SEC Company Response from CLEARWATER INVESTMENT TRUST (CIK 0000811161) — Apr 27, 2020
CLEARWATER INVESTMENT TRUST (CIK 0000811161)
Date: April 27, 2020 · CIK: 0000811161 · Accession: 0000897101-20-000275
AI Filing Summary & Sentiment
File numbers found in text: 811-05038
Letter
Division of Investment Management 100 F Street, NE Washington, D.C. 20549 Re: Clearwater Investment Trust (the “Registrant”), SEC File Numbers 033-12289 and 811-05038
Dear Ms. Rossotto:
This letter responds to the comments you provided to Antonio Fraone and me in a telephonic discussion on April 13, 2020 and in a subsequent discussion with me on April 24, 2020, with respect to your review of Post-Effective Amendment No. 57 (“PEA No. 57”) to the Registrant’s registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) on February 26, 2020. PEA No. 57 pertains to each series of the Registrant (each a “Fund” and collectively the “Funds”) and was filed pursuant to Rule 485(a) under the Securities Act of 1933 in connection with the annual update to the Funds’ registration statement. We have reproduced your comments below, followed by the Registrant’s responses. Capitalized terms have the meanings attributed to such terms in the registration statement.
1. Comment: Significant market events have occurred since this 485(a) was filed as a result of the COVID-19 pandemic. Please consider whether the disclosures with respect to the Funds, including risk disclosures, should be revised based on how these events are affecting the Funds and their investments. If the Registrant believes that no additional disclosure is warranted, please explain supplementally why not.
Response: Since filing the 485(a) filing, Registrant has updated the “Market Risk” disclosure throughout the registration statement. Please see Appendix A attached to this letter for the updated disclosure.
2. Comment: Several of the Funds include a separate line item for “Acquired Fund Fees and Expenses” in their “Annual Fund Operating Expenses” table but do not include disclosure relating to investments in other investment companies in their principal investment strategy sections. Specifically, the “Annual Fund Operating Expenses” table in the “Summary Section” for the Clearwater Core Equity Fund includes a line item for “Acquired Fund Fees and Expenses” but there is no corresponding disclosure in the Fund’s principal investment strategy section. Please add the appropriate disclosure or explain why it is not needed.
Response: Each of the Clearwater Tax-Exempt Bond Fund and the Clearwater International Fund report “Acquired Fund Fees and Expenses” in their respective “Annual Fund Operating Expenses” tables. The Registrant notes that the “Principal Investment Strategies” disclosure for the Clearwater Tax-Exempt Bond Fund and the Clearwater International Fund each include references to investments in other investment companies. Further, the Clearwater Core Equity Fund and the Clearwater Small Companies Fund do not report any “Acquired Fund Fees and Expenses” and do not intend to invest in other investment companies as part of their principal investment strategies. Registrant notes, however, that “Investing in Investment Companies and Other Pooled Investment Vehicles Risk” is included in the “Additional Risks of Investing in the Fund” section of the “Clearwater Core Equity Fund” and “Clearwater Small Companies Fund” sections of the Prospectus. Accordingly, the Registrant respectfully declines to make the requested change.
Karen Rossotto
Page 2
3. Comment: In the third paragraph of the “Principal Investment Strategies” section for the Clearwater Core Equity Fund, it is disclosed that AQR Capital Management, LLC, one of the Fund’s sub-advisers, will invest “under normal market conditions, at least 80% of the net assets, plus the amount of any borrowings for investment purposes, of the portion of the Fund it manages in equity or equity-related securities.” Please explain what is meant by “equity-related securities” and, if this includes derivatives, please disclose such derivatives with specificity. In this regard, the Staff notes that “Derivatives Risk” is listed as a principal risk and refers to futures contracts. The Staff notes that, for each principal risk, there should be corresponding strategy disclosure.
Response: The Registrant confirms that “equity-related securities” includes certain derivatives, such as futures contracts. Accordingly, the “Principal Investment Strategies” disclosure for the Clearwater Core Equity Fund has been revised as follows:
AQR’s strategy invests, under normal market conditions, at least 80% of the net assets, plus the amount of any borrowings for investment purposes, of the portion of the Fund it manages in equity or equity-related securities (including futures contracts).
The Registrant notes that the related risks are included under the heading “Derivatives Risk.” The Registrant confirms that it believes its principal risk disclosures reflect the principal risks associated with its principal investment strategies.
Karen Rossotto
Page 3
4. Comment: The “Principal Investment Strategies” disclosure for the Clearwater Small Companies Fund states that the Fund may invest in convertible securities. If the Fund invests in contingent convertible securities, please consider what, if any, disclosure is appropriate.
Response: The Clearwater Small Companies Fund invests a small portion (up to less than 1.5%) of its net assets in contingent convertible securities. The “Convertible Securities Risk” included in the “Risk Factors” section of the Statement of Additional Information has been revised as follows:
Convertible Securities Risk. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both debt and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. Convertible securities are usually subordinated to comparable nonconvertible securities. Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Although convertible securities provide for a stable stream of income, they are subject to the risk that their issuers may default on their obligations. Convertible securities also offer the potential for capital appreciation through the conversion feature, although there can be no assurance of capital appreciation because securities prices fluctuate.
Contingent convertible securities are subject to additional risk factors. A contingent convertible security is a hybrid debt security typically issued by a non-U.S. bank that may be convertible into equity or may be written down if a pre-specified trigger event such as a decline in capital ratio below a prescribed threshold occurs. If such a trigger event occurs, a Fund may lose the principal amount invested on a permanent or temporary basis or the contingent convertible security may be converted to equity. Coupon payments on contingent convertible securities may be discretionary and may be cancelled by the issuer. Holders of contingent convertible securities may suffer a loss of capital when comparable equity holders do not.
Karen Rossotto
Page 4
5. Comment: The Tax-Exempt Bond Fund’s principal investment strategy discloses that the Fund may invest in other investment companies and pooled investment vehicles (including closed-end funds). If the Fund invests in pooled investment vehicles other than closed-end funds, please specify the types.
Response: The Registrant confirms that the Clearwater Tax-Exempt Bond Fund does not invest in other pooled investment vehicles other than closed-end funds. Accordingly, the “Principal Investment Strategies” disclosure for the Clearwater Tax-Exempt Bond Fund has been revised as follows:
The Fund may invest in closed-end funds that invest in the same types of securities in which the Fund may invest directly.
6. Comment: The International Fund’s principal investment strategy discloses that the Fund does not intend to invest more than 20% of its net assets in the equity securities of developing or emerging market issuers, but now indicates that WCM Investment Management, LLC, one of the Fund’s sub-advisers, invests in equity securities or depositary receipts of small capitalization companies domiciled outside of the United States, including in emerging and frontier market countries. Please explain whether the 20% limit is still accurate for this Fund given the new language. In addition, please disclose how the Registrant defines “frontier markets.”
Response: Registrant confirms that the International Fund will not invest more than 20% of its net assets in the equity securities of developing or emerging market issuers. To define “frontier markets,” the Registrant uses the MSCI Frontier Markets 100 Index, which includes Bangladesh, Bahrain, Croatia, Jordan, Kenya, Kuwait, Kazakhstan, Sri Lanka, Morocco, Mauritius, Nigeria, Oman, Pakistan, Romania, Slovenia and Vietnam as of April 2020.
The “Principal Investment Strategies” disclosure for the International Fund in the Prospectus has been revised as follows:
Under normal market conditions, the Fund intends to invest at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of companies organized or located outside the United States and doing a substantial amount of business outside the United States. Equity securities in which the Fund invests include common and preferred stock, sponsored and unsponsored American Depositary Receipts, European Depositary Receipts, and Global Depositary Receipts, and exchange-traded funds and other investment companies. The Fund diversifies its investments among a number of different countries throughout the world, and may invest in companies of any size. The Fund does not intend to invest more than 20% of its net assets in the equity securities of developing or emerging market issuers (including frontier market issuers). The Fund defines emerging markets to be markets that are included in the MSCI Emerging Markets Index and defines frontier markets to be markets that are included in the MSCI Frontier Markets 100 Index.
Karen Rossotto
Page 5
7. Comment: With respect to the Clearwater International Fund, consider whether to include specific risk disclosure with respect to American Depositary Receipts, and if they are a principal investment for the Fund, unsponsored American Depositary Receipts.
Response: Registrant has added additional risk disclosure concerning sponsored and unsponsored American Depositary Receipts for the International Fund. In the “Principal Risks of Investing in the Fund” section of the “Summary Section” for the Clearwater International Fund, the following risk disclosure has been added:
Depositary Receipts Risk: The Fund may invest in foreign securities through American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in foreign issuers’ stocks, a Fund can avoid currency risks during the settlement period for either purchases or sales. EDRs and GDRs are securities that are typically issued by foreign banks or foreign trust companies, although U.S. banks or U.S. trust companies may issue them. EDRs and GDRs are structured similarly to the arrangements of ADRs. Investment in Depositary Receipts that are not sponsored by a financial institution (“Unsponsored Depositary Receipts”) is subject to additional risks. The issuers of Unsponsored Depositary Receipts are not obligated to disclose information that is, in the United States, considered material. Therefore, there may be less information available regarding their issuers and there may not be a correlation between such information and the market value of the Unsponsored Depositary Receipts. Further, the prices of Unsponsored Depositary Receipts may be more volatile than the prices of sponsored depositary receipts.
In addition, the disclosure relating to “Depositary Receipts” in the “Other Investments and Investment Strategies” section of the Prospectus has been revised as follows:
Depositary Receipts. The Core Equity Fund and International Fund may invest in foreign securities through American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly in foreign issuers’ stocks, a Fund can avoid currency risks during the settlement period for either purchases or sales. EDRs and GDRs are securities that are typically issued by foreign banks or foreign trust companies, although U.S. banks or U.S. trust companies may issue them. EDRs and GDRs are structured similarly to the arrangements of ADRs. A Fund is permitted to invest in Depositary Receipts that are not sponsored by a financial institution (“Unsponsored Depositary Receipts”). The issuers of Unsponsored Depositary Receipts are not obligated to disclose information that is, in the United States, considered material. Therefore, there may be less information available regarding their issuers and there may not be a correlation between such information and the market value of the Unsponsored Depositary Receipts. Further, the prices of Unsponsored Depositary Receipts may be more volatile than the prices of sponsored depositary receipts.
Karen Rossotto
Page 6
8. Comment: In the “Clearwater Core Equity Fund” section under “Additional Risks of Investing in the Fund,” the Staff notes inclusion of “Investing in Investment
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CORRESP
1
filename1.htm
One International Place,
40th Floor
100 Oliver Street
Boston, MA 02110-2605
+1 617 728 7100 Main
+1 617 426 6567 Fax
www.dechert.com
Stephanie
Capistron
stephanie.capistron@dechert.com
+1 617 728 7127 Direct
+1 617 275 8364 Fax
April
27, 2020
Karen Rossotto
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, NE
Washington, D.C. 20549
Re: Clearwater Investment Trust (the “Registrant”), SEC File Numbers 033-12289 and 811-05038
Dear Ms. Rossotto:
This letter responds to the comments you provided to Antonio Fraone and me in a telephonic discussion on April 13, 2020 and in a subsequent discussion with me on April 24, 2020, with respect to your review of Post-Effective Amendment No. 57 (“PEA No. 57”) to the Registrant’s registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) on February 26, 2020. PEA No. 57 pertains to each series of the Registrant (each a “Fund” and collectively the “Funds”) and was filed pursuant to Rule 485(a) under the Securities Act of 1933 in connection with the annual update to the Funds’ registration statement. We have reproduced your comments below, followed by the Registrant’s responses. Capitalized terms have the meanings attributed to such terms in the registration statement.
1. Comment: Significant market events have occurred since this 485(a) was filed as a result of the COVID-19 pandemic. Please consider whether the disclosures with respect to the Funds, including risk disclosures, should be revised based on how these events are affecting the Funds and their investments. If the Registrant believes that no additional disclosure is warranted, please explain supplementally why not.
Response:
Since filing the 485(a) filing, Registrant has updated the “Market Risk” disclosure throughout the
registration statement. Please see Appendix A attached to this letter for the updated disclosure.
2. Comment:
Several of the Funds include a separate line item for “Acquired
Fund Fees and Expenses” in their “Annual Fund Operating Expenses” table but
do not include disclosure relating to investments in other investment companies in their
principal investment strategy sections. Specifically, the “Annual Fund Operating Expenses”
table in the “Summary Section” for the Clearwater Core Equity Fund includes a
line item for “Acquired Fund Fees and Expenses” but there is no corresponding
disclosure in the Fund’s principal investment strategy section. Please add the appropriate
disclosure or explain why it is not needed.
Response: Each
of the Clearwater Tax-Exempt Bond Fund and the Clearwater International Fund report “Acquired Fund Fees and
Expenses” in their respective “Annual Fund Operating Expenses” tables. The Registrant notes that
the “Principal Investment Strategies” disclosure for the Clearwater Tax-Exempt Bond Fund and the
Clearwater International Fund each include references to investments in other investment companies. Further, the Clearwater
Core Equity Fund and the Clearwater Small Companies Fund do not report any “Acquired Fund Fees and
Expenses” and do not intend to invest in other investment companies as part of their principal investment
strategies. Registrant notes, however, that “Investing in Investment Companies and Other Pooled Investment Vehicles
Risk” is included in the “Additional Risks of Investing in the Fund” section of the
“Clearwater Core Equity Fund” and “Clearwater Small Companies Fund” sections of the
Prospectus. Accordingly, the Registrant respectfully declines to make the requested change.
Karen Rossotto
Page 2
3. Comment: In the third paragraph of the “Principal Investment Strategies” section
for the Clearwater Core Equity Fund, it is disclosed that AQR Capital Management, LLC,
one of the Fund’s sub-advisers, will invest “under normal market conditions, at least
80% of the net assets, plus the amount of any borrowings for investment purposes, of
the portion of the Fund it manages in equity or equity-related securities.” Please explain
what is meant by “equity-related securities” and, if this includes derivatives, please
disclose such derivatives with specificity. In this regard, the Staff notes that “Derivatives
Risk” is listed as a principal risk and refers to futures contracts. The Staff notes
that, for each principal risk, there should be corresponding strategy disclosure.
Response: The Registrant confirms that “equity-related securities” includes certain derivatives, such as futures contracts.
Accordingly, the “Principal Investment Strategies” disclosure for the Clearwater Core Equity Fund has been revised as follows:
AQR’s strategy invests, under normal market conditions, at least 80% of the net assets, plus the
amount of any borrowings for investment purposes, of the portion of the Fund it manages in equity or equity-related securities
(including futures contracts).
The Registrant notes that the related risks are included under the heading “Derivatives Risk.” The Registrant confirms that it believes its principal risk disclosures reflect the principal risks associated with its principal investment strategies.
Karen Rossotto
Page 3
4. Comment: The “Principal Investment Strategies” disclosure for the Clearwater
Small Companies Fund states that the Fund may invest in convertible securities. If the
Fund invests in contingent convertible securities, please consider what, if any, disclosure
is appropriate.
Response: The Clearwater Small Companies Fund invests a small portion (up to less than 1.5%) of its net assets in contingent convertible
securities. The “Convertible Securities Risk” included in the “Risk Factors” section of the Statement of Additional Information
has been revised as follows:
Convertible Securities Risk. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both debt and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. Convertible securities are usually subordinated to comparable nonconvertible securities. Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Although convertible securities provide for a stable stream of income, they are subject to the risk that their issuers may default on their obligations. Convertible securities also offer the potential for capital appreciation through the conversion feature, although there can be no assurance of capital appreciation because securities prices fluctuate.
Contingent convertible securities are subject to additional risk factors. A contingent convertible security is a hybrid debt security typically issued by a non-U.S. bank that may be convertible into equity or may be written down if a pre-specified trigger event such as a decline in capital ratio below a prescribed threshold occurs. If such a trigger event occurs, a Fund may lose the principal amount invested on a permanent or temporary basis or the contingent convertible security may be converted to equity. Coupon payments on contingent convertible securities may be discretionary and may be cancelled by the issuer. Holders of contingent convertible securities may suffer a loss of capital when comparable equity holders do not.
Karen Rossotto
Page 4
5. Comment: The Tax-Exempt Bond Fund’s principal investment strategy discloses that the Fund may invest in other investment companies and pooled investment vehicles (including closed-end funds). If the Fund invests in pooled investment vehicles other than closed-end funds, please specify the types.
Response: The Registrant confirms that the Clearwater Tax-Exempt Bond Fund does not invest in other pooled investment
vehicles other than closed-end funds. Accordingly, the “Principal Investment Strategies” disclosure for the Clearwater
Tax-Exempt Bond Fund has been revised as follows:
The Fund may invest in closed-end funds that invest in the same types of securities in which the Fund may invest directly.
6. Comment: The International Fund’s principal investment strategy discloses that the Fund does not intend to invest
more than 20% of its net assets in the equity securities of developing or emerging market issuers, but now indicates that WCM Investment
Management, LLC, one of the Fund’s sub-advisers, invests in equity securities or depositary receipts of small capitalization
companies domiciled outside of the United States, including in emerging and frontier market countries. Please explain whether the
20% limit is still accurate for this Fund given the new language. In addition, please disclose how the Registrant defines “frontier
markets.”
Response: Registrant confirms that the International Fund will not invest more than 20% of its net assets in the equity securities of developing or emerging market issuers. To define “frontier markets,” the Registrant uses the MSCI Frontier Markets 100 Index, which includes Bangladesh, Bahrain, Croatia, Jordan, Kenya, Kuwait, Kazakhstan, Sri Lanka, Morocco, Mauritius, Nigeria, Oman, Pakistan, Romania, Slovenia and Vietnam as of April 2020.
The “Principal Investment Strategies” disclosure for the International Fund in the Prospectus has been revised as follows:
Under normal market conditions, the Fund intends to invest at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of companies organized or located outside the United States and doing a substantial amount of business outside the United States. Equity securities in which the Fund invests include common and preferred stock, sponsored and unsponsored American Depositary Receipts, European Depositary Receipts, and Global Depositary Receipts, and exchange-traded funds and other investment companies. The Fund diversifies its investments among a number of different countries throughout the world, and may invest in companies of any size. The Fund does not intend to invest more than 20% of its net assets in the equity securities of developing or emerging market issuers (including frontier market issuers). The Fund defines emerging markets to be markets that are included in the MSCI Emerging Markets Index and defines frontier markets to be markets that are included in the MSCI Frontier Markets 100 Index.
Karen Rossotto
Page 5
7. Comment: With respect to the Clearwater International Fund, consider whether to include specific risk disclosure with respect to American Depositary Receipts, and if they are a principal investment for the Fund, unsponsored American Depositary Receipts.
Response: Registrant has added additional risk disclosure concerning sponsored and unsponsored American Depositary Receipts
for the International Fund. In the “Principal Risks of Investing in the Fund” section of the “Summary Section” for the
Clearwater International Fund, the following risk disclosure has been added:
Depositary Receipts Risk: The Fund may invest in foreign securities through American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). ADRs represent the
right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs do not eliminate
all the risk inherent in investing in the securities of foreign issuers. However, by investing in ADRs rather than directly
in foreign issuers’ stocks, a Fund can avoid currency risks during the settlement period for either purchases or sales. EDRs
and GDRs are securities that are typically issued by foreign banks or foreign trust companies, although U.S. banks or U.S.
trust companies may issue them. EDRs and GDRs are structured similarly to the arrangements of ADRs. Investment in Depositary
Receipts that are not sponsored by a financial institution (“Unsponsored Depositary Receipts”) is subject to additional risks.
The issuers of Unsponsored Depositary Receipts are not obligated to disclose information that is, in the United States, considered
material. Therefore, there may be less information available regarding their issuers and there may not be a correlation between
such information and the market value of the Unsponsored Depositary Receipts. Further, the prices of Unsponsored Depositary
Receipts may be more volatile than the prices of sponsored depositary receipts.
In
addition, the disclosure relating to “Depositary Receipts” in the “Other Investments and Investment Strategies”
section of the Prospectus has been revised as follows:
Depositary Receipts. The Core Equity Fund and International Fund may invest in foreign
securities through American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts
(GDRs). ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent
bank. ADRs do not eliminate all the risk inherent in investing in the securities of foreign issuers. However, by investing
in ADRs rather than directly in foreign issuers’ stocks, a Fund can avoid currency risks during the settlement period for
either purchases or sales. EDRs and GDRs are securities that are typically issued by foreign banks or foreign trust companies,
although U.S. banks or U.S. trust companies may issue them. EDRs and GDRs are structured similarly to the arrangements of
ADRs. A Fund is permitted to invest in Depositary Receipts that are not sponsored by a financial institution (“Unsponsored
Depositary Receipts”). The issuers of Unsponsored Depositary Receipts are not obligated to disclose information that is, in
the United States, considered material. Therefore, there may be less information available regarding their issuers and there
may not be a correlation between such information and the market value of the Unsponsored Depositary Receipts. Further, the
prices of Unsponsored Depositary Receipts may be more volatile than the prices of sponsored depositary receipts.
Karen Rossotto
Page 6
8. Comment: In the “Clearwater Core Equity Fund” section under “Additional
Risks of Investing in the Fund,” the Staff notes inclusion of “Investing in Investment