SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 42
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 41
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(Check appropriate box or boxes.)
COUNTRYWIDE TAX-FREE TRUST File Nos. 2-72101 and 811-3174
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312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code:(513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor, Cincinnati, OH 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/x/ on January 1, 1998 pursuant to paragraph (b)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
CROSS REFERENCE SHEET
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FORM N-1A
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ITEM SECTION IN PROSPECTUS
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1....................... Cover Page
2....................... Expense Information
3....................... Financial Highlights, Performance Information
4....................... Operation of the Fund, Investment Objectives
and Policies
5....................... Operation of the Fund, Financial Highlights
6....................... Cover Page, Operation of the Fund, Dividends and
Distributions, Taxes
7....................... How to Purchase Shares, Operation of the Fund,
Shareholder Services, Calculation of
Share Price and Public Offering Price, Exchange
Privilege, Distribution Plan, Application
8....................... How to Redeem Shares, Shareholder Services
9....................... None
ITEM SECTION IN STATEMENT OF ADDITIONAL
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INFORMATION
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10...................... Cover Page
11...................... Table of Contents
12...................... The Trust
13...................... Municipal Obligations, Quality Ratings of Municipal
Obligations, Definitions, Policies and Risk
Considerations, Investment Limitations, Portfolio
Turnover
14...................... Trustees and Officers
15...................... Principal Security Holders
16...................... The Investment Adviser and Underwriter,
Distribution Plan, Custodian, Accountants,
Transfer Agent, Securities Transactions
17...................... Securities Transactions
18...................... The Trust
19...................... Calculation of Share Price and Public Offering Price,
Other Purchase Information, Redemption in Kind
20...................... Taxes
21...................... The Investment Adviser and Underwriter
22...................... Historical Performance Information, Tax
Equivalent Yield Table
23...................... Annual Report
<PAGE>
PROSPECTUS
January 1, 1998
Countrywide Tax-Free Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
KENTUCKY TAX-FREE FUND
The Kentucky Tax-Free Fund (the "Fund"), a separate series of Countrywide
Tax-Free Trust, seeks the highest level of interest income exempt from federal
and Kentucky income taxes, consistent with protection of capital. The Fund
invests primarily in high and medium-quality Kentucky municipal obligations.
THE FUND IS A NON-DIVERSIFIED SERIES AND MAY INVEST A SIGNIFICANT
PERCENTAGE OF ITS ASSETS IN A SINGLE ISSUER. THEREFORE, AN INVESTMENT IN THE
FUND MAY BE RISKIER THAN AN INVESTMENT IN OTHER TYPES OF MUTUAL FUNDS. SHARES OF
THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANKING OR DEPOSITORY INSTITUTION. SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
Pursuant to an Agreement and Plan of Reorganization dated May 31, 1997,
the Fund, on August 29, 1997, succeeded to the assets and liabilities of
another mutual fund of the same name (the "Predecessor Fund"), which was an
investment series of Trans Adviser Funds, Inc. The investment objective,
policies and restrictions of the Fund and the Predecessor Fund are substantially
identical and the financial data and information in this Prospectus relates to
the Predecessor Fund.
Countrywide Investments, Inc. (the "Adviser") manages the Fund's
investments and its business affairs.
This Prospectus sets forth concisely the information about the Fund that
you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated January 1, 1998 has
been filed with the Securities and Exchange Commission and is hereby
incorporated by reference in its entirety. A copy of the Statement of
Additional Information can be obtained at no charge by calling one of the
numbers listed below.
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For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)............................................800-543-0407
Cincinnati........................................................513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
EXPENSE INFORMATION
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Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) None*
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None**
* Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of .75% if a redemption
occurred within 12 months of purchase and a commission was paid by the
Adviser to a participating unaffiliated dealer.
** 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 $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees After Waivers .00%(A)
12b-1 Fees .25%(B)
Other Expenses After Reimbursements .57%(C)
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Total Fund Operating Expenses After Waivers
and Expense Reimbursements .82%(D)
=======
(A) Absent waivers of management fees, such fees would be .50%.
(B) Long-term shareholders may pay more than the economic equivalent
of the maximum front-end sales loads permitted by the National
Association of Securities Dealers.
(C) Absent expense reimbursements, other expenses would have been
1.13% for the fiscal year ended August 31, 1997.
(D) Absent waivers of management fees and expense reimbursements,
total operating expenses would be 1.88%.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred by the Predecessor Fund during the most recent fiscal year,
except that they have been restated to reflect an increase in the amount of
management fees payable by the Fund as well as an undertaking by the Adviser to
limit total operating expenses to .82% of the Fund's average net assets.
THE EXAMPLE BELOW SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
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$ 48 $ 65 $ 84 $ 137
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<PAGE>
FINANCIAL HIGHLIGHTS
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The following audited financial information for the Predecessor Fund for
the fiscal year ended August 31, 1997 has been audited by Arthur Andersen LLP,
independent auditors, and should be read in conjunction with the financial
statements. The audited financial information for the fiscal period
ended August 31, 1996 was audited by other independent accountants. The
financial statements as of August 31, 1997 and related auditors' report
appear in the Statement of Additional Information of the Fund, which can
be obtained by shareholders at no charge by calling Countrywide Fund Services,
Inc. (Nationwide call toll-free 800-543-0407, in Cincinnati call 629-2050)
or by writing to the Trust at the address on the front of this Prospectus.
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
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<S> <C> <C>
Net asset value at beginning of period................................... $ 10.06 $ 10.00
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Income from investment operations:
Net investment income................................................. 0.44 0.51(B)
Net realized and unrealized gains on investments...................... 0.28 0.06
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Total from investment operations......................................... 0.72 0.57
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Less distributions:
Dividends from net investment income.................................. ( 0.44 ) ( 0.51)
Distributions in excess of net investment income...................... ( 0.08 ) --
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Total distributions...................................................... ( 0.52 ) ( 0.51)
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Net asset value at end of period......................................... $ 10.26 $ 10.06
============== ===============
Total return (C) ........................................................ 7.36% 5.80%
============== ===============
Net assets at end of period (000's)...................................... $ 8,438 $ 15,840
============== ===============
Ratio of expenses to average net assets (D) ............................. 0.85% 0.82%
Ratio of net investment income to average net assets..................... 4.35% 5.30%(E)
Portfolio turnover rate.................................................. 0% 145%
<FN>
(A) Represents the period from the commencement of operations (September 27,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.78% and 1.65%(E) for the periods ended
August 31, 1997 and 1996, respectively.
(E) Annualized.
</FN>
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
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The Fund is a series of Countrywide Tax-Free Trust (the "Trust"). The
Fund seeks the highest level of interest income exempt from federal and Kentucky
income taxes, consistent with protection of capital. The Fund is not intended to
be a complete investment program, and there is no assurance that its investment
objective can be achieved. The Fund's investment objective is fundamental and
as such may not be changed without the affirmative vote of a majority of its
outstanding shares. The term "majority" of the outstanding shares means the
lesser of (1) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented at such meeting or (2) more than 50% of the
outstanding shares of the Fund. Unless otherwise indicated, all investment
practices and limitations of the Fund are nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.
The Fund seeks to achieve its investment objective by investing
primarily in investment grade Kentucky Obligations (described below) of any
maturity. Under normal market conditions, at least 65% of the value of the
Fund's total assets will be invested in Kentucky Obligations and the remainder
may be invested in obligations that are not Kentucky Obligations. When the Fund
has adopted a temporary defensive position (including circumstances when
acceptable Kentucky Obligations are unavailable for investment by the Fund), the
Fund may invest more than 35% of its total assets in obligations that are not
Kentucky Obligations.
The Fund invests in Kentucky Obligations and other securities which are
rated at the time of purchase within the four highest grades assigned by Moody's
Investors Service, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Ratings Group
(AAA, AA, A or BBB) or Fitch Investors Services, Inc. (AAA, AA, A or BBB), or
unrated securities determined by the Adviser to be of comparable quality. While
securities in these categories are generally accepted as being of investment
grade, the fourth highest grade is considered to be a medium grade and has
speculative characteristics even though it is regarded as having adequate
capacity to pay interest and repay principal.
The Fund may invest in securities of any maturity, including tax-exempt
bonds, notes and commercial paper determined by the Adviser to meet the Fund's
quality standards. The Fund's quality standards limit its investments in
tax-exempt notes to those which are rated within the three highest grades by
Moody's (MIG 1, MIG 2 or MIG 3) or Fitch (F-1+, F-1 or F-2) or the two highest
grades by Standard & Poor's (SP-1 or SP-2) and in tax-exempt commercial paper to
those which are rated within the two highest
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<PAGE>
grades by Moody's (Prime-1 or Prime-2), Standard & Poor's (A-1 or A-2) or Fitch
(Fitch-1 or Fitch-2). The Statement of Additional Information contains a
description of tax-exempt notes and commercial paper and a description of
Moody's, Standard & Poor's and Fitch ratings.
It is a fundamental policy that under normal market conditions the
Fund's assets will be invested so that at least 80% of the annual income of the
Fund will be exempt from federal income tax, including the alternative minimum
tax, and Kentucky income tax. This policy may not be changed without the
affirmative vote of a majority of the outstanding shares of the Fund. The term
"majority" of the outstanding shares means the lesser of (1) 67% or more of the
outstanding shares of the Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented at such
meeting or (2) more than 50% of the outstanding shares of the Fund.
The Fund may, from time to time, invest in other short-term,
high-quality obligations for temporary defensive purposes (subject to the
fundamental policy that under normal market conditions the assets of the Fund
will be invested so that at least 80% of its annual income is exempt from
federal income tax, including the alternative minimum tax, and Kentucky income
tax). These include, but are not limited to, obligations the interest on which
is exempt from federal, but not Kentucky, income tax and taxable obligations
such as obligations issued by the U.S. Government or any of its agencies or
instrumentalities and repurchase agreements. Except for temporary defensive
purposes, the Fund's assets will be invested so that no more than 20% of the
Fund's annual income will be subject to federal income tax. Under normal market
conditions, the Fund anticipates that not more than 5% of the value of its net
assets will be invested in any one type of taxable obligation. Taxable
obligations are more fully described in the Statement of Additional Information.
The Fund may invest in these other short-term obligations, for example, due to
market conditions under which Kentucky Obligations are temporarily unavailable
for purchase or available only in limited amounts, or pending investment of
proceeds of sales of shares or proceeds from the sale of portfolio securities or
in anticipation of redemptions. Although interest earned on these short-term
obligations is taxable as ordinary income for federal and/or Kentucky tax
purposes, the Fund intends to minimize taxable income through investment, when
possible, in other available securities exempt from federal income tax and/or
Kentucky income taxes, including shares of investment companies whose dividends
are tax-exempt. The Fund may invest up to 10% of its total assets in shares of
other investment companies. Investments by the Fund in shares of other
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<PAGE>
investment companies may result in duplication of sales loads and advisory,
administrative and distribution fees. The Fund will not invest more than 5% of
its total assets in securities of any single investment company and will not
purchase more than 3% of the outstanding voting securities of any investment
company. The Fund reserves the right to hold cash reserves for temporary
defensive purposes and to vary its dollar-weighted average portfolio
maturity, as the Adviser deems necessary.
Although the Fund has no current intention of doing so, the Fund may
buy and sell futures contracts relating to indices on municipal bonds and to
U.S. Government securities. The Fund may also write and purchase put and call
options on futures. Futures and options may be used to attempt to hedge against
changes in the market price of the Fund's municipal obligations caused by
interest rate fluctuations. Futures and options also may provide a hedge against
increases in the cost of securities the Fund intends to purchase.
Kentucky Obligations
--------------------
Kentucky Obligations are debt obligations issued by the Commonwealth of
Kentucky and its political subdivisions, agencies, authorities and
instrumentalities and other qualifying issuers which pay interest that is, in
the opinion of bond counsel to the issuer, exempt from federal income tax,
including the alternative minimum tax and Kentucky personal income tax.
For purposes of this definition, Kentucky Obligations include participation
interests in Kentucky Obligations and shares of an investment company which
invests its assets so that at least 80% of its annual income is exempt from
federal income tax, including the alternative minimum tax and Kentucky
personal income tax. Kentucky Obligations are issued to obtain funds to
construct, repair or improve various public facilities such as airports,
bridges, highways, hospitals, housing, schools, streets and water and sewer
works, to pay general operating expenses or to refinance outstanding debts.
They also may be issued to finance various private activities, including the
lending of funds to public or private institutions for construction of housing,
educational or medical facilities or the financing of privately owned or
operated facilities. Kentucky Obligations consist of tax-exempt bonds,
tax-exempt notes and tax-exempt commercial paper. The Statement of Additional
Information contains a description of tax-exempt bonds, notes and commercial
paper.
The two principal classifications of Kentucky Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are backed by the
issuer's full credit and taxing power.
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<PAGE>
Revenue bonds are backed by the revenues of a specific project, facility or tax.
Industrial development revenue bonds are a specific type of revenue bond backed
by the credit of the private user of the facility, and therefore investments in
these bonds have more potential risk. The Fund's ability to achieve its
investment objective depends to a great extent on the ability of these various
issuers to meet their scheduled payments of principal and interest.
Tax-exempt notes generally are used to provide short-term capital needs
and generally have maturities of one year or less. The tax-exempt notes in
which the Fund may invest are tax anticipation notes (TANs), revenue
anticipation notes (RANs) and bond anticipation notes (BANs). TANs, RANs
and BANs are issued by state and local government and public authorities as
interim financing in anticipation of tax collections, revenue receipts or
bond sales, respectively. Tax-exempt commercial paper typically represents
short-term, unsecured, negotiable promissory notes.
The Fund may invest in any combination of general obligation bonds,
revenue bonds and industrial development bonds. The Fund may invest more than
25% of its assets in tax-exempt obligations issued by municipal governments or
political subdivisions of governments within a particular segment of the bond
market, such as housing agency bonds, hospital revenue bonds or airport bonds.
It is possible that economic, business or political developments or other
changes affecting one bond may also affect other bonds in the same segment in
the same manner, thereby potentially increasing the risk of such investments.
From time to time, the Fund may invest more than 25% of the value of
its total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the nongovernmental users. However, the Fund will not invest more
than 25% of its assets in securities backed by nongovernmental users which are
in the same industry. Interest on municipal obligations (including certain
industrial development bonds) which are private activity obligations, as defined
in the Internal Revenue Code, issued after August 7, 1986, while exempt from
federal income tax, is a preference item for purposes of the alternative minimum
tax. Where a regulated investment company receives such interest, a
proportionate share of any exempt-interest dividend paid by the investment
company will be treated as such a preference item to shareholders. The Fund will
invest its assets so that no more than 20% of its annual income gives rise to a
preference item for the purpose of the alternative minimum tax and in other
investments subject to federal income tax.
The Fund may purchase other types of tax-exempt obligations which may
become available in the future, provided the
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<PAGE>
obligations are consistent with the Fund's investment objective and policies,
the Adviser believes their quality meets the Fund's quality standards, and this
Prospectus has been appropriately revised to reflect the Fund's policies with
respect to such obligations.
Risk Factors
------------
The market value of investments available to the Fund, and therefore
the Fund's yield and net asset value, will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors beyond the control
of the Adviser. The Fund's portfolio securities are subject to price
fluctuations based upon changes in the level of interest rates, which will
generally result in all those securities changing in price in the same way,
i.e., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise. In addition, the financial condition
of an issuer or adverse changes in general economic conditions, or both, may
impair the issuer's ability to make payments of interest and principal. There is
no limit on the percentage of a single issue of tax-exempt obligations that the
Fund may own. If the Fund holds a significant portion of the obligations of an
issuer, there may not be a readily available market for the obligations. Reduced
diversification could involve an increased risk to the Fund should an issuer be
unable to make interest or principal payments or should the market value of
Kentucky Obligations decline.
The Fund may purchase Kentucky Obligations which are rated at the time
of purchase within the four highest grades assigned by Moody's, Standard &
Poor's or Fitch. Subsequent to its purchase by the Fund, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. In the event a security's rating is reduced below the Fund's minimum
requirements, the Fund will sell the security, subject to market conditions and
the Adviser's assessment of the most opportune time for sale. Although lower
rated securities will generally provide higher yields than higher rated
securities of similar maturities, they are subject to a greater degree of market
fluctuation. Kentucky Obligations rated Baa or BBB have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest than is
the case with higher grade securities. In addition, Kentucky Obligations with
longer maturities generally offer both higher yields and greater exposure to
market fluctuation from changes in interest rates. Consequently, investors in
the Fund should be aware that there is a possibility of greater fluctuation in
the Fund's net asset value.
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<PAGE>
There are also risks of reduced diversification because the Fund
invests primarily in obligations of issuers within a single state. The Fund is
more likely to invest its assets in the securities of fewer issuers because of
the relatively smaller number of issuers of Kentucky Obligations. The Fund's
performance is closely tied to conditions within the Commonwealth of Kentucky
and to the financial condition of the Commonwealth and its authorities and
municipalities. The economy in the Commonwealth of Kentucky, once dominated by
coal mining, tobacco and heavy manufacturing industries, is diversifying into a
more modern manufacturing and service-oriented base. Kentucky's manufacturing
sector includes industrial machinery, automobiles and related parts, consumer
appliances and apparel. Its service sector has grown at a steady pace, the
largest components being air transportation, health and business services and
retail trade. Much of the economic development has occurred in the "Golden
Triangle" bounded by Cincinnati, Louisville and Lexington. Development in other
regions of Kentucky has not prospered as well and may lag statewide development
efforts. The Commonwealth has been successful in attracting new businesses
through its low cost structure, high quality of life and probusiness regulatory
environment. Yet despite improvement in its education system resulting from
sweeping educational reform in 1990, the Commonwealth will be challenged by
growing educational demands facing its workforce. In recent fiscal years,
effective budgetary management has enabled Kentucky to reverse a trend of poor
financial performance which had deteriorated year-end balances through fiscal
1993. A reversal in the negative trend began in fiscal 1994 and has carried
forward through fiscal 1996, enabling the Commonwealth to establish a budgetary
reserve which is expected to be maintained through fiscal 1998. During the past
seven years, Kentucky's growth in both employment and personal income has
outpaced that of the nation; however, major structural weaknesses exist within
Kentucky's economic base, creating vulnerabilities given rapid technological
change. Although revenue obligations of the Commonwealth of Kentucky or its
political subdivisions may be payable from a specific project or source, there
can be no assurance that future economic and political developments and the
resulting impact on state and local governmental finances will not adversely
affect the market values and marketability of the Kentucky Obligations held by
the Fund or the ability of a specific issuer to make interest or principal
payments.
The Fund is a non-diversified fund under the Investment Company Act of
1940. Thus, its investments may be more concentrated in fewer issuers than those
of a diversified fund. This concentration may cause greater fluctuation in the
Fund's net asset value. As the Fund intends to comply with Subchapter M of the
Internal Revenue Code, it may invest up to 50% of its
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<PAGE>
assets at the end of each quarter of its fiscal year in as few as two issuers,
provided that no more than 25% of the assets are invested in one issuer. With
respect to the remaining 50% of its assets at the end of each quarter, it may
invest no more than 5% in one issuer.
Certain provisions in the Internal Revenue Code relating to the
issuance of municipal obligations may reduce the volume of municipal obligations
qualifying for federal tax exemptions. Shareholders should consult their tax
advisors concerning the effect of these provisions on an investment in the Fund.
Proposals that may further restrict or eliminate the income tax exemptions for
interest on municipal obligations may be introduced in the future. If any such
proposal were enacted that would reduce the availability of municipal
obligations for investment by the Fund so as to adversely affect its
shareholders, the Fund would reevaluate its investment objective and policies
and submit possible changes in the Fund's structure to shareholders for their
consideration. If legislation were enacted that would treat a type of municipal
obligation as taxable, the Fund would treat such security as a permissible
taxable investment within the applicable limits set forth herein.
Other Investment Techniques
---------------------------
The Fund may also engage in the following investment techniques, each
of which may involve certain risks:
PARTICIPATION INTERESTS. The Fund may purchase participation interests
in tax-exempt obligations owned by banks or other financial institutions. A
participation interest gives the Fund an undivided interest in the obligation in
the proportion that the Fund's participation interest bears to the principal
amount of the obligation and provides that the holder may demand repurchase
within a specified period. Participation interests frequently are backed by
irrevocable letters of credit or a guarantee of a bank. Participation interests
will be purchased only if, in the opinion of counsel to the issuer, interest
income on the participation interests will be tax-exempt when distributed as
dividends to shareholders. For certain participation interests, the Fund will
have the right to demand payment, on not more than seven days' notice, for all
or any part of its participation interest in the tax-exempt obligation, plus
accrued interest. As to these instruments, the Fund intends to exercise its
right to demand payment only upon a default under the terms of the obligation,
as needed to provide liquidity to meet redemptions, or to maintain a
high-quality investment portfolio. The Fund will not invest more than 10% of its
net assets in participation interests.
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<PAGE>
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may invest in floating
or variable rate tax-exempt obligations. Floating rate obligations have an
interest rate which is fixed to a specified interest rate, such as a bank prime
rate, and is automatically adjusted when the specified interest rate changes.
Variable rate obligations have an interest rate which is adjusted at specified
intervals to a specified interest rate. Periodic interest rate adjustments help
stabilize the obligations' market values. The Fund may purchase these
obligations from the issuers or may purchase participation interests in pools of
these obligations from banks or other financial institutions. Variable and
floating rate obligations usually carry demand features that permit the Fund to
sell the obligations back to the issuers or to financial intermediaries at par
value plus accrued interest upon not more than 30 days' notice at any time or
prior to specific dates. Certain of these variable rate obligations, often
referred to as "adjustable rate put bonds," may have a demand feature
exercisable on specific dates once or twice each year. The Fund will not invest
more than 15% of its net assets in floating or variable rate obligations as to
which the Fund cannot exercise the demand feature on not more than seven days'
notice if the Adviser, under the direction of the Board of Trustees, determines
that there is no secondary market available for these obligations and all other
illiquid securities. If the Fund invests a substantial portion of its assets in
obligations with demand features permitting sale to a limited number of
entities, the inability of the entities to meet demands to purchase the
obligations could affect the Fund's liquidity. However, obligations with demand
features frequently are secured by letters of credit or comparable guarantees
that may reduce the risk that an entity would not be able to meet such demands.
In determining whether an obligation secured by a letter of credit meets the
Fund's quality standards, the Adviser will ascribe to such obligation the same
rating given to unsecured debt issued by the letter of credit provider. In
looking to the creditworthiness of a party relying on a foreign bank for credit
support, the Adviser will consider whether adequate public information about the
bank is available and whether the bank may be subject to unfavorable political
or economic developments, currency controls or other governmental restrictions
affecting its ability to honor its credit commitment.
WHEN-ISSUED OBLIGATIONS. The Fund may invest in when-issued tax-exempt
obligations. Obligations offered on a when-issued basis are settled by delivery
and payment after the date of the transaction, usually within 15 to 45 days. The
Fund will maintain a segregated account with its Custodian of cash or
liquid securities, marked to market daily, in an amount equal to its
when-issued commitments. Because these transactions are subject to market
fluctuations, a significant
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<PAGE>
commitment to when-issued purchases could result in greater fluctuation of the
Fund's net asset value. The Fund will only make commitments to purchase
when-issued obligations with the intention of actually acquiring the obligations
and not for the purpose of investment leverage. Under normal market conditions,
the Fund will not invest more than 25% of its net assets in when- issued
obligations.
LENDING PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or liquid securities, with the Fund's Custodian in an amount at
least equal to the market value of the loaned securities. The Fund will limit
the amount of its loans of portfolio securities to no more than one-third of
its net assets. This lending policy may not be changed by the Fund without the
affirmative vote of a majority of its outstanding shares.
OBLIGATIONS WITH PUTS ATTACHED. The Fund may purchase tax-exempt
obligations with the right to resell the obligation to the seller at a specified
price or yield within a specified period. The right to resell is commonly known
as a "put" or a "standby commitment." The Fund may purchase tax-exempt
obligations with puts attached from banks and broker-dealers. The Fund intends
to use obligations with puts attached for liquidity purposes to ensure a ready
market for the underlying obligations at an acceptable price. Although no value
is assigned to any puts on tax-exempt obligations, the price which the Fund pays
for the obligations may be higher than the price of similar obligations without
puts attached. The purchase of obligations with puts attached involves the risk
that the seller may not be able to repurchase the underlying obligation. The
Fund intends to purchase such obligations only from sellers deemed by the
Adviser, under the direction of the Board of Trustees, to present minimal credit
risks. In addition, the value of the obligations with puts attached held by the
Fund will not exceed 10% of its net assets.
LEASE OBLIGATIONS. The Fund may invest in tax-exempt obligations that
constitute participations in lease obligations or installment purchase contract
obligations ("lease obligations") of municipal authorities or entities. Although
lease obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the
- 12 -
<PAGE>
municipality's covenant to budget for, appropriate and make the payments due
under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on an annual basis. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. Although "non-appropriation" lease obligations are
secured by the leased property, the disposition of the property in the event of
foreclosure might prove difficult. The Fund will seek to minimize these risks by
not investing more than 15% of its net assets in lease obligations if the
Adviser determines that there is no secondary market available for these
obligations and all other illiquid securities, and by only investing in "non-
appropriation" lease obligations that meet certain criteria of the Adviser. The
Fund does not intend to invest more than an additional 5% of its net assets in
municipal lease obligations determined by the Adviser, under the direction of
the Board of Trustees, to be liquid. The Fund will only purchase unrated lease
obligations which meet the Fund's quality standards, as determined by the
Adviser, under the direction of the Board of Trustees, including an assessment
of the likelihood that the lease will not be cancelled.
SECURITIES WITH LIMITED MARKETABILITY. The Fund may invest in the
aggregate up to 15% of its net assets in securities that are not readily
marketable, including: participation interests that are not subject to the
demand feature described above; floating and variable rate obligations as to
which the Fund cannot exercise the related demand feature described above and as
to which there is no secondary market; lease obligations for which there is no
secondary market; repurchase agreements not terminable within seven days; and
all other illiquid securities.
BORROWING AND PLEDGING. The Fund may borrow money from banks (provided
there is 300% asset coverage) or from banks or other persons for temporary
purposes (in an amount not exceeding 5% of its total assets). The Fund will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets. The Fund may pledge assets in
connection with borrowings but will not pledge more than one-third of its total
assets. The Fund will not make any additional purchases of portfolio securities
if outstanding borrowings exceed 5% of the value of its total assets. Borrowing
magnifies the potential for gain or loss on the Fund's portfolio securities and,
therefore, if employed, increases the possibility of fluctuation in its net
asset value. This is the speculative factor known as leverage. The Fund's
policies on borrowing and pledging are fundamental policies which may not be
changed without the affirmative vote of a majority of its outstanding shares.
- 13 -
<PAGE>
FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may also enter into
contracts for the future delivery of securities and futures contracts based on a
specific security, class of securities or an index, purchase or sell options on
any such futures contracts and engage in related closing transactions. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index.
The Fund may enter into futures contracts in an effort to hedge against
market risks and in anticipation of future purchases or sales of securities. For
example, when interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek to offset a decline in the
value of its portfolio securities by entering into futures contract
transactions. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give
the Fund the right (but not the obligation), for a specified price, to sell or
to repurchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the Fund's total assets (other
than in connection with bona fide hedging purposes), and the value of securities
that are the subject of such futures and options (both for receipt and delivery)
may not exceed one-third of the market value of the Fund's total assets.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of
the Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting the Fund's
ability to hedge effectively against interest rate and/or market risk and giving
rise to additional risks. There is no assurance of liquidity in
- 14 -
<PAGE>
the secondary market for purposes of closing out futures positions.
PORTFOLIO TURNOVER. The Fund does not intend to use short-term trading
as a primary means of achieving its investment objective. However, the Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. High turnover involves correspondingly greater
commission expenses and transaction costs and may result in the Fund recognizing
greater amounts of income and capital gains, which would increase the amount of
income and capital gains which the Fund must distribute to its shareholders in
order to maintain its status as a regulated investment company and to
avoid the imposition of federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
- ---------------------
Your initial investment in the Fund ordinarily must be at least $1,000.
However, the minimum initial investment for employees, shareholders and
customers of Countrywide Credit Industries, Inc. or any affiliated company,
including members of the immediate family of such individuals, is $50. You may
purchase additional shares through the Open Account Program described below. You
may open an account and make an initial investment through securities dealers
having a sales agreement with the Trust's principal underwriter, Countrywide
Investments, Inc. (the "Adviser"). You may also make a direct initial investment
by sending a check and a completed account application form to Countrywide Fund
Services, Inc. (the "Transfer Agent"), P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable to the "Kentucky Tax-Free Fund." An
account application is included in this Prospectus.
Shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Adviser by 5:00 p.m., Eastern time, that day
are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Adviser by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by the
Transfer Agent by 4:00 p.m., Eastern time, are confirmed at that day's public
offering price. Direct investments received by the Transfer Agent after 4:00
p.m., Eastern time, and orders received from dealers after 5:00 p.m., Eastern
time, are confirmed at the public offering price next determined on the
following business day.
- 15 -
<PAGE>
The public offering price of shares is the next determined net asset
value per share plus a sales load as shown in the following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- ------ -------- ---------
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but a
contingent deferred sales load of .75% may apply if a commission was paid
by the Adviser to a participating unaffiliated dealer and the shares are
redeemed within twelve months from the date of purchase.
Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Adviser retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of $1,000,000 or more and subsequent purchases
further increasing the size of the account, a dealer's commission of .75% of the
purchase amount may be paid by the Adviser to participating unaffiliated dealers
through whom such purchases are effected. In determining a dealer's eligibility
for such commission, purchases of shares of the Fund may be aggregated with
concurrent purchases of shares of other funds of Countrywide Investments.
Dealers should contact the Adviser concerning the applicability and calculation
of the dealer's commission in the case of combined purchases. An exchange from
other funds of Countrywide Investments will not qualify for payment of the
dealer's commission, unless such exchange is from a Countrywide fund with assets
as to which a dealer's commission or similar payment has not been previously
paid. Redemptions of shares may result in the imposition of a contingent
deferred sales load if the dealer's commission described in this paragraph was
paid in connection with the purchase of such shares. See "Contingent Deferred
Sales Load for Certain Purchases of Shares" below.
- 16 -
<PAGE>
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services
described in this section to the Transfer Agent at the address or numbers listed
below.
After an initial investment, all investors are considered participants
in the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Fund over a period of years and permits the automatic
reinvestment of dividends and distributions of the Fund in additional shares
without a sales load.
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to Countrywide Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354.
The check should be made payable to the Fund.
Under the Open Account Program, you may also purchase shares of the
Fund by bank wire. Please telephone the Transfer Agent (Nationwide call
toll-free 800-543-0407; in Cincinnati call 629- 2050) for instructions. Your
bank may impose a charge for sending your wire. There is presently no fee for
receipt of wired funds, but the Transfer Agent reserves the right to charge
shareholders for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of your account
and your account number to permit proper crediting to your account. While there
is no minimum amount required for subsequent investments, the Trust reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Fund to a current shareholder, such broker-dealer will receive the
concessions described above with respect to additional investments by the
shareholder.
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing shares of the load funds distributed by the Adviser with
the amount of his current purchases in order to take advantage of the reduced
sales loads set forth in the table above. Purchases made in any load fund
distributed by the Adviser pursuant to a Letter of Intent may also be eligible
for the reduced sales loads. The minimum initial investment under a Letter of
Intent is $10,000. The load funds currently distributed by the Adviser are
listed in the Exchange Privilege section of this Prospectus. Shareholders should
contact the Transfer Agent for information about the Right of Accumulation and
Letter of Intent.
- 17 -
<PAGE>
PURCHASES AT NET ASSET VALUE. You may purchase shares of the Fund at
net asset value when the payment for your investment represents the proceeds
from the redemption of shares of any other mutual fund which has a front-end
sales load and is not distributed by the Adviser. Your investment will qualify
for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than sixty days prior to your purchase of
shares of the Fund. To make a purchase at net asset value pursuant to this
provision, you must submit photocopies of the confirmations (or similar
evidence) showing the purchase and redemption of shares of the other fund. Your
payment may be made with the redemption check representing the proceeds of the
shares redeemed, endorsed to the order of the "Kentucky Tax-Free Fund." The
redemption of shares of the other fund is, for federal income tax purposes, a
sale on which you may realize a gain or loss. These provisions may be modified
or terminated at any time. Contact your securities dealer or the Trust for
further information.
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase shares of
the Fund at net asset value. To the extent permitted by regulatory authorities,
a bank trust department may charge fees to clients for whose account it
purchases shares at net asset value. Federal and state credit unions may also
purchase shares at net asset value.
In addition, shares of the Fund may be purchased at net asset value by
broker-dealers who have a sales agreement with the Adviser, and their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
shares of the Fund at net asset value if their investment adviser or financial
planner has made arrangements to permit them to do so with the Trust and the
Adviser. The investment adviser or financial planner must notify the Transfer
Agent that an investment qualifies as a purchase at net asset value.
Employees, shareholders and customers of Countrywide Credit Industries,
Inc. or any affiliated company, including members of the immediate family of
such individuals, may also purchase shares of the Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES.
A contingent deferred sales load is imposed upon certain
redemptions of shares of the Fund (or shares into which such
- 18 -
<PAGE>
shares were exchanged) purchased at net asset value in amounts totaling $1
million or more, if the dealer's commission described above was paid by the
Adviser and the shares are redeemed within twelve months from the date of
purchase. The contingent deferred sales load will be paid to the Adviser and
will be equal to .75% of the lesser of (1) the net asset value at the time of
purchase of the shares being redeemed or (2) the net asset value of such shares
at the time of redemption. In determining whether the contingent deferred sales
load is payable, it is assumed that shares not subject to the contingent
deferred sales load are the first redeemed followed by other shares held for the
longest period of time. The contingent deferred sales load will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation. If a purchase of shares is subject
to the contingent deferred sales load, the investor will be so notified on the
confirmation for such purchase.
Redemptions of such shares of the Fund held for at least 12 months will
not be subject to the contingent deferred sales load and an exchange of such
shares into another fund of Countrywide Investments is not treated as a
redemption and will not trigger the imposition of the contingent deferred sales
load at the time of such exchange. A fund will "tack" the period for which such
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange; however,
the period of time that the redemption proceeds of such shares are held in a
money market fund will not count toward the holding period for determining
whether a contingent deferred sales load is applicable. See "Exchange
Privilege."
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code) of a shareholder (including one who owns the shares with
his or her spouse as a joint tenant with rights of survivorship) from an account
in which the deceased or disabled is named. The Adviser may require
documentation prior to waiver of the charge, including death certificates,
physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the initial
investment requirements and the applicable sales load and for purposes of the
Letter of Intent and Right of Accumulation privileges, a purchaser includes an
individual, his spouse and their children under the age of 21, purchasing shares
for his or their own account; or a trustee or other fiduciary purchasing shares
for a single fiduciary account although more than one beneficiary is involved;
or employees of a common employer,
- 19 -
<PAGE>
provided that economies of scale are realized through remittances from a single
source and quarterly confirmation of such purchases; or an organized group,
provided that the purchases are made through a central administration, or a
single dealer, or by other means which result in economy of sales effort or
expense. Contact the Transfer Agent for additional information concerning
purchases at net asset value or at reduced sales loads.
The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not issued. The Trust and the
Adviser reserve the rights to limit the amount of investments and to refuse to
sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, the Transfer Agent and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.
Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting losses or fees incurred by
the Trust or the Transfer Agent in the transaction.
SHAREHOLDER SERVICES
- --------------------
Contact the Transfer Agent (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
-------------------------
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Fund while the
plan is in
- 20 -
<PAGE>
effect are generally undesirable because a sales load is incurred whenever
purchases are made.
Direct Deposit Plans
---------------------
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. The Transfer Agent pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Fund.
Reinvestment Privilege
----------------------
If you have redeemed shares of the Fund, you may reinvest all or part
of the proceeds without any additional sales load. This reinvestment must occur
within ninety days of the redemption and the privilege may only be exercised
once per year.
HOW TO REDEEM SHARES
- --------------------
You may redeem shares of the Fund on each day that the Trust is open
for business by sending a written request to the Transfer Agent. The request
must state the number of shares or the dollar amount to be redeemed and your
account number. The request must be signed exactly as your name appears on the
Trust's account records. If the shares to be redeemed have a value of $25,000 or
more, your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, municipal securities brokers and dealers,
government securities brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations.
You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers
- 21 -
<PAGE>
to properly transmit wire redemption orders.
If your instructions request a redemption by wire, you will be charged
an $8 processing fee by the Fund's Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
A contingent deferred sales load may apply to a redemption of certain
shares purchased at net asset value. See "How to Purchase Shares."
Shares are redeemed at their net asset value per share next determined
after receipt by the Transfer Agent of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
made within three business days after tender in such form, provided that payment
in redemption of shares purchased by check will be effected only after the check
has been collected, which may take up to fifteen days from the purchase date. To
eliminate this delay, you may purchase shares of the Fund by certified check or
wire.
The Trust and the Transfer Agent will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or the Transfer Agent, corporate
investors and other associations may be required to
- 22 -
<PAGE>
furnish an appropriate certification authorizing redemptions to ensure proper
authorization. The Trust reserves the right to require you to close your account
if at any time the value of your shares is less than the minimum amount required
by the Trust for your account (based on actual amounts invested including any
sales load paid, unaffected by market fluctuations), or such other minimum
amount as the Trust may determine from time to time. After notification to you
of the Trust's intention to close your account, you will be given thirty days to
increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
- ------------------
Shares of the Fund and of any other fund of Countrywide Investments may
be exchanged for each other.
Shares of the Fund which are not subject to a contingent deferred sales
load may be exchanged for Class A shares of any other fund and for shares of any
other fund which offers only one class of shares (provided such shares are not
subject to a contingent deferred sales load). A sales load will be imposed equal
to the excess, if any, of the sales load rate applicable to the shares being
acquired over the sales load rate, if any, previously paid on the shares being
exchanged.
Shares of the Fund subject to a contingent deferred sales load may be
exchanged, on the basis of relative net asset value per share, for shares of any
other fund which imposes a contingent deferred sales load and for shares of any
fund which is a money market fund. A fund will "tack" the period for which the
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange. The
period of time that shares are held in a money market fund will not count toward
the holding period for determining whether a contingent deferred sales load is
applicable.
The following are the funds of Countrywide Investments currently
offered to the public. Funds which may be subject to a front-end or contingent
deferred sales load are indicated by an asterisk.
- 23 -
<PAGE>
Countrywide Tax-Free Trust Countrywide Strategic Trust
Tax-Free Money Fund *Government Mortgage Fund
Ohio Tax-Free Money Fund *Equity Fund
California Tax-Free Money Fund *Utility Fund
Florida Tax-Free Money Fund *Aggressive Growth Fund
*Tax-Free Intermediate Term Fund *Growth/Value Fund
*Ohio Insured Tax-Free Fund *International Equity Fund
*Kentucky Tax-Free Fund
Countrywide Investment Trust
Short Term Government Income Fund
Institutional Government Income Fund
Money Market Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
*Intermediate Bond Fund
You may request an exchange by sending a written request to the
Transfer Agent. The request must be signed exactly as your name appears on the
Trust's account records. Exchanges may also be requested by telephone. If you
are unable to execute your transaction by telephone (for example during times of
unusual market activity) consider requesting your exchange by mail or by
visiting the Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202. An exchange will be effected at the next determined net asset value (or
offering price, if sales load is applicable) after receipt of a request by the
Transfer Agent.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact the Transfer Agent to obtain a
current prospectus for any of the other funds of Countrywide Investments and
more information about exchanges among Countrywide Investments.
DIVIDENDS AND DISTRIBUTIONS
- ---------------------------
All of the net investment income of the Fund is declared as a dividend
to shareholders of record on each business day of the Trust and paid monthly.
The Fund expects to distribute any net realized long-term capital gains at least
once each year. Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains. The Fund will, at
the time dividends are paid, designate as tax-
- 24 -
<PAGE>
exempt the same percentage of the distribution as the actual tax-exempt income
earned during the period covered by the distribution bore to total income earned
during the period; the percentage of the distribution which is tax-exempt may
vary from distribution to distribution.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital gains
distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then-current net
asset value and your account will be converted to the Share Option. No interest
will accrue on amounts represented by uncashed distribution checks.
An investor who has received in cash any dividend or capital gains
distribution from the Fund may return the distribution within thirty days of the
distribution date to the Transfer Agent for reinvestment at the net asset value
next determined after its return. The investor or his dealer must notify the
Transfer Agent that a distribution is being reinvested pursuant to this
provision.
TAXES
- -----
The Fund has qualified in all prior years and intends to continue to
qualify for the special tax treatment afforded a "regulated investment company"
under Subchapter M of the Internal Revenue Code so that it does not pay federal
taxes on income and capital gains distributed to shareholders. The Fund also
intends to meet all IRS requirements necessary to ensure that it is qualified
to pay "exempt-interest dividends," which means that it may pass on to
shareholders the federal tax-exempt status of its investment income.
The Fund intends to distribute substantially all of its net
- 25 -
<PAGE>
investment income and any net realized capital gains to its shareholders. For
federal income tax purposes, a shareholder's proportionate share of taxable
distributions from the Fund's net investment income as well as from net realized
short-term capital gains, if any, is taxable as ordinary income. Since the
Fund's investment income is derived from interest rather than dividends, no
portion of such distributions is eligible for the dividends received deduction
available to corporations.
Distributions of net capital gains (i.e., the excess of net long-
term capital gains over net short-term capital losses) by the Fund to its
shareholders are taxable to the recipient shareholders as capital gains,
without regard to the length of time a shareholder has held Fund shares.
The maximum capital gains rate for individuals is 28% with respect to assets
held for more than 12 months, but not more than 18 months, and 20% with respect
to assets held more than 18 months. The maximum capital gains rate for
corporate shareholders is the same as the maximum tax rate for ordinary
income.
Shareholders of the Fund who are individuals residing in Kentucky or
corporations with their corporate domicile in Kentucky will not be subject to
Kentucky income tax on distributions with respect to their shares in the Fund to
the extent that such distributions are attributable to interest on Kentucky
Obligations. Under Kentucky income tax law, short-term capital gains
distributions to Kentucky residents and corporations domiciled in Kentucky are
generally not exempt from Kentucky income tax unless the statute authorizing the
issuance of the particular obligations involved expressly exempts such gains.
Kentucky taxes long-term capital gains distributions to Kentucky residents and
corporations domiciled in Kentucky at its ordinary individual and corporate
income tax rates. Depending on the level and nature of its activities within
Kentucky, all or a portion of the shares of the Fund held by corporations will
be deemed to constitute capital employed in Kentucky for purposes of the
Kentucky corporate license tax. To the extent that the Fund's holdings consist
of Kentucky Obligations and the balance consists of obligations of the U.S.
Government or any of its agencies or instrumentalities, shares of the Fund will
be exempt from the Kentucky intangible property tax. Distributions received from
the Fund by individuals are generally not subject to Kentucky municipal income
taxation; however, many local governments in Kentucky impose taxes on the net
profits of businesses operating within their local jurisdiction.
Issuers of tax-exempt securities issued after August 31, 1986 are
required to comply with various restrictions on the use and investment of
proceeds of sales of the securities. Any failure by the issuer to comply with
these restrictions would cause interest on such securities to become taxable to
the security holders as of the date the securities were issued.
Interest on "specified private activity bonds," as defined by the Tax
Reform Act of 1986, is an item of tax preference possibly subject to the
alternative minimum tax (at the rate of 26% to 28% for individuals and 20% for
corporations). The Fund may invest in such "specified private activity bonds"
subject to
- 26 -
<PAGE>
the requirement that it invest its assets so that at least 80% of its annual
income will be exempt from federal income tax, including the alternative minimum
tax, and Kentucky personal income tax. The Tax Reform Act of 1986 also created a
tax preference for corporations equal to one-half of the excess of adjusted net
book income over alternative minimum taxable income. As a result, one-half of
tax-exempt interest income received from the Fund may be a tax preference for
corporate investors.
Redemptions and exchanges of shares of the Fund are taxable events on
which a shareholder may realize a gain or loss. If a shareholder buys shares of
the Fund and sells them at a loss within six months, any loss will be disallowed
for federal and Kentucky income tax purposes to the extent of the
exempt-interest dividends received on such shares. Any loss realized upon the
sale of shares of the Fund within six months from the date of their purchase
will be treated as a long-term capital loss to the extent of amounts treated as
distributions of net realized long-term capital gains during such six month
period. In addition, shareholders should be aware that interest on indebtedness
incurred to purchase or carry shares of the Fund is not deductible for federal
income tax purposes. Shareholders receiving Social Security benefits may be
taxed on a portion of those benefits as a result of receiving tax-exempt income.
The Fund will mail to each of its shareholders a statement indicating
the amount and federal income tax status of all distributions made during the
year. The Fund will report to its shareholders the percentage and source of
income earned on tax-exempt obligations held by it during the preceding year. An
exemption from federal income tax and Kentucky personal income tax may not
result in similar exemptions under the laws of a particular state or local
taxing authority.
Shareholders should consult their tax advisors about the tax effect of
distributions and withdrawals from the Fund and the use of the Automatic
Withdrawal Plan and the Exchange Privilege. The tax consequences described in
this section apply whether distributions are taken in cash or reinvested in
additional shares. The Fund may not be an appropriate investment for persons who
are "substantial users" of facilities financed by industrial development bonds
or are "related persons" to such users; such persons should consult their tax
advisors before investing in the Fund.
OPERATION OF THE FUND
- ---------------------
The Fund is a non-diversified series of Countrywide Tax-Free Trust, an
open-end management investment company organized as a Massachusetts business
trust on April 13, 1981. The Board of
- 27 -
<PAGE>
Trustees supervises the business activities of the Trust. Like other mutual
funds, the Trust retains various organizations to perform specialized services
for the Fund.
The Trust retains Countrywide Investments, Inc., 312 Walnut Street,
Cincinnati, Ohio 45202 (the "Adviser"), to manage the Fund's investments and its
business affairs. The Adviser was organized in 1974 and is also the investment
adviser to six other series of the Trust, seven series of Countrywide Investment
Trust and six series of Countrywide Strategic Trust. The Adviser 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. The Fund pays the Adviser a fee equal to the annual rate of
.5% of the average value of its daily net assets up to $100 million; .45% of
such assets from $100 million to $200 million; .4% of such assets from $200
million to $300 million; and .375% of such assets in excess of $300 million.
John J. Goetz, the Chief Investment Officer of the Adviser, is
primarily responsible for managing the portfolio of the Fund. Mr. Goetz has been
employed by the Adviser in various capacities since 1981 and has been managing
the Fund's portfolio since September 1997.
The Adviser serves as principal underwriter for the Fund and, as such,
is the exclusive agent for the distribution of shares of the Fund. Angelo R.
Mozilo, Robert H. Leshner, Robert G. Dorsey and John F. Splain are officers of
both the Trust and the Adviser.
The Fund is responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Fund's shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio (the "Transfer Agent"), an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., to serve as the Fund's transfer agent,
dividend paying agent and shareholder service agent.
- 28 -
<PAGE>
The Transfer Agent also provides accounting and pricing services
to the Fund. The Transfer Agent 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.
In addition, the Transfer Agent has been retained by the Adviser to
assist the Adviser in providing administrative services to the Fund. In this
capacity, the Transfer Agent supplies executive, administrative and regulatory
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. The Adviser
(not the Fund) pays the Transfer Agent a fee for these administrative services.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund. Subject to the requirements of the
Investment Company Act of 1940 and procedures adopted by the Board of Trustees,
the Fund may execute portfolio transactions through any broker or dealer and pay
brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust or the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the Investment Company Act of 1940 or otherwise. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
- 29 -
<PAGE>
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
has adopted a plan of distribution (the "Plan") under which the Fund may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Fund and who may be advising investors regarding the
purchase, sale or retention of Fund shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by the Transfer Agent; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of the Fund; expenses of obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related to the
distribution of the Fund's shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Adviser after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may
- 30 -
<PAGE>
from time to time purchase securities issued by banks which provide such
services; however, in selecting investments for the Fund, no preference will be
shown for such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules require fund-level accounting in which all sales charges -
front-end load, 12b-1 fees or contingent deferred load - terminate when a
percentage of gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
On each day that the Trust is open for business, the public offering
price (net asset value plus applicable sales load) of the shares of the Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange, currently 4:00 p.m., Eastern time. The Trust is open for
business on each day the New York Stock Exchange is open for business and on any
other day when there is sufficient trading in the Fund's investments that its
net asset value might be materially affected. The net asset value per share of
the Fund is calculated by dividing the sum of the value of the securities held
by the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent.
Tax-exempt portfolio securities are valued for the Fund by an outside
independent pricing service approved by the Board of Trustees. The service
generally utilizes a computerized grid matrix of tax-exempt securities and
evaluations by its staff to determine what it believes is the fair value of the
portfolio securities. The Board of Trustees believes that timely and reliable
market quotations are generally not readily available to the Fund for purposes
of valuing tax-exempt securities and that valuations supplied by the pricing
service are more likely to approximate the fair value of the tax-exempt
securities. If, in the Adviser's opinion, the valuation provided by the service
does not accurately reflect the fair value of a tax-exempt security, it will
value the security at the average of the prices quoted by at least two
independent market makers. The quoted price will represent the market maker's
opinion as to the price that a willing buyer would pay for the security. All
other securities (and other assets) of the Fund 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.
- 31 -
<PAGE>
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 and the
deduction of the current maximum sales load from the initial investment. 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." These nonstandardized returns
do not include the effect of the applicable sales load which, if included, would
reduce total return. A nonstandardized quotation of total return will always be
accompanied by the Fund's "average annual total return" as described above.
The "yield" of the Fund is computed by dividing the net investment
income per share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period. In addition,
the Fund may advertise together with its "yield" a tax-equivalent yield which
reflects the yield which would be required of a taxable investment at a stated
income tax rate in order to equal the Fund's "yield."
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, 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 the other
mutual funds within its category as
- 32 -
<PAGE>
determined by Lipper, or recognized indicators. 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 Adviser's view of current or past market conditions or
historical trends.
Further information about the Predecessor Fund's performance is contained
in its annual report which can be obtained by shareholders at no charge by
calling the Transfer Agent (Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050) or by writing to the Trust at the address on the
front of this Prospectus.
- 33 -
<PAGE>
<TABLE>
ACCOUNT NO. 94-__________________
Account Application (For Fund Use Only)
<S> <C> <C> <C>
Kentucky Tax-Free Fund FOR BROKER/DEALER USE ONLY
Firm Name:_____________________________
Home Office Address: ___________________
Branch Address: ________________________
Rep Name & No.: ________________________
Please mail account application to: Rep Signature: _________________________
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
========================================================================================================================
Initial Investment of $_______________________
[ ] Check or draft enclosed payable to the Fund.
[ ] Bank Wire From:
______________________________________________________________________________________________________________
[ ] Exchange From:
______________________________________________________________________________________________________________
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax I.D.#
________________________________________________________________________________________ _____________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial
account please list
minor's S.S.#)
___________________________________________________________________________________________________ Citizenship:[] U.S.
Name of Joint Tenant, Partner, Custodian []Other
Address Phone
___________________________________________________________________________________________________ ( )_______________
Street or P.O. Box Business Phone
___________________________________________________________________________________________________ ( )_______________
City State Zip Home Phone
Check Appropriate Box: [] Individual [] Joint Tenant (Right of survivorship presumed)
[] Partnership [] Corporation [] Trust [] Custodial [] Non-Profit [] Other
Occupation and Employer Name/Address________________________________________________________________________________________
Are you an associated person of an NASD member? [ ] Yes [ ] No
========================================================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the Taxpayer Identification Number listed
above is my correct number. The Internal Revenue Service does not require my consent to any provision of this document
other than the certifications required to avoid backup withholding. Check box if appropriate:
[ ] I am exempt from backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I am not
subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a failure
to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to backup
withholding.
[ ] I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have mailed or
delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social Security
Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
<PAGE>
=======================================================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[ ] Share Option -- Income distributions and capital gains distributions automatically reinvested in additional
shares.
[ ] Income Option -- Income distributions and short term capital gains distributions paid in cash, long term capital
gains distributions reinvested in additional shares.
[ ] Cash Option -- Income distributions and capital gains distributions paid in cash.
[ ] By Check [ ] By ACH to my bank checking or savings account. Please attach a voided check.
========================================================================================================================
REDUCED SALES CHARGES
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of
eligible load funds of Countrywide Investments.
Account Number/Name Account Number/Name
_______________________________________________________ ______________________________________________________
_______________________________________________________ ______________________________________________________
Letter of Intent: (Complete the Right of Accumulation section if related accounts are being applied to your Letter of Intent.)
[ ] I agree to the Letter of Intent in the current Prospectus of Countrywide Tax-Free Trust. Although I am not obligated to
purchase, and the Trust is not obligated to sell, I intend to invest over a 13 month period beginning ____________________ 19
(Purchase Date of not more than 90 days prior to this Letter) an aggregate amount in the load funds of Countrywide Investments
at least equal to (check appropriate box):
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
========================================================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the Fund's current Prospectus, that he is of legal
age, and that he has full authority and legal capacity for himself or the organization named below, to make this investment and
to use the options selected above. The investor appoints Countrywide Fund Services, Inc. as his agent to enter orders for shares
whether by direct purchase or exchange, to receive dividends and distributions for automatic reinvestment in additional shares of
the Fund for credit to the investor's account and to surrender for redemption shares held in the investor's account in accordance
with any of the procedures elected above or for payment of service charges incurred by the investor. The investor further agrees
that Countrywide Fund Services, Inc. can cease to act as such agent upon ten days' notice in writing to the investor at the address
contained in this Application. The investor hereby ratifies any instructions given pursuant to this Application and for himself and
his successors and assigns does hereby release Countrywide Fund Services, Inc., Countrywide Tax-Free Trust, Countrywide
Investments, Inc., and their respective officers, employees, agents and affiliates from any and all liability in the performance of
the acts instructed herein provided that such entities have exercised due care to determine that the instructions are genuine.
___________________________________________________ ___________________________________________________
Signature of Individual Owner, Corporate Officer, Signature of Joint Owner, if Any
Trustee, etc.
________________________________________________ ____________________________________________________
Title of Corporate Officer, Trustee, etc. Date
NOTE: Corporations, trusts and other organizations must complete the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account.
<PAGE>
==================================================================================================================================
AUTOMATIC INVESTMENT PLAN (Complete for Investments Into the Fund)
The Automatic Investment Plan is available for all established accounts of Countrywide Tax-Free Trust. There is no charge for this
service, and it offers the convenience of automatic investing on a regular basis. The minimum investment is $50.00 per month.
For an account that is opened by using this Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be discontinued by the shareholder at any time.
Please invest $ _________________ per month in the Fund.
ABA Routing Number______________________________
FI Account Number________________________________
[] Checking Account [] Savings Account
_____________________________________________________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
[] the last business day of each month
______________________________________________________________________ [] the 15th day of each month
City State [] both the 15th and last business day
X_____________________________________________________________________ X_______________________________________
(Signature of Depositor EXACTLY as it appears on FI Records) (Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign exactly as signature appears on your FI's
records.)
Please attach a voided check from your checking account or a voided deposit/withdrawal slip from your savings account
for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which Countrywide Fund Services, Inc. ("CFS") has put into effect, by which
amounts, determined by your depositor, payable to the Fund for purchase of shares of the Fund, are collected by CFS, CFS hereby
agrees:
CFS will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment
by you of any amount drawn by the Fund to its own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such
checks. CFS will defend, at its own cost and expense, any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. CFS will refund to you any amount erroneously paid by you to the Fund on any such check if
the claim for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous
payment; your participation in this arrangement and that of the Fund may be terminated by thirty (30) days written notice from
either party to the other.
========================================================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund)
This is an authorization for you to withdraw $_________ from my mutual fund account beginning the last business day of the
month of __________________.
Please Indicate Withdrawal Schedule (Check One):
[ ] Monthly -- Withdrawals will be made on the last business day of each month.
[ ] Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[ ] Annually -- Please make withdrawals on the last business day of the month of:_____________________.
<PAGE>
Please Select Payment Method (Check One):
[ ] Exchange: Please exchange the withdrawal proceeds into another Countywide account number:_ _-- _ _ _ _--_
[ ] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[ ] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated below.
I understand that the transfer will be completed in two to three business days and that there is no charge.
[ ] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire will
be completed in one business day and that there is an $8.00 fee.
Please attach a voided check for ACH or bank wire_________________________________________________________________________
Bank Name Bank Address
________________________________________________________________________________________________________________________________
Bank ABA# Account # Account Name
[ ] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing address below:
Name of payee___________________________________________________________________________________________________________________
Please send to:_________________________________________________________________________________________________________________
Street address City State Zip
=================================================================================================================================
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of Countrywide Tax-Free Trust (the Trust) and that
________________________________________________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to take any
action for it as may be necessary or appropriate with respect to its shareholder account with the Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate to
appoint Countrywide Fund Services, Inc. as redemption agent of the corporation or organization for shares of the applicable series
of the Trust, to establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement
the privileges elected on the Application.
<PAGE>
Certificate
I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering documents of
the
_______________________________________________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of__________________________________________________________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the organization or corporation duly called and held on
at which a quorum was present and acting throughout, and that the same are now in full force and effect. I further certify that
the following is (are) duly elected officer(s) of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
___________________________________________________ _________________________________________________________
___________________________________________________ _________________________________________________________
___________________________________________________ _______________________________________________________
Witness my hand and seal of the corporation or organization this_______________________day of______________________, 19_______
___________________________________________________ _________________________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above resolutions, this certificate must also be
signed by another officer.
</TABLE>
<PAGE>
COUNTRYWIDE TAX-FREE TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
BOARD OF TRUSTEES
Donald L. Bogdon, M.D.
John R. Delfino
H. Jerome Lerner
Robert H. Leshner
Angelo R. Mozilo
Oscar P. Robertson
John F. Seymour, Jr.
Sebastiano Sterpa
INVESTMENT ADVISER
COUNTRYWIDE INVESTMENTS, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
COUNTRYWIDE FUND SERVICES, INC.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Countrywide Always Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
- 24 -
<PAGE>
TABLE OF CONTENTS
Expense Information. . . . . . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies. . . . . . . . . . . . . .
How to Purchase Shares . . . . . . . . . . . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . . . . . .
How to Redeem Shares . . . . . . . . . . . . . . . . . . . .
Exchange Privilege . . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation of the Fund . . . . . . . . . . . . . . . . . . .
Distribution Plan . . . . . . . . . . . . . . . . . . . . .
Calculation of Share Price . . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . . . .
- -----------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
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<PAGE>
COUNTRYWIDE TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1998
Kentucky Tax-Free Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the Kentucky Tax-Free Fund of
Countrywide Tax-Free Trust dated January 1, 1998. A copy of the Fund's
Prospectus can be obtained by writing the Trust at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202-4094, or by calling the Trust nationwide toll-free
800-543-0407, in Cincinnati 629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Countrywide Tax-Free Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS PAGE
THE TRUST................................................................... 3
MUNICIPAL OBLIGATIONS....................................................... 4
QUALITY RATINGS OF MUNICIPAL OBLIGATIONS.................................... 8
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS...............................11
INVESTMENT LIMITATIONS......................................................17
TRUSTEES AND OFFICERS.......................................................19
THE INVESTMENT ADVISER AND UNDERWRITER......................................22
DISTRIBUTION PLAN...........................................................23
SECURITIES TRANSACTIONS.....................................................25
PORTFOLIO TURNOVER..........................................................26
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................27
OTHER PURCHASE INFORMATION..................................................28
TAXES.......................................................................29
REDEMPTION IN KIND..........................................................32
HISTORICAL PERFORMANCE INFORMATION..........................................33
PRINCIPAL SECURITY HOLDERS..................................................35
CUSTODIAN ................................................................. 35
AUDITORS....................................................................36
TRANSFER AGENT . ...........................................................36
TAX EQUIVALENT YIELD TABLE..................................................37
ANNUAL REPORT...............................................................38
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<PAGE>
THE TRUST
- ---------
Countrywide Tax-Free Trust (the "Trust"), formerly Midwest Group Tax
Free Trust, was organized as a Massachusetts business trust on April 13, 1981.
The Trust currently offers seven series of shares to investors: the Tax-Free
Money Fund, the Tax-Free Intermediate Term Fund, the Ohio Insured Tax-Free Fund,
the Ohio Tax-Free Money Fund, the California Tax-Free Money Fund, the Florida
Tax-Free Money Fund (formerly the Royal Palm Florida Tax- Free Money Fund) and
the Kentucky Tax-Free Fund. This Statement of Additional Information provides
information relating to the Kentucky Tax-Free Fund (the "Fund"). Information
relating to the Tax-Free Money Fund, the Tax-Free Intermediate Term Fund, the
Ohio Insured Tax-Free Fund, the Ohio Tax-Free Money Fund, the California
Tax-Free Money Fund and the Florida Tax-Free Money Fund is contained in a
separate Statement of Additional Information. The Fund has its own investment
objective and policies.
Pursuant to an Agreement and Plan of Reorganization dated May 31,
1997, the Fund, on August 29, 1997, succeeded to the assets and liabilities of
another mutual fund of the same name (the "Predecessor Fund"), which was an
investment series of Trans Adviser Funds, Inc. The investment objective,
policies and restrictions of the Fund and the Predecessor Fund are substantially
identical and the financial data and information in this Statement of Additional
Information relates to the Predecessor Fund.
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities belonging to the Fund with each other share of the
Fund and is entitled to such dividends and distributions out of the income
belonging to the Fund as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
the Fund into a greater or lesser number of shares so long as the proportionate
beneficial interest in the assets belonging to the Fund and the rights of shares
of any other Fund are in no way affected. In case of any liquidation of the
Fund, the holders of shares will be entitled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to the Fund.
Expenses attributable to the Fund are borne by the Fund. Any general expenses of
the Trust not readily identifiable as belonging to a particular Fund are
allocated by or under the direction of the Trustees in such manner as the
Trustees determine to be fair and equitable. Generally, the Trustees allocate
such expenses on the basis of relative net assets or number of shareholders. No
shareholder is liable to further calls or to assessment by the Trust without his
express consent.
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<PAGE>
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
MUNICIPAL OBLIGATIONS
- ---------------------
The Fund invests primarily in Municipal Obligations. Municipal
Obligations are debt obligations issued by a state and its political
subdivisions, agencies, authorities and instrumentalities and other qualifying
issuers which pay interest that is, in the opinion of bond counsel to the
issuer, exempt from federal income tax. Municipal Obligations include tax-exempt
bonds, notes and commercial paper. The Fund invests primarily in Kentucky
Obligations, which are Municipal Obligations issued by the State of Kentucky and
its political subdivisions, agencies, authorities and instrumentalities and
other qualifying issuers which pay interest that is, in the opinion of bond
counsel to the issuer, exempt from federal income tax, Kentucky personal income
tax and the Kentucky intangible property tax.
TAX-EXEMPT BONDS. Tax-exempt bonds are issued to obtain funds to construct,
repair or improve various facilities such as airports, bridges, highways,
hospitals, housing, schools, streets and water and sewer works, to pay general
operating expenses or to refinance outstanding debts. They also may be issued to
finance various private activities, including the lending of funds to public or
private institutions for construction of housing, educational or medical
facilities or the financing of privately owned or operated facilities.
- 4 -
<PAGE>
The two principal classifications of tax-exempt bonds are "general
obligation" and "revenue" bonds. General obligation bonds are backed by the
issuer's full credit and taxing power. Revenue bonds are backed by the revenues
of a specific project, facility or tax. Industrial development revenue bonds are
a specific type of revenue bond backed by the credit of the private user of the
facility.
TAX-EXEMPT NOTES. Tax-exempt notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Tax-exempt notes include:
1. Tax Anticipation Notes. Tax anticipation notes are issued
to finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenues, such as
income, sales, use and business taxes, and are payable from these
specific future taxes.
2. Revenue Anticipation Notes. Revenue anticipation notes are
issued in expectation of receipt of other kinds of revenue, such as
federal revenues available under the federal revenue sharing programs.
3. Bond Anticipation Notes. Bond anticipation notes are issued
to provide interim financing until long-term financing can be arranged.
In most cases, the long-term bonds then provide the money for the
repayment of the notes.
TAX-EXEMPT COMMERCIAL PAPER. Tax-exempt commercial paper typically
represents short-term, unsecured, negotiable promissory notes issued by a state
and its political subdivisions. These notes are issued to finance seasonal
working capital needs of municipalities or to provide interim construction
financing and are paid from general revenues of municipalities or are refinanced
with long-term debt. In most cases, tax-exempt commercial paper is backed by
letters of credit, lending agreements, note repurchase agreements or other
credit facility agreements offered by banks or other institutions and is
actively traded.
WHEN-ISSUED OBLIGATIONS. The Fund may invest in when-issued Municipal
Obligations. In connection with these investments, the Fund will direct its
Custodian to place cash or liquid securities in a segregated account in an
amount sufficient to make payment for the securities to be purchased. When a
segregated account is maintained because the Fund purchases securities on a
when-issued basis, the assets deposited in the segregated account will be valued
daily at market for the purpose of determining the adequacy of the securities in
the account. If the market value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so that the market
- 5 -
<PAGE>
value of the account will equal the amount of the Fund's commitments to purchase
securities on a when-issued basis. To the extent funds are in a segregated
account, they will not be available for new investment or to meet redemptions.
Securities purchased on a when-issued basis and the securities held in a Fund's
portfolio are subject to changes in market value based upon changes in the level
of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e, all those securities experiencing
appreciation when interest rates decline and depreciation when interest rates
rise). Therefore, if in order to achieve higher returns, the Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will have greater fluctuation. The purchase of securities on a
when- issued basis may involve a risk of loss if the broker-dealer selling the
securities fails to deliver after the value of the securities has risen.
When the time comes for the Fund to make payment for securities
purchased on a when-issued basis, the Fund will do so by using then-available
cash flow, by sale of the securities held in the segregated account, by sale of
other securities or, although it would not normally expect to do so, by
directing the sale of the securities purchased on a when-issued basis themselves
(which may have a market value greater or less than the Fund's payment
obligation). Although the Fund will only make commitments to purchase securities
on a when-issued basis with the intention of actually acquiring the securities,
the Fund may sell these obligations before the settlement date if it is deemed
advisable by the Adviser as a matter of investment strategy. Sales of securities
for these purposes carry a greater potential for the realization of capital
gains and losses, which are not exempt from federal income taxes.
PARTICIPATION INTERESTS. The Fund may invest in participation interests
in Municipal Obligations. The Fund will have the right to sell the interest back
to the bank or other financial institution and draw on the letter of credit on
demand, generally on seven days' notice, for all or any part of the Fund's
participation interest in the par value of the Municipal Obligation plus accrued
interest. The Fund intends to exercise the demand on the letter of credit only
under the following circumstances: (1) default of any of the terms of the
documents of the Municipal Obligation, (2) as needed to provide liquidity in
order to meet redemptions, or (3) to maintain a high quality investment
portfolio. The bank or financial institution will retain a service and letter of
credit fee and a fee for issuing the repurchase commitment in an amount equal to
the excess of the interest paid by the issuer on the Municipal Obligations over
the negotiated yield at which the instruments were purchased by the Fund.
Participation interests will be purchased only if, in the
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<PAGE>
opinion of counsel of the issuer, interest income on the interests will be
tax-exempt when distributed as dividends to shareholders.
Banks and financial institutions are subject to extensive governmental
regulations which may limit the amounts and types of loans and other financial
commitments that may be made and interest rates and fees which may be charged.
The profitability of banks and financial institutions is largely dependent upon
the availability and cost of capital funds to finance lending operations under
prevailing money market conditions. General economic conditions also play an
important part in the operations of these entities and exposure to credit losses
arising from possible financial difficulties of borrowers may affect the ability
of a bank or financial institution to meet its obligations with respect to a
participation interest.
LEASE OBLIGATIONS. The Fund may invest in Municipal Obligations that
constitute participation in lease obligations or installment purchase contract
obligations (hereinafter collectively called "lease obligations") of municipal
authorities or entities. Lease obligations provide a premium interest rate,
which along with the regular amortization of the principal, may make them
attractive for a portion of the assets of the Fund. As described in the
Prospectus, certain of these lease obligations contain "non-appropriation"
clauses, and the Trust will seek to minimize the special risks associated with
such securities by only investing in "non-appropriation" lease obligations where
(1) the nature of the leased equipment or property is such that its ownership or
use is essential to a governmental function of the municipality, (2) the lease
payments will commence amortization of principal at an early date resulting in
an average life of seven years or less for the lease obligation, (3) appropriate
covenants will be obtained from the municipal obligor prohibiting the
substitution or purchase of similar equipment if the lease payments are not
appropriated, (4) the lease obligor has maintained good market acceptability in
the past, (5) the investment is of a size that will be attractive to
institutional investors, and (6) the underlying leased equipment has elements of
portability and/or use that enhance its marketability in the event foreclosure
on the underlying equipment were ever required.
The Fund will not invest more than 15% of its net assets in lease
obligations if the Adviser determines that there is no secondary market
available for these obligations and all other illiquid securities. The Fund does
not intend to invest more than an additional 5% of its net assets in municipal
lease obligations determined by the Adviser, under the direction of the Board of
Trustees, to be liquid. In determining the liquidity of such obligations, the
Adviser will consider such factors as (1) the frequency of trades and quotes for
the obligation; (2) the number of dealers willing to purchase or sell the
security and
- 7 -
<PAGE>
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer.
QUALITY RATINGS OF MUNICIPAL OBLIGATIONS
- ----------------------------------------
The Fund may invest in Municipal Obligations only if rated at the time
of purchase within the four highest grades assigned by any nationally recognized
statistical rating organizations ("NRSROs") The NRSROs which may rate the
obligations of the Fund include Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Services, Inc.
("Fitch"). The Fund may also invest in tax-exempt notes and commercial paper
determined by the Adviser to meet the Fund's quality standards. In making this
determination, the Adviser will consider the ratings assigned by the NRSROs for
those obligations.
MOODY'S RATINGS
1. Tax-Exempt Bonds. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are judged by Moody's to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issuers. Bonds
rated Aa are judged to be of high quality by all standards. Together with the
Aaa group, they comprise what are generally known as high-grade bonds. Moody's
says that Aa bonds are rated lower than the best bonds because margins of
protection or other elements make long term risks appear somewhat larger than
Aaa bonds. Moody's describes bonds rated A as possessing many favorable
investment attributes and as upper medium grade obligations. Factors giving
security to principal and interest of A rated bonds are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds which are rated by Moody's in the fourth highest rating (Baa)
are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Those obligations in the A and Baa group which Moody's
believes possess the strongest investment attributes are designated by the
symbol A 1 and Baa 1.
- 8 -
<PAGE>
2. Tax-Exempt Notes. Moody's highest rating for tax-exempt notes is
MIG-1. Moody's says that notes rated MIG-1 are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
Notes bearing the MIG-2 designation are of high quality, with margins of
protection ample although not so large as in the MIG-1 group. Notes bearing the
designation MIG-3 are of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
3. Tax-Exempt Commercial Paper. The rating Prime-1 is the highest
tax-exempt commercial paper rating assigned by Moody's. Issuers rated Prime-1
are judged to be of the best quality. Their short-term debt obligations carry
the smallest degree of investment risk. Margins of support for current
indebtedness are large or stable with cash flow and asset protection well
assured. Current liquidity provides ample coverage of near-term liabilities and
unused alternative financing arrangements are generally available. While
protective elements may change over the intermediate or long term, such changes
are most unlikely to impair the fundamentally strong position of short-term
obligations. Issuers rated Prime-2 have a strong capacity for repayment of
short-term obligations.
S&P RATINGS
1. Tax-Exempt Bonds. The four highest ratings of S&P for tax-exempt
bonds are AAA, AA, A and BBB. Bonds rated AAA have the highest rating assigned
by S&P to a debt obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in a small degree.
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
Bonds which are rated by S&P in the fourth highest rating (BBB) are regarded as
having an adequate capacity to pay interest and repay principal and are
considered "investment grade." Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal than
for bonds in higher rated categories. The ratings for tax-exempt bonds may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
- 9 -
<PAGE>
2. Tax-Exempt Notes. Tax-exempt note ratings are generally given by S&P
to notes that mature in three years or less. Notes rated SP-1 have very strong
or strong capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics will be given a plus designation. Notes
rated SP-2 have satisfactory capacity to pay principal and interest.
3. Tax-Exempt Commercial Paper. The ratings A-1+ and A-1 are the
highest tax-exempt commercial paper ratings assigned by S&P. These designations
indicate the degree of safety regarding timely payment is either overwhelming
(A-1+) or very strong (A- 1). Capacity for timely payment on issues rated A-2 is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
FITCH RATINGS
1. Tax-Exempt Bonds. The four highest ratings of Fitch for tax-exempt
bonds are AAA, AA, A and BBB. Bonds rated AAA are regarded by Fitch as being of
the highest quality, with the obligor having an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are regarded by Fitch as high quality
obligations. The obligor's ability to pay interest and repay principal, while
very strong, is somewhat less than for AAA rated bonds, and more subject to
possible change over the term of the issue. Bonds rated A are regarded by Fitch
as being of good quality. The obligor's ability to pay interest and repay
principal is strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. Bonds rated BBB are
regarded by Fitch as being of satisfactory quality. The obligor's ability to pay
interest and repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to weaken this
ability than bonds with higher ratings. Fitch ratings may be modified by the
addition of a plus (+) or minus (-) sign.
2. Tax-Exempt Notes. The ratings F-1+, F-1 and F-2 are the highest
ratings assigned by Fitch for tax-exempt notes. Notes assigned the F-1+ rating
are regarded by Fitch as having the strongest degree of assurance for timely
payment. Notes assigned the F-1 rating reflect an assurance for timely payment
only slightly less than the strongest issues. Notes assigned the F-2 rating have
a degree of assurance for timely payment with a lesser margin of safety than
higher-rated notes.
3. Tax-Exempt Commercial Paper. Commercial paper rated Fitch-1 is
regarded as having the strongest degree of assurance for timely payment. Issues
assigned the Fitch-2 rating reflect an assurance of timely payment only slightly
less in degree than the strongest issues.
- 10 -
<PAGE>
GENERAL. The ratings of Moody's, S&P and Fitch represent their opinions
of the quality of the obligations rated by them. It should be emphasized that
such ratings are general and are not absolute standards of quality.
Consequently, obligations with the same maturity, coupon and rating may have
different yields, while obligations of the same maturity and coupon, but with
different ratings, may have the same yield. It is the responsibility of the
Adviser to appraise independently the fundamental quality of the obligations
held by the Fund. Certain Municipal Obligations may be backed by letters of
credit or similar commitments issued by banks and, in such instances, the
obligation of the bank and other credit factors will be considered in assessing
the quality of the Municipal Obligations.
Any Municipal Obligation which depends on the credit of the U.S.
Government (e.g. project notes) will be considered by the Adviser as having the
equivalent of the highest rating of Moody's, S&P or Fitch. In addition, unrated
Municipal Obligations will be considered as being within the foregoing quality
ratings if other equal or junior Municipal Obligations of the same issuer are
rated and their ratings are within the foregoing ratings of Moody's, S&P or
Fitch. The Fund may also invest in Municipal Obligations which are not rated if,
in the opinion of the Adviser, subject to the review of the Board of Trustees,
such obligations are of comparable quality to those rated obligations in which
the Fund may invest.
Subsequent to its purchase by the Fund, an obligation may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. If the rating of an obligation held by the Fund is reduced below its
minimum requirements, the Fund will be required to exercise the demand provision
or sell the obligation as soon as practicable.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ----------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objective and Policies")
appears below:
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, with banks having assets in excess of $10 billion and with
broker-dealers who are recognized as primary dealers in U.S. Government
obligations by the Federal Reserve Bank of New York.
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<PAGE>
Collateral for repurchase agreements is held in safekeeping in the customer-only
account of the Fund's Custodian at the Federal Reserve Bank. The Fund will not
enter into a repurchase agreement not terminable within seven days if, as a
result thereof, more than 15% of the value of its net assets would be invested
in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must consist of
either certificates of deposit, eligible bankers' acceptances or securities
which are issued or guaranteed by the United States Government or its agencies.
The collateral will be held by the Custodian or in the Federal Reserve Book
Entry System.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller subject to the
repurchase agreement and is therefore subject to the Fund's investment
restriction applicable to loans. It is not clear whether a court would consider
the securities purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, the Fund may encounter delay and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the security. If a court characterized the transaction as a loan and
the Fund has not perfected a security interest in the security, the Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to
- 12 -
<PAGE>
repurchase the security, in which case the Fund may incur a loss if the proceeds
to the Fund of the sale of the security to a third party are less than the
repurchase price. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the security to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement will equal or exceed the repurchase price. It is possible that the
Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio
securities subject to the restrictions stated in its Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives amounts equal to the interest on loaned securities and also
receives one or more of (a) negotiated loan fees, (b) interest on securities
used as collateral, or (c) interest on short-term debt securities purchased with
such collateral; either type of interest may be shared with the borrower. The
Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that the fees are not used to compensate the Adviser or any
affiliated person of the Trust or an affiliated person of the Adviser or other
affiliated person. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
TRANSACTIONS IN OPTIONS AND FUTURES. The Adviser may engage in the use of
the options and futures strategies described below.
o Futures Contracts: The Fund may enter into Municipal Bond Index
Futures and U.S. Government Securities Futures (referred to herein as "futures
contracts") described below, which are contracts for the future delivery of
fixed-income securities. Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of Trade ("CBT")
and The Bond Buyer. U.S. Government Securities Futures are futures contracts
based on long-term Treasury bonds, Treasury notes, GNMA Certificates and
three-month Treasury bills. In this context, a futures contract
- 13 -
<PAGE>
is an agreement by the Fund to buy or sell fixed-income securities at a
specified date and price. No payment is made for securities when the Fund buys a
futures contract and no securities are delivered when the Fund sells a futures
contract. Instead, the Fund makes a deposit called an "initial margin" equal to
a percentage of the contract's value. Payment or delivery is made when the
contract expires. Futures contracts will be used only as a hedge against
anticipated interest rate changes and for other transactions permitted to
entities exempt from the definition of the term commodity pool operator. The
Fund will not enter into a futures contract if immediately thereafter the sum of
the then aggregate futures market prices of financial or other instruments
required to be delivered under open futures contract sales and the aggregate
futures market prices of financial instruments required to be delivered under
open futures contract purchases would exceed one-third of the value of its total
assets. The Fund will not enter into a futures contract if immediately
thereafter more than 5% of the fair market value of its assets would be
committed to initial margins.
The Municipal Bond Index is comprised of forty tax-exempt municipal revenue
and general obligation bonds. Each bond included in the Municipal Bond Index
must be rated A or higher by Moody's, S&P or Fitch and must have a remaining
maturity of nineteen years or more. Twice a month, new issues satisfying the
eligibility requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal Bond Index is
computed daily according to a formula based on the price of each bond in the
Municipal Bond Index, as evaluated by six dealer-to-dealer brokers. A Municipal
Bond Index Futures contract is traded only on the CBT. Like other contract
markets, the CBT assures performance under futures contracts through a clearing
corporation, a nonprofit organization managed by the exchange membership which
is also responsible for handling daily accounting of deposits or withdrawals of
margin.
U.S. Government Securities Futures which may be purchased by the Fund
include Treasury Bonds, Notes and Bills. U.S. Government Securities Futures
have traded longer than Municipal Bond Index Futures, therefore the depth and
liquidity available in the trading market is generally greater for U.S.
Government Securities Futures.
o Writing Covered Call Options: The Fund may write covered call
options on futures contracts to earn premium income, to assure a definite price
for a security it has considered selling, or to close out options previously
purchased. A call option gives the holder (buyer) the right to purchase a
futures contract at a specified price (the exercise price) at any time until a
certain date (the expiration date). A call option is
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<PAGE>
"covered" if the Fund owns the underlying security subject to the call option at
all times during the option period. A covered call writer is required to deposit
in escrow the underlying security in accordance with the rules of the exchanges
on which the option is traded and the appropriate clearing agency.
The writing of covered call options is a conservative investment technique
which the Adviser believes involves relatively little risk. However, there is no
assurance that a closing transaction can be effected at a favorable price.
During the option period, the covered call writer has, in return for the premium
received, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.
o Writing Covered Put Options: The Fund may write covered put options
on futures contracts to assure a definite price for a security if it is
considering acquiring the security at a lower price than the current market
price or to close out options previously purchased. A put option gives the
holder of the option the right to sell, and the writer has the obligation to
buy, the underlying security at the exercise price at any time during the option
period. The operation of put options in other respects is substantially
identical to that of call options. When the Fund writes a covered put option, it
maintains in a segregated account with its Custodian cash or liquid debt
obligations in an amount not less than the exercise price at all times while the
put option is outstanding.
The risks involved in writing put options include the risk that a
closing transaction cannot be effected at a favorable price and the possibility
that the price of the underlying security may fall below the exercise price, in
which case the Fund may be required to purchase the underlying security at a
higher price than the market price of the security at the time the option is
exercised.
o Purchasing Options on Futures Contracts: The Fund may purchase put
and call options on futures contracts. The purchase of put options on futures
contracts hedges the Fund's portfolio against the risk of rising interest rates.
The purchase of call options on futures contracts is a means of obtaining
temporary exposure to market appreciation at limited risk and is a hedge against
a market advance when the Fund is not fully invested. Assuming that any decline
in the securities being hedged is accompanied by a rise in interest rates, the
purchase of options on the futures contracts may generate gains which can
partially offset any decline in the value of the Fund's portfolio securities
which have been hedged. However, if after the Fund purchases an option on a
futures contract, the value of the securities being hedged moves in the opposite
direction from
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<PAGE>
that contemplated, the Fund will tend to experience losses in the form of
premiums on such options which would partially offset gains the Fund would have.
The Fund may purchase put and call options on futures contracts which
are traded on a national exchange or board of trade and sell such options to
terminate an existing position. Options on futures contracts give the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), rather than to purchase or sell a security, at a specified
exercise price at any time during the period of the option.
The holder of an option on a futures contract may terminate his
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. In addition to the risks which apply
to all options transactions, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. Compared to
the use of futures contracts, the purchase of options on futures contracts
involves less potential risk to the Fund because the maximum amount at risk is
the premium paid for the options, plus transaction costs.
o Options Transactions Generally: Option transactions in which the
Fund may engage involve the specific risks described above as well as the
following risks: the writer of an option may be assigned an exercise at any time
during the option period; disruptions in the markets for underlying instruments
could result in losses for options investors; imperfect or no correlation
between the option and the securities being hedged; the insolvency of a broker
could present risks for the broker's customers; and market imposed restrictions
may prohibit the exercise of certain options. In addition, the option activities
of the Fund may affect its portfolio turnover rate and the amount of brokerage
commissions paid by the Fund. The success of the Fund in using the option
strategies described above depends, among other things, on the Adviser's ability
to predict the direction and volatility of price movements in the options,
futures contracts and securities markets and the Adviser's ability to select the
proper time, type and duration of the options.
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
the Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the Fund) present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or the Fund) are present or represented at such
meeting or (2) more than 50% of the outstanding shares of the Trust (or the
Fund).
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<PAGE>
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Fund. These limitations may
not be changed without the affirmative vote of a majority of the Fund's
outstanding shares. For the purpose of these investment limitations, the
identification of the "issuer" of Municipal Obligations which are not general
obligation bonds is made by the Adviser on the basis of the characteristics of
the obligation, the most significant of which is the source of funds for the
payment of principal of and interest on such obligations.
THE FUNDAMENTAL LIMITATIONS APPLICABLE TO THE FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause outstanding borrowings to exceed one-third
of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Underwriting. The Fund will not act as underwriter of securities
issued by other persons, either directly or through a majority owned subsidiary.
This limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
4. Real Estate. The Fund will not purchase, hold or deal in real
estate, but this shall not prevent investments in Municipal Obligations which
are secured by or represent interests in real estate.
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<PAGE>
5. Commodities. The Fund will not purchase hold or deal in
commodities and will not invest in oil, gas or other mineral explorative or
development programs.
6. Loans. The Fund will not make loans to other persons if, as a
result, more than one-third of the value of the Fund's total assets would be
subject to such loans. This limitation does not apply to (a) the purchase of a
portion of an issue of debt securities in accordance with the Fund's investment
objective, policies and limitations or (b) engaging in repurchase transactions.
7. Options. The Fund will not purchase or sell puts, calls, options or
straddles except as described in the Prospectus and Statement of Additional
Information.
8. Concentration. The Fund will not invest more than 25% of its total
assets in a particular industry; this limitation is not applicable to
investments in tax-exempt obligations issued by governments or political
subdivisions of governments.
9. Senior Securities. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except insofar as any
borrowing that the Fund may engage in may be deemed to be an issuance of a
senior security.
THE FOLLOWING INVESTMENT LIMITATIONS OF THE FUND ARE NONFUNDAMENTAL AND
MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.
1. Illiquid Investments. The Fund will not purchase securities for
which there are legal or contractual restrictions on resale or enter into a
repurchase agreement maturing in more than seven days if, as a result thereof,
more than 15% of the value of the Fund's net assets would be invested in such
securities.
2. Other Investment Companies. The Fund will not invest more than 5% of
its total assets in the securities of any investment company and will not invest
more than 10% of the value of its total assets in securities of other investment
companies.
3. Margin Purchases. The Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to short-term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities or margin payments in connection with futures contracts
or options on futures contracts.
4. Short Sales. The Fund will not make short sales of securities,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
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<PAGE>
With respect to the percentages adopted by the Trust as maximum
limitations on the Fund's investment policies and restrictions, an excess above
the fixed percentage (except for the percentage limitations relative to the
borrowing of money and the holding of illiquid securities) will not be a
violation of the policy or restriction unless the excess results immediately and
directly from the acquisition of any security or the action taken.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the
Trust and their compensation from the Trust and their aggregate compensation
from the Countrywide Investments complex of mutual funds (consisting of the
Trust, Countrywide Investment Trust and Countrywide Strategic Trust) for the
fiscal year ended June 30, 1997. Each Trustee who is an "interested person" of
the Trust, as defined by the Investment Company Act of 1940, is indicated by an
asterisk. Each of the Trustees is also a Trustee of Countrywide Investment Trust
and Countrywide Strategic Trust.
AGGREGATE
COMPENSATION
COMPENSATION FROM
POSITION FROM COUNTRYWIDE
NAME AGE HELD TRUST COMPLEX
- ---- --- -------- ----------- -----------
Donald L. Bodgon, MD 67 Trustee $ 583 $ 1,750
John R. Delfino 64 Trustee 333 1,000
+H. Jerome Lerner 59 Trustee 2,333 7,000
*Robert H. Leshner 58 President/Trustee 0 0
*Angelo R. Mozilo 59 Chairman/Trustee 0 0
+Oscar P. Robertson 59 Trustee 2,583 7,750
John F. Seymour, Jr. 60 Trustee 583 1,750
+Sebastiano Sterpa 68 Trustee 583 1,750
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 41 Secretary 0 0
Mark J. Seger 35 Treasurer 0 0
* Mr. Leshner and Mr. Mozilo, as officers and directors of
Countrywide Investments, Inc., are each an "interested
person" of the Trust within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the Trust
during the past five years are set forth below:
DONALD L. BOGDON, M.D., 1505 Wilson Terrace, Glendale, California is a
physician with Hematology Oncology Consultants and a Director of Verdugo VNA (a
hospice facility). Until 1996 he was President of Western Hematology/Oncology
and until 1993 he was Chairman of the Board of Glendale Memorial Hospital.
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<PAGE>
JOHN R. DELFINO, 2029 Century Park East, Los Angeles, California is
President of Concorde Capital Corporation (an investment firm). Until 1993
he was a director of Cypress Financial and Chairman of Rancho Santa Margarita,
mortgage banking firms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is President and
a director of Countrywide Investments, Inc. (the investment adviser and
principal underwriter of the Trust) and Countrywide Financial Services, Inc.
(a financial services company and parent of Countrywide Investments, Inc. and
Countrywide Fund Services, Inc.). He is Vice Chairman and a director of
Countrywide Fund Services, Inc. (a registered transfer agent) and President and
a Trustee of Countrywide Strategic Trust and Countrywide Investment Trust,
registered investment companies.
ANGELO R. MOZILO, 4500 Park Granada Road, Calabasas, California is Vice
Chairman and Executive Vice President of Countrywide Credit Industries, Inc. (a
holding company). He is a director of Countrywide Home Loans, Inc. (a
residential mortgage lender), CTC Foreclosure Services Corporation (a
foreclosure trustee) and LandSafe, Inc. (the parent company of fifteen LandSafe
entities which provide property appraisals, credit reporting services, title
insurance and/or closing services for residential mortgages), each a subsidiary
of Countrywide Credit Industries, Inc. He is Chairman and a director of
Countrywide Financial Services, Inc., Countrywide Investments, Inc., Countrywide
Fund Services, Inc., Countrywide Servicing Exchange (a loan servicing broker),
Countrywide Capital Markets, Inc., (parent company of Countrywide Securities
Corporation and Countrywide Servicing Exchange) and various LandSafe
subsidiaries and is Chairman and Chief Executive Officer of Countrywide
Securities Corporation (a registered broker-dealer), each a subsidiary of
Countrywide Credit Industries, Inc. He is also Vice Chairman of CWM Mortgage
Holdings, Inc. (a publicly-held real estate investment trust). He is Chairman of
Countrywide Strategic Trust and Countrywide Investment Trust.
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is President
of Orchem Corp., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer.
JOHN F. SEYMOUR, JR., 46-393 Blackhawk Drive, Indian Wells, California
is Chief Executive Officer of the Southern California Housing Development Agency
and a consultant for Orange Coast Title Co. (a title insurance company). He is
also a director of Irvine Apartment Communities (a real estate investment trust)
and Inco Homes (a home builder).
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<PAGE>
SEBASTIANO STERPA, 200 West Glenoaks Boulevard, Glendale, California is
Chairman of Sterpa Realty, Inc. and Chairman and a director of the California
Housing Finance Agency. He is also a director of Real Estate Business Services
and a director of the SunAmerica Mutual Funds.
ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio is President and
Treasurer of Countrywide Fund Services, Inc., First Vice President - Finance and
Treasurer of Countrywide Financial Services, Inc. and Treasurer of Countrywide
Investments, Inc. He is also Vice President of Countrywide Investment Trust,
Countrywide Strategic Trust, Brundage, Story and Rose Investment Trust, Markman
MultiFund Trust, PRAGMA Investment Trust, Maplewood Investment Trust, a series
company, The Thermo Opportunity Fund, Inc., The Dean Family of Funds and The New
York State Opportunity Funds and Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust, The Tuscarora Investment Trust, The
Gannett Welsh & Kotler Funds and Interactive Investments, all of which are
registered investment companies.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is First Vice
President, Secretary and General Counsel of Countrywide Fund Services, Inc.
and Secretary and General Counsel of Countrywide Investments, Inc. and
Countrywide Financial Services, Inc. He is also Secretary of Countrywide
Strategic Trust, Countrywide Investment Trust, Brundage, Story and Rose
Investment Trust, Williamsburg Investment Trust, Markman MultiFund Trust, The
Tuscarora Investment Trust, PRAGMA Investment Trust, Maplewood Investment Trust,
a series company, and The Thermo Opportunity Fund, Inc. and Assistant Secretary
of Schwartz Investment Trust, The Gannett Welsh & Kotler Funds, Interactive
Investments, the New York State Opportunity Funds and the Dean Family of Funds.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Chief
Operating Officer of Countrywide Fund Services, Inc. He is also Treasurer of
Countrywide Strategic Trust, Countrywide Investment Trust, Brundage, Story and
Rose Investment Trust, Williamsburg Investment Trust, Markman MultiFund Trust,
PRAGMA Investment Trust, Maplewood Investment Trust, a series company, The
Thermo Opportunity Fund, Inc., the New York State Opportunity Funds and the Dean
Family of Funds and Assistant Treasurer of Schwartz Investment Trust, The
Tuscarora Investment Trust, The Gannett Welsh & Kotler Funds and Interactive
Investments.
Each Trustee, except for Messrs. Leshner and Mozilo, receives a
quarterly retainer of $1,500 and a fee of $1,500 for each Board meeting
attended. Such fees are split equally among the Trust, Countrywide Strategic
Trust and Countrywide Investment Trust.
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<PAGE>
THE INVESTMENT ADVISER AND UNDERWRITER
- --------------------------------------
Countrywide Investments, Inc. (the "Adviser"), is the Fund's
investment manager. The Adviser is a subsidiary of Countrywide Financial
Services, Inc., which is a wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. Messrs. Mozilo and Leshner
are deemed to be affiliates of the Adviser by reason of their position as
Chairman and President, respectively, of the Adviser. Messrs. Mozilo and
Leshner, by reason of such affiliation, may directly or indirectly receive
benefits from the advisory fees paid to the Adviser.
Under the terms of the investment advisory agreement between the Trust
and the Adviser, the Adviser manages the Fund's investments. The Fund pays the
Adviser a fee computed and accrued daily and paid monthly at an annual rate of
.5% of its average daily net assets up to $100,000,000, .45% of such assets from
$100,000,000 to $200,000,000, .4% of such assets from $200,000,000 to
$300,000,000 and .375% of such assets in excess of $300,000,000. The total fees
paid by the Fund during the first and second halves of each fiscal year of the
Trust may not exceed the semiannual total of the daily fee accruals requested by
the Adviser during the applicable six month period.
Prior to August 29, 1997, the investment adviser of the Predecessor
Fund was Trans Financial Bank, N.A. (the "Predecessor Adviser"). For the fiscal
periods ended August 31, 1997 and 1996, the Predecessor Fund accrued advisory
fees of $47,946 and $63,051, respectively; however, the Predecessor Adviser
voluntarily waived all of its advisory fees and reimbursed the Predecessor Fund
for $64,639 and $57,829 of other expenses for the fiscal periods ended August
31, 1997 and 1996, respectively, in order to reduce the operating expenses of
the Predecessor Fund.
The Fund is responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Fund, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Fund may have an obligation
to indemnify the Trust's officers and Trustees with respect to such litigation,
except in instances of willful misfeasance, bad faith, gross negligence or
reckless disregard by such officers and Trustees in the performance of their
duties. The Adviser bears promotional expenses in connection with the
distribution of the Fund's shares to the extent that such expenses are not
assumed by the Fund under its plan of distribution (see below). The compensation
and expenses of any officer, Trustee or employee of the Trust who is an officer,
director or employee of the Adviser are paid by the Adviser.
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<PAGE>
By its terms, the Fund's investment advisory agreement will remain in
force until February 28, 1999 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or (b) a vote of a majority of the
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. The Fund's investment advisory agreement may be terminated
at any time, on sixty days' written notice, without the payment of any penalty,
by the Board of Trustees, by a vote of a majority of the Fund's outstanding
voting securities, or by the Adviser. The investment advisory agreement
automatically terminates in the event of its assignment, as defined by the
Investment Company Act of 1940 and the rules thereunder.
The Adviser is also the principal underwriter of the Fund and, as such,
the exclusive agent for distribution of shares of the Fund. The Adviser is
obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of the Fund are offered to the public on a
continuous basis.
The Adviser currently allows concessions to dealers who sell shares of
the Fund. The Adviser retains the entire sales load on all direct initial
investments in the Fund and on all investments in accounts with no designated
dealer of record.
The Fund may compensate dealers, including the Adviser and its
affiliates, based on the average balance of all accounts in the Fund for which
the dealer is designated as the party responsible for the account. See
"Distribution Plan" below.
DISTRIBUTION PLAN
- ------------------
As stated in the Prospectus, the Fund has 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 for expenses incurred in the distribution and
promotion of the Fund's shares, including but not limited to, the printing of
prospectuses, statements of additional information and reports used for sales
purposes, advertisements, expenses of preparation and printing of sales
literature, promotion, marketing and sales expenses, and other
distribution-related expenses, including any distribution fees paid to
securities dealers or other firms who have executed a distribution or service
agreement with the Adviser. The Plan expressly limits payment of the
distribution expenses listed above in any fiscal year to a maximum of .25% of
the Fund's average daily net assets. Unreimbursed expenses will not be carried
over from year to year.
Agreements implementing the Plan (the "Implementation Agreements"),
including agreements with dealers wherein such
- 23 -
<PAGE>
dealers agree for a fee to act as agents for the sale of the Fund's shares, are
in writing and have been approved by the Board of Trustees. All payments made
pursuant to the Plan are made in accordance with written agreements.
The continuance of the Plan and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plan or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated at any
time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of the Fund. In the event the
Plan is terminated in accordance with its terms, the Fund will not be required
to make any payments for expenses incurred by the Adviser after the termination
date. Each Implementation Agreement terminates automatically in the event of its
assignment and may be terminated at any time by a vote of a majority of the
Independent Trustees or by a vote of the holders of a majority of the
outstanding shares of the Fund on not more than 60 days' written notice to any
other party to the Implementation Agreement. The Plan may not be amended to
increase materially the amount to be spent for distribution without shareholder
approval. All material amendments to the Plan must be approved by a vote of the
Trust's Board of Trustees and by a vote of the Independent Trustees.
In approving the Plan, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plan should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plan will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plan. There can be no assurance that the benefits
anticipated from the expenditure of the Fund's assets for distribution will be
realized. While the Plan is in effect, all amounts spent by the Fund pursuant to
the Plan and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. The selection and nomination
of those Trustees who are not interested persons of the Trust are committed to
the discretion of the Independent Trustees during such period.
Angelo R. Mozilo and Robert H. Leshner, as interested persons of the
Trust, may be deemed to have a financial interest in the operation of the Plan
and the Implementation Agreements.
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<PAGE>
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of
the Fund's securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the purchase and sale of portfolio securities, the
Adviser seeks best execution for the Fund, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. The Adviser generally seeks favorable prices and commission rates that
are reasonable in relation to the benefits received.
Generally, the Fund attempts to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Fund may be purchased
directly from the issuer. Because the portfolio securities of the Fund are
generally traded on a net basis and transactions in such securities do not
normally involve brokerage commissions, the cost of portfolio securities
transactions of the Fund will consist primarily of dealer or underwriter
spreads. No brokerage commissions were paid by the Predecessor Fund during the
fiscal periods ended August 31, 1997 and 1996.
The Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Fund and/or other accounts over
which the Adviser exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Adviser determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided. The determination
may be viewed in terms of a particular transaction or the Adviser's overall
responsibilities with respect to the Fund and to accounts over which it
exercises investment discretion.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends, general advice on the relative merits of
possible investment securities for the Fund and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Although this information is useful to the Fund and the
Adviser, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Fund effects securities transactions may
be used by the Adviser in servicing all of its accounts and not all such
services may be used by the Adviser in connection with the Fund.
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<PAGE>
The Fund has no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Adviser and other affiliates
of the Trust or the Adviser may effect securities transactions which are
executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. The Fund will not effect
any brokerage transactions in its portfolio securities with the Adviser if such
transactions would be unfair or unreasonable to its shareholders.
Over-the-counter transactions will be placed either directly with principal
market makers or with broker-dealers. Although the Fund does not anticipate any
ongoing arrangements with other brokerage firms, brokerage business may be
transacted from time to time with other firms. Neither the Adviser nor
affiliates of the Trust or the Adviser will receive reciprocal brokerage
business as a result of the brokerage business transacted by the Fund with other
brokers.
CODE OF ETHICS. The Trust and the Adviser have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of 1940. The Code significantly
restricts the personal investing activities of all employees of the Adviser and,
as described below, imposes additional, more onerous, restrictions on investment
personnel of the Adviser. The Code requires that all employees of the Adviser
preclear any personal securities investment (with limited exceptions, such as
U.S. Government obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. In addition, no employee may purchase or
sell any security which at the time is being purchased or sold (as the case may
be), or to the knowledge of the employee is being considered for purchase or
sale, by the Fund. The substantive restrictions applicable to investment
personnel of the Adviser include a ban on acquiring any securities in an initial
public offering and a prohibition from profiting on short-term trading in
securities. Furthermore, the Code provides for trading "blackout periods" which
prohibit trading by investment personnel of the Adviser within periods of
trading by the Fund in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
The Fund does not intend to purchase securities for short term trading;
however, a security may be sold in anticipation of a market decline, or
purchased in anticipation of a market rise and later sold. Securities will be
purchased and sold in response to the Adviser's evaluation of an issuer's
ability to meet its debt obligations in the future. A security may be sold and
another purchased when, in the opinion of the Adviser, a favorable yield spread
exists between specific issues or different market sectors.
- 26 -
<PAGE>
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. A 100% turnover rate would occur if all of the Fund's portfolio securities
were replaced once within a one year period.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net
asset value plus applicable sales load) of the shares of the Fund are determined
as of the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which there
is sufficient trading in the Fund's portfolio securities that its net asset
value might be materially affected. For a description of the methods used to
determine the share price and the public offering price, see "Calculation of
Share Price and Public Offering Price" in the Prospectus.
Tax-exempt portfolio securities are valued for the Fund by an outside
independent pricing service approved by the Board of Trustees. The service
generally utilizes a computerized grid matrix of tax-exempt securities and
evaluations by its staff to determine what it believes is the fair value of the
portfolio securities. The Board of Trustees believes that timely and reliable
market quotations are generally not readily available to the Fund for purposes
of valuing tax-exempt securities and that valuations supplied by the pricing
service are more likely to approximate the fair value of the tax-exempt
securities.
If, in the Adviser's opinion, the valuation provided by the pricing
service ignores certain market conditions affecting the value of a security, the
Adviser will use (consistent with procedures established by the Board of
Trustees) such other valuation as it considers to represent fair value.
Valuations, market quotations and market equivalents provided to the Fund by
pricing services will only be used when such use and the methods employed have
been approved by the Board of Trustees. Valuations provided by pricing services
or the Adviser may be determined without exclusive reliance on matrixes and may
take into consideration appropriate factors such as bid prices, quoted prices,
institution-size trading in similar groups of securities, yield, quality, coupon
rates, maturity, type of issue, trading characteristics and other market data.
- 27 -
<PAGE>
Since it is difficult to evaluate the likelihood of exercise or the
potential benefit of a put attached to an obligation, it is expected that such
puts will be determined to have a value of zero, regardless of whether any
direct or indirect consideration was paid.
The Board of Trustees has adopted the policy for the Fund, which may be
changed without shareholder approval, that the maturity of fixed rate or
floating and variable rate instruments with demand features will be determined
as follows. The maturity of each such fixed rate or floating rate instrument
will be deemed to be the period of time remaining until the principal amount
owed can be recovered through demand. The maturity of each such variable rate
instrument will be deemed to be the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount owed can be recovered through demand.
Taxable securities, if any, held by the Fund for which market
quotations are readily available are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities.
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.
OTHER PURCHASE INFORMATION
- --------------------------
The Prospectus describes generally how to purchase shares of the Fund.
Additional information with respect to certain types of purchases of shares of
the Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
shares of the Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing shares of the load funds distributed by
the Adviser with the amount of his current purchases in order to take advantage
of the reduced sales loads set forth in the table in the Prospectus. The
purchaser or his dealer must notify the Transfer Agent that an investment
qualifies for a reduced sales load. The reduced load will be granted upon
confirmation of the purchaser's holdings by the Transfer Agent.
LETTER OF INTENT. The reduced sales loads set forth in the table in the
Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of the Fund who submits a Letter of Intent to the Transfer
Agent. The Letter must state an intention to invest within a thirteen month
period in any load fund distributed by the Adviser a specified amount which, if
made at one time, would qualify for a reduced sales load. A Letter of Intent may
be submitted with a purchase at the beginning of the
- 28 -
<PAGE>
thirteen month period or within ninety days of the first purchase under the
Letter of Intent. Upon acceptance of this Letter, the purchaser becomes eligible
for the reduced sales load applicable to the level of investment covered by such
Letter of Intent as if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify the Transfer Agent that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. The Trust does not impose a front-end sales load or
imposes a reduced sales load in connection with purchases of shares of the Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "Exchange Privilege" sections in
the Prospectus because such purchases require minimal sales effort by the
Adviser. Purchases described in the "Purchases at Net Asset Value" section may
be made for investment only, and the shares may not be resold except through
redemption by or on behalf of the Trust.
TAXES
- ------
The Prospectus describes generally the tax treatment of distributions
by the Fund. This section of the Statement of Additional Information includes
additional information concerning federal and state taxes.
The Fund intends to qualify annually for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. To so qualify the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currency, or certain other
income (including but not limited to gains from options, futures and
- 29 -
<PAGE>
forward contracts) derived with respect to its business of investing in stock,
securities or currencies; and (ii) diversify its holdings so that at the end of
each quarter of its taxable year the following two conditions are met: (a) at
least 50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities (for this purpose such other securities will qualify only if
the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
The Fund intends to invest in sufficient obligations so that it will
qualify to pay, for federal income tax purposes, "exempt- interest dividends"
(as defined in the Internal Revenue Code) to shareholders. The Fund's dividends
payable from net tax-exempt interest earned from tax-exempt obligations will
qualify as exempt-interest dividends for federal income tax purposes if, at the
close of each quarter of the taxable year of the Fund, at least 50% of the value
of its total assets consists of tax-exempt obligations. The percentage of income
that is exempt from federal income taxes is applied uniformly to all
distributions made during each calendar year. This percentage may differ from
the actual tax-exempt percentage during any particular month.
The Fund intends to invest primarily in obligations with interest
income exempt from federal income tax. To the extent possible, the Fund intends
to invest primarily in obligations the income from which is exempt from Kentucky
income tax and the Kentucky intangible property tax. Distributions from net
investment income and net realized capital gains, including exempt-interest
dividends, may be subject to state taxes in other states.
Under the Internal Revenue Code, interest on indebtedness incurred or
continued to purchase or carry shares of investment companies paying
exempt-interest dividends, such as the Fund, will not be deductible by the
investor for federal income tax purposes. Shareholders should consult their tax
advisors as to the application of these provisions.
Shareholders receiving Social Security benefits may be subject to
federal income tax (and perhaps state personal income tax) on a portion of those
benefits as a result of receiving tax-exempt income (including exempt-interest
dividends distributed by the Fund). In general, the tax will apply to such
benefits only in cases where the recipient's provisional income, consisting of
adjusted gross income, tax-exempt interest income and 50% of any Social Security
benefits, exceeds a base amount ($25,000 for single individuals and $32,000 for
individuals filing a joint return). In such cases, the tax will be imposed on
the lesser of 50% of the recipient's Social Security benefits or the excess of
- 30 -
<PAGE>
provisional income over the base amount. A second tier of inclusion rules for
high-income social security recipients has been added for tax years beginning
after 1993. These new rules apply to taxpayers who have provisional income over
$44,000 (married filing jointly) or $34,000 (single). For these taxpayers, the
amount of benefit subject to tax is the lesser of (1) 85% of the social security
benefit received or (2) 85% of the excess of the taxpayer's provisional income
over $44,000 (married filing jointly) or $34,000 (single) plus the smaller of
(a) $6,000 (married filing jointly) or $4,500 (single) or (b) the amount taxable
under the 50% inclusion rules described above. Shareholders receiving Social
Security benefits may wish to consult their tax advisors.
All or a portion of the sales load incurred in purchasing shares of the
Fund will not be included in the federal tax basis of any of such shares sold
within 90 days of their purchase (for the purpose of determining gain or loss
upon the sale of such shares) if the sales proceeds are reinvested in any other
fund of Countrywide Investments and a sales load that would otherwise apply to
the reinvestment is reduced or eliminated because the sales proceeds were
reinvested in the funds of Countrywide Investments. The portion of the sales
load so excluded from the tax basis of the shares sold will equal the amount by
which the sales load that would otherwise be applicable upon the reinvestment is
reduced. Any portion of such sales load excluded from the tax basis of the
shares sold will be added to the tax basis of the shares acquired in the
reinvestment.
The Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. The Fund elected to defer until its June 30, 1998
tax year $39,798 of capital losses incurred after October 31, 1996. Capital loss
carryforwards and "post-October" losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
Investments by the Fund in certain options, futures contracts and options
on futures contracts are "section 1256 contracts." Any gains or losses on
section 1256 contracts are generally considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Section 1256 contracts held by the Fund at
the end of each taxable year are treated for federal income tax purposes as
being sold on such date for their fair market value. The resultant paper gains
or losses are also treated as 60/40 gains or losses. When the section 1256
contract is subsequently disposed of, the actual gain or loss will be adjusted
by the amount of any preceding year-end gain or loss.
Certain hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred,
rather
- 31 -
<PAGE>
than being taken into account in calculating taxable income for the taxable year
in which such losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the tax consequences of hedging
transactions to the Fund are not entirely clear. The hedging transactions may
increase the amount of short-term capital gain realized by the Fund which is
taxed as ordinary income when distributed to shareholders. The Fund may make one
or more of the elections available under the Internal Revenue Code of 1986 which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
elections made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions. Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain in any year, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of the Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Fund intends to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, the Fund intends to
make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Fund to redeem shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90 day period for
any one shareholder. Should payment be made in securities, the redeeming
shareholder will generally incur brokerage costs in converting
- 32 -
<PAGE>
such securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. The calculation also assumes the deduction of the
current maximum sales load from the initial $1,000 payment, at the times, in the
amounts, and under the terms disclosed in the Prospectus. If the Fund has been
in existence less than one, five or ten years, the time period since the date of
the initial public offering of shares will be substituted for the periods
stated. The average annual total returns of the Fund for the one year period
ended August 31, 1997 and for the period since the Fund's inception
(September 27, 1995) until August 31, 1997 are 3.06% and 4.58%, respectively.
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. This computation does not include
the effect of the applicable front-end sales load which, if included, would
reduce total return. The total returns of the Fund as calculated in this
manner for the fiscal periods ended August 31, 1997 and 1996 were 7.36% and
5.80%, respectively.
A nonstandardized quotation may also indicate average annual compounded
rates of return without including the effect of the front-end sales load or over
periods other than those specified for average annual total return. The average
annual compounded rates of return for the Fund (excluding sales loads) for the
- 33 -
<PAGE>
one year period ended August 31, 1997 and for the period since the Fund's
inception (September 27, 1995) until August 31, 1997 are 7.36% and 6.81%,
respectively.
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 yield and tax- equivalent
yield. A yield quotation is based on a 30-day (or one month) period and is
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Generally, interest earned (for the purpose of "a" above) on debt obligations is
computed by reference to the yield to maturity of each obligation held based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day prior to the start of the 30-day (or
one month) period for which yield is being calculated, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). The Fund's yield for September 30, 1997 was 4.36%. The Fund may also
quote a tax- equivalent yield, computed by dividing that portion of the Fund's
yield which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the Fund's yield that is not tax-exempt.
Based on the highest combined marginal federal and Kentucky income tax rate for
individuals (43.22%), the Fund's tax-equivalent yield for September 30, 1997 was
7.68%.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set
- 34 -
<PAGE>
forth in the Prospectus) to performance as reported by other investments,
indices and averages. When advertising current ratings or rankings, the Fund may
use Lipper Fixed Income Performance Analysis to discuss or compare Fund
performance. Lipper Fixed Income Fund Performance Analysis measures total return
and average current yield for the mutual fund industry and ranks individual
mutual fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Fund may provide comparative
performance information appearing in the Kentucky Municipal Debt Funds category.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of December 5, 1997, Trans Financial Bank, N.A., 500 Main Street,
Bowling Green, Kentucky owned of record 14.44% of the outstanding shares of the
Fund; John B. Gaines, P.O. Box 90012, Bowling Green, Kentucky owned of record
5.31% of the outstanding shares of the Fund; Donna G. Dornfeld, 810
Bedfordshire, Louisville, Kentucky owned of record 5.21% of the outstanding
shares of the Fund and Prudential Securities FBO Frank G. Otte 12902 U.S. 60,
Louisville, Kentucky owned of record 5.19% of the outstanding shares of the
Fund.
As of December 5, 1997, the Trustees and officers of the Trust as a
group owned of record or beneficially less than 1% of the outstanding shares of
the Trust and the Fund.
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has
been retained to act as Custodian for investments of the Fund. The Fifth Third
Bank acts as the Fund's depository, safekeeps its portfolio securities, collects
all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties. As compensation,
The Fifth Third Bank receives from the Fund a base fee at the annual rate of
.005% of average net assets (subject to a minimum annual fee of $1,500 and a
maximum fee of $5,000) plus transaction charges for each security transaction of
the Fund.
- 35 -
<PAGE>
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent
auditors for the Trust for the fiscal year ending June 30, 1998. Arthur Andersen
LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of the
Trust's financial statements and advises the Fund as to certain accounting
matters.
TRANSFER AGENT
- --------------
The Trust's transfer agent, Countrywide Fund Services, Inc. ("CFS"),
maintains the records of each shareholder's account, answers shareholders'
inquiries concerning their accounts, processes purchases and redemptions of the
Fund's shares, acts as dividend and distribution disbursing agent and performs
other shareholder service functions. CFS is an affiliate of the Adviser by
reason of common ownership. CFS receives for its services as transfer agent a
fee payable monthly at an annual rate of $21 per account from the Fund,
provided, however, that the minimum fee is $1,000 per month for the Fund. In
addition, the Fund pays out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
CFS also provides accounting and pricing services to the Trust. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable CFS to perform its duties, the Fund pays CFS
a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $2,500
$ 50,000,000 - $100,000,000 $3,000
$100,000,000 - $200,000,000 $3,500
$200,000,000 - $300,000,000 $4,000
Over $300,000,000 $5,000*
* Subject to an additional fee of .001% of average daily net
assets.
In addition, the Fund pays all costs of external pricing services.
CFS is retained by the Adviser to assist the Adviser in providing
administrative services to the Fund. In this capacity, CFS supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. CFS supervises
the preparation of tax returns, reports to shareholders of the Fund, reports to
and filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, CFS receives a fee from the
Adviser. The Adviser is solely responsible for the payment of these
administrative fees to CFS, and CFS has agreed to seek payment of such fees
solely from the Adviser.
- 36 -
<PAGE>
TAX EQUIVALENT YIELD TABLE
- ---------------------------
The tax equivalent yield table illustrates approximately the yield an
individual investor would have to earn on taxable investments to equal a
tax-exempt yield in various income tax brackets.
The table below shows the approximate taxable yields for individuals
that are equivalent to tax-exempt yields under combined marginal federal and
Kentucky 1997 income tax rates. The combined marginal state and federal tax
brackets shown reflect the fact that state income tax payments are currently
deductible for federal tax purposes.
For federal income tax purposes, the total amount otherwise allowable
as a deduction for personal exemptions in computing taxable income is reduced by
2% for each $2,500 (or fraction of that amount) by which the taxpayer's adjusted
gross income exceeds $121,200 (single return) or $181,800 (joint return). In
addition, the total amount otherwise allowable as itemized deductions in
computing taxable income is reduced by 3% of the amount by which the taxpayer's
adjusted gross income exceeds $121,200. The tax equivalent yield table has not
been adjusted to reflect the impact of these adjustments to taxable income.
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
KENTUCKY TAX-FREE FUND
Taxable Income Tax-Exempt Yield
Combined
Single Joint Kentucky and 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
Return Return Federal
Tax Bracket Tax Equivalent Yield
Not Over $24,650 Not Over $41,200 20.100% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
$ 24,650- $59,750 $41,200- $99,600 32.320% 4.43 5.17 5.91 6.65 7.39 8.13
$ 59,750-$124,650 $99,600-$151,750 35.140% 4.63 5.40 6.17 6.94 7.71 8.48
$124,650-$271,050 $151,750-$271,050 39.840% 4.99 5.82 6.65 7.48 8.31 9.14
Over $271,050 Over $271,050 43.224% 5.28 6.16 7.05 7.93 8.81 9.69
</TABLE>
- 37 -
<PAGE>
ANNUAL REPORT
- -------------
The Predecessor Fund's audited financial statements as of August 31,
1997 appear in its annual report which is attached to this Statement of
Additional Information.
- 38 -
<PAGE>
Capital Appreciation
Income
Tax-Exempt
ANNUAL REPORT
AUGUST 31, 1997
GROWTH/VALUE
FUND
AGGRESSIVE GROWTH
FUND
INTERMEDIATE BOND
FUND
MONEY MARKET
FUND
KENTUCKY TAX-FREE
FUND
<PAGE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not yet reflect the
prospects for accelerated earnings/cash flow growth. For the fiscal year ended
August 31, 1997, the Fund's total return (excluding the impact of applicable
sales loads) was 47.11%, as compared to 40.65% for the Standard & Poor's 500
(S&P 500) Index.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes. For the fiscal year ended August 31, 1997, the
Fund's total return (excluding the impact of applicable sales loads) was 49.09%,
as compared to 39.54% for the NASDAQ Index.
The equity market was strong through the summer months with each Fund's primary
sector concentrations, namely, healthcare, technology, energy and financial
services, participating in the advance. In contrast to earlier in the year, the
broader market has performed better than the popular averages due to the shift
in focus away from larger capitalization stocks to the mid-to-small
capitalization stocks. Our performance stayed with or outperformed the market
averages because of our focus on investing in growth opportunities among
companies of various sizes which are selling at value prices.
Our concentrated sectors each have distinct characteristics driving growth.
Healthcare growth is bolstered by the aging population and productivity gains
stemming from enlightened government reforms. Technology continues to alter
fundamental production and service delivery systems that increase productivity
significantly. Energy demand continues to grow faster than new found reserves
and technology is making vast headway in finding and servicing new oil and gas
reserves at costs never imagined even four or five years ago. Financial services
continues to restructure itself with new technology-enabled systems and the
gradual unfolding of regulatory freedoms that allow more competition and greater
responsiveness to fulfilling consumer needs.
The above growth characteristics are compelling when viewed in the context of
closely allied defensive characteristics. Healthcare demand is largely
unaffected by economic cycles. Technology is a volatile sector, but a portion of
this systematic risk is alleviated by our investment style, which imposes a
discipline of buying three-to-five year anticipated growth at a risk-adjusted,
discounted price-to-earnings multiple. Energy has historically been a defensive
sector, especially during inflationary periods. Entrepreneurial financial
services companies are expanding beyond traditional, artificially-imposed
boundaries, and erecting growth and hedging elements that should dilute earnings
damage from an extended upturn in interest rates.
We attempt to position the Growth/Value Fund to participate in the bull market
and simultaneously limit the risk profile in such a way as to minimize relative
market losses during downturns. The Aggressive Growth Fund also emphasizes
buying growth at value, but the average capitalization size is much smaller than
that of the Growth/Value Fund. The smaller, and usually younger, aggressive
growth companies add somewhat to the risk/return profile of the Aggressive
Growth Fund.
Consistent with past October market behavior, the opening weeks of the fourth
quarter have been volatile, caused by near-term concerns over quarterly earnings
reports in the technology sector and currency problems in Asia. In addition,
energy has been clouded somewhat by the inventory buildup of home heating fuels
together with some forecasts of a relatively mild winter. In spite of these very
near-term observations, we continue to believe that our long-term holdings have
ample fundamental support to warrant continued optimism in their respective
sectors.
<PAGE>
<TABLE>
GROWTH/VALUE FUND
AGGRESSIVE GROWTH FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
CHART:
<CAPTION>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GROWTH/VALUE
FUND AND THE STANDARD & POOR'S 500 INDEX
STANDARD & POOR'S 500 INDEX: GROWTH/VALUE FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/29/95 10,000 09/29/95 9,600
10/31/95 -0.61% 9,939 10/31/95 -1.70% 9,437
11/30/95 4.39% 10,376 11/30/95 6.21% 10,022
12/31/95 1.93% 10,576 12/31/95 0.77% 10,099
01/31/96 3.40% 10,936 01/31/96 3.61% 10,464
02/29/96 0.93% 11,037 02/29/96 4.04% 10,886
03/31/96 0.96% 11,143 03/31/96 0.97% 10,992
04/30/96 1.47% 11,307 04/30/96 3.58% 11,386
05/31/96 2.58% 11,599 05/31/96 0.76% 11,472
06/30/96 0.38% 11,643 06/30/96 -3.26% 11,098
07/31/96 -4.42% 11,129 07/31/96 -7.44% 10,272
08/31/96 2.11% 11,364 08/31/96 4.49% 10,733
09/30/96 5.63% 12,003 09/30/96 5.19% 11,290
10/31/96 2.76% 12,334 10/31/96 2.47% 11,568
11/30/96 7.56% 13,267 11/30/96 6.80% 12,355
12/31/96 -1.98% 13,004 12/31/96 -1.38% 12,185
01/31/97 6.25% 13,816 01/31/97 8.06% 13,167
02/28/97 0.78% 13,925 02/28/97 -2.78% 12,801
03/31/97 -4.11% 13,352 03/31/97 -3.98% 12,291
04/30/97 5.97% 14,150 04/30/97 2.90% 12,647
05/31/97 6.09% 15,011 05/31/97 7.23% 13,561
06/30/97 4.48% 15,684 06/30/97 6.46% 14,437
07/31/97 7.96% 16,932 07/31/97 9.67% 15,833
08/31/97 -5.60% 15,983 08/31/97 -0.28% 15,789
</TABLE>
GROWTH/VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
41.23% 26.95%
*Fund inception was September 29, 1995.
Past performance is not predictive of future performance.
<TABLE>
<PAGE>
CHART:
<CAPTION>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
AGGRESSIVE GROWTH FUND AND THE NASDAQ INDEX
NASDAQ INDEX AGGRESSIVE GROWTH FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/29/95 10,000 09/29/95 9,600
10/31/95 -1.03% 9,897 10/31/95 -5.30% 9,091
11/30/95 2.29% 10,124 11/30/95 5.91% 9,629
12/31/95 -0.59% 10,064 12/31/95 -0.80% 9,552
01/31/96 0.76% 10,141 01/31/96 -0.30% 9,523
02/29/96 3.86% 10,532 02/29/96 6.25% 10,118
03/31/96 0.12% 10,545 03/31/96 2.85% 10,406
04/30/96 8.12% 11,401 04/30/96 10.06% 11,453
05/31/96 4.46% 11,910 05/31/96 -0.25% 11,424
06/30/96 -4.68% 11,353 06/30/96 -5.80% 10,762
07/31/96 -8.80% 10,354 07/31/96 -8.39% 9,859
08/31/96 5.66% 10,940 08/31/96 6.62% 10,512
09/30/96 7.51% 11,761 09/30/96 4.47% 10,982
10/31/96 -0.43% 11,711 10/31/96 0.00% 10,982
11/30/96 5.84% 12,395 11/30/96 5.68% 11,606
12/31/96 -0.10% 12,382 12/31/96 2.12% 11,853
01/31/97 6.89% 13,236 01/31/97 6.74% 12,651
02/28/97 -5.12% 12,558 02/28/97 -5.17% 11,997
03/31/97 -6.65% 11,723 03/31/97 -5.05% 11,391
04/30/97 3.25% 12,104 04/30/97 1.18% 11,525
05/31/97 11.13% 13,452 05/31/97 8.93% 12,555
06/30/97 3.04% 13,860 06/30/97 7.05% 13,440
07/31/97 10.56% 15,323 07/31/97 9.23% 14,681
08/31/97 -0.38% 15,265 08/31/97 6.75% 15,672
</TABLE>
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
43.12% 26.46%
*Fund inception was September 29, 1995.
Past performance is not predictive of future performance.
<PAGE>
INTERMEDIATE BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Intermediate Bond Fund seeks to provide as high a level of current income as
is consistent with the preservation of capital. The Fund invests in marketable
corporate debt securities, U.S. Government securities, mortgage-related
securities, other asset-backed securities and cash or money market instruments.
For the fiscal year ended August 31, 1997, the Fund's total return (excluding
the impact of applicable sales loads) was 9.48%, as compared to 8.44% for the
Lehman Brothers Intermediate Government/Corporate Index.
The fixed-income market during the fiscal year was characterized by uncertainty.
The yield on the benchmark 30-year Treasury bond vacillated in a broad, but
well-defined, range between 6.35% and 7.20%. The Fund's strategy of purchasing
higher coupon, callable corporate bonds was well-suited for the volatile, but
essentially range-bound, interest rate environment. Performance was further
enhanced by a slightly longer-than-average duration.
The Fund remains well-diversified with approximately 40% of assets invested in
securities issued by government agencies, and 60% of assets invested among 34
different corporate issuers across a wide variety of industries. The Fund
continues to focus primarily on higher yielding investment-grade corporate bonds
with an overriding emphasis on the income component of total return.
<TABLE>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
INTERMEDIATE BOND FUND AND THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX INTERMEDIATE BOND FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
10/03/95 10,000 10/03/95 9,800
10/31/95 1.11% 10,111 10/31/95 0.51% 9,850
11/30/95 1.31% 10,243 11/30/95 1.07% 9,955
12/31/95 1.05% 10,351 12/31/95 0.83% 10,038
01/31/96 0.86% 10,440 01/31/96 0.93% 10,131
02/29/96 -1.17% 10,318 02/29/96 -0.95% 10,035
03/31/96 -0.51% 10,265 03/31/96 -0.24% 10,011
04/30/96 -0.35% 10,229 04/30/96 -0.48% 9,963
05/31/96 -0.08% 10,221 05/31/96 0.17% 9,979
06/30/96 1.06% 10,329 06/30/96 1.20% 10,099
07/31/96 0.30% 10,360 07/31/96 0.23% 10,122
08/31/96 0.08% 10,369 08/31/96 -0.05% 10,117
09/30/96 1.39% 10,513 09/30/96 0.89% 10,208
10/31/96 1.77% 10,699 10/31/96 1.96% 10,408
11/30/96 1.32% 10,840 11/30/96 1.53% 10,567
12/31/96 -0.64% 10,771 12/31/96 -0.57% 10,507
01/31/97 0.39% 10,813 01/31/97 0.25% 10,533
02/28/97 0.19% 10,833 02/28/97 0.18% 10,551
03/31/97 -0.69% 10,759 03/31/97 -0.92% 10,454
04/30/97 1.18% 10,886 04/30/97 1.66% 10,628
05/31/97 0.83% 10,976 05/31/97 0.84% 10,717
06/30/97 0.91% 11,076 06/30/97 1.41% 10,869
07/31/97 2.03% 11,301 07/31/97 2.95% 11,189
08/31/97 -0.50% 11,244 08/31/97 -1.01% 11,076
</TABLE>
INTERMEDIATE BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
7.29% 5.49%
*Fund inception was October 3, 1995.
Past performance is not predictive of future performance.
<PAGE>
KENTUCKY TAX-FREE FUND
MANAGEMENT DISCUSSION AND ANALYSIS
===============================================================================
The Kentucky Tax-Free Fund seeks the highest level of interest income exempt
from federal and Kentucky income taxes, consistent with protection of capital.
The Fund invests primarily in high and medium-quality Kentucky municipal
obligations. For the fiscal year ended August 31, 1997 the Fund's total return
(excluding the impact of applicable sales loads) was 7.36%, as compared to 9.25%
for the Lehman Brothers Municipal Index.
Municipal bonds generally tracked Treasury securities, underperforming early in
the fiscal year, then outperforming during the latter part of the fiscal year.
The Fund pursued an income-oriented strategy, purchasing premium bonds at
attractive yields. While the strategy was an effective one for a mostly
range-bound market, performance was hampered by a somewhat shorter-than-average
duration. Due to uncertain cash flows in the Fund, a higher degree of liquidity
was maintained which resulted in a lower duration.
Income will continue to be the primary focus of the Fund. The Fund's duration
will be extended on market weakness in an effort to maximize income and to take
advantage of the relative cheapness of municipals versus Treasuries.
<TABLE>
COMPARISION OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
KENTUCKY TAX-FREE FUND AND THE LEHMAN BROTHERS MUNICIPAL INDEX
LEHMAN BROTHERS MUNICIPAL INDEX KENTUCKY TAX-FREE FUND:
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/27/95 10,000 09/27/95 9,600
10/31/95 1.45% 10,145 10/31/95 2.42% 9,832
11/30/95 1.66% 10,313 11/30/95 1.90% 10,019
12/31/95 0.96% 10,412 12/31/95 1.23% 10,142
01/31/96 0.76% 10,492 01/31/96 0.65% 10,208
02/29/96 -0.68% 10,420 02/29/96 -0.73% 10,133
03/31/96 -1.28% 10,287 03/31/96 -1.20% 10,011
04/30/96 -0.28% 10,258 04/30/96 -0.17% 9,994
05/31/96 -0.04% 10,254 05/31/96 -0.01% 9,992
06/30/96 1.09% 10,366 06/30/96 -0.18% 9,974
07/31/96 0.91% 10,460 07/31/96 1.66% 10,140
08/31/96 -0.02% 10,458 08/31/96 0.17% 10,157
09/30/96 1.40% 10,604 09/30/96 1.00% 10,259
10/31/96 1.13% 10,724 10/31/96 0.94% 10,355
11/30/96 1.83% 10,920 11/30/96 1.53% 10,514
12/31/96 -0.42% 10,875 12/31/96 -0.34% 10,478
01/31/97 0.19% 10,895 01/31/97 0.26% 10,505
02/28/97 0.92% 10,995 02/28/97 0.89% 10,598
03/31/97 -1.33% 10,849 03/31/97 -0.75% 10,518
04/30/97 0.84% 10,940 04/30/97 0.53% 10,574
05/31/97 1.50% 11,104 05/31/97 1.03% 10,684
06/30/97 1.07% 11,223 06/30/97 0.72% 10,761
07/31/97 2.77% 11,534 07/31/97 1.90% 10,965
08/31/97 -0.94% 11,426 08/31/97 -0.55% 10,904
</TABLE>
KENTUCKY TAX-FREE FUND
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR SINCE INCEPTION*
3.06% 4.58%
*Fund inception was September 27, 1995.
Past performance is not predictive of future performance.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
August 31, 1997
===================================================================================================================================
GROWTH/ AGGRESSIVE INTERMEDIATE MONEY KENTUCKY
VALUE GROWTH BOND MARKET TAX-FREE
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost.......................... $19,842,469 $9,516,442 $14,884,587 $87,944,917 $8,083,127
============ ========== =========== =========== ===========
At amortized cost............................ $19,842,469 $9,516,442 $14,884,587 $87,944,917 $7,981,883
=========== ========== =========== =========== ===========
At value (Note 2)............................ $27,516,945 $14,230,179 $14,972,202 $87,944,917 $8,073,983
Investments in repurchase agreements (Note 2)... -- -- 54,931 23,258,658 --
Cash ........................................... -- 1,634 5,076 -- 233,962
Interest and dividends receivable............... 16,876 3,510 208,558 1,550,396 96,611
Receivable from affiliate (Note 4).............. -- 1,680 13,019 5,215 2,857
Receivable for capital shares sold.............. -- 16,425 22,991 -- 41,000
Organization costs, net (Note 2)................ 19,584 19,584 19,584 19,584 19,584
----------- ---------- ----------- ----------- -----------
TOTAL ASSETS................................. 27,553,405 14,273,012 15,296,361 112,778,770 8,467,997
----------- ---------- ----------- ----------- -----------
LIABILITIES
Bank overdraft.................................. 2,192 -- -- 1,029,808 --
Dividends payable............................... -- -- 80,975 392,946 20,095
Payable for capital shares redeemed............. 14,751 -- -- -- --
Payable for securities purchased................ 744,040 278,750 89,439 16,762,000 --
Other accrued expenses and liabilities.......... 14,353 10,527 12,070 24,947 10,270
----------- ---------- ----------- ----------- -----------
TOTAL LIABILITIES ........................... 775,336 289,277 182,484 18,209,701 30,365
----------- ---------- ----------- ----------- -----------
NET ASSETS ..................................... $26,778,069 $13,983,735 $15,113,877 $94,569,069 $8,437,632
=========== ========== =========== =========== ===========
Net assets consist of:
Paid-in capital................................. $19,103,593 $9,626,476 $15,076,896 $94,571,137 $8,341,407
Undistributed net investment income............. -- -- -- 494 --
Accumulated net realized gains (losses)
from security transactions................. -- (356,478) (50,634) (2,562) 4,125
Net unrealized appreciation on investments...... 7,674,476 4,713,737 87,615 -- 92,100
----------- ---------- ----------- ----------- -----------
Net assets...................................... $26,778,069 $13,983,735 $15,113,877 $94,569,069 $8,437,632
=========== ========== =========== =========== ===========
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5)....................... 1,684,685 858,688 1,511,122 94,571,137 822,742
=========== ========== =========== =========== ===========
Net asset value and redemption
price per share (Note 2).................... $ 15.90 $ 16.29 $ 10.00 $ 1.00 $ 10.26
=========== ========== =========== =========== ===========
Maximum offering price per share (Note 2)....... $ 16.56 $ 16.97 $ 10.20 $ 1.00 $ 10.69
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended August 31, 1997
===================================================================================================================================
GROWTH/ AGGRESSIVE INTERMEDIATE MONEY KENTUCKY
VALUE GROWTH BOND MARKET TAX-FREE
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income.............................. $ 36,676 $ 19,827 $1,088,715 $5,391,779 $ 626,947
Dividend income............................. 153,095 14,849 -- -- --
---------- --------- ---------- --------- -----------
TOTAL INVESTMENT INCOME.................... 189,771 34,676 1,088,715 5,391,779 626,947
---------- --------- ---------- --------- -----------
EXPENSES
Investment advisory fees (Note 4)............ 206,612 94,159 60,906 188,896 47,946
Shareholder service fees (Note 4)............ 51,654 23,540 38,066 236,120 29,966
Administration fees (Note 4)................. 30,995 24,866 24,866 141,672 24,866
Accounting services fees (Note 4)............ 36,000 36,000 36,000 47,500 36,000
Professional fees............................ 25,081 24,383 23,729 40,144 25,286
Transfer agent fees (Note 4)................. 28,000 27,079 25,526 21,186 29,221
Custodian fees............................... 5,121 3,192 8,129 26,184 2,150
Amortization of organization costs (Note 2).. 6,351 6,351 6,351 6,351 6,351
Reports to shareholders...................... 2,885 1,282 2,323 13,943 2,199
Pricing expense.............................. 2,916 2,115 2,683 439 6,443
Insurance expense............................ 1,619 686 1,332 7,834 1,367
Trustees' fees and expenses.................. 1,646 734 1,271 7,663 1,193
Registration fees............................ 2,666 2,522 1,957 2,984 238
Other expenses............................... 2,849 723 1,500 6,771 1,623
---------- --------- ---------- --------- -----------
TOTAL EXPENSES............................. 404,395 247,632 234,639 747,687 214,849
Fees waived and/or expenses
reimbursed (Note 4)........................ -- ( 64,077) (104,530) ( 130,362) (112,585)
---------- --------- ---------- --------- -----------
NET EXPENSES............................... 404,395 183,555 130,109 617,325 102,264
---------- --------- ---------- --------- -----------
NET INVESTMENT INCOME (LOSS) ................... (214,624) ( 148,879) 958,606 4,774,454 524,683
---------- --------- ---------- --------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security
transactions............................... 894,909 (356,478) 14,511 ( 2,536) 6,913
Net change in unrealized
appreciation/depreciation on investments.. 7,431,395 4,653,168 420,446 -- 351,842
---------- --------- ---------- --------- -----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS .............................. 8,326,304 4,296,690 434,957 ( 2,536) 358,755
---------- --------- ---------- --------- -----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ..... $8,111,680 $4,147,811 $1,393,563 $4,771,918 $883,438
========== ========= ========== ========= ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended August 31, 1997 and 1996
===================================================================================================================================
GROWTH/ AGGRESSIVE INTERMEDIATE MONEY KENTUCKY
VALUE GROWTH BOND MARKET TAX-FREE
FUND FUND FUND FUND END
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS: SEPTEMBER 1, 1995 (A) ............ $ -- $ -- $ -- $ -- $ --
---------- --------- ---------- ----------- -----------
FROM OPERATIONS:
Net investment income (loss)................. ( 50,747) ( 39,525) 601,786 2,473,468 714,832
Net realized gains (losses) from
security transactions...................... 89,352 43,284 ( 15,393) 2,494 ( 2,788)
Net change in unrealized
appreciation/depreciation on investments... 243,081 60,569 ( 332,831) -- ( 259,742)
---------- --------- ---------- ----------- -----------
Net increase in net assets from operations...... 281,686 64,328 253,562 2,475,962 452,302
---------- --------- ---------- ----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income......... -- -- ( 601,786) (2,473,468) ( 828,883)
---------- --------- ---------- ----------- ------------
Decrease in net assets from distributions
to shareholders.............................. -- -- ( 601,786) (2,473,468) ( 828,883)
---------- --------- ---------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold.................... 15,471,301 7,269,024 14,919,014 446,620,681 28,751,437
Net asset value of shares issued in
reinvestment of distributions to
shareholders............................... -- -- 13,886 84,304 559,139
Payments for shares redeemed................. (645,322) ( 783,438) (1,227,784) (370,344,632) (13,093,506)
---------- --------- ---------- ----------- -----------
Net increase in net assets from capital
share transactions.............................. 14,825,979 6,485,586 13,705,116 76,360,353 16,217,070
---------- --------- ---------- ----------- -----------
NET ASSETS: AUGUST 31, 1996 ................... 15,107,665 6,549,914 13,356,892 76,362,847 15,840,489
---------- --------- ---------- ----------- -----------
FROM OPERATIONS:
Net investment income (loss)................. (214,624) ( 148,879) 958,606 4,774,454 524,683
Net realized gains (losses) from
security transactions...................... 894,909 ( 356,478) 14,511 ( 2,536) 6,913
Net change in unrealized
appreciation/depreciation on investments... 7,431,395 4,653,168 420,446 -- 351,842
---------- --------- ---------- ----------- -----------
Net increase in net assets from operations...... 8,111,680 4,147,811 1,393,563 4,771,918 883,438
---------- --------- ---------- ----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income......... -- -- ( 958,606) ( 4,773,960) ( 524,683)
Distributions in excess of net investment
income (Note 2)............................ -- -- -- -- ( 100,598)
Distributions from net realized gains........ (888,542) (16,180) ( 49,752) ( 2,520) --
---------- --------- ---------- ----------- -----------
Decrease in net assets from distributions
to shareholders.............................. ( 888,542) (16,180) (1,008,358) (4,776,480) ( 625,281)
---------- --------- ---------- ----------- -----------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold.................... 9,367,824 5,211,479 5,244,400 570,122,610 1,302,552
Net asset value of shares issued in
reinvestment of distributions
to shareholders............................ 260,810 4,532 19,314 424,478 303,297
Payments for shares redeemed................. (5,181,368) (1,913,821) (3,891,934) (552,336,304) (9,266,863)
---------- --------- ---------- ----------- -----------
Net increase (decrease) in net assets from
capital share transaction................... 4,447,266 3,302,190 1,371,780 18,210,784 ( 7,661,014)
---------- --------- ---------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........ 11,670,404 7,433,821 1,756,985 18,206,222 ( 7,402,857)
---------- --------- ---------- ----------- -----------
NET ASSETS: AUGUST 31, 1997 ................... $26,778,069 $13,983,735 $15,113,877 $94,569,069 $8,437,632
========== ========= ========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME ............ $ -- $ -- $ -- $ 494 $ --
========== ========= ========== =========== ===========
(A) Date of commencement of operations......... Sept. 29, Sept. 29, Oct. 3, Sept. 29, Sept. 27,
1995 1995 1995 1995 1995
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH/VALUE FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 11.18 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment loss................................................... ( 0.13 ) ( 0.06)(B)
Net realized and unrealized gains on investments...................... 5.39 1.24
-------------- ---------------
Total from investment operations......................................... 5.26 1.18
-------------- ---------------
Less distributions:
Distributions from net realized gains................................. ( 0.54 ) --
-------------- ---------------
Total distributions...................................................... ( 0.54 ) --
-------------- ---------------
Net asset value at end of period......................................... $ 15.90 $ 11.18
============== ===============
Total return (C) ........................................................ 47.11% 11.80%
============== ===============
Net assets at end of period (000's)...................................... $ 26,778 $ 15,108
============== ===============
Ratio of expenses to average net assets (D) ............................. 1.95% 1.95% (E)
Ratio of net investment loss to average net assets....................... ( 1.03% ) ( 0.62%)(E)
Portfolio turnover rate.................................................. 52% 21%
Average commission rate per share........................................ $ 0.0554 $ 0.0700
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratio of expenses to
average net assts would have been 2.83%(E) for the period ended August 31, 1996.
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 10.95 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment loss................................................... ( 0.17 ) ( 0.11)(B)
Net realized and unrealized gains on investments...................... 5.54 1.06
-------------- ---------------
Total from investment operations......................................... 5.37 0.95
-------------- ---------------
Less distributions:
Distributions from net realized gains................................. ( 0.03 ) --
-------------- ---------------
Total distributions...................................................... ( 0.03 ) --
-------------- ---------------
Net asset value at end of period......................................... $ 16.29 $ 10.95
============== ===============
Total return (C) ........................................................ 49.09% 9.50%
============== ===============
Net assets at end of period (000's)...................................... $ 13,984 $ 6,550
============== ===============
Ratio of expenses to average net assets (D) ............................. 1.94% 1.95% (E)
Ratio of net investment loss to average net assets....................... ( 1.57% ) ( 1.26%)(E)
Portfolio turnover rate.................................................. 51% 16%
Average commission rate per share........................................ $ 0.0534 $ 0.0800
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 2.62% and 5.05%(E) for the periods ended
August 31, 1997 and 1996, respectively (Note 4).
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 9.75 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.62 0.57(B)
Net realized and unrealized gains (losses) on investments............. 0.28 ( 0.25)
-------------- ---------------
Total from investment operations......................................... 0.90 0.32
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. ( 0.62 ) ( 0.57)
Distributions from net realized gains................................. ( 0.03 ) --
-------------- ---------------
Total distributions...................................................... ( 0.65 ) ( 0.57)
-------------- ---------------
Net asset value at end of period......................................... $ 10.00 $ 9.75
============== ===============
Total return (C) ........................................................ 9.48% 3.23%
============== ===============
Net assets at end of period (000's)...................................... $ 15,114 $ 13,357
============== ===============
Ratio of expenses to average net assets (D) ............................. 0.85% 0.68%(E)
Ratio of net investment income to average net assets..................... 6.26% 6.31%(E)
Portfolio turnover rate.................................................. 41% 12%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (October 3, 1995)
through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.53% and 2.04%(E) for the periods ended
August 31, 1997 and 1996, respectively (Note 4).
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 1.00 $ 1.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.050 0.046 (B)
-------------- ---------------
Total from investment operations......................................... 0.050 0.046
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. ( 0.050 ) ( 0.046)
-------------- ---------------
Total distributions...................................................... ( 0.050 ) ( 0.046)
-------------- ---------------
Net asset value at end of period......................................... $ 1.00 $ 1.00
============== ===============
Total return............................................................. 5.14% 4.70%
============== ===============
Net assets at end of period (000's)...................................... $ 94,569 $ 76,363
============== ===============
Ratio of expenses to average net assets(C) .............................. 0.65% 0.65%(D)
Ratio of net investment income to average net assets..................... 5.03% 4.94%(D)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 29,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Absent fee waivers and/or expense reimbursements, the ratios of
expenses to average net assets would have been 0.79% and 0.99%(D) for the
periods ended August 31, 1997 and 1996, respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KENTUCKY TAX-FREE FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================================
Per Share Data For a Share Outstanding Throughout Each Period
===================================================================================================================================
Year Period
Ended Ended
August 31, August 31,
1997 1996 (A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 10.06 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.44 0.51(B)
Net realized and unrealized gains on investments...................... 0.28 0.06
-------------- ---------------
Total from investment operations......................................... 0.72 0.57
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. ( 0.44 ) ( 0.51)
Distributions in excess of net investment income...................... ( 0.08 ) --
-------------- ---------------
Total distributions...................................................... ( 0.52 ) ( 0.51)
-------------- ---------------
Net asset value at end of period......................................... $ 10.26 $ 10.06
============== ===============
Total return (C) ........................................................ 7.36% 5.80%
============== ===============
Net assets at end of period (000's)...................................... $ 8,438 $ 15,840
============== ===============
Ratio of expenses to average net assets (D) ............................. 0.85% 0.82%
Ratio of net investment income to average net assets..................... 4.35% 5.30%(E)
Portfolio turnover rate.................................................. 0% 145%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the commencement of operations (September 27,
1995) through August 31, 1996.
(B) Calculated using weighted average shares outstanding during the period.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements, the ratios of expenses to
average net assets would have been 1.78% and 1.65%(E) for the periods ended
August 31, 1997 and 1996, respectively (Note 4).
(E) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
===============================================================================
1. Organization
The Growth/Value Fund and Aggressive Growth Fund are each a non-diversified
series of Countrywide Strategic Trust. The Intermediate Bond Fund and Money
Market Fund are, respectively, a non-diversified and diversified series of
Countrywide Investment Trust. The Kentucky Tax-Free Fund is a non-diversified
series of Countrywide Tax-Free Trust. Each Trust was established as a
Massachusetts business trust registered under the Investment Company Act of
1940. Countrywide Strategic Trust was organized on November 18, 1982 and
currently offers five series of shares. Countrywide Investment Trust was
organized on December 7, 1980 and currently offers seven series of shares.
Countrywide Tax-Free Trust was organized on April 13, 1981 and currently offers
seven series of shares. The Growth/Value Fund, the Aggressive Growth Fund, the
Intermediate Bond Fund, the Money Market Fund and the Kentucky Tax-Free Fund
(individually, a Fund and, collectively, the Funds) were originally organized as
series of Trans Adviser Funds, Inc. (Note 7).
The Growth/Value Fund seeks long-term capital appreciation primarily through
equity investments in companies whose valuations may not reflect the prospect
for accelerating earnings/cash flow growth. The Fund seeks to achieve its
objective by investing primarily in common stocks but also in preferred stocks,
convertible bonds and warrants of companies which, in the opinion of the Fund's
investment adviser, are expected to achieve growth of investment principal over
time. Investments will largely be made in companies of greater than $750 million
capitalization. The Fund commenced investment operations on September 29, 1995.
The Aggressive Growth Fund seeks long-term capital appreciation primarily
through equity investments. The Fund will seek growth opportunities among
companies of various sizes. The Fund seeks to achieve its objective by investing
primarily in common stocks but also in preferred stocks, convertible bonds,
options and warrants of companies which, in the opinion of the Fund's investment
adviser, are expected to achieve growth of investment principal over time. Many
of these companies are in the small to medium-sized category (companies with
market capitalizations of less than $750 million at the time of purchase). The
Fund commenced investment operations on September 29, 1995.
The Intermediate Bond Fund seeks to provide as high a level of current income as
is consistent with the preservation of capital. The Fund invests in marketable
corporate debt securities, U.S. Government securities, mortgage-related
securities, other asset-backed securities and cash or money market instruments.
The Fund commenced investment operations on October 3, 1995.
The Money Market Fund seeks high current income, consistent with liquidity and
stability of principal. The Fund invests primarily in high-quality U.S.
dollar-denominated money market instruments. The Fund commenced investment
operations on September 29, 1995.
The Kentucky Tax-Free Fund seeks the highest level of interest income exempt
from federal and Kentucky income taxes, consistent with protection of capital.
The Fund invests primarily in high and medium-quality Kentucky municipal
obligations. The Fund commenced investment operations on September 27, 1995.
<PAGE>
2. Significant Accounting Policies
The following is a summary of the Funds' significant accounting policies:
Security valuation -- Money Market Fund securities are valued on an amortized
cost basis which approximates market value, in accordance with Rule 2a-7 under
the Investment Company Act of 1940. This method of valuation is expected to
enable the Fund to maintain a constant net asset value per share. Securities
held by the Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund
and Kentucky Tax-Free Fund for which market quotations are readily available are
valued using the last reported sales price provided by independent pricing
services. If no sales are reported, the mean of the last bid and asked price is
used. In the absence of readily available market quotations, securities are
valued at fair value as determined by the Board of Directors.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time a Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement. In addition, each Fund actively monitors and
seeks additional collateral, as needed.
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities, by
the number of shares outstanding. The current maximum offering price per share
of the Growth/Value Fund, Aggressive Growth Fund and Kentucky Tax-Free Fund is
equal to net asset value per share plus a sales load equal to 4.17% of net asset
value (or 4% of the offering price) while the current maximum offering price per
share of the Intermediate Bond Fund is equal to net asset value per share plus a
sales load equal to 2.04% of net asset value (or 2% of the offering price). The
offering price of the Money Market Fund is equal to the net asset value per
share. The redemption price per share of each Fund is equal to the net asset
value per share.
Prior to August 30, 1997, the maximum offering price per share of the
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund and Kentucky
Tax-Free Fund was equal to net asset value per share plus a sales load equal to
4.71% of net asset value (or 4.5% of the offering price).
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. The Kentucky Tax-Free Fund amortizes premium
on fixed income investments to the maturity (or first call) date using the
yield-to-maturity method. In all other Funds, if a fixed income investment is
purchased at a premium, the premium is not amortized. If a fixed income
investment is purchased at a discount (other than original issue discount), the
discount is not accreted. Original issue discount on fixed income investments is
accreted daily using the yield-to-maturity method.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid annually to shareholders of the Growth/Value Fund
and Aggressive Growth Fund. Dividends arising from net investment income are
declared daily and paid monthly to shareholders of the Intermediate Bond Fund,
Money Market Fund and Kentucky Tax-Free Fund. With respect to each Fund, net
realized short-term capital gains, if any, may be distributed throughout the
year and net realized long-term capital gains, if any, are distributed at least
once each year. Income distributions and capital gain distributions are
determined in accordance with income tax regulations.
<PAGE>
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are valued on a specific identification basis.
Organization costs -- Costs incurred by the Funds in connection with their
organization and registration of shares, net of certain expenses paid by the
Adviser, have been capitalized and are being amortized on a straight-line basis
over a five year period beginning with each Fund's commencement of operations.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund (but not the
shareholders) will be relieved of federal income tax on the income distributed.
Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments (excluding repurchase agreements) as of August 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive Intermediate Kentucky
Value Growth Bond Tax-Free
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation.................. $ 7,854,770 $ 4,821,978 $ 144,820 $ 95,250
Gross unrealized depreciation.................. ( 180,294) ( 108,241) ( 104,962 ) ( 3,150)
------------ -------------- ------------- --------------
Net unrealized appreciation.................... $ 7,674,476 $ 4,713,737 $ 39,858 $ 92,100
============ ============== ============= ==============
Federal income tax cost........................ $ 19,842,469 $ 9,516,442 $14,932,344 $ 7,981,883
============ ============== ============= ==============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
For the Intermediate Bond Fund, the difference between the federal income tax
cost of portfolio investments and the financial statement cost is due to certain
timing differences in the recognition of capital losses under generally accepted
accounting principles and income tax regulations.
As of August 31, 1997, the Aggressive Growth Fund and the Money Market Fund had
capital loss carryforwards for federal income tax purposes of $154,085 and
$1,955, respectively. In addition, the Aggressive Growth Fund, Intermediate Bond
Fund, Money Market Fund and Kentucky Tax-Free Fund elected to defer until each
Fund's subsequent tax year $202,393, $2,877, $607 and $39,798, respectively, of
capital losses incurred after October 31, 1996. These capital loss carryforwards
and "post-October" losses may be utilized in future years to offset net realized
capital gains prior to distribution to shareholders.
Reclassification of capital accounts -- For the year ended August 31, 1997, the
Growth/Value Fund and Aggressive Growth Fund had net investment losses of
$214,624 and $148,879, respectively. With respect to the Growth/Value Fund,
$50,796 of the net investment loss was used to offset net short-term capital
gains and has been reclassified to accumulated net realized gains (losses) from
security transactions on the Statements of Assets and Liabilities, and $163,828
has been reclassified to paid-in capital. With respect to the Aggressive Growth
Fund, the $148,879 net investment loss has been reclassified to paid-in capital
on the Statements of Assets and Liabilities. For the year ended August 31, 1997,
the Kentucky Tax-Free Fund had distributions in excess of net investment income
of $100,598 which have been reclassified to paid-in capital on the Statements of
Assets and Liabilities. Such reclassifications, the result of permanent
differences between financial statement and income tax reporting requirements,
have no effect on each Fund's net assets or net asset value per share.
3. Investment Transactions
Investment transactions (excluding short-term investments) were as follows for
the year ended August 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive Intermediate Kentucky
Value Growth Bond Tax-Free
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 14,977,055 $ 8,126,232 $ 8,677,924 $ --
============= ============== ============= ==============
Proceeds from sales and maturities of
investment securities....................... $ 10,393,908 $ 4,667,425 $ 5,738,950 $ 7,587,516
============= ============== ============= ==============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. Transactions with Affiliates
The Chairman and the President of Countrywide Strategic Trust, Countrywide
Investment Trust and Countrywide Tax-Free Trust are also officers of Countrywide
Financial Services, Inc., whose subsidiaries include Countrywide Investments,
Inc. (the Adviser), the Funds' investment adviser and principal underwriter, and
Countrywide Fund Services, Inc. (CFS), the Funds' transfer agent, shareholder
service agent and accounting services agent. Countrywide Financial Services,
Inc. is a wholly-owned subsidiary of Countrywide Credit Industries, Inc., a New
York Stock Exchange listed company principally engaged in the business of
residential mortgage lending.
<PAGE>
INVESTMENT ADVISER
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. The Growth/Value Fund and Aggressive Growth Fund each pay
the Adviser a fee, which is computed and accrued daily and paid monthly, at an
annual rate of 1.00% of its respective average daily net assets up to $50
million; 0.90% of such net assets from $50 million to $100 million; 0.80% of
such net assets from $100 million to $200 million; and 0.75% of such net assets
in excess of $200 million. The Intermediate Bond Fund and Money Market Fund each
pay the Adviser a fee, which is computed and accrued daily and paid monthly, at
an annual rate of 0.50% of its respective average daily net assets up to $50
million; 0.45% of such net assets from $50 million to $150 million; 0.40% of
such net assets from $150 million to $250 million; and 0.375% of such net assets
in excess of $250 million. The Kentucky Tax-Free Fund pays the Adviser a fee,
which is computed and accrued daily and paid monthly, at an annual rate of 0.50%
of its respective average daily net assets up to $100 million; 0.45% of such net
assets from $100 million to $200 million; 0.40% of such net assets from $200
million to $300 million; and 0.375% of such net assets in excess of $300
million.
Mastrapasqua and Associates, Inc. (Mastrapasqua) has been retained by the
Adviser to manage the investments of the Growth/Value Fund and the Aggressive
Growth Fund. The Adviser (not the Funds) pays Mastrapasqua a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.60% of each
Fund's respective average daily net assets up to $50 million; 0.50% of such net
assets from $50 million to $100 million; 0.40% of such net assets from $100
million to $200 million; and 0.35% of such net assets in excess of $200 million.
Prior to August 30, 1997, the investment adviser of the Funds was Trans
Financial Bank, N.A. (the Predecessor Adviser). The Predecessor Adviser received
a monthly advisory fee at an annual rate of 1.00% of average daily net assets
for each of the Growth/Value Fund and Aggressive Growth Fund, 0.40% of average
daily net assets for each of the Intermediate Bond Fund and the Kentucky
Tax-Free Fund and 0.20% of average daily net assets for the Money Market Fund.
Pursuant to a Sub-Advisory Agreement between the Predecessor Adviser and
Mastrapasqua, the Predecessor Adviser delegated certain of its advisory
responsibilities to Mastrapasqua. The Predecessor Adviser (not the Funds) paid
Mastrapasqua a fee, calculated daily and paid monthly, at the annual rate of
0.50% on the first $100 million of the combined average daily net assets of the
Growth/Value Fund and Aggressive Growth Fund plus 0.25% of such combined net
assets in excess of $100 million; and 0.03% of the average daily net assets of
each of the Intermediate Bond Fund, Money Market Fund and Kentucky Tax-Free
Fund. The Predecessor Adviser was a significant shareholder of record of each
Fund as of August 31, 1997.
In order to voluntarily reduce operating expenses during the year ended August
31, 1997, the Predecessor Adviser waived $64,077 of its investment advisory fees
for the Aggressive Growth Fund; waived its entire advisory fee of $60,906 and
reimbursed other operating expenses of $43,624 for the Intermediate Bond Fund;
waived $130,362 of its investment advisory fees for the Money Market Fund; and
waived its entire advisory fee of $47,946 and reimbursed other operating
expenses of $64,639 for the Kentucky Tax-Free Fund.
The Adviser has agreed, until at least August 31, 1999, to waive fees and
reimburse expenses to the extent necessary to limit total operating expenses of
the Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Money
Market Fund and Kentucky Tax-Free Fund to 1.95%, 1.95%, 0.95%, 0.80% and 0.82%,
respectively, of each Fund's average daily net assets.
<PAGE>
TRANSFER AGENT AND SHAREHOLDER SERVICES
CFS serves as the transfer agent, dividend paying agent and shareholder service
agent for each Fund. CFS maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of each Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, CFS receives a monthly fee at an annual rate of $17 per shareholder
account from each of the Growth/Value Fund and Aggressive Growth Fund, $21 per
shareholder account from each of the Intermediate Bond Fund and Kentucky
Tax-Free Fund and $25 per shareholder account from the Money Market Fund,
subject to a $1,000 minimum monthly fee for each Fund. In addition, each Fund
pays out-of-pocket expenses including, but not limited to, postage and supplies.
Prior to August 30, 1997, Forum Financial Corp. (FFC) served as the Funds'
transfer agent and dividend disbursing agent and, for these services, received
an annual fee from each Fund of $12,000 plus $25 per shareholder account. In
addition, FFC was reimbursed by the Funds for out-of-pocket expenses incurred in
providing transfer agent services. Forum Financial Services, Inc. (Forum) acted
as distributor of each Fund's shares prior to August 30, 1997. Pursuant to a
shareholder servicing plan adopted by each Fund, Forum received a shareholder
servicing fee at an annual rate of 0.25% of the average daily net assets of each
Fund.
ADMINISTRATION
CFS provides non-investment related administrative and compliance services for
each Fund. CFS supervises the preparation of tax returns, reports to
shareholders, reports to and filings with the Securities and Exchange Commission
and state securities commissions, and materials for meetings of the Board of
Trustees. The Adviser (not the Funds) pays CFS for these services.
Prior to August 30, 1997, Forum Administrative Services, LLC supervised the
administration of all aspects of each Fund's operations and received a fee from
each Fund at an annual rate of 0.15% of the average daily net assets of such
Fund, subject to a $25,000 minimum annual fee.
ACCOUNTING SERVICES
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current asset levels, of $2,500 from each of the Growth/Value Fund and
Aggressive Growth Fund, $2,750 from the Intermediate Bond Fund, $3,000 from the
Money Market Fund and $3,250 from the Kentucky Tax-Free Fund. In addition, each
Fund pays certain out-of-pocket expenses incurred by CFS in obtaining valuations
of portfolio securities.
Prior to August 30, 1997, FFC performed portfolio accounting services for the
Funds and received an annual fee from each Fund of $36,000 plus certain
surcharges based on specified assets levels and the number and types of
portfolio transactions within each Fund.
<PAGE>
5. Capital Share Transactions
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods ended August 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Growth/ Aggressive Intermediate Money Kentucky
Value Growth Bond Market Tax-Free
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares outstanding: September 1, 1995 (1) ...... -- -- -- -- --
---------- --------- ---------- --------- -----------
Shares sold..................................... 1,408,416 668,440 1,491,710 446,620,681 2,814,888
Shares issued in reinvestment of distributions
to shareholders............................ -- -- 1,404 84,304 57,538
Shares redeemed................................. ( 57,598) ( 70,133) ( 122,796) (370,344,632) (1,297,814)
---------- --------- ---------- --------- -----------
Shares outstanding: August 31, 1996............. 1,350,818 598,307 1,370,318 76,360,353 1,574,612
---------- --------- ---------- --------- -----------
Shares sold..................................... 751,684 418,585 542,916 570,122,610 127,642
Shares issued in reinvestment of distributions
to shareholders............................ 16,584 376 1,951 424,478 29,744
Shares redeemed................................. ( 434,401) ( 158,580) ( 404,063) ( 552,336,304) ( 909,256)
---------- --------- ---------- --------- -----------
Net increase (decrease) in shares outstanding... 333,867 260,381 140,804 18,210,784 ( 751,870)
---------- --------- ---------- --------- -----------
Shares outstanding: August 31, 1997............. 1,684,685 858,688 1,511,122 94,571,137 822,742
========== ========= ========== ========= ===========
(1) Date of commencement of operations.......... Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 Sept. 29, 1995 Sept. 27, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. Concentrations of Credit Risk
As of August 31, 1997, the Kentucky Tax-Free Fund's investment securities were
invested exclusively in debt obligations of issuers for which the interest is
exempt from Kentucky income tax. The issuers' abilities to meet their
obligations may be affected by Kentucky economic or political developments.
Classified by revenue source, concentrations of investment securities
(representing 10% or more) for the Kentucky Tax-Free Fund as of August 31, 1997,
were 29.7% leases, 24.3% education, 19.8% industrial development/pollution
control and 18.4% transportation.
7. Agreement and Plan of Reorganization
Each Fund was originally organized as a series of Trans Adviser Funds, Inc., an
open-end management investment company incorporated under the laws of the State
of Maryland. Trans Adviser Funds, Inc. consisted of five investment portfolios,
the Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Money
Market Fund and Kentucky Tax-Free Fund (the Predecessor Funds). The Predecessor
Funds had investment objectives, policies and restrictions substantially
identical to the Funds.
As of the close of business on August 29, 1997, pursuant to an Agreement and
Plan of Reorganization dated May 31, 1997, all assets and liabilities of each
Predecessor Fund were transferred in exchange for capital shares of a
corresponding series of Countrywide Strategic Trust, with respect to the
Growth/Value Fund and Aggressive Growth Fund, Countrywide Investment Trust, with
respect to the Intermediate Bond Fund and Money Market Fund, and Countrywide
Tax-Free Trust, with respect to the Kentucky Tax-Free Fund. Each Predecessor
Fund then distributed to its shareholders as a liquidating dividend all capital
shares of the like Fund in exchange for and in cancellation of its capital
shares. When the reorganization was completed, shareholders of each Fund owned
the same proportional interest as they owned in the Predecessor Fund immediately
before the reorganization, and each Fund owned the same portfolio of assets as
the Predecessor Fund immediately before the reorganization.
The Agreement and Plan of Reorganization was approved at a special meeting of
the Predecessor Funds' shareholders on August 14, 1997. The total number of
shares of each Predecessor Fund voting in person or by proxy at the meeting
represented 70.6% of the Growth/Value Fund's outstanding shares, 72.9% of the
Aggressive Growth Fund's outstanding shares, 90.1% of the Intermediate Bond
Fund's outstanding shares, 54.0% of the Money Market Fund's outstanding shares
and 54.3% of the Kentucky Tax-Free Fund's outstanding shares. The results of the
voting for or against the reorganization by each Fund was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Shares
For Against Abstain
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth/Value Fund 1,166,197 209 1,215
Aggressive Growth Fund 615,269 194 66
Intermediate Bond Fund 1,454,117 -- --
Money Market Fund 57,549,931 236,463 423,542
Kentucky Tax-Free Fund 490,939 5,785 --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For federal income tax purposes, the reorganization qualifies as a tax-free
reorganization with no tax consequences to the Predecessor Funds, the Funds or
their shareholders.
In connection with the reorganization, the fiscal year-end of each Fund,
subsequent to August 31, 1997, has been changed to March 31 for the Growth/Value
Fund and Aggressive Growth Fund, September 30 for the Intermediate Bond Fund and
Money Market Fund, and June 30 for the Kentucky Tax-Free Fund.
<PAGE>
<TABLE>
GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
<CAPTION>
====================================================================================================================================
Market
COMMON STOCK -- 101.6% Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 30.1%
Avnet, Inc............................................................... 7,500 $ 518,906
Intel Corp............................................................... 4,000 368,500
International Business Machines Corp..................................... 14,000 1,412,250
Lam Research Corp.*...................................................... 13,000 734,500
Novell, Inc.*............................................................ 35,000 328,125
Novellus Systems, Inc.*.................................................. 6,000 687,750
Oracle Corp.*............................................................ 22,500 857,813
QLogic Corp.*............................................................ 12,500 490,625
SCB Computer Technology, Inc.*........................................... 10,000 265,000
Sun Microsystems, Inc.*.................................................. 20,000 960,000
Western Digital Corp.*................................................... 30,000 1,443,750
---------------
.................................................................... $ 8,067,219
---------------
HEALTH CARE -- 24.2%
American Home Products Corp.............................................. 8,000 $ 576,000
AmeriSource Health Corp. - Class A*...................................... 10,000 500,625
Bard (C.R.), Inc......................................................... 10,000 345,000
Baxter International, Inc................................................ 10,000 531,875
Beverly Enterprises, Inc.*............................................... 20,000 326,250
Bristol-Myers Squibb Co.................................................. 8,000 608,000
HEALTHSOUTH Corp.*....................................................... 9,690 241,644
Health Management Associates, Inc. - Class A*............................ 7,500 221,719
Manor Care, Inc.......................................................... 15,000 463,125
Quorum Health Group, Inc.*............................................... 7,500 255,469
Schering-Plough Corp..................................................... 20,000 960,000
Sybron International Corp.*.............................................. 15,000 599,062
Teva Pharmaceutical Industries, Ltd. - ADR............................... 10,000 523,750
Warner-Lambert Co........................................................ 2,500 317,656
---------------
.................................................................... $ 6,470,175
---------------
FINANCIAL SERVICES -- 18.0%
Ace, Ltd................................................................. 7,500 $ 623,438
American International Group, Inc........................................ 6,000 566,250
Capital One Financial Corp............................................... 20,000 770,000
Centura Banks, Inc....................................................... 10,000 568,750
Chase Manhattan Corp..................................................... 7,500 833,906
Chubb Corp............................................................... 5,000 334,375
MBNA Corp................................................................ 22,500 864,844
Penncorp Financial Group, Inc............................................ 8,000 256,500
---------------
.................................................................... $ 4,818,063
---------------
ENERGY -- 15.7%
Baker Hughes, Inc........................................................ 15,000 $ 635,625
McDermott International, Inc............................................. 10,000 322,500
Nuevo Energy Co.*........................................................ 12,000 609,750
Pride International, Inc.*............................................... 15,000 480,000
Schlumberger, Ltd........................................................ 12,000 914,250
Seagull Energy Corp.*.................................................... 10,000 244,375
Stone Energy Corp.*...................................................... 10,000 305,000
The Williams Companies, Inc.............................................. 15,000 698,438
---------------
.................................................................... $ 4,209,938
---------------
<PAGE>
<CAPTION>
GROWTH/VALUE FUND (continued)
===================================================================================================================================
Market
COMMON STOCK -- 101.6% Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL -- 6.8%
Carnival Corp. - Class A................................................. 12,500 $ 547,656
Friedman's, Inc. - Class A*.............................................. 6,000 99,750
OfficeMax, Inc.*......................................................... 10,000 148,125
Safeway, Inc.*........................................................... 7,500 382,031
Walgreen Co.............................................................. 4,600 123,913
Wal-Mart Stores, Inc..................................................... 15,000 532,500
---------------
.................................................................... $ 1,833,975
---------------
LEISURE TIME -- 2.5%
Host Marriott Corp.*..................................................... 15,000 $ 292,500
Promus Hotel Corp.*...................................................... 10,000 388,125
---------------
.................................................................... $ 680,625
---------------
BEVERAGES -- 2.3%
PepsiCo, Inc............................................................. 17,000 $ 612,000
---------------
AEROSPACE -- 1.5%
United Technologies Corp................................................. 5,000 $ 390,312
---------------
TRANSPORTATION -- 0.5%
Heartland Express, Inc.*................................................. 5,000 $ 123,750
---------------
TOTAL COMMON STOCK (Cost $19,531,581).................................... $ 27,206,057
---------------
<CAPTION>
===================================================================================================================================
Face Market
CASH EQUIVALENTS -- 1.2% Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Forum Daily Assets Treasury Fund ........................................ $ 310,888 $ 310,888
-------------- ---------------
TOTAL CASH EQUIVALENTS (Cost $310,888) ................................. $ 310,888 $ 310,888
============== ---------------
TOTAL INVESTMENTS AT VALUE-- 102.8% ..................................... $ 27,516,945
LIABILITIES IN EXCESS OF OTHER ASSETS-- (2.8)% .......................... ( 738,876)
---------------
NET ASSETS-- 100.0% ..................................................... $ 26,778,069
===============
<FN>
* Non-income producing security.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
AGGRESSIVE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
<CAPTION>
===================================================================================================================================
Market
COMMON STOCK -- 98.2% Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 41.4%
Lam Research Corp.*...................................................... 10,000 $ 565,000
Novell, Inc.*............................................................ 55,000 515,625
Novellus Systems, Inc.*.................................................. 4,000 458,500
Oracle Corp.*............................................................ 11,250 428,906
QLogic Corp.*............................................................ 12,500 490,625
SCB Computer Technology, Inc.*........................................... 11,000 291,500
Semtech Corp.*........................................................... 12,000 709,500
SMART Modular Technologies, Inc.*........................................ 15,000 885,000
Sun Microsystems, Inc.*.................................................. 10,000 480,000
Western Digital Corp.*................................................... 20,000 962,500
---------------
.................................................................... $ 5,787,156
---------------
HEALTH CARE -- 20.5%
Alternative Living Services, Inc.*....................................... 10,000 $ 226,250
AmeriSource Health Corp. - Class A*...................................... 7,500 375,469
Atria Communities, Inc.*................................................. 20,000 357,500
Bard (C.R.), Inc......................................................... 5,000 172,500
HealthCare COMPARE Corp.*................................................ 10,000 557,500
Health Management Associates, Inc. - Class A*............................ 10,000 295,625
Manor Care, Inc.......................................................... 10,000 308,750
Quorum Health Group, Inc.*............................................... 5,000 170,312
Sybron International Corp.*.............................................. 10,000 399,375
---------------
.................................................................... $ 2,863,281
---------------
ENERGY -- 15.3%
Hagler Bailly, Inc.*..................................................... 5,000 $ 108,125
McDermott International, Inc............................................. 7,000 225,750
Nuevo Energy Co.*........................................................ 9,000 457,313
Pride International, Inc.*............................................... 15,000 480,000
St. Mary Land & Exploration Co........................................... 5,000 178,750
Seagull Energy Corp.*.................................................... 7,500 183,281
Stone Energy Corp.*...................................................... 7,500 228,750
Tuboscope, Inc.*......................................................... 10,000 278,750
---------------
.................................................................... $ 2,140,719
---------------
FINANCIAL SERVICES -- 7.7%
Ace, Ltd................................................................. 6,000 $ 498,750
Capital One Financial Corp............................................... 10,000 385,000
Penncorp Financial Group, Inc............................................ 6,000 192,375
---------------
.................................................................... $ 1,076,125
---------------
RETAIL -- 6.2%
Carnival Corp. - Class A................................................. 5,000 $ 219,063
Central Newspapers, Inc. - Class A....................................... 4,000 272,250
Friedman's, Inc. - Class A*.............................................. 6,000 99,750
OfficeMax, Inc.*......................................................... 5,000 74,062
Walgreen Co.............................................................. 7,400 199,338
---------------
.................................................................... $ 864,463
---------------
<PAGE>
<CAPTION>
AGGRESSIVE GROWTH FUND (continued)
===================================================================================================================================
Market
COMMON STOCK -- 98.2% Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LEISURE TIME -- 4.9%
Host Marriott Corp.*..................................................... 15,000 $ 292,500
Promus Hotel Corp.*...................................................... 10,000 388,125
---------------
.................................................................... $ 680,625
---------------
TRANSPORTATION -- 2.2%
Simon Transportation Services, Inc.*..................................... 14,000 $ 313,250
---------------
TOTAL COMMON STOCK (Cost $9,011,882) .................................... $ 13,725,619
---------------
<CAPTION>
===================================================================================================================================
Face Market
CASH EQUIVALENTS -- 3.6% Amount Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Forum Daily Assets Treasury Fund ........................................ $ 504,560 $ 504,560
-------------- ---------------
TOTAL CASH EQUIVALENTS (Cost $504,560) .................................. $ 504,560 $ 504,560
============== ---------------
TOTAL INVESTMENTS AT VALUE-- 101.8% ..................................... $ 14,230,179
LIABILITIES IN EXCESS OF OTHER ASSETS-- (1.8)% .......................... ( 246,444)
---------------
NET ASSETS-- 100.0% ..................................................... $ 13,983,735
===============
<FN>
* Non-income producing security.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
INTERMEDIATE BOND FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
<CAPTION>
===================================================================================================================================
Par Market
Value INVESTMENTS -- 99.1% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 26.7%
$ 4,000,000 U.S. Treasury Notes, 6.50%, 8/15/05 (Cost $3,996,328)...................... $ 4,031,252
- - --------------- ---------------
U.S. GOVERNMENT AGENCY NOTES -- 6.5%
$ 500,000 Federal Home Loan Bank, 6.62%, 12/6/00..................................... $ 499,416
265,000 Tennessee Valley Authority, 6.875%, 1/15/02................................ 267,463
50,000 Tennessee Valley Authority, 6.875%, 8/1/02................................. 50,479
150,000 Federal National Mortgage Assoc., 6.17%, 12/2/03........................... 146,066
30,000 Tennessee Valley Authority, 8.05%, 7/15/24................................. 30,048
- - --------------- ---------------
$ 995,000 TOTAL U.S. GOVERNMENT AGENCY NOTES (Cost $998,363)........................ $ 993,472
- - --------------- ---------------
MORTGAGE-BACKED SECURITIES -- 7.0%
$ 231,442 Federal Home Loan Mortgage Corp. #1072-G, 7.00%, 5/15/06................... $ 233,916
800,000 Federal Home Loan Mortgage Corp. #1720-E, 7.50%, 12/15/09.................. 817,265
- - --------------- ---------------
$ 1,031,442 TOTAL MORTGAGE-BACKED SECURITIES (Cost $1,059,117) ........................ $ 1,051,181
- - --------------- ---------------
ASSET-BACKED SECURITIES -- 0.6%
$ 84,357 Small Business Administration #87-A, 8.45%, 1/1/07 (Cost $87,309).......... $ 87,303
- - --------------- ---------------
CORPORATE BONDS -- 58.3%
$ 150,000 Consumers Energy Co., 6.875%, 5/1/98....................................... $ 149,994
278,000 Anheuser-Busch Cos., 8.75%, 12/1/99........................................ 291,659
250,000 British Petroleum America, Inc., 6.50%, 12/15/99........................... 250,241
169,000 Associates Corp. of North America, 6.00%, 3/15/00.......................... 167,546
175,000 Pacific Gas & Electric Co., 6.625%, 6/1/00................................. 174,442
172,000 Ford Motor Credit Co., 6.85%, 8/15/00...................................... 173,799
250,000 International Business Machines Credit Corp., 6.20%, 3/19/01............... 246,815
350,000 Florida Residential Property & Casualty Co., 7.25%, 7/1/02................. 353,481
160,000 Ford Motor Credit Co., 7.50%, 1/15/03...................................... 165,432
250,000 Greyhound Financial Corp., 7.82%, 1/27/03.................................. 259,529
68,000 U.S. Leasing International, 6.625%, 5/15/03................................ 67,389
200,000 Southern California Edison, 7.375%, 12/15/03............................... 202,616
200,000 V.F. Corp., 7.60%, 4/1/04.................................................. 206,247
215,000 Chase Manhattan Corp., 8.00%, 5/15/04...................................... 220,658
200,000 Michigan Bell Telephone Co., 6.375%, 2/1/05................................ 195,877
66,000 Kaiser Permanente, 9.55%, 7/15/05.......................................... 77,196
400,000 Anheuser-Busch Cos., 7.00%, 9/1/05......................................... 403,913
500,000 Union Oil of California Corp., 6.70%, 10/15/07............................. 489,286
50,000 Berkley (W.R.) Corp., 9.875%, 5/15/08...................................... 60,073
268,000 Super Value Store, 8.875%, 4/1/16.......................................... 271,964
35,000 Union Camp Corp., 8.625%, 4/15/16.......................................... 35,919
214,000 Anheuser-Busch Cos., 8.625%, 12/1/16....................................... 220,420
56,000 Kraft, Inc., 8.50%, 2/15/17................................................ 58,361
260,000 Dayton Hudson Co., 9.875%, 6/1/17.......................................... 274,227
110,000 GTE Corp., 10.75%, 9/15/17................................................. 116,048
<PAGE>
<CAPTION>
INTERMEDIATE BOND FUND (continued)
===================================================================================================================================
Par Market
Value INVESTMENTS -- 99.1% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS -- 58.3%
$ 130,000 General Electric Capital Corp., 6.66%, 5/1/18.............................. $ 130,800
150,000 Deere & Co., 8.95%, 6/15/19................................................ 171,365
439,000 Pennsylvania Power & Light Co., 9.25%, 10/1/19............................. 487,506
115,000 Rohm & Haas Co., 9.80%, 4/15/20............................................ 142,484
165,000 Questar Pipeline, 9.375%, 6/1/21........................................... 183,691
120,000 Jersey Central Power & Light Co., 9.20%, 7/1/21............................ 133,318
675,000 Shopko Stores, 9.25%, 3/15/22.............................................. 772,308
300,000 Inco, Ltd., 9.60%, 6/15/22................................................. 333,132
765,000 Alabama Power Co., 8.30%, 7/1/22........................................... 795,396
160,000 Florida Power & Light Co., 8.00%, 8/25/22.................................. 164,634
85,000 Southwestern Public Service Co., 8.20%, 12/1/22............................ 90,584
130,000 Union Electric Co., 8.00%, 12/15/22........................................ 134,854
65,000 Wisconsin Electric Power, 7.75%, 1/15/23................................... 66,459
69,000 Georgia Power Co., 7.95%, 2/1/23........................................... 69,331
- - --------------- ---------------
$ 8,414,000 TOTAL CORPORATE BONDS (Cost $8,743,470)................................... $ 8,808,994
- - --------------- ---------------
$ 14,524,799 TOTAL INVESTMENTS AT VALUE (Cost $14,884,587).............................. $ 14,972,202
=============== ---------------
<CAPTION>
===================================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1)-- 0.3% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 54,931 The First Boston Corp., 5.63%, dated 8/29/97, due 9/2/97,
repurchase proceeds $54,965............................................... $ 54,931
- --------------- ---------------
$ 54,931 TOTAL REPURCHASE AGREEMENTS ............................................... $ 54,931
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE
AGREEMENTS AT VALUE-- 99.4% ............................................ $ 15,027,133
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.6% .............................. 86,744
---------------
NET ASSETS-- 100.0% ....................................................... $ 15,113,877
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
===================================================================================================================================
Par Market
Value INVESTMENTS -- 93.0% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY ISSUES -- 16.4%
$ 15,000,000 U.S. Treasury Bills, 9/4/97................................................ $ 14,996,250
500,000 Federal National Mortgage Assoc. Notes, 6.84%, 10/3/97..................... 500,492
- - --------------- ---------------
$ 15,500,000 TOTAL U.S. GOVERNMENT & AGENCY ISSUES (Cost $15,496,742)................... $ 15,496,742
- - --------------- ---------------
CORPORATE NOTES -- 76.6%
$ 1,400,000 General Motors Acceptance Corp., 6.25%, 9/12/97............................ $ 1,400,289
455,000 Dow Capital, 5.75%, 9/15/97................................................ 454,932
2,009,000 Wal-Mart Stores, Inc., 5.50%, 9/15/97...................................... 2,008,788
121,000 Carolina Power & Light Co., 6.375%, 10/1/97................................ 121,001
1,140,000 New York Telephone Co., 4.625%, 10/1/97.................................... 1,138,769
140,000 Ontario Province, 5.70%, 10/1/97........................................... 139,970
745,000 J.C. Penney & Co., 10.00%, 10/15/97........................................ 748,528
50,000 Interamerican Development Bank, 9.50%, 10/15/97............................ 50,205
1,000,000 Manitoba Province, 6.00%, 10/15/97......................................... 1,000,109
4,740,000 First USA Bank, 6.125%, 10/30/97........................................... 4,740,098
2,000,000 African Development Bank, 10.00%, 11/1/97.................................. 2,012,910
790,000 Associates Corp. of North America, 7.75%, 11/1/97.......................... 792,255
80,000 Campbell Soup Co., 9.00%, 11/1/97.......................................... 80,393
500,000 Conagra, Inc., 9.75%, 11/1/97.............................................. 503,156
1,993,000 International Business Machines Corp., 6.375%, 11/1/97..................... 1,994,071
4,505,000 Public Service Electric & Gas, 7.125%, 11/1/97............................. 4,513,516
190,000 U.S. Leasing International, 7.00%, 11/1/97................................. 190,347
1,825,000 American General Finance Corp., 7.70%, 11/15/97............................ 1,831,341
570,000 Associates Corp. of North America, 6.625%, 11/15/97........................ 570,666
484,000 Coca-Cola Enterprises, Inc., 6.50%, 11/15/97............................... 484,419
100,000 GTE South, Inc., 6.25%, 11/15/97........................................... 100,022
300,000 Norwest Corp., 7.70%, 11/15/97............................................. 301,069
1,330,000 Norwest Financial, Inc., 6.50%, 11/15/97................................... 1,331,509
340,000 Texaco Capital, 9.00%, 11/15/97............................................ 342,029
1,000,000 General Motors Acceptance Corp., 7.85%, 11/17/97........................... 1,004,436
800,000 BankAmerica Corp., 6.875%, 11/20/97........................................ 801,556
600,000 Beneficial Corp., 6.79%, 11/20/97.......................................... 601,392
30,000 Philip Morris Companies, Inc. Medium Term Notes, 9.35%, 11/21/97........... 30,224
110,000 Bell Atlantic Financial, 6.625%, 11/30/97.................................. 110,137
895,000 British Petroleum America, Inc., 8.875%, 12/1/97........................... 901,193
791,000 Dupont Corp., 8.65%, 12/1/97............................................... 796,189
474,000 Ford Motor Credit Co., 7.125%, 12/1/97..................................... 475,208
999,000 Ford Motor Credit Co., 8.00%, 12/1/97...................................... 1,003,676
2,721,000 Philip Morris Companies, Inc., 9.25%, 12/1/97.............................. 2,742,307
250,000 New England Telephone Co., 6.25%, 12/15/97................................. 250,236
5,050,000 Southern California Gas Co., 6.50%, 12/15/97............................... 5,059,008
240,000 General Electric Capital Corp., 6.44%, 12/16/97............................ 240,371
161,000 British Petroleum America, Inc., 9.50%, 1/1/98............................. 162,699
504,000 Ford Capital, 9.375%, 1/1/98............................................... 509,138
1,270,000 Caterpillar, Inc., 7.47%, 1/15/98.......................................... 1,277,301
470,000 Chase Manhattan Corp., 6.625%, 1/15/98..................................... 470,974
248,000 GTE California, 6.25%, 1/15/98............................................. 248,246
60,000 General Electric Capital Corp., 8.00%, 1/15/98............................. 60,424
750,000 NationsBank Corp., 6.625%, 1/15/98......................................... 751,502
<PAGE>
<CAPTION>
MONEY MARKET FUND (continued)
===================================================================================================================================
Par Market
Value INVESTMENTS -- 93.0% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE NOTES -- 76.6%
$ 1,893,000 Philip Morris Companies, Inc., 6.375%, 1/15/98............................. $ 1,894,523
1,000,000 Texaco Capital, 8.65%, 1/30/98............................................. 1,010,328
1,250,000 Associates Corp. of North America, 6.125%, 2/1/98.......................... 1,250,260
50,000 Chubb Capital Corp., 6.00%, 2/1/98......................................... 49,947
535,000 Southern California Edison Co., 5.875%, 2/1/98............................. 534,477
110,000 WMX Technologies, Inc., 8.125%, 2/1/98..................................... 110,895
2,000,000 Ford Motor Credit Co., 9.30%, 2/10/98...................................... 2,029,210
310,000 Beneficial Corp., 9.125%, 2/15/98.......................................... 314,186
455,000 Commercial Credit Co., 8.50%, 2/15/98...................................... 460,096
3,065,000 Lehman Brothers Holdings, Inc., 5.75%, 2/15/98............................. 3,059,862
776,000 Ford Motor Credit Co., 6.25%, 2/26/98...................................... 777,147
210,000 Dean Witter, Discover & Co., 6.00%, 3/1/98................................. 209,973
50,000 GTE Corp., 8.85%, 3/1/98................................................... 50,684
125,000 Gannett Co., 5.25%, 3/1/98................................................. 124,500
455,000 Wal-Mart Stores, Inc., 5.50%, 3/1/98....................................... 453,982
4,116,000 Revlon Worldwide Corp. Discount Note, 3/15/98.............................. 3,989,520
400,000 Colonial Gas Co., 6.20%, 3/18/98........................................... 400,211
1,000,000 General Electric Capital Corp., 7.61%, 3/27/98............................. 1,008,994
500,000 General Electric Capital Corp., 7.08%, 3/30/98............................. 503,249
500,000 Ontario Hydro, 5.80%, 3/31/98.............................................. 499,214
735,000 Sears Roebuck & Co., 9.25%, 4/15/98........................................ 749,099
500,000 Chrysler Financial Corp., 7.05%, 4/29/98................................... 503,204
540,000 General Electric Capital Corp., 8.37%, 5/8/98.............................. 548,764
500,000 Transamerica Financial Corp., 7.17%, 6/29/98............................... 504,420
300,000 American General Finance Corp., 8.50%, 8/15/98............................. 306,690
1,000,000 General Motors Acceptance Corp. Medium Term Notes, 6.375%, 9/1/98.......... 1,003,571
4,500,000 Manitoba Province, 9.50%, 9/15/98.......................................... 4,658,897
1,105,000 NationsBank Corp., 5.125%, 9/15/98......................................... 1,095,663
- - --------------- ---------------
$ 72,210,000 TOTAL CORPORATE NOTES (Cost $72,448,175)................................... $ 72,448,175
- - --------------- ---------------
$ 87,710,000 TOTAL INVESTMENTS AT VALUE (Cost $87,944,917).............................. $ 87,944,917
=============== ---------------
<CAPTION>
===================================================================================================================================
Face Market
Amount REPURCHASE AGREEMENTS(1)-- 24.6% Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 6,240,577 The First Boston Corp., 5.63%, dated 8/29/97, due 9/2/97,
repurchase proceeds $6,244,481......................................... $ 6,240,577
17,018,081 Lehman Brothers, Inc., 5.55%, dated 8/27/97, due 9/2/97,
repurchase proceeds $17,036,447......................................... 17,018,081
- - --------------- ---------------
$ 23,258,658 TOTAL REPURCHASE AGREEMENTS ............................................... $ 23,258,658
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE
AGREEMENTS AT VALUE-- 117.6% ........................................... $ 111,203,575
LIABILITIES IN EXCESS OF OTHER ASSETS-- (17.6)% ........................... (16,634,506 )
---------------
NET ASSETS-- 100.0% ....................................................... $ 94,569,069
===============
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</TABLE>
See accompanying notes to financial statements.
<TABLE>
KENTUCKY TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
===================================================================================================================================
PAR COUPON MATURITY MARKET
VALUE FIXED RATE REVENUE BONDS-- 95.7% RATE DATE(1) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 425,000 Kentucky St. Turnpike Auth. EDR, ETM........................ 7.000% 05/15/1999 $ 445,187
90,000 Jefferson Co., KY, Capital Projects Corp. Rev., Ser. A...... 0.000 08/15/1999 82,462
70,000 Kentucky St. Property & Buildings Commission Rev.,
Project # 32............................................. 6.500 12/01/1999 73,238
200,000 Owensboro, KY, Electric Light & Power Rev., Ser. A,
prerefunded at 102....................................... 10.250 01/01/2000 225,000
50,000 Louisville & Jefferson Co., KY, Metropolitan Sewer District,
Sewer & Drain System Rev., Ser. A........................... 6.500 05/15/2000 52,750
100,000 Kentucky St. Turnpike Auth. EDR, prerefunded at 101.5....... 7.250 05/15/2000 109,000
225,000 Kentucky Higher Education Student Loan Rev., Ser. B......... 6.400 06/01/2000 235,125
385,000 Trimble Co., KY, PCR, Ser. A, prerefunded at 102............ 7.625 11/01/2000 426,868
455,000 Kentucky St. Property & Buildings Commission Rev.,
Project # 51, ETM....................................... 6.300 08/01/2001 486,281
100,000 Kentucky St. Property & Buildings Commission Rev., Project # 52,
prerefunded at 102...................................... 6.500 08/01/2001 109,375
70,000 Lexington-Fayette Urban County Government, KY,
School Building Rev. ................................... 6.800 10/01/2001 76,037
120,000 Puerto Rico Public Buildings Auth. Guaranteed Rev.,
Ser. K, prerefunded at 101.5............................ 6.875 07/01/2002 134,850
100,000 Kentucky St. Pollution Abatement & Water Reserve Finance
Auth. Rev., Ser. A, ETM................................. 7.400 08/01/2002 112,875
490,000 Jefferson Co., KY, Capital Projects Corp. Rev. Ser. A....... 5.650 08/15/2003 519,400
200,000 Hopkins Co., KY, School District Finance Corp.,
School Building Rev. ................................... 5.700 06/01/2006 211,000
750,000 Jefferson Co., KY, School District Finance Corp.,
School Building Rev., Ser. A............................ 5.000 02/01/2007 757,500
615,000 Kentucky St. Turnpike Auth. Resource Recovery Road
Rev., ETM............................................... 6.125 07/01/2007 656,513
50,000 Lexington-Fayette Urban County Airport Corp., KY,
First Mtg. Rev. ........................................ 7.750 04/01/2008 52,850
450,000 Ashland, KY, PCR (Ashland Oil, Inc.)........................ 7.375 07/01/2009 483,750
275,000 Kentucky St. Turnpike Auth. Resource Recovery Road
Rev., Ser. A............................................ 6.000 07/01/2009 276,771
495,000 Jefferson Co., KY, School District Finance Corp. School
Building Rev., Ser. A................................... 4.875 01/01/2011 473,963
200,000 University of Louisville, KY, Rev., Ser. H.................. 5.875 05/01/2012 209,500
725,000 Boone Co., KY, Public Properties Corp. Sewer System Rev..... 5.150 12/01/2012 709,594
305,000 Fern Creek, KY, Fire Protection District Rev.,
Fire Station # 2....................................... 5.750 01/15/2014 303,856
235,000 Jefferson Co., KY, PCR (Louisville Gas & Electric Co.,
Project A)............................................. 7.450 06/15/2015 255,563
295,000 Ashland, KY, Solid Waste Rev. (Ashland Oil, Inc. Project)... 7.200 10/01/2020 318,600
270,000 Greater Kentucky Housing Assistance Corp. Mtg. Rev., Ser. A. 6.250 07/01/2022 276,075
- - -------------- ------------
$ 7,745,000 TOTAL FIXED RATE REVENUE BONDS (Amortized Cost $7,981,883).. $ 8,073,983
============== ------------
OTHER ASSETS IN EXCESS OF LIABILITIES-- 4.3% ............... 363,649
------------
NET ASSETS-- 100.0% ........................................ $ 8,437,632
============
<FN>
ETM -- Escrowed to Maturity
EDR -- Economic Development Revenue
PCR -- Pollution Control Revenue
(1) Bonds denoted as prerefunded are anticipated to be redeemed prior to their
scheduled maturity. The maturity dates shown reflect the stipulated
prerefunded dates.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
===============================================================================
LOGO: ARTHUR ANDERSEN LLP
To the Shareholders and Boards of Trustees of the Growth/Value Fund and the
Aggressive Growth Fund of Countrywide Strategic Trust, the Intermediate Bond
Fund and the Money Market Fund of Countrywide Investment Trust and the Kentucky
Tax-Free Fund of Countrywide Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities of the
Growth/Value Fund and Aggressive Growth Fund of Countrywide Strategic Trust (a
Massachusetts business trust), Intermediate Bond Fund and Money Market Fund of
Countrywide Investment Trust (a Massachusetts business trust) and Kentucky
Tax-Free Fund of Countrywide Tax-Free Trust (a Massachusetts business trust),
including the portfolios of investments, as of August 31, 1997, and the related
statements of operations, the statements of changes in net assets, and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial statements as of August
31, 1996 and financial highlights for the period ended August 31, 1996 were
audited by other auditors whose report dated October 18, 1996, expressed an
unqualified opinion on those financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian and brokers. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth/Value Fund and the Aggressive Growth Fund of Countrywide Strategic Trust,
the Intermediate Bond Fund and the Money Market Fund of Countrywide Investment
Trust and the Kentucky Tax-Free Fund of Countrywide Tax-Free Trust as of August
31, 1997, the results of their operations, the changes in their net assets, and
their financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
/s/Arthur Andersen LLP
Cincinnati, Ohio,
October 17, 1997
<PAGE>
COUNTRYWIDE TAX-FREE TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a)(i) Financial Statements included in Part A:
Financial Highlights
(ii) Financial Statements included in Part B:
Statements of Assets and Liabilities, August 31,
1997
Statements of Operations For the Year Ended
August 31, 1997
Statements of Changes in Net Assets for the
Periods Ended August 31, 1997 and 1996
Financial Highlights
Notes to Financial Statements, August 31, 1997
Portfolio of Investments, August 31, 1997
(b) Exhibits:
(1)(i) Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 36, is hereby incorporated by
reference.
(ii) Amendment No. 1, dated May 25, 1994, to
Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 36, is hereby incorporated by
reference.
(iii) Amendment No. 2, dated July 31, 1996, to
Registrant's Restated Agreement and Declaration
of Trust, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 38, is
hereby incorporated by reference.
<PAGE>
(iv) Amendment No. 3, dated February 28, 1997, to
Registrant's Restated Agreement and Declaration
of Trust, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 40, is
hereby incorporated by reference.
(2) Registrant's Bylaws, as amended, which were
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 38, are hereby
incorporated by reference.
(3) Voting Trust Agreements - None.
(4)(i) Specimen of Share Certificate for Tax-Free
Intermediate Term Fund (formerly Limited Term
Portfolio), which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 8, is
hereby incorporated by reference.
(ii) Specimen of Share Certificate for Ohio Insured
Tax-Free Fund (formerly Ohio Long Term
Portfolio), which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 8, is
hereby incorporated by reference.
(5)(i) Registrant's Management Agreement with
Countrywide Investments, Inc. for the Tax-Free
Money Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 40, is
hereby incorporated by reference.
(ii) Registrant's Management Agreement with
Countrywide Investments, Inc. for the Tax-Free
Intermediate Term Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 40, is hereby incorporated by
reference.
(iii) Registrant's Management Agreement with
Countrywide Investments, Inc. for the Ohio
Insured Tax-Free Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 40, is hereby incorporated by
reference.
(iv) Registrant's Management Agreement with
Countrywide Investments, Inc. for the Ohio
Tax-Free Money Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 40, is hereby incorporated by
reference.
<PAGE>
(v) Registrant's Management Agreement with
Countrywide Investments, Inc. for the California
Tax-Free Money Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 40, is hereby incorporated by
reference.
(vi) Registrant's Management Agreement with
Countrywide Investments, Inc. for the Florida
Tax-Free Money Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 40, is hereby incorporated by
reference.
(vii) Registrant's Management Agreement with
Countrywide Investments, Inc. for the Kentucky
Tax-Free Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 41, is
hereby incorporated by reference.
(6)(i) Registrant's Underwriting Agreement with
Countrywide Investments, Inc., which was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 40, is hereby incorporated by
reference.
(ii) Form of Underwriter's Dealer Agreement, which
was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 41, is hereby
incorporated by reference.
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8)(i) Custody Agreement with The Fifth Third Bank, the
Custodian for the Tax-Free Money Fund, the
Tax-Free Intermediate Term Fund, the Ohio
Insured Tax-Free Fund, the Ohio Tax-Free Money
Fund, the California Tax-Free Money Fund and the
Kentucky Tax-Free Fund, which was filed as an
Exhibit to Registrant's Post-Effective Amendment
No. 38, is hereby incorporated by reference.
(ii) Custody Agreement with The Huntington Trust
Company, N.A., the Custodian for the Florida
Tax-Free Money Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 36, is hereby incorporated
by reference.
(9)(i) Transfer Agency, Dividend Disbursing,
Shareholder Service and Plan Agency Agreement
with Countrywide Fund Services, Inc., which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 41, is hereby
incorporated by reference.
<PAGE>
(ii) Accounting and Pricing Services Agreement with
Countrywide Fund Services, Inc. is filed
herewith.
(iii) Administration Agreement between Countrywide
Investments, Inc. and Countrywide Fund Services,
Inc. is filed herewith.
(iv) License Agreement with Countrywide Credit
Industries, Inc., which was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 40,
is hereby incorporated by reference.
(10) Opinion and Consent of Counsel, which was filed
as an Exhibit to Registrant's Pre- Effective
Amendment No. 1, is hereby incorporated by
reference.
(11) Consent of Independent Public Accountants is
filed herewith.
(12) Financial Statements Omitted from Item 23 -
None.
(13) Letter of Initial Stockholder, which was filed
as an Exhibit to Registrant's Pre-Effective
Amendment No. 1, is hereby incorporated by
reference.
(14) Copies of model plan used in the establishment
of any retirement plan - None.
(15)(i) Registrant's Plans of Distribution Pursuant to
Rule 12b-1, which were filed as Exhibits to
Registrant's Post-Effective Amendment No. 40,
are hereby incorporated by reference.
(ii) Form of Sales Agreement for Money Market Funds,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 41, is hereby
incorporated by reference.
(iii) Form of Administration Agreement with respect to
the administration of shareholder accounts,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 41, is hereby
incorporated by reference.
(16) Computations of each performance quotation
provided in response to Item 22, which were
filed as an Exhibit to Registrant's
Post-Effective Amendment No. 13, are hereby
incorporated by reference.
<PAGE>
(17) (i) Financial Data Schedule for each of the Tax-
Free Money Fund, the Tax-Free Intermediate
Term Fund - Class A and Class C, the Ohio
Insured Tax-Free Fund - Class A and Class C,
the Ohio Tax-Free Money Fund - Class A and
Class B, the California Tax-Free Money Fund
and the Florida Tax-Free Money Fund - Class A
and Class B, which were filed as Exhibits to
Registrant's Post-Effective Amendment No. 41,
are hereby incorporated by reference.
(ii) Financial Data Schedule for the Kentucky Tax-
Free Money Fund is filed herewith.
(18) Amended Rule 18f-3 Plan Adopted With Respect
to the Multiple Class Distribution System, which
was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 41, is hereby
incorporated by reference.
Item 25. Persons Controlled by or Under Common Control with
the Registrant.
- ------- --------------------------------------------------
None.
Item 26. Number of Holders of Securities (as of October 31,
1997)
- ------- --------------------------------------------------
Title of Class Number of Record Holders
Tax-Free Money Fund 1,233
Tax-Free Intermediate Term Fund
Class A Shares 2,536
Class C Shares 352
Ohio Insured Tax-Free Fund
Class A Shares 1,491
Class C Shares 223
Ohio Tax-Free Money Fund
Class A Shares 3,056
Class B Shares 2
California Tax-Free Money Fund
Class A Shares 1,086
Class B Shares 0
Florida Tax-Free Money Fund
Class A Shares 220
Class B Shares 2
Kentucky Tax-Free Fund 485
<PAGE>
Item 27. Indemnification
- ------- ---------------
Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of officers
and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers,
etc. The Trust shall indemnify each of its Trustees
and officers (including persons who serve at the
Trust's request as directors, officers or trustees of
another organization in which the Trust has any
interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which
such Covered Person may be or may have been involved
as a party or otherwise or with which such person may
be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except
that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to
which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of such covered Person's
office ("disabling conduct"). Anything herein
contained to the contrary notwithstanding, no Covered
Person shall be indemnified for any liability to the
Trust or its Shareholders to which such Covered
Person would otherwise be subject unless (1) a final
decision on the merits is made by a court or other
body before whom the proceeding was brought that the
Covered Person to be indemnified was not liable by
reason of disabling conduct or, (2) in the absence of
such a decision, a reasonable determination is made,
based upon a review of the facts, that the Covered
Person was not liable by reason of disabling conduct,
by (a) the vote of a majority of a quorum of Trustees
who are neither "interested persons" of the Company
as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a
written opinion.
<PAGE>
Section 6.5 Advances of Expenses. The Trust shall
advance attorneys' fees or other expenses incurred by
a Covered Person in defending a proceeding, upon the
undertaking by or on behalf of the Covered Person to
repay the advance unless it is ultimately determined
that such Covered Person is entitled to
indemnification, so long as one of the following
conditions is met: (i) the Covered Person shall
provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum
of the disinterested non-party Trustees of the Trust,
or an independent legal counsel in a written opinion,
shall determine, based on a review of readily
available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Section 6.6 Indemnification Not Exclusive, etc. The
right of indemnification provided by this Article VI
shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As
used in this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators. Nothing contained in this article
shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on
behalf of any such person.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy provides coverage to the Registrant, its
Trustees and officers, and its Adviser, among others. Coverage
under the policy includes losses by reason of any act, error,
omission, misstatement, misleading statement, neglect or
breach of duty. The Registrant may not pay for insurance which
protects the Trustees and officers against liabilities rising
from action involving willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of their offices.
The Advisory Agreements with Countrywide Investments, Inc.
(the "Adviser") provide that the Adviser shall not be liable
for any error of judgment or mistake of law of for any loss
suffered by the Registrant in connection with the matters to
which the Agreement
<PAGE>
relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence of the Adviser in the performance of
its duties or from the reckless disregard by the Adviser of
its obligations under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by the Adviser in
defending a proceeding, upon the undertaking by or on behalf
of the Adviser to repay the advance unless it is ultimately
determined that the Adviser is entitled to indemnification.
The Underwriting Agreement provides that the Adviser (in its
capacity as underwriter), its directors, officers, employees,
shareholders and control persons shall not be liable for any
error of judgment or mistake of law or for any loss suffered
by Registrant in connection with the matters to which the
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of any
of such persons in the performance of Adviser's duties or from
the reckless disregard by any of such persons of Adviser's
obligations and duties under the Agreement. Registrant will
advance attorneys' fees or other expenses incurred by any such
person in defending a proceeding, upon the undertaking by or
on behalf of such person to repay the advance if it is
ultimately determined that such person is not entitled to
indemnification.
Item. 28. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
A. The Adviser is a registered investment adviser providing
investment advisory services to the Registrant. The Adviser
acts as the investment adviser to seven series of Countrywide
Investment Trust and five series of Countrywide Strategic
Trust, both of which are registered investment companies. The
Adviser provides investment advisory services to individual
and institutional accounts and is a registered broker-dealer.
B. The following list sets forth the business and other
connections of the directors and executive officers of the
Adviser. Unless otherwise noted with an asterisk(*), the
address of the corporations listed below is 312 Walnut Street,
Cincinnati, Ohio 45202.
*The address of each corporation is 4500 Park Granada Road,
Calabasas, California 91302.
(1) Angelo R. Mozilo - Chairman and a Director of the
Adviser.
(a) Chairman and a Trustee of Countrywide
Strategic Trust, Countrywide Investment Trust
and Countrywide Tax-Free Trust, registered
investment companies.
<PAGE>
(b) Chairman and a Director of Countrywide Financial
Services, Inc., a financial services company,
Countrywide Fund Services, Inc., a registered
transfer agent, Countrywide Servicing Exchange,*
a loan servicing broker and Countrywide Capital
Markets, Inc.,* a holding company.
(c) Vice Chairman, Director and Executive Vice
President of Countrywide Credit Industries,
Inc.,* a holding company which provides
residential mortgages and ancillary financial
products and services.
(d) A Director of Countrywide Home Loans, Inc.,* a
residential mortgage lender and CTC Foreclosure
Services Corporation,* a
foreclosure trustee.
(e) A Director of LandSafe, Inc.* and Chairman and a
director of various Landsafe subsidiaries which
provide residential mortgage title and closing
services.
(f) Chairman and CEO of Countrywide Securities
Corporation,* a registered broker-dealer.
(g) Vice Chairman of CWM Mortgage Holdings, Inc.,* a
real estate investment trust.
(2) Robert H. Leshner - President and a Director of the
Adviser.
(a) President and a Trustee of Countrywide Strategic
Trust, Countrywide Investment Trust and
Countrywide Tax-Free Trust.
(b) President and a Director of Countrywide
Financial Services, Inc.
(c) Vice Chairman and a Director of Countrywide
Fund Services, Inc.
(3) Andrew S. Bielanski - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and
Countrywide Agency, Inc.,* an insurance
agency.
(b) Managing Director - Marketing of Countrywide
Credit Industries, Inc. and Countrywide Home
Loans, Inc.
<PAGE>
(4) Thomas H. Boone - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc.,
Countrywide Agency, Inc., Countrywide Tax
Services Corporation,* a residential mortgage
tax service provider and Countrywide Lending
Corporation,* a lending institution.
(b) Managing Director - Chief Loan Administration
Officer of Countrywide Credit Industries,
Inc. and Countrywide Home Loans, Inc.
(c) A Director and Executive Vice President of
CWABS, Inc.,* an asset-backed securities issuer
and CWMBS, Inc.,* a mortgage-backed securities
issuer.
(d) CEO and a Director of CTC Foreclosure Services
Corporation.
(5) Marshall M. Gates - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and
Countrywide Agency, Inc.
(b) Managing Director - Production of Countrywide
Credit Industries, Inc. and Countrywide Home
Loans, Inc.
(c) President and a Director of Second Charter
Reinsurance Corporation,* a mortgage, property
and casualty reinsurance agency and Charter
Reinsurance Corporation,* a mortgage
reinsurance agency.
(6) John J. Goetz - First Vice President and Chief
Investment Officer of the Adviser.
(a) Vice President of Countrywide Financial
Services, Inc. until February 1997.
(7) Maryellen Peretzky - First Vice President-
Administration, Human Resources and Operations of
the Adviser.
(a) Vice President-Administration, Human
Resources and Operations of Countrywide
Financial Services, Inc. and Countrywide Fund
Services, Inc.
(b) Assistant Secretary of The Tuscarora Investment
Trust, The Gannett Welsh & Kotler Funds,
Interactive Investments and the Dean Family of
Funds.
<PAGE>
(8) Sharon L. Karp - First Vice President-Marketing of
the Adviser.
(a) Vice President of Countrywide Financial
Services, Inc. until February 1997.
(9) John F. Splain - Secretary and General Counsel of the
Adviser.
(a) Vice President, Secretary and General Counsel
of Countrywide Fund Services, Inc.
(b) Secretary and General Counsel of Countrywide
Financial Services, Inc.
(c) Secretary of Countrywide Tax-Free Trust,
Countrywide Investment Trust, Countrywide
Strategic Trust, Brundage, Story and Rose
Investment Trust, Williamsburg Investment
Trust, Markman MultiFund Trust, The Tuscarora
Investment Trust, PRAGMA Investment Trust,
Maplewood Investment Trust, a series company,
and The Thermo Opportunity Fund, Inc.,
registered investment companies.
(d) Assistant Secretary of Schwartz Investment
Trust, The Gannett Welsh & Kotler Funds,
Interactive Investments, the Dean Family of
Funds and The New York State Opportunity Funds,
registered investment companies.
(e) Assistant Secretary of Fremont Mutual Funds,
Inc. and Capitol Square Funds, registered
investment companies, until September 1997.
(f) Secretary of Leeb Personal Finance(TM)
Investment Trust, a registered investment
company, until November 1996.
(10) Robert G. Dorsey - Treasurer of the Adviser.
(a) President and Treasurer of Countrywide Fund
Services, Inc.
(b) Vice President-Finance and Treasurer of
Countrywide Financial Services, Inc.
(c) Vice President of Countrywide Tax-Free Trust,
Countrywide Investment Trust, Countrywide
Strategic Trust, Brundage, Story and Rose
Investment Trust, Markman MultiFund Trust,
PRAGMA Investment Trust, Maplewood Investment
Trust, a series company, The Thermo
Opportunity Fund, Inc., the Dean Family of Funds
and The New York State Opportunity Funds.
<PAGE>
(d) Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust, The
Gannett Welsh & Kotler Funds, The Tuscarora
Investment Trust and Interactive Investments.
(e) Vice President of Capitol Square Funds and
Assistant Vice President of Fremont Mutual
Funds, Inc. until September 1997.
(f) Vice President of Leeb Personal Finance(TM)
Investment Trust until November 1996.
(11) Susan F. Flischel - First Vice President-Investments
of the Adviser.
(12) Terrie A. Wiedenheft - Vice President and Controller
of the Adviser.
(a) First Vice President and Chief Financial
Officer of Countrywide Financial Services,
Inc.
(b) Vice President and Controller of Countrywide
Fund Services, Inc.
(13) Scott Weston - Assistant Vice President-
Investments of the Adviser.
Item 29. Principal Underwriters
- ------- ----------------------
(a) Countrywide Investments, Inc. also acts as
underwriter for Countrywide Strategic Trust,
Countrywide Investment Trust, The Milestone Funds,
Profit Funds Investment Trust and Brundage, Story
and Rose Investment Trust. Unless otherwise
indicated by an asterisk (*), the address of the
persons named below is 312 Walnut Street,
Cincinnati, Ohio 45202.
*The address is 4500 Park Granada Road, Calabasas,
California 91302.
<PAGE>
Position Position
with with
(b) Name Underwriter Registrant
--------------------------------------------------------
Angelo R. Mozilo Chairman and Chairman/
Director Trustee
Robert H. Leshner President President
and Director and Trustee
* Andrew S. Bielanski Director None
* Thomas H. Boone Director None
* Marshall M. Gates Director None
John J. Goetz First Vice None
President and
Chief
Investment
Officer
Maryellen Peretzky First Vice None
President-
Administration,
Human Resources
and Operations
Sharon L. Karp First Vice None
President
Marketing
John F. Splain Secretary and Secretary
General Counsel
Robert G. Dorsey Treasurer Vice
President
Susan F. Flischel First Vice None
President-
Investments
Terrie A. Wiedenheft Vice President None
& Controller
Scott Weston Assistant Vice None
President-
Investments
(c) None
<PAGE>
Item 30. Location of Accounts and Records
- ------- --------------------------------
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder will
be maintained by the Registrant.
Item 31. Management Services Not Discussed in Parts A or B
- ------- -------------------------------------------------
None.
Item 32. Undertakings
- ------- ------------
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes that, if so requested, it
will furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual
report to shareholders without charge.
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to trustees, officers and controlling persons of
Countrywide Tax-Free Trust pursuant to the
provisions of Massachusetts law and the Restated
Agreement and Declaration of Trust of Countrywide
Tax-Free Trust or the Bylaws of Countrywide Tax-
Free Trust, or otherwise, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is
against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or
controlling person of Countrywide Tax-Free Trust
in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer
or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the
question whether such indemnification by it is
against public policy as expressed in the Act and
will be governed by the final adjudication of such
issue.
(e) The Registrant undertakes that, within five business
days after receipt of a written application by
shareholders holding in the aggregate at least 1% of
the shares then
<PAGE>
outstanding or shares then having a net asset value
of $25,000, whichever is less, each of whom shall
have been a shareholder for at least six months prior
to the date of application (hereinafter the
"Petitioning Shareholders"), requesting to
communicate with other shareholders with a view to
obtaining signatures to a request for a meeting for
the purpose of voting upon removal of any Trustee of
the Registrant, which application shall be
accompanied by a form of communication and request
which such Petitioning Shareholders wish to transmit,
Registrant will:
(i) provide such Petitioning Shareholders with
access to a list of the names and addresses of
all shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the
approximate number of shareholders and the
estimated costs of mailing such
communication, and to undertake such mailing
promptly after tender by such Petitioning
Shareholders to the Registrant of the
material to be mailed and the reasonable
expenses of such mailing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) of the Securities Act of 1933 and it has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cincinnati, State of Ohio, on the 31st day of
December, 1997.
COUNTRYWIDE TAX-FREE TRUST
By: /s/ John F. Splain
-----------------------------
JOHN F. SPLAIN
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the 31st day of October, 1997.
*ANGELO R. MOZILO Chairman &
Trustee
/s/ Robert H. Leshner President &
- --------------------- Trustee
ROBERT H. LESHNER
/s/ Mark J. Seger Treasurer
- ----------------------
MARK J. SEGER
*DONALD L. BOGDON, M.D. Trustee
*JOHN R. DELFINO Trustee
*H. JEROME LERNER Trustee
*OSCAR P. ROBERTSON Trustee
*JOHN F. SEYMOUR, JR. Trustee
*SEBASTIANO STERPA Trustee
By: /s/ John F. Splain
------------------
JOHN F. SPLAIN
Attorney-in-Fact*
December 31, 1997
EXHIBIT INDEX
- -------------
1. Accounting and Pricing Services Agreement with Countrywide Fund Services,
Inc.
2. Administration Agreement between Countrywide Investments, Inc. and
Countrywide Fund Services, Inc.
3. Consent of Arthur Andersen LLP
4. Financial Data Schedule for Kentucky Tax-Free Fund
ACCOUNTING AND PRICING SERVICES AGREEMENT
THIS AGREEMENT effective as of February 28, 1997 by and between
COUNTRYWIDE TAX-FREE TRUST, a Massachusetts business trust (the "Trust") and
COUNTRYWIDE FUND SERVICES, INC., an Ohio corporation ("Countrywide").
WITNESSETH THAT:
WHEREAS, the Trust desires to hire Countrywide to provide the Trust
with certain accounting and pricing services, and Countrywide is willing to
provide such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. APPOINTMENT.
Countrywide is hereby appointed to provide the Trust with
certain accounting and pricing services, and Countrywide accepts such
appointment and agrees to provide such services under the terms and conditions
set forth herein.
2. CALCULATION OF NET ASSET VALUE.
Countrywide will calculate the net asset value of each series
of the Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's effective Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, including its current prospectus and
statement of additional information (the "Registration Statement"), once daily
as of the time selected by the Trust's Board of Trustees. Countrywide will
prepare and maintain a daily valuation of all securities and other assets of the
Trust in accordance with instructions from a designated officer of the Trust or
its investment adviser and in the manner set forth in the Registration
Statement. In valuing securities of the Trust, Countrywide may contract with,
and rely upon market quotations provided by, outside services, the cost of which
shall be borne by the Trust.
3. BOOKS AND RECORDS.
Countrywide will maintain such books and records as are
necessary to enable it to perform its duties under this Agreement, and, in
addition, will prepare and maintain complete, accurate and current all records
with respect to the Trust required to be maintained by the Trust under the
Internal Revenue Code, as amended (the "Code") and under the general rules and
<PAGE>
regulations of the Investment Company Act of 1940, as amended (the "Act"), and
will preserve said records in the manner and for the periods prescribed in the
Code and such rules and regulations. The retention of such records shall be at
the expense of the Trust.
All of the records prepared and maintained by Countrywide
pursuant to this Paragraph 3 which are required to be maintained by the Trust
under the Code and the Act ("Required Records") will be the property of the
Trust. In the event this Agreement is terminated, all Required Records shall be
delivered to the Trust or to any person designated by the Trust at the Trust's
expense, and Countrywide shall be relieved of responsibility for the preparation
and maintenance of any Required Records delivered to the Trust or any such
person.
4. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
5. FEES AND CHARGES.
For performing its services under this Agreement, the Trust
shall pay Countrywide a fee in accordance with the schedule attached hereto as
Schedule A.
6. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by Countrywide, the Trust assumes
full responsibility for the preparation, contents and distribution of each
prospectus and statement of additional information of the Trust, for complying
with all applicable requirements of the Act, the Securities Act of 1933, as
amended, and any laws, rules and regulations of governmental authorities having
jurisdiction.
7. CONFIDENTIALITY.
Countrywide agrees to treat all records and other information
relative to the Trust and its prior, present or potential shareholders
confidentially and Countrywide on behalf of itself and its employees agrees to
keep confidential all such information, except (after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where Countrywide may be exposed to civil or
criminal contempt proceedings for failure to comply) when requested to divulge
such information by duly constituted authorities or when so requested by the
Trust.
- 2 -
<PAGE>
8. REFERENCES TO COUNTRYWIDE.
The Trust shall not circulate any printed matter which
contains any reference to Countrywide without the prior written approval of
Countrywide, excepting solely such printed matter as merely identifies
Countrywide as Transfer Agent, Plan Agent, Dividend Disbursing Agent,
Shareholder Service Agent and Accounting and Pricing Services Agent. The Trust
will submit printed matter requiring approval to Countrywide in draft form,
allowing sufficient time for review by Countrywide and its counsel prior to any
deadline for printing.
9. EQUIPMENT FAILURES.
In the event of equipment failures beyond Countrywide's
control, Countrywide shall take all steps necessary to minimize service
interruptions but shall have no liability with respect thereto. Countrywide
shall endeavor to enter into one or more agreements making provision for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
10. INDEMNIFICATION OF COUNTRYWIDE.
(a) Countrywide may rely on information reasonably believed by
it to be accurate and reliable. Except as may otherwise be required by the Act
or the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under or
payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of the duties of
Countrywide under this Agreement or by reason of reckless disregard by any of
such persons of the obligations and duties of Countrywide under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Countrywide, who may be or become an officer,
trustee, employee or agent of the Trust, shall be deemed, when rendering
services to the Trust or acting on any business of the Trust (other than
services or business in connection with Countrywide's duties hereunder), to be
rendering such services to or acting solely for the Trust and not as a director,
officer, employee, shareholder or agent of, or one under the control or
direction of Countrywide, even though paid by it.
- 3 -
<PAGE>
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless Countrywide, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which Countrywide may sustain or incur or which may be asserted
against Countrywide by any person by reason of, or as a result of: (i) any
action taken or omitted to be taken by Countrywide in good faith in reliance
upon any certificate, instrument, order or stock certificate believed by it to
be genuine and to be signed, countersigned or executed by any duly authorized
person, upon the oral instructions or written instructions of an authorized
person of the Trust or upon the opinion of legal counsel for the Trust or its
own counsel; or (ii) any action taken or omitted to be taken by Countrywide in
connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
11. MAINTENANCE OF INSURANCE COVERAGE.
At all times during the term of this Agreement, Countrywide
shall be a named insured party on the Trust's Errors & Omissions policy and the
Trust's Fidelity Bond, both of which shall include coverage of Countrywide's
officers and employees. Countrywide shall pay its allocable share of the cost of
such policies in accordance with the provisions of the Act. The scope of
coverage and amount of insurance limits applicable to the Trust on such policies
shall also be made applicable to Countrywide.
12. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
13. TERMINATION.
(a) The provisions of this Agreement shall be effective upon
its execution, shall continue in effect for two years from that date and shall
continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by Countrywide, (2) by vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's trustees who are
not parties to this Agreement or interested persons (as defined
- 4 -
<PAGE>
in the Act) of any such party, and (3) by vote of a majority of the Trust's
Board of Trustees or a majority of the Trust's outstanding voting securities.
(b) Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor.
(c) This Agreement shall automatically terminate in the
event of its assignment.
(d) In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust by written notice to
Countrywide, Countrywide shall, promptly upon such termination and at the
expense of the Trust, transfer all Required Records and shall cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from Countrywide's cognizant personnel in the establishment of books, records
and other data by such successor.
14. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the Act) of Countrywide from providing services
for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
15. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
16. LIMITATION OF LIABILITY.
The term "Countrywide Tax-Free Trust" means and refers to the
trustees from time to time serving under the Trust's Declaration of Trust as the
same may subsequently thereto have been, or subsequently hereto may be, amended.
It is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but bind only the trust property of the
Trust. This Agreement has been authorized by the trustees of the Trust and
signed by an officer of the Trust, acting as such, and neither such
authorization by such trustees nor such execution by such officer shall be
deemed
- 5 -
<PAGE>
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the trust property of the Trust.
17. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
18. QUESTIONS OF INTERPRETATION.
(a) This Agreement shall be governed by the laws of the
State of Ohio.
(b) Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision of
the Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued pursuant
to said Act. In addition, where the effect of a requirement of the Act,
reflected in any provision of this Agreement is revised by rule, regulation or
order of the Securities and Exchange Commission, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
19. NOTICES.
Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Trust
and of Countrywide for this purpose shall be 312 Walnut Street, Cincinnati, Ohio
45202.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
- 6 -
<PAGE>
22. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
COUNTRYWIDE TAX-FREE TRUST
By: /s/ Robert H. Leshner
-------------------------
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
---------------------------
- 7 -
<PAGE>
Effective December 1, 1997
Schedule A
COMPENSATION
FOR FUND ACCOUNTING AND PORTFOLIO PRICING:
TAX-FREE MONEY FUND
CALIFORNIA TAX-FREE MONEY FUND
KENTUCKY TAX-FREE FUND
Asset Size Monthly Fee
------------------- --------------
$ 0 - $ 50,000,000 $2,500
$ 50,000,000 - $100,000,000 $3,000
$100,000,000 - $200,000,000 $3,500
$200,000,000 - $300,000,000 $4,000
Over $300,000,000 $5,000*
OHIO TAX-FREE MONEY FUND
FLORIDA TAX-FREE MONEY FUND
TAX-FREE INTERMEDIATE TERM FUND
OHIO INSURED TAX-FREE FUND
Asset Size Monthly Fee
------------------- --------------
$ 0 - $ 50,000,000 $3,500
$ 50,000,000 - $100,000,000 $4,000
$100,000,000 - $200,000,000 $4,500
$200,000,000 - $300,000,000 $5,000
Over $300,000,000 $6,000*
* Subject to an additional fee of .001% of average daily net
assets.
ADMINISTRATION AGREEMENT
AGREEMENT entered into as of September 1, 1997, between Countrywide
Investments, Inc. ("Adviser") and Countrywide Fund Services, Inc. ("CFS"),
both of which are Ohio corporations having their principal place of business
at 312 Walnut Street, Cincinnati, Ohio 45202.
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and provides investment management services
under the terms of investment advisory agreements (the "Management Agreements")
with Countrywide Investment Trust, Countrywide Strategic Trust and Countrywide
Tax-Free Trust (referred to individually as a "Trust" and collectively as the
"Trusts"), with respect to the series of the Trusts; and
WHEREAS, the Trusts have been organized as Massachusetts business
trusts to operate as investment companies registered under the Investment
Company Act of 1940 (the "Act"); and
WHEREAS, the Adviser manages the business affairs of the series of the
Trusts pursuant to the Management Agreements; and
WHEREAS, the Adviser wishes to avail itself of the information, advice,
assistance and facilities of CFS to perform on behalf of the Trusts the services
as hereinafter described; and
WHEREAS, CFS wishes to provide such services to the Adviser under the
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Adviser and CFS agree as follows:
1. EMPLOYMENT. The Adviser, being duly authorized, hereby employs CFS
to perform those services described in this Agreement. CFS shall perform the
obligations thereof upon the terms and conditions hereinafter set forth.
2. TRUST ADMINISTRATION. Subject to the direction and control of the
Adviser, CFS shall assist the Adviser in supervising the Trusts' business
affairs not otherwise supervised by other agents of the Trusts. To the extent
not otherwise the primary responsibility of, or provided by, other agents of the
Trusts, CFS shall supply (i) non-investment related statistical and research
data, (ii) internal regulatory compliance services, and (iii) executive and
administrative services. CFS shall supervise the preparation of (i) tax returns,
(ii) reports to shareholders of the Trusts, (iii) reports to and filings with
the Securities and Exchange Commission, state securities commissions and Blue
Sky authorities including preliminary and definitive
- 1 -
<PAGE>
proxy materials and post-effective amendments to the Trusts' registration
statements, and (iv) necessary materials for meetings of the Trusts' Board of
Trustees unless prepared by other parties under agreement.
3. RECORDKEEPING AND OTHER INFORMATION. CFS shall create and maintain
all necessary records in accordance with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the Act and the rules thereunder, as the same may be amended from time to time,
pertaining to the various functions performed by it and not otherwise created
and maintained by another party pursuant to contract with a Trust. Where
applicable, such records shall be maintained by CFS for the periods and in the
places required by Rule 31a-2 under the Act.
4. AUDIT, INSPECTION AND VISITATION. CFS shall make available to the
Adviser during regular business hours all records and other data created and
maintained pursuant to the foregoing provisions of this Agreement for reasonable
audit and inspection by the Trusts or any regulatory agency having authority
over the Trusts.
5. COMPENSATION. For the performance of its obligations under this
Agreement, the Adviser shall pay CFS, with respect to the Trusts, a fee equal to
$37,500 per month. The Adviser is solely responsible for the payment of fees to
CFS, and CFS agrees to seek payment of its fees solely from the Adviser.
6. LIMITATION OF LIABILITY. CFS shall not be liable for any action
taken, omitted or suffered to be taken by it in its reasonable judgment, in good
faith and believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement, or in accordance with instructions
from the Adviser, provided, however, that such acts or omissions shall not have
resulted from CFS's willful misfeasance, bad faith or gross negligence.
7. COMPLIANCE WITH THE INVESTMENT COMPANY ACT OF 1940. The parties
hereto acknowledge and agree that nothing contained herein shall be construed to
require CFS to perform any services for the Adviser which services could cause
CFS to be deemed an "investment adviser" of a Trust within the meaning of
Section 2(a)(20) of the Act or to supersede or contravene the Prospectus or
Statement of Additional Information of any Trust or any provisions of the Act
and the rules thereunder.
8. TERMINATION. The provisions of this Agreement shall be effective
upon its execution, shall continue in effect for two years from that date and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved (1) by CFS, (2) by vote, cast in person at a meeting
called for the purpose, of a majority of each Trust's trustees who are not
- 2 -
<PAGE>
parties to this Agreement or interested persons (as defined in the Act) of any
such party, and (3) by vote of a majority of each Trust's Board of Trustees or a
majority of a Trust's outstanding voting securities. This Agreement may be
terminated by either party upon sixty (60) days' written notice to the other
party. This Agreement shall terminate automatically with respect to a series in
the event of termination of a Management Agreement for that series. Upon the
termination of this Agreement, the Adviser shall pay CFS such compensation as
may be payable for the period prior to the effective date of such termination.
9. NO TRUST LIABILITY. CFS is hereby expressly put on notice that the
Trusts are not contracting parties to this Agreement and assume no obligations
pursuant to this Agreement. CFS shall seek satisfaction of any obligations
arising out of this Agreement only from the Adviser, and not from any Trust nor
its Trustees, officers, employees or shareholders. CFS shall not act as agent
for or bind either the Adviser or any Trust in any matter.
10. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the 1st day of September, 1997.
COUNTRYWIDE INVESTMENTS, INC.
By:/s/ Robert H. Leshner
COUNTRYWIDE FUND SERVICES, INC.
By: /s/ Robert G. Dorsey
- 3 -
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated October 17, 1997 and to all references to our Firm included in or made a
part of this Post-Effective Amendment No. 42.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
December 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000352667
<NAME> COUNTRYWIDE TAX FREE TRUST
<SERIES>
<NUMBER> 1
<NAME> KENTUCKY TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 7,981,883
<INVESTMENTS-AT-VALUE> 8,073,983
<RECEIVABLES> 140,468
<ASSETS-OTHER> 19,584
<OTHER-ITEMS-ASSETS> 233,962
<TOTAL-ASSETS> 8,467,997
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,365
<TOTAL-LIABILITIES> 30,365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,341,407
<SHARES-COMMON-STOCK> 822,742
<SHARES-COMMON-PRIOR> 1,574,612
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,125
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 92,100
<NET-ASSETS> 8,437,632
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 626,947
<OTHER-INCOME> 0
<EXPENSES-NET> 102,264
<NET-INVESTMENT-INCOME> 524,683
<REALIZED-GAINS-CURRENT> 6,913
<APPREC-INCREASE-CURRENT> 351,842
<NET-CHANGE-FROM-OPS> 883,438
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 524,683
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 100,598
<NUMBER-OF-SHARES-SOLD> 127,642
<NUMBER-OF-SHARES-REDEEMED> 909,256
<SHARES-REINVESTED> 29,744
<NET-CHANGE-IN-ASSETS> (7,661,014)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,788)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,946
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 214,849
<AVERAGE-NET-ASSETS> 12,052,637
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .28
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .08
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
