing instrument for the DST, California for the MBT, California Investment Trust (the "DE Investment Trust and Trust"), is comprised of California Investment an agreement and Trust II (collectively, declaration of trust (the the "Trust"), is comprised "DE Declaration") and of an Amended Declaration by-laws (the "DE of Trust (the "MA By-Laws"). The DE Trust's Declaration") and Amended governing body is the By-Laws (the "MA board. By-Laws"). Any and all references to the MA Declaration and the MA By-Laws shall be deemed to apply equally to the respective Amended Declaration of Trust and Amended By-Laws of both California Investment Trust and California Investment Trust II. The Trust's governing body is a board of trustees. Each trustee of the DE The MA Declaration Trust holds office for the provides that, except in lifetime of the DE Trust the event of resignation or until such trustee's or removal (as described earlier death, below), each trustee shall resignation, removal, hold office until the next retirement or inability meeting of shareholders otherwise to serve, or, if and until his successor is sooner than any such elected and qualified to events, until the next serve as trustee. meeting of shareholders called for the purpose of electing trustees, or consent of shareholders in lieu thereof for the election of trustees, and until the election and qualification of his or her successor. Designation of Under the Delaware Act, Under the Massachusetts Ownership Shares or the ownership interests in Statute, the ownership Interests a DST are denominated as interests in the MBT are "beneficial interests" and denominated as "beneficial are held by "beneficial interests" and are held by owners." However, there "beneficial owners." is flexibility as to how a However, there is governing instrument flexibility as to how a refers to "beneficial governing instrument interests" and "beneficial refers to "beneficial owners" and the governing interests" and "beneficial instrument may identify owners" and the governing "beneficial interests" and instrument may identify "beneficial owners" as "beneficial interests" and "shares" and "beneficial owners" as "shareholders," "shares" and "shareholders," respectively. respectively. The DE Trust's beneficial The Trust's beneficial interests, without par interests, without par value, are designated as value, are designated as "shares" and its "shares" and its beneficial owners are beneficial owners are designated as designated as "shareholders." This "shareholders." This comparison will use the comparison will use the "share" and "shareholder" "share" and "shareholder" terminology. terminology. Appendix D-2 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Series and Classes Under the Delaware Act, The Massachusetts Statute the governing instrument is largely silent as to may provide for classes, the MBT's ability to issue groups or series of one or more series or shares, shareholders or classes of beneficial trustees, having such interests or any relative rights, powers requirements for the and duties as set forth in creation of such series or the governing instrument. classes, although the Such classes, groups or trust documents creating series may be created in the MBT may provide the DST's governing methods or authority to instrument or otherwise in create such series or the manner provided in the classes without seeking governing instrument. No shareholder approval. state filing is necessary and, unless required by the governing instrument, shareholder approval is not needed. Except to the extent otherwise provided in the governing instrument of a DST, where the DST is a registered investment company under the 1940 Act, any class, group or series of shares established by the governing instrument shall be a class, group or series preferred as to distributions or dividends over all other classes, groups or series with respect to assets specifically allocated to such class, group or series as contemplated by Section 18 (or any amendment or successor provision) of the 1940 Act and any regulations issued thereunder. The DE Declaration The MA Declaration authorizes the board to authorizes an unlimited divide the DE Trust's number of shares, which shares into separate and may be further divided distinct series and to into separate series or divide a series into classes. The MA separate classes of shares Declaration also provides as permitted by the that the trustees, in Delaware Act. Such series their discretion, may and classes will have the authorize the issuance of rights, powers and duties multiple series or set forth in the DE classes, and the different Declaration unless series or classes shall be otherwise provided in established and resolutions of the board designated, and the with respect to such variations in the relative series or class. The rights and preferences as board may classify or between the different reclassify any unissued series or classes shall be shares or any shares of fixed and determined by the DE Trust or any series the trustees, provided or class, that were that all shares shall be previously issued and are identical except that reacquired, into one or there may be variations so more series or classes fixed and determined that may be established between different series and designated from time or classes as to to time. investment objective, purchase price, rights of redemption and the price, terms and manner of redemption, special and relative rights as to dividends and on liquidation, conversion rights, conditions under which the several series or classes shall have separate voting rights or no voting rights, and such other matters, as the trustees deem appropriate. The trustees may classify or reclassify any unissued shares or any shares previously issued and reacquired of any series or class into one or more other series, or one or more other classes that may be established and designated from time to time. Appendix D-3 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- The DE Declaration The MA Declaration provides that the provides that the establishment and establishment and designation of any series designation of any series or class shall be or class of shares shall effective, without the be effective upon the requirement of shareholder execution by a majority of approval, upon the the then trustees of an adoption of a resolution instrument setting forth by not less than a such establishment and majority of the then board designation and the of trustees, which relative rights and resolution shall set forth preferences of such such establishment and series, or as otherwise designation and may provided in such provide, to the extent instrument. At any time permitted by the Delaware that there are no shares Act, for rights, powers outstanding of any and duties of such series particular series or class or class (including previously established and variations in the relative designated, the trustees rights and preferences as may, by an instrument between the different executed by majority of series and classes) their number, abolish that otherwise than as provided series or class and the in the DE Declaration. establishment and The board has approved designation thereof. resolutions that, together with the DE Declaration and the DE By-Laws, provide the shareholders of each series and class of the DE Trust with substantially the same rights, powers and duties, as the shareholders of the corresponding series and class of the Trust. Assets and Liabilities Assets and Liabilities The DE Declaration also The MA Declaration provides that each series provides that all of the DE Trust shall be consideration received by separate and distinct from the Trust for the issue or any other series of the DE sale of shares of a Trust, and each class of a particular series, series shall be separate together with all assets and distinct from any in which such other class of the consideration is invested series. The DE Trust or reinvested, all income, shall maintain separate earnings, profits and and distinct records on proceeds thereof, the books of the DE Trust including any proceeds for each series and each derived from the sale, class of a series. The DE exchange or liquidation of Trust shall hold and such assets, and any funds account for the assets and or payments derived from liabilities belonging to any reinvestment of such any such series separately proceeds in whatever form from the assets and the same may be, shall liabilities of the DE irrevocably belong to that Trust or any other series series for all purposes, and shall hold and account subject only to the rights for the liabilities of creditors of such belonging to any such series, and shall be so class of a series recorded upon the books of separately from the account of the Trust. In liabilities of the DE the event that there are Trust, the series or any any assets, income, other class of the earnings, profits, and series. If any assets or proceeds thereof, funds, liabilities which are not or payments which are not readily identifiable as readily identifiable as assets or liabilities of a belonging to any particular series, then particular series, the the board, or an trustees or their delegate appropriate officer as shall allocate them among determined by the board, any one or more of the shall allocate such assets series established and or liabilities to, between designated from time to or among any one or more time in such manner and on of the series in such such basis as the manner and on such basis trustees, in their sole as the board, in its sole discretion, deem fair and discretion, deems fair and equitable. Each such equitable. Each such allocation by the trustees allocation by or under the or their delegate shall be direction of the board conclusive and binding shall be conclusive and upon the shareholders of binding upon the all series for all shareholders of all series purposes. No holder of for all purposes. shares of any series shall Liabilities, debts, have any claim on or right obligations, costs, to any assets allocated or charges, reserves and belonging to any other expenses related to the series. The assets distribution of, and other belonging to each identified expenses that particular series shall be should properly be charged with the allocated to, the shares liabilities of the Trust of a particular class may allocated to that series be charged to and borne and all expenses, costs, solely by such class. The charges and reserves bearing of expenses solely attributable to that by a particular class of series which are not shares may be readily identifiable as appropriately reflected in belonging to any (in a manner determined by particular class, and any the board), and may affect general liabilities, the net asset value expenses, costs, charges attributable to, and the or reserves of the Trust dividend, redemption and which are not readily liquidation rights of, identifiable as belonging such class. Each to any particular series allocation of liabilities, shall be allocated and debts, obligations, costs, charged by the trustees or charges, reserves and their delegate to and expenses by or under the among any one or more of direction of the board the series. All persons shall be conclusive and extending credit to, binding upon the contracting with, or shareholders of all having any claim against a classes for all purposes. particular series of the Trust shall look only to the assets of that particular series for payment of such credit, contract or claim. Appendix D-4 Dividends and Distributions Dividends and Distributions The DE Declaration The MA Declaration provides that no dividend provides that each holder or distribution, of shares of a series or including, without class thereof shall be limitation, any entitled to receive his distribution paid upon pro rata share of dissolution of the DE distributions of income Trust or of any series, and capital gains made nor any redemption of, the with respect to such shares of any series or series or class net of class of such series shall liabilities, expenses, be effected by the DE costs, charges and Trust other than from the reserves belonging and assets held with respect allocated to such series to such series, nor, or class. The MA except as specifically Declaration also provides provided in the DE that dividends and Declaration, shall any distributions on shares of shareholder of any a particular series or particular series class thereof may be paid otherwise have any right or credited in such manner or claim against the and with such frequency as assets held with respect the trustees may determine to any other series or the as long as consistent with DE Trust generally, the MA Declaration, which except, in the case of a may be daily or otherwise, right or claim against the pursuant to a standing assets held with respect resolution or resolutions to any other series, to adopted only once or with the extent that such such frequency as the shareholder has such a trustees may determine, to right or claim under the the holders of shares of DE Declaration as a that series or class, from shareholder of such other such of the income and series. The DE capital gains, accrued or Declaration provides that realized, from the assets dividends and belonging to that series, distributions on shares of as the trustees may a particular series or determine, after providing class may be paid or for actual and accrued credited in such manner liabilities belonging to and with such frequency as that series or class or the trustees may after retaining such determine, which may be amounts as the trustees daily or otherwise, may deem desirable to use pursuant to a standing in the conduct of the resolution or resolutions Trust's current or future adopted only once or with business requirements. such frequency as the All dividends and trustees may determine, to distributions on shares of the holders of shares of a particular series or that series or class, from class shall be distributed such of the income or pro rata to the holders of capital gains, accrued or that series or class in realized, from the assets proportion to the number belonging to that series, of shares of that series as the trustees may or class held by such determine, after providing holders at the date and for actual and accrued time of record established liabilities belonging to for the payment of such that series or class or dividends or after retaining such distributions. Appendix D-5 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- amounts as the trustees may deem desirable to use in the conduct of the DE Trust's current or future business requirements. All dividends and distributions on shares of a particular series or class shall be distributed pro rata to the holders of that series or class in proportion to the number of shares of that series or class held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure the trustees may determine that no dividend or distribution shall be payable on shares as to which the shareholder's purchase order and/or payment have not been received by the time or times established by the trustees under such program or procedure. Such dividends and distributions may be made in cash or shares or a combination thereof as determined by the trustees or pursuant to any program that the trustees may have in effect at the time for the election by each shareholder of the mode of the making of such dividend or distribution to that shareholder. Any such dividend or distribution paid in shares will be paid at the net asset value thereof determined in accordance with the provisions of the DE Declaration. The dividends and distributions of investment income and capital gains with respect to shares of a class shall be in such amount as may be declared from time to time by the trustees, and such dividends and distributions may vary between the classes to reflect differing allocations of the expenses of the DE Trust between the classes to such extent and for such purposes as the trustees deem appropriate. Before payment of any dividend there may be set aside out of any funds of the DE Trust, or the applicable series, available for dividends such sum or sums as the board may from time to time, in its absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the DE Trust, or any series, or for such other lawful purpose as the board shall deem to be in the best interests of the DE Trust, or the applicable series, as the case may be, and the board may abolish any such reserve in the manner in which it was created. Appendix D-6 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Amendments to The Delaware Act provides The Massachusetts Statute Governing Documents broad flexibility as to provides broad flexibility the manner of amending as to the manner of and/or restating the amending or restating the governing instrument of a governing instrument of DST. Amendments to the DE the MBT. The Declaration that do not Massachusetts Statute change the information in provides that the trustees the DST's certificate of shall, within thirty (30) trust are not required to days after the adoption of be filed with the Delaware any amendment to the Secretary of State. declaration of trust, file a copy with the Secretary of the Commonwealth of the Commonwealth of Massachusetts and with the clerk of every city or town in Massachusetts where the Trust has a usual place of business. Declaration of Trust Declaration of Trust Under Article IX of the DE The MA Declaration may be Declaration, the DE amended by any instrument Declaration may be in writing signed by a restated and/or amended at majority of the trustees. any time by approval (i) by vote of the shareholders in accordance with Article III, Section 6 and Article V of the DE Declaration; or (ii) by vote of not less than a majority of the board at a properly convened meeting or by an instrument in writing signed by not less than a majority of the board; provided that, to the extent that the DE Declaration, the 1940 Act or the requirements of any securities exchange on which shares are listed for trading, requires, in addition to, or apart from, such approval by action of the board, approval of such restatement rights with respect to any shares of the DE Trust by reducing the amount payable thereon upon the liquidation of the DE Trust or by diminishing or eliminating any voting rights pertaining to reducing the amount payable thereon upon liquidation, except with the vote or consent of the holders of two-thirds of the shares outstanding and entitled to vote. Appendix D-7 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- By-Laws By-Laws The DE By-Laws may be The MA By-Laws may be amended, restated or altered, amended or repealed or new by-laws repealed, or new by-laws may be adopted by the may be adopted (a) by a affirmative vote of a Majority Shareholder Vote majority of the (as that term is defined outstanding shares in the 1940 Act), or (b) entitled to vote. The DE by the trustees, provided, By-Laws may also be however that no MA By-Law amended, restated or may be amended, adopted or repealed or new by-laws repealed by the trustees may be adopted by the if such amendment, board, by a vote of not adoption or repeal less than a majority of requires, pursuant to law, the trustees present at a the MA Declaration or the meeting at which a quorum MA By-Laws, a vote of is present. shareholders. Certificate of Trust Pursuant to the DE Declaration, amendments and/or restatements of the certificate of trust shall be made at any time by the board, without approval of the shareholders, to conform the certificate of trust to any amendment in the DE Declaration or DE By-laws or to correct any inaccuracy contained therein. Any such amendments/restatements of the certificate of trust must be executed by at least one (1) trustee and filed with the Delaware Secretary of State in order to become effective. Preemptive Rights Under the Delaware Act, a The MA Statute contains no and Redemption of governing instrument may specific provision with Shares contain any provision respect to the rights, relating to the rights, duties or obligations of duties and obligations of shareholders. the shareholders. Unless otherwise provided in the governing instrument, a shareholder shall have no preemptive right to subscribe to any additional issue of shares or another interest in a DST. The DE Declaration The MA Declaration provides that no provides that the shares shareholder shall have the of the Trust do not preemptive or other right entitle the holder thereof to subscribe for new or to preference, preemptive, additional shares or other appraisal, conversion or securities issued by the exchange rights, except as DE Trust or any series the trustees may determine thereof. with respect to any series of shares. Unless otherwise provided All shares of the Trust in the DE Trust's are redeemable at the prospectus relating to the redemption price outstanding shares, as determined in the manner such prospectus may be set forth in the MA amended from time to time, Declaration. the DE Trust shall purchase the outstanding shares offered by any shareholder for redemption upon such shareholder's compliance with the procedures set forth in the DE Declaration and/or such other procedures as the board may authorize. The DE Trust shall pay the net asset value for such outstanding shares offered for redemption (excluding any applicable redemption fee or sales charges), in accordance with the DE Declaration, the DE By-Laws, the 1940 Act and other applicable law. The DE Trust will pay shareholders for such redemption of shares within seven days after the date the redemption request is received in proper form and/or compliance with such other procedures authorized by the board; provided, that if payment is made other than exclusively in cash, any securities to be delivered as part of such payment shall be delivered as promptly as any necessary transfers of such securities on the books of the several corporations whose securities are to be delivered practicably can be made, which may not necessarily occur within such seven-day period. The DE Trust is not liable for any delay of any corporation or other person in transferring such securities. Appendix D-8 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- The DE Trust's obligations to redeem shares may be suspended or postponed by the board (i) during any time the New York Stock Exchange (the "Exchange") is closed for other than weekends or holidays; (ii) if permitted by the rules of the U.S Securities and Exchange Commission ("SEC"), during periods when trading on the Exchange is restricted; or (iii) during any National Financial Emergency (as defined in the DE Declaration). The board may, in its discretion, terminate the suspension relating to a National Financial Emergency, as the case may be, on the first business day on which the Exchange reopens or the period specified above expires (as to which, in the absence of an official ruling by the SEC, the determination of the board is conclusive). The DE Trust's payments for redemption of such outstanding shares shall be made in cash, but may, at the option of the board or an authorized officer, be made in kind or partially in cash and partially in kind. For any payment in kind, the board, or its authorized officers, will have absolute discretion as to what security or securities of the DE Trust or the applicable series shall be distributed in kind and the amount of the same; and the securities shall be valued for purposes of distribution at the value at which they were appraised in computing the then current net asset value of the shares, provided that any shareholder who cannot legally acquire securities so distributed in kind by reason of the prohibitions of the 1940 Act or the provisions of the Employee Retirement Income Security Act of 1974, as amended, or any other applicable law, shall receive cash. Shareholders shall bear the expenses of in-kind transactions. Appendix D-9 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- In addition, at the option of the board, the DE Trust may, from time to time, without the vote of the shareholders, but subject to the 1940 Act, redeem outstanding shares or authorize the closing of any shareholder account, subject to such conditions as may be established by the board. Dissolution and The DE Trust shall be The Trust must be Termination Events dissolved upon the first terminated (i) by the to occur of the affirmative vote of the following: (i) upon the holders of not less than vote of the holders of not two-thirds of the shares less than a majority of outstanding of each Series the shares of the DE Trust entitled to vote at any entitled to vote; (ii) at meeting of shareholders; the discretion of the or (ii) by the trustees by board at any time there written notice to the are no shares outstanding shareholders. of the DE Trust or upon at least thirty days' prior written notice to the shareholders of the DE Trust; (iii) upon the sale, conveyance and transfer of all of the assets of the DE Trust to another entity; or (iv) upon the occurrence of a dissolution or termination event pursuant to any provision of the DE Declaration or the Delaware Act. A particular series shall be dissolved upon the first to occur of the following: (i) upon the vote of the holders of not less than a majority of the shares of that series entitled to vote; (ii) at the discretion of the board at any time there are no shares outstanding of that series or upon at least thirty days' prior written notice to the shareholders of such series; (iii) upon the occurrence of a dissolution or termination event for that series pursuant to any provision of the DE Declaration or the Delaware Act; or (iv) upon any event that causes the dissolution of the DE Trust. A particular class shall be terminated upon the first to occur of the following: (i) upon the vote of the holders of not less than a majority of the outstanding shares of that class entitled to vote; (ii) at the discretion of the board at any time there are no shares outstanding of that class; or (iii) upon the dissolution of the series of which the class is a part. Appendix D-10 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Liquidation upon Under the Delaware Act, a The Massachusetts Statute Dissolution or DST that has dissolved does not contain specific Termination shall first pay or make provisions with respect to reasonable provision to the liquidation upon pay all known claims and dissolution or termination obligations, including of the MBT. those that are contingent, conditional and unmatured, and all known claims and obligations for which the claimant is unknown. Any remaining assets shall be distributed to the shareholders or as otherwise provided in the governing instrument. Under the Delaware Act, a series that has dissolved shall first pay or make reasonable provision to pay all known claims and obligations of the series, including those that are contingent, conditional and unmatured, and all known claims and obligations of the series for which the claimant is unknown. Any remaining assets of the series shall be distributed to the shareholders of such series or as otherwise provided in the governing instrument. The DE Declaration The MA Declaration provides that any provides that, upon remaining assets of the termination of the Trust, dissolved DE Trust and/or after paying or otherwise each series thereof (or providing for all charges, the particular dissolved taxes, expenses and series, as the case may liabilities belonging, be) shall be distributed severally, to each Series, to the shareholders of the the Trust shall, in DE Trust and/or each accordance with such series thereof (or the procedures as the Trustees particular dissolved consider appropriate, series, as the case may reduce the remaining be) ratably according to assets belonging to each the number of shares of Series to distributable the DE Trust and/or such form in cash or shares or series thereof (or the other securities, or any particular dissolved combination thereof, and series, as the case may distribute the proceeds be) held of record by the belonging to each Series several shareholders on to the Shareholders of the date for such that Series, as a Series, dissolution distribution; ratably according to the provided, however, that if number of shares of that the outstanding shares of Series held by the several a series are divided into Shareholders on the date classes, any remaining of termination. assets held with respect to such series shall be distributed to each class of such series according to the net asset value computed for such class and within such particular class, shall be distributed ratably to the shareholders of such class according to the number of shares of such class held of record by the several shareholders on the date for such dissolution distribution. Appendix D-11 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Voting Rights, Under the Delaware Act, The Massachusetts Statute Meetings, Notice, the governing instrument does not contain specific Quorum, Record Dates may set forth any provisions with respect to and Proxies provision relating to the voting rights of the trustee and shareholder shareholders of the MBT. voting rights, including the withholding of such rights from certain trustees or shareholders. If voting rights are granted, the governing instrument may contain any provision relating to meetings, notice requirements, written consents, record dates, quorum requirements, voting by proxy and any other matter pertaining to the exercise of voting rights. The governing instrument may also provide for the establishment of record dates for allocations and distributions by the DST. The DE Declaration The MA Declaration provides that, subject to provides that shareholders its Article III, Section shall have power to vote 6, the shareholders shall only with respect to the have the power to vote following matters: (i) only (i) on such matters election of trustees; (ii) required by the DE termination of the Trust Declaration, the DE as provided in the MA By-Laws, the 1940 Act, Declaration; (iii) other applicable law and mergers, consolidations, any registration statement sales or disposition of of the DE Trust, the all of the assets of the registration of which is Trust; (iv) to the same effective; and (ii) on extent as the stockholders such other matters as the of a California business board may consider corporation as to whether necessary or desirable. or not to initiate or maintain certain derivative or class actions on behalf of the Trust or its shareholders; and (v) other matters as required by the MA Declaration, the MA By-laws, the 1940 Act or any registration of the Trust with the SEC, or as the trustees may consider necessary or desirable. Until shares are issued, the trustees may exercise all rights of shareholders and may take any action required by law, the MA Declaration or the MA By-Laws to be taken by shareholders. One Vote Per Share One Vote Per Share Subject to Article III, The MA Declaration Section 6 of the DE provides that each whole Declaration relating to share shall be entitled to voting by series and one vote as to any matter classes, the DE on which it is entitled to Declaration provides that vote and each fractional each share is entitled to share shall be entitled to one vote and each a proportionate fractional fractional share is vote, except that shares entitled to a fractional held in the treasury of vote. the Trust shall not be voted and that the trustees may, in conjunction with the establishment of any series of shares, establish conditions under which the several series shall have separate voting rights or no voting rights. Appendix D-12 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Voting by Series or Class Voting by Series or Class In addition, the DE The MA Declaration Declaration provides that provides that all Shares all shares of the DE Trust of the Trust entitled to entitled to vote on a vote on a matter shall matter shall vote on the vote separately by matter, separately by Series. That is, the series and, if applicable, Shareholders of each by class, provided that: Series shall have the (i) where the 1940 Act right to approve or requires all shares of the disapprove matters DE Trust to be voted in affecting each respective the aggregate without Series as if the differentiation between Series were separate the separate series or companies. There are classes, then all of the however two exceptions DE Trust's shares shall to voting by separate vote in the aggregate; and Series. First if the 1940 (ii) if any matter affects Act requires all Shares only the interests of some of the Trust to be voted but not all series or in the aggregate without classes, then only the differentiation between shareholders of such the separate Series or affected series or classes where the matter is a shall be entitled to vote Trust-wide matter on the matter. affecting the Trust such as the election of Trustees, then all the Trust's Shares shall be entitled to vote on a one-vote-per-Share basis. Second, if any matter affects only the interests of some but not all Series, then only such affected Series shall be entitled to vote on the matter. Shareholders' Meetings Shareholders' Meetings The Delaware Act does not The MA Statute does not mandate annual mandate that the MBT hold shareholders' meetings. annual shareholders' meetings. The DE By-Laws authorize The MA By-Laws do not the calling of a address a requirement that shareholders' meeting by the trustees have a the board, the chairperson meeting of the of the board, the shareholders. In the president or any event that the trustees, vice-president of the DE the chairman of the Trust for the purpose of trustees, or the president (i) taking action upon any determine to have a matter deemed by the board meeting of the to be necessary or shareholders, it shall be desirable, including, but held at such place within not limited to, electing or without the trustees or removing one Commonwealth of or more trustees; or (ii) Massachusetts on such day taking action upon any and at such time as the matter requested by trustees shall designate, shareholders at the provided that proper request of the notice is given to shareholders holding not shareholders. Special less than ten percent of meetings of shareholders the shares; provided that, are not addressed in the the board, in its sole MA By-Laws. discretion, has approved the call and holding of such shareholders' meeting that is requested by shareholders; and provided further that, a shareholders' meeting for the purpose of electing trustees, or removing one or more trustees, shall be called by the president or any vice-president of the DE Trust at the request of the shareholders holding not less than ten percent of the shares. Any shareholders' meeting called at the request of shareholders shall be called and held, provided that, in the sole discretion of the board, such shareholders pay the reasonably estimated cost of preparing and mailing the notice thereof. However, no meeting may be called at the request of shareholders to consider any matter that is substantially the same as a matter voted upon at a shareholders' meeting held during the preceding twelve months, unless requested by holders of a majority of all shares entitled to be voted at such meeting. Appendix D-13 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- The DE By-Laws provide The MA By-Laws further that notice of any meeting provide that notice of all of shareholders shall be meetings of shareholders, given to each shareholder stating the date, time, entitled to vote at such and place of the meeting meeting in accordance with and the general nature of Article II, Section 4 of the business to be the DE By-Laws not less transacted at the meeting, than ten nor more than one shall be given either hundred and twenty days personally or by before the date of the first-class mail or meeting. The notice shall telegraphic or other specify (i) the place, written communication, date and hour of the charges prepaid, to each meeting, and (ii) the shareholder at the address general nature of the of that shareholder business to be transacted appearing on the books of and to the extent required the Trust or its transfer by the 1940 Act, the agent or given by the purpose or purposes shareholder to the Trust thereof. If any notice for the purpose of addressed to a notice. Notice shall be shareholder, at the deemed given if no such address on record with the address appears for the DE Trust, is returned to shareholder on the Trust's the DE Trust marked to books or is given. If a indicate the notice cannot notice is returned by the be delivered at that postal service as address, all future undeliverable, all future notices or reports shall notices shall be deemed to be deemed to have been have been duly given duly given without further without further mailing. mailing, or substantial All notices shall be sent equivalent thereof, if or otherwise given not such notices shall be less than seven (7) nor available to the more than seventy-five shareholder on written (75) days before the date demand of the shareholder of the meeting. If action at the offices of the DE is proposed to be taken at Trust. any meeting for approval of a financial interest, amendment of the MA Declaration, reorganization of the Trust, or voluntary dissolution of the Trust, the notice shall also state the general nature of that proposal. In addition, the name of any trustee nominee to be elected at a meeting shall be given in the notice. The MA By-Laws further provide that the transactions of a meeting of shareholders, however called and noticed and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present either in person or by proxy and if either before or after the meeting each person entitled to vote who was not present in person or by proxy signs a written waiver of notice or a consent to a holding of the meeting or an approval of the minutes. In general, except for objection at the meeting, attendance by a person at a meeting shall also constitute a waiver of notice of that meeting. Appendix D-14 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Record Dates Record Dates As set forth above, the The Massachusetts Statute Delaware Act authorizes does not contain a the governing instrument specific provision that of a DST to set forth any addresses the record dates provision relating to of meetings of record dates. shareholders of the MBT. In order to determine the shareholders entitled to notice of, and to vote at, a shareholders' meeting, the DE Declaration authorizes the board to fix a record date. The record date may not precede the date on which it is fixed by the board and it may not be more than one hundred and twenty days nor less than ten days before the date of the shareholders' meeting. The DE By-Laws provide that notice of a shareholders' meeting shall be given to shareholders entitled to vote at such meeting not less than ten nor more than one hundred and twenty days before the date of the meeting. To determine the shareholders entitled to vote on any action without a meeting, the DE Declaration authorizes the board to fix a record date. The record date may not precede the date on which it is fixed by the board nor may it be more than ninety days after the date on which the resolution fixing the record date is adopted by the board. Pursuant to the DE Declaration, if the board does not fix a record date: (i) the record date for determining shareholders entitled to notice of, and to vote at, a meeting will be the day before the date on which notice is given or, if notice is waived, on the day before the date of the meeting; and (ii) the record date for determining shareholders entitled to vote on any action by consent in writing without a meeting, (a) when no prior action by the board has been taken, shall be the day on which the first signed written consent is delivered to the DE Trust, or (b) when prior action of the board has been taken, shall be the day on which the board adopts the resolution taking such prior action. Appendix D-15 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- To determine the shareholders of the DE Trust or any series or class thereof entitled to a dividend or any other distribution of assets of the DE Trust or any series or class thereof (other than in connection with a merger, consolidation, conversion, or reorganization, which is governed by Article VIII of the DE Declaration), the DE Declaration authorizes the board (i) to fix a record date, which may not precede the date on which it is fixed by the board nor may it be more than sixty days before the date such dividend or distribution is to be paid; (ii) to adopt standing resolutions fixing record dates and related payment dates at periodic intervals of any duration; and/or (iii) to delegate to an appropriate officer or officers the determination of such periodic record and/or payment dates for such dividends and/or distributions. The board may set different record dates for different series or classes. The MA By-Laws provide that shareholders entitled to vote at any meeting of shareholders or to vote or entitled to give consent to action with a meeting shall be determined in accordance with the provisions of the MA Declaration, as in effect at such time. For purposes of determining the shareholders entitled to vote, the trustees may fix in advance a record date which shall not be more than seventy-five (75) days nor less than seven (7) days before the date of any such meeting as provided in the MA Declaration. If the trustees do not so fix a record date, the record date shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; however, the record date for determining shareholders entitled to give consent to action in writing without a meeting, when no prior action by the trustees has been take, shall be the day on which the first written consent is given or, when prior action of the trustees has been taken, shall be at the close of business on the day on which the trustees adopt the resolution relating to that action or the seventy-fifty day before the date of such other action, whichever is later. Appendix D-16 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Quorum for Shareholders' Quorum for Shareholders' Meeting Meeting To transact business at a The MA Declaration shareholders' meeting, the provides that except where DE Declaration provides a larger quorum is that a majority of the required by applicable shares entitled to vote at law, the presence at a the meeting, which are shareholder meeting in present in person or person or by proxy of represented by proxy, forty percent (40%) of the shall constitute a quorum shares entitled to vote at at such meeting, except the Meeting on a matter when a larger quorum is constitutes a quorum with required by the DE respect to that matter. Declaration, the DE By-Laws, applicable law or any securities exchange on which such shares are listed for trading, in which case such quorum shall comply with such requirements. When a separate vote by one or more series or classes is required, a majority of the shares of each such series or class entitled to vote at a shareholders' meeting of such series or class, which are present in person or represented by proxy, shall constitute a quorum at such series or class meeting, except when a larger quorum is required by the DE Declaration, the DE By-Laws, applicable law or the requirements of any securities exchange on which outstanding shares of such series or class are listed for trading, in which case such quorum shall comply with such requirements. Shareholder Vote Shareholder Vote The DE Declaration The MA Declaration provides that, subject to provides that except when any provision of the DE a larger vote is required Declaration, the DE by any provision of the MA By-Laws, the 1940 Act or Declaration, the MA other applicable law that By-Laws or applicable law requires a different vote: (i) in all matters other (i) in all matters other than the election of than the election of trustees, a majority of trustees, the affirmative the shares voted at a "vote of a majority of the shareholders' meeting at outstanding voting which a quorum is present, securities" (as defined in shall decide any the 1940 Act) of the DE questions; and (ii) Trust entitled to vote at trustees shall be elected a shareholders' meeting at by a plurality of the which a quorum is present, votes except. Pursuant to shall be the act of the the MA Declaration, where shareholders; and (ii) a separate vote by series trustees shall be elected and, if applicable, by by not less than a class is required, the plurality of the votes preceding sentence shall cast of the holders of apply to such separate shares entitled to vote votes by series and class. present in person or represented by proxy at a shareholders' meeting at which a quorum is present. Pursuant to the DE Declaration, where a separate vote by series and, if applicable, by class is required, the preceding sentence shall apply to such separate votes by series and class. Appendix D-17 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Shareholder Vote on Shareholder Vote on Certain Transactions Certain Transactions Pursuant to the DE The MA Declaration Declaration, the board, by provides that the Trust vote of a majority of the may merge or consolidate trustees, may cause the with any other merger, consolidation, corporation, association, conversion, share exchange trust or other or reorganization of the organization or may sell, DE Trust, or the lease or exchange all or conversion, share exchange substantially all of the or reorganization of any Trust property, including series of the DE Trust, its goodwill, upon such without the vote of the terms and conditions and shareholders of the DE for such consideration Trust or such series, as when and as authorized at applicable, unless such any meeting of vote is required by the shareholders called for 1940 Act; provided the purpose by the however, that the board affirmative vote of a shall provide at least majority of the holders of thirty days' prior written not less than two-thirds notice to the shareholders of the shares outstanding of the DE Trust or such and entitled to vote, or series, as applicable, of by an instrument or such merger, instruments in writing consolidation, conversion, without a meeting, share exchange or consented to by the reorganization. holders of not less than two-thirds of such shares, or by such other vote as If permitted by the 1940 may be established by the Act, the board, by vote of trustees with respect to a majority of the any series of shares; trustees, and without a provided, however, that, shareholder vote, may if such merger, cause the DE Trust or any consolidation, sale, lease one or more series to or exchange is recommended convert to a master feeder by the trustees, the vote structure and thereby or written consent of the cause series of the DE holders of a majority of Trust to either become shares outstanding and feeder funds into a master entitled to vote, or by fund, or to become master such other vote as may be funds into which other established by the funds are feeder funds. trustees with respect to any series of shares, shall be sufficient authorization; and any such merger, consolidation, sale, lease or exchange shall be deemed for all purposes to have been accomplished under and pursuant to the statutes of the Commonwealth of Massachusetts. The MA Declaration provides that with the approval of the holders of a majority of the shares outstanding and entitled to vote, or by such other vote as may be established by the trustees with respect to any series of shares, the trustees may cause to be organized or assist in organizing a corporation or corporations under the laws of any jurisdiction or any other trust, partnership, association or other organization to take over all of the Trust property or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, convey and transfer the Trust property to any such corporation, trust, association or organization in exchange for the shares or securities thereof or otherwise, and to lend money to, subscribe for the shares or securities of, and enter into any contracts with any such corporation, trust, partnership, association or organization in which the Trust holds or is about to acquire shares or any other interest. The trustees may also cause a merger or consolidation between the Trust or any successor thereto and any such corporation, trust, partnership, association or other organization if and to the extent permitted by law, as provided under the law then in effect. The MA Declaration also provides that nothing contained therein shall be construed as requiring approval of shareholders for the trustees to organize or assist in organizing one or more corporations, trusts, partnerships, associations or other organizations and selling, conveying or transferring a portion of the trust property to such organization or entities. Appendix D-18 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Cumulative Voting Cumulative Voting The DE Declaration The MA Declaration provides that shareholders provides that there shall are not entitled to be no cumulative voting in cumulative voting in the the election of trustees. election of trustees or on any other matter. Proxies Proxies Under the Delaware Act, The MA Statute does not unless otherwise provided contain specific in the governing provisions with respect to instrument of a DST, on the shareholders of the any matter that is to be MBT voting by proxy. voted on by the trustees or the shareholders, the trustees or shareholders (as applicable) may vote in person or by proxy and such proxy may be granted in writing, by means of "electronic transmission" (as defined in the Delaware Act) or as otherwise permitted by applicable law. Under the Delaware Act, the term "electronic transmission" is defined as any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process. The DE By-Laws permit a The MA By-Laws provide shareholder to authorize that every person entitled another person to act as to vote for trustees or on proxy by the following any other matter shall methods: execution of a have the right to do so written instrument or by either in person or by one "electronic transmission" or more agents authorized (as defined in the by a written proxy signed Delaware Act), telephonic, by the person and filed computerized, with the Secretary of the telecommunications or Trust. A proxy shall be another reasonable deemed signed if the alternative to the shareholder's name is execution of a written placed on the proxy by the instrument. Unless a shareholder or the proxy expressly provides shareholder's otherwise, it is not valid attorney-in-fact. A more than eleven months validly executed proxy after its date. In which does not state that addition, the DE By-Laws it is irrevocable shall provide that the continue in full force and revocability of a proxy effect unless (i) revoked that states on its face by the person executing it that it is irrevocable before the vote pursuant shall be governed by the to that proxy by a writing provisions of the General delivered to the Trust Corporation Law of the stating that the proxy is State of Delaware. revoked or by a subsequent proxy executed by or attendance at the meeting and voting in person by the person executing that proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the Trust before the vote pursuant to that proxy is counted; provided however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of the California General Corporation Law. Appendix D-19 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Action by Written Consent Action by Written Consent Under the Delaware Act, The MA Declaration does unless otherwise provided not contain specific in the governing provisions with respect to instrument of a DST, on action taken by written any matter that is to be consent of the voted on by the trustees shareholders or the or the shareholders, such trustees of the MBT. action may be taken without a meeting, without prior notice and without a vote if a written consent(s), setting forth the action taken, is (are) signed by the trustees or shareholders (as applicable) having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all trustees or interests in the DST (as applicable) entitled to vote on such action were present and voted. Unless otherwise provided in the governing instrument, a consent transmitted by "electronic transmission" (as defined in the Delaware Act) by a trustee or shareholder (as applicable) or by a person(s) authorized to act for a trustee or shareholder (as applicable) will be deemed to be written and signed for this purpose. Appendix D-20 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Shareholders. The DE Shareholders. The MA Declaration authorizes By-Laws provide that any shareholders to take action which may be taken action without a meeting at any meeting of if a written consent (s) shareholders may be taken setting forth the action without a meeting and taken is (are) signed by without prior notice if a the holders of a majority consent in writing setting of the shares entitled to forth the action so taken vote on that action (or is signed by the holders such different proportion of outstanding shares thereof as shall be having not less than the required by law, the DE minimum number of votes Declaration or the DE that would be necessary to By-laws for approval of authorize or take that such action.) A consent action at a meeting at transmitted by "electronic which all shares entitled transmission" (as defined to vote on that action in the Delaware Act) by a were present and voted. shareholder or by a person(s) authorized to act for a shareholder shall be deemed to be written and signed for purposes of this provision. Board of Trustees. The DE Board of Trustees. The MA Declaration also By-Laws provide that any authorizes the board or action required or any committee of the board permitted to be taken at to take action without a any meeting of the meeting and without prior trustees may be taken by written notice if a the trustees without a written consent(s) setting meeting if a majority of forth the action taken is the trustees shall (are) executed by trustees individually or having not less than the collectively consent in minimum number of votes writing to that action. necessary to take that Such action by written action at a meeting at consent shall have the which the entire board or same force and effect as a any committee thereof, as majority vote of the applicable, is present and trustees. voting. A consent transmitted by "electronic transmission" (as defined in the Delaware Act) by a trustee shall be deemed to be written and signed for purposes of this provision. Removal of Trustees The governing instrument The MA Statute does not of a DST may contain any contain specific provision relating to the provisions with respect to removal of trustees; the removal of the provided however, that trustees of the MBT. there shall at all times be at least one trustee of the DST. Under the DE Declaration, The MA Declaration any trustee may be provides that any of the removed, with or without trustees may be removed cause, (i) by the board, (provided the aggregate by action of a majority of number of trustees after the trustees then in such removal shall not be office; or (ii) by less than the number shareholders at any required by the MA meeting called for that Declaration) with cause, purpose. by the action of two-thirds of the remaining trustees. Vacancies on Board The DE By-Laws provide The MA Declaration of Trustees that vacancies on the provides that the term of board may be filled by not office of a trustee shall less than a majority vote terminate and a vacancy of the trustee(s) then in shall occur in the event office, regardless of the of the death, resignation, number and even if less removal, bankruptcy, than a quorum. However, a adjudicated incompetence shareholders' meeting or other incapacity to shall be called to elect perform the duties of the trustees if required by office of a trustee. No the 1940 Act. such vacancy shall operate to annul the MA In the event all trustee Declaration or to revoke offices become vacant, an any existing agency authorized officer of the created pursuant to the investment adviser that terms of the MA has the greatest amount of Declaration. In the case assets of the DE Trust of an existing vacancy, under management shall including a vacancy serve as the sole existing by reason of an remaining trustee increase in the number of (effective upon the trustees, subject to the vacancy in office of the provisions of Section last trustee) and shall, 16(a) of the 1940 Act, the as soon as practicable, remaining trustees shall fill all of the vacancies fill such vacancy by the on the board; provided appointment of such other that the percentage of person as they in their trustees who are discretion shall see fit, Disinterested Trustees (as made by a written defined in the DE By-Laws) instrument signed by a shall be no less than that majority of the trustees. required by the 1940 Act. Any such appointment shall Upon the qualification of not become effective, the trustees, the however, until the person authorized officer of the named in the written investment adviser shall instrument of appointment resign as trustee and a shall have accepted in shareholders' meeting writing such appointment shall be called, as and agreed in writing to required by the 1940 Act, be bound by the terms of to elect trustees. the MA Declaration. An appointment of a trustee may be made in anticipation of a vacancy to occur at a later date by reason of retirement, resignation or increase in the number of trustees, provided that such appointment shall not become effective prior to such retirement, resignation or increase in the number of trustees. Appendix D-21 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Whenever a vacancy in the Whenever a vacancy in the board shall occur, until number of trustees shall such vacancy is filled or occur, until such vacancy the number of authorized is filled in the manner trustees constituting the provided in the MA board is decreased Declaration, the trustees pursuant to the DE in office, regardless of Declaration, the their number, shall have trustee(s) then in office, all the powers granted to regardless of the number the trustees and shall and even if less than a discharge all the duties quorum, shall have all the imposed upon the trustees board's powers and shall by the MA Declaration. A discharge all the board's written instrument duties as though such certifying the existence number constitutes the of such vacancy signed by entire board. a majority of the trustees shall be conclusive evidence of the existence of such vacancy. Shareholder Liability Under the Delaware Act, The Massachusetts Statute except to the extent does not include an otherwise provided in the express provision relating governing instrument of a to the limitation of DST, shareholders of a DST liability of the are entitled to the same beneficial owners of the limitation of personal MBT. Therefore, the liability extended to owners of the MBT could shareholders of a private potentially be liable for corporation organized for the obligations of the profit under the General MBT, notwithstanding any Corporation Law of the express provision in the State of Delaware (such governing instrument shareholders are generally stating that the not liable for the beneficial owners are not obligations of the personally liable in corporation). connection with trust property or the acts, obligations or affairs of the MBT. Under the DE Declaration, The MA Declaration shareholders are entitled provides that no to the same limitation of shareholder shall be personal liability as that subject to any personal extended to shareholders liability whatsoever to of a private corporation any persons in connection organized for profit under with Trust property or the the General Corporation acts, obligations or Law of the State of affairs of the Trust. If Delaware. However, the any shareholder, as such, board may cause any is made a party to any shareholder to pay for suit or proceeding to charges of the DE Trust's enforce any such custodian or transfer, liability, he shall not, dividend disbursing, on account thereof, be shareholder servicing or held to any personal similar agent for services liability. The Trust provided to such shall indemnify and hold shareholder by setting off each shareholder harmless such amount due from such from and against all shareholder from the claims and liabilities, to amount of (i) declared but which such shareholder may unpaid dividends or become subject by reason distributions owed such of his being or having shareholder, or (ii) been a shareholder, and proceeds from the shall reimburse such redemption by the DE Trust shareholder for all legal of shares from such and other expenses shareholder pursuant to reasonably incurred by him Article VI of the DE in connection with any Declaration. such claim or liability. The rights accruing to a shareholder under the MA Declaration shall not exclude any other right to which such shareholder may be lawfully entitled, nor shall anything therein contained restrict the right of the Trust to indemnify or reimburse a shareholder in any appropriate situation even though not specifically provided for therein. Appendix D-22 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Trustee/Agent Subject to the provisions The Massachusetts Statute Liability in the governing does not include an instrument, the Delaware express provision limiting Act provides that a the liability of the trustee or any other trustees of the MBT. The person appointed, elected trustees of the MBT could or engaged to manage the potentially be held DST, when acting in such personally liable for the capacity, will not be obligations of the MBT. personally liable to any person other than the DST or a shareholder of the DST for any act, omission or obligation of the DST or any trustee. To the extent that at law or in equity, a trustee has duties (including fiduciary duties) and liabilities to the DST and its shareholders, such duties and liabilities may be expanded or restricted by the governing instrument. The DE Declaration The MA Declaration provides that any person provides that no trustee, who is or was a trustee, officer, employee or agent officer, employee or other of the Trust shall be agent of the DE Trust or subject to any personal is or was serving at the liability whatsoever to request of the DE Trust as any person, other than the a trustee, director, Trust or its shareholders, officer, employee or other in connection with Trust agent of another property or the affairs of corporation, partnership, the Trust, save only that joint venture, trust or arising from bad faith, other enterprise (an willful misfeasance, gross "Agent"), when acting in negligence or reckless the Agent's capacity as disregard for his duty to such, will be liable to such person; and all such the DE Trust and to any persons shall look solely shareholder solely for to the Trust property for such Agent's own willful satisfaction of claims of misfeasance, bad faith, any nature arising in gross negligence or connection with the reckless disregard of the affairs of the Trust. If duties involved in the any trustee, officer, conduct of such Agent employee or agent, as (such conduct referred to such, of the Trust is made as "Disqualifying a party to any suit or Conduct"). Subject to the proceeding to enforce any preceding sentence, (i) a such liability, he shall trustee shall not be not, on account thereof, liable for errors of be held to any personal judgment or mistakes of liability. fact or law; and (ii) an Agent will not be liable The MA Declaration further for any act, omission, provides that no trustee, neglect or wrongdoing of officer, employee or agent any other Agent or any of the Trust shall be officer, employee, liable to the Trust, its consultant, investment shareholders, or to any adviser, principal shareholder, trustee, underwriter, officer, employee, or administrator, fund agent thereof for any accountant or accounting action or failure to act agent, custodian, and/or (including without transfer, dividend limitation the failure to disbursing or shareholder compel in any way any servicing agent of the DE former or acting trustee Trust. No Agent, when to redress any breach of acting in such capacity, trust) except for his own shall be personally liable bad faith, willful to any person (other than misfeasance, gross the DE Trust or its negligence or reckless shareholders as described disregard of his duties. Appendix D-23 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- above) for any act, omission or obligation of the DE Trust or any trustee of the DE Trust. The trustees, officers and employees of the DE Trust may rely on the advice of counsel or experts as described in the DE Declaration. No officer or trustee shall be liable for any act or omission in accordance with such advice and no inference concerning liability shall arise from a failure to follow such advice. Indemnification Subject to such standards Although the Massachusetts and restrictions, if any, Statute is silent as to contained in the governing the indemnification of instrument of a DST, the trustees, officers and Delaware Act authorizes a shareholders, DST to indemnify and hold indemnification is harmless any trustee, expressly provided for in shareholder or other the MA Declaration. person from and against any and all claims and demands. Pursuant to the DE The MA Declaration Declaration, the DE Trust provides that every person will indemnify any trustee who is, or has been a or officer who was or is a trustee or officer of the party or is threatened to Trust shall be indemnified be made a party to any by the Trust against all proceeding by reason of liability and against all the fact that such trustee expenses reasonably or officer is or was a incurred or paid by him in trustee or officer against connection with any claim, attorneys' fees and action, suit or proceeding certain other expenses, in which he becomes judgments, fines, involved as a party or settlements and other otherwise by virtue of his amounts incurred in being or having been a connection with such trustee or officer and proceeding if such trustee against amounts paid or or officer acted in good incurred by him in the faith or in the case of a settlement thereof. The criminal proceeding, had words "claim," "action," no reasonable cause to "suit," or "proceeding" believe such trustee's or shall apply to all claims, officer's conduct was actions, suits or unlawful. However, there proceedings (civil, is no right to criminal, or other; indemnification for any including appeals), actual liability arising from the or threatened; and the trustee's or officer's words "liability" and Disqualifying Conduct, and "expenses" shall include, in accordance therewith, without limitation, no indemnification shall attorneys' fees, costs, be provided to a trustee judgments, amounts paid in or officer (i) against any settlement, fines, liability to the DE Trust penalties and other or its shareholders by liabilities. reason of a final adjudication by the court or other body before which the proceeding was brought that the trustee or officer engaged in Disqualifying Conduct, (ii) with respect to any matter as to which shall have been finally adjudicated not to have acted in good faith or in Appendix D-24 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- the reasonable belief that the trustee's or officer's action was in, or not opposed to, the best interest of the DE Trust, or (iii) in the event of a settlement or other disposition not involving a final adjudication resulting in payment by the trustee or officer, unless there has been either a determination that such trustee or officer did not engage in Disqualifying Conduct (a) by the court or other body approving the settlement or other disposition or by a reasonable determination, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that he did not engage in such conduct; (b) by written opinion of independent legal counsel; or (c) by vote of a majority of the Disinterested Trustees of the DE Trust acting on the matter (provided that a majority of such trustees then in office act on the matter). The DE Declaration also provides that, as used in Article VII, a trustee or officer shall include such Person's heirs, executors and administrators. The DE Declaration provides that nothing contained in Article VII of the DE Declaration shall affect any right to indemnification to which Persons (as defined in the DE Declaration) may be entitled by contract, to the extent not inconsistent with applicable law, or otherwise under law, and notwithstanding any provision to the contrary in the DE Declaration, any contract between the DE Trust and any independent contractor that is or may be deemed an Agent, as a consequence of providing services or products to the DE Trust pursuant to such contract, shall take precedence over the provisions of Article VII and govern with respect to (i) the liability of such independent contractor to the DE Trust, any shareholder or any other Person, (ii) the indemnification of, or advancement of expenses to, such independent contractor by the DE Trust, and (iii) any other contractual rights or obligations of such independent contractor under such contract to the extent that the provisions of, and the rights and obligations under, such contract are in conflict with, or are not addressed by, the provisions of Article VII. Appendix D-25 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Expenses incurred by an Expenses of preparation Agent in defending any and presentation of a proceeding may be advanced defense to any claim, by the DE Trust before the action, suit or proceeding final disposition of the of the character described proceeding on receipt of above shall be advanced by an undertaking by or on the Trust prior to final behalf of the Agent to disposition thereof upon repay the amount of the receipt of an undertaking advance if it is by or on behalf of the ultimately determined that recipient to repay such the Agent is not entitled amount if it is ultimately to indemnification by the determined that he is not DE Trust; provided that entitled to either (i) such indemnification under the undertaking is secured by MA Declaration, provided a surety bond or some that either (i) such other appropriate security undertaking is secured by or the DE Trust shall be a surety bond or some insured against losses other appropriate security arising out of any such or the Trust shall be advances, or (ii) a insured against losses majority of the arising out of any such Disinterested Trustees advances; or (ii) a acting on the matter majority of the (provided that a majority Disinterested Trustees of such trustees then in acting on the matter office act on the matter) (provided that a majority or independent legal of the Disinterested counsel in a written Trustees then in office opinion, shall determine, act on the matter) or an based upon a review of independent legal counsel readily available facts in a written opinion, (as opposed to a full shall determine, based trial-type inquiry), that upon a review of readily there is reason to believe available facts (as that the recipient opposed to a full ultimately will be found trial-type inquiry), that entitled to there is reason to believe indemnification. that the recipient ultimately will be found entitled to indemnification. A "Disinterested Trustee" As used herein, a for this purpose is one "Disinterested Trustee" is (i) who is not an one (i) who is an "Interested Person" of the "Interested Person" of the DE Trust (including anyone Trust (including anyone who has been exempted from who has been exempted from being an "Interested being an "Interested Person" by any rule Person" by any rule, regulation or order of the regulation or order of the SEC, and (ii) against whom SEC), and (ii) against none of such actions, suit whom none of such actions, or other proceeding on the suits or other proceedings same or similar grounds is or another action, suit or then or has been pending. other proceeding on the Note that the Securities same or similar grounds is Act of 1933, as amended, then or had been pending. in the opinion of the SEC, Note that the Securities and the 1940 Act also Act of 1933, as amended, limit the ability of the in the opinion of the SEC, DE Trust to indemnify and the 1940 Act also certain persons, including limit the ability of the trustees and officers. Trust to indemnify certain persons, including trustees and officers. Agents and employees of the DE Trust who are not trustees or officers of the DE Trust may be indemnified under the same standards and procedures described above, at the discretion of the trustees. An "Agent" for this purpose is any person who is or was an employee or other agent of the DE Trust or is or was serving at the request of the DE Trust as a trustee, director, officer, employee or other agent of another corporation, partnership, joint venture, trust or other enterprise. Appendix D-26 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Insurance The Delaware Act is silent The Massachusetts Statute as to the right of a DST does not contain specific to purchase insurance on provisions with respect to behalf of its trustees or the ability of the MBT to other persons. obtain insurance on behalf of its trustees or other persons. However, as the policy of The MA Declaration the Delaware Act is to provides that the rights give maximum effect to the of indemnification principle of freedom of provided for therein (as contract and to the described above) may be enforceability of insured against by governing instruments, the policies maintained by the DE Declaration authorizes Trust. the board, to the fullest extent permitted by The MA Declaration further applicable law, to provides that the trustees purchase with DE Trust shall, at all times, assets, insurance for maintain insurance for the liability and for all protection of the Trust's expenses of an Agent in property, its connection with any shareholders, trustees, proceeding in which such officers, employees and Agent becomes involved by agents in such amount as virtue of such Agent's the trustees shall deem actions, or omissions to adequate to cover possible act, in its capacity or tort liability, and such former capacity with the other insurance as the DE Trust, whether or not trustees in their sole the DE Trust would have judgment shall deem the power to indemnify advisable. such Agent against such liability. Shareholder Right of Under the Delaware Act, The Massachusetts Statute Inspection except to the extent does not contain specific otherwise provided in the provisions relating to governing instrument and shareholders' rights of subject to reasonable inspection. standards established by the trustees, each shareholder has the right, upon reasonable demand for any purpose reasonably related to the shareholder's interest as a shareholder, to obtain from the DST certain information regarding the governance and affairs of the DST. To the extent permitted by The MA By-Laws provide Delaware law and the DE that the MA By-Laws shall By-Laws, a shareholder, be open to inspection by upon reasonable written shareholders at all demand to the DE Trust for reasonable times during any purpose reasonably office hours at the related to such Trust's principal shareholder's interest as executive office. The a shareholder, may inspect minutes and accounting certain information as to books and records of the the governance and affairs Trust shall be open to of the DE Trust during inspection upon the regular business hours. written demand of any However, reasonable shareholder or holder of a standards governing, voting trust certificate without limitation, the at any reasonable time information and documents during usual business to be furnished and the hours for a purpose time and location of reasonably related to the furnishing the same, will holder's interests as a be established by the shareholder or as the board or, in case the holder of a voting trust board does not act, any certificate; the officer to whom such power inspection may be made in is delegated in the DE person or by an agent or By-Laws. In addition, as attorney. Financial and permitted by the Delaware income statements of the Act, the DE By-Laws also Trust shall be kept on authorize the board or, in file in the principal case the board does not executive office of the act, any officer to whom Trust for at least twelve such power is delegated in (12) months, and each such the DE By-Laws, to keep statement shall be confidential from exhibited at all shareholders for such reasonable times to any period of time as deemed shareholder demanding an reasonable any information examination of any such that the board or such statement, or a copy shall officer, as applicable, be mailed to any such reasonably believes to be shareholder. Appendix D-27 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- in the nature of trade secrets or other Chapter 156D, Section information that the board 16.02 of the Massachusetts or such officer, as General Laws provides that applicable, in good faith a shareholder of a believes would not be in Massachusetts business the best interests of the corporation, upon advance DE Trust to disclose or written notice of at least that could damage the DE five days, is generally Trust or that the DE Trust entitled to inspect and is required by law or by copy, during regular agreement with a third business hours at the party to keep confidential. office where they are maintained, copies of certain of the corporations books and records. However, certain records relating meetings of the boards, accounting records and shareholder records require that a shareholder satisfy certain conditions, including demonstrating a proper purpose for the request. Derivative Actions Under the Delaware Act, a The Massachusetts Statute shareholder may bring a does not contain specific derivative action if provisions addressing trustees with authority to derivative actions. do so have refused to bring the action or if a demand upon the trustees to bring the action is not likely to succeed. A shareholder may bring a derivative action only if the shareholder is a shareholder at the time the action is brought and: (i) was a shareholder at the time of the transaction complained about or (ii) acquired the status of shareholder by operation of law or pursuant to the governing instrument from a person who was a shareholder at the time of the transaction. A shareholder's right to bring a derivative action may be subject to such additional standards and restrictions, if any, as are set forth in the governing instrument. The DE Declaration provides that, subject to the requirements set forth in the Delaware Act, a shareholder(s) may bring a derivative action on behalf of the DE Trust only if the shareholder (s) first makes a pre-suit demand upon the board to bring the subject action unless an effort to cause the board to bring such action is excused. A demand on the board shall only be excused if a majority of the board, or a majority of any committee established to consider the merits of such action, has a material personal financial interest in the action at issue. A trustee shall not be deemed to have a material personal financial interest in an action or otherwise be disqualified from ruling on a shareholder demand by virtue of the fact that such trustee receives remuneration from his or her service on the board of the DE Trust or on the boards of one or more investment companies with the same or an affiliated investment adviser or underwriter. Appendix D-28 Delaware Statutory Trust Massachusetts Business Trust --------------------------- ---------------------------- Management The DE Trust, upon The Trust is an open-end Investment Company completion of the management investment Classification Reorganization, will be an company under the 1940 Act open-end management (i.e., a management investment company under investment company whose the 1940 Act (i.e., a securities are redeemable). management investment company whose securities are redeemable). Appendix D-29 APPENDIX E 5% SHAREHOLDERS As of February 28, 2006 the following shareholders, to the Trusts' knowledge, owned beneficially more than 5% of a Fund's outstanding shares, as noted. MONEY FUND: R. J. Fisher 2004 Family Trust (10.81%) DDF Y2K Family Trust (6.66%) J. & L. Fisher (6.59%) M. Tobin Trust (5.73%) P.O. Box 387 San Francisco, CA 94104 INSURED FUND: National Financial Services Corp. (14.08%) J. P. Young Trust (12.21%) 200 Liberty Street Lobby 5 W. Budge Non-Exempt QTIP Trust (5.63%) New York, NY 10281-5500 P.O. Box 387 San Francisco, CA 94104 TREASURY TRUST: W. Edwards Revocable Trust (8.62%) D. Fisher Charitable Remainder Trust (7.27%) P.O. Box 387 San Francisco, CA 94104 TREASURY TRUST - CLASS K: MBV Law (14.75%) University Games (8.25%) 855 Front St. 2030 Harrison Street San Francisco, CA 94111 San Francisco, CA 94110 SSL Law Firm (6.29%) Ceon Corporation (5.27%) 2755 Campus #245 1600 Seaport Blvd, Suite 160 San Mateo, CA. 94403 Redwood City, CA. 94063 Hearing and Speech Center of N. CA (10.01%) P.O. Box 387 San Francisco, CA 94104 SHORT-TERM GOVERNMENT FUND - CLASS K: Tarlton Properties, Inc. (30.07%) MBV Law (11.12%) 955 Alma Street 855 Front St. Palo Alto, CA. 94301-2405 San Francisco, CA 94111 Caltag Laboratories, Inc. (11.56%) JAE Properties, Inc. (5.79%) 1849 Old Bayshore Blvd, #200 191 Military East, Suite A Burlingame, CA 94010 Benicia, CA 94510
Appendix E-1 GOVERNMENT FUND - CLASS K: Tarlton Properties, Inc. (9.14%) Armer/Norman & Associates (6.01%) 955 Alma Street 4200 18th Street Palo Alto, CA. 94301-2405 San Francisco, CA. 94114 Kelly & Rossi (5.%) 1065 Hillsdale Blvd. #225 Foster City, CA 94404 S&P 500 FUND: SEI Trust (12.56%) Charles Schwab & Co. (10.10%) One Freedom Valley Drive 101 Montgomery Street Oaks, PA 19456 San Francisco, CA 94104
Appendix E-2 S&P 500 FUND - CLASS K: Tarlton Properties, Inc. (10.31%) Courtney Enterprises (5.74%) 955 Alma Street 800 S. Broadway, Suite 300 Palo Alto, CA. 94301-2405 Walnut Creek, CA 94596 University Games (5.58%) MBV Law (6.44%) 2030 Harrison Street 855 Front St. San Francisco, CA 94110 San Francisco, CA 94111 MIDCAP FUND: Charles Schwab & Co. (11.78%) SEI Trust (11.59%) 101 Montgomery Street One Freedom Valley Drive San Francisco, CA 94104 Oaks, PA 19456 Standard Insurance Co. (10.58%) National Financial Services Corp. (5.77%) 1100 SW Sixth Avenue 200 Liberty Street Lobby 5 Portland, OR 97204 New York, NY 10281-5500 MIDCAP FUND - CLASS K: Tarlton Properties, Inc. (14.14%) MBV Law (5.39%) 955 Alma Street 855 Front St. Palo Alto, CA. 94301-2405 San Francisco, CA 94111 Nth Power (5.54%) Paramount Elevator Corporation (5.86%) 50 California St. Suite 840 249 Fallon St. San Francisco, CA 94111 Oakland, CA 94607 Golden Gate Software (8.57%) Case Central.com, Inc. (5.77%) 301 Howard Street #2100 760 Market Street, Suite 200 San Francisco, CA. 94105 San Francisco, CA. 94102 EQUITY INCOME FUND: T. Abel IRA (8.82%) J. F. Cornuelle Trust (6.09%) P.O. Box 387 San Francisco, CA 94104 EQUITY INCOME FUND - CLASS K: Courtney Enterprises (8.56%) Golden Gate Software (7.30%) 800 S. Broadway, Suite 300 301 Howard Street #2100 Walnut Creek, CA 94596 San Francisco, CA. 94105
Appendix E-3 Kelly & Rossi (5.97%) Hearing and Speech Center of N. CA (5.25%) 1065 Hillsdale Blvd. #225 P.O. Box 387 Foster City, CA 94404 San Francisco, CA 94104 SMALLCAP FUND: Charles Schwab & Co. (10.92%) J. S. Newman (10.24%) 101 Montgomery Street P.O. Box 387 San Francisco, CA 94104 San Francisco, CA 94104 SMALLCAP FUND - CLASS K: Tarlton Properties, Inc. (11.02%) Paramount Elevator Corporation (5.65%) 955 Alma Street 249 Fallon St. Palo Alto, CA. 94301-2405 Oakland, CA 94607 Nth Power (6.65%) Case Central.com, Inc. (5.44%) 50 California St. Suite 840 760 Market Street, Suite 200 San Francisco, CA 94111 San Francisco, CA. 94102 Golden Gate Software (10.07%) 301 Howard Street #2100 San Francisco, CA. 94105 NASDAQ-100 FUND: Charles Schwab & Co. (28.48%) National Investor Services Corp. (5.06%) 101 Montgomery Street 55 Water Street, 32nd Floor San Francisco, CA 94104 New York, NY 10041-0028 N. E. Grenzebach (5.97%) P.O. Box 387 San Francisco, CA 94104
Appendix E-4 NASDAQ-100 FUND - CLASS K: Ceon Corporation (9.90%) Case Central.com, Inc. (8.67%) 1600 Seaport Blvd, Suite 160 760 Market Street, Suite 200 Redwood City, CA. 94063 San Francisco, CA. 94102 Bayrisk Insurance Brokers, Inc. (5.22%) Nth Power (6.37%) 920 Minturn St. 50 California St. Suite 840 Alameda, CA 94501 San Francisco, CA 94111 Golden Gate Software (10.27%) 301 Howard Street #2100 San Francisco, CA. 94105 EUROPEAN GROWTH & INCOME FUND: Doughtronics, Inc. (5.84%) MG Trust Company FBO Wild Brain inc. 401k Plan (5.84%) 2730 - 9th Street P.O. Box 387 Berkeley, CA 94710 San Francisco, CA 94104 EUROPEAN GROWTH & INCOME FUND - CLASS K: Golden Gate Software (8.35%) Nth Power (5.44 %) 301 Howard Street #2100 50 California St. Suite 840 San Francisco, CA. 94105 San Francisco, CA 94111 University Games (5.53%) Courtney Enterprises (5.19%) 2030 Harrison Street 800 S. Broadway, Suite 300 San Francisco, CA 94110 Walnut Creek, CA 94596 SHORT-TERM GOVERNMENT FUND: W. Edwards Revocable Trust (25.77%) Callan Family Trust (19.96%) P.O. Box 387 San Francisco, CA 94104
Appendix E-5 APPENDIX F FORM OF PROXY PROXY [Shareholder Name] [Title (if applicable)] [Address] [Fund Name] [Shares Held] CALIFORNIA INVESTMENT TRUST CALIFORNIA INVESTMENT TRUST II SPECIAL MEETING OF SHAREHOLDERS May 12, 2006 SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF CALIFORNIA INVESTMENT TRUST AND CALIFORNIA INVESTMENT TRUST II The undersigned hereby appoints Rodney D. Yee and Michael O'Callaghan, and each of them, as proxies of the undersigned, each with the power to appoint his substitute, for the Special Meeting of Shareholders of California Investment Trust and California Investment Trust II (each, a "Trust") and each series thereof (each, a "Fund") to be held on May 12, 2006, at the offices of ALPS Mutual Fund Services, Inc., the Funds' transfer agent and fund accountant, at 1625 Broadway, Suite 2200, Denver, Colorado, 80202, and at any and all adjournments thereof (the "Meeting"), to cast on behalf of the undersigned, as designated below, all votes the undersigned is entitled to cast at the Meeting and otherwise to represent the undersigned at the Meeting with all powers possessed by the undersigned if personally present at the Meeting. The undersigned hereby acknowledges receipt of the Notice of the Meeting and the accompanying Proxy Statement and revokes any proxy heretofore given with respect to such Meeting. Capitalized terms used without definition have the meanings given to them in the accompanying Proxy Statement. The votes entitled to be cast will be cast as instructed below. A SIGNED PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS LISTED BELOW UNLESS YOU HAVE SPECIFIED OTHERWISE. You may vote only if you held shares in the Fund at the close of business on February 28, 2006. Please sign, date and return this proxy promptly. Your signature authorizes the proxies to vote in their discretion on such other business as may properly come before the Meeting including, without limitation, all matters incident to the conduct of the Meeting. Please indicate your vote by an "x" in the appropriate box below. 1. To elect Trustees of the Trust. The nominees are: Stephen C. Rogers, Harry Holmes, John B. Sias, James W. Miller, Jr., Kevin T. Kogler and Stephen H. Sutro. Appendix F-1 To withhold authority to vote for an individual nominee, mark the "For All Except" box and strike a line through the nominee's name in the list above. For |_| Withhold |_| For All Except |_| 2. Approval of new investment advisory agreements between the Fund and CCM Partners, the investment adviser to the Fund. For |_| Withhold |_| Abstain |_| 3. Approval of Agreement and Plan of Reorganization that provides for the reorganization of each Trust from a Massachusetts business trust into a single Delaware statutory trust. For |_| Withhold |_| Abstain |_| 4. Transact such other business as may properly come before the Meeting. Dated: __________________, 2006 [Shareholder Name] Dated: __________________, 2006 [Signature(s) (if held jointly)] Please sign exactly as name or names appear on your shareholder account statement. When signing as attorney, trustee, executor, administrator, custodian, guardian or corporate officer, please give full title. If shares are held jointly, each shareholder should sign. Appendix F-2