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BOWES INVESTMENT TRUST
BANK AND INSURANCE FUND
PROSPECTUS March 1, 1998
INVESTMENT OBJECTIVE AND POLICIES INFORMATION: 1-888-829-9973
Bowes Investment Trust (the "Trust") is an open-end diversified management
investment company that currently offers one investment portfolio, the Bank and
Insurance Fund (the "Fund"). The Fund's investment objective is to achieve
long term capital appreciation. The Fund seeks to achieve its investment
objective by normally investing at least 65% of its total assets in the equity
securities of United States based companies involved in the banking and
insurance industries.
The Fund will concentrate in the banking and insurance industries. Issuers in
the banking and insurance industries include banks, savings and loan
organizations, credit card companies, consumer finance companies, credit
unions, mortgage lenders, life and health insurers, property casualty insurers,
insurance brokers and agents, and financial guaranty insurance companies. The
Fund's concentration in the banking and insurance industries is a fundamental
policy and may not be changed without shareholder approval.
In addition, the Fund intends to deposit a portion, not to exceed 5% of its net
assets, in savings accounts of mutual bank and thrift institutions and to
invest a portion, not to exceed 5% of its net assets, in general account fixed
annuities of mutual life insurance companies, each of which may entitle the
Fund to participate in conversions and de- mutualizations, respectively, that
may occur in the future. In order to take advantage of the new 20% maximum
capital gains tax rate, the Fund utilizes tax-sensitive investment strategies
designed to minimize taxable distributions to shareholders and maximize
after-tax returns.
The Fund's investment manager is Bowes Funds, LLC (the "Advisor"). The Advisor
is located at 4520 East West Highway, Suite 540 Bethesda, Maryland 20814.
Shares of the Fund are distributed by Countrywide Investments, Inc.
About this Prospectus
This Prospectus is designed to set forth concisely the information you should
know about the Trust before you invest. It should be retained for future
reference. More information about the Trust is contained in a Statement of
Additional Information that has been filed with the Securities and Exchange
Commission. On-line access to this prospectus is available at www.sec.gov or
www.bowesfunds.com. To obtain a free copy, call the Distributor at
(888)-829-9973. The Statement of Additional Information dated March 1, 1998 is
hereby incorporated by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS
PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE,
JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
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EXPENSE SUMMARY
The following table illustrates all expenses and fees that you would incur as a
shareholder of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases ------------- None
Maximum sales load imposed on reinvested dividends -- None
Deferred sales load --------------------------------- None
Redemption Fees *------------------------------------ None *
* A wire transfer fee is charged by the Fund's Custodian in the case
of redemptions made by wire. Such fee is subject to change and is
currently $9. See "How to Redeem Fund Shares".
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ------------------------------------- 1.00%
12b-1 Fees ------------------------------------------ .25%
Other Expenses -------------------------------------- .73%
-------
Total Fund Operating Expenses ----------------------- 1.98%
The purpose of the above table is to assist you in understanding the various
expenses that you would bear directly or indirectly as an investor in the Fund.
"Management Fees" are paid by the Fund to the Fund's Advisor under the terms of
the Investment Management Agreement. "12b-1 Fees" are for distribution,
promotional and shareholder servicing costs paid by the Fund under the terms of
the Distribution Plan. "Other Expenses" includes custodian, legal, accounting,
transfer agency and shareholder administration fees, printing, and other
customary Fund expenses. The "Other Expenses" are based on estimated amounts
for the current fiscal year. The Fund's fees and expenses are discussed in
more detail under "Management of the Fund".
Example
The following example illustrates the expenses you would incur on a $1,000
investment over one and three year periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period:
1 Year 3 Years
------ -------
$20 $ 62
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
INVESTMENT OBJECTIVE, POLICIES, AND RISKS
The investment objective of the Fund is long-term capital appreciation. Under
normal market conditions, the Fund will invest at least 65% of its total assets
in the equity securities of United States based issuers involved in the banking
and insurance industries. Equity securities may include common stocks,
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preferred stocks, convertible securities, warrants and limited partnership
interests. Common stocks, the most familiar type, represent an equity
(ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes
in a company's financial condition and on overall market and economic
conditions. Issuers in such industries include banks, savings and loan
organizations, credit card companies, consumer finance companies, credit
unions, mortgage lenders, life and health insurers, property casualty insurers,
insurance brokers and agents, and financial guaranty insurance companies.
United States based issuers are defined as those companies that both (a) derive
a majority of their revenues from operations in the United States and (b) have
corporate headquarters located in the United States. As the nature of the
banking and insurance industries are impacted by mergers, regulations, or
product line dynamics, additional types of equity issuers that derive a
substantial portion of their revenues from the banking and insurance industries
may be added to the list of permissible investments for the Fund. There is no
assurance that the Fund's investment objective will be achieved. The Fund's
investment objective is not fundamental and may be changed by the Trustees of
the Fund without shareholder vote. Shareholders would be given 30 days prior
notice before any change is made to the Fund's investment objective.
The Fund intends to achieve its investment objective through the Advisor's use
of fundamental investment analysis and research supported by the background and
experience in financial institution corporate finance, financial analysis, and
merger evaluation of the Advisor's principal and his staff. The opportunities
for capital appreciation by investing in the banking and insurance industries
can be summarized as follows:
(A) MERGERS & PRODUCT LINE EXPANSION
The current financial health and high capital and earnings levels of
the banking and insurance industries, coupled with regulations
permitting geographic and product line expansion has created a dynamic
merger environment that has seen the number of banking and thrift
institutions decrease from over 20,000 in 1992 to approximately 9,000
at the beginning of 1998. Economies of scale have become more
important to financial institution profitability. Disparity in the
price to earnings ratio and price to book value ratios among banking,
thrift and insurance institutions has also been conducive to mergers
in those industries.
(B) MANAGEMENT EFFECTIVENESS; USE OF TECHNOLOGY
Improved marketing techniques, the greater application of improved
underwriting policies and management decisions to implement
technological upgrades to improve efficiency has tended to contribute
to earnings growth of the banking and insurance industries. More
sophisticated financial management techniques to protect against risk
to earnings from changes in interest rates have been widely
implemented. Institutions with seemingly identical balance sheets and
product lines may be oppositely sensitive to interest rate moves or
asset and liability re-pricing,
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depending on each company's use of asset liability management tools
and the view of each company's management. Bank management decisions
to invest in their own institutions in the form of share repurchase
programs have been favorable to the share price dynamics of bank
stocks. These buyback programs have become more frequent in the past
two years as institutions have decided that among their best
investments is investment in their own shares.
(C) MUTUAL CONVERSIONS
Access to capital markets by mutual institutions may be expanded by
converting to stock ownership form. The opportunity for policyholders
and depositors to realize liquid shareholder value, and ultimate
acquisition or merger with other industry participants are key
benefits contemplated in decisions to convert from mutual form to
public ownership. Banking and insurance industry regulators, whose
primary functions are to protect depositors and policyholders and to
ensure capital adequacy, have adopted policies to allow mutual
depositors and mutual policyholders to become stockholders of their
own institutions, often at a discount to the institution's pro-forma
tangible book value and, depending on industry pricing and market
trends at the time, often at a substantial discount to the value of
the institution in a merger transaction. If the Fund were a depositor
or policyholder in a mutual banking, thrift or insurance institution,
it would be entitled to subscription rights if and when any of those
institutions determined to de-mutualize.
(D) MODERNIZATION OF REGULATIONS
Strengthened and uniform regulation of the thrift, insurance and
banking industries have assisted in creating an environment where
industry participants may achieve improved financial performance.
Regulatory modernization has permitted banks, thrifts and insurers to
offer additional products and services that may have higher marginal
profitability than a narrower more traditional product line.
Regulations allowing geographic expansion have allowed issuers to
achieve improved economies of scale.
Growth and Value Stocks
Growth oriented mutual funds generally focus on companies that, due to their
strong earnings and revenue potential, offer above-average prospects for
capital growth, with less emphasis on dividend income. Value oriented mutual
funds generally emphasize companies that, considering their assets and earnings
history, are attractively priced and may provide dividend income. Value stocks
may be issuers that have experienced recent price weakness yet maintain a
strong underlying franchise value or solid financial condition. The banking
and insurance sectors contain both growth and value stock opportunities. The
Fund may invest in the securities of issuers classified as either growth or
value stocks or both depending on the particular type and characteristics of
such issuers. Regardless of issuer style classification, the Fund will strive
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to identify undervalued issuers representing solid opportunity for long term
appreciation without a specific focus on dividend income.
Tax Sensitive Investing For The Long Term
The Fund is intended to be a long-term investment vehicle and is not designed
to provide investors with a means of speculating on short-term fluctuations in
the stock market. In order to capitalize on the Taxpayer Relief Act of 1997,
which lowers the maximum capital gains tax rate from 28% to 20% on shares held
longer than 18 months, the Fund uses tax-sensitive investment strategies
designed to generate maximize after-tax returns. Tax-sensitive investment
strategies include the Advisor selecting for sale (if needed to meet
redemptions or if desired by the Advisor) from among the Fund's portfolio
securities (i) those that have been held by the Fund for at least eighteen
months, and/or (ii) those that may have little or no unrealized appreciation
(or may have greater unrealized depreciation) relative to the appreciation or
depreciation of other portfolio securities.
Portfolio Turnover
While it is difficult to predict, the annual portfolio turnover rate for the
Fund is not expected to exceed 75%. A 75% turnover rate would occur, for
example, if three quarters of the securities in the Fund were replaced within
one year. In pursuit of the Fund's investment objective, management monitors
Fund investments and (considering the Fund's tax strategies) adjusts the Fund's
portfolio accordingly regardless of portfolio turnover concerns. Portfolio
turnover may increase as a result of large amounts of purchases and redemptions
of shares of the Fund due to economic, market or other factors that are not
within the control of the Advisor. Increased portfolio turnover to accommodate
redemptions may result in the acceleration of net taxable gains and additional
brokerage costs to the Fund.
Conversions and De-Mutualizations
The Fund intends to deposit a portion, not to exceed 5% of its net assets, in
savings accounts of domestic mutual bank, thrift and credit union institutions
and to invest a portion, not to exceed 5% of its net assets, in general account
fixed annuities of domestic mutual life insurance companies. Such deposits and
investments may entitle the Fund to the right to subscribe for and purchase
equity securities of banks, thrifts, insurance companies, and credit unions
that are converting from being mutually owned by their depositors and
policyholders into companies that will be publicly-owned by shareholders who
may or may not be depositors or policyholders ("Conversions and
De-Mutualizations"). Additionally, the Fund may, without becoming a depositor
or policyholder of a mutual bank, thrift, insurance company or credit union,
invest in equity securities of initial public offerings of Conversions and
De-Mutualizations. In addition, even though the Fund may be a policyholder or
depositor of a mutual institution, it may not be obligated to invest in the
equity securities of a Conversion or De-Mutualization and its depositor and
policyholder status is mutually exclusive of any investment the Fund may or may
not make. Subject to the Fund's overall concentration requirements, the Fund
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has no limit on the percentage of total assets that it may invest in the equity
securities of Conversions and De-Mutualizations.
Illiquid Securities
The Fund may acquire privately placed securities that are not registered under
the Securities Act of 1933, but that can be offered and sold to qualified
institutional buyers under Rule 144A under that Act ("144A securities"). The
Board of Trustees has adopted guidelines that delegate to the Advisor the daily
function of determining and monitoring the liquidity of 144A securities. The
Advisor will monitor the investments in these securities, focusing upon various
factors, including valuation, liquidity and availability of information. The
Fund may invest up to 15% of its net assets in illiquid securities which
includes securities issued in private placements (other than securities
determined to be liquid under the foregoing Rule 144A securities procedures) in
connection with which the Fund represents that it is purchasing for investment
purposes only, the repurchase agreements maturing in more than seven days, loan
participations and assignments and other securities subject to legal or
contractual restrictions on resale. If securities become illiquid following
purchase or other circumstances cause more than 15% of its net assets to be
invested in illiquid securities, the Trustees, in consultation with the
Advisor, will determine what action, if any, is appropriate in light of all
relevant circumstances. Certain restricted securities, such as Rule 144A
securities may be treated as liquid under this restriction if a determination
is made that such securities are readily marketable. Securities acquired in
private placements generally may be resold only in a privately negotiated
transaction to one or more other institutional investors. Securities so
restricted often have a market value lower than the market price of
unrestricted securities of the same issuer. Investing in Rule 144A securities
may have the effect of increasing the level of fund illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities. Investments in restricted and illiquid securities
involve certain risks to the extent that the Fund may be unable to dispose of
such a security at the time desired or at a reasonable price or, in some cases,
may be unable to dispose of it at all. In addition, in order to resell a
restricted security, the Fund might have to incur the potentially substantial
expense and delay associated with effecting registration. The Fund may invest
in securities offered in an initial public offering where the Fund will not
receive shares for which it has subscribed within a seven day period
("when-issued securities").
Loan Participations
The Fund may invest, subject to an overall 10% limit of any specific loan, in
loan participations, typically made by a syndicate of banks to U.S. or
governmental borrowers for a variety of purposes. The underlying loans may be
secured or unsecured, and will vary in term and legal structure. When
purchasing such instruments the Fund may assume the credit risks associated
with the original bank lender as well as the credit risks associated with the
borrower. Investments in loan participations present the possibility that the
Fund could be held liable as a co-lender under emerging legal theories of
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lender liability. In addition, if the loan is foreclosed, the Fund could be
part owner of any collateral, and could bear the costs and liabilities of
owning and disposing of the collateral. Loan participations are generally not
rated by major rating agencies and may not be protected by the securities laws.
Also, loan participations are generally considered to be illiquid and therefore
subject to the Fund's overall 15% limitation on illiquid securities.
Borrowing Money
The Fund will not borrow money, except that the Fund may borrow from banks, for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests which might otherwise require the untimely disposition of
securities, in an amount not exceeding 5% of the value of the Fund's net assets
(including the amount borrowed) at the time the borrowing is made. Whenever
borrowings exceed 5% of the value of the Fund's net assets, the Fund will not
make any additional investments.
Repurchase Agreements
The Fund may enter into repurchase agreements. Under a repurchase agreement,
the Fund acquires a debt instrument for a relatively short period (usually not
more than one week), subject to the obligation of the seller to purchase and
the Fund to resell such debt instrument at a fixed price. The resale price is
in excess of the purchase price in that it reflects an agreed-upon market
interest rate effective for the period of time during which the Fund's money is
invested. The Fund's repurchase agreements will at all times be fully
collateralized in an amount equal to 102% of the purchase price including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily by the Advisor and if the value of such instruments
declines, the Fund will require additional collateral. If the seller defaults
and the value of the collateral securing the repurchase agreements declines,
the Fund may incur a loss. If such a defaulting seller were to become
insolvent and subject to liquidation or reorganization under applicable
bankruptcy or other laws, disposition of the underlying securities could
involve certain costs or delays pending court action. Finally, it is not
certain whether the Fund would be entitled, as against a claim of the seller or
its receiver, trustee in bankruptcy or creditors, to retain the underlying
securities. Repurchase agreements are considered by the staff of the SEC to be
loans by the Fund.
Options, Index Options, Interest Rate Swaps and Options
The Fund may invest in options on securities, financial indices, and interest
rates. The Fund intends to use options and swaps to hedge the value of its
portfolio against adverse movements in securities prices or interest rates.
Please refer to the Statement of Additional Information for a more detailed
discussion of these investments. The Fund may enter into options contracts and
interest rate swaps provided that such investments represent not more than 5%
of the Funds net assets. The risk of loss in option contracts and interest
rate swaps in some strategies can be substantial due to the extremely high
degree of market valuation fluctuation potential. As a result, a relatively
small price movement in an options contract or in the investment underlying the
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option contract or a small change in interest rates may result in immediate
and substantial loss (as well as gain) to the investor. However, the Fund will
not use options and interest rate swaps for speculative purposes. Accordingly,
the primary risks associated with the use of options and swaps are: (i) the
risk that securities prices and interest rates will not move in the direction
that the Advisor anticipates; (ii) an imperfect correlation between the change
in market value of the equities held by the Fund and the prices of related
option contracts; (iii) possible lack of a liquid secondary market for an
option contract and the resulting inability to close an option position prior
to its expiry date. The risk of imperfect correlation will be minimized by
investing only in those contracts whose price fluctuations are expected to
resemble those of the Fund's underlying securities. The risk that the Fund
will be unable to close out a futures or option position will be minimized by
entering into such transactions on a national exchange with an active and
liquid secondary market.
Cash Reserves
To accommodate future investment opportunities and for possible redemptions,
the Fund maintains short term investment securities, including, but not limited
to, commercial paper, institutional and retail money market funds, savings
accounts at mutual banks and thrifts and certificates of deposit, that can
easily and quickly be converted to cash.
Risks of Investing in Banks and Insurers
The Fund is subject to market, industry, or issuer specific risks described
below and in the Statement of Additional Information. These risks may cause
your investment in the Fund, as with any investment, to decrease in value.
Financial services companies are subject to extensive government regulation
that may limit both the amount and types of loans and commitments they can make
and policies they can issue, and the interest rates and fees they can charge.
Financial performance depends, in part, on the issuer's such as those in which
the Fund invests access to capital, and can fluctuate when interest rates
change. Credit losses resulting from financial difficulties of borrowers can
adversely impact the banking, consumer finance, and mortgage lending industry.
Insurance companies may be subject to, among other factors, poor investment
performance, policy pricing competition, higher claims and claim processing
expenses, adverse mortality and morbidity experience, marketing competition and
general economic conditions. Individual insurance companies may be subject to
material risks including reserve inadequacy and the inability to collect from
reinsurance carriers.
Other Risks You Should Consider
The Fund will often invest in securities of companies with small- or mid-sized
market capitalizations. Market capitalization is defined as total current
market value of a company's outstanding common stock. Investments in companies
with smaller market capitalizations may involve greater risks and price
volatility than investments in larger, more mature companies since smaller
companies may be at an earlier stage of development and may have limited
product lines, reduced daily volume of trading in their shares, limited
financial resources or less depth in management than larger or more established
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companies. Smaller companies also may be adversely impacted by competition
from larger industry companies. While smaller companies may be subject to
these additional risks, they may also realize more substantial growth than
larger or more established companies.
The Fund may invest in securities of unseasoned issuers. Unseasoned issuers are
companies with a record of less than three years' continuous activity as a
publicly traded company, even though they may have a longer history of
operations as a private or mutually owned institution. Unseasoned issuers may
not yet have established the market institutional analyst following of a
seasoned public company.
HOW TO PURCHASE FUND SHARES
The minimum initial purchase requirements, which may be changed from time to
time or altered in certain circumstances, are:
<TABLE>
<S> <C>
Regular Accounts $2,000
IRA and IRA Rollovers 1,000
Gifts to Minors 1,000
Automatic Investment Plan 1,000
Defined Contribution Plans 1,000
</TABLE>
To purchase shares in the Fund, simply complete the Account Application form
included with the Prospectus and mail it along with a check payable to the
"Bank and Insurance Fund" as follows:
Bank and Insurance Fund
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Express Mail/Overnight:
Bank and Insurance Fund
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
A prompt confirmation indicating the details of the transaction will be sent to
you. In addition, Fund shares may be purchased through certain broker-dealers
that have established mutual fund programs and certain other organizations
connected with pension and retirement plans. These broker-dealers and other
organizations may charge investors a transaction or other fee for their
services, may require different minimum initial and subsequent investments than
the Fund and may impose other charges or restrictions different from those
applicable to shareholders who invest in the Fund directly. Fees charged by
these organizations will have the effect of reducing a shareholder's total
return on an investment in Fund shares. No such charge will be paid by an
investor who purchases the Fund shares directly from the Fund as described
above.
The Fund will, at its discretion, accept orders transmitted by these
organizations although not accompanied by payment for the shares being
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purchased. Payment must be received by the Fund within three business days
after acceptance of the order. The price at which a purchase will be effected
is based on the next calculation of net asset value after the application is
received by the Fund's transfer agent or any other authorized agent of the
Fund.
Payment for Fund Share Purchases
Payment for shares purchased should be made by check or money order drawn on a
United States bank and made payable to the "Bank and Insurance Fund". Checks
made payable to a party other than "Bank and Insurance Fund", (for example, the
account registrant, the Fund's transfer agent or your retirement account
custodian) will not be accepted. Alternatively, payment for shares purchased
by institutions by telephone may be made by wire or electronic funds transfer
from the investor's bank to the Bank and Insurance Fund as follows:
Star Bank, N.A.
ABA # 042000013
Credit: Bank and Insurance Fund
DDA # 488886599
[Your Name(s) as Registered with Fund]
[Your Account # at the Fund]
The Fund will not accept purchases by cash or credit card or checks drawn on
foreign banks unless provision is made for payment through a U.S. bank in U.S.
dollars. The Fund reserves the right in its sole discretion to withdraw all or
any part of the offering made by this Prospectus or to reject purchase orders,
when in the judgment of management, such withdrawal or rejection is in the best
interest of the Fund. The Fund also reserves the right at any time to waive
the minimum investment requirements applicable to initial investments, to
increase minimum investment or account balance requirements following notice.
No application to purchase shares is binding on the Fund until confirmed in
writing.
Automatic Investment Plan
By completing the Automatic Investment Plan section of the account application
attached herein, you may authorize the Fund to debit your bank account for the
periodic purchase of Fund shares on the 15th day and/or the last business day
of each month. You will receive confirmation of automatic investments after
each transaction.
Telephone Investments
The Fund will, at its discretion, accept purchase orders from existing
institutional shareholders by telephone although not accompanied by payment for
the shares being purchased. To receive the net asset value for a specific day,
a telephone purchase request must be received before the close of the New York
Stock Exchange on that day. Payment for shares ordered by telephone must be
received by the Fund within three business days after acceptance of the order.
In order to make sure that payment is received on time, shareholders are
encouraged to remit payment by electronic funds transfer. Shareholders may
also remit payment by wire or by overnight delivery. If payment is not
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received on time, the Fund may cancel the order and redeem shares held in the
shareholder's account to compensate the Fund for any decline in the value of
the purchased shares. The Advisor bears the risk of loss from cancelled orders
that result in a loss when the Fund cannot recover the loss from a shareholder
account. Telephone purchase orders may not exceed ten times the value of an
account on the date the order is placed.
Market Timing
Some investors try to profit from investing in a mutual fund or stock when they
expect prices to rise, and selling their investment when they expect the market
to fall. With this buying and selling revolving door, a fund incurs expenses
for buying and selling securities. These costs are borne by the remaining long
term fund shareholders. In addition, investors attempting to time the markets
may face higher tax rates on short-term capital gains and/or losses. The Fund
reserves the right to reject any purchase request that it regards as disruptive
to the efficient management of the Fund, including the timing of the investment
or because of a history of excessive trading by the investor.
Open Account System
Unless otherwise directed, all investor accounts are maintained on a book-entry
basis. Share certificates will not be issued. Shares purchased by dividend
reinvestment or under an Automatic Investment Plan, will be confirmed after
each transaction. The investor will receive a printed confirmation indicating
the dollar amount of the transaction, the per share price of the transaction
and the number of shares purchased or redeemed.
Statements and Reports
The Fund will send you account and tax statements to help you keep track of
your investment throughout the year as well as when you are preparing your
income tax returns. In order to assist you in evaluating Fund performance, a
detailed financial statement showing a statement of operations and balance
sheet including a listing of portfolio holdings will be mailed to you in March
and September. For tax purposes, a reports of the previous year's dividend
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts will be sent to you in January of each year.
Shareholder account inquiries may be made by contacting Countrywide Fund
Services, Inc., the Fund's transfer agent at 1-888-829-9973 or by writing to
the Fund, c/o Countrywide Fund Services, Inc. P.O. Box 5354 Cincinnati, Ohio
45201-5354. For Express Mail or Overnight delivery the Fund's address is 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202
Confirmation and Account Statements
You will be sent, each time you buy or sell shares, a confirmation statement
indicating details with respect to the date and the amount of your transaction.
A statement of your account value will be sent to you at the end of each
statement period showing the market value of your account at the close of the
statement period, as well as distributions, purchases, and redemptions for the
current calendar year.
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HOW TO REDEEM FUND SHARES
The Fund will buy back from any investor, at current net asset value, all
shares of the Fund offered for redemption. The redemption price of shares
tendered for redemption will be the net asset value next determined after
receipt of telephone or written redemption instructions by the Fund or other
authorized agent of the Fund. To receive the net asset value for a specific
day, a redemption request must be received before the close of the Exchange on
that day. The written request for redemption must be signed by each registered
owner exactly as each account is registered and must clearly identify the
account and the number of shares or the dollar amount to be redeemed. It is
important that you call the Advisor before you redeem a large dollar amount.
Signature Guarantee On Certain Redemptions
The use of signature guarantees is intended to protect the shareholder and the
Fund from a possibly fraudulent application for redemption. The signatures of
the redeeming shareholders must be guaranteed by a national or state bank, a
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc. (NASD), a credit union, a federal savings and loan
association or another eligible guarantor institution if the redemption:
exceeds $25,000; is being made payable other than exactly as registered; is
being mailed to an address which has been changed within 30 days of the
redemption request; or is being mailed to an address other than the one on
record. This prospectus hereby constitutes notice that a signature guarantee
may be required in the above circumstances. A notary public is not an
acceptable guarantor. The Fund also reserves the right to require, without
prior notice, a signature guarantee under other circumstances. The signature
guarantees must appear, together with the signatures of the registered owners
(i) on the written request for redemption which clearly identifies the account
and the dollar amount or number of shares to be redeemed, or (ii) on a separate
instrument of assignment ("stock power") which may be obtained from a bank or
broker. The use of signature guarantees is intended to protect the shareholder
and the Fund from a possibly fraudulent application for redemption. Additional
documents such as corporate authorizations are required for proper account
establishment prior to redemptions by corporations, executors, administrators,
trustees and guardians. The Fund's Transfer Agent will be pleased to assist
you with the proper forms required for corporate or other non- individual
account set-up and can be reached at 888-829-9973.
Telephone Redemptions
All shareholders are permitted to redeem shares by telephone, except that the
telephone redemption option is not available for shares held in retirement
accounts. Telephone redemption requests may be made by calling 1-888-TAX-WYSE.
To receive the net asset value for a specific day, a redemption request must be
received before the close of the New York Stock Exchange on that day. As
discussed above, certain requests must be in writing and the signature of a
redeeming shareholder must be signature guaranteed. All telephone transactions
are recorded and written confirmations indicating their details will promptly
be sent to the shareholder of record. Prior to accepting a telephone
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<PAGE> 13
transaction, the shareholder placing the order may be required to provide
certain identifying information. A shareholder electing to communicate
instructions by telephone may be giving up some level of security that would
otherwise be present were the shareholder to request a transaction in writing.
Neither the Fund nor its Transfer Agent or Advisor assume responsibility for
the authenticity of instructions communicated by telephone or other medium
which are reasonably believed to be genuine and which comply with the foregoing
procedures. The Fund, and/or its Transfer Agent, may be liable for losses
resulting from unauthorized or fraudulent telephone or on-line instructions in
the event these procedures are not followed. In times of extreme economic or
market conditions, redeeming shares by telephone may be difficult. The Fund may
terminate or modify the procedures concerning the telephone and wire transfer
services at any time, although shareholders of the Fund will be given at least
60 days' prior notice of any termination or material modification.
Payment for Redeemed Shares
Payment for shares redeemed upon written request will be made by check and
generally will be mailed within three business days after receipt by the
transfer agent of the properly executed redemption request. Payment for shares
redeemed by telephone will be made by check payable to the account name(s)and
address exactly as registered, and generally will be mailed within three
business days following the date of the request for redemption. A shareholder
may request that payment for redeemed shares of the Fund be made by wire or
electronic funds transfer. Shareholders may elect to use these services on the
account application or by providing the Fund with a signature guaranteed letter
requesting these services and designating the bank to receive all wire or
electronic funds transfers. A shareholder may change the pre-designated bank
of record by providing the Fund with written, signature guaranteed
instructions. Wire and electronic funds transfers are subject to a $1,000
minimum. Redemption proceeds paid by wire transfer generally will be
transmitted to the shareholder's pre-designated bank account on the next
business day after receipt of the shareholder's redemption request. There is a
$9 fee for each wire payment for shares redeemed by the Fund. Redemption
proceeds paid by electronic funds transfer will be electronically transmitted
to the shareholder's pre-designated bank account on the second business day
after receipt of the shareholder's redemption request.
Shareholders may encounter delays in redeeming shares purchased by check (other
than cashier's or certified checks, electronic funds transfer or through the
Automatic Investment Program) if the redemption request is made within 15 days
after the date of purchase. In those situations, the mailing of redemption
proceeds may be delayed up to 15 days after the transfer agent's receipt of the
purchase instrument or until the check clears, whichever occurs first. The
foregoing policy is to ensure that all payments for the shares being redeemed
have been honored. In addition to the foregoing restrictions, no redemption
payment will be made for shares that have been purchased by telephone order
until full payment for the shares has been received. In any event, valid
redemption requests concerning shares for which full payment has been made will
be priced at the net asset value next determined after receipt of the request.
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<PAGE> 14
Involuntary Redemptions
As a means of reducing its expenses, the Fund is authorized to redeem all
shares held in regular accounts with a value of less than $2,000. Such
redemptions will be permitted only when the account is reduced below the
minimum value by redemption, and not by declines in per share net asset value.
As a result, accounts established with the applicable minimum investment might
be subject to redemption after a redemption has been made by the shareholder.
At least 30 days' written notice will be given to a shareholder before such an
account is redeemed. During that time, the shareholder may add sufficient
funds to the account. If such amount is not added to the account, the shares
will be redeemed, at the per share net asset value next determined after the
30th day following the notice. A check for the proceeds will be sent to the
shareholder.
MANAGEMENT OF THE FUND
Board of Trustees
The Fund is a diversified series of Bowes Investment Trust, an open end
management investment company organized as a business trust under the laws of
the State of Delaware. The Board of Trustees is responsible for the overall
management of the Fund. The Trustees set broad policies for the Fund, employ
the Fund's Advisor, and elect the Fund's Officers. The Trustees are
responsible for the approval and review of the Fund's material contracts.
The Board of Trustees is comprised of one officer of the Advisor, and three
Trustees who are not "interested persons" of the Fund or the Advisor, as that
term is defined in the Investment Company Act of 1940. A list of Trustees and
Officers of the Fund and a description of their present positions and principal
occupations during the past five years can be found in the Statement of
Additional Information.
Investment Adviser
Bowes Funds, LLC (the "Advisor"), located at 4520 East West Highway, Suite 540
Bethesda, Maryland 20814, serves as the investment adviser to the Fund. The
Advisor will furnish continuous investment advisory and management services to
the Fund. Robert B. Bowes is President and Chief Executive Officer of the
Advisor and Chairman of the Board and President of the Fund. Mr. Bowes has
voting control of the Advisor. He is also the Fund's portfolio manager and, as
such, exercises day-to-day responsibility for the management of the Fund's
portfolio. Prior to forming the Advisor in October, 1997, Mr. Bowes had 13
years of experience as a financial manager, including 8 years most recently as
Vice President of The Chase Manhattan Bank, N. A. in its North America
Corporate Finance - Financial Institutions Group, 4 years in which he served as
President of Fund Commission Services, Inc., a mutual fund financial advisory
company, and one year in which he served as Chief Financial Officer of
Financial Institution Partners, L.P., a private institutional equity investment
partnership with total invested assets of approximately $90 million as of
September 5, 1997. As of the date of this Prospectus, the Advisor is the sole
14
<PAGE> 15
shareholder of the Fund. For its services, the Advisor receives a monthly fee
at the rate of 1.00% per annum of the average daily net assets of the Fund.
Under the Agreement, the Advisor, at its own expense and without reimbursement
from the Fund, furnishes office space and all necessary office facilities,
equipment and executive personnel for making the investment decisions necessary
for managing the Fund and maintaining its organization. The Advisor pays the
salaries and fees of all officers and Trustees of the Fund affiliated with the
Advisor.
Year 2000 Disclosure
The Advisor has assessed the exposure of the Fund to potential problems
associated with computer failures or errors that may be caused by operating
systems because of erroneous date calculation readings. There are several
suppliers of services to the Fund that have also or are in the process of
assessing their exposure to Year 2000 issues, if any. The suppliers that have
been surveyed are the Fund's Advisor, independent accountants, custodian,
transfer agent, administrator and shareholder servicing agent. Each has
supplied the Registrant with a status report regarding their anticipated costs,
if any, and problems and uncertainties associated with Year 2000 consequences,
if any. In turn, the principal vendors and service providers to the Fund have
inquired and received an assessment from their key suppliers. Based on the
results of these inquiries and assessments, the Fund and the Advisor expect (a)
no material costs associated with and (b) no material adverse impact on the
business, operations, or financial condition of the Fund from computer
correction projects or the prevention of adverse consequences of the Year 2000
problem.
Operating Expenses
The Fund pays all of its own expenses, including, without limitation, the
expense of registering its shares with the Securities and Exchange Commission
and in the various states, advisory and administration fees, costs of
organization and maintenance of corporate existence, the printing and
distribution costs of prospectuses mailed to existing investors, reports to
investors, reports to government authorities and proxy statements, costs of
meetings of shareholders, fees paid to disinterested Trustees, interest
charges, taxes, legal expenses, association membership dues, auditing services,
insurance premiums, brokerage commissions and expenses in connection with
portfolio transactions, fees and expenses of the custodian of the Fund's
assets, charges of securities pricing services, printing and mailing expenses
and charges and expenses of dividend disbursing agents, accounting services and
stock transfer agents.
Distributor and Distribution Fees
The Fund has retained Countrywide Investments, Inc. or an affiliate
("Distributor") to provide the Fund with primary underwriting, distribution,
institutional selling and servicing, and settlement of Fund shares.
Distributor is a member of the National Association of Securities Dealers, Inc.
(NASD). Distributor was organized in 1974 and is an indirect wholly-owned
15
<PAGE> 16
subsidiary of Countrywide Credit Industries, Inc., a New York Stock Exchange
listed company principally engaged in the business of residential mortgage
lending. The Fund is a member of National Securities Clearing Corporation
(NSCC).
Rule 12b-1 Fees are distribution fees which the Fund pays or reimburses the
Distributor or others for the expenses of activities that are primarily
intended to sell shares of the class. These expenses may include, but are not
limited to, distribution or service fees paid to financial intermediaries or
others who have executed a servicing agreement with the Fund, fees paid for
advertising and promoting the Fund, printing prospectuses and reports used for
sales purposes, and the costs of preparing and distributing sales literature.
The Fund is authorized to pay annual Rule 12b-1 fees of up to .25% of the
average daily net assets of the Fund.
Transfer Agent and Administrator
The Fund has retained Countrywide to serve as the Fund's transfer agent,
dividend paying agent and shareholder servicing agent.
In addition, Countrywide has been retained to provide administrative services
to the Fund. The administrative services provided by Countrywide to the Fund
include internal auditing and regulatory services, coordination and preparation
of reports and filings with the SEC and state securities authorities, and
preparation of reports to the Fund's shareholders and Trustees. For these
services, the Fund pays Countrywide a fee based on it's average daily net
assets equal to .10% per annum of the first $25 million of such assets, .075%
per annum of the next $25 million of such assets, and .05% per annum of the
amount of such assets in excess of $50 million, subject to a monthly minimum of
$1,000.
Countrywide also provides accounting and pricing services to the Fund.
Countrywide receives a monthly fee from the Fund for calculating daily net
asset value per share and maintaining such books and records as are necessary
to enable it to perform its duties.
Portfolio Transactions and Brokerage
Decisions to buy and sell securities for the Fund and negotiation of the Fund's
brokerage commission rates are determined by the Advisor. In selecting a
broker to execute each particular transaction, the Advisor may take a number of
factors into consideration, only one of which may be the best net price
available. Among the additional factors the Advisor may take into
consideration when selecting a broker are the research and investment services
that a broker may provide. Accordingly, the cost of the brokerage commissions
to the Fund in any transaction may be greater than that available from other
brokers if the difference is reasonably justified by other aspects of the
portfolio execution services being offered.
The Advisor may also consider sales of shares of the Fund by a broker-dealer
and the recommendations of a broker-dealer to its customers that they purchase
Fund shares as factors in the selection of broker-dealers to execute portfolio
16
<PAGE> 17
transactions for the Fund. In placing portfolio business with such
broker-dealers, the Advisor will seek the best execution of each transaction.
DIVIDENDS, DISTRIBUTIONS AND TAXES
On an annual basis the Fund distributes to shareholders virtually all of its
income from interest and dividends, as well as any capital gains realized from
the sale of securities. Distributions of income and capital gains will be
automatically reinvested in additional shares of the Fund, unless you elect to
receive these distributions in cash on the account application or by calling or
writing to the Transfer Agent.
The income dividends and distributions of short-term capital gains that you
receive are taxable to you as ordinary dividend income. Any distributions of
net long-term capital gains by the Fund are taxable to you as long-term capital
gains, no matter how long you have owned shares in the Fund. Both dividends
and capital gains distributions are taxable to you whether received in cash or
reinvested in additional shares. Although the Fund does not seek to realize
any particular amount of capital gains during a year, such gains are realized
from time to time as byproducts of the ordinary investment activities of the
Fund. Consequently, distributions will vary considerably from year to year.
Distributions of dividends and capital gains that are declared in December,
even if paid to you in January, are taxed as if they had been paid to you in
December.
If you sell or exchange shares of the Fund, any gain or loss you have is a
taxable event, which means that you may have a capital gain or loss to report
when you complete your Federal income tax return.
Distributions of dividends or capital gains, and capital gains or losses from
your sale of Fund shares, may be subject to state and local taxes as well. The
foregoing tax information is provided as general information and will not apply
to you if you are investing in a tax-deferred account such as an IRA. You
should consult your own tax advisor about the tax consequences of an investment
in the Fund. The Fund must consider the interests of all Fund shareholders and
so reserves the right to delay your redemption proceeds -- up to five business
days -- if the amount will disrupt the Fund's operation or performance.
The Fund has elected and intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By distributing all of its
net investment income and realized capital gains and meeting certain other
requirements relating to the sources of its income and diversification of its
assets, the Fund will generally not be liable for federal income taxes. If the
Fund distributes annually less than 98% of its net investment income and net
realized capital gains, it may be subject to a nondeductible excise tax equal
to 4% of the shortfall.
Any distributions designated as realized net capital gain (the excess of net
long-term capital gain over net short-term capital loss) will be taxable as
long-term capital gain, regardless of the holding period of your shares. All
17
<PAGE> 18
or a portion of any dividends paid by the Fund to corporate shareholders may,
under certain circumstances, be eligible for the dividends received deduction.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and generally be subject to tax.
The value of shares of the Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of the Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of the Fund, the loss may be disallowed for tax purposes if shares of
the Fund are purchased within (before or after) 30 days of the sale.
The IRS requires backup withholding of federal income tax of 31% of the gross
amount of dividends, capital gain distributions, and redemption proceeds paid
or credited to shareholders who do not furnish a valid social security or
taxpayer identification number. The preceding is only a brief summary of the
Federal income tax considerations affecting the Fund and its shareholders.
Accordingly, potential investors should consult their tax advisors with
specific reference to their own tax situation.
HOW NET ASSET VALUE IS DETERMINED
The price of Fund shares is based on the net asset value of the Fund, which is
determined at the close of the regular trading session of the New York Stock
Exchange (the "Exchange") (normally 4:00 p.m., New York time) each day that the
Exchange is open.
The per share net asset value of the Fund is determined by dividing the total
value of its securities and other assets, less liabilities, by the total number
of shares outstanding. In determining net asset value, portfolio securities
are valued at market value as follows: (i) securities which are traded on stock
exchanges or are quoted by NASDAQ are valued at the last reported sale price as
of the close of the regular session of trading on the New York Stock Exchange
on the day the securities are being valued, or, if not traded on a particular
day, at the closing bid price, (ii) securities traded in the over-the-counter
market, and which are not quoted by NASDAQ, are valued at the last sale price
(or, if the last sale price is not readily available, at the last bid price as
quoted by brokers that make markets in the securities) as of the close of the
regular session of trading on the New York Stock Exchange on the day the
securities are being valued, (iii) securities which are traded both in the
over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market, and (iv) securities (and other assets)
for which market quotations are not readily available are valued at their fair
value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
Investments in mutual insurance company fixed general account annuities are
valued at their cash surrender value.
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<PAGE> 19
Since the Fund does not impose any sales commission or redemption fee, both the
purchase price and the redemption price of a Fund share is the same and will be
equal to the next calculated net asset value of a share of the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "average annual total return."
The Fund may also advertise yield. Both yield and average annual total return
figures are based on historical earnings and are not intended to indicate
future performance.
The "average annual total return" of the Fund refers to the average annual
compounded rates of return over the most recent 1, 5, and 10 year periods or,
where the Fund has not been in operation for such period, over the life of the
Fund (which periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions. The Fund
may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of
dividends and capital gains distributions. A nonstandardized quotation of
total return may also indicate average annual compounded rates of return over
periods other than those specified for "average annual total return." A
nonstandardized quotation of total return will always be accompanied by the
Fund's "average annual total return" as described above.
From time to time, the Fund may advertise its performance rankings as published
by recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc. ("Lipper"), or by publications of general interest
such as Forbes, Money, Investors Business Daily, The Wall Street Journal,
Business Week, Barron's, Fortune or Morningstar Mutual Fund Values. The Fund
may also compare its performance to that of other selected mutual funds,
averages of other mutual funds within its category as determined by Lipper or
by any other recognized mutual fund ranking organization, or recognized
indicators indicators such as the Dow Jones Industrial Average and the Standard
& Poor's 500 Stock Index. In connection with a ranking, the Fund may provide
additional information, such as the particular category of funds to which the
ranking relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of fee waivers and/or expense
reimbursements, if any. The Fund may also present its performance and other
investment characteristics, such as volatility or a temporary defensive
posture, in light of the Advisor's view of current or past market conditions or
historical trends.
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<PAGE> 20
INVESTMENT MANAGER
------------------
BOWES FUNDS, LLC
4520 EAST WEST HWY, SUITE #540
BETHESDA, MARYLAND 20814
(301) 654-9567 http://www.bowesfunds.com
-------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
----------------------------------------------
COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
CUSTODIAN
---------
STAR BANK, N.A.
425 WALNUT STREET
CINCINNATI, OHIO 45202
LEGAL COUNSEL
-------------
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
FUND DISTRIBUTOR
----------------
COUNTRYWIDE INVESTMENTS, INC.
312 WALNUT STREET
CINCINNATI, OHIO 45201-5354
INDEPENDENT AUDITORS
--------------------
ARTHUR ANDERSEN LLP
425 WALNUT STREET
CINCINNATI, OHIO 45202
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page Page
- ----------------- ---- ----
<S> <C> <C> <C>
Expense Summary 2 Management of the Fund 14
Investment Objective, Dividends, Distributions
Policies, and Risks 2 and Taxes 17
How To Purchase Fund Shares 9 How Net Asset Value is
Account Application attached Determined 18
How To Redeem Fund Shares 12 Performance Information 19
</TABLE>
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<PAGE> 21
[BOWES FUNDS LOGO]
BOWES INVESTMENT TRUST
BANK AND INSURANCE FUND
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus dated March 1, 1998 with the Securities and
Exchange Commission. To obtain a free copy of the prospectus call the Fund's
Advisor at 301-654-9567. This Statement of Additional Information is dated
March 1, 1998.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
INVESTMENT OBJECTIVES, POLICIES AND RISKS.................. 1
CAPITAL SHARES............................................. 8
TRUSTEES AND OFFICERS...................................... 9
INVESTMENT ADVISORY AND OTHER SERVICES.....................12
DISTRIBUTION OF FUND SHARES AND 12B-1 PLAN.................13
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................14
TAXES......................................................15
PRICING AND REDEMPTION OF SECURITIES BEING OFFERED ........16
CALCULATION OF PERFORMANCE ................................16
STATEMENT OF ASSETS AND LIABILITIES........................17
AUDITED FINANCIAL STATEMENTS DATED FEB. 3, 1998............18
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective of the Fund is long term capital appreciation. The
Fund will normally invest at least 65% of its total assets in the equity
securities of United States based issuers in the banking and insurance
industries. As the nature of the banking and insurance industries are impacted
by mergers, regulations, or product line dynamics, additional types of equity
issuers that derive a substantial portion of their revenues from those
industries may be eligible for investment by the Fund.
As part of its value investing strategy, the Fund intends to deposit a portion,
not to exceed 5% of its net assets, in savings accounts of domestic mutual bank
and thrift institutions and to invest a portion, not to exceed 5% of its net
assets, in general account fixed annuities of domestic mutual life insurance
companies, each of which may entitle the Fund to the right to subscribe for and
purchase equity securities of bank, thrift, insurance companies, and credit
unions that are converting from being mutually owned by their depositors and
policyholders into companies that will be publicly-owned by shareholders who
may or may not be depositors or policyholders ("Conversions and
De-Mutualizations").
The Fund intends to achieve its investment objective by fundamental investment
analysis to uncover opportunities for capital appreciation because of:
Mergers & product line expansion,
Management effectiveness and use of technology,
Mutual conversions, and
Modernization of regulations.
Supervision and Regulatory Environment
THE FOLLOWING REFERENCES TO MATERIAL STATUTES AND REGULATIONS AFFECTING
FINANCIAL INSTITUTIONS ARE ONLY BRIEF SUMMARIES THEREOF AND DO NOT PURPORT TO
BE COMPLETE AND THEY ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH
STATUTES AND REGULATIONS.
<PAGE> 22
ANY CHANGES IN APPLICABLE LAW OR REGULATION MAY HAVE A MATERIAL EFFECT ON THE
BUSINESS AND RESULTS OF OPERATIONS OF A PARTICULAR FINANCIAL INSTITUTION OR
INDUSTRY SEGMENT. PROSPECTIVE INVESTORS IN THE FUND ARE URGED TO REFER TO SUCH
STATUTES, REGULATIONS AND SUCH INFORMATION, AS APPLICABLE.
The financial performance and management of banks and insurers is not only
influenced by company management and by general economic conditions (e.g.
interest rates, real estate and business cycles, volatility of the capital
markets, and property casualty loss experience) but also by policies of various
governmental authorities. Depending on the particular type of financial
institution, the governmental authorities or self-regulatory organizations
include but are not limited to the, National Association of Insurance
Commissions ("NAIC"), State Insurance Departments, the Federal Reserve Board
("FRB"), The Federal Deposit Insurance Corporation ("FDIC"), the Office of the
Comptroller of the Currency ("OCC"), the Office of Thrift Supervision ("OTS"),
the Securities and Exchange Commission ("SEC"), the Internal Revenue Service
("IRS"), and state securities and banking and taxing authorities. These
regulatory authorities regulate the scope of the financial institutions
business, investment activities, capital levels, reserves against losses and
deposits, collateral requirements, the establishment of offices in additional
locations, mergers, acquisitions, the issuance of equity and debt securities,
and the payment of dividends. These authorities also establish a comprehensive
method for the periodic examination of financial institutions and an
enforcement mechanism for violations of applicable laws and regulations. This
system of supervision and regulation is intended primarily for the protection
of depositors and policyholders rather than the shareholders of financial
institutions.
The financial institutions in which the Fund will make securities investments
that are subject to the registration requirements of the Securities Act of
1933, as amended (the "1933 Act") and/or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), must register their securities with the SEC.
Consequently such companies are subject to the information and periodic
reporting requirements, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the 1934 Act. Similarly, the
OCC, the FDIC and the OTS, each of which regulates a segment of the banking
industry, administer the provisions of the 1934 Act as they relate to national
banks, banks other than member banks, and savings associations, respectively.
These banking agencies also require that such institutions subject to their
jurisdiction and the registration requirements of the 1934 Act register their
securities with such federal banking agencies and, although securities issued
by banks and savings associations are exempt from the registration requirements
of the 1933 Act, that they comply with their rules and regulations with respect
to the offering of their securities to the public.
In recent years, the laws governing these industries have been simplified and
have become more uniform and coordinated among jurisdictions. Further reforms
of the banking and insurance regulations have been proposed. The adoption of
interstate banking legislation in 1994 resulted in the removal of substantially
all geographic barriers for banks and thrifts. In addition, the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") and the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which
provided banks and thrifts with the initial eligibility to merge, coupled with
legislation enacted in the early autumn of 1996 which virtually eliminated all
remaining impediments to the mergers of banks and thrifts by substantially
altering the treatment of bad debt
2
<PAGE> 23
reserves and by recapitalizing the Savings Association Insurance Fund ("SAIF"),
has resulted in the rapid consolidation of the banking and thrift industries.
Legislative initiatives have facilitated the conversion of mutual banks,
thrifts and insurers to stock ownership form. There is the risk that the rules
and regulations could change to be more restrictive and create a less favorable
industry operating environment. For example, any regulator could alter (a)
minimum capitalization requirements, (b) asset quality standards, (c)
limitations on the separation of various banking, securities, insurance and
deposit taking, and (d) limitations on market share and concentration.
Investment Limitations
The Fund is subject to the restrictions below. Restrictions 1 through 8 are
fundamental and, as such, may not be changed without the approval of the lesser
of (i) 67 percent or more of the voting securities present at a meeting if the
holders of more than 50 percent of the outstanding voting securities of the
Fund are present or represented by proxy, or (ii) more than 50 percent of the
outstanding voting securities of the Fund. The Fund will not:
(1) purchase or sell commodities or contracts on commodities;
(2) purchase or sell real estate, except, in accordance with
applicable law, the Fund may invest in (a) securities directly or
indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate;
(3) make loans, except that the Fund may lend its portfolio
securities in accordance with applicable law. The acquisition of
investment securities or other investment instruments shall not
be deemed to be the making of loans;
(4) engage in the business of underwriting securities issued by
others except to the extent that the Fund may technically be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities;
(5) borrow money, except that the Fund may borrow from banks, for
temporary or emergency purposes, including the meeting of
redemption requests which might otherwise require the untimely
disposition of securities, in an amount not exceeding 5% of the
value of the Fund's net assets at the time the borrowing is
made. Whenever borrowings exceed 5% of the value of the Fund's
net assets, the Fund will not make any additional investments;
(6) invest more than 25% of its total assets in the securities of any
one industry, except that, under normal market conditions, the
Fund will (a) invest more than 25 % of its total assets in the
securities of issuers in the banking industry; and (b) invest
more than 25% of its total assets in the securities of issuers
in the insurance industry;
(7) purchase securities on margin or make short sales (except for tax
management reasons);
3
<PAGE> 24
(8) make any investment inconsistent with the Fund's classification
as a diversified investment company under the Investment Company
Act of 1940;
(9) pledge, mortgage, or hypothecate any of its assets except in
connection with permissible borrowings of the Fund;
(10) invest for the purpose of exercising control over management of
any company;
(11) invest in the securities of other investment companies except to
the extent such purchases are permitted by applicable law;
(12) purchase or otherwise acquire illiquid securities if, as a
result, more than 15% of its net assets would be invested in
securities that are illiquid (included in this limitation are
investments in mutual insurance company general fixed annuities);
and
(13) invest in index option contracts, stock options and interest rate
swaps and options if as a result more than 5% of its net assets
would be committed to such options contracts and interest rate
swaps.
Options on Securities
In an effort to increase current income and to reduce fluctuations in net asset
value, the Fund may write covered put and call options and buy put and call
options on securities that are traded on United States exchanges and
over-the-counter. The Fund may write and buy options on the same types of
securities that the Fund may purchase directly.
A put option written by the Fund is "covered" if the Fund (i) segregates cash
not available for investment or other liquid assets with a value equal to the
exercise price of the put with the Fund's custodian, or (ii) holds a put on the
same security and in the same principal amount as the put written, and the
exercise price of the put held is equal to or greater than the exercise price
of the put written. The premium paid by the buyer of an option will reflect,
among other things, the relationship of the exercise price to the market price
and the volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates.
A call option written by the Fund is "covered" if the Fund owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by the Fund's custodian) upon
conversion or exchange of other securities held in its portfolio. A call
option is also deemed to be covered if a Fund holds a call on the same security
and in the same principal amount as the call written, and the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written, or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and other liquid assets in a
segregated account with its custodian.
The Fund also may write call options that are not covered for cross-hedging
purposes. The Fund collateralizes its obligation under a written call option
for cross-hedging purposes by segregating cash or other liquid assets in an
amount not
4
<PAGE> 25
less than the market value of the underlying security, marked-to-market daily.
The Fund would write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be received from writing
a covered call option and when the Advisor believes that writing the option
would achieve the desired hedge.
The writer of an option may have no control over when the underlying securities
must be sold, in the case of a call option, or bought, in the case of a put
option, since with regard to certain options, the writer may be assigned an
exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call
option, be offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer
experiences a profit or loss from the sale of the underlying security. If a
put option is exercised, the writer must fulfill the obligation to buy the
underlying security at the exercise price, which will usually exceed the
then-current market value of the underlying security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase
is that the writer's position will be cancelled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the holder
of an option may liquidate its position by effecting a "closing sale
transaction." This is accomplished by selling an option of the same series as
the option previously bought. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit the Fund to write another put
option to the extent that the exercise price is secured by other liquid assets.
Effecting a closing transaction also will permit the Fund to use the cash or
proceeds from the concurrent sale of any securities subject to the option for
other investments. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
purchase transaction is less than the premium received from writing the option
or the price received from a sale transaction is more than the premium paid to
buy the option. The Fund will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium received from
writing the option or the price received from a sale transaction is less than
the premium paid to buy the option. Because increases in the market of a call
option generally will reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying security owned
by the Fund.
5
<PAGE> 26
An option position may be closed out only where a secondary market for an
option of the same series exists. If a secondary market does not exit, the Fund
may not be able to effect closing transactions in particular options and the
Fund would have to exercise the options in order to realize any profit. If the
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise. The absence of a liquid
secondary market may be due to the following: (i) insufficient trading
interest in certain options; (ii) restrictions imposed by a national securities
exchange ("Exchange") on which the option is traded on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions
imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances that interrupt normal
operations on an Exchange; (v) the facilities of an Exchange or of the Options
Clearing Corporation ("OCC") may not at all times be adequate to handle current
trading volume; or, (vi) one of more Exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of options) would
cease to exist, although outstanding options on that Exchange that had been
issued by the OCC as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write transactions. In
other words, the Fund may buy a security and then write a call option against
that security. The exercise price of such call will depend upon the expected
price movement of the underlying security. The exercise price of a call option
may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option period.
Buy-and-write transactions using at-the-money call options may be used when it
is expected that the price of the underlying security will remain fixed or
advance moderately during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected that the premiums
received from writing the call option, plus the appreciation in the market
price of the underlying security up to the exercise price, will be greater than
the appreciation in the price of the underlying security alone. If the call
options are exercised in such transactions, the Fund's maximum gain will be the
premium received by it for writing the option, adjusted upwards or downwards by
the difference between the Fund's purchase price of the security and the
exercise price. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be offset by the
amount of premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and the Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the position or take
delivery of the security at the exercise price; and the Fund's return will be
the premium received from the put options minus the amount by which the market
price of the security is below the exercise price.
6
<PAGE> 27
The Fund may buy put options to hedge against a decline in the value of its
portfolio. By using put options in this way, the Fund will reduce any profit
it might otherwise have realized in the underlying security by the amount of
the premium paid for the put option and by transaction costs.
The Fund may buy call options to hedge against an increase in the price of
securities that it may buy in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any, realized by the
Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to the Fund.
Interest Rate Swaps and Swap-Related Products
The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or its liabilities, and will usually enter into interest rate swaps on a
net basis (i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments). The net amount of the excess, if any, of the Fund's obligations
over its entitlement with respect to each interest rate swap will be calculated
on a daily basis, and an amount of cash or other liquid assets having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian. If the Fund enters
into an interest rate swap on other than a net basis, it would maintain a
segregated account in the full amount accrued on a daily basis of its
obligations with respect to the swap. The Fund will not enter into any
interest rate swap, cap or floor transaction unless the unsecured senior debt
or the claims-paying ability of the other party thereto is rated in one of the
three highest rating categories of at least one NRSRO at the time of entering
into such transaction. The Advisor will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party
to such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
financial institutions acting both as principals and as agents utilizing
standardizing swap documentation. The Advisor has determined that, as a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations that are less liquid than swaps. To the extent the Fund
sells (i.e., writes) caps and floors, it will segregate cash or other liquid
assets having an aggregate net asset value at least equal to the full amount
accrued on a daily basis, of its obligations with respect to any caps or
floors.
The value of any interest rate swap transactions may, when combined with the
value of any option contracts held by the Fund, may not exceed 5% of the net
assets of the Fund. These transactions may in some instances involve the
delivery of securities or other underlying assets by the Fund or its
counterparty to collateralize obligations under the swap. Under the
documentation currently used in those markets, the risk of loss with respect to
interest rate swaps is limited to the net amount of the payments that the Fund
is contractually obligated to make. If the other party to an interest rate
swap that is not collateralized defaults, the Fund would risk the loss of the
net amount of the payments that it contractually is entitled to receive.
7
<PAGE> 28
CAPITAL SHARES
The Trust is an open-end management investment company organized on February 3,
1998 as a business trust under the laws of the State of Delaware. The Trust
currently offers one portfolio of securities, the Bank and Insurance Fund.
The Trust is authorized to issue an unlimited number of capital shares. Each
share of the Fund has equal voting, dividend, distribution and liquidation
rights. Fund shares have par value equal to $.001 per share. Shares of the
Fund have no preemptive rights and only such conversion or exchange rights as
the Trustees may grant in its discretion. When issued for payment the Fund's
shares will be fully paid and non-assessable.
Shareholders are entitled to one vote for each full share held, and fractional
votes for fractional shares held, and will vote in the aggregate except as
otherwise required by the 1940 Act or applicable Delaware law. Shares of the
Fund have non-cumulative voting rights, which means that the holders of more
than 50% of the shares voting for the election of trustees can elect 100% of
the trustees if they choose to do so. The Fund does not intend to hold annual
shareholder meetings. The Board may hold special meetings for matters
requiring shareholder approval. A special shareholders meeting may be called
by shareholders holding at least 10% of the outstanding shares in order to
consider the removal of a trustee of the Fund. Special meetings will be held
for other purposes if the holders of at least 25% of the outstanding shares of
the Fund so request. Subject to certain limitations, the Fund will facilitate
appropriate communications by shareholders desiring to call a special meeting
for the purpose of considering the removal of a trustee.
8
<PAGE> 29
TRUSTEES AND OFFICERS
Trustees of the Fund
The Trustees of the Fund and their principal occupations during the past five
years are set forth below.
Name Age Address
- ---- --- -------
Harry M.K. Johnston 61 c/o Public Savings Bank
Trustee 2300 Computer Ave, Suite H42
Willow Grove, PA 19090
Principal Occupation:
Bank Executive; Consultant
Division Manager, Public Savings Bank since 1996; Contract Consultant to
Resolution Trust Company from 1993 to 1996; Independent Consultant from 1991 to
1993; President and CEO, Chestnut Hill National Bank from 1984 to 1991; Past
Chairman, Committees of the Pennsylvania Bankers Association.
Name Age Address
- ---- --- -------
Louis M. Marmon, M.D., Ph.D. 41 9711 Medical Center Dr. #212
Trustee Rockville, MD 20850
Principal Occupation:
Surgeon
Director of Pediatric Surgery, Shady Grove Adventist Hospital, Maryland since
1994; Director of Pediatric Surgical Research, Georgetown University School of
Medicine and Clinical Assistant Professor of Surgery, Georgetown University
School of Medicine from 1990 to 1994; Medical Director, Chartwell Health
Management, Inc. since March, 1997.
Name Age Address
- ---- --- -------
Thomas P.F. Kiely, J.D. 42 4767 Berkeley Terrace, N.W.
Trustee Washington, D.C. 20007
Principal Occupation:
Attorney, Aviator and Engineer.
Major, U.S. Army Reserve - Judge Advocate General's Corps. Since May, 1997;
Attorney, Federal Aviation Administration - Office of the Chief Counsel,
Procurement Litigation Division from 1993 to the present; Former Aviator,
Major, U.S. Marine Corps; 1977 Graduate United States Naval Academy
9
<PAGE> 30
Trustees of the Fund (continued)
Name Age Address
- ---- --- -------
Robert B. Bowes * 36 c/o Bowes Funds, LLC
Trustee and President 4520 East-West Hwy, Suite 540
Bethesda, Maryland 20814
Principal Occupation:
Insurance and Mutual Fund Corporate Finance Banker;
Chief Executive Officer, Bowes Funds, LLC since October, 1997; Chief
Financial Officer - Financial Institution Partners, L.P., a private bank equity
investment partnership based in Washington D.C. and it's affiliates including
Hovde Financial, Inc., a bank specialized merger advisory firm, from September,
1996 to September, 1997; President - Fund Commission Services, Inc., a
financial advisor to mutual fund company managers and distributors based in New
York, NY, from June, 1992 to August, 1996; Vice President - The Chase Manhattan
Bank, N.A. - Financial Institutions Group, New York, NY, from October, 1985 to
June, 1992.
* Trustees who are "interested persons" of the Fund, as defined in the
Investment Company Act of 1940, as amended, (the "1940 Act"). Trustee(s) of
the Fund who are officers or employees of the investment adviser receive no
remuneration from the Fund. Each of the other Trustees is paid a fee of $500
for each meeting attended and is reimbursed for the expenses of attending
meetings.
Officers of the Fund
Name Age Address
- ---- --- -------
Robert B. Bowes 36 c/o Bowes Funds, LLC
President and 4520 East-West Hwy, Suite 540
Chief Executive Officer Bethesda, Maryland 20814
Principal Occupation: Same as Above
10
<PAGE> 31
Officers of the Fund (continued)
Name Age Address
- ---- --- -------
Thomas I. Carocci, 27 c/o Bowes Funds, LLC
Vice President 4520 East-West Hwy, Suite 540
Bethesda, Maryland 20814
Principal Occupation:
- ---------------------
Controller, Mackenzie & Co. (Election Consultants) from February, 1996 to
November, 1997; Lebouef, Lamb, Green & MacRae, (Law Firm) Legal Intern during
1993 and 1994; Received J.D. degree from Duquesne University School of Law -
June, 1995.
Name Age Address
- ---- --- -------
Mark J. Seger, CPA, CFP 36 c/o Countrywide Fund Services
Senior Vice President , Inc.
and Treasurer 312 Walnut Street, 21st Floor
Cincinnati, Ohio 45201-5354
Principal Occupation:
- ---------------------
Chief Operating Officer of Countrywide Fund Services, Inc.
Name Age Address
- ---- --- -------
Robert G. Dorsey 40 c/o Countrywide Fund Services
Senior Vice President , Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45201-5354
Principal Occupation:
- ---------------------
President of Countrywide Fund Services, Inc.
Name Age Address
- ---- --- -------
John F. Splain 41 c/o Countrywide Fund Services
Senior Vice President , Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45201-5354
Principal Occupation:
- ---------------------
General Counsel of Countrywide Fund Services, Inc.
11
<PAGE> 32
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Compensation
Aggregate from
Compensation Registrant &
Name of Person, from Mutual Fund
Fund Position Registrant Complex
- ------------- ---------- -------
<S> <C> <C>
Robert B. Bowes, Trustee $ -0- $ -0-
President & Chief Executive
Officer
Harry M.K. Johnston, 2,000 2,000
Trustee
Louis M. Marmon, M.D., Ph.D. 2,000 2,000
Trustee
Thomas P.F. Kiely, 2,000 2,000
Trustee
</TABLE>
The preceding table sets forth information regarding projected annual
compensation (expressed in dollars) of the Trustees. Officers of the Fund and
Trustee(s) who are interested persons of the Fund do not receive any
compensation from the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment advisor of the Fund is Bowes Funds, LLC (the "Advisor"). The
Advisor is wholly-owned and controlled by Robert B. Bowes. The Advisor has no
prior experience with the management of registered investment companies. Under
the terms of the Investment Advisory Agreement between the Fund and the Advisor
(the "Agreement"), the Advisor furnishes overall investment management for the
Fund, provides research and credit analysis, oversees the purchase and sales of
portfolio securities, maintains books and records with respect to Fund
securities transactions and provides periodic and special reports to the Board
of Trustees as required.
Pursuant to the Agreement, the Fund pays the Advisor a fee computed daily and
payable monthly, at an annual rate of 1.00% of the Fund's average daily net
assets. The Agreement expires two years from the date of its effectiveness, at
which time it can be renewed for successive one year periods, provided that
such continuance is specifically approved annually by (a) the vote of a
majority of the Trustees who are not parties to the Agreement or interested
persons (as defined in the 1940
12
<PAGE> 33
Act), cast in person at a meeting called for the purpose of voting on approval,
and (b) either (i) the vote of a majority of the outstanding voting securities
of the Fund, or (ii) the vote of a majority of the Trustees. The Agreement may
be terminated at any time by (a) the vote of a majority of the Trustees who are
not interested persons (as defined in the 1940 Act) or (b) the vote of a
majority of the outstanding voting securities of the Fund, without penalty, on
60 days' written notice to the Advisor. The Advisor may also terminate its
advisory relationship with the Fund without penalty on 90 days' written notice
to the Fund. The Agreement terminates automatically in the event of its
assignment (as defined in the 1940 Act).
ADMINISTRATOR
The Fund has retained Countrywide Fund Services, Inc. (Countrywide) to provide
administration services to the Fund. The administrative services provided by
Countrywide to the Fund include internal auditing and regulatory services,
coordination and preparation of reports and filings with the SEC and state
securities authorities, and preparation of reports to the Fund shareholders and
Trustees. For these services, the Fund pays Countrywide a fee (computed daily
and payable monthly) based on the average net assets of the Fund equal to .10%
per annum.
DISTRIBUTION OF FUND SHARES AND 12b-1 PLAN
Distribution of Fund Shares
The Fund has entered into an Underwriting Agreement with Countrywide
Investments, Inc. or an affiliate to serve as the Fund's Distributor.
Countrywide Investments, Inc. was organized in 1974 and is an indirect
wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New York
Stock Exchange listed company principally engaged in the business of
residential mortgage lending.
On February 3, 1998 the initial shareholder of the Fund and the Trustees
approved and adopted a plan of distribution (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, which permits the Fund to pay certain
costs for the distribution of its shares. On February 3, 1998, the Plan was
approved by a majority of the board of Trustees and by a majority of the
disinterested Trustees. The Plan provides for the payment to the Advisor of a
12b-1 fee of up to .25 of 1% (0.25%) per annum of the Fund's average daily net
assets as reimbursement of distribution expenses related to activities
primarily intended to result in the sale of Fund shares. The Fund is not
obligated to reimburse the Advisor for distribution expenses over .25% per
annum of the Fund's average daily net assets. The expenses paid by the Advisor
include, but are not limited to, payments made to and expenses of persons
(including employees of the Advisor) who are engaged in, or provide support
services in connection with, the distribution of Fund shares, such as answering
routine telephone inquiries and processing shareholder requests for
information; compensation (including incentive compensation and/or continuing
compensation based on the amount of customer assets maintained in the Fund)
paid to securities dealers, financial institutions and other organizations
which render distribution and administrative services in connection with the
distribution of Fund shares; costs related to the formulation and
implementation of marketing and promotional activities, including direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; costs of printing and distributing prospectuses and reports to
prospective shareholders of the Fund; costs involved in preparing, printing and
distributing sales literature for the
13
<PAGE> 34
Fund; costs involved in obtaining whatever information, analyses and reports
with respect to market and promotional activities on behalf of the Fund that
the Advisor deems advisable; and such other costs as may from time to time be
agreed upon by the Fund. Such payments are to be made monthly by the Fund to
the Advisor with respect to each fiscal year of the Fund to reimburse the
actual distribution expenses incurred by the Advisor in such year. From time
to time the Fund may engage in activities to promote the sale of the shares of
the Fund and other funds that are or may in the future be advised or
administered by the Advisor which costs are not readily identifiable as related
to any one fund. In such cases, the Advisor allocates the cost of the activity
among the funds involved on the basis of their respective net assets, unless
otherwise directed by the Trustees.
The Plan will continue in effect from year to year if approved at least annually
by a majority of the Fund's Trustees who are not interested persons of the Fund
and have no direct or indirect financial interest in the operation of the Plan
or any related agreements by votes cast in person at a meeting called for such
purpose. Administration of the Plan is regulated by Rule 12b-1 under the 1940
Act, which includes requirements that the Trustees receive and review at least
quarterly reports concerning the nature and qualification of expenses which are
made, that the Trustees approve all agreements implementing the Plan and that
the Plan may be continued from year-to-year only if the Trustees conclude at
least annually that continuation of the Plan is likely to benefit shareholders.
The Plan may not be amended to increase materially the amount to be spent on
distribution of shares of the Fund without shareholder approval.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Trustees, decisions to buy and sell
securities for the Fund and negotiation of brokerage commission rates are made
by the Advisor. Transactions on exchanges involve the payment by the Fund of
negotiated brokerage commissions. There is generally no stated commission in
the case of securities traded in the over-the-counter market but the price paid
by the Fund usually includes an undisclosed dealer commission or mark-up. In
certain instances, the Fund may make purchases of underwritten issues at prices
that include underwriting fees.
In selecting a broker to execute each particular transaction, the Advisor takes
the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker; the size and
difficulty in executing the order; and the value of the expected contribution
of the broker to the investment performance of the Fund on a continuing basis.
Accordingly, the cost of the brokerage commissions to the Fund in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. For example, the Advisor will consider the research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Fund or the Advisor's other clients. Such
research and investment services include statistical and economic data and
research reports on particular companies and industries as well as research
software. Subject to such policies and procedures as the Trustees may
determine, the Advisor shall not be deemed to have acted unlawfully or to have
breached any duty solely by reason of its having caused the Fund to pay a
broker that provides research services to the investment adviser an amount of
commission for effecting a portfolio investment transaction in excess of the
amount another broker would have charged for effecting that transaction, if the
Advisor determines
14
<PAGE> 35
in good faith that such amount of commission was reasonable in relation to the
value of the research service provided by such broker viewed in terms of either
that particular transaction or the Advisor's ongoing responsibilities with
respect to the Fund.
TAXES
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
the Fund generally must, among other things, (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments with respect
to certain securities on loans, and gains from the sale or other disposition of
stock, securities, or other income derived with respect to its business of
investing in such stock or securities; and (b) diversify its holdings so that,
at the end of each fiscal quarter, (i) at least 50% of the market value of its
assets is represented by cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer )other than U.S.
Government securities and the securities of other regulated investment
companies).
As a regulated investment company, a Fund generally will not be subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest, and any realized net short-term and
long-term capital gains) for the taxable year is distributed. The Fund intends
to distribute substantially all such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a non-deductible 4% excise tax at the
Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income for
the calendar year, (2) at least 98% of its realized capital gains in excess of
its realized capital losses for a one year period generally ending on October
31 of the calendar year, and (3) all ordinary income and net realized capital
gains for previous years that were not distributed during such years. To avoid
application of the excise tax, the Fund intends to make distributions in
accordance with the calendar year distribution requirement.
A distribution will be treated as paid as on December 31 of the current
calendar year if it is declared by the Fund in October, November or December of
that year with a record date in such month and paid by the Fund during January
of the following year. Such distributions will be taxable to shareholders in
the calendar year in which such distribution is declared, rather than the
calendar year in which the distributions are received.
PRICING AND REDEMPTION OF SECURITIES BEING OFFERED
The Fund continuously offers its shares for sale and redemption without sales
or redemption charges at net asset value calculated in accordance with
generally
15
<PAGE> 36
accepted accounting principals. The net asset value of the Fund is determined
as of the close of trading of the New York Stock Exchange (currently 4:00 p.m.
Eastern time) on each "Business Day." A Business day means any day, Monday
through Friday, except for the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Fourth of
July, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas.
Net asset value per share is determined by dividing the total value of all Fund
securities and other assets, less liabilities, by the total number of shares
then outstanding. Net asset value includes interest on fixed income
securities, which is accrued daily.
How to Redeem Fund Shares
The right of redemption may be suspended, or the date of payment postponed
beyond the normal seven-day period by the Fund, under the following conditions
authorized by the 1940 Act: (1) for any period (a) during which the New York
Stock Exchange is closed, other than customary weekend or holiday closing, or
(b) during which trading on the New York Stock Exchange is restricted; (2) for
any period during which an emergency exists as a result of which (a) disposal
by the Fund of securities owned by it is not reasonably practical, or (b)it is
not reasonably practical for the Fund to determine the fair value of its net
assets; and (3) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of the Fund's shareholders.
It is possible that conditions may exist in the future which would, in the
opinion of the Trustees, make it undesirable for the Fund to pay for
redemptions in cash. In such cases the Trustees may authorize payment to be
made in portfolio securities of the Fund. However, the Fund is obligated under
the 1940 Act to redeem for cash all shares presented for redemption by any one
shareholder up to $250,000 (or 1% of the Fund's net assets if that is less) in
any 90-day period. Securities delivered in payment of redemptions are valued
at the same value assigned to them in computing the net asset value per share.
Shareholders receiving such securities generally will incur brokerage costs on
their sales.
CALCULATION OF PERFORMANCE DATA
Average annual total return is the average annual compound rate of return for
various time periods (i.e., one year, five years and ten years), all ended on
the last day of the most recent calendar quarter. Average annual total return
quotations reflect changes in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the respective periods
were reinvested in Fund shares. Average annual total return is calculated by
computing the average annual compound rates of return of a hypothetical
investment over such periods, according to the following formula (average
annual total return is then expressed as a percentage):
n
P (1 + T) = ERV
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000 made at the
beginning of the applicable period
n = number of years
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<PAGE> 37
ERV = ending redeemable value at the end of the applicable period
It should be noted that average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.
The Fund may also quote the Fund's performance as expressed by a measure of
total return which is calculated differently from average annual return. Total
return of the Fund is calculated for any specified period of time by assuming
the purchase of shares of the Fund at the net asset value at the beginning of
the period. Each dividend or other distribution paid by the Fund is assumed to
have been reinvested at the net asset value on the reinvestment date. The
total number of shares then owned as a result of this process is valued at the
net asset value at the end of the period. The percentage increase is
determined by subtracting the initial value of the investment from the ending
value and dividing the remainder by the initial value.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average,
Standard & Poor's 500 Composite Stock Price Index (S&P 500), the Philadelphia
Stock Exchange Bank Index, and the Russell 2000 Index.
From time to time, in advertising, marketing and other Fund literature, the
performance of the Fund may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc., and other
independent organizations. When these organizations' tracking results are
used, the Fund will be compared to the appropriate fund category, that is, by
fund objective and portfolio holdings or the appropriate volatility grouping,
where volatility is a measure of the Fund's risk. From time to time, the
average price-earnings ratio and other attributes of the Fund's or the model
portfolio's securities, may be compared to the average price-earnings ratio and
other attributes of the securities that comprise the S&P 500.
An average annual total return reflects the hypothetical annually compounded
return that would have produced the same total return if the Fund's performance
had been constant over the entire period. Total return figures are based on
the overall change in value of a hypothetical investment in the Fund over a
stated period of time. Because average annual total returns for more than one
year tend to smooth out variations in the Fund's return, investors should
recognize that such figures are not the same as actual year-by-year results.
STATEMENT OF ASSETS AND LIABILITIES
The Statement of Assets and Liabilities of the Fund as of February 3, 1998, set
forth below, has been so included in reliance on the report of Arthur Andersen
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
17
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholder of
the Bank and Insurance Fund of Bowes Investment Trust:
We have audited the accompanying statement of assets and liabilities of the
Bank and Insurance Fund of Bowes Investment Trust as of February 3, 1998. This
financial statement is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the statement
of assets and liabilities. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Bank
and Insurance Fund of Bowes Investment Trust as of February 3, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
February 3, 1998
18
<PAGE> 39
Bowes Investment Trust
Bank and Insurance Fund
Statement of Assets and Liabilities
February 3, 1998
<TABLE>
<S> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . $ 100,000
Organization costs (Note 2) . . . . . . . . . . . . 8,000
-----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . 108,000
LIABILITIES
Accrued Expenses (note 2) . . . . . . . . . . . . . 8,000
----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . 8,000
Net Assets for shares of beneficial
Interest outstanding . . . . . . . . . . . . . . 100,000
----------
Shares outstanding . . . . . . . . . . . . . . . . 10,000
----------
Net asset value, offering price and redemption
price per share . . . . . . . . . . . . . . . . $ 10.00
----------
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE> 40
BOWES INVESTMENT TRUST
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
AS OF FEBRUARY 3, 1998
1. The Bank and Insurance Fund (the Fund) is a diversified series of the
Bowes Investment Trust, an open-end management investment company
established as a Delaware business trust under a Declaration of Trust
dated February 3, 1998. On February 3, 1998, 10,000 shares of the
Fund were issued for cash at $10.00 per share. The Fund has had no
operations except for the initial issuance of shares.
2. Expenses incurred in connection with the organization of the Fund are
estimated to be $8,000. These expenses have been or will be paid by
Bowes Funds, LLC (the Adviser). Upon commencement of the public
offering of shares of the Fund, the Fund will reimburse the Adviser
for such expenses, with that amount being capitalized and amortized on
a straight line basis over five years. As of February 3, 1998, all
outstanding shares of the Fund were held by the Adviser, who purchased
these shares in order to provide the Trust with its required capital.
In the event the initial shares of the Fund are redeemed by any holder
thereof at any time prior to the complete amortization of
organizational expenses, the redemption proceeds payable with respect
to such shares will be reduced by the pro rata share (based upon the
portion of the initial shares redeemed in relation to the number of
initial shares outstanding at the time of redemption) of the
unamortized deferred organizational expenses as of the date of such
redemption.
3. Reference is made to the Prospectus and this Statement of Additional
Information for a description of the Management Agreement, the
Underwriting Agreement, the Distribution Expense Plan, the
Administration Agreement, the tax aspects of the Fund and the
calculation of the net asset value of shares of the Fund.
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<PAGE> 41
INVESTMENT MANAGER
BOWES FUNDS, LLC
4520 EAST WEST HWY, SUITE #540
BETHESDA, MARYLAND 20814
(301) 654-9567 http://www.bowesfunds.com
-------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
----------------------------------------------
COUNTRYWIDE FUND SERVICES, INC.
P.O. BOX 5354
CINCINNATI, OHIO 45201-5354
CUSTODIAN
---------
STAR BANK, N.A.
425 WALNUT STREET
CINCINNATI, OHIO 45202
LEGAL COUNSEL
-------------
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
FUND DISTRIBUTOR
----------------
COUNTRYWIDE INVESTMENTS, INC.
312 WALNUT STREET
CINCINNATI, OHIO 45201-5354
INDEPENDENT AUDITORS
--------------------
ARTHUR ANDERSEN LLP
425 WALNUT STREET
CINCINNATI, OHIO 45202
21
