PROSPECTUS
August 15, 1997
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 BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Countrywide Investments, Inc. (the "Adviser") manages the Fund's
investments and its business affairs.
Pursuant to an Agreement and Plan of Reorganization dated May 31,
1997, the Fund, on or about August 29, 1997, will succeed to the assets and
liabilities of another mutual fund of the same name (the "Predecessor Fund"),
which is 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.
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 August 15, 1997 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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EXPENSE INFORMATION
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 .05%(A)
12b-1 Fees .00%(B)
Other Expenses .77%
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Total Fund Operating Expenses After Waivers .82%(C)
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(A) Absent waivers, management fees would be .50%.
(B) The Fund may incur 12b-1 fees in an amount up to .25% of its
average net assets. 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 waivers of management fees, total operating expenses would
be 1.27%. The Adviser will, until at least August 31, 1999, waive
fees and reimburse expenses to the extent necessary to limit
total operating expenses to .82% of the Fund's average net
assets.
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 estimated amounts for the current fiscal year. 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
------ ------- ------- --------
$ 48 $ 65 $ 84 $ 137
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FINANCIAL HIGHLIGHTS
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The following audited financial information for the Predecessor Fund for
the fiscal year ended August 31, 1996 has been audited by KPMG Peat Markwick
LLP, independent auditors, and should be read in conjunction with the financial
statements. The following unaudited financial information for the period ended
February 28, 1997 should be read in conjunction with the financial statements.
The annual financial statements as of August 31, 1996 and the independent
auditors' report thereon and the semiannual financial statements as of February
28, 1997 appear in the Statement of Additional Information of the Fund, which
can be obtained by shareholders at no charge by calling the Fund.
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING FOR THE PREDECESSOR
FUND THROUGHOUT EACH PERIOD
SIX MONTHS YEAR
ENDED ENDED
2/28/97 8/31/96(a)
(Unaudited)
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Net Asset Value, Beginning of
Period...................... $ 10.06 $ 10.00
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Investment Operations
Net Investment Income....... 0.18 0.51(c)
Net Realized and Unrealized
Gain on
Investments............... 0.25 0.06
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Total from Investment
Operations.................. 0.43 0.57
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Distributions from
Net Investment Income....... (0.26) (0.51)
Net Realized Gain on
Investments............... -- --
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Total Distributions........... (0.26) (0.51)
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Net Asset Value, End of
Period...................... $ 10.23 $ 10.06
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Total Return(b).............. 8.90%(d) 5.80%
Ratio/Supplementary Data:
Net Assets at End of Period
(000's omitted)............. $ 11,817 $ 15,840
Ratios to Average Net Assets:
Expenses including
reimbursement/waiver
(d)....................... 0.85% 0.82%
Expenses excluding
reimbursement/waiver
(d)....................... 1.72% 1.65%
Net investment income (loss)
including
reimbursement/waiver
(d)....................... 5.23% 5.30%
Portfolio Turnover Rate....... 0.00% 145.12%
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(a) Date of commencement of operations was September 27, 1995.
(b) Total return calculation does not include sales charges.
(c) Using weighted average shares outstanding for the period.
(d) Annualized.
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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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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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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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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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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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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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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
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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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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
high-quality liquid debt 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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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 high-grade debt obligations, 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
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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 will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
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.
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
- 15 -
<PAGE>
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.
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 "Kentucky Tax-Free 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.
Shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase
- 16 -
<PAGE>
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.
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
- 17 -
<PAGE>
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.
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.
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
- 18 -
<PAGE>
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 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
- 19 -
<PAGE>
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 1986) 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, 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.
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
*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 intends 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 realized long-term capital gains
are taxable as long-term capital gains regardless of how long you have held your
Fund shares.
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 five 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 will begin
managing the Fund's portfolio in September 1997.
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.
The Transfer Agent also provides accounting and pricing
- 28 -
<PAGE>
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
equal to the annual rate of .1% of the average value of the Fund's daily net
assets.
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.
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.
=======================================================================================================================
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.
========================================================================================================================
<PAGE>
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.
========================================================================================
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 Kentucky Tax-Free 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 for the Automatic Investment Plan.
<PAGE>
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:_____________________.
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
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
- 34 -
<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 and Public Offering 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.
- 35 -
<PAGE>
PROSPECTUS
August 15, 1997
CALIFORNIA TAX-FREE MONEY FUND
RETAIL SHARES
The California Tax-Free Money Fund (the "Fund"), a separate series of
Countrywide Tax-Free Trust, seeks the highest level of current income exempt
from federal and California income taxes, consistent with liquidity and
stability of principal, by investing primarily in high-quality, short-term
California municipal obligations.
THE FUND'S PORTFOLIO SECURITIES ARE VALUED ON AN AMORTIZED COST BASIS.
FUND SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES GOVERNMENT
OR ANY OTHER ENTITY. IT IS ANTICIPATED, BUT THERE IS NO ASSURANCE, THAT THE FUND
WILL MAINTAIN A STABLE NET ASSET VALUE PER SHARE OF $1.
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 MONEY MARKET FUNDS.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
The Fund offers two classes of shares: Class A shares ("Retail Shares"),
sold subject to a 12b-1 fee of up to .25% of average daily net assets, and Class
B shares ("Institutional Shares"), sold without a 12b-1 fee. Each Retail and
Institutional Share of the Fund represents identical interests in the Fund's
investment portfolio and has the same rights, except that (i) Retail Shares bear
the expenses of distribution fees, which will cause Retail Shares to have a
higher expense ratio and to pay lower dividends than Institutional Shares; (ii)
certain class specific expenses will be borne solely by the class to which such
expenses are attributable; (iii) each class has exclusive voting rights with
respect to matters affecting only that class; and (iv) Retail Shares are subject
to a lower minimum initial investment requirement and offer certain shareholder
services not available to Institutional Shares such as checkwriting and
automatic investment and redemption plans.
Countrywide Investments, Inc. (the "Adviser") manages the Fund's
investments and its business affairs.
This Prospectus sets forth concisely the information about Retail Shares
that you should know before investing. Please retain this Prospectus for future
reference. Institutional Shares are offered in a separate prospectus and
additional information about Institutional Shares may be obtained by calling one
of the numbers listed below. A Statement of Additional Information dated August
15, 1997 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.
<PAGE>
- --------------------------------------------------------------------------------
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free).........................................800-543-0407
Cincinnati.....................................................513-629-2050
- --------------------------------------------------------------------------------
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.
- 2 -
<PAGE>
EXPENSE INFORMATION
RETAIL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None*
Check Redemption Processing Fee (per check):
First six checks per month None
Additional checks per month $0.25
* 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 OPERATING EXPENSES (as a percentage of average net assets)
Management Fees After Waivers .48%(A)
12b-1 Fees .03%(B)
Other Expenses .29%
----
Total Operating Expenses After Waivers .80%(C)
====
(A) Absent waivers of management fees, such fees would have been .50% for the
fiscal year ended June 30, 1996.
(B) Retail Shares may incur 12b-1 fees in an amount up to .25% of average net
assets.
(C) Absent waivers of management fees, total operating expenses would have been
.82% for the fiscal year ended June 30, 1996.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in Retail Shares will bear directly
or indirectly. The percentages expressing annual operating expenses are based on
amounts incurred during the most recent fiscal year. 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 1 Year 3 Years 5 Years 10 Years
------- ------ ------- ------- --------
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $ 8 $ 26 $ 44 $ 99
- 3 -
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
The following information is an integral part of the unaudited financial
statements as of December 31, 1996 and the audited financial statements as of
June 30, 1996 and should be read in conjunction with the financial statements.
The financial statements as of June 30, 1996, which have been audited by Arthur
Andersen LLP, 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.
<TABLE>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM DATE
OF PUBLIC
OFFERING
(JULY 25,
Six Months 1989)
Ended THROUGH
December 31, YEAR ENDED JUNE 30, JUNE 30,
1996 --------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990
----------- ------------------------------------------------------------
Net asset value at
beginning of period.............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------- ----- ------
Net investment income............... 0.014 0.029 0.029 0.019 0.022 0.035 0.046 0.053
----- ----- ----- ----- ----- ------ ----- -----
Distributions from net
investment income................ (0.014) (0.029) (0.029) (0.019) (0.022) (0.035) (0.046) (0.053)
------- ------- ------- ------- ------- ------ ------- -------
Net asset value at end
of period........................ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ======
Total return........................ 2.75%(B) 2.95% 2.95% 1.93% 2.26% 3.71% 4.70% 5.79%(B)
======== ===== ===== ===== ===== ===== ===== ======
Net assets at end
of period (000's)................ $38,659 $36,122 $19,525 $24,508 $34,487 $21,246 $13,524 $12,205
======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets(A).............. 0.80%(B) 0.80% 0.70% 0.60% 0.56% 0.34% 0.40% 0.08%(B)
Ratio of net investment
income to average net
assets......................... ... 2.74%(B) 2.88% 2.83% 1.90% 2.22% 3.49% 4.56% 5.65%(B)
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratio of expenses to average net assets would have been 0.82%, 0.85%,
0.86%, 0.85%, 0.89%, 1.01% and 1.15%(B) for the periods ended June 30,
1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively.
(B) Annualized.
</TABLE>
- 4 -
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- ---------------------------------
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
California income taxes, consistent with liquidity and stability of principal.
The Fund seeks to achieve its investment objective by investing primarily in
high-quality, short-term California Obligations determined by the Adviser, under
the direction of the Board of Trustees, to present minimal credit risks.
California Obligations are debt obligations issued by the State of California
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 both federal income tax, including the
alternative minimum tax, and California income tax. To the extent acceptable
California Obligations are at any time unavailable for investment by the Fund,
the Fund will invest, for temporary defensive purposes, primarily in other debt
securities, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from federal, but not California, income tax.
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.
Municipal Obligations
----------------------
Debt securities, the interest from which is, in the opinion of bond
counsel to the issuer, exempt from federal income tax ("Municipal Obligations")
generally include debt obligations 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. Municipal
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.
- 5 -
<PAGE>
The two principal classifications of Municipal Obligations 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, 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.
Basic Investment Policies
-------------------------
It is a fundamental policy that under normal market conditions the Fund
will invest at least 80% of the value of its net assets in short-term
obligations the interest on which is exempt from federal income tax, including
the alternative minimum tax. This policy may not be changed without the
affirmative vote of a majority of the outstanding shares of the Fund. Under
normal market conditions, at least 65% of the value of the Fund's total assets
will be invested in California Obligations and the remainder may be invested in
obligations that are not California Obligations and therefore are subject to
California income tax (see "Taxes"). When the Fund has adopted a temporary
defensive position (including circumstances when acceptable California
Obligations are unavailable for investment by the Fund), the Fund may invest
more than 35% of its total assets in obligations that are not exempt from
California income tax.
The Fund seeks to achieve its investment objective by investing in
high-quality, short-term Municipal Obligations determined by the Adviser, under
the direction of the Board of Trustees, to present minimal credit risks. The
Fund will purchase only obligations that enable it to employ the amortized cost
method of valuation. Under the amortized cost method of valuation, the Fund's
obligations are valued at original cost adjusted for amortization of premium or
accumulation of discount, rather than valued at market. This method should
enable the Fund to maintain a stable net asset value per share. The Fund will
invest in obligations which have received a short-term rating in
- 6 -
<PAGE>
one of the two highest categories by any two nationally recognized statistical
rating organizations ("NRSROs") or by any one NRSRO if the obligation is rated
by only that NRSRO. These standards must be satisfied at the time an investment
is made. If an obligation ceases to meet these standards, or if the Board of
Trustees believes such obligation no longer presents minimal credit risks, the
Trustees will cause the Fund to dispose of the obligation as soon as
practicable. The Statement of Additional Information describes ratings of the
NRSROs.
The Fund's dollar-weighted average maturity will be 90 days or less.
The Fund will invest in obligations with remaining maturities of thirteen months
or less at the time of purchase.
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 no more than 20% of its net assets in obligations the interest from which
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, from time to time, invest in taxable short-term,
high-quality obligations (subject to the fundamental policy that under normal
market conditions the Fund will invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income tax, including
the alternative minimum tax). These include, but are not limited to,
certificates of
- 7 -
<PAGE>
deposit and other bank debt instruments, commercial paper, obligations issued by
the U.S. Government or any of its agencies or instrumentalities and repurchase
agreements. Interest earned from such investments will be taxable to investors.
Except for temporary defensive purposes, at no time will more than 20% of the
value of the Fund's net assets be invested in taxable obligations. 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.
Risk Factors
-------------
The Fund's yield will fluctuate due to changes in interest rates,
economic conditions, quality ratings and other factors beyond the control of the
Adviser. 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 Municipal 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 Municipal Obligations decline.
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 California Obligations. The Fund's
performance is closely tied to conditions within the State of California and to
the financial condition of the State and its authorities and municipalities. The
nationwide recession of the early 1990s severely affected several key industries
in California's economy, such as defense, aerospace and high technology. Many of
the job losses resulting from military base closings and cutbacks in the
aerospace industry are expected to be permanent. However, the decline in the
aerospace industry has been matched by a similar number of new jobs in the
entertainment industry and significant increases in California's employment rate
have brought employment near to its pre-recession level. This has improved the
state's liquidity and has eliminated the need for external note borrowing across
fiscal years. In August 1996, Standard & Poor's Ratings Group ("S&P") raised
California's general obligation bond rating to "A+" from "A." This revision
followed the state's second year of operating surpluses and passage of a fiscal
1997 budget with assumptions that appear more
- 8 -
<PAGE>
realistic than in prior years. Nevertheless, the state's cash position remains
poor, as general fund operating deficits since 1990 have resulted in a fiscal
1996 accumulated deficit of $1.4 billion. Despite the increase in jobs, the
state has experienced a long-term decline in its above-average income relative
to the nation. The state's financial condition has been hampered by certain
structural elements. These include, Proposition 98 which requires a mandated
minimum percentage of general fund revenues to be used towards education, new
sentencing laws which have led to a growing prison population, local
infrastructure needs and the need to borrow to cover loans to schools. On
December 6, 1994, Orange County, California filed for Chapter 9 bankruptcy after
it was discovered that the County Treasurer had practiced investment techniques
that were not prudent with the fiduciary guidelines for County co-mingled funds.
The county emerged from bankruptcy in 1996 and has issued post-bankruptcy
recovery bonds in order to pay its outstanding debt and to fund bankruptcy-
related and operating costs. A portion of the new debt is insured and carries an
"AAA" rating by S&P. The upgraded rating in Orange County's debt reflects its
success in restraining expenses and forecasting revenues since the bankruptcy
filing, as well as the adoption of a conservative investment policy and the
establishment of an investment oversight committee. However, the county's
general fund remains vulnerable with virtually no tolerance for contingencies,
and has already undergone sharp reductions. The county's financial flexibility
is further constrained by its severely limited revenue-raising capacity.
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 increase the possibility of
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 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
- 9 -
<PAGE>
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 Municipal 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 Municipal 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 Municipal
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 that do not have this demand feature and
all other illiquid securities.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may invest in floating
or variable rate Municipal 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 10% 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
- 10 -
<PAGE>
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 Municipal
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
high-quality liquid debt securities, marked to market daily, in an amount equal
to its when-issued commitments. Because these transactions are subject to market
fluctuations, a significant commitment to when-issued purchases could result in
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. No additional
when-issued commitments will be made if more than 20% of the Fund's net assets
would be so committed.
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 high-grade debt obligations, 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 25%
of its net assets. This
- 11 -
<PAGE>
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 Municipal
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 Municipal
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 Municipal 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.
SECURITIES WITH LIMITED MARKETABILITY. The Fund may invest in the
aggregate up to 10% 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; and repurchase agreements not terminable
within seven days.
BORROWING AND PLEDGING. As a temporary measure for extraordinary or
emergency purposes, the Fund may borrow money from banks in an amount not
exceeding 10% of its total assets. The Fund may pledge assets in connection with
borrowings but will not pledge more than 10% 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. To reduce the risks of borrowing,
the Fund will limit its borrowings as described above. 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.
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in Retail Shares of 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
- 12 -
<PAGE>
$50. Shares of the Fund are sold on a continuous basis at the net asset value
next determined after receipt of a purchase order by the Trust. Shares of the
Fund purchased prior to August 15, 1997 are Retail Shares.
INITIAL INVESTMENTS BY MAIL. You may open an account and make an
initial investment in the Fund 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
"California Tax-Free Money Fund." An account application is included in this
Prospectus.
You will be sent within five business days after the end of each month
a written statement disclosing each purchase or redemption effected and each
dividend or distribution credited to your account during the month. 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 redemptions and exchanges and check
redemptions) 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.
INITIAL INVESTMENTS BY WIRE. You may also purchase shares of the Fund
by wire. Please telephone the Transfer Agent (Nationwide call toll-free
800-543-0407; in Cincinnati call 629- 2050) for instructions. You should be
prepared to give the name in which the account is to be established, the
address, telephone number and taxpayer identification number for the account,
and the name of the bank which will wire the money.
You may receive a dividend on the day of your wire investment provided
you have given notice of your intention to make such investment to the Transfer
Agent by 4:00 p.m., Eastern time, on the preceding business day (or 12:00 noon,
Eastern time, on the same day of a wire investment in the case of investors
utilizing institutions that have made appropriate arrangements with the Transfer
Agent). Your investment will be made at the net asset value next determined
after your wire is received together with the account information indicated
above. If the Trust does not receive timely and complete account information,
- 13 -
<PAGE>
there may be a delay in the investment of your money and any accrual of
dividends. To make your initial wire purchase, you are required to mail a
completed account application to the Transfer Agent. 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.
ADDITIONAL INVESTMENTS. You may purchase and add shares to your account
by mail or by bank wire. Checks should be sent to the Transfer Agent, P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the
"California Tax-Free Money Fund." Bank wires should be sent as outlined above.
You may also make additional investments at the Trust's offices at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202. 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.
CASH SWEEP PROGRAM. Cash accumulations in accounts with financial
institutions may be automatically invested in shares of the Fund at the next
determined net asset value on a day selected by the institution or its customer,
or when the account balance reaches a predetermined dollar amount (e.g.,
$5,000).
Participating institutions are responsible for prompt transmission of
orders relating to the program. Institutions participating in this program may
charge their customers fees for services relating to the program which would
reduce the customers' yield from an investment in the Fund. This Prospectus
should, therefore, be read together with any agreement between the customer and
the participating institution with regard to the services provided, the fees
charged for these services and any restrictions and limitations imposed.
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 Retail 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.
- 14 -
<PAGE>
Direct Deposit Plans
---------------------
Retail 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 Retail Shares of 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.
HOW TO REDEEM SHARES
- -------------------
You may redeem Retail Shares of the Fund on each day that the Trust is
open for business. You will receive the net asset value per share next
determined after receipt by the Transfer Agent of a proper redemption request in
the form described below. Payment is normally 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.
A contingent deferred sales load may be imposed on a redemption of
shares of the Fund if such shares had previously been acquired in connection
with an exchange from another fund of Countrywide Investments which imposes a
contingent deferred sales load, as described in the Prospectus of such other
fund.
BY TELEPHONE. You may redeem shares by telephone. The proceeds will be
sent by mail to the address designated on your account or wired directly to your
existing account in any commercial bank or brokerage firm in the United States
as designated on your application. To redeem by telephone, call the Transfer
Agent (Nationwide call toll-free 800-543-0407; in Cincinnati call 629-2050). The
redemption proceeds will normally be sent by mail or by wire within one business
day (but not later than three business days) after receipt of your telephone
instructions. Any redemption requests by telephone must be received in proper
form prior to 12:00 noon, Eastern time, on any business day in order for payment
by wire to be made that day.
- 15 -
<PAGE>
The telephone redemption privilege is automatically available to all
shareholders. You may change the bank or brokerage account which you have
designated under this procedure at any time by writing to the Transfer Agent
with your signature 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)
or by completing a supplemental telephone redemption authorization form. Contact
the Transfer Agent to obtain this form. Further documentation will be required
to change the designated account if shares are held by a corporation, fiduciary
or other organization.
Neither the Trust, the Transfer Agent, nor their respective affiliates
will be liable for complying with telephone instructions they reasonably believe
to be genuine or for any loss, damage, cost or expense in acting on such
telephone instructions. The affected shareholders will bear the risk of any such
loss. 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.
BY MAIL. You may redeem any number of shares from your account by
sending a written request to the Transfer Agent. The request must state the
number of shares 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 of the eligible guarantor institutions outlined above.
Written redemption requests may also direct that the proceeds be
deposited directly in the bank account or brokerage account designated on your
account application for telephone redemptions. Proceeds of redemptions requested
by mail are normally mailed within three business days following receipt of
instructions in proper form.
BY CHECK. You may establish a special checking account with the Fund
for the purpose of redeeming Retail Shares by check. Checks may be made payable
to anyone for any amount, but checks may not be certified.
- 16 -
<PAGE>
When a check is presented to the Custodian for payment, the Transfer
Agent, as your agent, will cause the Fund to redeem a sufficient number of full
and fractional shares in your account to cover the amount of the check.
If the amount of a check is greater than the value of the shares held
in your account, the check will be returned. A check representing a redemption
request will take precedence over any other redemption instructions issued by a
shareholder.
As long as no more than six check redemptions are effected in your
account in any month, there will be no charge for the check redemption
privilege. After six check redemptions are effected in your account in a month,
the Transfer Agent will charge you $.25 for each additional check redemption
effected that month. However, there is no charge for any check redemptions
effected by employees, shareholders and customers of Countrywide Credit
Industries, Inc. or any affiliated company, including members of the immediate
family of such individuals. The Transfer Agent charges shareholders its costs
for each stop payment and each check returned for insufficient funds. In
addition, the Transfer Agent reserves the right to make additional charges to
recover the costs of providing the check redemption service. All charges will
be deducted from your account by redemption of shares in your account. The
check redemption procedure may be suspended or terminated at any time upon
written notice by the Trust or the Transfer Agent.
Shareholders who invest in the Fund through a cash sweep or similar
program with a financial institution are not eligible for the checkwriting
privilege.
ADDITIONAL REDEMPTION INFORMATION. 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.
- 17 -
<PAGE>
At the discretion of the Trust or the Transfer Agent, corporate
investors and other associations may be required to 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, 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. 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.
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.
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
*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
- 18 -
<PAGE>
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.
Management will determine the timing and frequency of the distributions of any
net realized short-term capital gains. Although the Fund does not expect to
realize any long-term capital gains, if the Fund does realize such gains it will
distribute them at least once each year. The Fund will, at the time dividends
are paid, designate as tax-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.
Dividends are automatically reinvested in additional shares of the Fund (the
Share Option) unless cash payments are specified on your application or are
otherwise requested by contacting the Transfer Agent. If you elect to receive
dividends in cash 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.
- 19 -
<PAGE>
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 investment income
and any net realized capital gains to its shareholders. Except for dividends
from taxable investments, the Fund anticipates that substantially all dividends
paid by the Fund will not be subject to California state income tax. 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.
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 the requirement that it invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income tax, including
the alternative minimum 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.
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.
- 20 -
<PAGE>
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 California state income tax may not result
in similar exemptions under the laws of a particular state or local taxing
authority.
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 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 five 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.
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, 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,
- 21 -
<PAGE>
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. Retail Shares are also
responsible for the payment of expenses related to the distribution of such
shares (see "Distribution Plan").
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.
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 equal to the
annual rate of .1% of the average value of the Fund's daily net assets.
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
Adviser and the Trust.
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.
- 22 -
<PAGE>
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. Retail Shares of the Fund
shall vote separately on matters relating to the plan of distribution pursuant
to Rule 12b-1 (see "Distribution Plan"). 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.
DISTRIBUTION PLAN
- -----------------
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, Retail Shares
of the Fund have adopted a plan of distribution (the "Class A Plan") under which
such shares 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 such shares and who may be advising
investors regarding the purchase, sale or retention of such 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 such shares.
Pursuant to the Class A Plan, Retail Shares may make payments to dealers and
other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Retail Shares of the
Fund. For the fiscal year ended June 30, 1996, Retail Shares of the Fund paid
$7,000 to the Adviser to reimburse it for payments made to dealers and other
persons who may be advising shareholders in this regard.
- 23 -
<PAGE>
The annual limitation for payment of expenses pursuant to the Class A Plan is
.25% of the average daily net assets allocable to Retail Shares. Unreimbursed
expenditures will not be carried over from year to year. In the event the Class
A 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 Class A Plan terminates.
Pursuant to the Class A 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 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.
CALCULATION OF SHARE PRICE
- ---------------------------
On each day that the Trust is open for business, the share price (net asset
value) of the Fund's shares is determined as of 12:00 noon and 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.
The Fund's portfolio securities are valued on an amortized cost basis. In
connection with the use of the amortized cost method of valuation, the Fund
maintains a dollar-weighted average portfolio maturity of 90 days or less,
purchases only United
- 24 -
<PAGE>
States dollar-denominated securities having remaining maturities of thirteen
months or less and invests only in securities determined by the Board of
Trustees to meet the Fund's quality standards and to present minimal credit
risks. Other assets of the Fund 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. It is anticipated, but
there is no assurance, that the use of the amortized cost method of valuation
will enable the Fund to maintain a stable net asset value per share of $1.
PERFORMANCE INFORMATION
- ------------------------
From time to time the Fund may advertise its "current yield" and "effective
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "current
yield" because of the compounding effect of this assumed reinvestment. In
addition, the Fund may advertise together with its "current yield" or "effective
yield" a tax equivalent "current yield" or "effective 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 "current yield" or "effective yield." Yields
are computed separately for Retail and Institutional Shares. The yield of
Institutional Shares is expected to be higher than the yield of Retail Shares
due to the distribution fees imposed on Retail Shares.
- 25 -
<PAGE>
<TABLE>
<S> <C>
Account Application ACCOUNT NO. 24-_______________________
(For Fund Use Only)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354 FOR BROKER/DEALER USE ONLY
Cincinnati, Ohio 45201-5354 Firm Name:______________________________________
California Tax-Free Money Fund Home Office Address:____________________________
(Retail Shares) Branch Address:_________________________________
Rep Name & No.:_________________________________
- -------------------------------------------------------------------------------------------------------------------
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 l.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
- -------------------------------------------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (Distributions are reinvested if no choice is indicated)
[ ] Reinvest all distributions
[ ] Pay all distributions in cash [ ] By Check [ ] By ACH to my bank checking or savings account. Please attach a voided check.
- -------------------------------------------------------------------------------------------------------------------
REDEMPTION OPTIONS
I (we) authorize the Trust or Countrywide Fund Services, Inc. to act upon instructions received by telephone, or upon receipt of
and in the amounts of checks as described below (if checkwriting is selected), to have amounts withdrawn from my (our) account in
any fund of Countrywide Investements (see prospectus for limitations on this option) and:
[ ] WIRED ($1,000 minimum OR MAILED to my (our) bank account designated below. I (we) further authorize the used of automated
cash transfers to and from the account designated below. NOTE: For wire redemptions, the indicated bank should be a
commercial bank. Please attach a voided check for the account.
Bank Account Number ____________________________________________Bank Routing Transit Number ________________________________
Name of Account Holder _____________________________________________________________________________________________________
Bank Name ______________________________________________________Bank Address________________________________________________
City State
<PAGE>
[ ] CHECKWRITING (A signature card must be completed)
... to deposit the proceeds of such redemptions in the applicable Countrywide Pay Through Draft Account (PTDA) or otherwise
arrange for application of such proceeds to payment of said checks. I (we) authorize the persons whose signatures appear on
the PTDA signature card to draw checks on the PTDA and to cause the redemption of my (our) shares of the Trust. I (we) agree
to be bound by the Rules and Regulations for the Countrywide Pay Through Draft Account as such Rules and Regulations may
be amended from time to time
- -------------------------------------------------------------------------------------------------------------------------------
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. Neither the Trust, Countrywide Fund Services, Inc., nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be genuine or for any loss, damage, cost or expense
in acting on such telephone instructions. The investor(s) will bear the risk of any such loss. The Trust or Countrywide Fund
Services, Inc., or both, will employ reasonable procedures to determine that telephone instructions are genuine. If the Trust
and/or Countrywide Fund Services, Inc. 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.
- ---------------------------------------------------------------- --------------------------------------------------------
Signature of Individual Owner, Corporate Officer, Trustee, etc. Signature of Joint Owner, if Any
- ---------------------------------------------------------------- --------------------------------------------------------
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.
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 California Tax-Free Money 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 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.
- ----------------------------------------------------------------------------------------------------------------------------
<PAGE>
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund)
This is an authorization for you to withdraw $_________________ from my 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:____________________
Please Select Payment Method (Check One):
[ ] Exchange: Please exchange the withdrawal proceeds into another Countrywide 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 Fund, 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 Fund, to
establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement the privileges
elected on the Application, and it is (If checkwriting privilege is not desired, please cross out the following resolution.)
FURTHER RESOLVED: That the corporation or organization participate in the Countrywide Pay Through Draft Account (PTDA) and
that until otherwise ordered in writing, Countrywide Fund Services, Inc. is authorized to make redemptions of shares held by the
corporation or organization, and to make payment from PTDA upon and according to the check, draft, note or order of this
corporation or organization when signed by
- ----------------------------------------------------------------------------------------------------------------------------
and to receive the same when so signed to the credit of, or payment to, the payee or any other holder without inquiry as to the
circumstances of issue or the disposition or proceeds, whether drawn to the individual order or tendered in payment of
individual obligations of the persons above named or other officers of this corporation or organization or otherwise.
<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. Bodgon, 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
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
<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.
<PAGE>
PROSPECTUS
August 15, 1997
CALIFORNIA TAX-FREE MONEY FUND
INSTITUTIONAL SHARES
The California Tax-Free Money Fund (the "Fund"), a separate series of
Countrywide Tax-Free Trust, seeks the highest level of interest income exempt
from federal and California income taxes, consistent with liquidity and
stability of principal, by investing primarily in high-quality, short-term
California municipal obligations.
THE FUND'S PORTFOLIO SECURITIES ARE VALUED ON AN AMORTIZED COST BASIS.
FUND SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES GOVERNMENT
OR ANY OTHER ENTITY. IT IS ANTICIPATED, BUT THERE IS NO ASSURANCE, THAT THE FUND
WILL MAINTAIN A STABLE NET ASSET VALUE PER SHARE OF $1.
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 MONEY MARKET FUNDS.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY.
The Fund offers two classes of shares: Class A shares ("Retail
Shares"), sold subject to a 12b-1 fee of up to .25% of average daily net assets,
and Class B shares ("Institutional Shares"), sold without a 12b-1 fee. Each
Retail and Institutional Share of the Fund represents identical interests in the
Fund's investment portfolio and has the same rights, except that (i) Retail
Shares bear the expenses of distribution fees, which will cause Retail Shares to
have a higher expense ratio and to pay lower dividends than Institutional
Shares; (ii) certain class specific expenses will be borne solely by the class
to which such expenses are attributable; (iii) each class has exclusive voting
rights with respect to matters affecting only that class; and (iv) Retail Shares
are subject to a lower minimum initial investment requirement and offer certain
shareholder services not available to Institutional Shares such as checkwriting
and automatic investment and redemption plans.
Countrywide Investments, Inc. (the "Adviser") manages the Fund's
investments and its business affairs.
This Prospectus sets forth concisely the information about
Institutional Shares that you should know before investing. Please retain this
Prospectus for future reference. Retail Shares are offered in a separate
prospectus and additional information about Retail Shares may be obtained by
calling one of the numbers listed below. A Statement of Additional Information
dated August 15, 1997 has been filed with the Securities and Exchange Commission
and is hereby incorporated by reference in its entirety. A copy of the Statement
of
<PAGE>
Additional Information can be obtained at no charge by calling one of the
numbers listed below.
- -----------------------------------------------------------------------
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)......................................800-543-0407
Cincinnati..................................................513-629-2050
- -----------------------------------------------------------------------
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.
<PAGE>
EXPENSE INFORMATION
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
Management Fees After Waivers .48%(A)
12b-1 Fees None
Other Expenses After Reimbursements .07%(B)
Total Operating Expenses After Waivers --------
and Expense Reimbursements .55%(C)
=========
(A) Absent waivers of management fees, such fees would be .50%.
(B) Absent expense reimbursements by the Adviser, other expenses would
be .29%.
(C) Absent waivers of management fees and expense reimbursements by the
Adviser, total operating expenses would be .79%.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in Institutional Shares will bear
directly or indirectly. The percentages expressing annual operating expenses are
based on estimated amounts for the current fiscal year. 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.
<TABLE>
<S>
<C> <C> <C> <C>
Example
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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: $ 6 $ 18 $ 31 $ 69
</TABLE>
- 2 -
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- ---------------------------------
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 California
income taxes, consistent with liquidity and stability of principal. The Fund
seeks to achieve its investment objective by investing primarily in
high-quality, short-term California Obligations determined by the Adviser, under
the direction of the Board of Trustees, to present minimal credit risks.
California Obligations are debt obligations issued by the State of California
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 both federal income tax, including the
alternative minimum tax, and California income tax. To the extent acceptable
California Obligations are at any time unavailable for investment by the Fund,
the Fund will invest, for temporary defensive purposes, primarily in other debt
securities, the interest from which is, in the opinion of bond counsel to the
issuer, exempt from federal, but not California, income tax.
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.
Municipal Obligations
---------------------
Debt securities, the interest from which is, in the opinion of bond
counsel to the issuer, exempt from federal income tax ("Municipal Obligations")
generally include debt obligations 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. Municipal
Obligations consist of tax-exempt bonds, tax-exempt notes and tax-exempt
commercial paper. The Statement of
- 3 -
<PAGE>
Additional Information contains a description of tax-exempt bonds, notes and
commercial paper.
The two principal classifications of Municipal Obligations 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, 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.
Basic Investment Policies
-------------------------
It is a fundamental policy that under normal market conditions the Fund
will invest at least 80% of the value of its net assets in short-term
obligations the interest on which is exempt from federal income tax, including
the alternative minimum tax. This policy may not be changed without the
affirmative vote of a majority of the outstanding shares of the Fund. Under
normal market conditions, at least 65% of the value of the Fund's total assets
will be invested in California Obligations and the remainder may be invested in
obligations that are not California Obligations and therefore are subject to
California income tax (see "Taxes"). When the Fund has adopted a temporary
defensive position (including circumstances when acceptable California
Obligations are unavailable for investment by the Fund), the Fund may invest
more than 35% of its total assets in obligations that are not exempt from
California income tax.
The Fund seeks to achieve its investment objective by investing in
high-quality, short-term Municipal Obligations determined by the Adviser, under
the direction of the Board of Trustees, to present minimal credit risks. The
Fund will purchase only obligations that enable it to employ the amortized cost
method of valuation. Under the amortized cost method of valuation, the Fund's
obligations are valued at original cost adjusted for amortization of premium or
accumulation of discount,
- 4 -
<PAGE>
rather than valued at market. This method should enable the Fund to maintain a
stable net asset value per share. The Fund will invest in obligations which have
received a short-term rating in one of the two highest categories by any two
nationally recognized statistical rating organizations ("NRSROs") or by any one
NRSRO if the obligation is rated by only that NRSRO. These standards must be
satisfied at the time an investment is made. If an obligation ceases to meet
these standards, or if the Board of Trustees believes such obligation no longer
presents minimal credit risks, the Trustees will cause the Fund to dispose of
the obligation as soon as practicable. The Statement of Additional Information
describes ratings of the NRSROs.
The Fund's dollar-weighted average maturity will be 90 days or less. The
Fund will invest in obligations with remaining maturities of thirteen months or
less at the time of purchase.
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 no more than 20% of its net assets in obligations the interest from which
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, from time to time, invest in taxable short-term,
high-quality obligations (subject to the fundamental policy that under normal
market conditions the Fund will invest at least
- 5 -
<PAGE>
80% of its net assets in obligations the interest on which is exempt from
federal income tax, including the alternative minimum tax). These include, but
are not limited to, certificates of deposit and other bank debt instruments,
commercial paper, obligations issued by the U.S. Government or any of its
agencies or instrumentalities and repurchase agreements. Interest earned from
such investments will be taxable to investors. Except for temporary defensive
purposes, at no time will more than 20% of the value of the Fund's net assets be
invested in taxable obligations. 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.
Risk Factors
------------
The Fund's yield will fluctuate due to changes in interest rates, economic
conditions, quality ratings and other factors beyond the control of the Adviser.
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 Municipal 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 Municipal Obligations decline.
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 California Obligations. The Fund's
performance is closely tied to conditions within the State of California and to
the financial condition of the State and its authorities and municipalities. The
nationwide recession of the early 1990s severely affected several key industries
in California's economy, such as defense, aerospace and high technology. Many of
the job losses resulting from military base closings and cutbacks in the
aerospace industry are expected to be permanent. However, the decline in the
aerospace industry has been matched by a similar number of new jobs in the
entertainment industry and significant increases in California's employment rate
have brought employment near to its pre-recession level. This has improved the
state's liquidity and has eliminated the need for external note borrowing across
fiscal years. In August 1996, Standard & Poor's Ratings Group ("S&P") raised
California's
- 6 -
<PAGE>
general obligation bond rating to "A+" from "A." This revision followed the
state's second year of operating surpluses and passage of a fiscal 1997 budget
with assumptions that appear more realistic than in prior years. Nevertheless,
the state's cash position remains poor, as general fund operating deficits since
1990 have resulted in a fiscal 1996 accumulated deficit of $1.4 billion. Despite
the increase in jobs, the state has experienced a long-term decline in its
above-average income relative to the nation. The state's financial condition has
been hampered by certain structural elements. These include, Proposition 98
which requires a mandated minimum percentage of general fund revenues to be used
towards education, new sentencing laws which have led to a growing prison
population, local infrastructure needs and the need to borrow to cover loans to
schools. On December 6, 1994, Orange County, California filed for Chapter 9
bankruptcy after it was discovered that the County Treasurer had practiced
investment techniques that were not prudent with the fiduciary guidelines for
County co-mingled funds. The county emerged from bankruptcy in 1996 and has
issued post-bankruptcy recovery bonds in order to pay its outstanding debt and
to fund bankruptcy- related and operating costs. A portion of the new debt is
insured and carries an "AAA" rating by S&P. The upgraded rating in Orange
County's debt reflects its success in restraining expenses and forecasting
revenues since the bankruptcy filing, as well as the adoption of a conservative
investment policy and the establishment of an investment oversight committee.
However, the county's general fund remains vulnerable with virtually no
tolerance for contingencies, and has already undergone sharp reductions. The
county's financial flexibility is further constrained by its severely limited
revenue-raising capacity.
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 increase the possibility of
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 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
- 7 -
<PAGE>
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
Municipal 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 Municipal 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 Municipal
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 that do not have this demand feature and
all other illiquid securities.
FLOATING AND VARIABLE RATE OBLIGATIONS. The Fund may invest in floating or
variable rate Municipal 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.
- 8 -
<PAGE>
The Fund will not invest more than 10% 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 Municipal
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
high-quality liquid debt securities, marked to market daily, in an amount equal
to its when-issued commitments. Because these transactions are subject to market
fluctuations, a significant commitment to when-issued purchases could result in
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. No additional
when-issued commitments will be made if more than 20% of the Fund's net assets
would be so committed.
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 high-grade debt obligations, with the Fund's Custodian in
- 9 -
<PAGE>
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 25%
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 Municipal
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 Municipal
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 Municipal 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.
SECURITIES WITH LIMITED MARKETABILITY. The Fund may invest in the
aggregate up to 10% 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; and repurchase agreements not terminable
within seven days.
BORROWING AND PLEDGING. As a temporary measure for extraordinary or
emergency purposes, the Fund may borrow money from banks in an amount not
exceeding 10% of its total assets. The Fund may pledge assets in connection with
borrowings but will not pledge more than 10% 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. To reduce the risks of borrowing,
the Fund will limit its borrowings as described above. 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.
HOW TO PURCHASE SHARES
- ----------------------
Your initial investment in Institutional Shares of the Fund
ordinarily must be at least $1,000,000. Shares are sold on a
- 10 -
<PAGE>
continuous basis at the net asset value next determined after receipt of a
purchase order by the Trust. Shares of the Fund purchased prior to August 15,
1997 are Retail Shares.
INITIAL INVESTMENTS BY MAIL. You may open an account and make an initial
investment in the Fund 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 "California
Tax-Free Money Fund." An account application is included in this Prospectus.
You will be sent within five business days after the end of each month a
written statement disclosing each purchase or redemption effected and each
dividend or distribution credited to your account during the month. 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 redemptions and 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.
INITIAL INVESTMENTS BY WIRE. You may also purchase shares of the Fund by
wire. Please telephone the Transfer Agent (Nationwide call toll-free
800-543-0407; in Cincinnati call 629- 2050) for instructions. You should be
prepared to give the name in which the account is to be established, the
address, telephone number and taxpayer identification number for the account,
and the name of the bank which will wire the money.
You may receive a dividend on the day of your wire investment provided you
have given notice of your intention to make such investment to the Transfer
Agent by 12:00 noon, Eastern time, on that day. Your investment will be made at
the net asset value next determined after your wire is received together with
the account information indicated above. If the Trust does not receive timely
and complete account information, there may be a delay in the investment of your
money and any accrual of dividends. To make your initial wire purchase, you are
required to mail a completed account application to the Transfer Agent. Your
bank may impose a charge for sending your wire. There is presently no fee for
receipt of wired funds, but the Transfer
- 11 -
<PAGE>
Agent reserves the right to charge shareholders for this service upon thirty
days' prior notice to shareholders.
ADDITIONAL INVESTMENTS. You may purchase and add shares to your account by
mail or by bank wire. Checks should be sent to the Transfer Agent, P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the
"California Tax-Free Money Fund." Bank wires should be sent as outlined above.
You may also make additional investments at the Trust's offices at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202. 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.
CASH SWEEP PROGRAM. Cash accumulations in accounts with financial
institutions may be automatically invested in shares of the Fund at the next
determined net asset value on a day selected by the institution or its customer,
or when the account balance reaches a predetermined dollar amount (e.g.,
$5,000).
Participating institutions are responsible for prompt transmission of
orders relating to the program. Institutions participating in this program may
charge their customers fees for services relating to the program which would
reduce the customers' yield from an investment in the Fund. This Prospectus
should, therefore, be read together with any agreement between the customer and
the participating institution with regard to the services provided, the fees
charged for these services and any restrictions and limitations imposed.
HOW TO REDEEM SHARES
- --------------------
You may redeem Institutional Shares of the Fund on each day that the Trust
is open for business. You will receive the net asset value per share next
determined after receipt by the Transfer Agent of a proper redemption request in
the form described below. Payment is normally 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.
A contingent deferred sales load may be imposed on a redemption of shares
of the Fund if such shares had previously been acquired in connection with an
exchange from another fund of Countrywide Investments which imposes a contingent
deferred sales load, as described in the Prospectus of such other fund.
- 12 -
<PAGE>
BY TELEPHONE. You may redeem shares by telephone. The proceeds will be
sent by mail to the address designated on your account or wired directly to your
existing account in any commercial bank or brokerage firm in the United States
as designated on your application. To redeem by telephone, call the Transfer
Agent. (Nationwide call toll-free 800-543-0407; in Cincinnati call 629-2050).
The redemption proceeds will normally be sent by mail or by wire within one
business day (but not later than three business days) after receipt of your
telephone instructions. Any redemption requests by telephone must be received in
proper form prior to 12:00 noon, Eastern time, on any business day in order for
payment by wire to be made that day.
The telephone redemption privilege is automatically available to all
shareholders. You may change the bank or brokerage account which you have
designated under this procedure at any time by writing to the Transfer Agent
with your signature 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)
or by completing a supplemental telephone redemption authorization form. Contact
the Transfer Agent to obtain this form. Further documentation will be required
to change the designated account if shares are held by a corporation, fiduciary
or other organization.
Neither the Trust, the Transfer Agent, nor their respective affiliates
will be liable for complying with telephone instructions they reasonably believe
to be genuine or for any loss, damage, cost or expense in acting on such
telephone instructions. The affected shareholders will bear the risk of any such
loss. 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.
BY MAIL. You may redeem any number of shares from your account by sending
a written request to the Transfer Agent. The request must state the number of
shares 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 of the eligible guarantor institutions outlined above.
- 13 -
<PAGE>
Written redemption requests may also direct that the proceeds be deposited
directly in the bank account or brokerage account designated on your account
application for telephone redemptions. Proceeds of redemptions requested by mail
are normally mailed within three business days following receipt of instructions
in proper form.
ADDITIONAL REDEMPTION INFORMATION. There is currently no charge for
processing wire redemptions. However, the Trust reserves the right, upon thirty
days' written notice, to make reasonable charges for wire redemptions. 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.
At the discretion of the Trust or the Transfer Agent, corporate investors
and other associations may be required to 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 $1,000,000 (based on actual amounts invested, 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. 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.
- 14 -
<PAGE>
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.
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
*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.
- 15 -
<PAGE>
SUBACCOUNTING SERVICES
- ----------------------
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The Transfer Agent may
charge a subaccounting fee based on the level of services rendered. Institutions
holding Fund shares in a fiduciary, agency, custodial or similar capacity may
charge or pass through subaccounting fees as part of or in addition to normal
trust or agency account fees. This Prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fee charged for those services and any
restrictions and limitations imposed.
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.
Management will determine the timing and frequency of the distributions of any
net realized short-term capital gains. Although the Fund does not expect to
realize any long-term capital gains, if the Fund does realize such gains it will
distribute them at least once each year. The Fund will, at the time dividends
are paid, designate as tax-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.
Dividends are automatically reinvested in additional shares of the Fund (the
Share Option) unless cash payments are specified on your application or are
otherwise requested by contacting the Transfer Agent. If you elect to receive
dividends in cash 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 dividend checks.
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.
- 16 -
<PAGE>
The Fund intends to distribute substantially all of its net investment income
and any net realized capital gains to its shareholders. Except for dividends
from taxable investments, the Fund anticipates that substantially all dividends
paid by the Fund will not be subject to California state income tax. 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.
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 the requirement that it invest at least 80% of its net assets in
obligations the interest on which is exempt from federal income tax, including
the alternative minimum 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.
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 California state income tax may not result
in similar exemptions under the laws of a particular state or local taxing
authority.
- 17 -
<PAGE>
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 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 five 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.
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, 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.
- 18 -
<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 equal to the
annual rate of .1% of the average value of the Fund's daily net assets.
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 Adviser and the Trust.
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.
- 19 -
<PAGE>
CALCULATION OF SHARE PRICE
- ---------------------------
On each day that the Trust is open for business, the share price (net asset
value) of the Fund's shares is determined as of 12:00 noon and 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.
The Fund's portfolio securities are valued on an amortized cost basis. In
connection with the use of the amortized cost method of valuation, the Fund
maintains a dollar-weighted average portfolio maturity of 90 days or less,
purchases only United States dollar-denominated securities having remaining
maturities of thirteen months or less and invests only in securities determined
by the Board of Trustees to meet the Fund's quality standards and to present
minimal credit risks. Other assets of the Fund 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. It is
anticipated, but there is no assurance, that the use of the amortized cost
method of valuation will enable the Fund to maintain a stable net asset value
per share of $1.
PERFORMANCE INFORMATION
- ------------------------
From time to time, the Fund may advertise its "current yield" and "effective
yield." Both yield figures are based on historical earnings and are not intended
to indicate future performance. The "current yield" of the Fund refers to the
income generated by an investment in the Fund over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "current
yield" because of the compounding effect of this assumed reinvestment. In
addition, the Fund may advertise together with its "current yield" or "effective
yield" a tax-equivalent "current yield" or "effective 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 "current yield" or "effective yield." Yields
are computed separately for Institutional and Retail Shares. The yield of
Institutional Shares is expected to be higher than the yield of Retail Shares
due to the distribution fees imposed on Retail Shares.
- 20 -
<PAGE>
Account Application
ACCOUNT NO. 0 -_______________________
(For Fund Use Only)
Please mail account application to:
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
FOR BROKER/DEALER USE ONLY
Firm Name:_____________________________________
Home Office Address:___________________________
Branch Address:________________________________
Rep Name & No._________________________________
CALIFORNIA TAX-FREE MONEY FUND
(Institutional Shares)
Initial Investment of $___________________________ ($1,000,000 Minimum)
[ ] Check or draft enclosed payable to the Fund.
[ ] Bank Wire From: _________________________________________________
[ ] Exchange From: __________________________________________________
(Fund Name) (Fund Account Number)
Account Name
_________________________________________________________________
Name of Individual, Corporation, Organization, or Minor, etc.
_________________________________________________________________
Name of Joint Tenant, Partner, Custodian
Address
___________________________________________________________________
Street or P.O. Box
____________________________________________________________________
City State Zip
S.S.#/Tax I.D.#
________________________________________________________
(In case of custodial account please list minor's S.S.#)
Citizenship: ___ U.S. Phone
___ Other ( )______________________
Business Phone
( )______________________
Home Phone
<TABLE>
<S>
<C> <C> <C> <C>
Check Appropriate Box: [ ] Individual [ ] Joint Tenant (Right of survivorship presumed) [ ] Partnership
[ ] Corporation [ ] Trust [ ] Custodial [ ] Non-Profit [ ] Other
- --------------------------------------------------------------------------------------------------------------
<PAGE>
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.
- -------------------------------------------------------------------------------------------------------------------
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.
[ ] Cash Option - Income distributions and capital gains distributions paid in cash.
- -------------------------------------------------------------------------------------------------------------------
REDEMPTION OPTIONS
I (we) authorize the Trust or Countrywide Fund Services, Inc. to act upon instructions received by telephone, or upon receipt of and
in the amounts of checks as described below (if checkwriting is selected), to have amounts withdrawn from my (our) account in
any fund of Countrywide Investments (see prospectus for limitations on this option) and:
[ ] WIRED ($1,000 minimum OR MAILED to my (our) bank account designated below. I (we) further authorize the used of
automated cash transfers to and from the account designated below. NOTE: For wire redemptions, the indicated bank should be a
commercial bank. Please attach a voided check for the account.
Bank Account Number ____________________________________________Bank Routing Transit Number________________________________
Name of Account Holder _____________________________________________________________________________________________________
Bank Name ______________________________________________________Bank Address________________________________________________
City State
- ------------------------------------------------------------------------------------------------------------------
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. Neither the
Trust, Countrywide Fund Services, Inc., nor their respective affiliates will be liable for complying with telephone
instructions they reasonably believe to be genuine or for any loss, damage, cost or expense in acting on such telephone
instructions. The investor(s) will bear the risk of any such loss. The Trust or Countrywide Fund Services, Inc. will
employ reasonable procedures to determine that telephone instructions are genuine. If the Trust and/or Countrywide Fund
Services, Inc. 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.
- -------------------------------------------------------------
Signature of Individual Owner, Corporate Officer, Trustee, etc.
- --------------------------------------------------------------
Signature of Joint Owner, if Any
- ---------------------------------------------------------------
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>
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 Fund, 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 Fund,
to establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement the
privileges elected on the Application.
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
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
<PAGE>
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Expense Information..............................................
Investment Objective and Policies................................
How to Purchase Shares...........................................
How to Redeem Shares.............................................
Exchange Privilege...............................................
Subaccounting Services...........................................
Dividends and Distributions......................................
Taxes............................................................
Operation of the Fund............................................
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.
<PAGE>
COUNTRYWIDE TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 15, 1997
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 August 15, 1997. 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..........................................24
PORTFOLIO TURNOVER...............................................26
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.............27
OTHER PURCHASE INFORMATION.......................................28
TAXES............................................................29
REDEMPTION IN KIND...............................................33
HISTORICAL PERFORMANCE INFORMATION...............................33
CUSTODIAN .......................................................35
AUDITORS.........................................................35
TRANSFER AGENT . ................................................35
TAX EQUIVALENT YIELD TABLE.......................................37
FINANCIAL STATEMENTS.............................................38
- 3 -
<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 or about August 29, 1997, will succeed to the assets and
liabilities of another mutual fund of the same name (the "Predecessor Fund"),
which is 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.
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.
- 4 -
<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
- 5 -
<PAGE>
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.
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.
- 6 -
<PAGE>
In connection with these investments, the Fund will direct its Custodian to
place cash, U.S. Government obligations or other liquid high-grade debt
instruments 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 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
- 7 -
<PAGE>
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 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.
- 8 -
<PAGE>
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 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
- 9 -
<PAGE>
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.
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
- 10 -
<PAGE>
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.
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.
- 11 -
<PAGE>
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
- 12 -
<PAGE>
rating reflect an assurance of timely payment only slightly less in degree than
the strongest issues.
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
- 13 -
<PAGE>
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. 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
- 14 -
<PAGE>
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 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
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<PAGE>
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 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.
- 16 -
<PAGE>
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 "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.
The ability of the Fund to write covered call options may be limited by the tax
requirement that less than 30% of the Fund's gross income be derived from the
sale or other disposition of securities held for less than 3 months.
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.
- 17 -
<PAGE>
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 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
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<PAGE>
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).
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 with respect to the Fund 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
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<PAGE>
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.
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.
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<PAGE>
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.
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 Family of Funds (consisting of the Trust, Countrywide
Investment Trust and Countrywide Strategic Trust) for the fiscal year ended June
30, 1996. 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 INVESTMENTS
- ---- --- ---- ------------ -----------
Donald L. Bodgon, MD 66 Trustee $ 0 $ 0
John R. Delfino 63 Trustee 0 0
+H. Jerome Lerner 58 Trustee 2,467 7,500
*Robert H. Leshner 57 President/Trustee 0 0
*Angelo R. Mozilo 58 Chairman/Trustee 0 0
+Oscar P. Robertson 57 Trustee 1,167 4,700
John F. Seymour, Jr. 59 Trustee 0 0
+Sebastiano Sterpa 67 Trustee 0 0
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 40 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.
<PAGE>
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., 435 Arden Avenue, 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.
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 Investment Trust and Countrywide Strategic 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
- 22 -
<PAGE>
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 Chairman and a Trustee
of Countrywide Investment Trust and Countrywide Strategic Trust. He is also Vice
Chairman of CWM Mortgage Holdings, Inc. (a publicly-held real estate 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). Until 1994 he was a director of the California
Housing Finance Agency.
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., 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., Capital
Square Funds, The Dean Family of Funds and The New York State Opportunity Funds
and Assistant Vice President of Williamsburg Investment Trust, Schwartz
Investment Trust, Fremont Mutual Funds, Inc., 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 Secretary and
General Counsel of Countrywide Investments, Inc. and Countrywide Financial
Services, Inc. and Vice
- 23 -
<PAGE>
President, Secretary and General Counsel of Countrywide Fund Services, Inc. He
is also Secretary of 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. and Assistant Secretary of Schwartz Investment Trust, Fremont Mutual
Funds, Inc., Capitol Square Funds, The Gannett Welsh & Kotler Funds, Interactive
Investments, The Dean Family of Funds and the New York State Opportunity Funds.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Vice
President and Fund Controller of Countrywide Fund Services, Inc. He is also
Treasurer of Countrywide Investment Trust, Countrywide Strategic 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., Capitol Square Funds, The
Dean Family of Funds and the New York State Opportunity Fund, Assistant
Treasurer of Schwartz Investment Trust, The Tuscarora Investment Trust, The
Gannett Welsh & Kotler Funds and Interactive Investments and Assistant Secretary
of Fremont Mutual Funds, Inc.
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 Investment
Trust and Countrywide Strategic Trust.
- 24 -
<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 may be 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.
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, employee or stockholder of the Adviser are paid by the Adviser.
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
- 25 -
<PAGE>
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 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
- 26 -
<PAGE>
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.
- 27 -
<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.
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.
- 28 -
<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 rate of the Fund's portfolio turnover will depend upon market and
other conditions, and it will not be a limiting factor when the Adviser believes
that portfolio changes are deemed appropriate. Therefore, there may be a very
substantial turnover of the Fund's portfolio. 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
- 29 -
<PAGE>
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.
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, 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
- 30 -
<PAGE>
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.
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.
- 31 -
<PAGE>
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 thirteen month period or
within ninety days of the first purchase under the Letter of
- 32 -
<PAGE>
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
- 33 -
<PAGE>
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; (ii) derive less than 30% of its gross income
in each taxable year from the sale or other disposition of the following assets
held for less than three months: (a) stock or securities, (b) options, futures
or forward contracts not directly related to its principal business of investing
in stock or securities; and (iii) 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.
- 34 -
<PAGE>
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
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. Capital 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").
- 35 -
<PAGE>
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. The use of section 1256 contracts may force the Fund to distribute
to shareholders paper gains that have not yet been realized in order to avoid
federal income tax liability.
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 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, as amended, 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.
The 30% limit on gains from the sale of certain assets held for less
than three months and the diversification requirements applicable to the Fund's
assets may limit the extent to which the Fund will be able to engage in
transactions in options, futures contracts or options on futures contracts.
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.
- 36 -
<PAGE>
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 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 and the deduction of
the current maximum contingent deferred sales load, 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
- 37 -
<PAGE>
substituted for the periods stated.
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 or contingent deferred sales load which,
if included, would reduce total return. A nonstandardized quotation may also
indicate average annual compounded rates of return without including the effect
of the applicable front-end or contingent deferred sales load or over periods
other than those specified for average annual total return. A nonstandardized
quotation of total return will always be accompanied by the Fund's average
annual total return as described above.
From time to time, the Fund may advertise its 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). Tax-equivalent yield is 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.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.
- 38 -
<PAGE>
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 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.
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.
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.
- 39 -
<PAGE>
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 $3,250
$ 50,000,000 - $100,000,000 $3,750
$100,000,000 - $250,000,000 $4,250
Over $250,000,000 $4,750
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 equal to .1% of the average value of the Fund's daily net assets. 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 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
Return Return Federal
Tax Bracket Tax Equivalent Yield
Not Over $24,650 Not Over $41,200 20.100% 3.13% 3.75% 4.38% 5.01% 5.63% 6.26%
$ 24,650- $59,750 $41,200- $99,600 32.320% 3.69 4.43 5.17 5.91 6.65 7.39
$ 59,750-$124,650 $99,600-$151,750 35.140% 3.85 4.63 5.40 6.17 6.94 7.71
$124,650-$271,050 $151,750-$271,050 39.840% 4.16 4.99 5.82 6.65 7.48 8.31
Over $271,050 Over $271,050 43.224% 4.40 5.28 6.16 7.05 7.93 8.81
</TABLE>
- 37 -
<PAGE>
FINANCIAL STATEMENTS
- --------------------
The Predecessor Fund's audited financial statements as of August 31,
1996 appear in the Trust's annual report which is attached to this Statement of
Additional Information. The Predecessor Fund's unaudited financial statements as
of February 28, 1997 appear in the Trust's semiannual report which is also
attached to this Statement of Additional Information.
- 38 -
<PAGE>
Growth/Value Fund Shareholder Inquiries:
Aggressive Growth Fund Forum Financial Corp.
Intermediate Bond Fund P.O. Box 446
Kentucky Tax-Free Fund Portland, Maine 04112
Money Market Fund 207-879-0001
800-811-8258
- - -----------------------------------------------------------------------------
October 17, 1996
Dear Shareholder:
We are pleased to present the August 31, 1996 annual report for the Trans
Adviser Funds. This report includes the five funds: Growth/Value, Aggressive
Growth, Intermediate Bond, Money Market and Kentucky Tax-Free Funds.
The stock market, as measured by the Standard & Poor's 500 Index, performed well
over our first fiscal year, but masked several inconsistent counter-trends. The
technology sector reached a peak in the final three months of 1995 and
subsequently entered into a six-month down-draft period. The good news is that,
for Growth/Value and Aggressive Growth Funds, this afforded us the opportunity
of building our technology positions at valuations that were substantially
discounted from 1995 highs. The bad news, however, is many of these technology
issues either stayed depressed or got even cheaper during this interval.
Happily, trends in the past three to four months are much improved and appear to
validate our decision to maintain a meaningful presence in the growth-oriented
technology sector. The second observation is that smaller stock indices such as
the Russell 2000 Index and the Wilshire Small Cap Index, significantly trailed
the S&P 500 as well as the Dow Jones Industrial Average. We take some comfort
that the performance of Growth/Value and Aggressive Growth was positive in
comparison to these other indices.
The municipal market experienced significant volatility during the Funds' fiscal
year. First, the market experienced a wide rate swing (120 basis points plus a
zigzag movement); second, there was much talk of a flat tax; and third, the lack
of supply, then the tremendous supply, and again the lack of supply within the
municipal market. Most of the year, however, the municipal market's performance
was better than that of the taxable market, especially on the shorter
maturities. For example, rates on the 30-year Government bond first fell by more
than 50 basis points, then rose by more than 100 basis points to 6.95%, before
finally settling to 7.12% at the end of the period. Intermediate Bond, Money
Market, and Kentucky Tax-Free Funds performed in line with representative
benchmarks and are described in more detail later in this report.
We take great pride in the Trans Adviser Funds' first year of operations. In a
short period of one year, we have grown to the $130 million level, confirming
our original vision that there is a broad-based appeal for funds managed locally
that employ our investment style and experience. We are further encouraged that
the Funds will enjoy continued growth as a broader network of investors become
informed about our investment approach and capabilities.
If you have any questions or would like additional information about the Trans
Adviser Funds, please call 800-811-8258. Thank you for choosing to invest with
the Trans Adviser Funds.
/s/GORDON B. DAVIDSON /s/THOMAS A. TRANTUM
- - --------------------- --------------------
GORDON B. DAVIDSON THOMAS A. TRANTUM
Chairman of the Board President
<PAGE>
GROWTH/VALUE FUND MANAGED BY: FRANK MASTRAPASQUA AND THOMAS A. TRANTUM
From inception of the Trans Adviser Growth/Value Equity Fund on September 29,
1995 through August 31, 1996, the Net Asset Value before any applicable sales
charges rose 11.8% compared with the S&P 500 gain of 13.9%. Including all sales
charges, the Fund rose just 6.8%. The positive but somewhat disappointing
relative performance should be viewed from the following three perspectives.
First, the mainstay focus of the Fund throughout the period was in the health
care, medical and drug sectors. This focus provided the Fund with good earnings
visibility, growth characteristics, and reasonable stock valuations. These three
related sectors had a combined concentration level of between 25% and 30% of the
entire portfolio throughout the period.
Second, excessive valuations and less confidence in underlying demand caused a
retrenchment in the technology sector during the final three months of 1995. As
we entered the opening months of 1996, your Fund managers began to accumulate
what they believed to be quality, high growth technology shares at prices that
were significantly off their high points reached in 1995. Unfortunately, the
technology recession extended not only through the spring of 1996, but lasted
well into the summer months before confidence in these issues began to return.
Within our normal three to five year investment timeframe, we remain confident
that our participation in the technology sector will prove to be "well worth the
weight." In fact, we have already witnessed the return to popularity of many
issues we purchased earlier this year.
Third, in the second half of the fiscal year, we have focused on building up
meaningful positions in the oil service sector, which we feel is being
stimulated by new discovery technologies, limited capacity, continuing good
demand, and recent price increases that have been holding well above levels
assumed in consensus earnings models. We also believe the oil service sector may
provide above average potential returns in the next several years while
continuing to exhibit desirable defensive characteristics.
In summary, core holdings in medical/health care have provided good current risk
adjusted valuation performance, while technology and, to a lesser extent, the
oil service sector have represented a bit of a drag on near term performance. In
recent months, however, the oil service sector seems to be reaching the
performance levels that we initially envisioned.
- - ----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER GROWTH/VALUE FUND VS. STANDARD & POOR'S 500 INDEX
- - ----------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER GROWTH/VALUE STANDARD & POOR'S 500 INDEX
<S> <C> <C>
09/29/95 $9,550 $10,000
10/31/95 $9,388 $9,964
11/30/95 $9,971 $10,401
12/31/95 $10,047 $10,602
01/31/96 $10,410 $10,963
02/29/96 $10,831 $11,065
03/31/96 $10,936 $11,171
04/30/96 $11,327 $11,335
05/31/96 $11,413 $11,626
06/30/96 $11,041 $11,671
07/31/96 $10,220 $11,156
08/31/96 $10,677 $11,391
Value on 8/31/96
Trans Advise Growth/Value Fund $10,677
Standard & Poor...s 500 Index $11,391
Average Annual Total Return
Since Inception on 9/29/95
Trans Advise Growth/Value Fund 6.77%
Standard & Poor...s 500 Index 13.91%
</TABLE>
2 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND MANAGED BY: FRANK MASTRAPASQUA AND THOMAS A. TRANTUM
From inception of the Trans Adviser Aggressive Growth Fund on September 29, 1995
through August 31, 1996, the Net Asset Value before any applicable sales charges
rose 9.5% compared with the NASDAQ Composite Index gain of 9.8%. Including all
sales charges, the Fund rose just 4.6%. A couple of factors should be noted in
this record.
First, while the overall sector strategy pursued in Aggressive Growth Fund was
similar to the strategy employed with the Growth/Value Fund, the technology
sector was given a greater weighting in Aggressive Fund than was the
medical/health care area. Since technology underwent a deeper-than-anticipated
market disfavor, Aggressive Fund's performance lagged that of both the market as
well as Growth/Value Fund.
Second, Aggressive Growth by design is composed of smaller capitalization stocks
which can elevate the Fund's growth prospects but also can raise the Fund's risk
profile. During the period, smaller stock indices, such as the Russell 2000
Index and the Wilshire Small Cap Index, significantly trailed the S&P 500. We
remain confident that over the long term (three to five years) the higher risks
can be adequately rewarded through compensatory returns.
- - ----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER AGGRESSIVE GROWTH FUND VS. NASDAQ INDEX
- - ----------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER AGGRESSIVE GROWTH FUND NASDAQ INDEX
<S> <C> <C>
9/29/95 $9,550 $10,000
10/31/95 $9,044 $9,930
11/30/95 $9,578 $10,157
12/31/95 $9,502 $10,097
1/31/96 $9,473 $10,174
2/29/96 $10,065 $10,567
3/31/96 $10,352 $10,580
4/30/96 $11,394 $11,438
5/31/96 $11,365 $11,948
6/30/96 $10,706 $11,390
7/31/96 $9,808 $10,387
8/31/96 $10,457 $10,976
Value on 8/31/96
Trans Advise Aggressive Growth Fund $10,457
NASDAQ Index $10,976
Average Annual Total Return
Since Inception on 9/29/95
Trans Advise Aggressive Growth Fund 4.57%
NASDAQ Index 9.76%
</TABLE>
3 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND MANAGED BY: MARSHALL E. COX, JR.
From inception of the Intermediate Bond Fund on October 3, 1995 through August
31, 1996 the Net Asset Value before any applicable sales charges rose 3.2%
compared with the Lehman Brothers Intermediate Govt./Corp. Index gain of 3.7%.
Including all sales charges, the Fund lost 1.41%. The relative performance
should be viewed from the following perspectives.
The Fund's fiscal year witnessed huge volatility, as measured by the 30-year
Government bond. Rates on the 30-year Government bond first fell by more than 50
basis points, and then rose by more than 100 basis points to 6.95%, before
finally recovering to 7.12% at the end of the period.
The Fund continues to attract assets and remains well positioned to participate
in a rallying bond market with an average duration of 4.4 years and an average
maturity of 6.45 years, as of the end of the period. The Fund's securities
currently are of very high quality, being comprised of 42% US government
securities with only 11% of the Fund's securities rated BBB. The Fund also
remains well diversified among 46 issues with consumer and commercial finance,
banking, insurance, electric, telephone, natural gas and pipeline, retail and
industrial consumer, oil, metals and chemicals all represented.
- - -----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER INTERMEDIATE BOND FUND VS. LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE INDEX
- - ----------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER INTERMEDIATE BOND FUND LEHMAN INTERMEDIATE GOVT./CORP. INDEX
<S> <C> <C>
10/03/95 $9,550 $10,000
10/31/95 $9,599 $10,111
11/30/95 $9,701 $10,243
12/31/95 $9,782 $10,351
01/31/96 $9,873 $10,440
02/29/96 $9,779 $10,318
03/31/96 $9,756 $10,265
04/30/96 $9,709 $10,229
05/31/96 $9,725 $10,221
06/30/96 $9,842 $10,329
07/31/96 $9,865 $10,360
08/31/96 $9,859 $10,369
Value on 8/31/96
Trans Advise Intermediate Bond Fund
Lehman IntermediateGovt./Corp. Index
Average Annual Total Return
Since Inception on 10/3/95
Trans Advise Intermediate Bond Fund -1.41%
Lehman IntermediateGovt./Corp. Index 3.69%
</TABLE>
4 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND MANAGED BY: MARSHALL E. COX, JR.
From inception of the Kentucky Tax-Free Fund on September 27, 1995 through
August 31, 1996 the Net Asset Value before any applicable sales charges rose
5.8% compared with the Lehman Brothers Municipal Index gain of 4.6%. Including
all sales charges, the Fund rose just 1.0%. The relative performance should be
viewed from the following perspectives.
The municipal market in Kentucky experienced significant volatility during the
Fund's fiscal year. First, the market experienced a wide rate swing (120 basis
points plus a zigzag movement); second, there was much talk of a flat tax; and
third, the lack of supply, then the tremendous supply, and again the lack of
supply within the municipal market. Most of the year, however, the municipal
market's performance was better than that of the taxable market, as measured by
the 30-year Government bond.
Also contributing to the Fund's performance was the fact that the quality of the
Fund's securities is up significantly, with 91% of the securities rated A or
better. In addition, duration has been shortened substantially to 5.5 years,
with an average maturity of 7.9 years. This selective shortening of the duration
dramatically improved the convexity of the Fund (the concept that measures
sensitivity of the market price to changes in the interest rate levels). The
result is that in an improving municipal market, the Fund may perform well
without having a substantial number of bonds called away and in a deteriorating
market, the losses can be limited because of the much shorter duration and
maturity. We feel the limited duration and better convexity, along with the very
high quality of the Fund's securities, will position this Fund more
conservatively while not sacrificing yield.
- - ----------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
TRANS ADVISER KENTUCKY TAX-FREE FUND VS. LEHMAN MUNICIPAL INDEX
- - ----------------------------------------------------------------------------
The following chart reflects a comparison of a change in value of a $10,000
investment in the Fund, including reinvested dividends and distributions, and
the performance of the Index. The Index excludes the effect of any fees or sales
charges. Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. PAST PERFORMANCE IS NOT PREDICTIVE NOR A GUARANTEE OF
FUTURE RESULTS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRANS ADVISER KENTUCKY TAX-FREE FUND LEHMAN MUNICIPAL INDEX
<S> <C> <C>
9/27/95 $9,550 $10,000
10/31/95 $9,800 $10,145
11/30/95 $9,986 $10,313
12/31/95 $10,109 $10,412
1/31/96 $10,175 $10,492
2/29/96 $10,101 $10,420
3/31/96 $9,979 $10,287
4/30/96 $9,963 $10,258
5/31/96 $9,962 $10,254
6/30/96 $9,944 $10,366
7/31/96 $10,109 $10,459
8/31/96 $10,104 $10,457
Value on 8/31/96
Trans Advise Kentucky Tax-Free Fund $10,104
Lehman Municipal Index $10,457
Average Annual Total Return
Since Inception on 9/27/95
Trans Advise Kentucky Tax-Free Fund 1.04%
Lehman Municipal Index 4.57%
</TABLE>
5 TRANS ADVISER FUNDS, INC.
<PAGE>
GROWTH/VALUE FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
COMMON STOCK (95.2%):
AMUSEMENT & RECREATION SERVICES (3.3%):
10,000 Harrah's Entertainment, Inc.*.... $ 190,000
10,000 Promus Hotel Corporation*........ 301,250
-------------
491,250
-------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (1.4%):
7,500 Autozone, Inc.*.................. 204,375
-------------
BUSINESS SERVICES (7.1%):
20,000 ADT Ltd.*........................ 392,500
6,000 Oracle Corporation*.............. 211,500
10,000 SCB Computer Technology, Inc.*... 192,500
5,000 Sun Microsystems, Inc.*.......... 271,875
-------------
1,068,375
-------------
CHEMICALS & ALLIED PRODUCTS (7.6%):
4,000 Bristol-Myers Squibb Company..... 351,000
6,000 Merck & Company, Inc. ........... 393,750
7,000 Schering-Plough Corporation...... 391,125
-------------
1,135,875
-------------
COMMUNICATIONS (1.0%):
10,000 Tele-Communications, Inc.*....... 148,750
-------------
DEPOSITORY INSTITUTIONS (4.9%):
10,000 Carolina First Corporation....... 188,750
10,000 MBNA Corporation................. 303,750
10,000 Signet Banking Corporation....... 241,250
-------------
733,750
-------------
EATING & DRINKING PLACES (3.5%):
7,500 McDonald's Corporation........... 347,812
20,000 Shoney's, Inc.*.................. 182,500
-------------
530,312
-------------
ELECTRIC, GAS, & SANITARY SERVICES (2.9%):
10,000 Sonat, Inc. ..................... 441,250
-------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER EQUIPMENT (1.2%):
5,000 Novellus Systems, Inc.*.......... 188,750
-------------
FOOD STORES (2.1%):
7,500 Kroger Company*.................. 317,813
-------------
FOOD & KINDRED PRODUCTS (0.4%):
15,000 Monterey Pasta Company*.......... 67,500
-------------
GENERAL MERCHANDISE STORES (1.8%):
6,000 Sears, Roebuck and Company....... 264,000
-------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
HEALTH SERVICES (9.6%):
10,000 Beverly Enterprises*............. $ 102,500
5,000 Columbia HCA Healthcare
Corporation.................... 281,875
2,345 Healthsouth Rehabilitation
Corporation*................... 75,919
10,000 Living Centers of America,
Inc.*.......................... 267,500
1,000 Quorum Health Group, Inc.*....... 25,250
15,000 Tenet Healthcare Corporation*.... 315,000
12,000 Vencor, Inc.*.................... 376,500
-------------
1,444,544
-------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER
EQUIPMENT (13.4%):
10,000 Hewlett-Packard Company.......... 437,500
5,000 International Business Machines
Corporation.................... 571,875
10,000 Lam Research Corporation*........ 236,250
5,000 Seagate Technology, Inc.*........ 240,000
15,000 Western Digital Corporation*..... 526,875
-------------
2,012,500
-------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (1.8%):
10,000 Tech-Sym Corporation*............ 277,500
-------------
MISCELLANEOUS RETAIL (3.6%):
6,000 Friedman's, Inc. Class A*........ 126,000
10,000 Melville Corporation............. 422,500
-------------
548,500
-------------
MOTION PICTURES (0.8%):
2,000 The Walt Disney Company.......... 114,000
-------------
NONDEPOSITORY CREDIT INSTITUTIONS (3.5%):
5,000 American Express Company......... 218,750
10,000 Capital One Financial
Corporation.................... 301,250
-------------
520,000
-------------
OIL & GAS EXTRACTION (5.4%):
10,000 Nuevo Energy Company*............ 373,750
6,500 Pride Petroleum Services, Inc.*.. 93,438
4,000 Schlumberger, Ltd. .............. 337,500
-------------
804,688
-------------
PHARMACEUTICAL PREPARATIONS (3.2%):
8,000 American Home Products
Corporation.................... 474,000
-------------
</TABLE>
See notes to financial statements. 6 TRANS ADVISER FUNDS, INC.
<PAGE>
GROWTH/VALUE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
TRANSPORTATION EQUIPMENT (1.5%):
2,500 Boeing Company................... $ 226,250
-------------
TRANSPORTATION SERVICES (1.3%):
15,000 United Transnet, Inc.*........... 195,000
-------------
TRANSPORTATION BY AIR (1.5%):
10,000 Southwest Airlines Company....... 228,750
-------------
WATER TRANSPORTATION (2.6%):
10,000 Tidewater, Inc. ................. 383,750
-------------
WHOLESALE TRADE--DURABLE GOODS (8.6%):
6,000 Arrow Electronics Inc.*.......... 273,750
4,000 Avnet, Inc. ..................... 187,000
5,000 Lockheed Martin Corporation...... 420,625
15,000 Sybron International
Corporation-Wisconsin*......... 412,500
-------------
1,293,875
-------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
WHOLESALE TRADE--NONDURABLE GOODS (1.2%):
5,000 Safeway, Inc.*................... $ 181,250
-------------
Total Common Stock
(cost $14,053,526)......................... 14,296,607
-------------
SHORT-TERM HOLDINGS (4.8%):
16,152 1784 U.S. Treasury Money Market
Fund........................... 16,152
711,813 Forum Daily Assets Treasury
Fund........................... 711,813
-------------
Total Short-Term Holdings
(cost $727,965)............................ 727,965
-------------
Total Investments (100.0%)
(cost $14,781,491)......................... $ 15,024,572
-------------
-------------
</TABLE>
*Non-income producing security.
See notes to financial statements. 7 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
COMMON STOCK (98.9%):
AMUSEMENT & RECREATION SERVICES (3.8%):
5,000 Harrah's Entertainment, Inc.*..... $ 95,000
5,000 Promus Hotel Corporation*......... 150,625
------------
245,625
------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE
STATIONS (1.9%):
10,000 Rush Enterprises, Inc.*........... 125,000
------------
BUSINESS SERVICES (12.1%):
10,000 ADT Ltd.*......................... 196,250
10,000 Cerplex Group*.................... 68,750
5,000 Oracle Corporation*............... 176,250
9,500 SCB Computer Technology, Inc.*.... 182,875
3,000 Sun Microsystems, Inc.*........... 163,125
------------
787,250
------------
CHEMICALS & ALLIED PRODUCTS (1.6%):
10,000 NABI, Inc.*....................... 106,250
------------
COMMUNICATIONS (1.1%):
5,000 Mobile Telecommunication Tech
Corp*........................... 69,375
------------
DEPOSITORY INSTITUTIONS (2.9%):
10,000 Carolina First Corporation........ 188,750
------------
EATING & DRINKING PLACES (4.9%):
6,000 Quality Dining, Inc.*............. 176,250
16,000 Shoney's, Inc.*................... 146,000
------------
322,250
------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT &
COMPONENTS, EXCEPT COMPUTER EQUIPMENT (2.3%):
4,000 Novellus Systems, Inc.*........... 151,000
------------
FOOD STORES (2.3%):
3,500 Kroger Company*................... 148,312
------------
FOOD & KINDRED PRODUCTS (0.7%):
10,000 Monterey Pasta Company*........... 45,000
------------
GENERAL MERCHANDISE STORES (1.2%):
2,000 Consolidated Stores
Corporation*.................... 76,000
------------
HEALTH SERVICES (11.9%):
7,500 Living Centers of America, Inc.*.. 200,625
2,000 Quorum Health Group, Inc.*........ 50,500
10,000 Tenet Healthcare Corporation*..... 210,000
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
HEALTH SERVICES, CONTINUED:
10,000 Vencor, Inc.*..................... $ 313,750
------------
774,875
------------
HOLDING & OTHER INVESTMENT OFFICES (0.5%):
1,000 Felcor Suite Hotels, Inc. ........ 30,500
------------
HOME FURNITURE, FURNISHINGS, & EQUIPMENT
STORES (1.2%):
5,000 Movie Gallery, Inc.*.............. 76,250
------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER
EQUIPMENT (14.4%):
4,000 Hewlett-Packard Company........... 175,000
8,000 Lam Research Corporation*......... 189,000
15,000 Smart Modular Technologies*....... 225,000
10,000 Western Digital Corporation*...... 351,250
------------
940,250
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (2.5%):
6,000 Tech-Sym Corporation*............. 166,500
------------
MISCELLANEOUS RETAIL (3.5%):
6,000 Friedman's, Inc. Class A*......... 126,000
2,500 Melville Corporation.............. 105,625
------------
231,625
------------
NONDEPOSITORY CREDIT INSTITUTIONS (4.6%):
6,000 Capital One Financial
Corporation..................... 180,750
5,000 Olympic Financial, Ltd.*.......... 122,500
------------
303,250
------------
OIL & GAS EXTRACTION (7.9%):
8,000 Nuevo Energy Company*............. 299,000
15,000 Pride Petroleum Services, Inc.*... 215,625
------------
514,625
------------
TRANSPORTATION SERVICES (5.1%):
10,000 Simon Transportation Services*.... 137,500
15,000 United Transnet, Inc.*............ 195,000
------------
332,500
------------
TRANSPORTATION BY AIR (2.5%):
5,000 Southwest Airlines Company........ 114,375
5,000 Western Pacific Airlines, Inc.*... 50,625
------------
165,000
------------
WATER TRANSPORTATION (3.5%):
6,000 Tidewater, Inc. .................. 230,250
------------
</TABLE>
See notes to financial statements. 8 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
WHOLESALE TRADE--DURABLE GOODS (2.1%):
5,000 Sybron International
Corporation-Wisconsin*.......... $ 137,500
------------
WHOLESALE TRADE--NONDURABLE GOODS (4.4%):
7,500 AmeriSource Health Corporation*... 285,938
------------
Total Common Stock
(cost $6,393,306)........................... 6,453,875
------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
SHORT-TERM HOLDINGS (1.1%)
576 1784 U.S. Treasury Money Market
Fund............................ $ 576
72,947 Forum Daily Assets Treasury
Fund............................ 72,947
------------
Total Short-Term Holdings
(cost $73,523).............................. 73,523
------------
Total Investments (100.0%)
(cost $6,466,829)........................... $ 6,527,398
------------
------------
</TABLE>
*Non-income producing security.
See notes to financial statements. 9 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (7.9%):
$ 290,038 Federal Home Loan Mortgage
Corporation, Series 1072,
Class G, 7.00%, due
5/15/06...................... $ 289,228
800,000 Federal Home Loan Mortgage
Corporation, Series 1720,
Class E, 7.50% due
12/15/09..................... 797,647
-------------
Total Collateralized Mortgage Obligations
(cost $1,118,738).......................... 1,086,875
-------------
FIXED RATE BONDS--CORPORATE (55.4%):
686,000 Alabama Power Company, 8.30%,
due 7/1/22................... 684,720
400,000 Anheuser-Busch Companies,
7.00%, due 9/1/05............ 388,401
178,000 Anheuser-Busch Companies,
8.75%, due 12/1/99........... 187,100
169,000 Associates Corporation of North
America, 6.00%, due
3/15/00...................... 164,005
250,000 B.P. America, 6.50%, due
12/15/99..................... 245,774
50,000 Berkley W.R. Corporation,
9.875%, due 5/15/08.......... 57,698
190,000 The Chase Manhattan
Corporation, 8.00%, due
5/15/04...................... 191,230
115,000 Citicorp, 10.75%, due
12/15/15..................... 118,364
146,000 Citicorp, 10.50%, due 2/1/16... 149,355
140,000 Commonwealth Edison Company,
9.50%, due 5/1/16............ 146,775
160,000 Florida Power & Light Company,
8.00%, due 8/25/22........... 156,388
100,000 Ford Motor Credit Company,
5.83%, due 6/29/98........... 98,648
160,000 Ford Motor Credit Company,
7.50%, due 1/15/03........... 161,039
160,000 GTE of Southeast Corporation,
8.00%, due 12/1/01........... 160,812
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE BONDS--CORPORATE, CONTINUED:
$ 130,000 General Electric Capital
Corporation, 6.66%, due
5/1/18....................... $ 128,744
69,000 Georgia Power Company First
Mortgage Bonds, 7.95%, due
2/1/23....................... 67,860
250,000 Greyhound Financial
Corporation, 7.82%, due
1/27/03...................... 253,009
250,000 IBM Credit Corporation, 6.20%,
due 3/19/01.................. 239,773
300,000 Inco, Ltd., 9.60%, due
6/15/22...................... 317,897
120,000 Jersey Central Power & Light
Company, 9.20%, due 7/1/21... 128,346
46,000 Kaiser Permanente, 9.55%, due
7/15/05...................... 52,472
56,000 Kraft, Inc., 8.50%, due
2/15/17...................... 56,264
200,000 Michigan Bell Telephone
Company, 6.375%, due
2/1/05....................... 188,882
175,000 Pacific Gas & Electric Company,
6.625%, due 6/1/00........... 170,867
439,000 Pennsylvania Power & Light
Company, 9.25%, due
10/1/19...................... 468,786
120,000 Public Service Electric & Gas
Company, 8.75%, due
11/1/21...................... 128,669
165,000 Questar Pipeline, 9.375%, due
6/1/21....................... 180,413
70,000 Rohm & Haas Company, 9.80%, due
4/15/20...................... 83,520
50,000 Sara Lee Corporation, 8.75%,
due 5/15/16.................. 51,814
675,000 Shopko Stores, 9.25%, due
3/15/22...................... 693,309
200,000 Southern California Edison,
7.375%, due 12/15/03......... 203,407
85,000 Southwestern Public Service
Company, 8.20%, due
12/1/22...................... 86,728
</TABLE>
See notes to financial statements. 10 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE BONDS--CORPORATE, CONTINUED:
$ 199,000 TJX Companies, Inc., 9.50%, due
5/2/16....................... $ 206,408
68,000 U.S. Leasing International,
6.625%, due 5/15/03.......... 65,228
130,000 Union Electric Company, 8.00%,
due 12/15/22................. 128,740
500,000 Union Oil of California
Corporation, 6.70%, due
10/15/07..................... 463,422
250,000 Washington Gas Light Company,
6.50%, due 1/14/97........... 250,778
65,000 Wisconsin Electric Power,
7.75%, due 1/15/23........... 63,377
-------------
Total Fixed Rate Bonds--Corporate
(cost $7,817,554).......................... 7,589,022
-------------
FIXED RATE NOTES--AGENCY (7.1%):
500,000 Federal Home Loan Bank, 6.62%,
due 12/6/00.................. 487,668
150,000 Federal National Mortgage
Association, 6.17%, due
12/2/03...................... 141,364
265,000 Tennessee Valley Authority,
6.875%, due 1/15/02.......... 261,356
50,000 Tennessee Valley Authority,
6.875%, due 8/1/02........... 49,128
30,000 Tennessee Valley Authority,
8.05%, due 7/15/24........... 29,261
-------------
Total Fixed Rate Notes--Agency
(cost $998,362)............................ 968,777
-------------
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
REPURCHASE AGREEMENTS (15.3%):
$ 2,101,575 The First Boston Corporation,
5.30%, due 9/3/96, to be
repurchased at 2,102,813
(collateralized by
$16,050,000 Federal National
Mortgage Association, pool
#339017, 6.092%, due
12/1/35)..................... $ 2,101,575
-------------
Total Repurchase Agreements
(cost $2,101,575).......................... 2,101,575
-------------
TREASURY NOTES (14.2%):
2,000,000 U.S. Treasury Notes, 6.50%, due
8/15/05...................... 1,943,750
-------------
Total Treasury Notes
(cost $1,986,601).......................... 1,943,750
-------------
SHORT-TERM HOLDINGS (0.1%):
5,006 1784 U.S. Treasury Money Market
Fund......................... 5,006
-------------
Total Short-Term Holdings
(cost $5,006).............................. 5,006
-------------
Total Investments (100.0%)
(cost $14,027,836)......................... $ 13,695,005
-------------
-------------
</TABLE>
See notes to financial statements. 11 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- - -------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
MUNICIPAL BONDS (100.0%):
AIRPORT REVENUE (5.0%):
$ 750,000 Kenton County, KY, Airport
Revenue Bonds, MBIA insured,
5.75%, due
3/1/13....................... $ 733,125
50,000 Lexington-Fayette Urban County
Airport Corporation, KY,
First Mortgage Revenue Bonds,
7.75%, due 4/1/08............ 53,937
-------------
787,062
-------------
ECONOMIC DEVELOPMENT REVENUE (15.3%):
100,000 Covington, KY, Municipal
Properties Corporation
Revenue Bonds, Series A,
8.25%, due 8/1/10,
prerefunded 8/1/98 at 103.... 109,875
490,000 Jefferson County, KY, Capital
Projects Corporation Revenue
Bonds, Series A, 5.65%, due
8/15/03...................... 508,987
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #26 Second
Series, 7.10%, due 12/1/97... 103,500
110,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #27, 7.10%,
due 5/1/06, prerefunded
11/1/96
at 102....................... 112,773
50,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #27, 7.10%,
due 5/1/08, prerefunded
11/1/96
at 102....................... 51,260
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #30 Fifth
Series, 7.00%, due 12/1/96... 100,792
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
ECONOMIC DEVELOPMENT REVENUE, CONTINUED:
$ 70,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #32 Third
Series, 6.50%, due 12/1/99... $ 73,762
65,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #51, escrowed
to maturity, 6.00%, due
8/1/97....................... 66,159
455,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #51, escrowed
to maturity, 6.30%, due
8/1/01....................... 482,869
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #52, 6.50%,
due 8/1/11, prerefunded
8/1/01 at 102................ 109,125
425,000 Kentucky State Turnpike
Authority, Economic
Development Revenue Bonds,
Revitalization Projects,
escrowed to maturity, 7.00%,
due 5/15/99.................. 452,094
200,000 Kentucky State Turnpike
Authority, Economic
Development Revenue Bonds,
7.25%, due 5/15/10,
prerefunded 5/15/00 at
101.50....................... 219,750
-------------
2,390,946
-------------
EDUCATION FACILITIES REVENUE (19.9%):
350,000 Fayette County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series C, 5.25%, due
10/1/09...................... 334,687
</TABLE>
See notes to financial statements. 12 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
EDUCATION FACILITIES REVENUE, CONTINUED:
$ 365,000 Fayette County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series C, 5.25%, due
10/1/10...................... $ 346,750
200,000 Hopkins County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, 5.70%, due 6/1/06..... 204,250
495,000 Jefferson County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series A, 4.875%, due
1/1/11....................... 449,831
750,000 Jefferson County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, Series A, MBIA
insured, 5.00%, due 2/1/07... 731,250
70,000 Lexington-Fayette Urban County
Government, KY, School
Building Revenue Bonds,
6.80%, due 10/1/01........... 76,300
770,000 Pendleton County, KY, School
District Finance Corporation,
School Building Revenue
Bonds, 5.05%, due 12/1/15.... 685,300
200,000 University of Louisville, KY,
Revenue Bonds, Series H,
5.875%, due 5/1/12........... 201,750
70,000 University of Louisville, KY,
Revenue Bonds, Series G,
6.25%, due 5/1/99............ 72,103
-------------
3,102,221
-------------
GENERAL OBLIGATION (1.8%):
305,000 Fern Creek, KY, Fire Protection
District, Holding Company,
Inc., Revenue Bonds, Fire
Station #2, 5.75%, due
1/15/14...................... 286,319
-------------
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
HEALTH CARE REVENUE (13.2%):
$ 385,000 Jefferson County, KY, Hospital
Revenue Bonds, NKC Hospitals,
Inc. Project, MBIA insured,
7.75%, due 10/1/14,
prerefunded 10/01/97 at
102.......................... $ 407,492
1,225,000 Kentucky Economic Development
Finance Authority, Hospital
Facilities Revenue Bonds,
Society National Bank LOC,
5.75%, due 11/1/05........... 1,211,219
475,000 Kentucky Economic Development
Finance Authority, Hospital
Facilities Revenue Bonds,
Baptist Healthcare System
Project, MBIA insured, 5.00%,
due 8/15/24.................. 408,500
40,000 McCracken County, KY, Revenue
Bonds, Lourdes Hospital,
Inc., 6.00%, due 11/1/12,
prerefunded 11/1/96 at 100... 40,146
-------------
2,067,357
-------------
HOUSING REVENUE (6.6%):
725,000 Boone County, KY, Public
Properties Corporation
Revenue Bonds, Sewer System
Lease, 5.15%, due 12/1/12.... 667,000
270,000 Greater Kentucky Housing
Assistance Corporation,
Mortgage Revenue Bonds,
FHA/Section 8 Assisted
Project, Series A, MBIA/ FHA
insured, 6.25%, due 7/1/22... 270,337
100,000 Jefferson County, KY, Capital
Projects Corporation Revenue
Bonds, Series A, 0.00%
(5.747% effective yield), due
8/15/99...................... 86,750
-------------
1,024,087
-------------
</TABLE>
See notes to financial statements. 13 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
INDUSTRIAL DEVELOPMENT REVENUE (6.1%):
$ 750,000 Clark County, KY, Industrial
Building Revenue Bonds,
Southern Wood Project, 7.00%,
due 12/1/08+................. $ 746,250
200,000 Wickliffe, KY, Industrial
Building Revenue Bonds,
Westvaco Corporation Project,
7.00%, due 1/1/09............ 199,956
-------------
946,206
-------------
JAIL FACILITIES REVENUE (0.7%):
100,000 Kentucky Local Correctional
Facilities Construction
Authority Revenue Bonds,
7.00%, due 11/1/14,
prerefunded 11/1/97 at 102... 105,250
-------------
OTHER REVENUE (6.1%):
475,000 Kentucky Higher Education
Student Loan Corporation,
Insured Student Loan Revenue
Bonds, Series B, 6.40%, due
6/1/00....................... 503,500
300,000 Lexington-Fayette Urban County,
KY, Government Public
Facilities Corporation
Revenue Bonds, Recreation
Project, 7.90%, due 7/1/06,
prerefunded 7/1/97 at 102.... 315,480
120,000 Puerto Rico Public Buildings
Authority Guaranteed Revenue
Bonds, Series K, 6.875%, due
7/1/21, prerefunded 7/1/02 at
101.50....................... 134,400
-------------
953,380
-------------
POLLUTION CONTROL REVENUE (17.7%):
450,000 Ashland, KY, Pollution Control
Revenue Bonds, Ashland Oil,
7.375%, due 7/1/09........... 483,750
295,000 Ashland, KY, Solid Waste
Revenue Bonds, Ashland Oil,
Inc., Project, 7.20%, due
10/1/20...................... 310,488
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
POLLUTION CONTROL REVENUE, CONTINUED:
$ 235,000 Jefferson County, KY, Pollution
Control Revenue Bonds,
Louisville Gas & Electric
Company Project A, 7.45%, due
6/15/15...................... $ 255,269
100,000 Kentucky State Pollution
Abatement & Water Reserve
Finance Authority Revenue
Bonds, Series A, escrowed to
maturity, 7.40%, due
8/1/02....................... 112,875
50,000 Louisville & Jefferson County,
KY, Metropolitan Sewer
District, Sewer & Drain
System Revenue Bonds, Series
A, AMBAC insured, 6.50%, due
5/15/00...................... 52,938
455,000 Meade County, KY, Pollution
Control Revenue Bonds, Olin
Corporation Project, 6.00%,
due 7/1/07................... 457,707
385,000 Trimble County, KY, Pollution
Control Revenue Bonds, Series
A, 7.625%, due 11/1/20,
prerefunded 11/1/00 at 102... 430,719
600,000 Trimble County, KY, Pollution
Control Revenue Bonds, Series
A, 7.625%, due 11/1/20....... 659,250
-------------
2,762,996
-------------
TRANSPORTATION REVENUE (6.1%):
655,000 Kentucky State Turnpike
Authority Resource Recovery
Road Revenue Bonds, escrowed
to maturity, 6.125%, due
7/1/07....................... 674,650
275,000 Kentucky State Turnpike
Authority Resource Recovery
Road Revenue Bonds, Series A,
FGIC insured, 6.00%, due
7/1/09....................... 275,405
-------------
950,055
-------------
</TABLE>
See notes to financial statements. 14 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
UTILITIES REVENUE (1.5%):
$ 200,000 Owensboro, KY, Electric Light &
Power Revenue Bonds, Series
A, 10.25%, due 1/1/09,
prerefunded 1/1/00 at 102.... $ 232,250
-------------
Total Municipal Bonds
(cost $15,867,871)......................... 15,608,129
-------------
Total Investments (100.0%)
(cost $15,867,871)......................... $ 15,608,129
-------------
-------------
</TABLE>
+Securities that may be resold to
"qualified institutional buyers"
under rule 144a or securities offered
pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
These securities have been determined
to be liquid under guidelines
established by the Board of
Directors.
See notes to financial statements. 15 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
ASSET BACKED SECURITIES (0.4%):
$ 274,424 Federal Home Loan Mortgage
Corporation, 7.00%, due
4/1/97....................... $ 275,191
-------------
DISCOUNT NOTES--AGENCY (19.8%):
15,015,000 Federal Home Loan Mortgage
Corporation, 5.293% yield,
9/5/96....................... 15,010,662
-------------
FIXED RATE NOTES--AGENCY (4.2%):
100,000 Federal Home Loan Bank, 4.75%,
due 1/13/97.................. 99,641
100,000 Federal Home Loan Bank, 4.57%,
due 2/3/97................... 99,492
100,000 Federal Home Loan Bank, 4.80%,
due 7/24/97.................. 98,810
100,000 Federal Home Loan Mortgage
Corporation, 4.525%, due
1/27/97...................... 99,521
220,000 Federal Land Bank, 7.95%, due
10/21/96..................... 220,645
1,100,000 Federal National Mortgage
Association, 4.50%, due
11/1/96...................... 1,097,763
400,000 Tennessee Valley Authority,
8.25%, due 11/15/96.......... 401,897
230,000 Tennessee Valley Authority,
4.60%, due 12/15/96.......... 229,209
861,000 Tennessee Valley Authority,
6.00%, due 1/15/97........... 861,380
-------------
Total Fixed Rate Notes--Agency............... 3,208,358
-------------
FIXED RATE NOTES--CORPORATE (59.2%):
175,000 AT&T Capital Corporation,
7.66%, due 1/30/97........... 176,132
355,000 American Express Credit
Corporation, 7.875%, due
12/1/96...................... 356,681
1,128,000 American Express Credit
Corporation, 7.75%, due
3/1/97....................... 1,138,977
75,000 American General Finance
Corporation, 7.15%, due
5/15/97...................... 75,568
80,000 American Home Products
Corporation, 6.875%, due
4/15/97...................... 80,322
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 660,000 Associates Corporation of North
America, 7.50%, due
10/15/96..................... $ 661,211
215,000 Associates Corporation of North
America, 8.70%, due 1/1/97... 216,815
395,000 Associates Corporation of North
America, 6.875%, due
1/15/97...................... 396,372
50,000 Associates Corporation of North
America, 9.70%, due 5/1/97... 51,165
290,000 Associates Corporation of North
America, 8.625%, due
6/15/97...................... 295,124
1,520,000 Bankers Trust New York
Corporation, 7.25%, due
11/1/96...................... 1,523,248
190,000 Bausch & Lomb, Inc., 6.80%, due
12/12/96..................... 190,519
50,000 Baxter International, Inc.,
7.50%, due 5/1/97............ 50,470
985,000 CIGNA Corporation, 8.00%, due
9/1/96....................... 985,000
245,000 CIT Group Holdings, Inc.,
8.00%, due 1/13/97........... 246,744
90,000 CIT Group Holdings, Inc.,
8.75%, due 7/1/97............ 91,839
2,000,000 CSX Transportation, Inc.,
5.93%, due 6/1/97............ 1,999,743
75,000 Caterpillar Financial Services
Corporation, 9.125%, due
12/15/96..................... 75,642
230,000 The Chase Manhattan
Corporation, 7.875%, due
1/15/97...................... 231,566
150,000 Chrysler Financial Corporation,
4.99%, due 2/3/97............ 149,431
256,000 Citicorp, 8.75%, due 11/1/96... 257,153
450,000 Commercial Credit Company,
8.00%, due 9/1/96............ 450,000
250,000 Commercial Credit Company,
6.75%, due 1/15/97........... 250,765
500,000 Commercial Credit Company,
8.125%, due 3/1/97........... 506,313
</TABLE>
See notes to financial statements. 16 TRANS ADVISER FUNDS, INC.
<PAGE>
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 100,000 Discover Credit, 7.98%, due
4/7/97....................... $ 101,067
1,929,000 Dupont Corporation, 8.45%, due
10/15/96..................... 1,934,870
250,000 Fireman's Federal Mortgage,
8.25%, due 11/1/96........... 250,746
531,000 First Union Corporation,
8.125%, due 12/15/96......... 534,341
195,000 Ford Holdings, Inc., 9.25%, due
7/15/97...................... 199,794
503,000 Ford Motor Company, 7.875%, due
10/15/96..................... 504,104
1,007,000 Ford Motor Credit Company,
8.00%, due 10/1/96........... 1,008,560
324,000 Ford Motor Credit Company,
8.00%, due 12/1/96........... 325,584
450,000 Ford Motor Credit Company,
7.875%, due 1/15/97.......... 453,260
25,000 Ford Motor Credit Company,
5.625%, due 3/3/97........... 24,962
132,000 Ford Motor Credit Company,
6.80%, due 8/15/97........... 132,772
500,000 General Electric Capital
Corporation, 7.46%, due
9/30/96...................... 500,556
1,345,000 General Electric Capital
Corporation, 8.75%, due
11/26/96..................... 1,353,619
294,000 General Electric Capital
Corporation, 8.00%, due
2/1/97....................... 296,320
1,319,000 General Motors Acceptance
Corporation, 8.00%, due
10/1/96...................... 1,321,094
500,000 General Motors Acceptance
Corporation, 5.00%, due
1/27/97...................... 498,068
400,000 General Motors Acceptance
Corporation, 7.65%, due
2/4/97....................... 403,086
602,000 General Motors Corporation,
7.625%, due 2/15/97.......... 606,151
545,000 Hospital Corporation of
America, 9.00%, due
3/15/97...................... 553,258
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 130,000 Household Finance Corporation,
7.80%, due 11/1/96........... $ 130,423
70,000 ITT Corporation, 7.25%, due
11/15/96..................... 70,132
560,000 International Lease Finance
Corporation, 7.90%, due
10/1/96...................... 560,843
440,000 International Lease Finance
Corporation, 4.75%, due
1/15/97...................... 438,099
500,000 International Lease Finance
Corporation, 6.35%, due
1/15/97...................... 500,705
100,000 International Lease Finance
Corporation, 5.875%, due
2/1/97....................... 99,909
275,000 International Lease Finance
Corporation, 5.50%, due
4/1/97....................... 273,994
75,000 John Deere Capital, 4.625%, due
9/2/96....................... 75,000
90,000 Lehman Brothers Holdings, Inc.,
8.375%, due 4/1/97........... 91,155
247,000 MGM Grand Hotels Financial
Corporation, Defeased,
11.75%, due 5/1/97........... 260,637
200,000 MGM Grand Hotels Financial
Corporation, Defeased,
12.00%, due 5/1/97........... 217,831
45,000 Merck & Company, Inc., 6.00%,
due 1/15/97.................. 44,989
1,200,000 Morgan Stanley Group, Inc.,
7.32%, due 1/15/97........... 1,206,451
432,000 NationsBank Corporation, 8.50%
due 11/1/96.................. 433,784
250,000 New Zealand Government, 8.25%,
due 9/25/96.................. 250,355
100,000 Northern Illinois Gas, 5.50%,
due 2/1/97................... 99,836
700,000 Norwest Financial, Inc., 4.89%,
due 11/15/96................. 698,820
375,000 Norwest Financial, Inc., 7.10%,
due 11/15/96................. 375,857
130,000 Norwest Financial, Inc., 6.00%,
due 8/15/97.................. 129,701
</TABLE>
See notes to financial statements. 17 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (continued)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 110,000 Oklahoma Gas & Electric
Company, 5.125%, due
1/1/97....................... $ 109,700
100,000 Paccar Financial Corporation,
5.12%, due 3/10/97........... 99,575
250,000 Pacific Gas & Electric Company,
4.87%, due 12/9/96........... 249,350
435,000 Pacific Northwest Bell
Telephone Company, 7.50%, due
12/1/96...................... 436,644
860,000 PepsiCo, Inc., 7.00%, due
11/15/96..................... 861,837
30,000 PepsiCo, Inc., 6.875%, due
5/15/97...................... 30,170
600,000 Pfizer, Inc., 7.125%, due
10/1/96...................... 600,583
834,000 Pfizer, Inc., 6.50%, due
2/1/97....................... 836,057
1,699,000 Philip Morris Companies, Inc.,
8.75%, due 12/1/96........... 1,710,606
1,335,000 Philip Morris Companies, Inc.,
7.50%, due 3/17/97........... 1,345,398
75,000 Philip Morris Companies, Inc.,
9.75%, due 5/1/97............ 76,750
260,000 Philip Morris Companies, Inc.,
8.75%, due 6/15/97........... 265,096
2,666,000 Public Service Electric & Gas
Company, 8.75%, due
11/1/96...................... 2,859,577
170,000 Public Service Electric & Gas
Company, 8.75%, due 2/1/97... 183,393
250,000 Quaker Oats Company, 8.85%, due
11/15/96..................... 251,257
660,000 Quebec Province, 8.74%, due
7/21/97...................... 673,232
300,000 Sara Lee Corporation, 5.05%,
due 2/18/97.................. 299,131
1,897,000 Sears Roebuck and Company,
9.00%, due 9/15/96........... 1,898,891
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
FIXED RATE NOTES--CORPORATE, CONTINUED:
$ 75,000 Security Pacific Corporation,
7.75%, due 12/1/96........... $ 75,310
50,000 Southern California Edison
Company, 5.90%, due
1/15/97...................... 50,042
100,000 Tambrands Inc., 4.65%, due
1/21/97...................... 99,479
325,000 Texaco Capital, 9.00%, due
11/15/96..................... 326,969
200,000 Travelers Group, Inc., 8.375%,
due 12/15/96................. 201,424
175,000 Travelers Group, Inc., 7.625%,
due 1/15/97.................. 175,983
2,160,000 U.S. West Capital Funding,
8.00%, due 10/15/96.......... 2,165,190
135,000 Union Electric Company, 5.50%,
due 3/1/97................... 134,794
365,000 Virginia Electric & Power
Company, 7.25%, due 3/1/97... 367,665
250,000 Wachovia Bank, 4.875%, due
2/18/97...................... 248,760
471,000 Wells Fargo & Company, 8.20%,
due 11/1/96.................. 472,623
445,000 World Book Financial, 8.125%,
due 9/1/96................... 445,000
-------------
Total Fixed Rate Notes--Corporate............ 44,968,019
-------------
REPURCHASE AGREEMENTS (16.4%):
12,472,423 The First Boston Corporation,
5.30%, due 9/3/96, to be
repurchased at 12,479,768
(collateralized by
$16,050,000 Federal National
Mortgage Association, pool
#339017, 6.092%, due
12/1/35)..................... 12,472,423
-------------
Total Repurchase Agreements.................. 12,472,423
-------------
Total Investments (100.0%)................... $ 75,934,653
-------------
-------------
</TABLE>
See notes to financial statements. 18 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 1996
- - --------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
AGGRESSIVE BOND KENTUCKY MONEY MARKET
GROWTH/VALUE FUND GROWTH FUND FUND TAX-FREE FUND FUND
----------------- -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value................... $ 15,024,572 $ 6,527,398 $ 13,695,005 $ 15,608,129 $ 75,934,653
Cash.................................... -- -- -- 1,798 --
Interest, dividends and other
receivables........................... 16,151 1,422 185,929 261,250 1,173,021
Receivable for fund shares issued....... 70,576 12,716 23,439 45,402 --
Organization costs, net of
amortization.......................... 25,935 25,935 25,935 25,935 25,935
----------------- -------------- --------------- ------------- -------------
Total assets.............................. 15,137,234 6,567,471 13,930,308 15,942,514 77,133,609
----------------- -------------- --------------- ------------- -------------
LIABILITIES:
Payable for securities purchased........ -- -- 487,264 -- 401,228
Payable for fund shares redeemed........ 1,515 1,165 7,000 -- --
Administration fee payable.............. 2,083 2,083 2,083 -- 9,429
Accrued expenses and other payables..... 25,971 14,309 7,064 23,251 49,226
Dividends payable....................... -- -- 70,005 78,774 310,879
----------------- -------------- --------------- ------------- -------------
Total liabilities......................... 29,569 17,557 573,416 102,025 770,762
----------------- -------------- --------------- ------------- -------------
NET ASSETS................................ $ 15,107,665 $ 6,549,914 $ 13,356,892 $ 15,840,489 $ 76,362,847
----------------- -------------- --------------- ------------- -------------
----------------- -------------- --------------- ------------- -------------
COMPONENTS OF NET ASSETS:
Capital paid in......................... $ 14,820,155 $ 6,473,696 $ 13,705,116 $ 16,217,070 $ 76,360,353
Undistributed net investment income
(distributions in excess)............. -- -- -- (114,051) --
Unrealized appreciation (depreciation).. 243,081 60,569 (332,831) (259,742) --
Accumulated net realized gain (loss).... 44,429 15,649 (15,393) (2,788) 2,494
----------------- -------------- --------------- ------------- -------------
NET ASSETS................................ $ 15,107,665 $ 6,549,914 $ 13,356,892 $ 15,840,489 $ 76,362,847
----------------- -------------- --------------- ------------- -------------
----------------- -------------- --------------- ------------- -------------
SHARES OUTSTANDING........................ 1,350,818 598,307 1,370,318 1,574,612 76,360,353
NET ASSET VALUE PER SHARE................. $ 11.18 $ 10.95 $ 9.75 $ 10.06 $ 1.00
OFFERING PRICE PER SHARE EXCEPT MONEY
MARKET FUND (NAV DIVIDED BY (1 -
4.50%))................................. $ 11.71 $ 11.47 $ 10.21 $ 10.53 $ 1.00
INVESTMENTS AT COST....................... $ 14,781,491 $ 6,466,829 $ 14,027,836 $ 15,867,871 $ 75,934,653
</TABLE>
See notes to financial statements. 19 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF OPERATIONS
PERIOD ENDED AUGUST 31, 1996 (1)
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
FUND FUND FUND FUND FUND
----------------- -------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................... $ 30,853 $ 13,762 $ 667,383 $ 843,000 $ 2,798,408
Dividend income........................... 78,497 7,604 -- -- --
----------------- -------------- --------------- ----------- ------------
Total income................................ 109,350 21,366 667,383 843,000 2,798,408
----------------- -------------- --------------- ----------- ------------
EXPENSES:
Advisory.................................. 81,961 31,177 38,478 63,051 99,711
Management................................ 22,916 22,917 22,917 23,644 74,783
Transfer agency........................... 28,121 27,644 25,552 33,235 23,393
Shareholder services...................... 20,490 7,794 24,049 39,407 124,638
Custody................................... 1,964 741 5,455 4,415 21,297
Accounting................................ 33,000 33,000 33,000 35,600 34,000
Legal..................................... 6,682 4,238 8,200 12,962 29,232
Registration.............................. 10,402 6,732 8,984 7,892 35,373
Audit..................................... 14,812 14,319 15,846 16,755 15,268
Amortization of organization costs........ 5,824 5,824 5,824 5,824 5,824
Trustees.................................. 716 196 1,251 1,532 5,351
Other..................................... 5,453 2,874 6,345 15,916 24,224
----------------- -------------- --------------- ----------- ------------
Total expenses.............................. 232,341 157,456 195,901 260,233 493,094
Expenses reimbursed and fees waived....... (72,244) (96,565) (130,304) (132,065) (168,154)
----------------- -------------- --------------- ----------- ------------
Net expenses................................ 160,097 60,891 65,597 128,168 324,940
----------------- -------------- --------------- ----------- ------------
NET INVESTMENT INCOME (LOSS).............. (50,747) (39,525) 601,786 714,832 2,473,468
----------------- -------------- --------------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS:
Net realized gain (loss) on investments... 89,352 43,284 (15,393) (2,788) 2,494
Net change in unrealized appreciation
(depreciation).......................... 243,081 60,569 (332,831) (259,742) --
----------------- -------------- --------------- ----------- ------------
Net realized and unrealized gain (loss) from
investments............................... 332,433 103,853 (348,224) (262,530) 2,494
----------------- -------------- --------------- ----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS...... $ 281,686 $ 64,328 $ 253,562 $ 452,302 $ 2,475,962
----------------- -------------- --------------- ----------- ------------
----------------- -------------- --------------- ----------- ------------
Sept. 27, Sept. 29,
Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 1995 1995
(1) Date of commencement of operations
</TABLE>
See notes to financial statements. 20 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD ENDED AUGUST 31, 1996 (1)
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
FUND FUND FUND FUND FUND
----------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSETS--September 1, 1995.......... -- -- -- -- --
----------------- -------------- --------------- -------------- ---------------
OPERATIONS:
Net investment income (loss)......... $ (50,747) $ (39,525) $ 601,786 $ 714,832 $ 2,473,468
Net realized gain (loss) on
investments........................ 89,352 43,284 (15,393) (2,788) 2,494
Net change in unrealized appreciation
(depreciation)..................... 243,081 60,569 (332,831) (259,742) --
----------------- -------------- --------------- -------------- ---------------
281,686 64,328 253,562 452,302 2,475,962
----------------- -------------- --------------- -------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................ -- -- (601,786) (828,883) (2,473,468)
----------------- -------------- --------------- -------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares....................... 15,471,301 7,269,024 14,919,014 28,751,437 446,620,681
Reinvested dividends................. -- -- 13,886 559,139 84,304
Cost of shares repurchased........... (645,322) (783,438) (1,227,784) (13,093,506) (370,344,632)
----------------- -------------- --------------- -------------- ---------------
14,825,979 6,485,586 13,705,116 16,217,070 76,360,353
----------------- -------------- --------------- -------------- ---------------
NET ASSETS--August 31, 1996............ $ 15,107,665 $ 6,549,914 $ 13,356,892 $ 15,840,489 $ 76,362,847
----------------- -------------- --------------- -------------- ---------------
----------------- -------------- --------------- -------------- ---------------
Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 Sept. 27, 1995 Sept. 29, 1995
(1) Date of commencement of operations
</TABLE>
See notes to financial statements. 21 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Trans Adviser Funds, Inc. (the "Company") is an open-end management investment
company incorporated under the laws of the State of Maryland. The Company
currently consists of five operational non-diversified investment portfolios,
the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond Fund,
the Kentucky Tax-Free Fund, and the Money Market Fund (each a "Fund" and
collectively the "Funds"). The Funds, except for Money Market Fund, are offered
at Net Asset Value ("NAV") plus a sales charge, currently 4.50% of NAV. The
Money Market Fund is offered at NAV. The Funds commenced investment operations
on the following dates:
<TABLE>
<S> <C>
Growth/Value Fund September 29, 1995
Aggressive Growth Fund September 29, 1995
Intermediate Bond Fund October 3, 1995
Kentucky Tax-Free Fund September 27, 1995
Money Market Fund September 29, 1995
</TABLE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Funds' financial statements are prepared in accordance with generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates and are expected to be immaterial to the net assets of the Funds.
SECURITY VALUATION-All securities held by the Money Market Fund are valued
utilizing the amortized cost method, which approximates market value, in
accordance with Rule 2a-7 under the Investment Company Act of 1940. Securities,
other than short-term, held by the other Funds (the "Bond and Equity Funds") 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 ask price is used. In the absence of readily
available market quotations, securities are valued at fair value as determined
by the Board of Directors. Securities with a maturity of 60 days or less held by
the Bond and Equity Funds are valued at amortized cost.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION-In all Funds other than the Kentucky
Tax-Free Fund, if a fixed income investment is purchased at a premium, the
premium is not amortized. The Kentucky Tax-Free Fund amortizes premium on fixed
income investments to the maturity (or first call) date using the yield to
maturity method. 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.
INTEREST AND DIVIDEND INCOME AND DISTRIBUTIONS TO SHAREHOLDERS-Interest income
is accrued as earned. Dividends on securities held by the Funds are recorded on
the ex-dividend date. Distributions of net investment income are declared daily
and paid monthly for Money Market Fund, Kentucky Tax-Free Fund, and Intermediate
Bond Fund, and declared and paid annually for Growth/Value Fund and Aggressive
Growth Fund. Net capital gain, if any, is distributed at least annually.
Distributions from net investment income and realized capital gains are based on
their tax basis. The significant difference between financial statement amounts
available for distribution and distributions made in accordance with income tax
regulations are primarily attributable to the deferral of post-October losses
and wash sales.
ORGANIZATION COSTS-The costs incurred by the Funds in connection with their
organization, in amounts of $31,759 for each Fund, have been capitalized and are
being amortized using the straight-line method over a five year period beginning
on the commencement of each Fund's investment operations. Certain of these costs
were paid by Forum Financial Services, Inc. and have been reimbursed by the
respective Funds. Organization expenses are being amortized to operations over a
five-year period on a straight-line basis. In the event any of the initial
shares are redeemed by any
22 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
holder thereof during the five-year amortization period, redemption proceeds
will be reduced by any unamortized organization expenses in the same proportion
as the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
FEDERAL INCOME TAX-Each Fund intends to qualify as a regulated investment
company and distribute all of its taxable income. Therefore, no Federal income
tax provision is required.
OTHER-Realized gains and losses on investments sold are recorded on the basis of
identified cost. Security transactions are accounted for on a trade date basis.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of the Funds is Trans Financial Bank, N.A. (the
"Adviser"). The Adviser receives an advisory fee from Growth/Value Fund and
Aggressive Growth Fund at an annual rate of 1.00% of the respective Fund's
average daily net assets. The Adviser receives an advisory fee from Intermediate
Bond Fund and Kentucky Tax-Free Fund at an annual rate of 0.40% of the
respective Fund's average daily net assets. The Adviser receives an advisory fee
from Money Market Fund at an annual rate of 0.20% of the Fund's average daily
net assets. Pursuant to an agreement between the Adviser and Mastrapasqua and
Associates, Inc. ("M&A") (the "Sub-Adviser"), the Adviser may delegate certain
of its advisory responsibilities to the Sub-Adviser. For its services, M&A is
paid by the Adviser as follows: with respect to the Aggressive Growth and the
Growth/Value Funds, the Adviser (not the Fund) pays to M&A an annual fee,
calculated daily and paid monthly, of .50% on the first $100 million of such
Funds' combined average daily net assets plus .25% of such Funds' combined
average daily net assets in excess of $100 million for its services, and, with
respect to each other Trans Adviser Fund, the Adviser (not the Fund) pays M&A an
annual fee, calculated daily and paid monthly, of .03% of average daily net
assets for its services.
The Adviser has agreed to reimburse each Fund for certain operating expenses
(exclusive of interest, taxes, brokerage fees, fees and other expenses paid
pursuant to any distribution plan and organization expenses, all to the extent
permitted by applicable state law or regulation) which in any year exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale. Each Fund's annual expenses are estimated and accrued daily, and any
related reimbursements are made monthly by the Adviser.
The administrator of the Company is Forum Financial Services, Inc. ("Forum"), a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc. For its administrative services Forum receives a fee for each Fund
equal to the greater of $25,000 per year or 0.15% of the annual average daily
net assets of each Fund. Forum also acts as the Company's distributor pursuant
to a separate Distribution Agreement with the Company. Forum receives no
compensation under that agreement. In addition, certain legal expenses were
charged to the Company by Forum amounting to $18,053.
Forum Financial Corp. ("FFC"), an affiliate of Forum, serves as the Company's
transfer agent and dividend disbursing agent, and for those services receives an
annual fee of $12,000 per year for each Fund, an annual shareholder account fee
of $25 per shareholder, additional class charges, and out of pocket expenses
billed at cost. The Company has adopted a shareholder service plan under which
the Company pays Forum a shareholder servicing fee at an annual rate of 0.25% of
the daily net assets of each Fund. Forum may pay any or all amounts of these
payments to various institutions which provide shareholder servicing to their
customers. FFC also serves as the Company's fund accountant and is compensated
for those services at an amount of $36,000 per year per Fund plus certain
amounts based upon the number and types of portfolio transactions within each
Fund.
23 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- - ---------------------------------------------------------------------------
For the period ended August 31, 1996, fees waived and expenses reimbursed were
as follows:
<TABLE>
<CAPTION>
EXPENSES EXPENSES EXPENSES
VOLUNTARILY VOLUNTARILY VOLUNTARILY
WAIVED BY WAIVED BY REIMBURSED BY
FORUM THE ADVISER THE ADVISER
----------- ----------- --------------
<S> <C> <C> <C>
Growth/Value Fund.......................................... $ 543 $ 34,323 $ 37,378
Aggressive Growth Fund..................................... 288 31,178 65,099
Intermediate Bond Fund..................................... 178 38,478 91,648
Kentucky Tax-Free Fund..................................... 11,185 63,051 57,829
Money Market Fund.......................................... 2,071 93,026 73,057
</TABLE>
NOTE 4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales (including maturities) of securities
(excluding short-term investments) during the period ended August 31, 1996 were
as follows:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
------------------ ---------------------
<S> <C> <C>
Growth/Value Fund......................................... $ 15,678,024 $ 1,713,849
Aggressive Growth Fund.................................... 6,815,109 465,088
Intermediate Bond Fund.................................... 12,911,112 965,841
Kentucky Tax-Free Fund.................................... 38,298,203 23,002,307
</TABLE>
The cost of investments for federal income tax purposes is the same as for
financial reporting purposes. Unrealized appreciation and depreciation as of
August 31, 1996 were as follows:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION UNREALIZED DEPRECIATION
----------------------- -----------------------
<S> <C> <C>
Growth/Value Fund.................................. $ 1,166,837 $ 923,756
Aggressive Growth Fund............................. 661,156 600,587
Intermediate Bond Fund............................. 13,166 345,997
Kentucky Tax-Free Fund............................. 25,840 285,582
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions of Fund shares for the period ended August 31, 1996 are summarized
in the following table:
<TABLE>
<CAPTION>
GROWTH/VALUE AGGRESSIVE INTERMEDIATE KENTUCKY TAX- MONEY MARKET
FUND GROWTH FUND BOND FUND FREE FUND FUND
------------- ------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Sale of Shares......... 1,408,416 668,440 1,491,710 2,814,888 446,620,681
Shares Issued on
Reinvested
Dividends............. -- -- 1,404 57,538 84,304
Shares Repurchased..... 57,598 70,133 122,796 1,297,814 370,344,632
------------- ------------- ------------ -------------- --------------
Net Increase........... 1,350,818 598,307 1,370,318 1,574,612 76,360,353
------------- ------------- ------------ -------------- --------------
------------- ------------- ------------ -------------- --------------
</TABLE>
NOTE 6. CONCENTRATION OF CREDIT RISK
The Kentucky Tax-Free Fund invests substantially all of its assets in debt
obligations of issuers located in the state of Kentucky. The issuers' abilities
to meet their obligations may be affected by Kentucky economic or political
developments.
24 TRANS ADVISER FUNDS, INC.
<PAGE>
FINANCIAL HIGHLIGHTS
PERIOD ENDED AUGUST 31, 1996 (a)
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA AND AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
RATIOS FOR A SHARE OUTSTANDING GROWTH/VALUE GROWTH BOND TAX-FREE MARKET
THROUGHOUT THE PERIOD FUND FUND FUND FUND FUND
----------------- --------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value Per
Share....................... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
------- ------- ------- ------------ -----------
Net Investment Income
(Loss)(c)................... (0.06) (0.11) 0.57 0.51 0.05
Net Realized and Unrealized
Gain/(Loss) on
Investments................. 1.24 1.06 (0.25) 0.06 --
Distributions from Net
Investment Income........... -- -- (0.57) (0.51) (0.05)
------- ------- ------- ------------ -----------
Ending Net Asset Value Per
Share....................... $ 11.18 $ 10.95 $ 9.75 $ 10.06 $ 1.00
------- ------- ------- ------------ -----------
------- ------- ------- ------------ -----------
Ratios to Average Net Assets:
Expenses(b)(e).............. 1.95% 1.95% 0.68% 0.82% 0.65%
Net Investment Income
(Loss)(e)................. (0.62)% (1.26)% 6.31% 5.30% 4.94%
Total Return (f).............. 11.80% 9.50% 3.23% 5.80% 4.70%
Portfolio Turnover Rate....... 21.12% 15.70% 12.38% 145.12% N/A
Average Commission Rate....... 0.07(d) 0.08(d) N/A N/A N/A
Net Assets at End of Period
(000's omitted)............. $15,108 $6,550 $13,357 $15,840 $76,363
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) Date of commencement of Sept. 29, 1995 Sept. 29, 1995 Oct. 3, 1995 Sept. 27, 1995 Sept. 29, 1995
operations
</TABLE>
(b) During the period, various fees and expenses were waived and reimbursed. Had
such waiver and reimbursement not occurred, the ratio of expenses to average
net assets would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
2.83 % 5.05 % 2.04 % 1.65 % 0.99 %
</TABLE>
(c) Calculated using weighted average shares outstanding for the period.
(d) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
(e) Annualized.
(f) Excludes applicable sales charge.
- - ----------------------------------------------------------------------------
Federal Tax Status of Dividends Declared (unaudited)
None of the Funds paid long-term capital gain dividends during the period. All
dividends declared by the Funds were distributions of ordinary income. None of
these dividends qualify for the corporate dividend received deduction from
Federal income tax. The amount of the dividends per share declared by the
Kentucky Tax-Free Fund that is exempt from Federal taxes follows.
Sep-95 $0.0086
Oct-95 0.0430
Nov-95 0.0344
Dec-95 0.0430
Jan-96 0.0430
Feb-96 0.0344
Mar-96 0.0430
Apr-96 0.0344
May-96 0.0430
Jun-96 0.0344
Jul-96 0.0344
Aug-96 0.0430
------
$0.4386
------
------
See notes to financial statements. 25 TRANS ADVISER FUNDS, INC.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Trans Adviser Funds, Inc.
We have audited the accompanying statements of assets and liabilities of
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Kentucky
Tax-Free Fund, and Money Market Fund, portfolios of Trans Adviser Funds, Inc.
(the Funds), including the schedules of investments, as of August 31, 1996, and
the related statements of operations, statements of changes in net assets and
financial highlights for the periods presented on pages 20, 21 and 25,
respectively. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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, 1996 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
Growth/Value Fund, Aggressive Growth Fund, Intermediate Bond Fund, Kentucky
Tax-Free Fund, and Money Market Fund, as of August 31, 1996, and the results of
their operations, the changes in their net assets and financial highlights for
the periods presented on pages 20, 21 and 25, respectively, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 18, 1996
<PAGE>
April 11, 1997
Dear Shareholder:
We are pleased to present the report on the operations of the Trans Adviser
Funds, Inc. during the semi-annual period ended February 28, 1997. This report
covers the five Funds: Aggressive Growth, Growth/Value, Intermediate Bond,
Kentucky Tax-Free, and Money Market Funds.
During the period, the stock market, as measured by the S&P 500 Index, rose
21.30%. Because the Index is weighted by the market capitalization of the
issuers comprising the Index, the stock of the fifty largest issuers accounts
for approximately 50% of the performance of the entire Index. Investments in
popular index funds have supported the stock prices of this relatively small
group of issuers, even though many observers have noted that it is primarily the
prices of these companies' stocks that exceed normal valuation parameters. We
are therefore pleased with the total return of 21.34% the Growth/Value Fund and
15.27% for the Aggressive Growth Fund, even though they did not surpass the S&P
benchmark. In our view, by investing in quality companies with strong
fundamentals such as low relative price-to-earnings ratios these Funds are
poised to take advantage of economic data and company results that meet or
exceed the market's current bearish expectations.
The bond market during the last six months has continued to exhibit yield and
price volatility. During this period, the Trans Adviser Intermediate Bond Fund
had a total return of 4.40%. By comparison, the Merrill Lynch Taxable Bond Index
had a total return of 4.12%. The Kentucky Tax-Free Fund's return was 4.45% as
compared to the 4.46% average total return of the funds in the Morningstar
National Municipal Bond category. The Kentucky Tax-Free Fund has also maintained
a relatively stable net asset value despite the movement in interest rates
during this period. On the whole, we continue to believe that superior returns
in the bond markets can be achieved through an actively-managed relative value
approach that seeks out inefficiencies in the market.
During this period, investments in the Money Market Fund grew to over $100
million. The Fund continues to offer a highly diversified and convenient vehicle
for cash management.
We take great pride in the accomplishments of the Trans Adviser Funds during
their first eighteen months of operations. The Funds' continued growth has
confirmed our original vision that there is a broad-based appeal for funds
managed locally that employ our investment style and experience. We are
confident that the Funds will enjoy continued growth as word of our investment
approach and capabilities spreads to a broader network of investors.
If you have any questions or would like additional information about the Trans
Adviser Funds, please call 800-811-8258. Thank you once again for choosing to
invest with the Trans Adviser Funds.
THOMAS A. TRANTUM
THOMAS A. TRANTUM
President
<PAGE>
GROWTH/VALUE FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
COMMON STOCKS (98.8%)
AMUSEMENT & RECREATION SERVICES (1.7%)
10,000 Promus Hotel Corp.(a)............ $ 353,751
-------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (0.9%)
7,500 Autozone, Inc.(a)................ 185,625
-------------
BUSINESS SERVICES (8.0%)
20,000 ADT Ltd.(a)...................... 435,000
15,000 Oracle Systems Corp.(a).......... 588,750
20,000 Sun Microsystems, Inc.(a)........ 617,500
-------------
1,641,250
-------------
CHEMICALS & ALLIED PRODUCTS (8.9%)
4,000 Bristol-Myers Squibb Co. ........ 522,000
6,000 Merck & Co., Inc. ............... 552,000
10,000 Schering-Plough Corp. ........... 766,250
-------------
1,840,250
-------------
DEPOSITORY INSTITUTIONS (7.8%)
12,000 Carolina First Corp. ............ 213,000
5,000 Chase Manhattan Corp. ........... 500,625
22,500 MBNA Corp. ...................... 720,000
4,000 Union Planters Corp. ............ 179,000
-------------
1,612,625
-------------
EATING & DRINKING PLACES (2.1%)
10,000 Host Marriott Corp.(a)........... 180,000
4,000 Quality Dining, Inc.(a).......... 46,500
25,000 Shoney's, Inc.(a)................ 206,250
-------------
432,750
-------------
ELECTRIC, GAS, & SANITARY SERVICES (2.2%)
10,000 Sonat, Inc. ..................... 460,000
-------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT
COMPUTER EQUIPMENT (2.0%)
5,000 Novellus Systems, Inc.(a)........ 408,750
-------------
FOOD STORES (1.9%)
7,500 Kroger Co.(a).................... 397,500
-------------
GENERAL MERCHANDISE STORES (1.6%)
6,000 Sears Roebuck and Co. ........... 325,500
-------------
HEALTH SERVICES (9.3%)
20,000 Beverly Enterprises, Inc.(a)..... 287,500
5,000 Health Management Associates,
Inc.(a)........................ 132,500
2,345 Healthsouth Rehabilitation
Corp.(a)....................... 94,386
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
HEALTH SERVICES, CONTINUED
10,000 Living Centers of America,
Inc.(a)........................ $ 318,750
5,000 Quorum Health Group, Inc.(a)..... 156,875
15,000 Tenet Healthcare Corp.(a)........ 406,875
15,000 Vencor, Inc.(a).................. 519,375
-------------
1,916,261
-------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT
(13.2%)
7,500 Baker Hughes, Inc. .............. 266,250
6,000 IBM Corp. ....................... 862,500
13,000 Lam Research Corp.(a)............ 495,625
10,000 Qlogic Corp.(a).................. 202,500
15,000 Western Digital Corp.(a)......... 885,000
-------------
2,711,875
-------------
INSURANCE CARRIERS (3.9%)
5,000 Ace, Ltd. ....................... 325,000
4,000 American International Group,
Inc. .......................... 484,000
-------------
809,000
-------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (4.4%)
10,000 Baxter International, Inc. ...... 460,000
7,500 Input/Output Inc.(a)............. 160,312
10,000 Tech-Sym Corp.(a)................ 295,000
-------------
915,312
-------------
MISCELLANEOUS RETAIL (3.3%)
10,000 CVS Corp. ....................... 462,500
6,000 Friedman's, Inc. Class A(a)...... 90,750
10,000 OfficeMax, Inc.(a)............... 120,000
-------------
673,250
-------------
MOTION PICTURES (0.5%)
1,500 The Walt Disney Co. ............. 111,375
-------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.9%)
12,500 Capital One Financial Corp. ..... 496,875
10,000 Olympic Financial, Ltd.(a)....... 110,000
-------------
606,875
-------------
OIL & GAS EXTRACTION (6.4%)
12,000 Nuevo Energy Co.(a).............. 498,000
6,500 Pride Petroleum Services,
Inc.(a)........................ 108,875
4,000 Schlumberger, Ltd. .............. 402,500
5,000 Seagull Energy Corp.(a).......... 91,875
</TABLE>
See Notes to Schedule of Investments. 2 TRANS ADVISER FUNDS, INC.
<PAGE>
GROWTH/VALUE FUND
SCHEDULE OF INVESTMENTS (continued)
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
OIL & GAS EXTRACTION, CONTINUED
10,000 Stone Energy Corp.(a)............ $ 220,000
-------------
1,321,250
-------------
PHARMECEUTICAL PREPARATIONS (4.0%)
8,000 American Home Products Corp. .... 512,000
5,000 Teva Pharmaceutical ADR.......... 309,062
-------------
821,062
-------------
PROFESSIONAL SERVICES (0.9%)
10,000 SCB Computer Technology,
Inc.(a)........................ 180,000
-------------
WATER TRANSPORTATION (2.1%)
10,000 Tidewater, Inc. ................. 430,000
-------------
WHOLESALE TRADE--DURABLE GOODS (7.2%)
6,000 Arrow Electronics Inc.(a)........ 336,750
4,000 Avnet, Inc. ..................... 250,000
5,000 Lockheed Martin Corp. ........... 442,500
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- --------------------------------- -------------
<C> <S> <C>
WHOLESALE TRADE--DURABLE GOODS, CONTINUED
15,000 Sybron International Corp.-
Wisconsin(a)................... $ 446,250
-------------
1,475,500
-------------
WHOLESALE TRADE--NONDURABLE GOODS (3.6%)
10,000 AmeriSource Health Corp. ........ 503,750
5,000 Safeway, Inc.(a)................. 240,625
-------------
744,375
-------------
Total Common Stocks
(cost $16,904,586)........................... 20,374,136
-------------
SHORT-TERM HOLDINGS (1.2%)
254,744 Forum Daily Assets Treasury Fund
(cost $254,744)................ 254,744
-------------
Total Investments (100.0%)
(cost $17,159,330)(c)...................... $ 20,628,880
-------------
-------------
</TABLE>
See Notes to Schedule of Investments. 3 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (95.7%)
AMUSEMENT & RECREATION SERVICES (1.9%)
5,000 Promus Hotel Corp.(a)............. $ 176,875
------------
BUSINESS SERVICES (7.8%)
10,000 ADT Ltd.(a)....................... 217,500
7,500 Oracle Systems Corp.(a)........... 294,375
7,000 Sun Microsystems, Inc.(a)......... 216,125
------------
728,000
------------
DEPOSITORY INSTITUTIONS (2.3%)
12,000 Carolina First Corp. ............. 213,000
------------
EATING & DRINKING PLACES (2.5%)
6,000 Quality Dining, Inc.(a)........... 69,750
20,000 Shoney's, Inc.(a)................. 165,000
------------
234,750
------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT
COMPUTER EQUIPMENT (6.1%)
4,000 Novellus Systems, Inc.(a)......... 327,000
15,000 Symmetricom, Inc.(a).............. 241,875
------------
568,875
------------
FOOD STORES (3.7%)
3,500 Kroger Co.(a)..................... 185,500
10,000 Ruddick Corp. .................... 160,000
------------
345,500
------------
GENERAL MERCHANDISE STORES (0.9%)
2,500 Consolidated Stores Corp.(a)...... 87,812
------------
HEALTH SERVICES (15.7%)
5,000 Health Management Associates,
Inc.(a)......................... 132,500
5,000 HealthCare COMPARE Corp.(a)....... 213,438
7,500 Living Centers of America,
Inc.(a)......................... 239,063
15,000 NABI, Inc.(a)..................... 144,375
15,000 Paracelsus Healthcare Corp.(a).... 71,250
2,000 Quorum Health Group, Inc.(a)...... 62,750
10,000 Tenet Healthcare Corp.(a)......... 271,251
10,000 Vencor, Inc.(a)................... 346,250
------------
1,480,877
------------
HOME FURNITURE, FURNISHINGS, & EQUIPMENT STORES (0.6%)
5,000 Movie Gallery, Inc.(a)............ 53,750
------------
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT
(17.1%)
10,000 Lam Research Corp.(a)............. $ 381,250
10,000 Qlogic Corp.(a)................... 202,500
15,000 Smart Modular Technologies(a)..... 436,875
10,000 Western Digital Corp.(a).......... 590,000
------------
1,610,625
------------
INDUSTRY ELECTRONICS & ELECTRICAL EQUIPMENT (2.5%)
12,000 Semtech Corp.(a).................. 238,500
------------
INSURANCE CARRIERS (2.8%)
4,000 Ace, Ltd. ........................ 260,000
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (1.9%)
6,000 Tech-Sym Corp.(a)................. 177,000
------------
MISCELLANEOUS RETAIL (2.2%)
2,500 CVS Corp. ........................ 115,625
6,000 Friedman's, Inc. Class A(a)....... 90,750
------------
206,375
------------
NONDEPOSITORY CREDIT INSTITUTIONS (3.7%)
6,000 Capital One Financial Corp. ...... 238,500
10,000 Olympic Financial, Ltd.(a)........ 110,000
------------
348,500
------------
OIL & GAS EXTRACTION (11.8%)
12,500 GeoScience Corp.(a)............... 162,500
9,000 Nuevo Energy Co.(a)............... 373,500
15,000 Pride Petroleum Services,
Inc.(a)......................... 251,250
5,000 Seagull Energy Corp.(a)........... 91,875
5,000 St. Mary Land & Exploration
Co. ............................ 121,875
5,000 Stone Energy Corp.(a)............. 110,000
------------
1,111,000
------------
PROFESSIONAL SERVICES (2.1%)
11,000 SCB Computer Technology,
Inc.(a)......................... 198,000
------------
TRANSPORTATION SERVICES (1.8%)
10,000 Simon Transportation
Services(a)..................... 170,000
------------
WATER TRANSPORTATION (2.7%)
6,000 Tidewater, Inc. .................. 258,000
------------
WHOLESALE TRADE-DURABLE GOODS (1.6%)
5,000 Sybron International Corp.-
Wisconsin(a).................... 148,750
------------
</TABLE>
See Notes to Schedule of Investments. 4 TRANS ADVISER FUNDS, INC.
<PAGE>
AGGRESSIVE GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
FEBRUARY 28, 1997 (Unaudited)
- - ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
SHARES DESCRIPTION VALUE
- - ---------- ---------------------------------- ------------
<C> <S> <C>
WHOLESALE TRADE-NONDURABLE GOODS (4.0%)
7,500 AmeriSource Health Corp.(a)....... $ 377,812
------------
Total Common Stocks (cost $7,716,134)......... 8,994,001
------------
SHORT-TERM HOLDINGS (4.3%)
399,257 Forum Daily Assets Treasury Fund
(cost $399,257)................. 399,257
------------
Total Investments (100.0%)
(cost $8,115,391)(c)........................ $ 9,393,258
------------
------------
</TABLE>
See Notes to Schedule of Investments. 5 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
ASSET BACKED SECURITIES (0.6%)
$ 90,434 SBA, Series 87-A, 8.45%, due
1/1/07 (cost $93,599)........ $ 92,490
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS (6.7%)
260,070 FHLMC, Series 1072, Class G,
7.00%, due 5/15/06........... 261,833
800,000 FHLMC, Series 1720, Class E,
7.50%, due 12/15/09.......... 809,438
-------------
Total Collateralized Mortgage Obligations
(cost $1,088,246).......................... 1,071,271
-------------
CORPORATE BONDS (52.4%)
686,000 Alabama Power, 8.30%, due
7/1/22....................... 694,923
100,000 Anheuser Busch Cos., 7.00%, due
5/30/00...................... 100,211
400,000 Anheuser Busch Cos., 7.00%, due
9/1/05....................... 399,210
278,000 Anheuser Busch Cos., 8.75%, due
12/1/99...................... 293,062
169,000 Associates Corp. of North
America, 6.00%, due
3/15/00...................... 166,307
50,000 Berkley W.R. Corp., 9.875%, due
5/15/08...................... 58,974
250,000 British Petroleum America,
Inc., 6.50%, due 12/15/99.... 248,942
215,000 Chase Manhatten Corp., 8.00%,
due 5/15/04.................. 219,689
140,000 Commonwealth Edison Co., 9.50%,
due 5/1/16................... 146,709
150,000 Consumers Power, 6.875%, due
5/1/98....................... 150,133
191,000 Dayton Hudson Corp., 9.875%,
due 6/17/97.................. 202,411
150,000 Deere & Co., 8.95%, due
6/15/19...................... 164,844
160,000 Florida Power & Light Co.,
8.00%, due 8/25/22........... 160,673
100,000 Ford Motor Credit Co., 5.83%,
due 6/29/98.................. 99,591
172,000 Ford Motor Credit Co., 6.85%,
due 8/15/00.................. 173,301
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE BONDS, CONTINUED
$ 160,000 Ford Motor Credit Co., 7.50%,
due 1/15/03.................. $ 164,229
160,000 GTE of Southeast Corp., 8.00%,
due 12/1/01.................. 161,924
130,000 General Electric Capital Corp.,
6.66%, due 5/1/18............ 130,240
69,000 Georgia Power Co., First
Mortgage Bonds, 7.95%, due
2/1/23....................... 69,401
250,000 Greyhound Financial Corp.,
7.82%, due 1/27/03........... 258,036
250,000 IBM Credit Corp., 6.20%, due
3/19/01...................... 245,254
300,000 Inco, Ltd., 9.60%, due
6/15/22...................... 327,139
120,000 Jersey Central Power & Light
Co., 9.20%, due 7/1/21....... 131,171
46,000 Kaiser Permanente, 9.55%, due
7/15/05...................... 53,336
56,000 Kraft, Inc., 8.50%, due
2/15/17...................... 58,367
200,000 Michigan Bell Telephone Co.,
6.375%, due 2/1/05........... 193,489
175,000 Pacific Gas & Electric Co.,
6.625%, due 6/1/00........... 173,491
439,000 Pennsylvania Power & Light Co.,
9.25%, due 10/1/19........... 477,390
165,000 Questar Pipeline, 9.375%, due
6/1/21....................... 184,082
70,000 Rohm & Haas Co., 9.80%, due
4/15/20...................... 84,824
675,000 Shopko Stores, 9.25%, due
3/15/22...................... 650,830
200,000 Southern California Edison,
7.375%, due 12/15/03......... 200,864
85,000 Southwestern Public Service
Co., 8.20%, due 12/1/22...... 89,562
40,000 Super Value Store, 8.875%, due
4/1/16....................... 40,631
192,000 TJX Cos. Inc., 9.50%, due
5/1/16....................... 195,740
250,000 Trans Financial Bancorp, 7.25%,
due 9/15/03.................. 242,072
68,000 U.S. Leasing Int'l, 6.625%, due
5/15/03...................... 66,858
</TABLE>
See Notes to Schedule of Investments. 6 TRANS ADVISER FUNDS, INC.
<PAGE>
INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS (continued)
FEBRUARY 28, 1997 (Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE BONDS, CONTINUED
$ 130,000 Union Electric Co., 8.00%, due
12/15/22..................... $ 133,404
500,000 Union Oil of California Corp.,
6.70%, due 10/15/07.......... 480,406
200,000 V.F. Corp., 7.60%, due 4/1/04.. 204,744
65,000 Wisconsin Electric Power,
7.75%, due 1/15/23........... 65,473
-------------
Total Corporate Bonds
(cost $8,515,941).......................... 8,361,937
-------------
GOVERNMENT AGENCY NOTES (6.2%)
500,000 FHLB, 6.62%, due 12/6/00....... 497,854
150,000 FNMA, 6.17%, due 12/2/03....... 144,653
265,000 TVA, 6.875%, due 1/15/02....... 266,217
50,000 TVA, 6.875%, due 8/1/02........ 50,132
30,000 TVA, 8.05%, due 7/15/24........ 29,844
-------------
Government Agency Notes
(cost $998,362)............................ 988,700
-------------
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
REPURCHASE AGREEMENTS (12.2%)
$ 1,955,394 The First Boston Corp., 5.38%,
due 3/3/97, to be repurchased
at $1,955,686 (cost
$1,955,394)(d)............... $ 1,955,394
-------------
TREASURY NOTES (21.9%)
3,500,000 U.S. Treasury Notes, 6.50%, due
8/15/05 (cost $3,553,437).... 3,490,151
-------------
SHORT-TERM HOLDINGS (0.0%)
5,006 1784 U.S. Treasury Money Market
Fund (cost $5,006)........... 5,006
-------------
Total Investments (100.0%)
(cost $16,209,985)(c)...................... $ 15,964,949
-------------
-------------
</TABLE>
See Notes to Schedule of Investments. 7 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997 (Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
MUNICIPAL BONDS (96.0%)
AIRPORT REVENUE (0.5%)
$ 50,000 Lexington-Fayette Urban County
Airport Corp., KY, First
Mortgage Revenue Bonds,
7.75%, due 4/1/08............ $ 53,562
-------------
ECONOMIC DEVELOPMENT REVENUE (11.5%)
100,000 Covington, KY, Municipal
Properties Corp. Revenue
Bonds, Series A, 8.25%, due
8/1/10, prerefunded 8/1/98 at
103.......................... 108,750
455,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #51, escrowed
to maturity, 6.30%, due
8/1/01....................... 487,418
70,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #32, 6.50%,
due 12/1/99.................. 73,762
200,000 Kentucky State Turnpike
Authority, Economic
Development Revenue Bonds,
7.25%, due 5/15/10,
prerefunded 5/15/00 at
101.50....................... 220,000
425,000 Kentucky State Turnpike
Authority Economic
Development Revenue Bonds,
Revitalization Projects,
escrowed to maturity, 7.00%,
due 5/15/99.................. 450,500
-------------
1,340,430
-------------
EDUCATION FACILITIES REVENUE (18.9%)
200,000 Hopkins County, KY, School
District Finance Corp.,
School Building Revenue
Bonds, 5.70%, due 6/1/06..... 209,250
495,000 Jefferson County, KY, School
District Finance Corp.,
School Building Revenue
Bonds, Series A, 4.875%, due
1/1/11....................... 464,062
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
EDUCATION FACILITIES REVENUE, CONTINUED
$ 750,000 Jefferson County, KY, School
District Finance Corp. School
Building Revenue Bonds,
Series A, MBIA insured,
5.00%, due 2/1/07............ $ 753,750
475,000 Kentucky Higher Education
Student Loan Corp., Insured
Student Loan Revenue Bonds,
Series B, 6.40%, due
6/1/00....................... 499,937
70,000 Lexington-Fayette Urban County
Government, KY, School
Buildings Revenue Bonds,
6.80%, due 10/1/01........... 76,563
200,000 University of Louisville, KY,
Revenue Bonds, Series H,
5.875%, due 5/1/12........... 206,000
-------------
2,209,562
-------------
GENERAL OBLIGATIONS--BOND BANK (2.5%)
305,000 Fern Creek, KY, Fire Protection
District, Holding Co., Inc.,
Revenue Bonds, Fire Station
#2, 5.75%, due 1/15/14....... 295,850
-------------
HEALTH CARE REVENUE (10.6%)
1,225,000 Kentucky Economic Development
Finance Authority, Hospital
Facilities Revenue Bonds,
Society National Bank LOC,
5.75%, due 11/1/05........... 1,241,844
-------------
HOUSING REVENUE (9.0%)
725,000 Boone County, KY, Public
Properties Corp. Revenue
Bonds, Sewer System Lease,
5.15%, due 12/1/12........... 695,094
270,000 Greater Kentucky Housing
Assistance Corp., Mortgage
Revenue Bonds, FHA/Section 8
Assisted Project, Series A,
MBIA/ FHA insured, 6.25%, due
7/1/22....................... 272,364
</TABLE>
See Notes to Schedule of Investments. 8 TRANS ADVISER FUNDS, INC.
<PAGE>
KENTUCKY TAX-FREE FUND
SCHEDULE OF INVESTMENTS (continued)
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
HOUSING REVENUE, CONTINUED
$ 100,000 Jefferson County, KY, Capital
Projects Corp. Revenue Bonds,
0.00% (5.75% effective
yield), due 8/15/99.......... $ 89,375
-------------
1,056,833
-------------
INDUSTRIAL DEVELOPMENT REVENUE (6.4%)
750,000 Clark County, KY, Industrial
Building Revenue Bonds,
Southern Wood Project, 7.00%,
due 12/1/08.................. 753,750
-------------
LEASING REVENUE (5.4%)
490,000 Jefferson County, KY, Capital
Projects Corp. Revenue Bonds,
5.65%, due 8/15/03........... 517,563
100,000 Kentucky State Property &
Buildings Commission Revenue
Bonds, Project #52, 6.50%,
due 8/1/11, Prerefunded
8/1/01 at 102................ 110,000
-------------
627,563
-------------
OTHER REVENUE (1.2%)
120,000 Puerto Rico Public Buildings
Authority Guaranteed Revenue
Bonds, Series K, 6.875%, due
7/1/21, prerefunded 7/1/02 at
101.50....................... 135,750
-------------
POLLUTION CONTROL REVENUE (19.8%)
450,000 Ashland, KY, PCR Bonds, Ashland
Oil, 7.375%, due 7/1/09...... 486,000
295,000 Ashland, KY, Solid Waste
Revenue Bonds, Ashland Oil,
Inc., Project, 7.20%, due
10/1/20...................... 314,913
235,000 Jefferson County, KY, PCR
Bonds, Louisville Gas &
Electric Co. Project A,
7.45%, due 6/15/15........... 256,150
<CAPTION>
FACE SECURITY
AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
POLLUTION CONTROL REVENUE, CONTINUED
$ 100,000 Kentucky State Pollution
Abatement & Water Reserve
Finance Authority Revenue
Bonds, Series A, escrowed to
maturity, 7.40%, due
8/1/02....................... $ 113,750
50,000 Louisville & Jefferson County,
KY, Metropolitan Sewer
District, Sewer & Drain
System Revenue Bonds Series
A, AMBAC insured, 6.50%, due
5/15/00...................... 53,250
385,000 Trimble County, KY, PCR Bonds,
7.625%, due 11/1/20,
Prerefunded 11/1/00 at 102... 431,681
600,000 Trimble County, KY, PCR Bonds,
Series A, 7.625%, due
11/1/20...................... 662,250
-------------
2,317,994
-------------
RESOURCE RECOVERY REVENUE (2.4%)
275,000 Kentucky State Turnpike
Authority Resource Recovery
Road Revenue, 6.00%, due
7/1/09....................... 275,770
-------------
TRANSPORTATION REVENUE (5.9%)
655,000 Kentucky State Turnpike
Authority Resource Recovery
Revenue Bonds, escrowed to
maturity, 6.125%, due
7/1/07....................... 691,844
-------------
UTILITIES REVENUE (1.9%)
200,000 Owensboro, KY, Electric Light &
Power Revenue Bonds, Series
A, 10.25%, due 1/1/09,
prerefunded 1/1/00 at 102.... 228,500
-------------
Total Municipal Bonds
(cost $11,188,810)......................... 11,229,252
-------------
SHORT TERM-HOLDINGS (4.0%)
466,600 1784 Tax Free Money Market Fund
(cost $466,600).............. 466,600
-------------
Total Investments (100.0%)
(cost $11,655,410)(c)...................... $ 11,695,852
-------------
-------------
</TABLE>
See Notes to Schedule of Investments. 9 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
ASSET BACKED SECURITIES (0.2%)
$ 226,593 FHLMC, 7.00%, due 4/1/97....... $ 226,698
-------------
DISCOUNT NOTES (20.4%)
4,376,000 FHLMC, 5.30% yield, due
3/3/97....................... 4,376,000
6,000,000 FHLMC, 5.28% yield, due
3/19/97...................... 5,986,155
6,700,000 FNMA, 5.31% yield, due
3/3/97....................... 6,700,000
3,000,000 FNMA, 5.31% yield, due
3/4/97....................... 2,999,564
-------------
Total Discount Notes......................... 20,061,719
-------------
GOVERNMENT AGENCY NOTES (0.8%)
200,000 FHLB, 6.99%, due 4/25/97....... 200,398
100,000 FHLB, 4.80%, due 7/24/97....... 99,476
500,000 FNMA, 6.84%, due 10/3/97....... 503,289
-------------
Total Government Agency Notes................ 803,163
-------------
CORPORATE NOTES (58.3%)
500,000 Alcan Aluminum, 6.375%, due
9/1/97....................... 500,717
100,000 Allied Corp., 0.00% (5.95%
effective yield), due
8/1/97....................... 97,605
1,373,000 American Express Credit Corp.,
7.75%, due 3/1/97............ 1,373,000
140,000 American General Finance Corp.,
5.80%, due 4/1/97............ 140,000
75,000 American General Finance Corp.,
7.15%, due 5/15/97........... 75,164
80,000 American General Finance Corp.,
7.70%, due 11/15/97.......... 80,941
703,000 American Home Products Corp.,
6.875%, due 4/15/97.......... 703,886
125,000 Associates Corp. of North
America, 9.70%, due 5/1/97... 125,749
1,005,000 Associates Corp. of North
America, 8.625%, due
6/15/97...................... 1,011,880
15,000 Associates Corp. of North
America, 6.75%, due
7/15/97...................... 15,050
30,000 Associates Corp. of North
America, 6.75%, due
7/15/97...................... 30,080
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE NOTES, CONTINUED
$ 1,470,000 Associates Corp. of North
America, 5.875%, due
8/15/97...................... $ 1,470,594
750,000 Associates Corp. of North
America, 7.75%, due
11/1/97...................... 758,588
110,000 Associates Corp. of North
America, 6.625%, due
11/15/97..................... 110,504
70,000 B.P. America, 9.50%, due
1/1/98....................... 71,912
75,000 Bank of Boston, 9.50%, due
8/15/97...................... 76,174
187,000 BankAmerica Corp., 6.00%, due
7/15/97...................... 186,999
175,000 Baxter International, Inc.,
7.50%, due 5/1/97............ 175,416
90,000 Bell Atlantic Financial,
6.625%, due 11/30/97......... 90,359
600,000 Beneficial Corp., 6.79%, due
11/20/97..................... 604,556
240,000 British Petroleum America,
Inc., 8.875%, due 12/1/97.... 245,010
485,000 Brunswick Corp., 8.125%, due
4/1/97....................... 485,791
164,000 CIT Group Holdings, Inc.,
8.75%, due 7/1/97............ 165,362
2,000,000 CSX Transportation, Inc., 5.93
%, due 6/1/97................ 1,999,915
55,000 Campbell Soup Co., 9.00%, due
11/1/97...................... 56,084
100,000 Carolina Power & Light Co.,
6.375%, due 10/1/97.......... 100,000
159,000 Coca-Cola Enterprises Inc.,
6.50%, due 11/15/97.......... 159,539
500,000 Commercial Credit Co., 8.125%,
3/1/97....................... 500,000
500,000 Conagra Inc., 9.75%, due
11/1/97...................... 512,573
125,000 Consolidated Edison, 5.30%, due
8/1/97....................... 124,699
100,000 Discover Credit, 7.98%, due
4/7/97....................... 100,173
430,000 Dow Capital, 5.75%, due
9/15/97...................... 429,098
</TABLE>
See Notes to Schedule of Investments. 10 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (continued)
FEBRUARY 28, 1997 (Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE NOTES, CONTINUED
$ 250,000 Dupont Corp., 8.65%, due
12/1/97...................... $ 255,222
200,000 Eastman Kodak Co., 8.55%, due
5/1/97....................... 200,866
205,000 Exxon Capital Corp., 7.875%,
due 8/15/97.................. 206,496
60,000 First Interstate Bancorp,
12.75%, due 5/1/97........... 60,632
1,682,000 Ford Holdings Inc., 9.25%, due
7/15/97...................... 1,701,846
250,000 Ford Motor Co., 5.30%, due
7/1/97....................... 249,408
125,000 Ford Motor Credit Co., 5.625%,
due 3/3/97................... 125,000
357,000 Ford Motor Credit Co., 6.80%,
due 8/15/97.................. 358,204
150,000 Ford Motor Credit Co., 7.125%,
due 12/1/97.................. 151,216
77,000 Ford Motor Credit Co., 8.00%,
due 12/1/97.................. 78,101
1,379,000 GMAC, 7.75%, due 4/15/97....... 1,382,185
220,000 GMAC, 8.375%, due 5/1/97....... 220,882
75,000 GMAC, 6.40%, due 7/30/97....... 75,016
75,000 GMAC, 7.00%, due 8/15/97....... 75,320
1,400,000 GMAC, 6.25%, due 9/12/97....... 1,405,076
1,000,000 GMAC, 7.85%, due 11/17/97...... 1,014,921
20,000 GTE California, 6.25%, due
1/15/98...................... 20,000
750,000 GTE North, Inc., 6.25%, due
7/1/97....................... 750,528
80,000 GTE South, Inc., 6.25%, due
11/15/97..................... 80,067
30,000 General Electric Capital,
8.00%, due 1/15/98........... 30,525
369,000 Golden West Financial Corp.,
10.25%, due 5/15/97.......... 372,192
2,100,000 Greyhound Financial Corp.,
8.25%, due 3/11/97........... 2,101,197
700,000 H.F. Ahmanson & Co., 6.00%, due
4/1/97....................... 700,000
78,000 Heinz (H.J.) Co., 5.50%, due
9/15/97...................... 77,833
4,010,000 Heller Financial, 7.75%, due
5/15/97...................... 4,026,170
965,000 Hospital Corp. of America,
9.00%, due 3/15/97........... 965,907
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE NOTES, CONTINUED
$ 85,000 Household Finance Co., 7.75%,
due 6/15/97.................. $ 85,434
375,000 IBM Corp., 6.375%, due
11/1/97...................... 376,087
100,000 IBM Credit Corp., 5.54%, due
8/18/97...................... 99,812
50,000 Interamerican Development Bank,
9.50%, due 10/15/97.......... 51,051
325,000 International Lease Finance,
5.50%, due 4/1/97............ 324,848
655,000 International Lease Finance,
6.50%, due 7/15/97........... 656,991
250,000 International Lease Finance,
6.75%, due 8/1/97............ 250,901
500,000 Iowa, Illinois Gas & Electric
Co., 5.875%, due 7/15/97..... 500,000
160,000 John Deere Capital, 7.20%, due
5/15/97...................... 160,395
4,020,000 Kellogg Co., 5.90%, due
7/15/97...................... 4,024,995
60,000 Kimberly-Clark Corp., 9.125%,
due 6/1/97................... 60,470
480,000 Lehman Brothers, Inc., 7.375%,
due 8/15/97.................. 483,534
376,000 Lehman Brothers Holdings, Inc.,
8.375%, due 4/1/97........... 376,733
760,000 Lehman Brothers Holdings, Inc.,
7.625%, due 6/15/97.......... 763,745
2,066,000 MGM Grand Hotels Financial
Corp., Defeased, 11.75%, due
5/1/97....................... 2,124,746
871,000 MGM Grand Hotels Financial
Corp., Defeased, 12.00%, due
5/1/02(b).................... 925,377
2,982,000 Marine Midland Banks, Inc.,
8.625%, due 3/1/97........... 2,982,000
285,000 Maytag Corp., 8.875%, due
7/1/97....................... 287,373
100,000 Monongahela Power, 6.50%, due
8/1/97....................... 100,026
125,000 Morgan Stanley Group, 5.65%,
due 6/15/97.................. 125,014
1,265,000 National Rural Utilities Corp.,
9.50%, due 5/15/97........... 1,273,487
</TABLE>
See Notes to Schedule of Investments. 11 TRANS ADVISER FUNDS, INC.
<PAGE>
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS (continued)
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE NOTES, CONTINUED
$ 390,000 New York Telephone Co., 4.625%,
due 10/1/97.................. $ 387,017
275,000 Norwest Corp., 7.70%, due
11/15/97..................... 278,426
130,000 Norwest Financial Inc., 6.00%,
due 8/15/97.................. 129,859
65,000 Norwest Financial Inc., 6.50%,
due 11/15/97................. 65,239
100,000 Paccar Financial Corp., 5.12%,
due 3/10/97.................. 99,984
183,000 Pacific, Gas, & Electric Co.,
4.625%, due 6/1/97........... 182,443
230,000 PepsiCo, Inc., 6.875%, due
5/15/97...................... 230,442
1,513,000 Philip Morris Cos., Inc.,
7.50%, due 3/15/97........... 1,513,729
300,000 Philip Morris Cos., Inc.,
9.75%, due 5/1/97............ 301,765
590,000 Philip Morris Cos., Inc.,
8.75%, due 6/15/97........... 594,305
30,000 Philip Morris Cos., Inc.,
9.35%, due 11/21/97.......... 30,726
485,000 Philip Morris Cos. Inc., 9.25%,
due 12/1/97.................. 496,301
45,000 Philip Morris Cos., Inc.,
6.375%, due 1/15/98.......... 45,137
190,000 Procter & Gamble Co., 6.85%,
due 6/1/97................... 190,375
50,000 Province of Ontario Global
Bond, 5.70%, due 10/1/97..... 49,941
360,000 Public Service Electric & Gas
Co., 6.875%, due 6/1/97...... 360,908
40,000 Public Service Electric & Gas
Co., 7.125%, due 11/1/97..... 40,282
1,115,000 Public Service Electric & Gas
Co., 7.125%, due 11/1/97..... 1,124,331
<CAPTION>
SECURITY
FACE AMOUNT DESCRIPTION VALUE
- - ------------ ------------------------------- -------------
<C> <S> <C>
CORPORATE NOTES, CONTINUED
$ 660,000 Quebec Province, 8.74%, due
7/21/97...................... $ 665,770
466,000 Sears Roebuck and Co., 9.25%,
due 8/1/97................... 471,962
830,000 Southern California Edison Co.,
6.125%, due 7/15/97.......... 830,936
205,000 Texaco Capital, 9.00%, due
11/15/97..................... 209,251
190,000 U.S. Leasing International,
Inc., 7.00%, due 11/1/97..... 191,383
135,000 Union Electric Co., 5.50%, due
3/1/97....................... 135,000
937,000 Unisys Corp., 15.00%, due
7/1/97....................... 964,938
650,000 Virginia Electric & Power Co.,
7.25%, due 3/1/97............ 650,000
85,000 WMX Technologies, 8.125%, due
2/1/98....................... 86,500
1,064,000 Wal-Mart Stores, Inc., 5.50%,
due 9/15/97.................. 1,063,000
716,000 Waste Management, Inc. 6.375%,
due 7/1/97................... 717,010
115,000 Wisconsin Natural Gas, 6.125%,
due 9/1/97................... 115,090
-------------
Total Corporate Notes........................ 57,517,297
-------------
REPURCHASE AGREEMENTS (20.3%)
19,973,319 The First Boston Corp., 5.38%,
due 3/3/97, to be repurchased
at 19,976,304 (d)............ 19,973,319
-------------
Total Investments (100.0%)................... $ 98,582,196
-------------
-------------
</TABLE>
See Notes to Schedule of Investments. 12 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS
- - ---------------------------------------------------------------------------
(a) Non-income producing securities.
(b) Variable rate demand notes are payable upon not more than one, seven or
thirty business days notice. Put bonds and notes have demand features which
mature within one year. The interest rate shown reflects the rate in effect.
(c) Aggregate cost for Federal tax purposes.
(d) The First Boston Corporation is a tri-party repurchase agreement
collateralized by various Federal Gold Loan Mortgage Corporation 6.50% to
8.50%, due 11/1/21 to 2/1/27, Par $705,941 and by various Federal National
Conventional Loan 6.00% to 9.00%, due 10/1/03 to 3/1/27, Par $24,865,226.
<TABLE>
<S> <C>
AMBAC American Municipal Bond Assurance Corporation
FHA Federal Housing Authority
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
GMAC General Motors Acceptance Corporation
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
PCR Pollution Control Revenue
SBA Small Business Administration
TVA Tennessee Valley Authority
</TABLE>
13 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH/ INTERMEDIATE
VALUE AGGRESSIVE BOND KENTUCKY MONEY MARKET
FUND GROWTH FUND FUND TAX-FREE FUND FUND
------------- -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost...................... $ 17,159,330 $ 8,115,391 $ 14,254,591 $ 11,655,410 $ 78,608,877
Repurchase Agreements at cost............ -- -- 1,955,394 -- 19,973,319
Net unrealized appreciation
(depreciation)......................... 3,469,550 1,277,867 (245,036) 40,442 --
------------- -------------- --------------- ------------- -------------
Total investments at value............. 20,628,880 9,393,258 15,964,949 11,695,852 98,582,196
Interest, dividends and other receivables.. 13,372 1,131 211,309 152,340 1,345,605
Receivable for Fund shares issued.......... 75,000 25,000 47 -- --
Organization costs, net of amortization
(Note 2)................................. 22,760 22,760 22,760 22,760 22,760
------------- -------------- --------------- ------------- -------------
Total Assets................................. 20,740,012 9,442,149 16,199,065 11,870,952 99,950,561
------------- -------------- --------------- ------------- -------------
LIABILITIES:
Dividends payable.......................... -- -- 73,869 26,034 319,424
Payable for securities purchased........... -- -- 48,161 -- 1,873,737
Payable for Fund shares redeemed........... 15,801 2,977 37,220 -- --
Payable to Trans Financial................. 26,993 -- -- -- 1,206
Payable to other related parties........... 11,831 15,064 12,286 28,388 66,618
------------- -------------- --------------- ------------- -------------
Total Liabilities............................ 54,625 18,041 171,536 54,422 2,260,985
------------- -------------- --------------- ------------- -------------
NET ASSETS................................... $ 20,685,387 $ 9,424,108 $ 16,027,529 $ 11,816,530 $ 97,689,576
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
COMPONENTS OF NET ASSETS:
Paid in capital............................ $ 17,439,553 $ 8,411,427 $ 16,227,629 $ 11,956,651 $ 97,691,530
Undistributed net investment income
(loss)................................... (90,354) (63,130) -- (173,707) --
Unrealized appreciation (depreciation) on
investments.............................. 3,469,550 1,277,867 (245,036) 40,442 --
Accumulated net realized gain (loss)....... (133,362) (202,056) 44,936 (6,856) (1,954)
------------- -------------- --------------- ------------- -------------
NET ASSETS................................... $ 20,685,387 $ 9,424,108 $ 16,027,529 $ 11,816,530 $ 97,689,576
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
SHARES OF BENEFICIAL INTEREST................ 1,554,603 755,681 1,625,149 1,155,557 97,691,530
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
NET ASSET VALUE PER SHARE, AND REDEMPTION
PRICE PER SHARE............................ $ 13.31 $ 12.47 $ 9.86 $ 10.23 $ 1.00
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
OFFERING PRICE PER SHARE, EXCEPT MONEY MARKET
(NAV DIVIDED BY (1 - 4.50%)).............. $ 13.94 $ 13.06 $ 10.32 $ 10.71 $ 1.00
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
</TABLE>
See Notes to Financial Statements. 14 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH/ AGGRESSIVE INTERMEDIATE KENTUCKY MONEY
VALUE GROWTH BOND TAX-FREE MARKET
FUND FUND FUND FUND FUND
------------ -------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income................................ $ 16,937 $ 7,330 $ 511,819 $ 432,568 $ 2,402,069
Dividend income................................ 65,970 5,885 -- -- --
------------ -------------- --------------- ----------- ------------
Total Investment Income.......................... 82,907 13,215 511,819 432,568 2,402,069
------------ -------------- --------------- ----------- ------------
EXPENSES:
Investment advisory (Note 3)................... 89,000 39,197 28,976 28,478 85,174
Administration (Note 3)........................ 13,512 12,500 12,500 12,500 63,881
Transfer agent (Note 3)........................ 12,809 12,445 11,847 13,654 10,336
Shareholder service (Note 3)................... 22,250 9,799 18,110 17,799 106,468
Custody........................................ 697 911 2,157 355 7,772
Accounting (Note 3)............................ 18,000 18,000 18,000 18,000 24,000
Legal (Note 3)................................. 9,767 6,568 9,468 11,320 12,402
Registration................................... 2,632 2,476 1,943 280 3,054
Audit.......................................... 7,946 7,522 8,376 8,431 9,300
Directors...................................... 967 417 821 915 4,721
Amortization of organization costs (Note 3).... 3,176 3,176 3,176 3,176 3,176
Miscellaneous.................................. 5,133 2,531 4,427 7,705 17,339
------------ -------------- --------------- ----------- ------------
Total Expenses................................... 185,889 115,542 119,801 122,613 347,623
Expenses reimbursed and fees waived
(Note 4)..................................... (12,628) (39,197) (58,242) (62,115) (70,760)
------------ -------------- --------------- ----------- ------------
Net Expenses..................................... 173,261 76,345 61,559 60,498 276,863
------------ -------------- --------------- ----------- ------------
NET INVESTMENT INCOME (LOSS)..................... (90,354) (63,130) 450,260 372,070 2,125,206
------------ -------------- --------------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments sold... (133,362) (201,524) 60,329 (4,068) (1,928)
Net change in unrealized appreciation
(depreciation) on investments................ 3,226,469 1,217,298 87,795 300,184 --
------------ -------------- --------------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS.................................... 3,093,107 1,015,774 148,124 296,116 (1,928)
------------ -------------- --------------- ----------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ 3,002,753 $ 952,644 $ 598,384 $ 668,186 $ 2,123,278
------------ -------------- --------------- ----------- ------------
------------ -------------- --------------- ----------- ------------
</TABLE>
See Notes to Financial Statements. 15 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31, 1996
AND THE SIX MONTHS ENDED FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH/ AGGRESSIVE INTERMEDIATE
VALUE GROWTH BOND
FUND FUND FUND
-------------------------- ------------------------ --------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
------------- ----------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS--September 1, 1995(a)............. $ -- $ -- $ --
- - ----------------------------------
------------- ------------ -------------
OPERATIONS:
Net investment income (loss)............... (50,747) (39,525) 601,786
Net realized gain (loss) on investments
sold..................................... 89,352 43,284 (15,393)
Net change in unrealized appreciation
(depreciation) on investments............ 243,081 60,569 (332,831)
------------- ------------ -------------
Net Increase in Net Assets Resulting from
Operations............................. 281,686 64,328 253,562
------------- ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................... -- -- (601,786)
------------- ------------ -------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares............................. 15,471,301 1,408,416 7,269,024 668,440 14,919,014 1,491,710
Reinvestment of distributions.............. -- -- -- -- 13,886 1,404
Redemption of shares....................... (645,322) (57,598) (783,438) (70,133) (1,227,784) (122,796)
------------- ----------- ------------ ---------- ------------- -----------
Net Increase (Decrease) in Capital
Transactions........................... 14,825,979 1,350,818 6,485,586 598,307 13,705,116 1,370,318
------------- ----------- ------------ ---------- ------------- -----------
----------- ---------- -----------
Net Increase (Decrease) in Net Assets...... 15,107,665 6,549,914 13,356,892
------------- ------------ -------------
NET ASSETS--August 31, 1996.................. 15,107,665 6,549,914 13,356,892
- - -----------------------------
------------- ------------ -------------
OPERATIONS:
Net investment income (loss)............... (90,354) (63,130) 450,260
Net realized gain (loss) on investments.... (133,362) (201,524) 60,329
Net change in unrealized appreciation
(depreciation) on investments............ 3,226,469 1,217,298 87,795
------------- ------------ -------------
Net Increase in Net Assets Resulting from
Operations............................. 3,002,753 952,644 598,384
------------- ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................... -- -- (450,260)
Net realized gain (loss) on investments
sold..................................... (44,429) (16,181) --
------------- ------------ -------------
Total Distribution to Shareholders....... (44,429) (16,181) (450,260)
------------- ------------ -------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares............................. 4,624,904 361,307 2,810,182 230,029 3,603,774 361,955
Reinvestment of distributions.............. 10,879 875 4,532 376 10,125 1,023
Redemption of shares....................... (2,016,385) (158,397) (876,983) (73,031) (1,091,386) (108,147)
------------- ----------- ------------ ---------- ------------- -----------
Net Increase (Decrease) in Capital
Transactions........................... 2,619,398 203,785 1,937,731 157,374 2,522,513 254,831
------------- ----------- ------------ ---------- ------------- -----------
----------- ---------- -----------
Net Increase (Decrease) in Net Assets...... 5,577,722 2,874,194 2,670,637
------------- ------------ -------------
NET ASSETS--February 28, 1997 (Unaudited).... $ 20,685,387 $ 9,424,108 $ 16,027,529
- - -----------------------------------------
------------- ------------ -------------
------------- ------------ -------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of operations.
</TABLE>
See Notes to Financial Statements. 16 TRANS ADVISER FUNDS, INC.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED AUGUST 31, 1996
AND THE SIX MONTHS ENDED FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
KENTUCKY MONEY
TAX-FREE MARKET
FUND FUND
------------------------- ----------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSETS--September 1, 1995(a)...................................... $ -- $ --
------------ -------------
- - ----------------------------------
OPERATIONS:
Net investment income (loss)........................................ 714,832 2,473,468
Net realized gain (loss) on investments sold........................ (2,788) 2,494
Net change in unrealized appreciation (depreciation)
on investments.................................................... (259,742) --
------------ -------------
Net Increase in Net Assets Resulting
from Operations................................................. 452,302 2,475,962
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income............................................... (828,883) (2,473,468)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares...................................................... 28,751,437 2,814,888 446,620,681 446,620,681
Reinvestment of distributions....................................... 559,139 57,538 84,304 84,304
Redemption of shares................................................ (13,093,506) (1,297,814) (370,344,632) (370,344,632)
------------ ----------- ------------- -------------
Net Increase (Decrease) in Capital Transactions................... 16,217,070 1,574,612 76,360,353 76,360,353
------------ ----------- ------------- -------------
----------- -------------
Net Increase (Decrease) in Net Assets............................... 15,840,489 76,362,847
------------ -------------
NET ASSETS--August 31, 1996........................................... 15,840,489 76,362,847
- - -----------------------------
------------ -------------
OPERATIONS:
Net investment income (loss)........................................ 372,070 2,125,206
Net realized gain (loss) on investments............................. (4,068) (1,928)
Net change in unrealized appreciation (depreciation)
on investments.................................................... 300,184 --
------------ -------------
Net Increase in Net Assets Resulting from
Operations...................................................... 668,186 2,123,278
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................... (431,726) (2,125,206)
Net realized gain (loss) on investments sold........................ -- (2,520)
------------ -------------
Total Distribution to Shareholders................................ (431,726) (2,127,726)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Sale of shares...................................................... 519,442 51,065 241,892,119 241,846,519
Reinvestment of distributions....................................... 180,402 17,695 193,146 193,146
Redemption of shares................................................ (4,960,263) (487,815) (220,754,088) (220,708,488)
------------ ----------- ------------- -------------
Net Increase (Decrease) in Capital Transactions................... (4,260,419) (419,055) 21,331,177 21,331,177
------------ ----------- ------------- -------------
----------- -------------
Net Increase (Decrease) in Net Assets............................... (4,023,959) 21,326,729
------------ -------------
NET ASSETS--February 28, 1997 (Unaudited)............................. $ 11,816,530 $ 97,689,576
- - -----------------------------------------
------------ -------------
------------ -------------
(a) See Note 1 of Notes to Financial Statements for date of commencement of operations.
</TABLE>
See Notes to Financial Statements. 17 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Trans Adviser Funds, Inc. (the "Company") is an open-end management investment
company incorporated under the laws of the State of Maryland. The Company
currently consists of five operational non-diversified investment portfolios,
the Growth/Value Fund, the Aggressive Growth Fund, the Intermediate Bond Fund,
the Kentucky Tax-Free Fund, and the Money Market Fund (each a "Fund" and
collectively the "Funds"). The Funds, except for Money Market Fund, are offered
at Net Asset Value ("NAV") plus a sales charge, currently 4.50% of NAV. The
Money Market Fund is offered at NAV. The Funds commenced investment operations
on the following dates:
<TABLE>
<S> <C>
Growth/Value Fund September 29, 1995
Aggressive Growth Fund September 29, 1995
Intermediate Bond Fund October 3, 1995
Kentucky Tax-Free Fund September 27, 1995
Money Market Fund September 29, 1995
</TABLE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates but are expected to be immaterial.
The following represent significant accounting policies of the Funds:
SECURITY VALUATION-All securities held by the Money Market Fund are valued
utilizing the amortized cost method, which approximates market value, in
accordance with Rule 2a-7 under the Investment Company Act of 1940. Securities,
other than short-term, held by the other Funds (the "Bond and Equity Funds") 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. Securities with a maturity of 60 days or less held by
the Bond and Equity Funds are valued at amortized cost.
PREMIUM AMORTIZATION AND DISCOUNT ACCRETION-In all Funds other than the Kentucky
Tax-Free Fund, if a fixed income investment is purchased at a premium, the
premium is not amortized. The Kentucky Tax-Free Fund amortizes premium on fixed
income investments to the maturity (or first call) date using the yield to
maturity method. 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 yield to maturity
method.
INTEREST AND DIVIDEND INCOME-Interest income is accrued as earned. Dividends on
securities held by the Funds are recorded on the ex-dividend date.
DISTRIBUTIONS TO SHAREHOLDERS-Distributions to shareholders of net investment
income, if any, are declared daily and paid monthly for the Money Market Fund,
the Kentucky Tax-Free Fund, and the Intermediate Bond Fund, and declared and
paid annually for the Aggressive Growth Fund and the Growth/Value Fund. Net
capital gain, if any, is distributed to shareholders at least annually.
Distributions are based on amounts calculated in accordance with applicable
income tax regulations.
ORGANIZATION COSTS-The costs incurred by the Funds in connection with their
organization and registration of shares have been capitalized and are being
amortized using the straight-line method over a five year period beginning with
the commencement of the respective Fund's operations. Certain of these costs
were paid by Forum Financial Services, Inc. and have been reimbursed by the
respective Funds.
18 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
FEDERAL TAXES-Each Fund intends to qualify and continue to qualify each year as
a regulated investment company and distribute all of its taxable income. In
addition, by distributing in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, each Fund
will not be subject to a federal excise tax. Therefore, no Federal income or
excise tax provision is required.
EXPENSE ALLOCATION-The Company accounts separately for the assets and
liabilities and operations of each Fund. Expenses that are directly attributable
to more than one Fund are allocated among the respective Funds.
REPURCHASE AGREEMENTS-The Aggressive Growth Fund, the Intermediate Bond Fund and
the Money Market Fund may invest in repurchase agreements. Each Fund, through an
agent bank under a tri-party agreement, receives delivery of the underlying
securities, whose market value must always equal or exceed the repurchase price
plus accrued interest. The investment adviser is responsible for determining the
value of the underlying securities at all times. In the event of default, the
Fund may have difficulties with the disposition of such securities.
REALIZED GAIN AND LOSS-Security transactions are accounted for on a trade date
basis and realized gain and loss on investments sold are determined on the basis
of identified cost.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser of the Funds is Trans Financial Bank, N.A. (the
"Adviser"). The Adviser receives a monthly advisory fee from the Growth/Value
Fund and the Aggressive Growth Fund at an annual rate of 1.00% of the respective
Fund's average daily net assets. The Adviser receives a monthly advisory fee
from the Intermediate Bond Fund and the Kentucky Tax-Free Fund at an annual rate
of 0.40% of the respective Fund's average daily net assets. The Adviser receives
a monthly advisory fee from the Money Market Fund at an annual rate of 0.20% of
the Fund's average daily net assets. Pursuant to a Sub - Advisory Agreement
between the Adviser and Mastrapasqua and Associates, Inc. ("M&A") (the
"Sub-Adviser"), the Adviser may delegate certain of its advisory
responsibilities to the Sub-Adviser. For its services, M&A is paid by the
Adviser as follows: with respect to the Aggressive Growth and the Growth/Value
Funds, the Adviser (not the Fund) pays to M&A an annual fee, calculated daily
and paid monthly, of 0.50% on the first $100 million of such Funds' combined
average daily net assets plus 0.25% of such Funds' combined average daily net
assets in excess of $100 million for its services, and, with respect to each
other, the Adviser (not the Fund) pays M&A an annual fee, calculated on a daily
basis and paid monthly, of 0.03% of average daily net assets for its services.
Effective October 24, 1996, the administrator of the Funds is Forum
Administrative Services, LLC ("FAS") and for its services it receives a fee for
each Fund equal to the greater of $25,000 per year or 0.15% of the annual
average daily net assets of each Fund. Forum Financial Services, Inc. ("Forum")
acts as the Company's distributor pursuant to a separate Distribution Agreement
with the Company. Forum receives no compensation under that agreement. In
addition, certain legal expenses were charged to the Company by FAS amounting to
$1,931.
Prior to October 24, 1996, the administrator of the Funds was Forum, and for its
services received a fee for each Fund equal to the greater of $25,000 per year
or 0.15% of the annual average daily net assets of each Fund.
Forum Financial Corp. ("FFC"), an affiliate of FAS and Forum, serves as the
Funds' transfer agent and dividend disbursing agent, and for those services
receives an annual fee of $12,000 plus account and series charges. The Company
has adopted a shareholder service plan under which the Company pays FAS a
shareholder servicing fee at an annual rate of 0.25% of the daily net assets of
each Fund. FAS may pay any or all amounts of these payments to various
institutions which provide shareholder servicing to their customers. FFC also
serves as the Company's fund accountant and is compensated for those services at
an amount of $36,000 per year per Fund plus certain amounts based upon the
number and types of portfolio transactions within each Fund.
19 TRANS ADVISER FUNDS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997 (Unaudited)
- - ----------------------------------------------------------------------------
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
The Adviser has voluntarily waived a portion of its fees and assumed certain
expenses of the Funds so that total expenses of the Funds would not exceed a
certain limitation. For the six months ended February 28, 1997, fees waived and
expenses reimbursed were as follows:
<TABLE>
<CAPTION>
FEES WAIVED EXPENSES REIMBURSED
------------- ----------------------
<S> <C> <C>
Growth/Value Fund.............................................. $ 12,628 $ --
Aggressive Growth Fund......................................... 39,197 --
Intermediate Bond Fund......................................... 28,976 29,266
Kentucky Tax-Free Fund......................................... 28,478 33,637
Money Market Fund.............................................. 70,760 --
</TABLE>
NOTE 5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales (including maturities) of securities
(excluding short-term investments) during the six months ended February 28, 1997
were as follows:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
------------------ ---------------------
<S> <C> <C>
Growth/Value Fund......................................... $ 6,225,001 $ 3,240,579
Aggressive Growth Fund.................................... 2,689,176 1,164,824
Intermediate Bond Fund.................................... 5,640,333 3,374,356
Kentucky Tax-Free Fund.................................... -- 4,519,568
</TABLE>
For the period ended February 28, 1997, aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over value for Federal income tax purposes were as follows:
<TABLE>
<CAPTION>
NET APPRECIATION
UNREALIZED APPRECIATION UNREALIZED DEPRECIATION (DEPRECIATION)
----------------------- ----------------------- -----------------
<S> <C> <C> <C>
Growth/Value Fund............... $ 3,848,668 $ 379,118 $ 3,469,550
Aggressive Growth Fund.......... 1,773,754 495,887 1,277,867
Intermediate Bond Fund.......... 30,934 275,970 (245,036)
Kentucky Tax-Free Fund.......... 77,419 36,977 40,442
</TABLE>
NOTE 6. CONCENTRATION OF CREDIT RISK
The Kentucky Tax-Free Fund invests substantially all of its assets in debt
obligations of issuers located in the state of Kentucky. The issuers' abilities
to meet their obligations may be affected by Kentucky economic or political
developments.
20 TRANS ADVISER FUNDS, INC.
<PAGE>
FINANCIAL HIGHLIGHTS
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AGGRESSIVE INTERMEDIATE
VALUE GROWTH BOND
FUND FUND FUND
SELECTED PER SHARE DATA AND ------------------------ ------------------------ ------------------------
RATIOS FOR A SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
SHARE OUTSTANDING THROUGHOUT ENDED ENDED ENDED ENDED ENDED ENDED
THE PERIOD 2/28/97(f) 8/31/96(a) 2/28/97(f) 8/31/96(a) 2/28/97(f) 8/31/96(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 11.18 $ 10.00 $ 10.95 $ 10.00 $ 9.75 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Investment Operations
Net Investment Income
(Loss).................... (0.06) (0.06)(c) (0.08) (0.11)(c) 0.31 0.57(c)
Net Realized and Unrealized
Gain (Loss) on
Investments............... 2.22 1.24 1.63 1.06 0.11 (0.25)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations.................. 2.16 1.18 1.55 0.95 0.42 0.32
----------- ----------- ----------- ----------- ----------- -----------
Distributions from
Net Investment Income....... (0.03) -- (0.03) -- (0.31) (0.57)
Net Realized Gain on
Investments............... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions........... (0.03) -- (0.03) -- (0.31) (0.57)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of
Period...................... $ 13.31 $ 11.18 $ 12.47 $ 10.95 $ 9.86 $ 9.75
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total Return(b)............ 42.67%(e) 11.80% 30.53%(e) 9.50% 8.79%(e) 3.23%
Ratio/Supplementary Data:
Net Assets at End of Period
(000's omitted)............. $ 20,685 $ 15,108 $ 9,424 $ 6,550 $ 16,028 $ 13,357
Ratios to Average Net Assets:
Expenses including
reimbursement/waiver
(e)....................... 1.95% 1.95% 1.95% 1.95% 0.85% 0.68%
Expenses excluding
reimbursement/waiver
(e)....................... 2.09% 2.83% 2.95% 5.05% 1.65% 2.04%
Net investment income (loss)
including
reimbursement/waiver
(e)....................... (1.02)% (0.62 )% (1.61 )% (1.26 )% 6.22% 6.31%
Average Commission Rate(d).... $ 0.0576 $ 0.0700 $ 0.0553 $ 0.0800 N/A N/A
Portfolio Turnover Rate....... 18.89% 21.12% 15.45% 15.70% 26.77% 12.38%
- - --------------------
</TABLE>
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total return calculation does not include sales charges.
(c) Using weighted average shares outstanding for the period.
(d) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
(e) Annualized.
(f) Unaudited.
21 TRANS ADVISER FUNDS, INC.
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- - ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
KENTUCKY MONEY
TAX-FREE MARKET
FUND FUND
SELECTED PER SHARE DATA AND ------------------------ ------------------------
RATIOS FOR A SIX MONTHS YEAR SIX MONTHS YEAR
SHARE OUTSTANDING THROUGHOUT ENDED ENDED ENDED ENDED
THE PERIOD 2/28/97(f) 8/31/96(a) 2/28/97(f) 8/31/96(a)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 10.06 $ 10.00 $ 1.00 $ 1.00
----------- ----------- ----------- -----------
Investment Operations
Net Investment Income
(Loss).................... 0.18 0.51(c) 0.03 0.05(c)
Net Realized and Unrealized
Gain (Loss) on
Investments............... 0.25 0.06 -- --
----------- ----------- ----------- -----------
Total from Investment
Operations.................. 0.43 0.57 0.03 0.05
----------- ----------- ----------- -----------
Distributions from
Net Investment Income....... (0.26) (0.51) (0.03) (0.05)
Net Realized Gain on
Investments............... -- -- -- --
----------- ----------- ----------- -----------
Total Distributions........... (0.26) (0.51) (0.03) (0.05)
----------- ----------- ----------- -----------
Net Asset Value, End of
Period...................... $ 10.23 $ 10.06 $ 1.00 $ 1.00
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Total Return(b)............ 8.90%(e) 5.80% 5.11%(e) 4.70%
Ratio/Supplementary Data:
Net Assets at End of Period
(000's omitted)............. $ 11,817 $ 15,840 $ 97,690 $ 76,363
Ratios to Average Net Assets:
Expenses including
reimbursement/waiver
(e)....................... 0.85% 0.82% 0.65% 0.65%
Expenses excluding
reimbursement/waiver
(e)....................... 1.72% 1.65% 0.82% 0.99%
Net investment income (loss)
including
reimbursement/waiver
(e)....................... 5.23% 5.30% 4.99% 4.94%
Average Commission Rate(d).... N/A N/A N/A N/A
Portfolio Turnover Rate....... 0.00% 145.12% N/A N/A
- - --------------------
</TABLE>
(a) See Note 1 of Notes to Financial Statements for date of commencement of
operations.
(b) Total return calculation does not include sales charges.
(c) Using weighted average shares outstanding for the period.
(d) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
(e) Annualized.
(f) Unaudited.
<PAGE>
COUNTRYWIDE TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 15, 1997
California Tax-Free Money Fund
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of the California Tax-Free Money Fund of
Countrywide Tax- Free Trust dated August 15, 1997. 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............... 7
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..........10
INVESTMENT LIMITATIONS.................................13
TRUSTEES AND OFFICERS................................. 15
THE INVESTMENT ADVISER AND UNDERWRITER.................18
DISTRIBUTION PLAN......................................20
SECURITIES TRANSACTIONS................................21
PORTFOLIO TURNOVER.....................................23
CALCULATION OF SHARE PRICE............................ 23
TAXES..................................................25
REDEMPTION IN KIND.....................................28
HISTORICAL PERFORMANCE INFORMATION.....................28
PRINCIPAL SECURITY HOLDERS.............................29
CUSTODIAN..............................................30
AUDITORS...............................................30
TRANSFER AGENT.........................................30
TAX EQUIVALENT YIELD TABLE.............................32
FINANCIAL STATEMENTS . . . ............................33
- 4 -
<PAGE>
THE TRUST
- ---------
Countrywide Tax-Free Trust (the "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 California Tax-Free
Money Fund, the Ohio 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 California Tax-Free Money 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 Florida Tax-Free Money Fund and
the Kentucky Tax-Free Fund is provided in separate Statements of Additional
Information. The Fund has its own investment objective and policies.
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.
Both Class A shares ("Retail Shares") and Class B shares
("Institutional Shares") of the Fund represent an interest in the same assets of
the Fund, have the same rights and are identical in all material respects except
that (i) Retail Shares bear the expenses of distribution fees; (ii) certain
class specific expenses will be borne solely by the class to which such expenses
are attributable, including transfer agent fees attributable to a specific class
of shares, printing and postage expenses related to preparing and
- 5 -
<PAGE>
distributing materials to current shareholders of a specific class, registration
fees incurred by a specific class of shares, the expenses of administrative
personnel and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares;
(iii) each class has exclusive voting rights with respect to matters affecting
only that class; and (iv) Retail Shares are subject to a lower minimum initial
investment requirement and offer certain shareholder services not available to
Institutional Shares such as checkwriting privileges and automatic investment
and redemption plans. The Board of Trustees may classify and reclassify shares
of the Fund into additional classes of shares at a future date.
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
- 6 -
<PAGE>
California Obligations, which are Municipal Obligations issued by the State of
California 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 both federal income tax
and California income 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.
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
- 7 -
<PAGE>
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, U.S. Government obligations or other liquid high-grade
debt instruments 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 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 the 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 (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
- 8 -
<PAGE>
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 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.
QUALITY RATINGS OF MUNICIPAL OBLIGATIONS
- ----------------------------------------
The Fund may invest in Municipal Obligations only if rated at the time
of purchase within the two highest grades assigned by any two nationally
recognized statistical rating organizations ("NRSROs") (or by any one NRSRO if
the obligation is rated by only that NRSRO). 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").
- 9 -
<PAGE>
Moody's Ratings
---------------
1. TAX-EXEMPT BONDS. The two highest ratings of Moody's for tax-exempt
bonds are Aaa and Aa. 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.
- 10 -
<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.
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 two highest ratings of S&P for tax-exempt
bonds are AAA and AA. 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. 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.
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).
- 11 -
<PAGE>
Fitch Ratings
--------------
1. TAX-EXEMPT BONDS. The two highest ratings of Fitch for tax-exempt
bonds are AAA and AA. 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. Fitch ratings may be modified by the
addition of a plus (+) or minus (-) sign.
2. TAX-EXEMPT NOTES. The ratings F-1+ and F-1 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.
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.
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.
- 12 -
<PAGE>
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 an obligation ceases to be rated or 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:
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Fund may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or of banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from fourteen days to one year) at a
stated or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The Fund will
only invest in bankers' acceptances of banks having a short-term rating of A-1
by Standard & Poor's Ratings Group or Prime-1 by Moody's Investors Service, Inc.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. The Fund will not
invest in time deposits maturing in more than seven days if, as a result
thereof, more than 10% of the value of its net assets would be invested in such
securities and other illiquid securities.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
one to two hundred seventy days) unsecured promissory notes issued by
corporations in order to finance their current operations. The Fund will only
invest in taxable commercial paper provided the paper is rated in one of the two
highest categories by any two NRSROs (or by any one NRSRO if the security is
rated by only that NRSRO). Certain notes may have floating or variable rates.
Variable and floating rate notes with a demand notice period exceeding seven
days will be subject to the Fund's restrictions on illiquid investments (see
"Investment Limitations") unless, in the judgment of the Adviser, subject to the
direction of the Board of Trustees, such note is liquid. The Fund does not
presently
- 13 -
<PAGE>
intend to invest in taxable commercial paper.
The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. These factors are all considered in
determining whether the commercial paper is rated Prime-1 or Prime-2. Commercial
paper rated A (highest quality) by Standard & Poor's Ratings Group has the
following characteristics: liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed; the issuer has access to at least two
additional channels of borrowing; basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and the reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A- 1 or A-2.
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. 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
10% 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
- 14 -
<PAGE>
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 the 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 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
- 15 -
<PAGE>
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
receive 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.
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).
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 outstanding
shares of the Fund. 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
- 16 -
<PAGE>
for the payment of principal of and interest on such obligations.
THE LIMITATIONS APPLICABLE TO THE FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except from a bank
for temporary purposes only, provided that, when made, such temporary borrowings
are in an amount not exceeding 10% 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.
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 10% of the value of its total assets in connection with borrowings.
3. Underwriting. The Fund will not act as underwriter of securities
issued by other persons. 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. Illiquid Investments. The Fund will not invest more than 10% of its
net assets in securities for which there are legal or contractual restrictions
on resale, repurchase agreements maturing in more than seven days and other
illiquid securities.
5. Real Estate. The Fund will not purchase, hold or deal in real
estate. This limitation is not applicable to investments in securities which are
secured by or represent interests in real estate.
6. Commodities. The Fund will not purchase, hold or deal in commodities
or commodities futures contracts, or invest in oil, gas or other mineral
explorative or development programs. This limitation is not applicable to the
extent that the tax-exempt obligations, U.S. Government obligations and other
securities in which the Fund may otherwise invest would be considered to be such
commodities, contracts or investments.
- 17 -
<PAGE>
7. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities, or (b) by engaging in repurchase agreements. For
purposes of this limitation, the term "loans" shall not include the purchase of
a portion of an issue of tax-exempt obligations or publicly distributed bonds,
debentures or other securities.
8. 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.
9. Short Sales and Options. The Fund will not sell any securities short
or sell put and call options. This limitation is not applicable to the extent
that sales by the Fund of tax-exempt obligations with puts attached or sales by
the Fund of other securities in which the Fund may otherwise invest would be
considered to be sales of options.
10. 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 its total assets in securities of other investment
companies.
11. 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.
12. Senior Securities. The Fund will not issue or sell any class of
senior security as defined by the Investment Company Act of 1940 except to the
extent that notes evidencing temporary borrowings or the purchase of securities
on a when-issued basis might be deemed as such.
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.
The Trust has never pledged, mortgaged or hypothecated the assets of
the Fund, and the Trust presently intends to continue this policy. The Trust has
never acquired, nor does it presently intend to acquire, securities issued by
any other investment company or investment trust. The Fund will not purchase
securities for which there are legal or
- 18 -
<PAGE>
contractual restrictions on resale or enter into a repurchase agreement maturing
in more than seven days if, as a result thereof, more than 10% of the value of
its net assets would be invested in such securities. The statements of intention
in this paragraph reflect nonfundamental policies which may be changed by the
Board of Trustees without shareholder approval.
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 Family of Funds (consisting of the Trust, Countrywide
Investment Trust and Countrywide Strategic Trust) for the fiscal year ended June
30, 1996. 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.
<TABLE>
<S>
<C> <C> <C> <C> <C>
AGGREGATE
COMPENSATION COMPENSATION
FROM FROM
NAME AGE POSITION HELD TRUST COUNTRYWIDE FAMILY
Donald L. Bodgon, MD 66 Trustee $ 0 $ 0
John R. Delfino 63 Trustee 0 0
+H. Jerome Lerner 58 Trustee 2,467 7,500
*Robert H. Leshner 57 President/Trustee 0 0
*Angelo R. Mozilo 58 Chairman/Trustee 0 0
+Oscar P. Robertson 57 Trustee 1,167 4,700
John F. Seymour, Jr. 59 Trustee 0 0
+Sebastiano Sterpa 67 Trustee 0 0
Robert G. Dorsey 40 Vice President 0 0
John F. Splain 40 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.
</TABLE>
- 19 -
<PAGE>
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., 435 Arden Avenue, 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.
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 Investment Trust and Countrywide Strategic
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-
- 20 -
<PAGE>
dealer), each a subsidiary of Countrywide Credit Industries, Inc. He is
Chairman and a Trustee of Countrywide Investment Trust and Countrywide
Strategic Trust. He is also Vice Chairman of CWM Mortgage Holdings, Inc.
(a publicly-held real estate 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). Until 1994 he was a director of the California
Housing Finance Agency.
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., 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., Capital
Square Funds, The Dean Family of Funds and The New York State Opportunity Funds
and Assistant Vice President of Williamsburg Investment Trust, Schwartz
Investment Trust, Fremont Mutual Funds, Inc., 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 Secretary and General Counsel of Countrywide Investments, Inc. and
Countrywide Financial Services, Inc. and Vice President, Secretary and General
Counsel of Countrywide Fund Services, Inc. He is also Secretary of 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. and Assistant Secretary
of Schwartz Investment Trust, Fremont Mutual Funds, Inc., Capitol Square Funds,
The Gannett Welsh & Kotler Funds, Interactive Investments, The Dean Family of
Funds and the New York State Opportunity Funds.
- 21 -
<PAGE>
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Vice
President and Fund Controller of Countrywide Fund Services, Inc. He is also
Treasurer of Countrywide Investment Trust, Countrywide Strategic 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., Capitol Square Funds, The
Dean Family of Funds and the New York State Opportunity Funds and Assistant
Treasurer of Schwartz Investment Trust, The Tuscarora Investment Trust, The
Gannett Welsh & Kotler Funds and Interactive Investments and Assistant Secretary
of Fremont Mutual Funds, Inc.
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 Investment
Trust and Countrywide Strategic Trust.
THE INVESTMENT ADVISER AND UNDERWRITER
- ---------------------------------------
Countrywide Investments, Inc. (the "Adviser"), formerly Midwest Group
Financial Services, Inc., 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 may be 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.
For the fiscal years ended June 30, 1996, 1995 and 1994, the Fund
accrued advisory fees of $142,143, $113,878 and $126,852, respectively; however,
the Adviser voluntarily waived $6,600, $34,500 and $66,715 of such fees for the
fiscal years ended June 30, 1996,
- 22 -
<PAGE>
1995 and 1994, respectively, in order to reduce the operating expenses of the
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 Retail Shares to the extent that such expenses are
not assumed by the Retail Shares under its plan of distribution (see below). The
Adviser pays from its own resources promotional expenses in connection with the
distribution of the Fund's Institutional Shares. The compensation and expenses
of any officer, Trustee or employee of the Trust who is an officer, director,
employee or stockholder of the Adviser are paid by the Adviser.
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 the 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.
Retail Shares of the Fund may compensate dealers, including the
Adviser and its affiliates, based on the average balance of all accounts in
Retail Shares for which the dealer is designated as the party responsible for
the account. See "Distribution Plan" below.
- 23 -
<PAGE>
DISTRIBUTION PLAN
- -----------------
As stated in the Prospectus, Retail Shares of the Fund have adopted a
plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits Retail Shares to pay for expenses
incurred in the distribution and promotion of the Fund's Retail 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 Class A Plan expressly
limits payment of the distribution expenses listed above in any fiscal year to a
maximum of .25% of the average daily net assets of Retail Shares of the Fund.
Unreimbursed expenses will not be carried over from year to year.
For the fiscal year ended June 30, 1996, the aggregate
distribution-related expenditures for Retail Shares of the Fund under the Class
A Plan were $8,687 of which $7,000 was for payments to broker-dealers and others
for the sale or retention of Retail Shares and $1,687 was for the preparation of
prospectuses and reports for prospective shareholders.
Agreements implementing the Class A Plan (the "Implementation
Agreements"), including agreements with dealers wherein such dealers agree for a
fee to act as agents for the sale of the Fund's Retail Shares, are in writing
and have been approved by the Board of Trustees. All payments made pursuant to
the Class A Plan are made in accordance with written agreements.
The continuance of the Class A 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 Class A Plan or
any Implementation Agreement (the "Independent Trustees") at a meeting called
for the purpose of voting on such continuance. The Class A 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 Retail Shares of the
Fund. In the event the Class A Plan is terminated in accordance with its terms,
Retail Shares 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
- 24 -
<PAGE>
Independent Trustees or by a vote of the holders of a majority of the
outstanding Retail Shares on not more than 60 days' written notice to any other
party to the Implementation Agreement. The Class A Plan may not be amended to
increase materially the amount to be spent for distribution without shareholder
approval. All material amendments to the Class A 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 Class A 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 Class A Plan will benefit the
Fund and the holders of its Retail Shares. The Board of Trustees believes that
expenditure of assets of Retail Shares for distribution expenses under the Class
A Plan should assist in the growth of such shares which will benefit the Fund
and the holders of its Retail Shares through increased economies of scale,
greater investment flexibility, greater portfolio diversification and less
chance of disruption of planned investment strategies. The Class A 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 Retail Shares' assets for distribution will be realized.
While the Class A Plan is in effect, all amounts spent by Retail Shares 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 Class
A Plan and the Implementation Agreements.
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.
- 25 -
<PAGE>
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 have been paid by the Fund during the last
three fiscal years.
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.
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
- 26 -
<PAGE>
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 Adviser intends to hold the portfolio securities of the Fund to
maturity and to limit portfolio turnover to the extent possible. Nevertheless,
changes in the Fund's portfolio will be made promptly when determined to be
advisable by reason of developments not foreseen at the time of the original
investment decision, and usually without reference to the length of time a
security has been held.
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. The Adviser anticipates that the Fund's portfolio turnover rate normally
will not exceed 100%. A 100% turnover rate would occur if all of the portfolio
securities were replaced once within a one year period.
CALCULATION OF SHARE PRICE
- --------------------------
The share price (net asset value) of the Fund's shares is determined
as of 12:00 noon and 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
- 27 -
<PAGE>
Year's 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, see "Calculation
of Share Price" in the Prospectus.
Pursuant to Rule 2a-7 promulgated under the Investment Company Act of
1940, the Fund values its portfolio securities on an amortized cost basis. The
use of the amortized cost method of valuation involves valuing an instrument at
its cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value of the
Fund is affected by any unrealized appreciation or depreciation of the
portfolio. The Board of Trustees has determined in good faith that utilization
of amortized cost is appropriate and represents the fair value of the portfolio
securities of the Fund.
Pursuant to Rule 2a-7, the Fund maintains a dollar-weighted average
portfolio maturity of 90 days or less, purchases only securities having
remaining maturities of thirteen months or less and invests only in United
States dollar-denominated securities determined by the Board of Trustees to be
of high quality and to present minimal credit risks. If a security ceases to be
an eligible security, or if the Board of Trustees believes such security no
longer presents minimal credit risks, the Trustees will cause the Fund to
dispose of the security as soon as possible.
The maturity of a floating or variable rate instrument subject to a
demand feature held by the Fund will be determined as follows, provided that the
conditions set forth below are met. The maturity of a floating rate instrument
with a demand feature (or a participation interest in such a 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 a
variable rate instrument with a demand feature (or a participation interest in
such a 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.
The demand feature of each such instrument must entitle the Fund to
receive the principal amount of the instrument plus accrued interest, if any, at
the time of exercise and must be exercisable either (1) at any time upon no more
than thirty days' notice or
- 28 -
<PAGE>
(2) at specified intervals not exceeding thirteen months and upon no more than
thirty days' notice. Furthermore, the maturity of any such instrument may only
be determined as set forth above as long as the instrument continues to receive
a short-term rating in one of the two highest categories from any two nationally
recognized statistical rating organizations ("NRSROs") (or from any one NRSRO if
the security is rated by only that NRSRO). However, an instrument having a
demand feature other than an "unconditional" demand feature must have both a
short-term and a long-term rating in one of the two highest categories from any
two NRSROs (or from any one NRSRO if the security is rated by only that NRSRO).
An "unconditional" demand feature is one that by its terms would be readily
exercisable in the event of a default on the underlying instrument.
The Board of Trustees has established procedures designed to stabilize,
to the extent reasonably possible, the price per share of the Fund as computed
for the purpose of sales and redemptions at $1 per share. The procedures include
review of the Fund's portfolio holdings by the Board of Trustees to determine
whether the Fund's net asset value calculated by using available market
quotations deviates more than one-half of one percent from $1 per share and, if
so, whether such deviation may result in material dilution or is otherwise
unfair to existing shareholders. In the event the Board of Trustees determines
that such a deviation exists, it will take corrective action as it regards
necessary and appropriate, including the sale of portfolio securities prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturities; withholding dividends; redemptions of shares in kind; or
establishing a net asset value per share by using available market quotations.
The Board of Trustees has also established procedures designed to ensure that
the Fund complies with the quality requirements of Rule 2a-7.
While the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument. During periods of declining interest rates, the daily yield
on shares of the Fund may tend to be higher than a like computation made by a
fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by the Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values and existing investors would
receive less investment income. The converse would apply in a period of rising
interest rates.
- 29 -
<PAGE>
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 has qualified and 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 forward contracts) derived with respect to its business of investing in
stock, securities or currencies; (ii) derive less than 30% of its gross income
in each taxable year from the sale or other disposition of the following assets
held for less than three months: (a) stock or securities, (b) options, futures
or forward contracts not directly related to its principal business of investing
in stock or securities; and (iii) 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
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<PAGE>
tax-exempt percentage during any particular month.
The Fund intends to invest primarily in obligations with interest
income exempt from federal income taxes. To the extent possible, the Fund
intends to invest primarily in obligations the income from which is exempt from
California income 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
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.
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. Capital 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. As of June 30, 1996, the Fund had a capital loss
carryforward for federal income tax purposes of $1,580, which expires on June
30, 2002. - 31 -
<PAGE>
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 the net asset value of the Fund 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 such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
Yield quotations on investments in the Fund are provided on both a
current and an effective (compounded) basis. Current yields are calculated by
determining the net change in the value of a hypothetical account for a seven
calendar day period (base period) with a beginning balance of one share,
dividing by the value of the account at the beginning of the base period to
obtain the base period return, multiplying the result by (365/7) and carrying
the resulting yield figure to the nearest hundredth of one percent. Effective
yields reflect daily compounding and are calculated as follows: Effective yield
= (base
- 32 -
<PAGE>
period return + 1)365/7 - 1. For purposes of these calculations, no effect is
given to realized or unrealized gains or losses (the Fund does not normally
recognize unrealized gains and losses under the amortized cost valuation
method). The current and effective yields of Retail Shares for the seven days
ended June 30, 1996 were 2.74% and 2.78%, respectively. The Fund may also quote
a tax-equivalent current or effective yield, computed by dividing that portion
of the Fund's current or effective yield which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield that is not tax-exempt. Based on the highest combined marginal federal and
California income tax rate for individuals (46.24%), the tax-equivalent current
and effective yields of Retail Shares for the seven days ended June 30, 1996
were 5.10% and 5.17%, respectively.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance. Yield quotations
are computed separately for Retail Shares and Institutional Shares of the Fund.
The yield of Institutional Shares is expected to be higher than the yield of
Retail Shares due to the distribution fees imposed on Retail Shares.
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 forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:
Donoghue's Money Fund Report provides a comparative analysis of
performance for various categories of money market funds. The Fund may compare
performance rankings with money market funds appearing in the Tax Free State
Specific Stockbroker & General Purpose Funds category. 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
California Tax-Exempt Money Market Funds category.
- 33 -
<PAGE>
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 May 23, 1997, Daniel R. Manning Trust, Ronald Lee Grinker
Trustee, 7605 Production Drive, Cincinnati, Ohio owned of record 8.09% of the
outstanding shares of the Fund; Fiduciary Trust Co. International Customer's
Account, Two World Trade Center, New York, New York owned of record 8.37% of the
outstanding shares of the Fund; and Bear Stearns & Co. FBO #5205547218, One
MetroTech Center North, Brooklyn, New York owned of record 6.15% of the
outstanding shares of the Fund. As of May 23, 1997, the Trustees and officers of
the Trust as a group owned of record and beneficially less than 1% of the
outstanding shares of the Trust and of 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.
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 Trust 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
- 30 -
<PAGE>
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 $25 per account from the Fund, provided, however, that the
minimum fee is $1,000 per month for each class of shares of 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 - $100,000,000 $4,250
$100,000,000 - $250,000,000 $4,750
$250,000,000 - $400,000,000 $5,250
Over $400,000,000 $5,750
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 equal to the annual rate of .1% of the average value of the Fund's daily
net assets. 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.
- 31 -
<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
California 1997 income tax rates. Where more than one state bracket falls within
a federal bracket, the highest state tax bracket has been combined with the
federal bracket. 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>
CALIFORNIA TAX-FREE MONEY FUND
Taxable Income Tax-Exempt Yield
Combined
Single Joint California 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
Return Return and Federal
Tax Bracket Tax Equivalent Yield
- --------------------------------------------------------------------------------------------------------
Not Over $24,650 Not Over $41,200 20.100% 3.13% 3.75% 4.38% 5.01% 5.63% 6.26%
$24,650-$59,750 $41,200-$99,600 34.696% 3.83 4.59 5.36 6.13 6.89 7.66
$59,750-$124,650 $99,600-$151,750 37.900% 4.03 4.83 5.64 6.44 7.25 8.05
$124,650-$271,050 $151,750-$271,050 43.040% 4.39 5.27 6.14 7.02 7.90 8.78
Over $271,050 Over $271,050 46.244% 4.65 5.58 6.51 7.44 8.37 9.30
</TABLE> - 32 -
<PAGE>
FINANCIAL STATEMENTS
- --------------------
The Fund's audited financial statements as of June 30, 1996 appear in the
Trust's annual report which is attached to this Statement of Additional
Information. The Fund's unaudited financial statements as of December 31, 1996
appear in the Trust's semiannual report which is also attached to this Statement
of Additional Information.
- 33 -
<PAGE>
ANNUAL REPORT
JUNE 30, 1996
OHIO TAX-FREE
Money Fund
o
TAX-FREE
Money Fund
o
CALIFORNIA TAX-FREE
Money Fund
o
ROYAL PALM FLORIDA TAX-FREE
Money Fund
o
TAX-FREE INTERMEDIATE
Term Fund
o
OHIO INSURED
Tax-Free Fund
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
==============================================================================
The Tax-Free Intermediate Term Fund seeks high current income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-grade municipal obligations maturing within twenty years or
less with a dollar-weighted average portfolio maturity under normal market
conditions of between three and ten years. To the extent consistent with the
Fund's primary objective, capital appreciation is a secondary objective. For
the fiscal year ended June 30, 1996, the Fund's total returns (excluding the
impact of applicable sales loads) were 4.51% and 4.00% for Class A shares and
Class C shares, respectively. The yield for the Fund's Class A shares at June
30, 1996 was 4.54%, which is equivalent to a taxable yield of 7.52%, and the
yield for the Fund's Class C shares was 4.14%, which is equivalent to a
taxable yield of 6.85%, assuming the maximum federal income tax bracket for
individuals.
The Ohio Insured Tax-Free Fund seeks the highest level of interest income
exempt from federal income tax and Ohio personal income tax, consistent with
protection of capital. The Fund invests primarily in high and medium-quality
long-term Ohio municipal obligations which are protected by insurance
guaranteeing the payment of principal and interest in the event of a default.
For the fiscal year ended June 30, 1996, the Fund's total returns (excluding
the impact of applicable sales loads) were 5.05% and 4.44% for Class A shares
and Class C shares, respectively. The yield for the Fund's Class A shares at
June 30, 1996 was 4.91%, which is equivalent to a taxable yield of 8.79%, and
the yield for the Fund's Class C shares was 4.62%, which is equivalent to a
taxable yield of 8.27%, assuming the maximum combined federal and Ohio income
tax bracket for individuals.
Interest rates continued to decline in the second half of 1995 in response to
moderating economic growth and declining fears of inflation. Entering 1996,
interest rates were expected to remain low, aided by a slow economy. However,
this scenario changed dramatically in February as strong employment growth
indicated the economy was performing much better than expected. In the months
that followed, employment continued to surge, as did the overall economy.
Yields on bonds rose as investors anticipated a subsequent rise in the level
of inflation. Thus far, concerns about inflation have proved unwarranted.
Nevertheless, the damage had been done and interest rates at June 30, 1996
were higher by about 1% than they were at the beginning of 1996.
Performance in the municipal bond market during the first six months of the
fiscal year lagged the performance of the Treasury market. This was due
primarily to the persistent discussions regarding tax reform. The fears that
municipal income would lose its tax preference kept many investors out of the
market. As 1996 began and tax reform appeared less likely, investors began to
recognize the value of municipals compared to Treasuries. This caused
municipal bonds to outperform Treasury issues over the next six months. For
the twelve months ended June 30, 1996, the Lehman Brothers 5-Year Municipal
G.O. Bond Index returned 5.41% while the Lehman Brothers 15-Year Municipal
G.O. Bond Index returned 7.20%.
Performance of the Tax-Free Intermediate Term Fund was favorable in the first
half of the fiscal year as the average maturity was lengthened to take
advantage of declining interest rates. Conversely, the sharp reversal of
interest rates beginning in February 1996 negatively impacted the Fund's
performance versus the Lehman Brothers 5-Year Municipal G.O. Bond Index. We
have since shortened the average maturity of the Fund and continue to focus on
high quality issues which we believe will help to buffer the impact of
volatile market swings.
The Ohio Insured Tax-Free Fund performed comparably to the Lehman Brothers
15-Year Municipal G.O. Bond Index during the first six months of the fiscal
year. Again, the rise in interest rates experienced early in 1996, combined
with an average maturity slightly longer than the Index, had a detrimental
impact on the Fund's third quarter performance. Late in the fiscal year, we
initiated portfolio sales designed to generate tax losses for the Fund to
offset realized gains and, at the same time, shorten the Fund's average
maturity. This helped the Fund outperform the Index during the quarter ended
June 30, 1996.
Looking ahead, the economy appears strong as evidenced by robust second
quarter growth and employment which has continued to grow. Although there have
been some recent signs that the economy may be slowing, most notably in the
housing and manufacturing sectors, more evidence is necessary to confirm a
changing trend. As 1996 progresses, we believe that the economy will weaken
and interest rates will move lower; however, the timing of the slowdown
remains in question.
<PAGE>
APPENDIX
A representation of the graphic material contained in the Midwest Group Tax
Free Trust June 30, 1996 Annual Report is setforth below:
Comparison of the Change in Value since June 30, 1986 of a $10,000 Investment
in the Tax-Free Intermediate Term Fund* and the Lehman Brothers 5-Year Municipal
G.O. Index
<TABLE>
LEHMAN BROTHERS 5-YEAR MUNICIPAL G.O. INDEX: TAX-FREE INTERMEDIATE TERM FUND-CLASS A:
<S> <C> <C> <C> <C> <C>
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
06/30/86 10,000 06/30/86 9,800
09/30/86 3.69% 10,369 09/30/86 2.14% 10,010
12/31/86 2.63% 10,642 12/31/86 2.08% 10,219
03/31/87 2.28% 10,884 03/31/87 1.47% 10,369
06/30/87 -0.92% 10,784 06/30/87 -0.54% 10,313
09/30/87 -2.06% 10,562 09/30/87 -1.38% 10,171
12/31/87 3.82% 10,966 12/31/87 2.19% 10,395
03/31/88 3.10% 11,305 03/31/88 2.35% 10,639
06/30/88 0.42% 11,353 06/30/88 0.71% 10,714
09/30/88 1.14% 11,482 09/30/88 1.14% 10,836
12/31/88 0.61% 11,552 12/31/88 1.16% 10,962
03/31/89 -0.28% 11,520 03/31/89 0.79% 11,048
06/30/89 4.70% 12,061 06/30/89 2.56% 11,331
09/30/89 1.11% 12,195 09/30/89 1.54% 11,505
12/31/89 2.99% 12,560 12/31/89 2.32% 11,773
03/31/90 0.48% 12,620 03/31/90 0.57% 11,840
06/30/90 2.24% 12,903 06/30/90 1.78% 12,050
09/30/90 1.06% 13,040 09/30/90 0.47% 12,108
12/31/90 3.32% 13,473 12/31/90 3.11% 12,483
03/31/91 2.15% 13,762 03/31/91 1.93% 12,724
06/30/91 1.75% 14,003 06/30/91 1.69% 12,939
09/30/91 3.55% 14,500 09/30/91 2.89% 13,313
12/31/91 3.35% 14,986 12/31/91 2.29% 13,619
03/31/92 -0.08% 14,974 03/31/92 0.48% 13,684
06/30/92 3.25% 15,461 06/30/92 2.87% 14,076
09/30/92 2.49% 15,846 09/30/92 2.19% 14,384
12/31/92 1.59% 16,098 12/31/92 1.98% 14,669
03/31/93 2.54% 16,507 03/31/93 3.40% 15,167
06/30/93 2.36% 16,896 06/30/93 2.78% 15,589
09/30/93 2.16% 17,261 09/30/93 3.17% 16,083
12/31/93 1.23% 17,473 12/31/93 1.19% 16,274
03/31/94 -3.15% 16,923 03/31/94 -3.37% 15,724
06/30/94 1.34% 17,150 06/30/94 0.82% 15,853
09/30/94 0.81% 17,289 09/30/94 0.57% 15,943
12/31/94 -0.33% 17,232 12/31/94 -0.91% 15,797
03/31/95 4.06% 17,931 03/31/95 4.34% 16,484
06/30/95 2.55% 18,388 06/30/95 2.29% 16,861
09/30/95 2.73% 18,890 09/30/95 2.07% 17,209
12/31/95 1.83% 19,236 12/31/95 2.43% 17,627
03/31/96 0.32% 19,299 03/31/96 -0.43% 17,552
06/30/96 0.43% 19,382 06/30/96 0.40% 17,622
</TABLE>
Past performance is not predictive of future performance.
Tax-Free Intermediate Term Fund Average Annual Total Returns
1 Year 5 Years 10 Years Since Inception
Class A 2.42% 5.94% 5.83% 6.34%
Class C 4.00% N/A N/A 2.57%
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. Fund inception was
September 10, 1981, and the initial public offering of Class C shares commenced
on February 1, 1994.
<PAGE>
Comparison of the Change in Value since June 30, 1986 of a $10,000 Investment
in the Ohio Insured Tax-Free Fund* and the Lehman Brothers 15-Year Municipal
G.O. Index
<TABLE>
LEHMAN BROTHERS 15-YEAR MUNICIPAL G.O. INDEX: OHIO INSURED TAX-FREE FUND-CLASS A:
<S> <C> <C> <C> <C> <C>
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
06/30/86 10,000 06/30/86 9,600
09/30/86 6.37% 10,637 09/30/86 4.23% 10,006
12/31/86 3.60% 11,020 12/31/86 3.60% 10,366
03/31/87 2.71% 11,319 03/31/87 2.58% 10,634
06/30/87 -4.83% 10,772 06/30/87 -3.65% 10,246
09/30/87 -3.49% 10,396 09/30/87 -2.38% 10,002
12/31/87 6.64% 11,086 12/31/87 3.41% 10,343
03/31/88 3.11% 11,431 03/31/88 3.62% 10,717
06/30/88 1.98% 11,657 06/30/88 2.10% 10,943
09/30/88 2.57% 11,957 09/30/88 2.15% 11,178
12/31/88 1.94% 12,189 12/31/88 2.24% 11,428
03/31/89 0.38% 12,235 03/31/89 0.79% 11,518
06/30/89 6.32% 13,008 06/30/89 4.27% 12,010
09/30/89 -0.43% 12,953 09/30/89 -0.04% 12,005
12/31/89 4.42% 13,525 12/31/89 3.71% 12,450
03/31/90 -0.01% 13,524 03/31/90 -0.10% 12,438
06/30/90 2.29% 13,833 06/30/90 1.90% 12,673
09/30/90 -0.41% 13,777 09/30/90 0.08% 12,684
12/31/90 4.42% 14,386 12/31/90 3.97% 13,187
03/31/91 1.85% 14,652 03/31/91 1.78% 13,422
06/30/91 1.96% 14,939 06/30/91 1.96% 13,685
09/30/91 4.09% 15,550 09/30/91 3.66% 14,186
12/31/91 3.13% 16,037 12/31/91 3.19% 14,638
03/31/92 0.54% 16,123 03/31/92 -0.06% 14,630
06/30/92 3.81% 16,738 06/30/92 4.35% 15,266
09/30/92 2.86% 17,216 09/30/92 1.95% 15,563
12/31/92 2.47% 17,641 12/31/92 2.29% 15,920
03/31/93 4.24% 18,389 03/31/93 3.78% 16,522
06/30/93 3.67% 19,064 06/30/93 3.70% 17,134
09/30/93 4.17% 19,859 09/30/93 3.86% 17,795
12/31/93 1.56% 20,169 12/31/93 0.73% 17,924
03/31/94 -6.78% 18,802 03/31/94 -5.28% 16,978
06/30/94 1.42% 19,069 06/30/94 0.50% 17,063
09/30/94 0.41% 19,147 09/30/94 0.17% 17,092
12/31/94 -1.75% 18,812 12/31/94 -0.77% 16,962
03/31/95 8.41% 20,394 03/31/95 6.59% 18,080
06/30/95 2.23% 20,849 06/30/95 1.69% 18,385
09/30/95 3.65% 21,610 09/30/95 2.33% 18,814
12/31/95 4.05% 22,485 12/31/95 4.45% 19,652
03/31/96 -0.95% 22,271 03/31/96 -2.15% 19,228
06/30/96 0.35% 22,349 06/30/96 0.44% 19,313
</TABLE>
Past performance is not predictive of future performance.
Ohio Insured Tax-Free Fund Average Annual Total Returns
1 Year 5 Years 10 Years Since Inception
Class A 0.85% 6.26% 6.80% 7.76%
Class C 4.44% N/A N/A 2.78%
*The chart above represents performance of Class A shares only, which
will vary from the performance of Class C shares based on the difference in
loads and fees paid by shareholders in the different classes. Fund inception
was April 1, 1985, and the initial public offering of Class C shares commenced
on November 1, 1993.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
==========================================================================================================================
OHIO CALIFORNIA
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost.................................... $ 239,927,043 $ 25,006,218 $ 37,663,286
=============== =============== ===============
At amortized cost...................................... $ 239,821,479 $ 24,955,523 $ 37,579,388
=============== =============== ===============
At value (Note 2)...................................... $ 239,821,479 $ 24,955,523 $ 37,579,388
Cash ..................................................... 389,643 201,132 217,437
Receivable for securities sold............................ 1,200,000 -- --
Interest receivable ...................................... 1,735,318 215,571 378,408
Other assets ............................................. 8,229 1,452 1,288
--------------- --------------- ---------------
TOTAL ASSETS......................................... 243,154,669 25,373,678 38,176,521
--------------- --------------- ---------------
LIABILITIES
Dividends payable......................................... 196,018 1,410 4,318
Payable for securities purchased.......................... 2,510,625 -- 2,017,280
Payable to affiliates (Note 4) ........................... 107,176 25,211 27,177
Other accrued expenses and liabilities ................... 17,958 4,669 5,685
--------------- --------------- ---------------
TOTAL LIABILITIES.................................... 2,831,777 31,290 2,054,460
--------------- --------------- ---------------
NET ASSETS .............................................. $ 240,322,892 $ 25,342,388 $ 36,122,061
=============== =============== ===============
Net assets consist of:
Capital shares ........................................... $ 240,309,987 $ 25,343,438 $ 36,123,641
Accumulated net realized gains (losses) from
security transactions.................................. 12,905 ( 1,050 ) ( 1,580 )
--------------- --------------- ---------------
Net assets................................................ $ 240,322,892 $ 25,342,388 $ 36,122,061
=============== =============== ===============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) ............ 240,309,987 25,353,881 36,123,641
=============== =============== ===============
Net asset value, offering price and redemption price
per share (Note 2) .................................... $ 1.00 $ 1.00 $ 1.00
=============== =============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
=========================================================================================================================
OHIO CALIFORNIA
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income........................................ $ 9,278,740 $ 1,149,293 $ 1,046,105
--------------- --------------- ---------------
EXPENSES
Investment advisory fees (Note 4)...................... 1,117,233 140,891 142,143
Distribution expenses (Note 4)......................... 451,624 25,946 8,687
Accounting services fees (Note 4)...................... 45,000 39,000 39,000
Shareholder services and transfer agent fees (Note 4).. 71,194 25,208 14,237
Postage and supplies................................... 44,641 15,894 4,936
Professional fees...................................... 18,887 5,687 6,387
Insurance expense...................................... 21,136 4,054 3,615
Registration fees...................................... 6,791 8,994 1,223
Custodian fees (Note 4)................................ 7,148 3,701 4,639
Pricing expenses....................................... 5,954 2,099 3,108
Trustees' fees and expenses ........................... 3,433 3,433 3,433
Reports to shareholders ............................... 6,478 2,257 1,194
Other expenses ........................................ 13,633 1,796 1,424
--------------- --------------- ---------------
TOTAL EXPENSES ........................................... 1,813,152 278,960 234,026
Fees waived by the Adviser (Note 4) ................... -- -- ( 6,600)
--------------- --------------- ---------------
NET EXPENSES ............................................. 1,813,152 278,960 227,426
--------------- --------------- ---------------
NET INVESTMENT INCOME .................................... 7,465,588 870,333 818,679
--------------- --------------- ---------------
NET REALIZED GAINS (LOSSES) FROM
SECURITY TRANSACTIONS ................................. ( 709) ( 564) 116
--------------- --------------- ---------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ....................................... $ 7,464,879 $ 869,769 $ 818,795
=============== =============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
==================================================================================================================================
CALIFORNIA
OHIO TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income ............... $7,465,588 $6,762,272 $870,333 $ 865,650 $ 818,679 $ 643,953
Net realized gains (losses) from
security transactions .............. ( 709) 8,226 ( 564) ( 774) 116 234
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets from
operations........................ 7,464,879 6,770,498 869,769 864,876 818,795 644,187
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME ......... ( 7,465,588) ( 6,764,671) ( 873,034) ( 862,949) ( 818,679) (644,370)
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5):
Proceeds from shares sold ........... 565,969,095 532,441,705 49,546,956 51,748,931 119,659,991 84,546,054
Net asset value of shares issued
in reinvestment of distributions
to shareholders.................... 4,885,920 4,449,982 839,246 814,800 753,406 572,727
Payments for shares redeemed ........ (557,137,769) ( 523,292,513) (51,732,766) (57,041,748) (103,816,208) (90,102,140)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from capital share transactions...... 13,717,246 13,599,174 (1,346,564) (4,478,017) 16,597,189 (4,983,359)
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN
NET ASSETS ......................... 13,716,537 13,605,001 (1,349,829) ( 4,476,090) 16,597,305 (4,983,542)
NET ASSETS:
Beginning of year................... 226,606,355 213,001,354 26,692,217 31,168,307 19,524,756 24,508,298
----------- ----------- ----------- ----------- ----------- -----------
End of year........................ $240,322,892 $226,606,355 $25,342,388 $26,692,217 $36,122,061 $19,524,756
============ ============ =========== =========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME... $ -- $ -- $ -- $ 2,701 $ -- $ --
============ ============ =========== =========== =========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
===========================================================================================================================
ROYAL PALM
TAX-FREE OHIO INSURED FLORIDA
INTERMEDIATE TAX-FREE TAX-FREE
TERM FUND FUND MONEY FUND
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost.................................... $ 71,673,021 $ 76,483,492 $ 47,075,493
=============== =============== ===============
At amortized cost...................................... $ 71,287,629 $ 76,453,032 $ 46,976,072
=============== =============== ===============
At value (Note 2) ..................................... $ 72,708,536 $ 79,588,215 $ 46,976,072
Cash ..................................................... 100,018 40,602 18,144
Receivable for capital shares sold........................ 217,106 13,090 --
Recevable for securities sold............................. -- -- 750,000
Interest receivable ...................................... 1,321,055 692,613 383,034
Other assets ............................................. 3,657 3,374 1,355
--------------- --------------- ---------------
TOTAL ASSETS........................................... 74,350,372 80,337,894 48,128,605
--------------- --------------- ---------------
LIABILITIES
Dividends payable......................................... 47,457 73,272 50,161
Payable for capital shares redeemed ...................... 326,049 299,745 --
Payable for securities purchased.......................... 995,174 -- --
Payable to affiliates (Note 4) ........................... 57,085 43,498 21,006
Other accrued expenses and liabilities.................... 11,202 10,702 6,299
--------------- --------------- ---------------
TOTAL LIABILITIES ................................... 1,436,967 427,217 77,466
--------------- --------------- ---------------
NET ASSETS .............................................. $ 72,913,405 $ 79,910,677 $ 48,051,139
=============== =============== ===============
Net assets consist of:
Capital shares ........................................... $ 73,113,280 $ 76,775,988 $ 48,052,337
Accumulated net realized losses from security
transactions ........................................ ( 1,620,782) ( 494) ( 1,198)
Net unrealized appreciation on investments................ 1,420,907 3,135,183 --
--------------- --------------- ---------------
Net assets................................................ $ 72,913,405 $ 79,910,677 $ 48,051,139
=============== =============== ===============
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares................... $ 67,674,858 $ 75,938,183 $ 28,906,381
=============== =============== ===============
Shares of beneficial interest outstanding
(unlimited number of shares
authorized, no par value) (Note 5)..................... 6,238,847 6,345,325 28,907,579
=============== =============== ===============
Net asset value and redemption price per share (Note 2) .. $ 10.85 $ 11.97 $ 1.00
=============== =============== ===============
Maximum offering price per share (Note 2) ................ $ 11.07 $ 12.47 $ 1.00
=============== =============== ===============
PRICING OF CLASS C SHARES(A)
Net assets applicable to Class C shares(A)................ $ 5,238,547 $ 3,972,494 $ 19,144,758
=============== =============== ===============
Shares of beneficial interest outstanding
(unlimited number of shares
authorized, no par value) (Note 5) .................... 482,869 331,937 19,144,758
=============== =============== ===============
Net asset value, offering price and redemption
price per share (Note 2) ............................ $ 10.85 $ 11.97 $ 1.00
=============== =============== ===============
<FN>
(A) Except for the Royal Palm Florida Tax-Free Money Fund which offers Class B shares (Note 2).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
==========================================================================================================================
ROYAL PALM
TAX-FREE OHIO INSURED FLORIDA
INTERMEDIATE TAX-FREE TAX-FREE
TERM FUND FUND MONEY FUND
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income........................................ $ 4,390,262 $ 4,651,670 $ 1,170,195
--------------- --------------- ---------------
EXPENSES
Investment advisory fees (Note 4)...................... 398,576 397,265 152,663
Distribution expenses, Class A (Note 4)................ 115,756 14,824 8,631
Distribution expenses, Class C (Note 4) ............... 22,701 12,297 --
Shareholder services and transfer agent fees,
Class A (Note 4) .................................... 72,503 40,277 12,000
Shareholder services and transfer agent fees,
Class C (Note 4) .................................... 12,000 12,000 --
Shareholder services and transfer agent fees,
Class B (Note 4) .................................... -- -- 1,000
Accounting services fees (Note 4) ..................... 57,000 57,000 40,000
Postage and supplies................................... 60,880 29,106 6,538
, Pricing expenses....................................... 17,468 15,413 2,778
Professional fees ..................................... 8,849 9,070 6,187
Insurance expense...................................... 10,086 9,181 3,637
Custodian fees......................................... 8,584 6,967 3,166
Registration fees, Common.............................. 3,924 2,285 2,129
Registration fees, Class A............................. 4,233 661 --
Registration fees, Class C............................. 4,145 353 --
Reports to shareholders ............................... 8,618 5,199 732
Trustees' fees and expenses ........................... 3,433 3,433 3,433
Other expenses ........................................ 5,970 4,866 1,766
--------------- --------------- ---------------
TOTAL EXPENSES ........................................... 814,726 620,197 244,660
Fees waived by the Advisor (Note 4).................... -- -- ( 58,284)
Class A expenses reimbursed by the Adviser (Note 4).... -- ( 2,708) --
Class B expenses reimbursed by the Advisor (Note 4).... -- -- ( 506)
--------------- --------------- ---------------
NET EXPENSES ............................................. 814,726 617,489 185,870
--------------- --------------- ---------------
NET INVESTMENT INCOME .................................... 3,575,536 4,034,181 984,325
--------------- --------------- ---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions ....... 418,573 637,863 --
Net change in unrealized appreciation/depreciation
on investments .................................... (378,154) (557,750) --
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........ 40,419 80,113 --
--------------- --------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $ 3,615,955 $ 4,114,294 $ 984,325
=============== =============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
==================================================================================================================================
ROYAL PALM
TAX-FREE FLORIDA
INTERMEDIATE OHIO INSURED TAX-FREE
TERM FUND TAX-FREE FUND MONEY FUND
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30 JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income .................. $3,575,536 $4,323,906 $4,034,181 $4,204,284 $ 984,325 $ 821,944
Net realized gains (losses) from
security transactions ................. 418,573 (1,487,447) 637,863 (553,505) -- 2
Net change in unrealized appreciation/
depreciation on investments ........... (378,154) 2,397,778 (557,750) 2,078,922 -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets from operations 3,615,955 5,234,237 4,114,294 5,729,701 984,325 821,946
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A .... (3,370,231) (4,158,531) (3,835,050) (4,060,262) (941,390) (822,616)
From net investment income, Class C .... (205,305) (182,065) (199,131) (165,164) -- --
From net investment income, Class B .... -- -- -- -- (42,935) --
----------- ----------- ----------- ----------- ----------- -----------
Decrease in net assets from
distributions to shareholders .......... (3,575,536) (4,340,596) (4,034,181) (4,225,426) (984,325) (822,616)
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL SHARES
TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold .............. 15,528,848 27,134,058 149,454,410 135,489,969 51,380,671 44,740,157
Net asset value of shares
issued in reinvestment
of distributions to shareholders ...... 2,685,608 3,413,920 2,832,266 3,071,603 836,936 747,824
Payments for shares redeemed ........... (31,733,808) (56,693,107) (147,848,817) (148,483,241) (47,429,798) (47,644,429)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from Class A share transactions ........ (13,519,352) (26,145,129) 4,437,859 (9,921,669) 4,787,809 (2,156,448)
----------- ----------- ----------- ----------- ----------- -----------
CLASS C (A)
Proceeds from shares sold .............. 3,208,583 7,031,053 1,212,806 1,936,052 19,950,303 --
Net asset value of shares issued
in reinvestment of distributions
to shareholders ....................... 192,684 174,884 173,201 141,387 -- --
Payments for shares redeemed ........... (2,962,890) (5,556,496) ( 1,551,557) (650,441) (805,545) --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from Class C share transactions (A) .... 438,377 1,649,441 (165,550) 1,426,998 19,144,758 --
----------- ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS ......................... (13,040,556) (23,602,047) 4,352,422 (6,990,396) 23,932,567 (2,157,118)
NET ASSETS:
Beginning of year ...................... 85,953,961 109,556,008 75,558,255 82,548,651 24,118,572 26,275,690
----------- ----------- ----------- ----------- ----------- -----------
End of year ............................ $72,913,405 $85,953,961 $79,910,677 $75,558,255 $48,051,139 $24,118,572
=========== =========== =========== =========== =========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
<FN>
(A) Except for the Royal Palm Florida Tax-Free Money Fund which offers Class B shares (Note 2).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
===========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===========================================================================================================================
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
Net investment income........................... 0.031 0.031 0.020 0.022 0.034
---------- ---------- ---------- ---------- ----------
Distributions from net investment income ....... ( 0.031) ( 0.031) ( 0.020) ( 0.022) ( 0.034)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total return.................................... 3.14% 3.12% 1.99% 2.19% 3.52%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $240,323 $226,606 $ 213,001 $ 221,775 $ 218,503
========== ========== ========== ========== ==========
Ratio of expenses to average net assets ........ 0.75% 0.74% 0.73% 0.74% 0.75%
Ratio of net investment income to average
net assets ............................... 3.09% 3.08% 1.97% 2.16% 3.43%
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
==========================================================================================================================
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ---------
Net investment income........................... 0.031 0.030 0.021 0.024 0.036
---------- ---------- ---------- ---------- ----------
Distributions from net investment income........ ( 0.031 ) ( 0.030) ( 0.021) ( 0.024) ( 0.036)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total return ................................... 3.15% 3.07% 2.12% 2.40% 3.63%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $25,342 $ 26,692 $ 31,168 $ 34,787 $ 50,000
========== ========== ========== ========== ==========
Ratio of expenses to average net assets......... 0.99% 0.99% 0.99% 0.99% 0.99%
Ratio of net investment income to average
net assets................................ 3.09% 3.00% 2.09% 2.39% 3.55%
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 32 -
CALIFORNIA TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
==========================================================================================================================
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- ---------- ----------
Net investment income........................... 0.029 0.029 0.019 0.022 0.035
---------- ---------- ---------- ---------- ----------
Distributions from net investment income........ ( 0.029) ( 0.029) ( 0.019) ( 0.022) ( 0.035)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========== ========== ==========
Total return ................................... 2.95% 2.95% 1.93% 2.26% 3.71%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $36,122 $ 19,525 $ 24,508 $ 34,487 $ 21,246
========== ========== ========== ========== ==========
Ratio of expenses to average net assets(A) .... 0.80% 0.70% 0.60% 0.56% 0.34%
Ratio of net investment income to average
net assets................................. 2.88% 2.83% 1.90% 2.22% 3.49%
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(A)Absent fee waivers and/or expense reimbursements by the Adviser, the ratio of expenses to average net assets would have
been 0.82%, 0.85%, 0.86%, 0.85% and 0.89% for the years ended June 30, 1996, 1995, 1994, 1993 and 1992,
respectively (Note 4).
See accompanying notes to finacial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND - CLASS A
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
==========================================================================================================================
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 10.86 $ 10.69 $ 10.98 $ 10.42 $ 10.15
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ....................... 0.50 0.49 0.48 0.53 0.59
Net realized and unrealized gains (losses)
on investments............................. ( 0.01 ) 0.17 ( 0.29) 0.56 0.27
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 0.49 0.66 0.19 1.09 0.86
---------- ---------- ---------- ---------- ----------
Distributions from net investment income ....... ( 0.50 ) ( 0.49) ( 0.48) ( 0.53 ) ( 0.59 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 10.85 $ 10.86 $ 10.69 $ 10.98 $ 10.42
========== ========== ========== ========== ==========
Total return(A) ................................ 4.51% 6.36% 1.70% 10.75% 8.78%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $67,675 $ 81,140 $106,472 $ 82,168 $ 26,720
========== ========== ========== ========== ==========
Ratio of expenses to average net assets ........ 0.99% 0.99% 0.99% 0.99% 1.07%
Ratio of net investment income to average net
assets..................................... 4.52% 4.59% 4.35% 4.90% 5.75%
Portfolio turnover rate......................... 37% 32% 46% 28% 12%
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales loads.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND - CLASS C
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==========================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR ENDED JUNE 30, (FEB. 1, 1994)
THROUGH
1996 1995 JUNE 30, 1994
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.86 $ 10.69 $ 11.27
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.44 0.44 0.20
Net realized and unrealized gains (losses) on
investments.......................................... ( 0.01) 0.17 ( 0.58)
--------------- --------------- ---------------
Total from investment operations.......................... 0.43 0.61 ( 0.38 )
--------------- --------------- ---------------
Distributions from net investment income.................. ( 0.44 ) ( 0.44 ) ( 0.20 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 10.85 $ 10.86 $ 10.69
=============== =============== ===============
Total return(A) .......................................... 4.00% 5.82% ( 8.28%)(C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 5,239 $ 4,814 $ 3,084
=============== =============== ===============
Ratio of expenses to average net assets(B) ............... 1.49% 1.49% 1.45% (C)
Ratio of net investment income to average net assets...... 4.02% 4.08% 3.79% (C)
Portfolio turnover rate................................... 37% 32% 46% (C)
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales loads.
(B)Absent expense reimbursements by the Adviser, the ratio of expenses to average net assets would have been 1.75%(C) for
the period ended June 30, 1994 (Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO INSURED TAX-FREE FUND - CLASS A
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
==========================================================================================================================
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 11.99 $ 11.74 $ 12.41 $ 11.67 $ 11.13
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ....................... 0.62 0.63 0.61 0.65 0.70
Net realized and unrealized gains (losses)
on investments............................. ( 0.02 ) 0.25 ( 0.64) 0.74 0.54
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 0.60 0.88 ( 0.03) 1.39 1.24
---------- ---------- ---------- ---------- ----------
Less distributions:
Distributions from net investment income .... ( 0.62 ) ( 0.63) ( 0.61) ( 0.65 ) ( 0.70 )
Distributions from net realized gains........ -- -- ( 0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions ............................ ( 0.62 ) ( 0.63) ( 0.64) ( 0.65 ) ( 0.70 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 11.97 $ 11.99 $ 11.74 $ 12.41 $ 11.67
========== ========== ========== ========== ==========
Total return(A) ............................... 5.05% 7.75% ( 0.41%) 12.24% 11.55%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $75,938 $ 71,393 $ 79,889 $ 81,101 $ 49,288
========== ========== ========== ========== ==========
Ratio of expenses to average net assets(B) .... 0.75% 0.75% 0.75% 0.75% 0.60%
Ratio of net investment income to average
net assets................................. 5.12% 5.35% 4.94% 5.35% 6.10%
Portfolio turnover rate......................... 46% 29% 45% 15% 3%
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales loads.
(B)Absent fee waivers and/or expense reimbursements by the Adviser, the ratio of expenses to average net assets would have
been 0.77% and 0.77% for the years ended June 30, 1995 and 1992, respectively (Note 4).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO INSURED TAX-FREE FUND - CLASS C
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==========================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR ENDED JUNE 30, (NOV. 1, 1993)
THROUGH
1996 1995 JUNE 30, 1994
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 12.00 $ 11.74 $ 12.62
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.56 0.57 0.36
Net realized and unrealized gains (losses)
on investments....................................... ( 0.03) 0.26 ( 0.85)
--------------- --------------- ---------------
Total from investment operations.......................... 0.53 0.83 ( 0.49 )
--------------- --------------- --------------
Less distributions:
Distributions from net investment income............... ( 0.56 ) ( 0.57 ) ( 0.36 )
Distributions from net realized gains.................. -- -- ( 0.03 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.56 ) ( 0.57 ) ( 0.39 )
--------------- --------------- --------------
Net asset value at end of period.......................... $ 11.97 $ 12.00 $ 11.74
=============== =============== ===============
Total return(A) .......................................... 4.44% 7.31% ( 6.05%)(C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 3,972 $ 4,165 $ 2,659
=============== =============== ===============
Ratio of expenses to average net assets(B) ............... 1.25% 1.25% 1.22% (C)
Ratio of net investment income to average net assets...... 4.62% 4.84% 4.09% (C)
Portfolio turnover rate................................... 46% 29% 45% (C)
- - -------------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales loads.
(B)Absent fee waivers and/or expense reimbursements by the Adviser, the ratio of expenses to average net assets would have
been 1.27% and 1.28%(C) for the periods ended June 30, 1995 and 1994, respectively (Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===========================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR ENDED JUNE 30, (NOV. 13, 1992)
THROUGH
1996 1995 1994 JUNE 30, 1993(A)
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period ........ $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------- ------------- ------------
Net investment income.......................... 0.032 0.031 0.021 0.016
------------ ------------- ------------- ------------
Distributions from net investment income ...... ( 0.032) ( 0.031) ( 0.021) ( 0.016)
------------ ------------- ------------- ------------
Net asset value at end of period .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============= ============= ============
Total return .................................. 3.29% 3.17% 2.11% 2.49%(C)
============ ============= ============= ============
Net assets at end of period (000's) ........... $ 28,906 $ 24,119 $ 26,276 $ 21,907
============ ============= ============= ============
Ratio of expenses to average net assets(B) ... 0.61% 0.66% 0.58% 0.34%(C)
Ratio of net investment income to average
net assets............................... 3.24% 3.12% 2.10% 2.41%(C)
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(A)No income was earned or expenses incurred from the start of business through the date of public offering.
(B)Absent fee waivers and/or expense reimbursements by the Adviser, the ratio of expenses to average net assets would have
been 0.80%, 0.80%, 0.81% and 0.94%(C) for the periods ended June 30, 1996, 1995, 1994 and 1993, respectively (Note 4).
(C)Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND - CLASS B
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
==========================================================================================================================
PERIOD
ENDED
JUNE 30, 1996 (A)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value at beginning of period ........................................................ $ 1.000
------------
Net investment income.......................................................................... 0.003
------------
Distributions from net investment income ...................................................... $ ( 0.003)
------------
Net asset value at end of period .............................................................. $ 1.000
============
Total return................................................................................... 3.03%(C)
============
Net assets at end of period (000's) ........................................................... $ 19,145
============
Ratio of expenses to average net assets(B) ................................................... 0.50%(C)
Ratio of net investment income to average net assets........................................... 3.03%(C)
- - --------------------------------------------------------------------------------------------------------------------------
<FN>
(A)Represents the period from the initial public offering of Class B shares
(May 29, 1996) through June 30, 1996.
(B)Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 0.87%(C) (Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
==============================================================================
1. ORGANIZATION
Midwest Group Tax Free Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company. The Trust was established as a Massachusetts business
trust under a Declaration of Trust dated April 13, 1981. The Declaration of
Trust, as amended, permits the Trustees to issue an unlimited number of shares
of six funds: the Ohio Tax-Free Money Fund, the Tax-Free Money Fund, the
California Tax-Free Money Fund, the Royal Palm Florida Tax-Free Money Fund,
the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
(individually a Fund and collectively the Funds).
The Ohio Tax-Free Money Fund seeks the highest level of current income exempt
from federal income tax and Ohio personal income tax, consistent with
liquidity and stability of principal. The Fund invests primarily in a
portfolio of high-quality, short-term Ohio municipal obligations.
The Tax-Free Money Fund seeks the highest level of interest income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-quality, short-term municipal obligations.
The California Tax-Free Money Fund seeks the highest level of interest income
exempt from federal and California income taxes, consistent with liquidity and
stability of principal, by investing primarily in high-quality, short-term
California municipal obligations.
The Royal Palm Florida Tax-Free Money Fund seeks the highest level of interest
income exempt from federal income tax, consistent with liquidity and stability
of principal, by investing primarily in high-quality, short-term Florida
municipal obligations the value of which is exempt from the Florida intangible
personal property tax.
The Tax-Free Intermediate Term Fund seeks high current income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-grade municipal obligations maturing within twenty years or
less with a dollar-weighted average portfolio maturity under normal market
conditions of between three and ten years. To the extent consistent with the
Fund's primary objective, capital appreciation is a secondary objective.
The Ohio Insured Tax-Free Fund seeks the highest level of interest income
exempt from federal income tax and Ohio personal income tax, consistent with
protection of capital. The Fund invests primarily in high and medium-quality,
long-term Ohio municipal obligations which are protected by insurance
guaranteeing the payment of principal and interest in the event of a default.
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund each
offer two classes of shares: Class A shares (sold subject to a maximum
front-end sales load of 2% for the Tax-Free Intermediate Term Fund and 4% for
the Ohio Insured Tax-Free Fund and a distribution fee of up to .25% of average
daily net assets of each Fund) and Class C shares (sold subject to a maximum
contingent deferred sales load of 1% if redeemed within a one-year period from
purchase and a distribution fee of up to 1% of average daily net assets). Each
Class A and Class C share of the Fund represents identical interests in the
Fund's investment portfolio and has the same rights, except that (i) Class C
shares bear the expenses of higher distribution fees, which is expected to
cause Class C shares to have a higher expense ratio and to pay lower dividends
than Class A shares; (ii) certain other class specific expenses will be borne
solely by the class to which such expenses are attributable; and (iii) each
class has exclusive voting rights with respect to matters relating to its own
distribution arrangements.
<PAGE>
The Royal Palm Florida Tax-Free Money Fund offers two classes of shares: Class
A shares (Retail shares), sold subject to a distribution fee of up to .25% of
average daily net assets, and Class B shares (Institutional shares) sold
without a distribution fee. Each Retail and Institutional share of the Fund
represents identical interests in the Fund's investment portfolio and has the
same rights, except that (i) Retail shares bear the expenses of distribution
fees, which is expected to cause Retail shares to have a higher expense ratio
and to pay lower dividends than Institutional shares; (ii) certain other class
specific expenses will be borne solely by the class to which such expenses are
attributable; (iii) each class has exclusive voting rights with respect to
matters affecting only that class; and (iv) Retail shares are subject to a
lower minimum initial investment requirement and offer certain shareholder
services not available to Institutional shares such as check writing and
automatic investment and redemption plans.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Trust's significant accounting policies:
Security valuation -- Ohio Tax-Free Money Fund, Tax-Free Money Fund,
California Tax-Free Money Fund and Royal Palm Florida Tax-Free Money Fund
securities are valued on the amortized cost basis, which approximates market.
This involves initially valuing a security at its original cost and thereafter
assuming a constant amortization to maturity of any discount or premium. This
method of valuation is expected to enable these Funds to maintain a constant
net asset value per share. The Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund are valued at market and use an independent pricing
service which 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 securities. On limited occasions, if the valuation provided
by the pricing service ignores certain market conditions affecting the value
of a security or the pricing service cannot provide a valuation, the fair
value of the security will be determined in good faith consistent with
procedures established by the Board of Trustees.
Share valuation -- The net asset value per share of the Ohio Tax-Free Money
Fund, the Tax-Free Money Fund, the California Tax-Free Money Fund and the
Royal Palm Florida Tax-Free Money Fund is calculated daily. Net asset value
per share is calculated for each of these Funds by dividing the total value of
a Fund's assets, less liabilities, by its number of shares outstanding. The
offering price and redemption price per share is equal to the net asset value
per share.
The net asset value per share of each of the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund is also calculated daily. Net asset value
per share is calculated for each class of a Fund by dividing the total value
of a Fund's assets attributable to that class, less liabilities attributable
to that class, by the number of shares of that class outstanding. The maximum
offering price of Class A shares of the Tax-Free Intermediate Term Fund is
equal to net asset value per share plus a sales load equal to 2.04% of the net
asset value (or 2% of the offering price). The maximum offering price of Class
A shares of the Ohio Insured Tax-Free Fund is equal to net asset value per
share plus a sales load equal to 4.17% of the net asset value (or 4% of the
offering price). The offering price of Class C shares of each Fund is equal to
the net asset value per share.
The redemption price per share of Class A shares and Class C shares of the
Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund is equal to
the net asset value per share. However, Class C shares of each Fund are
subject to a contingent deferred sales load of 1% of the original purchase
price if redeemed within a one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Discounts and
premiums on securities purchased are amortized in accordance with income tax
regulations which approximate generally accepted accounting principles.
<PAGE>
Distributions to shareholders -- Distributions from net investment income are
declared daily and paid on the last business day of each month. 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.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Allocations between classes -- Investment income earned by the Royal Palm
Florida Tax-Free Money Fund, the Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund is allocated daily to each class of shares based on the
percentage of the net asset value of settled shares of such class to the total
of the net asset value of settled shares of both classes of shares. Realized
capital gains and losses and unrealized appreciation and depreciation are
allocated daily to each class of shares based upon its proportionate share of
total net assets of the Fund. Class specific expenses are charged directly to
the class incurring the expense. Common expenses which are not attributable to
a specific class are allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund.
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 revenues 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
will be relieved of federal income tax on the income distributed. Accordingly,
no provision for income taxes has been made. In addition, each Fund intends to
satisfy conditions which enable it to designate the interest income generated
by its investment in municipal securities, which is exempt from federal income
tax when received by the Fund, as exempt-interest dividends upon distribution
to shareholders.
<PAGE>
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 as of June 30, 1996:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
TAX-FREE
INTERMEDIATE OHIO INSURED
TERM FUND TAX-FREE FUND
<S> <C> <C>
Gross unrealized appreciation............................................. $ 1,757,875 $ 3,422,103
Gross unrealized depreciation............................................. ( 336,968) ( 286,920)
--------------- ---------------
Net unrealized appreciation............................................... $ 1,420,907 $ 3,135,183
=============== ===============
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
The tax basis of investments for each Fund is equal to the amortized cost as
shown on the Statements of Assets and Liabilities.
As of June 30, 1996, the Ohio Tax-Free Money Fund, the Tax-Free Money Fund,
the California Tax-Free Money Fund, the Royal Palm Florida Tax-Free Money
Fund, the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
had capital loss carryforwards for federal income tax purposes of $709,
$1,338, $1,580, $1,198, $1,620,782 and $494, respectively, none of which
expire prior to June 30, 1999. These capital loss carryforwards may be
utilized in the current or future years to offset net realized capital gains
prior to distributing such gains to shareholders.
3. INVESTMENT TRANSACTIONS
For the year ended June 30, 1996, purchases and proceeds from sales and
maturities of investment securities, excluding short-term investments,
amounted to $28,765,136 and $45,159,470, respectively, for the Tax-Free
Intermediate Term Fund and $35,124,299 and $38,276,155, respectively, for the
Ohio Insured Tax-Free Fund.
<PAGE>
4. TRANSACTIONS WITH AFFILIATES
The President of the Trust is the controlling shareholder of Leshner
Financial, Inc., whose subsidiaries include Midwest Group Financial Services,
Inc. (the Adviser), the Trust's investment adviser and principal underwriter,
and MGF Service Corp. (MGF), the shareholder servicing and transfer agent and
accounting and pricing agent for the Trust.
MANAGEMENT AGREEMENT
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. Under the Management Agreement, each Fund pays the
Adviser a fee, computed and accrued daily and paid monthly, at an annual rate
of 0.5% of its respective average daily net assets up to $100,000,000, 0.45%
of such assets from $100,000,000 to $200,000,000, 0.4% of such assets from
$200,000,000 to $300,000,000 and 0.375% of such assets in excess of
$300,000,000.
States in which shares of the Trust are offered may impose an expense
limitation based upon net assets. The Adviser has agreed to reimburse each
Fund for expenses which exceed the most restrictive applicable expense
limitation of any state. No reimbursement was required from the Adviser with
respect to any Fund for the year ended June 30, 1996. However, in order to
reduce the operating expenses of the California Tax-Free Money Fund and the
Royal Palm Florida Tax-Free Money Fund, the Adviser voluntarily waived
advisory fees of $6,600 and $58,284, respectively, during the year ended June
30, 1996. In addition, in order to reduce the operating expenses of Class A
shares of the Ohio Insured Tax-Free Fund and Class B shares of the Royal Palm
Florida Tax-Free Money Fund, the Adviser voluntarily reimbursed $2,708 of
Class A expenses for the Ohio Insured Tax-Free Fund and $506 of Class B
expenses for the Royal Palm Florida Tax-Free Money Fund during the period.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer Agent and Shareholder Service Agreement
between the Trust and MGF, MGF 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, MGF receives a monthly fee at an annual rate of
$25.00 per shareholder account from each of the Ohio Tax-Free Money Fund, the
Tax-Free Money Fund, the California Tax-Free Money Fund and the Royal Palm
Florida Tax-Free Money Fund and $21.00 per shareholder account from each of
the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund,
subject to a $1,000 minimum monthly fee for each Fund or for each class of
shares of a Fund. In addition, each Fund pays out-of-pocket expenses
including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and
MGF, MGF calculates the daily net asset value per share and maintains the
financial books and records of each Fund. For these services, MGF receives a
monthly fee, based on current asset levels, of $3,750 per month from the Ohio
Tax-Free Money Fund, $3,250 per month from each of the Tax-Free Money Fund and
the California Tax-Free Money Fund, $4,250 per month from the Royal Palm
Florida Tax-Free Money Fund and $4,750 per month from each of the Tax-Free
Intermediate Term Fund and the Ohio Insured Tax-Free Fund. In addition, each
Fund pays certain out-of-pocket expenses incurred by MGF in obtaining
valuations of such Fund's portfolio securities.
<PAGE>
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser and
affiliates earned $9,779 and $22,737 from underwriting and broker commissions
on the sale of shares of the Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund, respectively, during the year ended June 30, 1996. In
addition, the Advisor collected $5,802 and $349 of contingent deferred sales
loads on the redemption of Class C shares of the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free Fund, respectively.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is .25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free
Fund may directly incur or reimburse the Adviser for expenses related to the
distribution and promotion of shares. The annual limitation for payment of
such expenses under the Class C Plan is 1% of average daily net assets
attributable to Class C shares.
CUSTODIAN AGREEMENTS
The Fifth Third Bank, which serves as the custodian for each Fund except for
the Royal Palm Florida Tax-Free Money Fund, was a significant shareholder of
record of the Ohio Tax-Free Money Fund as of June 30, 1996. Under the terms of
its Custodian Agreement, The Fifth Third Bank receives from each such Fund an
asset-based fee plus transaction charges for each security transaction entered
into by the Funds. Huntington Trust Company, N.A. (Huntington), which serves
as the custodian for the Royal Palm Florida Tax-Free Money Fund, was a
significant shareholder of record of such Fund as of June 30, 1996. Under the
term of its Custodian Agreement, Huntington receives from the Fund an
asset-based fee.
<PAGE>
<TABLE>
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 years ended June 30, 1996 and 1995:
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE OHIO INSURED
TERM FUND TAX-FREE FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold.................................... 1,417,723 2,523,254 12,319,913 11,576,223
Shares issued in reinvestment of
distributions to shareholders............... 244,633 320,606 232,739 262,171
Shares redeemed................................ ( 2,894,267) ( 5,334,216) ( 12,159,274) ( 12,691,802)
------------ ------------- ------------- ------------
Net increase (decrease) in shares outstanding.. ( 1,231,911) ( 2,490,356) 393,378 ( 853,408)
Shares outstanding, beginning of year.......... 7,470,758 9,961,114 5,951,947 6,805,355
------------ ------------- ------------- ------------
Shares outstanding, end of year................ 6,238,847 7,470,758 6,345,325 5,951,947
============ ============= ============= ============
CLASS C
Shares sold.................................... 292,369 661,291 99,911 164,356
Shares issued in reinvestment of
distributions to shareholders............... 17,558 16,430 14,227 12,037
Shares redeemed................................ ( 270,313) ( 522,939) ( 129,418) ( 55,643)
------------ ------------- ------------- ------------
Net increase (decrease) in shares outstanding.. 39,614 154,782 ( 15,280) 120,750
Shares outstanding, beginning of year.......... 443,255 288,473 347,217 226,467
------------ ------------- ------------- ------------
Shares outstanding, end of year................ 482,869 443,255 331,937 347,217
============ ============= ============= ============
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Capital share transactions for the Ohio Tax-Free Money Fund, the Tax-Free
Money Fund, the California Tax-Free Money Fund and the Royal Palm Florida
Tax-Free Money Fund are identical to the dollar value of those transactions as
shown in the Statements of Changes in Net Assets.
<PAGE>
6. PORTFOLIO COMPOSITION
As of June 30, 1996, the Ohio Tax-Free Money Fund and the Ohio Insured
Tax-Free Fund were invested exclusively in debt obligations issued by the
State of Ohio and its political subdivisions, agencies, authorities and
instrumentalities and by other issuers the interest from which is exempt from
Ohio income tax. The California Tax-Free Money Fund was invested in debt
obligations issued by the State of California and its political subdivisions,
agencies, authorities and instrumentalities and by other issuers the interest
from which is exempt from California income tax. As of June 30, 1996, 77.4% of
the Royal Palm Florida Tax-Free Money Fund was invested in debt obligations
issued by the State of Florida and its political subdivisions, agencies,
authorities and instrumentalities and by other issuers the value of which is
exempt from the Florida intangible personal property tax. As of June 30, 1996,
19.5% of the portfolio securities of the Tax-Free Money Fund were concentrated
in the State of Ohio, 13.5% in the State of Minnesota and 10.2% in the State
of Florida. For information regarding portfolio composition by state for the
Tax-Free Intermediate Term Fund as of June 30, 1996, see the Fund's Portfolio
of Investments.
As diversified Funds registered under the 1940 Act, it is the policy of the
Tax-Free Money Fund and the Tax-Free Intermediate Term Fund that not more than
25% of the total assets of each such Fund be invested in securities of issuers
which individually comprise more than 5% of its total assets.
The Ohio Tax-Free Money Fund, the California Tax-Free Money Fund, the Royal
Palm Florida Tax-Free Money Fund and the Ohio Insured Tax-Free Fund are each
non-diversified Funds under the 1940 Act. Thus, investments may be
concentrated in fewer issuers than those of a diversified fund. As of June 30,
1996, neither the Ohio Tax-Free Money Fund nor the Royal Palm Florida Tax-Free
Money Fund had concentrations of investments (10% or greater) in any one
issuer. The California Tax-Free Money Fund and the Ohio Insured Tax-Free Fund
had 12.6% and 14.6% of their respective investments concentrated in the
securities of a single issuer as of June 30, 1996.
The Ohio Tax-Free Money Fund, the Tax-Free Money Fund, the California Tax-Free
Money Fund and the Royal Palm Florida Tax-Free Money Fund each invest in
municipal securities maturing in 13 months or less and having a short-term
rating in one of the top two ratings categories by at least two nationally
recognized statistical rating agencies (or by one such agency if a security is
rated by only that agency) or, if unrated, are determined by the Adviser,
under the supervision of the Board of Trustees, to be of comparable quality.
As of June 30, 1996, 46.9% of the Tax-Free Intermediate Term Fund's portfolio
securities were rated AAA/Aaa [using the higher of Standard & Poor's
Corporation (S&P) or Moody's Investors Service, Inc. (Moody's) ratings], 28.6%
were rated AA/Aa, 21.8% were rated A/A and 2.7% were not rated.
<PAGE>
As of June 30, 1996, 99.1% of the Ohio Insured Tax-Free Fund's long-term
portfolio securities were either (1) insured by an insurance policy obtained
from a recognized insurer which carries a rating of AAA by S&P or Aaa by
Moody's, (2) guaranteed as to the payment of interest and principal by an
agency or instrumentality of the U.S. Government, or (3) secured as to the
payment of interest and principal by an escrow account consisting of
obligations of the U.S. Government. Four private insurers individually insure
more than 10% of the Ohio Insured Tax-Free Fund's portfolio securities and
collectively insure 82.9% of its portfolio securities.
The concentration of investments for each Fund as of June 30, 1996, classified
by revenue source, was as follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
ROYAL PALM
OHIO CALIFORNIA FLORIDA TAX-FREE OHIO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE INTERMEDIATE INSURED
MONEY MONEY MONEY MONEY TERM TAX-FREE
FUND FUND FUND FUND FUND FUND
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General Obligations................. 28.6% 14.4% 11.3% 8.0% 21.8% 30.3%
Revenue Bonds:
Industrial Development/
Pollution Control............ 32.0% 42.8% 36.0% 30.6% 8.2% 15.2%
Hospital/Health Care.............. 22.7% 4.8% 2.2% 24.8% 18.0% 19.7%
Housing/Mortgage.................. 3.8% 17.8% 2.0% 19.1% 11.5% 5.5%
Utilities......................... 0.2% 3.6% 17.9% 5.6% 10.9% 18.0%
Education......................... 2.3% 3.0% 2.0% 1.9% 11.8% 3.4%
Transportation.................... -- 3.7% 4.0% 2.8% 3.9% 3.3%
Public Facilities................. -- 1.0% 4.7% 2.4% 3.6% 1.4%
Economic Development.............. 5.2% 6.4% -- -- 2.1% --
Leases............................ -- 1.2% 7.2% 1.8% 2.3% 0.7%
Special Tax....................... -- -- 4.9% 0.5% 3.9% --
Miscellaneous..................... 5.2% 1.3% 7.8% 2.5% 2.0% 2.5%
----------- ----------- ----------- ----------- ----------- -----------
Total .............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
=========== =========== =========== =========== =========== ===========
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See each Fund's Portfolio of Investments for additional information on
portfolio composition.
<PAGE>
<TABLE>
<CAPTION>
OHIO TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 31.5% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,665,000 Euclid City, OH, Various Impt. GO BANS......................... 4.250% 07/12/1996 $ 1,665,072
5,484,000 Greene Co., OH, GO............................................. 4.125 07/18/1996 5,485,568
675,000 Dayton, OH, Airport Impt. GO BANS.............................. 4.050 07/25/1996 675,063
1,667,040 Willoughby, OH, Landfill Closure GO BANS....................... 4.200 07/25/1996 1,667,355
1,450,000 Powell Village, OH, Road Impt. GO BANS......................... 4.100 08/15/1996 1,450,519
180,000 Powell Village, OH, Street Impt. GO BANS....................... 4.380 08/15/1996 180,103
2,500,000 Univ. of Cincinnati, OH, General Receipts, Ser. S.............. 4.250 08/28/1996 2,500,952
1,105,000 Lorain Co., OH, Water & Sewer Impt. GO BANS.................... 4.250 08/30/1996 1,105,261
245,000 Ohio HFA Mtg. Rev., Ser. A-1................................... 4.400 09/01/1996 245,150
1,000,000 Plain Township, OH, Fire Station Const. & Impt. BANS........... 4.390 09/17/1996 1,001,117
3,000,000 Cincinnati, OH, CSD Energy Conserv. BANS....................... 4.030 09/20/1996 3,003,437
800,000 Miamisburg, OH, Street Impt. GO BANS........................... 4.250 09/27/1996 800,462
2,260,000 Canfield, OH, LSD School Impt. GO BANS......................... 4.150 10/03/1996 2,261,115
2,000,000 Franklin Co., OH, Waterworks Sys. Impt. GO..................... 4.000 10/09/1996 2,002,033
400,000 Akron Bath Copley, OH, Rev. (Akron City Hosp. Proj.)........... 7.700 11/15/1996 405,905
2,300,000 Belmont Co., OH, Sanitary Sewer Impt. BANS..................... 4.090 11/26/1996 2,302,595
2,000,000 Euclid, OH, CSD TRANS.......................................... 3.520 12/12/1996 2,001,481
3,400,000 Loveland, OH, GO BANS.......................................... 3.875 12/12/1996 3,405,840
975,000 Marysville, OH, GO BANS........................................ 4.140 12/12/1996 976,220
1,064,490 Champaign Co., OH, GO BANS..................................... 4.750 12/17/1996 1,066,879
870,000 Highland, OH, LSD GO BANS...................................... 4.375 12/19/1996 872,086
1,432,500 Groveport-Madison, OH, LSD GO TANS............................. 3.990 12/30/1996 1,434,584
1,900,000 Erie Co., OH, Hosp. Impt. Rev. (Firelands Comm. Hosp.),
Prerefunded @101.............................................. 8.875 01/01/1997 1,967,510
675,000 Worthington, OH, CSD School Impt. GO BANS...................... 3.750 01/17/1997 675,533
500,000 Marysville, OH (Water Storage Tank Proj.) GO BANS.............. 3.880 01/31/1997 500,792
2,000,000 Toledo, OH, CSD (Energy Conservation) GO BANS.................. 4.000 01/31/1997 2,005,664
1,950,000 Marion Co., OH, GO BANS........................................ 3.600 02/13/1997 1,952,919
700,000 Ottawa Co., OH, GO BANS........................................ 3.550 02/27/1997 701,114
2,000,000 East Palestine, OH, CSD GO BANS................................ 3.500 02/28/1997 2,001,273
1,550,000 Salem, OH, CSD GO BANS......................................... 3.490 03/06/1997 1,550,708
932,000 Huron, OH, GO BANS............................................. 3.860 03/19/1997 933,666
800,000 Marysville, OH, GO BANS........................................ 3.960 03/21/1997 801,441
3,185,700 Greene Co., OH, GO............................................. 4.000 03/26/1997 3,192,455
950,000 Geneva on the Lake, OH, GO..................................... 4.100 04/03/1997 952,076
2,300,000 Ottawa Co., OH, GO BANS........................................ 3.980 04/09/1997 2,303,931
1,000,000 Trumbull Co., OH, Correctional Fac. GO BANS.................... 4.070 04/10/1997 1,002,016
1,000,000 Ashland, OH, CSD (Energy Conservation) GO BANS................. 4.150 04/15/1997 1,002,293
3,239,200 Hamilton, OH, GO BANS.......................................... 4.000 05/09/1997 3,240,442
2,300,000 Oregon, OH, GO BANS............................................ 4.050 05/29/1997 2,304,603
3,500,000 Claymont, OH, CSD GO BANS...................................... 4.000 06/04/1997 3,501,556
3,000,000 Greene Co., OH, GO............................................. 3.880 06/04/1997 3,004,278
1,040,000 Brook Park, OH, GO BANS........................................ 4.050 06/06/1997 1,042,519
2,000,000 Hudson, OH, Waterworks Impt. GO BANS........................... 4.000 06/11/1997 2,004,915
2,500,000 Mansfield, OH, CSD GO TANS..................................... 4.500 06/27/1997 2,510,620
- - ------------- ------------
$75,494,930 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------
(Amortized Cost $75,661,121)................................... $75,661,121
------------
<CAPTION>
OHIO TAX-FREE MONEY FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 55.5% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000,000 Ohio Higher Educ. Fac. Rev. (John Carroll Univ.)............... 4.125% 07/01/1996 $ 1,000,000
2,800,000 Cuyahoga Co., OH, Hosp. Impt. Rev. (Univ. Hosp. Cleveland)..... 3.750 07/01/1996 2,800,000
400,000 Franklin Co., OH, Health Sys. Rev. (St. Anthony Medical Ctr.).. 3.600 07/01/1996 400,000
3,900,000 Hamilton Co., OH, Health Sys. Rev. (Franciscan Sisters)........ 3.750 07/01/1996 3,900,000
500,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1995A............... 3.750 07/01/1996 500,000
1,700,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985B
(Cincinnati Gas & Elec.)..................................... 3.750 07/01/1996 1,700,000
700,000 Ohio St. PCR (Sohio Air Proj.)................................. 3.600 07/01/1996 700,000
4,320,000 Cuyahoga Co., OH, IDR (S & R Playhouse Realty)................. 3.750 07/01/1996 4,320,000
1,600,000 Delaware Co., OH, IDR (Radiation Sterilizers, Inc.)............ 3.750 07/01/1996 1,600,000
210,000 Franklin Co., OH, IDR (Boa Ltd. Proj.)......................... 3.850 07/01/1996 210,000
1,300,000 Franklin Co., OH, IDR (Jacobsen Stores)........................ 3.800 07/01/1996 1,300,000
600,000 Franklin Co., OH, IDR (Capitol South).......................... 3.800 07/01/1996 600,000
2,900,000 Muskingum Co., OH, IDR (Elder-Beerman)......................... 3.900 07/01/1996 2,900,000
500,000 Ohio St. Environ. Impt. Rev. (U.S. Steel Corp.)................ 3.800 07/01/1996 500,000
4,250,000 Cincinnati-Hamilton Co., OH, Port. Auth. Rev.
(Kaiser Agric. Chemical Co.)................................. 3.400 07/02/1996 4,250,000
245,000 Akron, OH, Sani. Sewer Sys. Rev., Ser. 1994.................... 3.450 07/03/1996 245,000
1,000,000 Butler Co., OH, IDR (Phillip Morris Co.)....................... 3.350 07/03/1996 1,000,000
1,000,000 Centerville, OH, Health Care Rev. (Bethany-Lutheran)........... 3.700 07/03/1996 1,000,000
8,100,000 Clermont Co., OH, Hosp. Fac. Rev., Ser. B (Mercy Health Sys.).. 3.500 07/03/1996 8,100,000
1,800,000 Cleveland-Cuyahoga Co., OH, Port. Auth. Rev.
(Rock & Roll Hall of Fame)................................... 3.450 07/03/1996 1,800,000
1,075,000 Cuyahoga Co., OH, Health Care Fac. Rev., Ser. 1993A
(Hospice of the Western Reserve)............................. 3.600 07/03/1996 1,075,000
1,750,000 Cuyahoga Co., OH, Health Care Fac. Rev., Ser. 1993B
(Hospice of the Western Reserve)............................. 3.600 07/03/1996 1,750,000
1,250,000 Cuyahoga Co., OH, Health Care Fac. Rev. (Benjamin Rose Inst.).. 3.500 07/03/1996 1,250,000
160,000 Cuyahoga Co., OH, IDR (Schottenstein Stores)................... 3.550 07/03/1996 160,000
2,000,000 Cuyahoga Co., OH, IDR, Ser. 1989 (Motch Corp. Proj.)........... 3.850 07/03/1996 2,000,000
970,000 Cuyahoga Co., OH, IDR (Pleasant Lake Assoc.)................... 3.600 07/03/1996 970,000
900,000 Delaware Co., OH, Indust. Rev., Ser. 1985 (MRG Limited Proj.).. 3.550 07/03/1996 900,000
2,390,000 Erie Co., OH, IDR (Toft Dairy, Inc.)........................... 3.600 07/03/1996 2,390,000
435,000 Franklin Co., OH, IDR (Columbus Dist.)......................... 3.600 07/03/1996 435,000
564,000 Franklin Co., OH, IDR, Ser. D (Kindercare)..................... 3.700 07/03/1996 564,000
1,605,000 Greene Co., OH, Healthcare Fac. Rev. (Green Oaks Proj.)........ 3.600 07/03/1996 1,605,000
900,000 Hardin Co., OH, Hosp. Impt. Rev., Ser. A
(Hardin Memorial Hosp.)..................................... 3.600 07/03/1996 900,000
375,000 Hudson Village, OH, IDR, Ser. A (Kindercare)................... 3.700 07/03/1996 375,000
1,160,000 Huron Co., OH, Ref. Rev. (Norfolk Furniture Corp.)............. 3.600 07/03/1996 1,160,000
494,000 Lorain Co., OH, IDR, Ser. C (Kindercare)....................... 3.700 07/03/1996 494,000
1,120,000 Lucas Co., OH, EDR (Glendale Meadows).......................... 3.600 07/03/1996 1,120,000
935,000 Lucas Co., OH, IDR, Ser. D (Kindercare)........................ 3.700 07/03/1996 935,000
300,000 Medina, OH, IDR (Kindercare)................................... 3.700 07/03/1996 300,000
1,100,000 Meigs Co., OH, IDR, Ser. 1985 (MRG Limited Proj.).............. 3.550 07/03/1996 1,100,000
287,000 Middletown, OH, IDR, Ser. A (Kindercare)....................... 3.700 07/03/1996 287,000
2,000,000 Montgomery Co., OH, EDR (Dayton Art Institute)................. 3.400 07/03/1996 2,000,000
935,000 Montgomery Co., OH, Healthcare Rev., Ser. A
(Dayton Area MRI Consortium)................................. 3.600 07/03/1996 935,000
340,000 Montgomery Co., OH, IDR (Kindercare)........................... 3.700 07/03/1996 340,000
1,000,000 Morrow Co., OH, IDR (Field Container Corp.).................... 3.400 07/03/1996 1,000,000
700,000 Ohio St. Air Quality Dev. Auth. Rev. (Honda of America)........ 3.700 07/03/1996 700,000
200,000 Ohio St. Water Dev. Auth. Rev. (Timken Co. Proj.).............. 3.350 07/03/1996 200,000
1,300,000 Ohio St. Environ. Impt. Rev. (Honda of America)................ 3.700 07/03/1996 1,300,000
850,000 Orrville, OH, Hosp. Fac. Rev., Ser. 1990 (Orrville Hosp.)...... 3.550 07/03/1996 850,000
200,000 Stark Co., OH, IDR, Ser. D (Kindercare)........................ 3.700 07/03/1996 200,000
2,650,000 Summit Co., OH, IDR (Bowery Assoc.)............................ 3.400 07/03/1996 2,650,000
375,000 Wadsworth, OH, IDR (Kindercare)................................ 3.700 07/03/1996 375,000
1,200,000 Wyandot Co., OH, Indust. Rev., Ser. 1985 (MRG Limited Proj.)... 3.550 07/03/1996 1,200,000
475,000 Akron, Bath & Copley, OH, Joint Twp. Hosp. Rev.
(Visiting Nurse Svcs. Proj.)................................. 3.500 07/04/1996 475,000
<PAGE>
<CAPTION>
OHIO TAX-FREE MONEY FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 55.5% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,750,000 Ashland, OH, IDR (Landover Properties)......................... 3.350% 07/04/1996 $ 1,750,000
4,190,000 Ashtabula Co., OH, Hosp. Fac. Rev., Ser. 95
(Ashtabula Co. Med. Ctr. Proj.).............................. 3.400 07/04/1996 4,190,000
1,900,000 Clinton Co., OH, Hosp. Rev. (Clinton Memorial)................. 3.500 07/04/1996 1,900,000
8,000,000 Franklin Co., OH, IDR (Berwick Steel).......................... 3.550 07/04/1996 8,000,000
1,240,000 Franklin Co., OH, IDR (Ohio Girl Scouts)....................... 3.400 07/04/1996 1,240,000
400,000 Franklin Co., OH, IDR (Columbus College)....................... 3.400 07/04/1996 400,000
2,000,000 Franklin Co., OH, IDR (Alco Standard Corp.).................... 3.400 07/04/1996 2,000,000
1,350,000 Hamilton Co., OH, EDR, Ser. 1995
(Cincinnati Assoc. Performing Arts).......................... 3.400 07/04/1996 1,350,000
425,000 Lucas Co., OH, Rev. (Sunshine Children's Home)................. 3.500 07/04/1996 425,000
2,000,000 Lucas Co., OH, IDR (Ohio Citizens Bank Proj.).................. 3.500 07/04/1996 2,000,000
485,000 Lucas Co., OH, IDR (Associates Proj.).......................... 3.500 07/04/1996 485,000
2,045,000 Mahoning Co., OH, Healthcare Fac. Rev. (Copeland Oaks)......... 3.400 07/04/1996 2,045,000
1,790,000 Mahoning Co., OH, Healthcare Fac. Rev. (Ohio Heart Institute).. 3.400 07/04/1996 1,790,000
4,150,000 Marion Co., OH, Hosp. Impt. Rev. (Pooled Lease Proj.).......... 3.400 07/04/1996 4,150,000
3,920,000 Montgomery Co., OH, Healthcare Rev. (Comm. Blood Ctr. Proj.)... 3.400 07/04/1996 3,920,000
4,800,000 Ohio EDR, Ser. 1983 (Court St. Ctr. Assoc. Ltd. Proj.)......... 3.400 07/04/1996 4,800,000
1,265,000 Pike Co., OH, EDR (Pleasant Hill).............................. 3.400 07/04/1996 1,265,000
1,100,000 Rickenbacker, OH, Port. Auth. Rev.
(Rickenbacker Holdings, Inc.)................................ 3.400 07/04/1996 1,100,000
660,000 Summit Co., OH, IDR (Go-Jo Indust.)............................ 3.400 07/04/1996 660,000
2,435,000 Toledo-Lucas Co., OH, Port. Auth. IDR Ref., Ser. 1994.......... 3.500 07/04/1996 2,435,000
4,200,000 Toledo, OH, City Svcs. Special Assessment Notes................ 3.350 07/04/1996 4,200,000
4,690,000 Trumbull Co., OH, Hosp. Rev. (Shepherd Valley Lutheran)........ 3.400 07/04/1996 4,690,000
1,600,000 Warren Co., OH, IDR (Liquid Container)......................... 3.550 07/04/1996 1,600,000
2,650,000 Westlake, OH, IDR (Nordson Co.)................................ 3.400 07/04/1996 2,650,000
100,000 Wood Co., OH, IDR (North American Science)..................... 3.600 07/04/1996 100,000
2,125,000 Ashland Co., OH, Hosp. Fac. Rev., Ser. 1989 (Good Shepherd).... 3.800 07/05/1996 2,125,000
1,400,000 Hamilton Co., OH, IDR (ADP System)............................. 3.700 07/15/1996 1,400,000
- - ------------- ------------
$133,490,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------
(Amortized Cost $133,490,000).................................. $133,490,000
------------
<PAGE>
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS-- 12.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,500,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. A (Duquesne Light).. 3.650% 08/15/1996 $ 2,500,000
971,155 Citizens Federal Tax-Exempt Mtg. Bond Trust.................... 3.450 09/01/1996 971,155
680,000 Riverside, OH, EDR (Riverside Assoc. Ltd. Proj.)............... 3.550 09/01/1996 680,000
4,895,000 Cuyahoga Co., OH, IDR (Halle Office Bldg.)..................... 3.883 10/01/1996 4,895,000
175,000 Franklin Co., OH, IDR (Pan Western Life)....................... 3.900 10/01/1996 175,000
1,270,000 Miami Valley Tax-Exempt Mtg. Bond Trust........................ 4.880 10/15/1996 1,270,000
690,000 Franklin Co., OH, IDR (GSW Proj.).............................. 3.650 11/01/1996 690,000
3,300,000 Ohio HFA MFH (Lincoln Park).................................... 3.900 11/01/1996 3,300,000
125,000 Ohio Company Tax-Exempt Mtg. Bond Trust, Ser. 1................ 3.760 11/01/1996 125,000
100,000 Summit Co., OH, IDR (SGS Tool Co. II).......................... 3.700 11/01/1996 100,000
3,835,000 Richland Co., OH, IDR (Mansfield Sq. Proj.).................... 3.650 11/15/1996 3,835,000
825,000 Cuyahoga Co., OH, Healthcare Rev.
(Cleveland Neighborhood Health Svcs.)........................ 4.375 12/01/1996 825,000
570,000 Cuyahoga Co., OH, IDR (Welded Ring)............................ 3.750 12/01/1996 570,000
2,415,000 Franklin Co., OH, IDR (Leveque & Assoc. Proj.)................. 3.750 12/01/1996 2,415,000
340,000 Lucas Co., OH, EDR (Cross County Inns., Inc.).................. 4.000 12/01/1996 340,000
960,000 Scioto Co., OH, Healthcare Rev. (Hillview Retirement).......... 3.750 12/01/1996 960,000
1,115,000 Gallia Co., OH, IDR (Jackson Pike Assoc.)...................... 3.600 12/15/1996 1,115,000
3,280,000 Ohio Company Tax-Exempt Mtg. Bond Trust, Ser. 2................ 3.900 12/15/1996 3,279,203
<PAGE>
<CAPTION>
OHIO TAX-FREE MONEY FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS-- 12.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 810,000 Franklin Co., OH, EDR (JAL Realty)............................. 3.950% 01/15/1997 $ 810,000
1,405,000 Hamilton, OH, IDR (Continental Commercial Properties Proj.).... 3.400 02/01/1997 1,405,000
410,000 Middletown, OH, IDR (Continental Commercial Properties Proj.).. 3.450 02/01/1997 410,000
- - ------------- ------------
$ 30,671,155 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------
(Amortized Cost $30,670,358)................................... $30,670,358
------------
$239,656,085 TOTAL INVESTMENTS AT VALUE -- 99.8%
=============
(Amortized Cost $239,821,479).................................. $239,821,479
OTHER ASSETS AND LIABILITIES, NET-- 0.2% ...................... 501,413
------------
NET ASSETS-- 100.0% ........................................... $240,322,892
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 22.6% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 200,000 Greater Cleveland Regional Transit Auth. COP................... 9.100% 07/01/1996 $ 200,000
200,000 Pennsylvania St. IDA Rev., Escrowed to Maturity................ 6.300 07/01/1996 200,000
150,000 South Carolina St. Public Auth. Elec. Rev., Prerefunded @ 103.. 8.100 07/01/1996 154,500
110,000 Washington St. Pub. Power Supply Sys. Rev., Ser. 1990
(Nuclear Proj. #1), Prerefunded @ 103........................ 15.000 07/01/1996 113,300
100,000 Austin, TX, ISD GO............................................. 4.400 08/01/1996 100,045
100,000 Louisiana St. GO, Ser. A....................................... 6.400 08/01/1996 100,211
520,000 El Paso, TX, GO, Ser. 1994A.................................... 8.000 08/15/1996 522,531
200,000 Montgomery Co., AL, Waterworks & Sanit. Sewer Rev.,
Prerefunded @ 100............................................ 9.700 09/01/1996 200,000
500,000 Washington St. GO (Motor Vehicle Fuel Tax), Prerefunded @ 100.. 6.750 09/01/1996 502,430
245,000 Peoria, IL, School Dist. #150 Rev.............................. 4.600 09/15/1996 245,272
370,000 Brook Park, OH, Sewer Impt. GO BANS............................ 4.250 09/20/1996 370,157
105,000 Chicago, IL, Waterworks Rev., Prerefunded @ 101................ 6.750 11/01/1996 107,057
200,000 Greater New Orleans, LA, Expressway Rev., Prerefunded @ 103.... 7.800 11/01/1996 208,610
70,000 Connecticut St. Hsg. Fin. Auth. Refunding Rev., Ser. 1987B..... 7.900 11/15/1996 70,991
200,000 Chesapeake, VA, GO............................................. 3.750 12/01/1996 200,052
250,000 Columbia, SC, Parking Fac. Rev., Prerefunded @ 102............. 7.200 12/01/1996 258,471
300,000 Greensboro, NC, COP Pkg. Facs. Proj. Rev....................... 5.700 12/01/1996 302,070
105,000 Houston, TX, Water & Sewer Rev., Prerefunded @ 102............. 7.125 12/01/1996 108,534
200,000 Milwaukee, WI, GO.............................................. 4.100 12/01/1996 200,336
150,000 Jefferson Co., OH, School Dist. #R-001 GO...................... 4.400 12/15/1996 150,442
250,000 Broward Co., FL, GO, Ser. C.................................... 5.000 01/01/1997 251,580
525,000 Ross Co., OH, Airport Impt. GO BANS ........................... 4.540 04/25/1997 526,191
250,000 Columbus, OH, GO, Ser. 1....................................... 5.500 05/15/1997 253,430
200,000 Grand River, OK, Dam Auth., Rev................................ 6.450 06/01/1997 208,033
160,000 Mid-Prairie, IA, Comm. School Dist. GO......................... 6.750 06/01/1997 164,020
- - ------------- ------------
$ 5,660,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------
(Amortized Cost $5,718,263).................................... $ 5,718,263
------------
<PAGE>
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 48.1% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 300,000 Franklin Co., OH, Health Sys. Rev. (St. Anthony Medical Ctr.).. 3.600% 07/01/1996 $ 300,000
900,000 Harris Co., TX, Health Facs. Dev. Hosp. Rev., Ser. D
(St. Luke's Episcopal)....................................... 3.700 07/01/1996 900,000
300,000 Hillsborough Co., FL, PCR (Tampa Elec.)........................ 3.550 07/01/1996 300,000
700,000 Jacksonville, FL, PCR (Florida Power & Light).................. 3.550 07/01/1996 700,000
330,000 NCNB Pooled Tax-Exempt Rev., Ser. 1990A........................ 4.125 07/01/1996 330,000
1,000,000 New Jersey EDA & EDR (Union Avenue Assoc.)..................... 3.650 07/01/1996 1,000,000
700,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985B
(Cincinnati Gas & Elec.)..................................... 3.750 07/01/1996 700,000
400,000 Pinal Co., AZ, IDA PCR (Magma Copper Co.)...................... 3.600 07/01/1996 400,000
900,000 Eddyville, IA, IDR (Heartland Lysine, Inc.).................... 3.850 07/03/1996 900,000
1,000,000 Illinois Dev. Fin. Auth. MFH Rev. (Cobbler Square Proj.)....... 3.850 07/03/1996 1,000,000
825,000 Brooklyn Park, MN, IDR (Schmidt Proj.)......................... 3.750 07/05/1996 825,000
1,000,000 District of Columbia MFH, Tyler House Trust COP, Ser. 1995A.... 3.800 07/05/1996 1,000,000
425,000 Frankfort, MN, IDR, Ser. 1995 (J&B, Inc.)...................... 3.950 07/05/1996 425,000
575,000 Frankfort, MN, IDR, Ser. 1995 (J&B, Inc.)...................... 3.650 07/05/1996 575,000
700,000 Marion, FL, Hsg. Fin. Auth. Rev. (Summer Trace Apts.).......... 3.600 07/05/1996 700,000
1,140,000 Redwood Falls, MN, IDR (Zytec Corp. Proj.)..................... 4.100 07/05/1996 1,140,000
<PAGE>
<CAPTION>
TAX-FREE MONEY FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 48.1% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 400,000 St. Cloud, MN, Hsg. & Redev. Auth. (Coborn Realty Co.)......... 3.750% 07/05/1996 $ 400,000
600,000 Tamarac, FL, IDR, Ser. 1995 (Tamarac Business Ctr.)............ 3.550 07/05/1996 600,000
- - ------------- ------------
$12,195,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------
(Amortized Cost $12,195,000)................................... $12,195,000
------------
<PAGE>
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS-- 27.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,125,000 Buckeye Tax-Exempt Mtg. Bond Trust............................. 3.800% 08/01/1996 $ 1,123,481
535,000 Milwaukee, WI, IDR (Wayne C. Oldenburg Proj.).................. 3.950 08/01/1996 535,000
330,000 Lansing, MI, EDR (LGH Office Bldg. Proj.)...................... 3.650 08/15/1996 330,000
153,845 Citizens Federal Tax-Exempt Mtg. Bond Trust.................... 3.450 09/01/1996 153,845
1,200,000 Owensboro, KY, IDR, Ser. 1985 (Dart Container)................. 3.600 09/01/1996 1,200,000
165,000 Cuyahoga Co., OH, IDR (Halle Office Bldg.)..................... 3.880 10/01/1996 165,000
230,000 Kansas City, KS, IDR (Lady Baltimore Foods).................... 4.250 10/01/1996 230,000
505,000 Romulus, MI, Econ. Dev. Corp. (Airport Realty Proj.)........... 3.700 10/01/1996 505,000
230,000 Medina Co., OH, IDR (Nationwide One Proj.)..................... 3.850 11/01/1996 229,934
560,000 Summit Co., OH, IDR (Akromold, Inc. Proj.)..................... 4.000 11/01/1996 560,000
275,000 Westlake, OH, EDR (Cross County Inns, Inc.).................... 3.750 11/01/1996 275,000
1,000,000 Westmoreland Co., PA, IDR (White Cons Indust.)................. 3.875 12/01/1996 1,000,000
735,000 Lexington-Fayette Co., KY, Urban Gov't. Rev.
(Providence Montessori)...................................... 3.900 01/01/1997 735,000
- - ------------- ------------
$ 7,043,845 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------
(Amortized Cost $7,042,260).................................... $ 7,042,260
------------
$24,898,845 TOTAL INVESTMENTS AT VALUE-- 98.5%
=============
(Amortized Cost $24,955,523)................................... $24,955,523
OTHER ASSETS AND LIABILITIES, NET-- 1.5% ...................... 386,865
------------
NET ASSETS-- 100.0% .......................................... $25,342,388
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 29.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 250,000 Orange Co., CA, Muni. Water Dist. 1992B (Allen McColloch Pipeline).......... 4.500% 07/01/1996 $ 250,000
120,000 Southern California Public Power Auth. Rev., Ser. 1986B, Prerefunded @ 102.. 7.000 07/01/1996 122,400
150,000 California Health Fac. Auth. Insured Hosp. (Childrens Hosp. San Diego)...... 4.250 07/01/1996 150,000
125,000 Southern California Public Power Auth. Rev., Ser 1986B, Prerefunded @ 102... 7.125 07/01/1996 127,500
500,000 San Mateo Co., CA, Schools Insurance Group RANS, Ser. 1995.................. 4.750 07/05/1996 500,040
500,000 Los Angeles Co., CA, Local Educ. Agy. COP TRANS, Ser. A..................... 4.750 07/05/1996 500,038
240,000 Oakland, CA, Misc. Rev. Bonds, Ser. 1988A................................... 6.800 08/01/1996 240,596
250,000 Brea & Olinda, CA, USD COP, Prerefunded @ 102............................... 7.700 08/01/1996 255,844
500,000 Sacramento, CA, School Dist. COP (Admin. Ctr. Proj.), Prerefunded @100...... 4.600 08/01/1996 500,447
100,000 Mountain View, CA, Cap. Impt. Fin. Auth. Rev. (City Hall/Community Theater). 5.100 08/01/1996 100,104
500,000 Orange Co., CA, Sanitation COP, Escrowed to Maturity........................ 12.000 08/01/1996 503,504
200,000 Fresno, CA, COP (City Hall/Golf Course), Prerefunded @ 102.................. 7.875 08/01/1996 204,642
230,000 Folsom, CA, School Facs. Proj. GO, Ser. B................................... 6.000 08/01/1996 230,542
500,000 South Coast, CA, Local Educ. Agencies Pooled TRANS.......................... 5.000 08/14/1996 500,866
135,000 La Mirada, CA, Redev. Agy. Tax Allocation, Ser. A........................... 5.625 08/15/1996 135,289
100,000 South Orange Co., CA, Pub. Fin. Auth. Special Tax Rev., Ser. 1994C.......... 4.250 08/15/1996 100,038
500,000 Victor Valley, CA, Union High School Dist. TRANS............................ 4.500 08/30/1996 500,336
250,000 San Jose, CA, COP (Convention Center Proj.), Prerefunded @ 102.............. 7.500 09/01/1996 256,494
245,000 Contra Costa Co., CA, Public Fac. Corp. COP, Escrowed to Maturity........... 7.100 09/01/1996 246,424
100,000 San Francisco, CA, City & Co. Sewer Ref. Rev................................ 5.500 10/01/1996 100,340
500,000 Santa Clara Co., CA, COP, Prerefunded @ 102................................. 8.000 10/01/1996 515,376
150,000 Sacramento, CA, Muni. Util. Dist. Elec. Rev., Ser. H, Escrowed to Maturity.. 6.100 10/01/1996 150,883
350,000 Univ. of California Hsg. Sys. Group A Rev, Prerefunded @ 102................ 7.600 11/01/1996 361,478
360,000 Univ. of California Hsg. Sys. Group A Rev., Ser. W, Prerefunded @ 102....... 7.800 11/01/1996 372,069
245,000 California Health Fac. Auth. Rev. (Stanford Univ. Hosp.), Prerefunded @ 102. 7.125 11/01/1996 252,407
300,000 California St. Public Works Dept. of Corrections Rev., Prerefunded @ 102.... 7.375 11/01/1996 309,315
100,000 Palm Springs, CA, COP (Palm Springs Public Fac. Corp.), Escrowed to Maturity 6.700 11/01/1996 101,046
400,000 Univ. of California Medical Ctr. Rev. (Satellite Medical Ctr.),
Escrowed to Maturity...................................................... 7.900 12/01/1996 407,005
100,000 California St. Dept. of Water Rev., Ser. B, Prerefunded @ 101.50............ 7.500 12/01/1996 103,042
150,000 Poway, CA, Redev. Agy. Tax Rev., Prerefunded @ 103.......................... 8.100 12/15/1996 157,460
500,000 California School Cash Reserve Program Auth. 1995 Pool Bonds, Ser. B........ 4.500 12/20/1996 501,583
2,000,000 California School Cash Reserve Program Auth. 1996 Pool Bonds, Ser. A........ 4.750 07/02/1997 2,017,280
- - ------------- ------------
$10,650,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------
(Amortized Cost $10,774,388)................................................ $10,774,388
------------
<PAGE>
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 64.9% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 400,000 Irvine Ranch, CA, Water Dist. Rev., Ser. 1985B................. 3.450% 07/01/96 $ 400,000
1,700,000 California PCR Fin. Auth. (Delano Proj.)....................... 3.750 07/01/96 1,700,000
1,300,000 California PCR Fin. Auth. (Del Marva Power & Light -
Burney Forest Proj.)......................................... 3.650 07/01/96 1,300,000
800,000 California PCR Fin. Auth. (Honey Lake Power Proj.)............. 3.750 07/01/96 800,000
1,600,000 Irvine Ranch, CA, Assess. Dist. Impt. Rev., Ser. 1989-10....... 3.300 07/01/96 1,600,000
450,000 Irvine Ranch, CA, Water Dist. Cap. Impt. Proj. Rev., Ser. 1986. 3.500 07/01/96 450,000
1,000,000 California PCR Fin. Auth., Ser. A (Ultrapower-Rocklin)......... 3.799 07/01/96 1,000,000
500,000 Irvine Ranch, CA, Water Dist. Rev.............................. 3.450 07/01/96 500,000
1,400,000 Anaheim, CA, COP Police Facs. Rev.............................. 3.100 07/03/96 1,400,000
1,500,000 California PCR Fin. Auth. (Pacific Gas & Electric)............. 3.450 07/03/96 1,500,000
1,600,000 Vacaville, CA, IDR (Leggett & Platt, Inc.)..................... 3.850 07/03/96 1,600,000
1,500,000 Los Angeles, CA, Pension Obligation Ref. Rev., Ser. 1996C...... 3.150 07/03/96 1,500,000
<PAGE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 64.9% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,900,000 San Rafael, CA, IDR, Ser. 1994 (Phoenix American, Inc.)........ 3.600% 07/03/96 $ 1,900,000
1,000,000 Santa Paula, CA, Public Fin. Auth. Rev., Ser. 1996
(Water Sys. Aquisition Proj.)................................ 3.750 07/03/96 1,000,000
1,500,000 Hanford, CA, Sewer Rev., Ser. A................................ 3.750 07/05/96 1,500,000
1,200,000 Los Angeles, CA, Dept. of Water & Power Rev.................... 3.300 07/05/96 1,200,000
1,000,000 San Bernardino Co., CA, IDR (LaQuinta Motor Inns).............. 3.400 07/05/96 1,000,000
1,000,000 San Bernardino Co., CA, Capital Impt. Proj. Rev................ 3.800 07/05/96 1,000,000
1,300,000 San Bernardino Co., CA, COP.................................... 3.600 07/05/96 1,300,000
800,000 San Francisco, CA, City & Co. Parking Auth. Rev................ 3.300 07/05/96 800,000
- - ------------- ------------
$23,450,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------
(Amortized Cost $23,450,000)................................... $23,450,000
------------
<PAGE>
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS-- 2.4% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 855,000 California PCR Fin. Auth. (San Diego Gas & Elec.)............. 4.000% 09/01/1996 $ 855,000
- - ------------- ------------
$ 855,000 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------
(Amortized Cost $855,000)...................................... $ 855,000
------------
<PAGE>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT COMMERCIAL PAPER-- 6.9% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500,000 Riverside Co., CA, Transportation Sales Tax Rev................ 3.400% 07/18/1996 $ 1,500,000
1,000,000 California PCR Fin. Auth. (Pacific Gas & Elec.)................ 3.400 08/08/1996 1,000,000
- - ------------- ------------
$2,500,000 TOTAL COMMERCIAL PAPER
- - -------------
(Amortized Cost $2,500,000).................................... $ 2,500,000
------------
$37,455,000 TOTAL INVESTMENTS AT VALUE -- 104.0%
=============
(Amortized Cost $37,579,388)................................... $37,579,388
OTHER ASSETS AND LIABILITIES, NET-- (4.0)% .................... ( 1,457,327 )
------------
NET ASSETS-- 100.0% ........................................... $36,122,061
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 27.2% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100,000 Broward Co., FL, GO, Prerefunded @ 102......................... 7.400% 07/01/1996 $ 102,000
100,000 Broward Co., FL, GO, Prerefunded @ 102......................... 7.500 07/01/1996 102,000
200,000 Cape Coral, FL, Special Obligation Wastewater Assessment Rev... 4.800 07/01/1996 200,000
100,000 Ft. Lauderdale, FL, GO, Prerefunded @ 102...................... 7.600 07/01/1996 102,000
250,000 Hernando Co., FL, School Board COP............................. 5.250 07/01/1996 250,000
100,000 Miami, FL, Sewer Impt. GO ..................................... 6.600 07/01/1996 100,000
110,000 Orlando & Orange Co., FL, Expressway Auth. Rev.,
Prerefunded @ 102............................................ 7.500 07/01/1996 112,200
125,000 Brevard Co., FL, Local Option Gas Tax Rev., Ser. B............. 4.300 08/01/1996 125,046
1,000,000 Dade Co., FL, Gtd. Entitlement Rev., Escrowed to Maturity...... 9.500 08/01/1996 1,004,694
100,000 Duval Co., FL, School Dist. GO, Prerefunded @ 102.............. 7.300 08/01/1996 102,276
100,000 Duval Co., FL, School Dist. GO, Ser. 1988, Prerefunded @ 102... 7.500 08/01/1996 102,298
340,000 Pinellas Co., FL, Transportation Impt. Rev..................... 5.000 08/01/1996 340,372
330,000 New York, NY, GO, Ser. A, Escrowed to Maturity................. 7.375 08/15/1996 331,480
250,000 Univ. of Texas General Tuition Rev., Prerefunded @ 102......... 8.000 08/15/1996 256,289
400,000 Immokalee, FL, Water & Sewer Dist. Rev. BANS................... 3.650 08/30/1996 400,000
120,000 Albany-Dougherty Co., GA, Hosp. Rev. (Pheobe Putney
Memorial Hosp.).............................................. 4.000 09/01/1996 120,083
250,000 Charleston, SC, Public Impt. COP............................... 3.700 09/01/1996 250,000
680,000 Nevada St. COP................................................. 3.900 09/01/1996 680,000
110,000 Ormond Beach, FL, Water & Sewer Rev., Prerefunded @ 102........ 7.875 09/01/1996 112,891
500,000 West Volusia, FL, Hosp. Auth. Rev., Ser. B, Prerefunded @ 103.. 9.375 09/01/1996 519,608
230,000 Broward Co., FL, Airport Sys. Rev., Prerefunded @ 100.......... 10.000 10/01/1996 233,453
175,000 Jacksonville, FL, Elec. Auth. Rev., Ser. 2 1987A-1............. 6.600 10/01/1996 176,110
130,000 Lee Co., FL, Water & Sewer Rev., Prerefunded @ 102............. 6.900 10/01/1996 133,534
1,295,000 Manatee Co., FL, GO, Ser. A, Prerefunded @ 102................. 7.375 10/01/1996 1,332,397
500,000 Orange Co., FL, Health Fac. Auth. Rev., Prerefunded Muni. Certfs.,
Ser. 3, Escrowed to Maturity................................... 4.650 10/01/1996 501,159
100,000 Orlando, FL, Waste Water Sys. Rev., Ser. B, Prerefunded @ 102.. 7.500 10/01/1996 102,901
100,000 Palm Beach Co., FL, Impt. Rev., Escrowed to Maturity........... 6.900 10/01/1996 100,737
250,000 St. Petersburg, FL, Public Util. Rev........................... 5.850 10/01/1996 251,197
100,000 Tampa, FL, Rev................................................. 6.200 10/01/1996 100,565
225,000 West Palm Beach, FL, Parking Fac. Rev., Prerefunded @ 102...... 7.700 10/01/1996 231,572
150,000 Brevard Co., FL, Second Gtd. Entitlement Rev................... 4.750 11/01/1996 150,560
500,000 Florida HFA MFH Rev., Prerefunded @ 100........................ 5.500 11/01/1996 502,602
435,000 West Virginia St. Hsg. Dev. Rev................................ 6.800 11/01/1996 438,730
125,000 Cook Co., IL, GO............................................... 3.800 11/15/1996 125,015
400,000 Philadelphia, PA, Muni. Auth. Justice Lease Rev., Ser. A....... 6.150 11/15/1996 403,815
420,000 Philadelphia, PA, Muni. Auth. Justice Lease Rev., Ser. B....... 6.150 11/15/1996 424,006
145,000 Clarksville, TN, Public Bldg. Auth. Rev........................ 4.000 12/01/1996 145,276
160,000 Ohio St. Higher Educ. Fac. Comm. Rev. (Kenyon College),
Prerefunded @ 102............................................ 7.125 12/01/1996 165,592
200,000 Utah St. University Agric. & Applied Science Rev., Ser. A,
Escrowed to Maturity......................................... 6.500 12/01/1996 202,291
250,000 Champaign Co., IL, Comm. USD #116 GO........................... 7.400 12/30/1996 254,867
100,000 Wakulla Co., FL, Sales Tax Rev., Prerefunded @ 102............. 7.000 01/01/1997 103,630
175,000 Escambia Co., FL, School Board COP............................. 5.250 02/01/1997 176,436
250,000 Dallas, TX, GO................................................. 5.000 02/15/1997 251,507
580,000 Florida St. Div. Board Fin. Dept. Rev. (Sunshine Skyway)....... 9.800 06/01/1997 611,099
375,000 Florida St. Div. Board Fin. Dept. Rev. (Dept. of
Nature Preservation)......................................... 5.750 07/01/1997 381,718
250,000 Venice, FL, Util. Rev., Prerefunded @ 102...................... 6.900 07/01/1997 262,066
- - ------------- ------------
$12,885,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------
(Amortized Cost $13,076,072)................................... $13,076,072
------------
<PAGE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 62.6% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 900,000 Dade Co., FL, IDA PCR (Florida Power & Light).................. 3.550% 07/01/1996 $ 900,000
1,000,000 Hamilton Co., OH, Health Sys. Rev. (Franciscan Sisters)........ 3.750 07/01/1996 1,000,000
2,600,000 Hillsborough Co., FL, IDA PCR (Tampa Elec.).................... 3.550 07/01/1996 2,600,000
300,000 Jacksonville, FL, Health Fac. Auth. Rev., Ser. 1988
(River Garden)............................................... 4.200 07/01/1996 300,000
1,500,000 Jacksonville, FL, Health Fac. Auth. Rev., Ser. 1996
(Genesis Rehab. Hosp.)....................................... 3.800 07/01/1996 1,500,000
2,500,000 Jacksonville, FL, PCR (Florida Power & Light).................. 3.550 07/01/1996 2,500,000
2,200,000 Ohio Air Quality Dev. Auth. Rev., Ser. 1985B (Cincinnati
Gas & Elec.)................................................. 3.750 07/01/1996 2,200,000
200,000 Pinal Co., AZ, IDA PCR (Magma Copper Co.)...................... 3.600 07/01/1996 200,000
1,200,000 Pinellas Co., FL, Health Fac. Rev. (Pooled Hosp. Loan)......... 3.600 07/01/1996 1,200,000
1,100,000 Broward Co., FL, HFA (Lake Park Assoc. Ltd. Partnership)....... 3.450 07/03/1996 1,100,000
1,735,000 Illinois Dev. Fin. Auth. MFH Rev. (Cobbler Square Proj.)....... 3.850 07/03/1996 1,735,000
2,000,000 Orange Co., FL, IDR, Ser. 1996A (Univ. of Central Florida
Proj.)....................................................... 3.350 07/03/1996 2,000,000
800,000 Rockport, IN, PCR, Ser. B (Indiana Michigan Power Co.)......... 3.250 07/03/1996 800,000
720,000 Volusia Co., FL, Health Facs. Auth. Rev. (Pooled Hosp. Loan)... 3.700 07/03/1996 720,000
1,000,000 Boca Raton, FL, IDR (Parking Garage)........................... 3.675 07/05/1996 1,000,000
980,000 Dade Co., FL, HFA (Kendall Court Apts.)........................ 3.450 07/05/1996 980,000
1,500,000 Jacksonville, FL, Health Fac. Auth. Rev. (Faculty Practice
Assoc.)...................................................... 3.400 07/05/1996 1,500,000
1,500,000 Marion Co., FL, HFA (Paddock Pl. Proj.)........................ 3.600 07/05/1996 1,500,000
1,000,000 Marion Co., FL, HFA (Summer Trace Apts.)....................... 3.600 07/05/1996 1,000,000
1,000,000 Orlando, FL, Util. Comm. Water & Elec. Rev..................... 3.250 07/05/1996 1,000,000
1,800,000 Plant City, FL, Hosp. Rev. (South Florida Baptist Hosp.)....... 3.550 07/05/1996 1,800,000
2,500,000 Volusia Co., FL, Health Facs. Auth. Rev. (West Volusia Health). 3.350 07/05/1996 2,500,000
- - ------------- ------------
$30,035,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------
(Amortized Cost $30,035,000)................................... $30,035,000
------------
<PAGE>
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT ADJUSTABLE RATE PUT BONDS-- 4.9% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 650,000 Broomfield, CO, Rev., Ser. 1992 (Up With People Proj.)......... 4.000% 07/01/1996 $ 650,000
1,715,000 Florida HFA Rev................................................ 3.800 12/15/1996 1,715,000
- - ------------- ------------
$ 2,365,000 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------
(Amortized Cost $2,365,000).................................... $ 2,365,000
------------
<CAPTION>
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT COMMERCIAL PAPER-- 3.1% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,500,000 St. Lucie Co., FL, PCR (Florida Power & Light Proj. B)......... 3.600% 08/07/1996 $ 1,500,000
- - ------------- ------------
$ 1,500,000 TOTAL COMMERCIAL PAPER
- - -------------
(Amortized Cost $1,500,000).................................... $ 1,500,000
------------
$46,785,000 TOTAL INVESTMENTS AT VALUE -- 97.8%
=============
(Amortized Cost $46,976,072)................................... $46,976,072
OTHER ASSETS AND LIABILITIES, NET-- 2.2% ...................... 1,075,067
------------
NET ASSETS-- 100.0% ........................................... $48,051,139
============
</TABLE>
<PAGE>
<TABLE>
TAX-FREE INTERMEDIATE TERM FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA -- 0.5%
$ 385,000 Alaska St. HFC Rev............................................. 7.650% 12/01/2010 $ 393,874
------------
ARIZONA -- 3.0%
300,000 Pinal Co., AZ, IDA PCR VRDN (Magma Copper Co.)................. 3.600 07/01/1996 300,000
500,000 Pima Co., AZ, USD No. 1 (Tuscon), Prerefunded @ 102............ 6.750 07/01/1998 533,610
400,000 Arizona Educ. Loan Mkt. Corp. Rev., Ser. A..................... 6.700 03/01/2000 416,948
600,000 Maricopa Co., AZ, School Dist. Rev., Ser. 1991C (Tempe Elem.).. 8.000 07/01/2004 713,664
205,000 Maricopa Co., AZ, SFM Rev., Ser. 1991.......................... 7.375 08/01/2005 216,365
------------
2,180,587
------------
CALIFORNIA -- 3.5%
800,000 Irvine, CA, Assess. Dist. Impt. Rev., VRDN, Ser. 89-10......... 3.300 07/01/1996 800,000
500,000 Santa Clara Co., CA, Hsg. Auth. ARPB (Orchard Glen Apts.)...... 5.250 11/01/1998 501,245
480,000 Sacramento Co., CA, MFH ARPB (Fairway One Apts.)............... 5.875 02/01/2003 486,461
500,000 Santa Monica, CA, Redev. Agy. Lease Rev........................ 6.000 07/01/2003 529,254
250,000 California HFA Multi-Unit Rental Rev., Ser. B.................. 6.500 08/01/2005 261,323
------------
2,578,283
------------
COLORADO -- 1.4%
1,000,000 Westminster, CO, MFH ARPB (Oasis Wexford Apts.)................ 5.350 12/01/2005 996,300
------------
FLORIDA -- 6.4%
1,200,000 Univ. of Florida Athletic Assn. Capital Impt. Rev. VRDN
(Stadium Proj.).............................................. 3.600 07/01/1996 1,200,000
800,000 Pinellas Co., FL, Health Fac. Rev. VRDN (Pooled Hosp. Loan).... 3.600 07/01/1996 800,000
200,000 Jacksonville, FL, Health Fac. Auth. Rev. VRDN, Ser. 1988
(River Garden)............................................... 4.200 07/01/1996 200,000
500,000 Florida HFA MFH ARPB, Ser. 1978B (Hampton Lakes II Proj.)...... 5.700 04/01/2001 505,025
1,000,000 Florida Board of Educ. Capital Outlay GO, Ser. A............... 5.500 05/01/2004 1,021,160
200,000 Florida St. GO................................................. 6.500 05/01/2004 202,994
750,000 Hillsborough Co., FL, Solid Waste Rev.......................... 5.500 10/01/2006 764,648
------------
4,693,827
------------
GEORGIA -- 2.1%
255,000 Atlanta, GA, Airport Extension & Impt. Rev.,
Escrowed to Maturity......................................... 7.250 01/01/1998 267,215
700,000 Fulton Co., GA, Water & Sewer Rev., Ser. 1986, Prerefunded
@ 101........................................................ 6.800 01/01/2000 753,921
500,000 Columbus, GA, Med. Ctr. Hosp. Auth. Rev........................ 6.400 08/01/2006 537,185
------------
1,558,321
------------
ILLINOIS -- 3.9%
500,000 Aurora, IL, MFH Rev., Ser. 1988 (Fox Valley)................... 7.750 09/01/1998 524,485
680,000 Illinois Educ. Fac. Auth. Rev., Ser. A (Loyola Univ.),
Prerefunded @ 102............................................ 7.125 07/01/2001 758,112
500,000 Chicago, IL, Public Bldg. Comm. Rev., Escrowed to Maturity..... 7.700 01/01/2008 523,360
1,000,000 Evergreen Park, IL, Hosp. Fac. Rev. (Little Co. Mary Hosp.).... 7.750 02/15/2009 1,065,140
------------
2,871,097
------------
INDIANA -- 2.2%
1,000,000 Indiana Bond Bank Special Prog. Rev., Ser. A1.................. 6.650 01/01/2004 1,064,740
500,000 Indiana HFA Multi-Unit Mtg. Prog. Rev., Ser. 1992A............. 6.600 01/01/2012 519,425
------------
1,584,165
------------
IOWA -- 1.7%
250,000 Iowa Student Loan Liquidity Corp. Rev.......................... 6.400 07/01/2004 262,765
420,000 Iowa HFA Rev................................................... 6.500 07/01/2006 438,346
240,000 Iowa Student Loan Liquidity Corp. Rev.......................... 6.600 07/01/2008 250,754
250,000 Cedar Rapids, IA, Hosp. Fac. Rev. (St. Luke's Methodist Hosp.). 6.000 08/15/2009 256,693
------------
1,208,558
------------
<PAGE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KENTUCKY -- 3.2%
$ 675,000 Owensboro, KY, Elec. Light & Power Rev., Prerefunded @ 102..... 10.250% 01/01/2000 $ 804,640
750,000 Kentucky St. Turnpike Auth. EDR (Revitalization Proj.)......... 5.250 07/01/2005 758,040
750,000 Kentucky St. Property & Bldg. Comm. Proj. #59 Rev.............. 5.200 05/01/2006 744,248
------------
2,306,928
------------
LOUISIANA -- 1.4%
440,000 Louisiana Public Fac. Auth. Rev. (Medical Ctr. of Louisiana)... 6.000 10/15/2003 462,026
500,000 West Ouachita Parish, LA, School Dist. GO, Ser. A.............. 6.700 03/01/2006 542,590
------------
1,004,616
------------
MARYLAND -- 1.5%
500,000 Maryland St. Health & Higher Educ. Fac. Auth. Rev.
(Univ. of Maryland Medical Sys.)............................. 6.500 07/01/2001 538,130
500,000 Maryland St. Comm. Dev. Admin. Rev............................. 8.500 04/01/2002 523,155
------------
1,061,285
------------
MASSACHUSETTS -- 4.4%
750,000 Massachusetts St. Indust. Fin. Agy. ARPB (Asahi/America, Inc.). 5.100 03/01/1999 755,348
500,000 New England Educ. Loan Mkt. Corp. Rev., Ser. 1992A............. 6.500 09/01/2002 533,370
500,000 New England Educ. Loan Mkt. Corp. Rev., Ser. 1992B............. 6.600 09/01/2002 534,345
1,280,000 Worcester, MA, GO.............................................. 6.000 07/01/2006 1,355,008
------------
3,178,071
------------
MICHIGAN -- 2.3%
1,000,000 Michigan St. Bldg. Auth. Rev., Ser. II......................... 6.400 10/01/2004 1,076,470
600,000 Kalamazoo, MI, Hosp. Fin. Auth. Rev., Ser. A
(Borgess Medical Ctr.)....................................... 5.000 06/01/2006 575,934
------------
1,652,404
------------
MINNESOTA -- 1.0%
700,000 Centennial, MN, ISD GO, Ser. A................................. 5.600 02/01/2002 727,839
------------
MISSISSIPPI -- 1.0%
500,000 Mississippi Higher Educ. Rev., Ser. B.......................... 6.100 07/01/2001 513,415
250,000 Hattiesburg, MS, Water & Sewer Rev............................. 4.800 08/01/2002 247,545
------------
760,960
------------
NEBRASKA -- 1.1%
47,000 Nebraska Invest. Fin. Auth. SFM Rev., Ser. A................... 8.600 05/15/1997 48,116
680,000 Nebraska Invest. Fin. Auth. Rev., Ser. 1989 (Foundation for
Educ. Fund), Escrowed to Maturity............................. 7.000 11/01/2009 734,237
------------
782,353
------------
NEVADA -- 2.2%
315,000 Washoe Co., NV, GO, Prerefunded @ 102.......................... 7.375 07/01/1999 344,790
1,000,000 Las Vegas, NV, GO, Sewer Impt. Rev............................. 6.500 10/01/2006 1,077,200
185,000 Washoe Co., NV, GO............................................. 7.375 07/01/2009 200,373
------------
1,622,363
------------
NEW YORK -- 2.6%
415,000 New York, NY, GO, Prerefunded @ 102............................ 8.000 08/01/1997 441,842
500,000 New York Local Gov't. Asst. Corp. Rev., Ser. 1991B............. 7.000 04/01/2002 549,710
85,000 New York, NY, GO............................................... 8.000 08/01/2005 89,833
810,000 New York St. Dorm. Auth. Rev. (Devereux Foundation)............ 4.850 07/01/2006 786,494
------------
1,867,879
------------
<PAGE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NORTH CAROLINA -- 8.0%
$ 500,000 Charlotte, NC, GO.............................................. 4.750% 02/01/2006 $ 485,355
1,065,000 Durham, NC, COP................................................ 6.375 12/01/2006 1,132,457
1,200,000 Asheville, NC, GO.............................................. 6.100 03/01/2008 1,266,072
1,000,000 Charlotte-Mecklenberg Hosp. NC, Health Care Sys. Rev........... 5.600 01/15/2009 1,005,040
980,000 Univ. of North Carolina Chapel Hill Rev. (Univ. NC Hosp.)...... 5.050 02/15/2009 924,816
1,000,000 Univ. of North Carolina Chapel Hill Rev. (Univ. NC Hosp.)...... 5.150 02/15/2010 947,380
------------
5,761,120
------------
OHIO -- 19.0%
1,400,000 Ohio Air Quality Dev. Auth. Rev., VRDN, Ser. 1985B
(Cincinnati Gas & Elec.)..................................... 3.750 07/01/1996 1,400,000
500,000 Ohio St. Bldg. Auth. Rev., Ser. A, Escrowed to Maturity........ 7.150 03/01/1999 532,870
700,000 Franklin Co., OH, Dev. & Ref. Rev., Ser. 1993
(American Chemical Soc.)..................................... 5.500 04/01/2000 700,707
500,000 Franklin Co., OH, Rev. (Online Computer Library Ctr.)......... 5.500 04/15/2000 499,750
750,000 Fairfield, OH, IDR ARPB (Skyline Chili, Inc.).................. 5.000 09/01/2000 746,048
950,000 Akron Bath & Copley, OH, Joint Twp. Hosp. Rev.
(Summa Health Systems)....................................... 5.900 11/15/2002 990,888
270,000 Warren Co., OH, Hosp. Fac. Rev. (Otterbein Home)............... 7.000 07/01/2003 290,528
1,000,000 Ohio St. EDR Ohio Enterprise Bond Fd. (Smith Steelite Proj.)... 5.600 12/01/2003 984,480
500,000 Hamilton Co., OH, Hosp. Fac. Rev. (Episcopal Retirement Home).. 6.600 01/01/2004 532,970
825,000 Jackson, OH, Electric Sys. Mtg. Rev............................ 5.200 07/15/2004 796,686
445,000 Ohio St. EDR Ohio Enterprise Bond Fd. (Cheryl & Co.)........... 5.500 12/01/2004 471,740
625,000 Cuyahoga Co., OH, Util. Sys. Impt. & Ref. Rev., Ser. 1995B..... 5.500 08/15/2005 632,106
1,005,000 Franklin Co., OH, Health Care Fac. Rev. (First Comm. Village).. 6.000 06/01/2006 1,004,940
400,000 Painesville, OH, Elec. Rev..................................... 6.000 11/01/2006 414,828
1,000,000 Mahoning Co., OH, GO........................................... 6.600 12/01/2006 1,086,970
590,000 Ohio St. GO.................................................... 4.950 08/01/2008 567,326
800,000 West Clermont, OH, LSD GO...................................... 6.150 12/01/2008 846,248
500,000 Hamilton Co., OH, Hosp. Fac. Rev. (Bethesda Hosp.)............. 7.000 01/01/2009 513,815
750,000 Univ. of Cincinnati, OH, General Receipts, Ser. G.............. 7.000 06/01/2011 818,580
------------
13,831,480
------------
PENNSYLVANIA -- 5.0%
605,000 Chartiers Valley, PA, Comm. Dev. ARPB
(Colonial Bldg. Partners Proj.).............................. 5.625 12/01/1997 609,271
500,000 Pennsylvania St., IDR, Ser. A, Prerefunded @ 102............... 7.000 07/01/2001 555,630
1,000,000 Allegheny Co., PA, Hosp. Dev. Auth. Rev.
(Univ. of Pittsburgh Medical Ctr.)........................... 4.850 12/01/2006 944,050
1,000,000 Pennsylvania Intergovt. Coop. Auth. Rev. (City of Philadelphia) 5.200 06/15/2007 980,190
500,000 Pennsylvania Fin. Auth. Muni. Cap. Impt. Proj. Rev............. 6.600 11/01/2009 527,750
------------
3,616,891
------------
PUERTO RICO -- 0.2%
175,000 Puerto Rico Commonwealth GO, Prerefunded @ 102................. 7.125 07/01/1997 184,408
------------
SOUTH CAROLINA -- 3.2%
1,000,000 Piedmont, SC, Muni. Power Agy. Rev., Ser. A.................... 6.000 01/01/2002 1,054,020
525,000 South Carolina St. GO, Ser. A.................................. 6.000 03/01/2004 557,655
725,000 Richland-Lexington, SC, Airport Dist. Rev., Ser. 1995
(Columbia Metro.)............................................ 6.000 01/01/2008 746,881
------------
2,358,556
------------
TENNESSEE -- 1.5%
525,000 Southeast, TN, Tax-Exempt Mtg. Trust ARPB,
Ser. 1990, Mandatory Put..................................... 7.250 04/01/2003 576,214
500,000 Nashville, TN, Metro. Airport Rev., Ser. C..................... 6.625 07/01/2007 536,045
------------
1,112,259
------------
<PAGE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS -- 8.2%
$ 510,000 Pasadena, TX, IDR (Univ. Space Research Assn.)................. 6.650% 10/01/1996 $ 512,876
500,000 Texas Turnpike Auth. Rev. (Dallas N. Tollway),
Prerefunded @ 102............................................ 7.250 01/01/1999 542,210
500,000 Houston, TX, Sr. Lien Rev., Ser. A (Hotel Tax & Parking Fac.),
Prerefunded @ 100............................................ 7.000 07/01/2001 549,155
350,000 Univ. of Texas, TX, Rev., Ser. B, Prerefunded @102............. 6.750 08/15/2001 386,680
1,000,000 Texas National Research Lab. Fin. Corp. Lease Rev.,
Prerefunded @ 102............................................ 6.850 12/01/2001 1,111,800
500,000 N. Texas Higher Educ. Student Loan Rev., Ser. 1991A............ 6.875 04/01/2002 523,945
650,000 Galveston, TX, Health Fac. Rev. (Devereux Foundation).......... 4.900 11/01/2006 628,056
500,000 N. Central, TX, Health Fac. Rev. (Baylor Health Care),
Indexed INFLOS............................................... 8.150 05/15/2008 539,755
479,105 Midland, TX, HFC Rev., Ser. A2................................. 8.450 12/01/2011 511,253
650,000 Univ. of Texas, TX, Rev., Ser. B............................... 6.750 08/15/2013 701,441
------------
6,007,171
------------
UTAH -- 1.2%
870,000 Utah St. School Dist. Fin. Corp. Rev., Mandatory Redemption.... 8.375 08/15/1998 927,255
------------
VIRGINIA -- 1.4%
500,000 Chesterfield Co., VA, GO, Ser. B............................... 6.200 01/01/1999 521,995
500,000 Chesapeake, VA, GO............................................. 5.900 08/01/2005 527,285
------------
1,049,280
------------
WASHINGTON -- 5.2%
750,000 Seattle, WA, Drain & Wastewater Util. Rev., Prerefunded @ 102.. 7.000 12/01/1999 819,487
1,000,000 Seattle, WA, Muni. Metro. Sewer Rev., Prerefunded @ 102........ 6.875 01/01/2000 1,087,940
335,000 Washington St. GO, Ser. A, Prerefunded @ 100................... 6.400 03/01/2001 357,613
440,000 Port of Everett, WA, Rev....................................... 6.500 04/01/2000 441,791
1,000,000 Washington St. Motor Vehicle Fuel Tax Ref. GO.................. 6.000 09/01/2004 1,056,040
------------
3,762,871
------------
WISCONSIN -- 1.4%
505,000 Village of Dresser, WI, PCR Ref. Rev. (F & A Dairy, Inc.)...... 6.000 05/01/2000 509,215
500,000 Wisconsin Public Power System Rev., Ser. A, Prerefunded @ 102.. 7.500 07/01/2000 558,320
- - ------------- ------------
1,067,535
------------
$69,946,105 TOTAL MUNICIPAL BONDS -- 99.7%
=============
(Amortized Cost $71,287,629) .................................. $72,708,536
OTHER ASSETS AND LIABILITIES, NET-- 0.3% ...................... 204,869
------------
NET ASSETS-- 100.0% ........................................... $72,913,405
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO INSURED TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 88.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 470,000 Clermont Co., OH, Hosp. Fac. Rev. (Mercy Health Sys.),
Prerefunded @ 102............................................ 7.500% 09/01/1999 $ 519,256
500,000 Montgomery Co., OH, Garbage & Refuse Rev., Ser. A,
Prerefunded @ 102............................................ 7.100 11/01/1999 547,675
500,000 Ohio St. Bldg. Auth. Local Jail Rev. , Prerefunded @ 102....... 7.350 04/01/2000 554,040
500,000 Ohio St. Higher Educ. Fac. Rev. (Ohio Northern Univ.),
Prerefunded @ 100............................................ 7.250 05/15/2000 544,525
500,000 Akron, Bath & Copley, OH, Joint Twp. Hosp. Rev.
(Children's Hosp.), Prerefunded @ 102........................ 7.450 11/15/2000 561,440
500,000 Franklin Co., OH, Convention Fac. Auth. Tax & Lease Rev.,
Prerefunded @ 102............................................ 7.000 12/01/2000 553,370
500,000 Fairfield Co., OH, Hosp. Fac. Rev. (Lancaster-Fairfield Hosp.),
Prerefunded @ 102............................................ 7.100 06/15/2001 558,855
250,000 Franklin Co., OH, IDR (1st Community Village Healthcare),
Prerefunded @ 101.50......................................... 10.125 08/01/2001 306,442
30,000 Clermont Co., OH, Hosp. Fac. Rev., Ser. A (Mercy Health Sys.),
Prerefunded @ 100........................................... 7.500 09/01/2001 33,685
460,000 Westerville, Minerva Park & Blendon, OH, Joint Hosp. Dist.
Rev. (St. Ann's), Prerefunded @ 102.......................... 7.100 09/15/2001 516,111
1,310,000 Cuyahoga Co., OH, Hosp. Rev. (Mt. Sinai), Prerefunded @ 102.... 6.625 11/01/2001 1,444,367
500,000 Clermont Co., OH, Sewer Sys. Rev., Ser. 1991, Prerefunded @ 102 7.100 12/01/2001 562,830
15,000 Summit Co., OH, GO, Ser. A, Prerefunded @ 100.................. 6.900 08/01/2002 16,579
40,000 Ohio St. Bldg. Auth. Rev. (Frank Lausch Proj.),
Prerefunded @ 100............................................ 10.125 04/01/2003 48,878
160,000 Ohio St. Bldg. Auth. Rev. (Columbus St. Proj.),
Prerefunded @ 100............................................ 10.125 04/01/2003 194,533
230,000 Summit Co., OH, GO, Ser. A, Prerefunded @ 100.................. 6.900 08/01/2003 256,100
290,000 Alliance, OH, CSD GO........................................... 6.900 12/01/2006 316,410
1,635,000 Montgomery Co., OH, Solid Waste Rev............................ 5.000 11/01/2007 1,594,828
500,000 Cleveland, OH, Waterworks Impt. Rev., Ser. G (First Mtg.)...... 5.500 01/01/2009 502,245
1,000,000 Franklin Co., OH, Hosp. Impt. Rev. (Holy Cross Health Sys.).... 7.625 06/01/2009 1,104,770
500,000 Mansfield, OH, Hosp. Impt. Rev. (Mansfield General)............ 6.700 12/01/2009 537,435
250,000 Ohio St. Water Dev. Auth. Ref. & Impt. Rev. (Pure Water),
Escrowed to Maturity......................................... 7.000 12/01/2009 281,370
500,000 Ohio Capital Corp. MFH Rev..................................... 7.500 01/01/2010 535,435
500,000 Hamilton, OH, Water Sys. Mtg. Rev., Ser. 1991A................. 6.400 10/15/2010 527,005
500,000 Montgomery Co., OH, Solid Waste Rev............................ 5.350 11/01/2010 488,230
500,000 Butler Co., OH, Hosp. Fac. Rev. (Middletown Regional Hosp.).... 6.750 11/15/2010 539,355
1,000,000 Canton, OH, Waterworks Sys. GO, Ser. 1995...................... 5.750 12/01/2010 1,013,330
500,000 St. Mary's, OH, Elec. Sys. Rev................................. 7.150 12/01/2010 550,845
500,000 Cleveland, OH, Waterworks Impt. Rev............................ 6.500 01/01/2011 530,100
275,000 Cuyahoga Co., OH, Hosp. Rev. (University Hosp.), Escrowed to
Maturity..................................................... 9.000 06/01/2011 303,979
1,700,000 Ohio St. Water Dev. Auth. PCR.................................. 5.700 06/01/2011 1,708,143
1,500,000 Ohio St. Water Dev. Auth. PCR.................................. 5.300 06/01/2011 1,448,925
590,000 Ohio HFA SFM Rev., Ser. 1991D.................................. 7.000 09/01/2011 622,167
365,000 Bexley, OH, CSD GO............................................. 7.125 12/01/2011 426,371
500,000 Greene Co., OH, Water Sys. Rev................................. 6.850 12/01/2011 541,900
500,000 Maple Heights, OH, Various Purpose GO.......................... 7.000 12/01/2011 551,860
760,000 Springboro, OH, CSD GO......................................... 6.000 12/01/2011 799,946
500,000 Stark Co., OH, Various Purpose GO.............................. 7.050 12/01/2011 548,670
530,000 Urbana, OH, Wastewater Impt. GO................................ 7.050 12/01/2011 593,038
600,000 Westerville, OH, Water Sys. Impt. GO........................... 6.450 12/01/2011 637,992
500,000 Cleveland, OH, GO, Ser. A...................................... 6.375 07/01/2012 524,400
255,000 Summit Co., OH, GO, Ser. A..................................... 6.900 08/01/2012 272,641
500,000 Brunswick, OH, CSD GO.......................................... 6.900 12/01/2012 541,835
500,000 Ohio St. Higher Educ. Fac. Rev. (Univ. of Dayton).............. 7.250 12/01/2012 552,805
500,000 Springfield, OH, LSD GO........................................ 6.600 12/01/2012 534,865
500,000 Summit Co., OH, Various Purpose GO............................. 6.625 12/01/2012 535,445
500,000 Warrensville Heights, OH, GO................................... 6.400 12/01/2012 536,455
1,095,000 West Clermont, OH, LSD GO...................................... 6.900 12/01/2012 1,211,103
500,000 Worthington, OH, CSD GO........................................ 6.375 12/01/2012 524,825
2,500,000 Hamilton Co., OH, Hosp. Fac. Rev., Ser. D
(Children's Hosp. Medical Ctr.).............................. 5.000 05/15/2013 2,296,450
<PAGE>
<CAPTION>
OHIO INSURED TAX-FREE FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 88.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 370,000 Ohio HFA SFM Rev., Ser. 1990D.................................. 7.500% 09/01/2013 $ 390,195
1,425,000 Butler Co., OH, Sewer Sys. Rev................................. 5.125 12/01/2013 1,338,160
500,000 Ohio St. Bldg. Auth. Rev., Ser. 1994A
(Juvenile Correctional Bldg.)................................ 6.600 10/01/2014 533,735
500,000 Mahoning Co., OH, Hosp. Impt. Rev. (YHA, Inc.)................. 7.000 10/15/2014 541,020
460,000 Bedford Heights, OH, GO........................................ 6.500 12/01/2014 488,971
290,000 Garfield Heights, OH, Various Purpose GO....................... 6.300 12/01/2014 301,438
1,250,000 Maumee, OH, Hosp. Fac. Rev., Ser. 1994 (St. Luke's Hosp. Proj.) 5.800 12/01/2014 1,241,550
290,000 Northwest, OH, LSD GO.......................................... 7.050 12/01/2014 320,322
530,000 Ottawa Co., OH, GO............................................. 5.750 12/01/2014 527,588
1,000,000 Portage Co., OH, GO............................................ 6.200 12/01/2014 1,035,660
1,000,000 Clermont Co., OH, Hosp. Fac. Rev. (Mercy Health Sys.).......... 5.875 09/01/2015 999,330
550,000 Cambridge, OH, Water Sys. Mtg. Rev............................. 5.500 12/01/2015 534,638
1,750,000 Dayton, OH, Airport Rev. (James M. Cox Dayton Int'l. Airport).. 5.250 12/01/2015 1,644,440
500,000 Delaware, OH, CSD GO........................................... 5.750 12/01/2015 498,235
1,700,000 Massillon, OH, GO.............................................. 6.625 12/01/2015 1,821,754
500,000 Ohio St. Higher Educ. Fac. Rev. (Univ. of Dayton).............. 6.750 12/01/2015 539,065
1,420,000 Stow, OH, Safety Center Const., GO............................. 6.150 12/01/2015 1,463,409
1,000,000 Tuscarawas, OH, LSD GO, Ser. 1995.............................. 6.600 12/01/2015 1,076,500
500,000 Cleveland, OH, Waterworks Impt. Rev............................ 6.250 01/01/2016 512,925
750,000 Columbus-Polaris Hsg. Corp. Ohio Mtg. Rev., Prerefunded @100... 7.400 01/01/2016 840,540
500,000 Ohio St. Air Quality Dev. Auth. Rev. (Ohio Edison)............. 7.450 03/01/2016 547,185
1,000,000 Montgomery Co., OH, Hosp. Rev. (Kettering Medical Ctr.)........ 5.625 04/01/2016 976,030
405,000 Ohio HFA SFM Rev., Ser. 1990F.................................. 7.600 09/01/2016 429,191
1,085,000 Ohio HFA SFM Rev., Ser. 1991D.................................. 7.050 09/01/2016 1,140,834
500,000 Celina, OH, Wastewater Sys. Mtg. Rev........................... 6.550 11/01/2016 527,195
1,000,000 Cleveland, OH, Public Power Sys. Rev........................... 7.000 11/15/2016 1,104,420
750,000 Montgomery Co., OH, Hosp. Rev. (Miami Valley Hosp.)............ 6.250 11/15/2016 771,090
705,000 Big Walnut, OH, LSD GO (Community Library Proj.)............... 6.650 12/01/2016 756,310
590,000 Garfield Heights, OH, Various Purpose GO....................... 7.050 12/01/2016 646,687
850,000 Alliance, OH, Waterworks Sys. Rev.............................. 6.650 10/15/2017 906,245
500,000 Toledo, OH, Sewer Sys. Rev..................................... 6.350 11/15/2017 521,580
675,000 Reynoldsburg, OH, CSD GO....................................... 6.550 12/01/2017 718,963
500,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1990B (Ohio Edison). 7.100 06/01/2018 542,230
500,000 Newark, OH, Water Sys. Impt. Rev............................... 6.000 12/01/2018 505,350
15,000 Ohio St. Water Dev. Auth. Ref. Rev............................. 9.375 12/01/2018 15,684
1,000,000 S. Euclid-Lyndhurst, OH, CSD GO, Ser. 1996..................... 6.400 12/01/2018 1,051,640
500,000 Seneca Co., OH, GO (Jail Fac.)................................. 6.500 12/01/2018 530,215
500,000 Franklin Co., OH, Hosp. Rev., Ser. 1991 (Mt. Carmel)........... 6.750 06/01/2019 533,075
500,000 Crawford Co., OH, GO........................................... 6.750 12/01/2019 541,630
360,000 Cuyahoga Co., OH, Hosp. Rev. (University Hosp.)................ 6.250 01/15/2020 368,230
500,000 Lucas Co., OH, Hosp. Impt. Rev. (St. Vincent's Hosp.).......... 6.750 08/15/2020 539,435
1,750,000 Celina, OH, CSD GO............................................. 5.250 12/01/2020 1,625,033
1,000,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985A
(Columbus Southern Power).................................... 6.375 12/01/2020 1,037,170
200,000 Montgomery Co., OH, Hosp. Rev. (Sisters of Charity)............ 6.625 05/15/2021 211,324
1,000,000 Clermont Co., OH, Hosp. Fac. Rev. (Mercy Health Sys.).......... 6.733 10/05/2021 1,058,390
20,000 Puerto Rico HFC SFM Rev., Ser. A .............................. 7.800 10/15/2021 20,599
1,220,000 Butler Co., OH, Sewer Sys. Rev................................. 5.250 12/01/2021 1,131,294
1,000,000 Kent St. Univ. General Receipts Rev............................ 6.500 05/01/2022 1,057,040
165,000 Puerto Rico HFC Rev............................................ 6.850 10/15/2023 171,092
1,000,000 Springboro, OH, Community CSD GO............................... 5.100 12/01/2023 904,420
1,000,000 Ohio St. Turnpike Rev., Ser. 1996A............................. 5.500 02/15/2026 953,630
1,000,000 Ohio St. Air Quality PCR (Penn Power).......................... 6.450 05/01/2027 1,041,670
- - ------------- ------------
$68,385,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------
(Amortized Cost $67,853,032)................................... $70,988,215
------------
<PAGE>
<CAPTION>
OHIO INSURED TAX-FREE FUND (CONTINUED)
==================================================================================================================================
PRINCIPAL COUPON MATURITY MARKET
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 10.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 8,600,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985B............... 3.750% 07/01/1996 $ 8,600,000
- - ------------- ------------
$ 8,600,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------
(Amortized Cost $8,600,000).................................... $ 8,600,000
------------
$76,985,000 TOTAL INVESTMENTS AT VALUE -- 99.6%
=============
(Amortized Cost $76,453,032)................................... $79,588,215
OTHER ASSETS AND LIABILITIES, NET-- 0.4% ..................... 322,462
------------
NET ASSETS-- 100.0% .......................................... $79,910,677
</TABLE>
<PAGE>
NOTES TO PORTFOLIOS OF INVESTMENTS
JUNE 30, 1996
==============================================================================
Variable and adjustable rate put bonds earn interest at a coupon rate which
fluctuates at specified intervals, usually daily, monthly or semi-annually.
The rates shown in the Portfolios of Investments are the coupon rates in
effect at June 30, 1996.
Put bonds may be redeemed at the discretion of the holder on specified dates
prior to maturity. Mandatory put bonds are automatically redeemed at a
specified put date unless action is taken by the holder to prevent redemption.
Bonds denoted as prerefunded are anticipated to be redeemed prior to their
scheduled maturity. The dates indicated in the Portfolios of Investments are
the stipulated prerefunded dates.
PORTFOLIO ABBREVIATIONS:
ARPB - Adjustable Rate Put Bonds
BANS - Bond Anticipation Notes
COP - Certificates of Participation
CSD - City School District
EDA - Economic Development Authority
EDR - Economic Development Revenue
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corporation
IDA - Industrial Development Authority/Agency
IDR - Industrial Development Revenue
ISD - Independent School District
LSD - Local School District
MFH - Multi-Family Housing
MFM - Multi-Family Mortgage
PCR - Pollution Control Revenue
RANS - Revenue Anticipation Notes
SFM - Single Family Mortgage
TANS - Tax Anticipation Notes
TRANS - Tax Revenue Anticipation Notes
USD - Unified School District
VRDN - Variable Rate Demand Notes
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
==============================================================================
Logo: Arthur Andersen LLP
To the Shareholders and Board of Trustees of the Midwest Group Tax Free Trust:
We have audited the accompanying statements of assets and liabilities of the
Ohio Tax-Free Money Fund, Tax-Free Money Fund, Tax-Free Intermediate Term
Fund, Ohio Insured Tax-Free Fund, California Tax-Free Money Fund and Royal
Palm Florida Tax-Free Money Fund of the Midwest Group Tax Free Trust (a
Massachusetts business trust), including the portfolios of investments, as of
June 30, 1996, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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 June 30, 1996, by correspondence with custodians 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 positions of the
Ohio Tax-Free Money Fund, Tax-Free Money Fund, Tax-Free Intermediate Term
Fund, Ohio Insured Tax-Free Fund, California Tax-Free Money Fund and Royal
Palm Florida Tax-Free Money Fund of the Midwest Group Tax Free Trust as of
June 30, 1996, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Cincinnati, Ohio,
August 1, 1996
<PAGE>
Tax Exempt
SEMI-ANNUAL REPORT
December 31, 1996
(Unaudited)
Ohio Tax-Free Money Fund
Tax-Free Money Fund
California Tax-Free Money Fund
Royal Palm Florida Tax-Free Money Fund
Tax-Free Intermediate Term Fund
Ohio Insured Tax-Free Fund
MIDWEST GROUP
LETTER FROM THE PRESIDENT
===============================================================================
Dear Fellow Shareholder:
This past year proved to be anything but stable for the bond market. Early in
1996, economists were concerned about a possible recession. In response, the
Federal Reserve Board lowered interest rates 1/4% to boost the sluggish
economy. By mid-year, all discussion about a recession disappeared as it
became apparent that the economy was growing at an above average pace. Bond
prices fell, sending yields higher as investors became concerned that a robust
economy and strong employment would lead to higher inflation. At the start of
the fourth quarter the market rallied briefly in response to slower growth,
but retreated when economic vigor renewed concerns of rising inflation. The
30-year Treasury bond, after reaching a yield of 6.35% in early December,
closed the year at a yield of 6.60%.
Municipal bonds turned in a strong performance in 1996 relative to Treasuries.
Although they began the year on weak footing, prices firmed notably once the
flat-tax reform issue faded into the background. By year-end, municipal bonds
regained much lost ground and outperformed Treasuries for the year.
At their current levels, municipal bonds continue to offer good value to
investors. While bonds may be trapped in a narrow trading range in the
near-term, we expect them to benefit from an economy enjoying moderate growth
with fairly low levels of inflation. We continue to favor municipal bonds with
high credit quality and good liquidity for which there exists an active and
efficient market. As in the past, the Funds within the Midwest Group Tax-Free
Trust provide high-quality alternatives for investors seeking current tax-free
income consistent with protection of capital.
OHIO TAX-FREE MONEY FUND
The Fund's 7-day effective yield as of December 31, 1996 was 3.30%, which is
equivalent to a taxable yield of 5.91%, assuming the maximum combined federal
and Ohio income tax bracket for individuals.
TAX-FREE MONEY FUND
The Fund's 7-day effective yield as of December 31, 1996 was 3.08%, which is
equivalent to a taxable yield of 5.10%, assuming the maximum federal income
tax bracket for individuals.
CALIFORNIA TAX-FREE MONEY FUND
The Fund's 7-day effective yield as of December 31, 1996 was 3.30%, which is
equivalent to a taxable yield of 6.14%, assuming the maximum combined federal
and California income tax bracket for individuals.
ROYAL PALM FLORIDA TAX-FREE MONEY FUND
The Fund's 7-day effective yields as of December 31, 1996 were 3.24% for
Retail shares and 3.50% for Institutional shares, which are equivalent to
taxable yields of 5.36% and 5.79%, respectively, assuming the maximum federal
income tax bracket for individuals.
TAX-FREE INTERMEDIATE TERM FUND
The Fund's yields for December 31, 1996 were 4.37% for Class A shares and
3.71% for Class C shares, which are equivalent to taxable yields of 7.24% and
6.14%, respectively, assuming the maximum federal income tax bracket for
individuals. The Fund's total returns for the twelve months ended December 31,
1996 for Class A shares and Class C shares, excluding the impact of applicable
sales loads, were 3.87% and 3.31%, respectively.
OHIO INSURED TAX-FREE FUND
The Fund's yields for December 31, 1996 were 4.80% for Class A shares and
4.25% for Class C shares, which are equivalent to taxable yields of 8.59% and
7.61%, respectively, assuming the maximum combined federal and Ohio income tax
bracket for individuals. The Fund's total returns for the twelve months ended
December 31, 1996 for Class A shares and Class C shares, excluding the impact
of applicable sales loads, were 3.07% and 2.51%, respectively.
In addition, we have recently opened an Institutional class of shares in the
Ohio Tax-Free Money Fund, similar to that of the Royal Palm Tax-Free Money
Fund. These shares are specifically geared toward institutional investors,
including banks and bank trust departments, brokerage firms and corporations.
Midwest Group provides clients with opportunities to generate income through a
variety of options. As always, we remain committed to helping you meet your
investment objectives.
Sincerely,
/s/ Robert H. Leshner
Robert H. Leshner
President
February 16, 1997
Photo of: Robert H. Leshner, President
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
=============================================================================================================
OHIO CALIFORNIA
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost.................................. $ 275,098,090 $ 38,047,960 $ 38,475,104
============== ============== ===============
At amortized cost.................................... $ 274,936,278 $ 38,015,241 $ 38,440,167
============== ============== ===============
At value (Note 2).................................... $ 274,936,278 $ 38,015,241 $ 38,440,167
Cash ................................................... 2,711,851 -- --
Interest receivable .................................... 2,384,145 290,575 308,657
Other assets ........................................... 50,860 7,146 8,353
-------------- -------------- ---------------
TOTAL ASSETS....................................... 280,083,134 38,312,962 38,757,177
-------------- -------------- ---------------
LIABILITIES
Bank overdraft.......................................... -- 150,406 64,288
Dividends payable....................................... 258,873 3,294 1,987
Payable for securities purchased........................ -- 1,200,739 --
Payable to affiliates (Note 4) ......................... 126,104 24,178 27,856
Other accrued expenses and liabilities ................. 11,072 3,984 3,730
-------------- -------------- ---------------
TOTAL LIABILITIES.................................. 396,049 1,382,601 97,861
-------------- -------------- ---------------
NET ASSETS ............................................ $ 279,687,085 $ 36,930,361 $ 38,659,316
============== ============== ===============
Net assets consist of:
Capital shares ......................................... $ 279,674,180 $ 36,927,811 $ 38,660,209
Undistributed net investment income..................... -- 3,600 --
Accumulated net realized gains (losses) from
security transactions................................ 12,905 ( 1,050 ) ( 893 )
-------------- -------------- ---------------
Net assets.............................................. $ 279,687,085 $ 36,930,361 $ 38,659,316
============== ============== ===============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) .......... 279,674,336 36,938,254 38,660,209
============== ============== ===============
Net asset value, offering price and redemption price
per share (Note 2) .................................. $ 1.00 $ 1.00 $ 1.00
============== ============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS For
the Six Months Ended December 31, 1996 (Unaudited)
=============================================================================================================
OHIO CALIFORNIA
TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income...................................... $ 4,665,261 $ 545,042 $ 728,460
-------------- -------------- ---------------
EXPENSES
Investment advisory fees (Note 4).................... 588,522 71,497 102,741
Distribution expenses (Note 4)....................... 246,446 5,854 6,450
Accounting services fees (Note 4).................... 26,500 19,500 19,500
Transfer agent and shareholder services fees (Note 4) 37,788 14,633 11,856
Postage and supplies................................. 21,717 7,223 3,239
Professional fees.................................... 10,356 3,756 3,756
Insurance expense.................................... 9,948 1,917 2,140
Registration fees.................................... 5,180 8,852 4,671
Custodian fees (Note 4).............................. -- 858 3,470
Pricing expenses..................................... 4,491 2,273 2,988
Trustees' fees and expenses ......................... 1,575 1,575 1,575
Reports to shareholders ............................. 2,347 965 832
Other expenses ...................................... 7,196 2,660 1,150
-------------- -------------- ---------------
TOTAL EXPENSES ......................................... 962,066 141,563 164,368
-------------- -------------- ---------------
NET INVESTMENT INCOME .................................. 3,703,195 403,479 564,092
-------------- -------------- ---------------
NET REALIZED GAINS FROM SECURITY TRANSACTIONS .......... -- -- 687
-------------- -------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............. $ 3,703,195 $ 403,479 $ 564,779
-------------- -------------- ---------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1996 and June 30, 1996
==================================================================================================================================
CALIFORNIA
OHIO TAX-FREE TAX-FREE TAX-FREE
MONEY FUND MONEY FUND MONEY FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, 1996 JUNE 30, DEC. 31, 1996 JUNE 30, DEC. 31, 1996 JUNE 30,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income .......................... $ 3,703,195 $ 7,465,588 $ 403,479 $ 870,333 $ 564,092 $ 818,679
Net realized gains (losses) from
security transactions ......................... -- (709) -- (564) 687 116
------------- ------------- ---------- ----------- ---------- ----------
Net increase in net assets from operations ....... 3,703,195 7,464,879 403,479 869,769 564,779 818,795
------------- ------------- ---------- ----------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME ..................... (3,703,195) (7,465,588) (399,879) (873,034) (564,092) (818,679)
------------- ------------- ---------- ----------- ---------- ----------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5):
Proceeds from shares sold ...................... 336,458,026 565,969,095 29,729,090 49,546,956 88,025,176 119,659,991
Net asset value of shares issued in reinvestment
of distributions to shareholders .............. 2,360,738 4,885,920 391,518 839,246 530,025 753,406
Payments for shares redeemed ................... (299,454,571) (557,137,769)(18,536,235) (51,732,766) (86,018,633) 103,816,208)
------------- ------------- ---------- ----------- ---------- -----------
Net increase (decrease) in net assets from
capital share transactions ..................... 39,364,193 13,717,246 11,584,373 (1,346,564) 2,536,568 16,597,189
------------- ------------- ---------- ----------- ---------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS .................................. 39,364,193 13,716,537 11,587,973 (1,349,829) 2,537,255 16,597,305
NET ASSETS:
Beginning of period ........................... 240,322,892 226,606,355 25,342,388 26,692,217 36,122,061 19,524,756
------------- ------------- ---------- ----------- ---------- -----------
End of period ................................. $ 279,687,085 $ 240,322,892 $36,930,361 $25,342,388 $38,659,316 $36,122,061
============= ============= ========== =========== ========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME .............. $ -- $ -- $ 3,600 $ -- $ -- $ --
============= ============= ========== =========== ========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
=======================================================================================================
ROYAL PALM
TAX-FREE OHIO INSURED FLORIDA
INTERMEDIATE TAX-FREE TAX-FREE
TERM FUND FUND MONEY FUND
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost ................................ $ 66,462,541 $ 71,959,950 $ 49,495,278
============ ============ ============
At amortized cost .................................. $ 66,135,352 $ 71,919,434 $ 49,444,692
============ ============ ============
At value (Note 2) .................................. $ 68,546,362 $ 76,786,651 $ 49,444,692
Cash .................................................. 33,857 73,039 368,482
Receivable for capital shares sold .................... 40,507 77,716 --
Interest receivable ................................... 1,308,048 750,849 321,382
Other assets .......................................... 17,322 20,490 9,992
------------ ------------ ------------
TOTAL ASSETS ....................................... 69,946,096 77,708,745 50,144,548
------------ ------------ ------------
LIABILITIES
Dividends payable ..................................... 47,195 77,795 53,610
Payable for capital shares redeemed ................... 167,705 38,662 --
Payable for securities purchased ...................... -- -- 1,221,399
Payable to affiliates (Note 4) ........................ 49,328 43,112 19,802
Other accrued expenses and liabilities ................ 5,985 6,397 4,512
------------ ------------ ------------
TOTAL LIABILITIES ................................ 270,213 165,966 1,299,323
------------ ------------ ------------
NET ASSETS ............................................ $ 69,675,883 $ 77,542,779 $ 48,845,225
============ ============ ============
Net assets consist of:
Capital shares ........................................ $ 68,745,123 $ 72,601,169 $ 48,846,357
Accumulated net realized gains (losses) from
security transactions ................................ (1,480,250) 74,393 (1,132)
Net unrealized appreciation on investments ............ 2,411,010 4,867,217 --
------------ ------------ ------------
Net assets ............................................ $ 69,675,883 $ 77,542,779 $ 48,845,225
============ ============ ============
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares ............... $ 64,448,995 $ 73,472,848 $ 32,565,831
============ ============ ============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) ............................ 5,848,666 6,004,449 32,566,983
============ ============ ============
Net asset value and redemption price per share (Note 2) $ 11.02 $ 12.24 $ 1.00
============ ============ ============
Maximum offering price per share (Note 2) ............. $ 11.24 $ 12.75 $ 1.00
============ ============ ============
PRICING OF CLASS C SHARES(A)
Net assets applicable to Class C shares(A) ............ $ 5,226,888 $ 4,069,931 $ 16,279,394
============ ============ ============
Shares of beneficial interest outstanding (unlimited
number of shares authorized,
no par value) (Note 5) ............................. 474,267 332,643 16,279,375
============ ============ ============
Net asset value, offering price and redemption
price per share (Note 2) ........................... $ 11.02 $ 12.24 $ 1.00
============ ============ ============
<FN>
(A) Except for the Royal Palm Florida Tax-Free Money Fund which offers Class B
shares (Note 2).
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1996 (Unaudited)
===================================================================================================
ROYAL PALM
TAX-FREE OHIO INSURED FLORIDA
INTERMEDIATE TAX-FREE TAX-FREE
TERM FUND FUND MONEY FUND
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income ..................................... $1,976,699 $2,302,720 $ 799,852
---------- ---------- ----------
EXPENSES
Investment advisory fees (Note 4) ................... 179,118 198,513 112,092
Distribution expenses, Class A (Note 4) ............. 48,969 6,757 20,286
Distribution expenses, Class C (Note 4) ............. 12,692 4,717 --
Transfer agent and shareholder services fees,
Class A (Note 4) ................................. 35,235 20,262 6,000
Transfer agent and shareholder services fees,
Class C (Note 4) ................................. 6,000 6,000 --
Transfer agent and shareholder services fees,
Class B (Note 4) ................................. -- -- 6,000
Accounting services fees (Note 4) ................... 28,500 28,500 25,500
Postage and supplies ................................ 24,064 12,914 5,353
Pricing expenses .................................... 8,254 8,223 2,378
Professional fees ................................... 4,956 5,256 3,756
Insurance expense ................................... 4,017 4,152 2,207
Custodian fees ...................................... 1,359 1,759 6,505
Registration fees, Common ........................... 2,341 757 4,048
Registration fees, Class A .......................... 4,841 3,323 --
Registration fees, Class C .......................... 4,074 2,163 --
Reports to shareholders ............................. 2,987 1,849 472
Trustees' fees and expenses ......................... 1,575 1,575 1,575
Other expenses ...................................... 1,241 2,373 2,219
---------- ---------- ----------
TOTAL EXPENSES ......................................... 370,223 309,093 198,391
Fees waived by the Adviser (Note 4) ................. -- -- ( 38,837 )
Class B expenses reimbursed by the Adviser (Note 4) . -- -- ( 11,507 )
---------- ---------- ----------
NET EXPENSES ........................................... 370,223 309,093 148,047
---------- ---------- ----------
NET INVESTMENT INCOME .................................. 1,606,476 1,993,627 651,805
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions ..... 140,532 74,887 66
Net change in unrealized appreciation/depreciation
on investments .................................. 990,103 1,732,034 --
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ....... 1,130,635 1,806,921 66
---------- ---------- ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............. $2,737,111 $3,800,548 $ 651,871
========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended December 31, 1996 and June 30, 1996
===================================================================================================================================
ROYAL PALM
TAX-FREE FLORIDA
INTERMEDIATE OHIO INSURED TAX-FREE
TERM FUND TAX-FREE FUND MONEY FUND
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, 1996 JUNE 30, DEC. 31, 1996 JUNE 30, DEC. 31, 1996 JUNE 30,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income ........................ $ 1,606,476 $ 3,575,536 $ 1,993,627 $ 4,034,181 $ 651,805 $ 984,325
Net realized gains from security transactions 140,532 418,573 74,887 637,863 66 --
Net change in unrealized appreciation/
depreciation on investments ................. 990,103 (378,154) 1,732,034 (557,750) -- --
---------- ---------- ---------- ---------- -------- --------
Net increase in net assets from operations ..... 2,737,111 3,615,955 3,800,548 4,114,294 651,871 984,325
---------- ---------- ---------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A .......... (1,500,636) (3,370,231) (1,907,078) (3,835,050) (405,807) (941,390)
From net investment income, Class C .......... (105,840) (205,305) (86,549) ( 199,131) -- --
From net investment income, Class B .......... -- -- -- -- (245,998) (42,935)
---------- ---------- ---------- ---------- -------- --------
Decrease in net assets from distributions to
shareholders ................................. (1,606,476) (3,575,536) (1,993,627) (4,034,181) (651,805) (984,325)
---------- ---------- ---------- ---------- -------- --------
FROM CAPITAL SHARES
TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold .................... 6,830,128 15,528,848 79,345,672 149,454,410 30,350,741 51,380,671
Net asset value of shares issued in
reinvestment of distributions to shareholders 1,190,289 2,685,608 1,444,503 2,832,266 338,596 836,936
Payments for shares redeemed ................. (12,292,601) (31,733,808) (84,980,757) (147,848,817) (27,029,932)(47,429,798)
---------- ---------- ---------- ---------- -------- --------
Net increase (decrease) in net assets
from Class A share transactions .............. (4,272,184) (13,519,352) (4,190,582) 4,437,859 3,659,405 4,787,809
---------- ---------- ---------- ---------- -------- --------
CLASS C (A)
Proceeds from shares sold .................... 975,857 3,208,583 573,086 1,212,806 13,801,338 19,950,303
Net asset value of shares issued in
reinvestment of distributions to shareholders 101,101 192,684 75,707 173,201 -- --
Payments for shares redeemed ................. (1,172,931) (2,962,890) (633,030) (1,551,557) (16,666,723) (805,545)
---------- ---------- ---------- ---------- -------- ---------
Net increase (decrease) in net assets
from Class C share transactions (A) .......... (95,973) 438,377 15,763 (165,550) (2,865,385) 19,144,758
---------- ---------- ---------- ---------- -------- ---------
TOTAL INCREASE (DECREASE)
IN NET ASSETS ............................... (3,237,522) (13,040,556) (2,367,898) 4,352,422 794,086 23,932,567
NET ASSETS:
Beginning of period .......................... 72,913,405 85,953,961 79,910,677 75,558,255 48,051,139 24,118,572
---------- ---------- ---------- ---------- -------- ---------
End of period ................................ $ 69,675,883 $ 72,913,405 $ 77,542,779 $ 79,910,677 $ 48,845,225 $48,051,139
========== ========== ========== ========== ======== =========
<FN>
(A) Except for the Royal Palm Florida Tax-Free Money Fund
which offers Class B shares (Note 2).
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
==================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================================================================================
SIX MONTHS
ENDED
DEC. 31, YEAR ENDED JUNE 30,
1996
(UNAUDITED) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- --------- --------- --------- ----------
Net investment income...................... 0.015 0.031 0.031 0.020 0.022 0.034
---------- ---------- --------- --------- --------- ----------
Distributions from net investment income .. (0.015) (0.031) (0.031) (0.020) (0.022) (0.034)
---------- ---------- --------- --------- --------- ----------
Net asset value at end of period........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========= ========= ========= ==========
Total return............................... 2.90%(A) 3.14% 3.12% 1.99% 2.19% 3.52%
========== ========== ========= ========= ========= ==========
Net assets at end of period (000's) ....... $279,687 $240,323 $226,606 $213,001 $221,775 $ 218,503
========== ========== ========= ========= ========= ==========
Ratio of expenses to average net assets ... 0.75%(A) 0.75% 0.74% 0.73% 0.74% 0.75%
Ratio of net investment income to
average net assets...................... 2.88%(A) 3.09% 3.08% 1.97% 2.16% 3.43%
<FN>
(A) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================================================
SIX MONTHS
ENDED
DEC. 31, YEAR ENDED JUNE 30,
1996
(UNAUDITED) 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- --------- --------- --------- ----------
Net investment income...................... 0.014 0.031 0.030 0.021 0.024 0.036
---------- ---------- --------- --------- --------- ----------
Distributions from net investment income... (0.014) (0.031) (0.030) (0.021) (0.024) (0.036)
---------- ---------- --------- --------- --------- ----------
Net asset value at end of period........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========= ========= ========= ==========
Total return .............................. 2.80%(A) 3.15% 3.07% 2.12% 2.40% 3.63%
========== ========== ========= ========= ========= ==========
Net assets at end of period (000's) ....... $ 36,930 $ 25,342 $ 26,692 $ 31,168 $34,787 $50,000
========== ========== ========= ========= ========= ==========
Ratio of expenses to average net assets.... 0.99%(A) 0.99% 0.99% 0.99% 0.99% 0.99%
Ratio of net investment income to
average net assets 2.81%(A) 3.09% 3.00% 2.09% 2.39% 3.55%
<FN>
(A) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
=================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=================================================================================================================
SIX MONTHS
ENDED
DEC. 31, YEAR ENDED JUNE 30,
1996
(UNAUDITED) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- --------- --------- --------- ----------
Net investment income...................... 0.014 0.029 0.029 0.019 0.022 0.035
---------- ---------- --------- --------- --------- ----------
Distributions from net investment income... (0.014) (0.029) (0.029) (0.019) (0.022) (0.035)
---------- ---------- --------- --------- --------- ----------
Net asset value at end of period........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========== ========= ========= ========= ==========
Total return .............................. 2.75%(B) 2.95% 2.95% 1.93% 2.26% 3.71%
========== ========== ========= ========= ========= ==========
Net assets at end of period (000's) ....... $ 38,659 $ 36,122 $ 19,525 $ 24,508 $34,487 $21,246
========== ========== ========= ========= ========= ==========
Ratio of expenses to average net assets(A) 0.80%(B) 0.80% 0.70% 0.60% 0.56% 0.34%
Ratio of net investment income to
average net assets 2.74%(B) 2.88% 2.83% 1.90% 2.22% 3.49%
<FN>
(A)Absent fee waivers and/or expense reimbursements by the Adviser, the ratio
of expenses to average net assets would have been 0.82%, 0.85%, 0.86%, 0.85%
and 0.89% for the years ended June 30, 1996, 1995, 1994, 1993 and 1992,
respectively.
(B)Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes to finacial statements.
TAX-FREE INTERMEDIATE TERM FUND - CLASS A
FINANCIAL HIGHLIGHTS
================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================================================
SIX MONTHS
ENDED
DEC. 31, YEAR ENDED JUNE 30,
1996
(UNAUDITED) 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 10.85 $ 10.86 $ 10.69 $ 10.98 $ 10.42 $ 10.15
---------- ---------- --------- --------- --------- ----------
Income from investment operations:
Net investment income .................. 0.25 0.50 0.49 0.48 0.53 0.59
Net realized and unrealized gains (losses)
on investments........................ 0.17 (0.01) 0.17 (0.29) 0.56 0.27
---------- ---------- --------- --------- --------- ----------
Total from investment operations .......... 0.42 0.49 0.66 0.19 1.09 0.86
---------- ---------- --------- --------- --------- ----------
Distributions from net investment income .. (0.25) (0.50) (0.49) (0.48) (0.53) (0.59)
---------- ---------- --------- --------- --------- ----------
Net asset value at end of period........... $ 11.02 $ 10.85 $ 10.86 $ 10.69 $ 10.98 $ 10.42
========== ========== ========= ========= ========= ==========
Total return(A) ........................... 7.73%(B) 4.51% 6.36% 1.70% 10.75% 8.78%
========== ========== ========= ========= ========= ==========
Net assets at end of period (000's) ....... $ 64,449 $ 67,675 $ 81,140 $106,472 $82,168 $26,720
========== ========== ========= ========= ========= ==========
Ratio of expenses to average net assets ... 0.99%(B) 0.99% 0.99% 0.99% 0.99% 1.07%
Ratio of net investment income to
average net assets 4.52%(B) 4.52% 4.59% 4.35% 4.90% 5.75%
Portfolio turnover rate.................... 42%(B) 37% 32% 46% 28% 12%
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND - CLASS C FINANCIAL HIGHLIGHTS
=================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=================================================================================================================
SIX MONTHS FROM DATE OF
ENDED PUBLIC OFFERING
DEC. 31, YEAR ENDED JUNE 30, (FEB. 1, 1994)
1996 THROUGH
(UNAUDITED) 1996 1995 JUNE 30, 1994
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 10.85 $ 10.86 $ 10.69 $ 11.27
------------ -------------- ------------- --------------
Income from investment operations:
Net investment income....................... 0.22 0.44 0.44 0.20
Net realized and unrealized gains (losses)
on investments............................ 0.17 (0.01) 0.17 (0.58)
------------ -------------- ------------- --------------
Total from investment operations............... 0.39 0.43 0.61 (0.38)
------------ -------------- ------------- --------------
Distributions from net investment income....... (0.22) (0.44) (0.44) (0.20)
------------ -------------- ------------- --------------
Net asset value at end of period............... $ 11.02 $ 10.85 $ 10.86 $ 10.69
============ ============== ============= ==============
Total return(A) ............................... 7.13%(C) 4.00% 5.82% (8.28%)(C)
============ ============== ============= ==============
Net assets at end of period (000's)............ $ 5,227 $ 5,239 $ 4,814 $ 3,084
============ ============== ============= ==============
Ratio of expenses to average net assets(B) .... 1.57%(C) 1.49% 1.49% 1.45%(C)
Ratio of net investment income to average net assets 3.94%(C) 4.02% 4.08% 3.79%(C)
Portfolio turnover rate........................ 42%(C) 37% 32% 46%(C)
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Absent expense reimbursements by the Adviser, the ratio of expenses to
average net assets would have been 1.75%(C) for the period ended June 30, 1994.
(C) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO INSURED TAX-FREE FUND - CLASS A
FINANCIAL HIGHLIGHTS
================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
================================================================================================================
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DEC. 31, 1996
(UNAUDITED) 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 11.97 $ 11.99 $ 11.74 $ 12.41 $ 11.67 $ 11.13
---------- ---------- --------- --------- --------- ----------
Income from investment operations:
Net investment income .................. 0.31 0.62 0.63 0.61 0.65 0.70
Net realized and unrealized gains (losses)
on investments........................ 0.27 (0.02) 0.25 (0.64) 0.74 0.54
---------- ---------- --------- --------- --------- ----------
Total from investment operations .......... 0.58 0.60 0.88 (0.03) 1.39 1.24
---------- ---------- --------- --------- --------- ----------
Less distributions:
Distributions from net investment income (0.31) (0.62) (0.63) (0.61) (0.65) (0.70)
Distributions from net realized gains... -- -- -- (0.03) -- --
---------- ---------- --------- --------- --------- ----------
Total distributions ....................... (0.31) (0.62) (0.63) (0.64) (0.65) (0.70)
---------- ---------- --------- --------- --------- ----------
Net asset value at end of period........... $ 12.24 $ 11.97 $ 11.99 $ 11.74 $ 12.41 $ 11.67
========== ========== ========= ========= ========= ==========
Total return(A) .......................... 9.67%(C) 5.05% 7.75% (0.41%) 12.24% 11.55%
========== ========== ========= ========= ========= ==========
Net assets at end of period (000's) ....... $ 73,473 $ 75,938 $ 71,393 $ 79,889 $81,101 $49,288
========== ========== ========= ========= ========= ==========
Ratio of expenses to average net assets(B) 0.75%(C) 0.75% 0.75% 0.75% 0.75% 0.60%
Ratio of net investment income to
average net assets 5.04%(C) 5.12% 5.35% 4.94% 5.35% 6.10%
Portfolio turnover rate.................... 40%(C) 46% 29% 45% 15% 3%
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratio
of expenses to average net assets would have been 0.77% and 0.77% for the
years ended June 30, 1995 and 1992, respectively.
(C) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO INSURED TAX-FREE FUND - CLASS C
FINANCIAL HIGHLIGHTS
==================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================================================================================
SIX MONTHS FROM DATE OF
ENDED PUBLIC OFFERING
DEC. 31, YEAR ENDED JUNE 30, (NOV. 1, 1993)
1996 THROUGH
(UNAUDITED) 1996 1995 JUNE 30, 1994
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 11.97 $ 12.00 $ 11.74 $ 12.62
------------ -------------- ------------- --------------
Income from investment operations:
Net investment income....................... 0.27 0.56 0.57 0.36
Net realized and unrealized gains (losses)
on investments............................ 0.27 (0.03) 0.26 (0.85)
------------ -------------- ------------- --------------
Total from investment operations............... 0.54 0.53 0.83 (0.49)
------------ -------------- ------------- -------------
Less distributions:
Distributions from net investment income.... (0.27) (0.56) (0.57) (0.36)
Distributions from net realized gains....... -- -- -- (0.03)
------------ -------------- ------------- --------------
Total distributions............................ (0.27) (0.56) (0.57) (0.39)
------------ -------------- ------------ --------------
Net asset value at end of period............... $ 12.24 $ 11.97 $ 12.00 $ 11.74
============ ============== ============= ==============
Total return(A) ............................... 9.06%(C) 4.44% 7.31% (6.05%)(C)
============ ============== ============= ==============
Net assets at end of period (000's)............ $ 4,070 3,972 $ 4,165 $ 2,659
============ ============= ============= ==============
Ratio of expenses to average net assets(B) .... 1.33%(C) 1.25% 1.25% 1.22%(C)
Ratio of net investment income to average net assets 4.46%(C) 4.62% 4.84% 4.09%(C)
Portfolio turnover rate........................ 40%(C) 46% 29% 45%(C)
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratio
of expenses to average net assets would have been 1.27% and 1.28%(C) for the
periods ended June 30, 1995 and 1994, respectively.
(C) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
SIX MONTHS FROM DATE OF
ENDED PUBLIC OFFERING
DEC. 31, YEAR ENDED JUNE 30, (NOV. 13, 1992)
1996 THROUGH
(UNAUDITED) 1996 1995 1994 JUNE 30, 1993(A)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- --------- ---------- --------- -----------
Net investment income........................... 0.014 0.032 0.031 0.021 0.016
---------- --------- ---------- --------- -----------
Distributions from net investment income ....... (0.014) (0.032) (0.031) (0.021) (0.016)
---------- --------- ---------- --------- -----------
Net asset value at end of period ............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========== ========= ========== ========= ===========
Total return ................................... 2.83%(C) 3.29% 3.17% 2.11% 2.49%(C)
========== ========= ========== ========= ===========
Net assets at end of period (000's) ............ $ 32,566 $ 28,906 $ 24,119 $ 26,276 $ 21,907
========== ========= ========== ========= ===========
Ratio of expenses to average net assets(B) .... 0.75%(C) 0.61% 0.66% 0.58% 0.34%(C)
Ratio of net investment income to
average net assets 2.81%(C) 3.24% 3.12% 2.10% 2.41%(C)
<FN>
(A) No income was earned or expenses incurred from the start of business
through the date of public offering.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratio
of expenses to average net assets would have been 0.92%(C), 0.80%, 0.80%,
0.81% and 0.94%(C) for the periods ended December 31, 1996 and June 30,
1996, 1995, 1994 and 1993, respectively (Note 4).
(C) Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND - CLASS B
FINANCIAL HIGHLIGHTS
=================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=================================================================================================================
SIX MONTHS
ENDED PERIOD
DEC. 31, ENDED
1996 JUNE 30,
(UNAUDITED) 1996 (A)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period .................................. $ 1.000 $ 1.000
-------------- ---------------
Net investment income.................................................... 0.015 0.003
-------------- ---------------
Distributions from net investment income ................................ $ (0.015) $ (0.003)
-------------- ---------------
Net asset value at end of period ........................................ $ 1.000 $ 1.000
============== ===============
Total return............................................................. 3.08% (C) 3.03% (C)
============== ===============
Net assets at end of period (000's) ..................................... $ 16,279 $ 19,145
============== ===============
Ratio of expenses to average net assets(B) ............................. 0.50% (C) 0.50% (C)
Ratio of net investment income to average net assets..................... 3.05% (C) 3.03% (C)
<FN>
(A) Represents the period from the initial public offering of Class B shares
(May 29, 1996) through June 30, 1996.
(B) Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 0.81%(C) and 0.87%(C) for
the periods ended December 31, 1996 and June 30, 1996, respectively (Note 4).
(C) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 (Unaudited)
==============================================================================
1. ORGANIZATION
Midwest Group Tax Free Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company. The Trust was established as a Massachusetts business
trust under a Declaration of Trust dated April 13, 1981. The Declaration of
Trust, as amended, permits the Trustees to issue an unlimited number of shares
of six funds: the Ohio Tax-Free Money Fund, the Tax-Free Money Fund, the
California Tax-Free Money Fund, the Royal Palm Florida Tax-Free Money Fund,
the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
(individually a Fund and collectively the Funds).
The Ohio Tax-Free Money Fund seeks the highest level of current income exempt
from federal income tax and Ohio personal income tax, consistent with
liquidity and stability of principal. The Fund invests primarily in a
portfolio of high-quality, short-term Ohio municipal obligations.
The Tax-Free Money Fund seeks the highest level of interest income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-quality, short-term municipal obligations.
The California Tax-Free Money Fund seeks the highest level of interest income
exempt from federal and California income taxes, consistent with liquidity and
stability of principal, by investing primarily in high-quality, short-term
California municipal obligations.
The Royal Palm Florida Tax-Free Money Fund seeks the highest level of interest
income exempt from federal income tax, consistent with liquidity and stability
of principal, by investing primarily in high-quality, short-term Florida
municipal obligations the value of which is exempt from the Florida intangible
personal property tax.
The Tax-Free Intermediate Term Fund seeks high current income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-grade municipal obligations maturing within twenty years or
less with a dollar-weighted average portfolio maturity under normal market
conditions of between three and ten years. To the extent consistent with the
Fund's primary objective, capital appreciation is a secondary objective.
The Ohio Insured Tax-Free Fund seeks the highest level of interest income
exempt from federal income tax and Ohio personal income tax, consistent with
protection of capital. The Fund invests primarily in high and medium-quality,
long-term Ohio municipal obligations which are protected by insurance
guaranteeing the payment of principal and interest in the event of a default.
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund each
offer two classes of shares: Class A shares (sold subject to a maximum
front-end sales load of 2% for the Tax-Free Intermediate Term Fund and 4% for
the Ohio Insured Tax-Free Fund and a distribution fee of up to 0.25% of
average daily net assets of each Fund) and Class C shares (sold subject to a
maximum contingent deferred sales load of 1% if redeemed within a one-year
period from purchase and a distribution fee of up to 1% of average daily net
assets). Each Class A and Class C share of the Fund represents identical
interests in the Fund's investment portfolio and has the same rights, except
that (i) Class C shares bear the expenses of higher distribution fees, which
is expected to cause Class C shares to have a higher expense ratio and to pay
lower dividends than Class A shares; (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable; and (iii) each class has exclusive voting rights with respect to
matters relating to its own distribution arrangements.
The Royal Palm Florida Tax-Free Money Fund offers two classes of shares: Class
A shares (Retail shares), sold subject to a distribution fee of up to 0.25% of
average daily net assets, and Class B shares (Institutional shares), sold
without a distribution fee. Each Retail and Institutional share of the Fund
represents identical interests in the Fund's investment portfolio and has the
same rights, except that (i) Retail shares bear the expenses of distribution
fees, which is expected to cause Retail shares to have a higher expense ratio
and to pay lower dividends than Institutional shares; (ii) certain other class
specific expenses will be borne solely by the class to which such expenses are
attributable; (iii) each class has exclusive voting rights with respect to
matters affecting only that class; and (iv) Retail shares are subject to a
lower minimum initial investment requirement and offer certain shareholder
services not available to Institutional shares such as checkwriting and
automatic investment and redemption plans.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Trust's significant accounting policies:
Security valuation -- Ohio Tax-Free Money Fund, Tax-Free Money Fund,
California Tax-Free Money Fund and Royal Palm Florida Tax-Free Money Fund
securities are valued on the amortized cost basis, which approximates market.
This involves initially valuing a security at its original cost and thereafter
assuming a constant amortization to maturity of any discount or premium. This
method of valuation is expected to enable these Funds to maintain a constant
net asset value per share. Tax-Free Intermediate Term Fund and Ohio Insured
Tax-Free Fund securities are valued at market using an independent pricing
service which 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 securities. On limited occasions, if the valuation provided
by the pricing service ignores certain market conditions affecting the value
of a security or the pricing service cannot provide a valuation, the fair
value of the security will be determined in good faith consistent with
procedures established by the Board of Trustees.
Share valuation -- The net asset value per share of the Ohio Tax-Free Money
Fund, the Tax-Free Money Fund, the California Tax-Free Money Fund and the
Royal Palm Florida Tax-Free Money Fund is calculated daily by dividing the
total value of a Fund's assets, less liabilities, by its number of shares
outstanding. The offering price and redemption price per share is equal to the
net asset value per share.
The net asset value per share of each of the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund is also calculated daily by dividing the
total value of a Fund's assets attributable to that class, less liabilities
attributable to that class, by the number of shares of that class outstanding.
The maximum offering price of Class A shares of the Tax-Free Intermediate Term
Fund is equal to net asset value per share plus a sales load equal to 2.04% of
the net asset value (or 2% of the offering price). The maximum offering price
of Class A shares of the Ohio Insured Tax-Free Fund is equal to net asset
value per share plus a sales load equal to 4.17% of the net asset value (or 4%
of the offering price). The offering price of Class C shares of each Fund is
equal to the net asset value per share.
The redemption price per share of Class A shares and Class C shares of the
Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund is equal to
the net asset value per share. However, Class C shares of each Fund are
subject to a contingent deferred sales load of 1% of the original purchase
price if redeemed within a one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Discounts and
premiums on securities purchased are amortized in accordance with income tax
regulations which approximate generally accepted accounting principles.
Distributions to shareholders -- Distributions from net investment income are
declared daily and paid on the last business day of each month. 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.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Allocations between classes -- Investment income earned by the Royal Palm
Florida Tax-Free Money Fund, the Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund is allocated daily to each class of shares based on the
percentage of the net asset value of settled shares of such class to the total
of the net asset value of settled shares of both classes of shares. Realized
capital gains and losses and unrealized appreciation and depreciation are
allocated daily to each class of shares based upon its proportionate share of
total net assets of the Fund. Class specific expenses are charged directly to
the class incurring the expense. Common expenses which are not attributable to
a specific class are allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund.
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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
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
will be relieved of federal income tax on the income distributed. Accordingly,
no provision for income taxes has been made. In addition, each Fund intends to
satisfy conditions which enable it to designate the interest income generated
by its investment in municipal securities, which is exempt from federal income
tax when received by the Fund, as exempt-interest dividends upon distribution
to shareholders.
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 as of December 31, 1996:
- - ----------------------------------------------------------------------------
TAX-FREE
INTERMEDIATE OHIO INSURED
TERM FUND TAX-FREE FUND
Gross unrealized appreciation.............. $ 2,450,192 $ 4,920,851
Gross unrealized depreciation.............. (39,182) (53,634)
-------------- ---------------
Net unrealized appreciation................ $ 2,411,010 $ 4,867,217
============== ===============
- - -----------------------------------------------------------------------------
The tax basis of investments for each Fund is equal to the amortized cost as
shown on the Statements of Assets and Liabilities.
As of June 30, 1996, the Ohio Tax-Free Money Fund, the Tax-Free Money Fund,
the California Tax-Free Money Fund, the Royal Palm Florida Tax-Free Money
Fund, the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
had capital loss carryforwards for federal income tax purposes of $709,
$1,338, $1,580, $1,198, $1,620,782 and $494, respectively, none of which
expire prior to June 30, 1999. These capital loss carryforwards may be
utilized in the current or future years to offset net realized capital gains
prior to distributing such gains to shareholders.
3. INVESTMENT TRANSACTIONS
For the six months ended December 31, 1996, purchases and proceeds from sales
and maturities of investment securities, excluding short-term investments,
amounted to $14,645,840 and $16,019,554, respectively, for the Tax-Free
Intermediate Term Fund and $18,463,254 and $15,066,358, respectively, for the
Ohio Insured Tax-Free Fund.
4. TRANSACTIONS WITH AFFILIATES
The President of the Trust is the controlling shareholder of Leshner
Financial, Inc. (Leshner), whose wholly-owned subsidiaries include Midwest
Group Financial Services, Inc. (the Adviser), the Trust's investment adviser
and principal underwriter, and MGF Service Corp. (MGF), the shareholder
servicing and transfer agent and accounting and pricing agent for the Trust.
Pursuant to an agreement dated December 10, 1996 between the shareholders of
Leshner and Countrywide Credit Industries, Inc. (CCI), CCI has agreed to
acquire all of the outstanding common stock of Leshner in exchange for newly
issued common stock of CCI. Following such acquisition, which is expected to
be consummated on or about February 28, 1997, Leshner will be a wholly-owned
subsidiary of CCI. CCI is a New York Stock Exchange listed company principally
engaged in residential mortgage lending.
MANAGEMENT AGREEMENT
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. Under the Management Agreement, each Fund pays the
Adviser a fee, computed and accrued daily and paid monthly, at an annual rate
of 0.5% of its respective average daily net assets up to $100,000,000, 0.45%
of such net assets from $100,000,000 to $200,000,000, 0.4% of such net assets
from $200,000,000 to $300,000,000 and 0.375% of such net assets in excess of
$300,000,000.
In order to reduce the operating expenses of the Royal Palm Florida Tax-Free
Money Fund, the Adviser voluntarily waived advisory fees of $38,837 and
reimbursed the Fund for $11,507 of Class B expenses during the six months
ended December 31, 1996.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer Agent and Shareholder Service Agreement
between the Trust and MGF, MGF 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, MGF receives a monthly fee at an annual rate of
$25.00 per shareholder account from each of the Ohio Tax-Free Money Fund, the
Tax-Free Money Fund, the California Tax-Free Money Fund and the Royal Palm
Florida Tax-Free Money Fund and $21.00 per shareholder account from each of
the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund,
subject to a $1,000 minimum monthly fee for each Fund, or for each class of
shares of a Fund, as applicable. In addition, each Fund pays out-of-pocket
expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and
MGF, MGF calculates the daily net asset value per share and maintains the
financial books and records of each Fund. For these services, MGF receives a
monthly fee, based on current asset levels, of $4,250 per month from each of
the Ohio Tax-Free Money Fund and the Royal Palm Florida Tax-Free Money Fund,
$3,250 per month from each of the Tax-Free Money Fund and the California
Tax-Free Money Fund and $4,750 per month from each of the Tax-Free
Intermediate Term Fund and the Ohio Insured Tax-Free Fund. In addition, each
Fund pays certain out-of-pocket expenses incurred by MGF in obtaining
valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser and
affiliates earned $3,156 and $9,160 from underwriting and broker commissions
on the sale of shares of the Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund, respectively, during the six months ended December 31,
1996. In addition, the Adviser collected $2,685 and $1,240 of contingent
deferred sales loads on the redemption of Class C shares of the Tax-Free
Intermediate Term Fund and the Ohio Insured Tax-Free Fund, respectively.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is 0.25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free
Fund may directly incur or reimburse the Adviser for expenses related to the
distribution and promotion of shares. The annual limitation for payment of
such expenses under the Class C Plan is 1% of average daily net assets
attributable to Class C shares.
CUSTODIAN AGREEMENTS
The Fifth Third Bank, which serves as the custodian for each Fund except for
the Royal Palm Florida Tax-Free Money Fund, was a significant shareholder of
record of the Ohio Tax-Free Money Fund as of December 31, 1996. Under the
terms of its Custodian Agreement, The Fifth Third Bank receives from each such
Fund an asset-based fee plus transaction charges for each security transaction
entered into by the Funds. Huntington Trust Company, N.A. (Huntington), which
serves as the custodian for the Royal Palm Florida Tax-Free Money Fund, was a
significant shareholder of record of such Fund as of December 31, 1996. Under
the terms of its Custodian Agreement, Huntington receives from the Fund an
asset-based fee.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
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 December 31, 1996 and June 30, 1996:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE OHIO INSURED
TERM FUND TAX-FREE FUND
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
DEC. 31, 1996 JUNE 30, DEC. 31, 1996 JUNE 30,
(UNAUDITED) 1996 (UNAUDITED) 1996
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................... 626,071 1,417,723 6,549,516 12,319,913
Shares issued in reinvestment of
distributions to shareholders............... 108,690 244,633 118,809 232,739
Shares redeemed................................ (1,124,942) (2,894,267) (7,009,201) (12,159,274)
------------ -------------- ------------- --------------
Net increase (decrease) in shares outstanding.. (390,181) (1,231,911) (340,876) 393,378
Shares outstanding, beginning of period........ 6,238,847 7,470,758 6,345,325 5,951,947
------------ -------------- ------------- --------------
Shares outstanding, end of period.............. 5,848,666 6,238,847 6,004,449 6,345,325
============ ============== ============= ==============
CLASS C
Shares sold.................................... 89,384 292,369 47,074 99,911
Shares issued in reinvestment of
distributions to shareholders............... 9,234 17,558 6,228 14,227
Shares redeemed................................ (107,220) (270,313) (52,596) (129,418)
------------ -------------- ------------- --------------
Net increase (decrease) in shares outstanding.. (8,602) 39,614 706 (15,280)
Shares outstanding, beginning of period........ 482,869 443,255 331,937 347,217
------------ -------------- ------------- --------------
Shares outstanding, end of period.............. 474,267 482,869 332,643 331,937
============ ============== ============= ==============
</TABLE>
Capital share transactions for the Ohio Tax-Free Money Fund, the Tax-Free
Money Fund, the California Tax-Free Money Fund and the Royal Palm Florida
Tax-Free Money Fund are identical to the dollar value of those transactions as
shown in the Statements of Changes in Net Assets.
6. PORTFOLIO COMPOSITION
As of December 31, 1996, the Ohio Tax-Free Money Fund and the Ohio Insured
Tax-Free Fund were invested exclusively in debt obligations issued by the
State of Ohio and its political subdivisions, agencies, authorities and
instrumentalities and by other issuers the interest from which is exempt from
Ohio personal income tax. The California Tax-Free Money Fund was invested in
debt obligations issued by the State of California and its political
subdivisions, agencies, authorities and instrumentalities and by other issuers
the interest from which is exempt from California income tax. The Royal Palm
Florida Tax-Free Money Fund was invested exclusively in debt obligations
issued by the State of Florida and its political subdivisions, agencies,
authorities and instrumentalities and by other issuers the value of which is
exempt from the Florida intangible personal property tax. As of December 31,
1996, 10.6% of the portfolio securities of the Tax-Free Money Fund were
concentrated in the State of Ohio and 10.3% in the State of Illinois. For
information regarding portfolio composition by state for the Tax-Free
Intermediate Term Fund as of December 31, 1996, see the Fund's Portfolio of
Investments.
As diversified Funds registered under the 1940 Act, it is the policy of the
Tax-Free Money Fund and the Tax-Free Intermediate Term Fund that not more than
25% of the total assets of each such Fund be invested in securities of issuers
which individually comprise more than 5% of its total assets.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
==============================================================================
The Ohio Tax-Free Money Fund, the Tax-Free Money Fund, the California Tax-Free
Money Fund and the Royal Palm Florida Tax-Free Money Fund each invest in
municipal securities maturing in 13 months or less and having a short-term
rating in one of the top two ratings categories by at least two nationally
recognized statistical rating agencies (or by one such agency if a security is
rated by only that agency) or, if unrated, are determined by the Adviser,
under the supervision of the Board of Trustees, to be of comparable quality.
As of December 31, 1996, 43.1% of the Tax-Free Intermediate Term Fund's
portfolio securities were rated AAA/Aaa [using the higher of Standard & Poor's
Corporation (S&P) or Moody's Investors Service, Inc. (Moody's) ratings], 34.6%
were rated AA/Aa, 19.3% were rated A/A and 3.0% were not rated.
As of December 31, 1996, 96.3% of the Ohio Insured Tax-Free Fund's long-term
portfolio securities were either (1) insured by an insurance policy obtained
from a recognized insurer which carries a rating of AAA by S&P or Aaa by
Moody's, (2) guaranteed as to the payment of interest and principal by an
agency or instrumentality of the U.S. Government, or (3) secured as to the
payment of interest and principal by an escrow account consisting of
obligations of the U.S. Government. Three private insurers individually insure
more than 10% of the Ohio Insured Tax-Free Fund's portfolio securities and
collectively insure 76.5% of its portfolio securities.
The concentration of investments for each Fund as of December 31, 1996,
classified by revenue source, was as follows:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
ROYAL PALM
OHIO CALIFORNIA FLORIDA TAX-FREE OHIO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE INTERMEDIATE INSURED
MONEY MONEY MONEY MONEY TERM TAX-FREE
FUND FUND FUND FUND FUND FUND
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General Obligations................. 24.8% 24.6% 9.5% 5.0% 20.5% 41.6%
Revenue Bonds:
Industrial Development/Pollution
Control 30.6% 30.3% 26.8% 20.5% 6.9% 6.3%
Hospital/Health Care.............. 27.1% 8.1% 1.9% 35.9% 12.2% 19.2%
Housing/Mortgage.................. 3.1% 13.6% 7.8% 14.8% 11.9% 5.6%
Utilities......................... 0.6% 1.6% 20.0% 7.0% 8.1% 13.7%
Education......................... 2.4% 4.2% 5.8% 8.2% 20.3% 5.3%
Transportation.................... -- 7.4% 14.8% 3.9% 6.2% 3.5%
Public Facilities................. 3.4% -- 3.1% 1.2% 4.8% 3.5%
Economic Development.............. 5.1% 4.2% -- -- 2.2% --
Leases............................ -- -- 6.0% -- 2.4% 0.7%
Special Tax....................... -- 2.6% 0.5% 0.5% 3.1% --
Miscellaneous..................... 2.9% 3.4% 3.8% 3.0% 1.4% 0.6%
----------------------- ----------- ------------ ----------- ------------
Total .............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
=========== ============ =========== ============ =========== ===========
See each Fund's Portfolio of Investments for additional information on
portfolio composition.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
==============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 25.9% RATE DATE VALUE
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,900,000 Erie Co., OH, Hosp. Impt. Rev. (Firelands Comm. Hosp.),
Prerefunded @ 101 8.875% 01/01/1997 $ 1,919,000
675,000 Worthington, OH, CSD School Impt. GO BANS................... 3.750 01/17/1997 675,043
500,000 Marysville, OH (Water Storage Tank Proj.) GO BANS........... 3.880 01/31/1997 500,111
2,000,000 Toledo, OH, CSD Energy Conserv. GO BANS.................... 4.000 01/31/1997 2,000,794
1,950,000 Marion Co., OH, GO BANS..................................... 3.600 02/13/1997 1,950,553
700,000 Ottawa Co., OH (Port Auth. Fac. Proj.) GO BANS.............. 3.550 02/27/1997 700,263
2,000,000 East Palestine, OH, CSD GO BANS............................. 3.500 02/28/1997 2,000,305
1,800,000 Brooklyn, OH, GO BANS, Ser 1................................ 4.100 03/05/1997 1,801,230
1,550,000 Salem, OH, CSD GO BANS...................................... 3.490 03/06/1997 1,550,183
932,000 Huron, OH, GO BANS.......................................... 3.860 03/19/1997 932,492
800,000 Marysville, OH, GO BANS..................................... 3.960 03/21/1997 800,433
3,185,700 Greene Co., OH, GO.......................................... 4.000 03/26/1997 3,187,817
950,000 Geneva on the Lake, OH, GO BANS............................. 4.100 04/03/1997 950,692
2,300,000 Ottawa Co., OH, GO BANS..................................... 3.980 04/09/1997 2,301,366
1,000,000 Trumbull Co., OH, Correctional Fac. GO BANS................. 4.070 04/10/1997 1,000,705
1,250,000 Miami Valley Regional Transit Authority, OH, GO BANS........ 4.750 04/15/1997 1,254,162
1,000,000 Ashland, OH, CSD Energy Conserv. GO......................... 4.150 04/15/1997 1,000,828
1,500,000 Conneaut, OH, Water Treatment Impt. GO BANS................. 4.500 04/15/1997 1,501,655
1,900,000 Brooklyn, OH, GO BANS....................................... 4.400 05/06/1997 1,903,459
3,239,200 Hamilton, OH, GO BANS....................................... 4.000 05/09/1997 3,239,710
2,300,000 Oregon, OH, GO BANS......................................... 4.050 05/29/1997 2,302,052
1,000,000 Cleveland, OH, CSD RANS..................................... 4.500 06/01/1997 1,003,013
1,160,000 Toledo, OH, City Services Special Assessment Notes.......... 4.500 06/02/1997 1,162,324
3,000,000 Greene Co., OH, GO.......................................... 3.880 06/04/1997 3,001,949
3,500,000 Claymont, OH, CSD GO BANS................................... 4.000 06/04/1997 3,500,709
1,040,000 Brook Park, OH, GO BANS..................................... 4.050 06/06/1997 1,041,155
2,000,000 Hudson, OH, Waterworks Impt. GO BANS........................ 4.000 06/11/1997 2,002,294
2,000,000 Plain Township, OH, Fire Station Const. & Impt. GO BANS..... 4.300 06/12/1997 2,002,587
2,000,000 Forest Hills, OH, LSD GO BANS............................... 4.210 06/17/1997 2,005,942
1,150,000 Bexley City, OH, Street Impt. GO BANS....................... 4.250 06/26/1997 1,152,270
2,500,000 Mansfield, OH, CSD GO TANS.................................. 4.500 06/27/1997 2,505,239
1,000,000 Madeira, OH, LSD GO TANS.................................... 4.220 07/17/1997 1,003,283
1,400,000 Powell Village, OH, Road Impt. GO BANS...................... 4.250 07/22/1997 1,401,116
180,000 Powell Village, OH, Street Impt. GO BANS.................... 4.440 07/22/1997 180,325
2,203,000 Orange CSD, OH, Energy Conserv. GO BANS..................... 4.100 07/22/1997 2,204,170
2,000,000 Parma, OH, CSD GO BANS...................................... 4.700 07/31/1997 2,006,673
1,205,000 Shelby, OH, GO BANS, Ser 96................................. 4.300 08/21/1997 1,206,854
600,000 Marysville, OH, Street Impt. GO BANS........................ 4.270 08/28/1997 601,019
940,000 Pepper Pike, OH, Water Impt. GO BANS........................ 4.500 09/19/1997 943,226
1,250,000 Lake Co., OH, GO BANS....................................... 4.150 10/09/1997 1,251,386
1,400,000 Gates Mills Village, OH, Waterworks Impt. GO BANS........... 4.125 10/16/1997 1,402,386
1,050,000 Obetz Village, OH, GO BANS.................................. 4.370 10/23/1997 1,052,198
925,000 Vermillion, OH, Sewer System GO BANS........................ 4.150 10/31/1997 925,737
1,400,000 Bryan, OH, Hydro Electric Dam GO BANS....................... 4.100 11/12/1997 1,402,319
3,000,000 Hamilton, OH, Real Estate Acquisition Rev................... 4.700 11/20/1997 3,007,608
950,000 Marysville, OH, GO BANS..................................... 4.070 12/15/1997 952,285
- - -------------- -----------
$ 72,284,900 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------- (Amortized Cost $72,390,920)................................ $72,390,920
-----------
<PAGE>
<CAPTION>
OHIO TAX-FREE MONEY FUND (Continued)
==============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 60.5% RATE DATE VALUE
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 340,000 Montgomery Co., OH, IDR (Kindercare)........................ 4.550% 01/01/1997 $ 340,000
2,900,000 Muskingum Co., OH, IDR (Elder-Beerman)...................... 3.950 01/01/1997 2,900,000
1,750,000 Cuyahoga Co., OH, Health Care Fac. Rev., Ser. 1993B
(Hospice of the Western Reserve)............................ 4.250 01/01/1997 1,750,000
2,340,000 Defiance Co., OH, IDR (Isaac Property Proj.)................ 4.250 01/01/1997 2,340,000
210,000 Franklin Co., OH, IDR (Boa Ltd. Proj.)...................... 3.650 01/01/1997 210,000
1,100,000 Franklin Co., OH, IDR (Capitol South)....................... 3.600 01/01/1997 1,100,000
8,000,000 Clermont Co., OH, Hosp. Fac. Rev., Ser.
B (Mercy Health Sys.)....................................... 4.200 01/01/1997 8,000,000
1,300,000 Franklin Co., OH, IDR (Jacobsen Stores)..................... 3.650 01/01/1997 1,300,000
1,600,000 Delaware Co., OH, IDR (Radiation Sterilizers, Inc.)......... 3.600 01/01/1997 1,600,000
4,195,000 Cuyahoga Co., OH, IDR (S & R Playhouse Realty).............. 3.750 01/01/1997 4,195,000
980,000 Centerville, OH, Health Care Rev. (Bethany Lutheran)........ 4.100 01/01/1997 980,000
1,250,000 Cuyahoga Co., OH, Health Care Fac. Rev.
(Benjamin Rose Inst.)....................................... 4.300 01/01/1997 1,250,000
1,700,000 Cleveland-Cuyahoga Co., OH, Port. Auth. Rev.
(Rock & Roll Halll of Fame)................................. 4.250 01/01/1997 1,700,000
500,000 Ohio St. Environ. Impt. Rev. (U.S. Steel Corp.)............. 3.850 01/01/1997 500,000
1,000,000 Butler Co., OH, IDR (Phillip Morris Co.).................... 4.150 01/01/1997 1,000,000
850,000 Hardin Co., OH, Hosp. Impt. Rev., Ser. A
(Hardin Memorial Hosp.)..................................... 4.300 01/01/1997 850,000
960,000 Cuyahoga Co., OH, Health Care Fac. Rev., Ser. 1993A
(Hospice of the Western Reserve)............................ 4.250 01/01/1997 960,000
100,000 Cuyahoga Co., OH, IDR (Schottenstein Stores)................ 4.250 01/01/1997 100,000
2,000,000 Cuyahoga Co., OH, IDR, Ser. 1989 (Motch Corp. Proj.)........ 4.700 01/01/1997 2,000,000
300,000 Medina, OH, IDR (Kindercare)................................ 4.550 01/01/1997 300,000
375,000 Hudson Village, OH, IDR, Ser. A (Kindercare)................ 4.550 01/01/1997 375,000
2,390,000 Erie Co., OH, IDR (Toft Dairy, Inc.)........................ 4.250 01/01/1997 2,390,000
330,000 Franklin Co., OH, IDR (Columbus Dist.)...................... 4.300 01/01/1997 330,000
1,070,000 Huron Co., OH, Rev. (Norwalk Furniture Corp.)............... 4.250 01/01/1997 1,070,000
1,505,000 Greene Co., OH, Health Care Fac. Rev. (Green Oaks Proj.).... 4.250 01/01/1997 1,505,000
287,000 Middletown, OH, IDR, Ser. A (Kindercare).................... 4.550 01/01/1997 287,000
935,000 Lucas Co., OH, IDR, Ser. D (Kindercare)..................... 4.550 01/01/1997 935,000
564,000 Franklin Co., OH, IDR, Ser. D (Kindercare).................. 4.550 01/01/1997 564,000
1,100,000 Delaware Co., OH, IDR, Ser. 1985 (MRG Ltd. Proj.)........... 4.350 01/01/1997 1,100,000
1,000,000 Lucas Co., OH, EDR (Glendale Meadows)....................... 4.250 01/01/1997 1,000,000
494,000 Lorain Co., OH, IDR, Ser. C (Kindercare).................... 4.550 01/01/1997 494,000
1,100,000 Meigs Co., OH, IDR, Ser. 1985 (MRG Ltd. Proj.).............. 4.350 01/01/1997 1,100,000
970,000 Cuyahoga Co., OH, IDR (Pleasant Lake Assoc.)................ 4.250 01/01/1997 970,000
2,000,000 Montgomery Co., OH, EDR (Dayton Art Institute).............. 4.250 01/01/1997 2,000,000
200,000 Stark Co., OH, IDR, Ser. D (Kindercare)..................... 4.550 01/01/1997 200,000
1,000,000 Morrow Co., OH, IDR (Field Container Corp.)................. 4.200 01/01/1997 1,000,000
200,000 Ohio St. Water Dev. Auth. Rev. (Timken Co. Proj.)........... 4.100 01/01/1997 200,000
800,000 Orrville, OH, Hosp. Fac. Rev., Ser. 1990 (Orrville Hosp.)... 4.250 01/01/1997 800,000
805,000 Montgomery Co., OH, Health Care Rev., Ser. A
(Dayton Area MRI Consortium)................................ 4.250 01/01/1997 805,000
2,530,000 Summit Co., OH, IDR (Bowery Assoc.)......................... 4.200 01/01/1997 2,530,000
375,000 Wadsworth, OH, IDR (Kindercare)............................. 4.550 01/01/1997 375,000
1,100,000 Wyandot Co., OH, IDR, Ser. 1985 (MRG Ltd. Proj.)............ 4.350 01/01/1997 1,100,000
2,300,000 Cincinnati-Hamilton Co., OH, Port Auth. Rev.
(Kenwood Office Assoc. Proj.)............................... 5.100 01/02/1997 2,300,000
8,100,000 Cuyahoga Co., OH, Hosp. Impt. Rev. (Univ. Hosp. Cleveland).. 5.000 01/02/1997 8,100,000
5,500,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985B
(Cincinnati Gas & Elec.).................................... 4.700 01/02/1997 5,500,000
2,400,000 Franklin Co., OH, Health Sys. Rev.
(St. Anthony Medical Ctr.).................................. 4.850 01/02/1997 2,400,000
5,000,000 Hamilton Co., OH, Health Sys. Rev. (Franciscan Sisters)..... 5.000 01/02/1997 5,000,000
4,900,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1995A............ 4.700 01/02/1997 4,900,000
3,000,000 Lima, OH, Hosp. Fac. Ref. & Impt. Rev., Ser. 96
(Lima Memorial Hosp.)....................................... 4.300 01/02/1997 3,000,000
1,605,000 Village of Andover, OH, Health Care Rev., Ser. 96
(D&M Realty Proj.).......................................... 4.200 01/02/1997 1,605,000
4,000,000 Montgomery Co., OH, Ltd. Obligation Rev., Ser. 96
(St. Vincent de Paul Proj.)................................. 4.250 01/02/1997 4,000,000
1,210,000 Franklin Co., OH, IDR (Ohio Girl Scouts).................... 4.200 01/02/1997 1,210,000
<PAGE>
<CAPTION>
OHIO TAX-FREE MONEY FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 60.5% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 8,000,000 Franklin Co., OH, IDR (Berwick Steel)....................... 4.250% 01/02/1997 $ 8,000,000
4,800,000 Ohio St. Higher Educ. Fac. Rev. (Pooled Financing).......... 4.200 01/02/1997 4,800,000
475,000 Akron, Bath & Copley, OH, Joint Twp. Hosp. Rev.
(Visiting Nurse Svcs. Proj.)................................ 4.300 01/02/1997 475,000
1,625,000 Ashland, OH, IDR (Landover Properties)...................... 4.150 01/02/1997 1,625,000
4,060,000 Ashtabula Co., OH Hosp. Fac. Rev., Ser. 95
(Ashtabula Co. Med. Ctr. Proj............................... 4.200 01/02/1997 4,060,000
1,900,000 Clinton Co., OH, Hosp. Rev. (Clinton Memorial).............. 4.300 01/02/1997 1,900,000
4,640,000 Trumbull Co., OH, Hosp. Rev. (Shepherd Valley Lutheran)..... 4.200 01/02/1997 4,640,000
6,360,000 Franklin Co., OH, Hosp. Fac. & Impt. Rev.
(U.S. Health Corp. of Columbus)............................. 4.150 01/02/1997 6,360,000
2,000,000 Franklin Co., OH, IDR (Alco Standard Corp.)................. 4.350 01/02/1997 2,000,000
2,720,000 Toledo, OH, City Services Special Assessment Notes.......... 4.150 01/02/1997 2,720,000
1,600,000 Warren Co., OH, IDR (Liquid Container)...................... 4.100 01/02/1997 1,600,000
2,650,000 Westlake, OH, IDR (Nordson Co.)............................. 4.200 01/02/1997 2,650,000
1,745,000 Mahoning Co., OH, Health Care Fac. Rev.
(Ohio Heart Institute)...................................... 4.200 01/02/1997 1,745,000
2,000,000 Lucas Co., OH, IDR (Ohio Citizens Bank Proj.)............... 4.300 01/02/1997 2,000,000
2,045,000 Mahoning Co., OH, Health Care Fac. Rev. (Copeland Oaks)..... 4.200 01/02/1997 2,045,000
485,000 Lucas Co., OH, IDR (Associates Proj.)....................... 4.300 01/02/1997 485,000
400,000 Lucas Co., OH, Rev. (Sunshine Children's Home).............. 4.300 01/02/1997 400,000
750,000 Marion Co., OH, Hosp. Impt. Rev. (Pooled Lease Proj.)....... 4.200 01/02/1997 750,000
4,800,000 Ohio EDR, Ser. 1983 (Court St. Ctr. Assoc. Ltd. Proj.)...... 4.100 01/02/1997 4,800,000
1,540,000 Marion Co., OH, Hosp. Impt. Rev. (Pooled Lease Proj.)....... 4.200 01/02/1997 1,540,000
1,275,000 Marion Co., OH, Hosp. Impt. Rev. (Pooled Lease Proj.)....... 4.200 01/02/1997 1,275,000
640,000 Summit Co., OH, IDR (Go-Jo Indust.)......................... 4.200 01/02/1997 640,000
400,000 Franklin Co., OH, IDR (Columbus College).................... 4.200 01/02/1997 400,000
1,480,000 Toledo, OH, City Services Special Assessment Notes.......... 4.150 01/02/1997 1,480,000
1,150,000 Hamilton Co., OH, EDR, Ser. 1995 (Cincinnati Assoc.
Performing Arts)............................................ 4.200 01/02/1997 1,150,000
1,140,000 Pike Co., OH, EDR (Pleasant Hill)........................... 4.200 01/02/1997 1,140,000
1,000,000 Rickenbacker, OH, Port. Auth. Rev.
(Rickenbacker Holdings, Inc.)............................... 4.200 01/02/1997 1,000,000
3,920,000 Montgomery Co., OH, Health Care Rev.
(Comm. Blood Ctr. Proj.).................................... 4.200 01/02/1997 3,920,000
2,435,000 Toledo-Lucas Co., OH, Port. Auth. Rev., Ser. 1994
(Countrymark Coop Proj.).................................... 4.300 01/02/1997 2,435,000
2,050,000 Ashland Co., OH, Hosp. Fac. Rev., Ser. 1989 (Good Shepherd). 4.500 01/03/1997 2,050,000
800,000 Ohio St. Higher Educ. Fac. Rev. (John Carroll Univ.)........ 4.125 01/06/1996 800,000
4,250,000 Cincinnati-Hamilton Co., OH, Port. Auth. Rev.
(Kaiser Agric. Chemical Co.)................................ 3.150 01/07/1997 4,250,000
1,400,000 Hamilton Co., OH, IDR (ADP System).......................... 3.700 01/15/1997 1,400,000
- - -------------- -----------
$169,055,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------- (Amortized Cost $169,055,000)............................... $169,055,000
------------
<CAPTION>
==============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT ADJUSTABLE RATE PUT BONDS-- 11.4% RATE DATE VALUE
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 275,000 Middletown, OH, IDR (Continental
Commercial Properties Proj.)................................ 3.850% 02/01/1997 $ 275,000
1,360,000 Hamilton, OH, IDR (Continental Commercial Properties Proj.). 3.850 02/01/1997 1,360,000
931,155 Citizens Federal Tax-Exempt Mtg. Bond Trust................. 4.150 03/01/1997 931,155
660,000 Riverside, OH, EDR (Riverside Assoc. Ltd. Proj.)............ 3.800 03/01/1997 660,000
4,740,000 Cuyahoga Co., OH, IDR (Halle Office Bldg.).................. 4.190 04/01/1997 4,740,000
175,000 Franklin Co., OH, IDR (Pan Western Life).................... 3.850 04/01/1997 175,000
650,000 Franklin Co., OH, IDR (GSW Proj.)........................... 3.700 05/01/1997 650,000
3,215,000 Ohio HFA MFH (Lincoln Park)................................. 4.250 05/01/1997 3,215,000
3,835,000 Richland Co., OH, IDR (Mansfield Sq. Proj.)................. 3.700 05/15/1997 3,835,000
935,000 Scioto Co., OH, Health Care Rev. (Hillview Retirement)...... 3.650 06/01/1997 935,000
570,000 Cuyahoga Co., OH, IDR (Welded Ring)......................... 3.650 06/01/1997 570,000
2,355,000 Franklin Co., OH, IDR (Leveque & Assoc. Proj.).............. 3.650 06/01/1997 2,355,000
320,000 Lucas Co., OH, EDR (Cross County Inns, Inc.)................ 3.750 06/01/1997 320,000
825,000 Cuyahoga Co., OH, Health Care Rev. (Cleveland Neighborhood). 3.900 06/01/1997 825,000
1,060,000 Gallia Co., OH, IDR (Jackson Pike Assoc.)................... 3.600 06/15/1997 1,060,000
3,045,000 Ohio Company Tax-Exempt Mtg. Bond Trust, Ser. 2............. 3.900 06/15/1997 3,044,203
<PAGE>
<CAPTION>
OHIO TAX-FREE MONEY FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT ADJUSTABLE RATE PUT BONDS-- 11.4% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 740,000 Franklin Co., OH, EDR (JAL Realty).......................... 3.900% 07/15/1997 $ 740,000
2,500,000 Ohio St. Air Quality Dev. Auth. Rev.,
Ser. A (Duquesne Light)..................................... 3.950 07/16/1997 2,500,000
2,545,000 Perry Co., OH, Nursing Fac. Rev., Ser. 96
(New Lexington Health Corp. Proj.).......................... 4.000 09/01/1997 2,545,000
1,255,000 Miami Valley Tax-Exempt Mtg. Bond Trust..................... 4.880 10/15/1997 1,255,000
- - -------------- -----------
$ 31,991,155 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------- (Amortized Cost $31,990,358)................................ $31,990,358
------------
<CAPTION>
================================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT COMMERCIAL PAPER-- 0.5% RATE DATE VALUE
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500,000 Ohio St. Air Quality Dev. Auth.
--------------(Cleveland Elec. Illum. Co.) 3.600% 01/15/1997 $ 1,500,000
-----------
$1,500,000 TOTAL COMMERCIAL PAPER
- - -------------- (Amortized Cost $1,500,000)................................. $ 1,500,000
-----------
$274,831,055 TOTAL INVESTMENTS AT VALUE -- 98.3%
============== (Amortized Cost $274,936,278)............................... $274,936,278
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.7% ............... 4,750,807
------------
NET ASSETS-- 100.0% ........................................ $279,687,085
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 36.0% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 250,000 Broward Co., FL, GO, Ser. C................................. 5.000% 01/01/1997 $ 250,000
500,000 Hammond, IN, Multi-School Bldg. Corp. RANS.................. 5.500 01/31/1997 500,000
655,000 Lake Co., IL, Community School Dist. #60 GO................. 3.500 02/01/1997 655,000
500,000 Dallas, TX, GO, Prerefunded @ 101.50........................ 6.875 02/15/1997 509,270
250,000 Dallas, TX, GO.............................................. 5.000 02/15/1997 250,359
900,000 Wisconsin St. Health & Educ. Facs. Auth. Rev.
(Franciscan Sisters)........................................ 4.200 02/15/1997 900,214
850,000 Richland Co., SC, School Dist. #2 GO, Ser. B................ 4.750 03/01/1997 851,469
1,400,000 Mercer Co., NJ, Impt. Auth. Solid Waste Proj.
GO, Ser. 1996B.............................................. 3.750 03/31/1997 1,400,000
200,000 Texas National Guard Armory Rev............................. 6.200 04/01/1997 203,239
500,000 Bayonne, NJ, GO BANS........................................ 3.850 04/11/1997 500,475
525,000 Ross Co., OH, Airport Impt. GO BANS ........................ 4.540 04/25/1997 525,456
200,000 Chippewa Valley, MI, School Dist. GO........................ 5.750 05/01/1997 201,299
295,000 Pickens Co., SC, School Dist. GO, Ser. D.................... 5.000 05/01/1997 296,240
285,000 Pickens Co., SC, School Dist. GO, Ser. E.................... 5.000 05/01/1997 286,198
225,000 Univ. of Kentucky, KY, Univ. Rev., Prerefunded @ 102........ 6.800 05/01/1997 231,671
250,000 Columbus, OH, GO, Ser. 1.................................... 5.500 05/15/1997 251,445
245,000 Berwyn, IL, Hosp. Rev. (MacNeal Memorial Hosp.),
Prerefunded @100............................................ 6.250 06/01/1997 247,321
200,000 Grand River, OK, Dam Auth. Rev., Prerefunded @ 102.......... 6.450 06/01/1997 205,818
100,000 Grand River, OK, Dam Auth. Rev., Prerefunded @ 102.......... 6.800 06/01/1997 103,122
300,000 Grand River, OK, Dam Auth. Rev., Prerefunded @ 102.......... 7.000 06/01/1997 309,975
350,000 Massachusetts St. GO, Ser. A................................ 7.875 06/01/1997 356,095
160,000 Mid-Prairie, IA, Comm. School Dist. GO...................... 6.750 06/01/1997 161,812
250,000 Illinois St. Sales Tax Rev., Ser. 1987D, Prerefunded @ 102.. 7.300 06/15/1997 258,963
600,000 Vermont St. Student Assistance Corp. Educ.
Loan Rev., Ser. A........................................... 6.125 06/15/1997 606,461
515,000 Loveland, OH, GO BANS....................................... 4.250 06/27/1997 515,000
185,000 Philadelphia, PA, School Dist. GO, Ser. A................... 4.300 07/01/1997 185,264
220,000 Arizona St. Muni. Financing Prog. COP, Ser. 16,
Escrowed to Maturity........................................ 8.000 08/01/1997 225,032
420,000 Missouri St. Health & Educ. Facs. Rev. (William
Jewell College)............................................. 4.000 08/01/1997 420,580
415,000 New York, NY, GO, Prerefunded @ 102......................... 8.000 08/01/1997 433,423
225,000 San Juan Co., NM, Jr. College Dist. Rev.,
Escrowed to Maturity........................................ 6.600 08/01/1997 228,185
235,000 Hudson Co., NJ, Vocational School GO, Ser. B................ 5.050 10/01/1997 236,987
500,000 Shawano-Gresham, WI, School Dist. GO BANS................... 4.100 10/01/1997 500,340
500,000 Hamilton, OH, Real Estate Acquisition Rev................... 4.700 11/20/1997 501,268
- - -------------- ------------
$13,205,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------- (Amortized Cost $13,307,981)................................ $13,307,981
------------
<CAPTION>
==============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 45.6% RATE DATE VALUE
- - --------------------------------------------------------------------------------------------------------------
$ 900,000 Eddyville, IA, IDR (Heartland Lysine, Inc.)................. 4.550% 01/01/1997 $ 900,000
1,000,000 New Jersey EDA & EDR (Union Avenue Assoc.).................. 3.800 01/01/1997 1,000,000
700,000 Baltimore, MD, IDR (Wicomico Indust. Center Fac.)........... 3.700 01/02/1997 700,000
825,000 Brooklyn Park, MN, IDR (Schmidt Proj.)...................... 4.350 01/02/1997 825,000
1,000,000 District of Columbia MFH, Tyler House Trust COP, Ser. 1995A. 4.350 01/02/1997 1,000,000
380,000 Frankfort, MN, IDR, Ser. 1995 (J&B, Inc.)................... 4.650 01/02/1997 380,000
550,000 Frankfort, MN, IDR, Ser. 1995 (J&B, Inc.)................... 4.450 01/02/1997 550,000
900,000 Harris Co., TX, Health Facs. Dev. Hosp. Rev., Ser. D
(St. Luke's Episcopal)...................................... 5.000 01/02/1997 900,000
2,735,000 Illinois St. Dev. Fin. Auth. MFH Rev.
(Cobbler Square Proj.)...................................... 4.650 01/02/1997 2,735,000
2,400,000 Nashville, TN, Metro. Airport Auth. Rev..................... 4.950 01/02/1997 2,400,000
1,000,000 Orange Co., CA, Impt. Rev. (Irvine Coast)................... 4.850 01/02/1997 1,000,000
600,000 Pinal Co., AZ, IDA PCR (Magma Copper Co.)................... 5.000 01/02/1997 600,000
1,850,000 Port St. Helens, OR, PCR (Portland General Elec.)........... 5.250 01/02/1997 1,850,000
<PAGE>
<CAPTION>
TAX-FREE MONEY FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 45.6% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 980,000 Redwood Falls, MN, IDR (Zytec Corp. Proj.).................. 4.800% 01/02/1997 $ 980,000
400,000 St. Cloud, MN, Hsg. & Redev. Auth. (Coborn Realty Co.)...... 4.350 01/02/1997 400,000
600,000 Sweetwater Co., WY, PCR (Pacificorp. Proj. B)............... 4.700 01/02/1997 600,000
- - -------------- ------------
$16,820,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------- (Amortized Cost $16,820,000)................................ $16,820,000
------------
<CAPTION>
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT ADJUSTABLE RATE PUT BONDS-- 18.6% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 325,000 Broomfield, CO, Rev., Ser. 1992 (Up With People Proj.)...... 4.000% 01/15/1997 $ 325,000
880,000 Buckeye Tax-Exempt Mtg. Bond Trust.......................... 4.500 02/01/1997 878,481
550,000 Milwaukee, WI, IDR (Wayne C. Oldenburg Proj.)............... 3.950 02/01/1997 550,000
330,000\ Lansing, MI, EDR (LGH Office Bldg. Proj.)................... 3.900 02/15/1997 330,000
148,845 Citizens Federal Tax-Exempt Mtg. Bond Trust................. 4.150 03/01/1997 148,845
1,200,000 Owensboro, KY, IDR, Ser. 1985 (Dart Container).............. 3.600 03/01/1997 1,200,000
160,000 Cuyahoga Co., OH, IDR (Halle Office Bldg.).................. 4.190 04/01/1997 160,000
110,000 Kansas City, KS, IDR (Lady Baltimore Foods)................. 4.625 04/01/1997 110,000
430,000 Romulus, MI, Econ. Dev. Corp. (Airport Realty Proj.)........ 3.800 04/01/1997 430,000
230,000 Medina Co., OH, IDR (Nationwide One Proj.).................. 3.900 05/01/1997 229,934
560,000 Summit Co., OH, IDR (Akromold, Inc. Proj.).................. 3.950 05/01/1997 560,000
255,000 Westlake, OH, EDR (Cross County Inns)....................... 3.750 05/01/1997 255,000
1,000,000 Westmoreland Co., PA, IDR (White Cons Indust.).............. 3.960 06/01/1997 1,000,000
710,000 Lexington-Fayette Co., KY, Urban Gov't. Rev.
(Providence Montessori)..................................... 4.10 07/01/1997 710,000
- - -------------- ------------
$ 6,888,845 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------- (Amortized Cost $6,887,260)................................. $ 6,887,260
------------
<CAPTION>
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT COMMERCIAL PAPER-- 2.7% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,000,000 Orange Co., FL, Health Facs. Pooled Hosp.
Loan Prog. Rev., Ser. 1985.................................. 3.650% 01/08/1997 $ 1,000,000
- - -------------- ------------
$ 1,000,000 TOTAL COMMERCIAL PAPER
- - -------------- (Amortized Cost $1,000,000)................................. $ 1,000,000
------------
$ 37,913,845 TOTAL INVESTMENTS AT VALUE-- 102.9%
============== (Amortized Cost $38,015,241)................................ $38,015,241
LIABILITIES IN EXCESS OF OTHER ASSETS-- (2.9%) ............. ( 1,084,880 )
------------
NET ASSETS-- 100.0% ........................................ $36,930,361
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 23.6% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 125,000 San Bernardino, CA, School Health Care Sys. Rev.
Sisters of Charity), Prerefunded @ 102...................... 6.500% 01/01/1997 $ 127,500
100,000 Sacramento, CA, Muni. Utility Dist. Elec. Rev., Ser. S,
Prerefunded @ 102........................................... 6.625 02/01/1997 102,239
220,000 Eureka, CA, School Dist. COP, Prerefunded @ 102............. 7.500 04/01/1997 227,118
1,000,000 Los Angeles Dept. Airports Rev., Prerefunded @ 102.......... 6.900 05/01/1997 1,030,111
265,000 California St. GO........................................... 6.000 05/01/1997 266,843
250,000 Los Angeles Co., CA, Flood Control Dist. GO................. 4.000 05/01/1997 250,375
1,000,000 Alameda Co., CA, Trans. Auth. Sales Tax Rev................. 4.750 05/01/1997 1,003,047
1,000,000 California St., RANS, Ser. 1996A............................ 4.500 06/30/1997 1,002,513
150,000 Los Angeles Co., CA, Trans. Commission Sales Tax Rev.,
Ser. A, Prerefunded @ 102................................... 8.000 07/01/1997 155,918
100,000 Puerto Rico Public Bldg. Auth. Rev., Ser. H,
Prerefunded @ 102........................................... 7.875 07/01/1997 103,930
2,000,000 California School Cash Reserve Prog. Auth., Ser. 1996A...... 4.750 07/02/1997 2,008,640
600,000 Millbrae California School Dist. GO TRANS................... 4.250 07/10/1997 600,597
100,000 San Jose, CA, Redev. Agy., Ser. A (Merged Area Redev. Proj.)
Prerefunded @ 102........................................... 6.800 08/01/1997 103,627
170,000 Pico, CA, Water Dist. COP................................... 3.900 08/15/1997 170,208
1,000,000 Butte Co., CA, Office of Education TRANS.................... 4.500 08/20/1997 1,003,531
195,000 Capistrano, CA, Unified Public Financing Auth. Rev., Ser. B. 4.500 09/01/1997 195,816
275,000 Pleasant Hill, CA, COP (City Hall Proj.), Prerefunded @ 102. 7.000 09/01/1997 286,039
500,000 Fullerton, CA, Joint Union High School District TRANS....... 4.500 09/05/1997 502,115
- - -------------- ------------
$ 9,050,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------- (Amortized Cost $9,140,167)................................. $ 9,140,167
------------
<CAPTION>
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 61.6% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,500,000 Union City, CA, MFH (Skylark Apts. Proj. B)................. 2.850% 01/01/1997 $ 2,500,000
500,000 California Statewide Community Dev. Auth. COP, Ser. 1993A... 4.050 01/01/1997 500,000
3,000,000 Santa Paula, CA, Public Fin. Auth. Rev.,
Ser. 1996 (Water Sys. Aquisition Proj.)..................... 4.400 01/01/1997 3,000,000
1,500,000 California Dinuba Fin. Auth., Ser. 1996A
(Wastewater Treatment Plant Proj.).......................... 4.400 01/01/1997 1,500,000
2,100,000 San Rafael, CA, IDR, Ser 1994 (Phoenix American, Inc.)...... 4.300 01/01/1997 2,100,000
1,600,000 Vacaville, CA, IDA IDR (Leggett & Platt, Inc.).............. 4.200 01/01/1997 1,600,000
1,000,000 San Bernardino, CA, IDR (LaQuinta Motor Inns)............... 4.350 01/02/1997 1,000,000
1,500,000 Hanford, CA, Sewer Rev., Ser. A............................. 4.400 01/02/1997 1,500,000
500,000 Orange City, CA, Ser. 1985D (Yorba Linda Apartment Proj.)... 4.150 01/02/1997 500,000
800,000 San Francisco, CA, City & Co. Parking Auth. Rev............. 4.050 01/02/1997 800,000
1,000,000 San Bernardino Co., CA, Capital Impt. Refinancing
Project Rev................................................. 4.400 01/02/1997 1,000,000
1,300,000 San Bernardino Co., CA, COP................................. 4.350 01/02/1997 1,300,000
1,200,000 Los Angeles, CA, Dept. of Water & Power Rev................. 4.100 01/02/1997 1,200,000
1,000,000 California PCR, Ser. A (Ultrapower-Rocklin)................. 5.500 01/31/1997 1,000,000
200,000 Irvine Ranch, CA, Water Dist. Rev., Ser. 1993A.............. 4.850 01/31/1997 200,000
1,500,000 California PCR Fin. Auth. (Pacific Gas & Elec.)............. 4.800 01/31/1997 1,500,000
1,200,000 California PCR Fin. Auth. (Del Marva Power &
Light-Burney Forest Proj.).................................. 4.800 01/31/1997 1,200,000
1,400,000 California PCR Fin. Auth. (Malagra Power Proj. B)........... 5.500 01/31/1997 1,400,000
- - -------------- ------------
$23,800,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------- (Amortized Cost $23,800,000)................................ $23,800,000
------------
<PAGE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT COMMERCIAL PAPER-- 14.2% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,000,000 Los Angeles Co., CA, Metro. Trans. Auth., Ser. A............ 3.550% 01/10/1997 $ 2,000,000
1,500,000 Riverside Co., CA, Trans. Auth. Sales Tax Rev............... 3.550 01/15/1997 1,500,000
1,500,000 Los Angeles, CA, Harbor Dept................................ 3.600 01/15/1997 1,500,000
500,000 California PCR Fin. Auth. Rev. (Pacific Gas & Elec.)........ 3.550 01/22/1997 500,000
- - -------------- ------------
$ 5,500,000 TOTAL COMMERCIAL PAPER
- - -------------- (Amortized Cost $5,500,000)................................. $ 5,500,000
------------
$ 38,350,000 TOTAL INVESTMENTS AT VALUE-- 99.4%
============== (Amortized Cost $38,440,167)................................ $38,440,167
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.6% ............... 219,149
------------
NET ASSETS-- 100.0% ........................................ $38,659,316
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 20.8% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100,000 Wakulla Co., FL, Sales Tax Rev., Prerefunded @ 102.......... 7.000% 01/01/1997 $ 102,000
1,000,000 Dunes, FL, Comm. Dev. Dist. Intercoastal Waterway
Rev., Proj. A, Prerefunded @ 102............................ 7.000 02/01/1997 1,021,400
175,000 Escambia Co., FL, School Board COP.......................... 5.250 02/01/1997 175,207
275,000 Longboat Key, FL, Beach Erosion Control Dist. A GO.......... 3.700 02/01/1997 275,000
245,000 Hialeah, FL, Water & Sewer Rev.............................. 5.250 04/01/1997 245,000
250,000 Jacksonville, FL, Elec. Auth. Rev., Ser. 3,
Prerefunded @ 101.50........................................ 6.800 04/01/1997 255,570
150,000 Dade Co., FL, School Board COP, Ser. A...................... 4.600 05/01/1997 150,414
350,000 Florida St. Board of Educ. Cap. Outlay GO, Ser. A........... 5.500 06/01/1997 352,463
580,000 Florida St. Div. Board Fin. Dept. Rev. (Sunshine Skyway),
Escrowed to Maturity ....................................... 9.800 06/01/1997 594,018
1,000,000 Monroe Co., FL, School Dist. TANS........................... 3.600 06/04/1997 999,680
500,000 Broward Co., FL, GO, Prerefunded @ 102...................... 6.900 07/01/1997 517,730
375,000 Florida St. Div. Board Fin. Dept. Rev. (Dept. of
Nature Preservation)........................................ 5.750 07/01/1997 378,331
200,000 Florida St. Turnpike Auth. Rev., Ser. A..................... 5.000 07/01/1997 201,149
175,000 Puerto Rico Commonwealth GO, Prerefunded @ 102.............. 7.125 07/01/1997 181,371
250,000 Venice, FL, Util. Rev., Prerefunded @ 102................... 6.900 07/01/1997 258,504
400,000 Cape Coral, FL, Water Rev................................... 6.625 08/01/1997 406,169
1,000,000 Dade Co., FL, School Board COP, Ser. B...................... 4.250 08/01/1997 1,002,814
100,000 Pinellas Co., FL, Transportation Impt. Rev., Ser. A......... 3.800 08/01/1997 100,030
170,000 Walton Co., FL, GO.......................................... 3.650 08/01/1997 170,000
350,000 Homestead, FL, Special Insurance Assessment Rev............. 4.400 09/01/1997 351,464
225,000 Port Everglades, FL, Port Auth. Rev. (Port,
Airport, Marina Impts.)..................................... 6.900 09/01/1997 229,270
1,240,000 Bay Medical Ctr., FL, Hosp. Rev. (Bay Medical Ctr. Proj.)... 4.000 10/01/1997 1,242,680
250,000 Dade Co., FL, Water & Sewer Rev............................. 4.500 10/01/1997 251,464
200,000 Hollywood, FL, Water & Sewer Rev............................ 5.800 10/01/1997 203,068
350,000 Key West, FL, Util. Board Elec. Rev......................... 3.650 10/01/1997 350,000
125,000 West Palm Beach, FL, Gtd. Entitlement Rev.,
Prerefunded @ 102........................................... 6.500 10/01/1997 129,896
- - -------------- ------------
$ 10,035,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------- (Amortized Cost $10,144,692)................................ $10,144,692
------------
<CAPTION>
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 62.9% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,075,000 Broward Co., FL, HFA (Lake Park Assoc. Ltd. Partnership).... 3.850% 01/01/1997 $ 1,075,000
2,000,000 Orange Co., FL, IDR, Ser. 1996A (Univ. of
Central Florida Proj.)...................................... 4.150 01/01/1997 2,000,000
1,000,000 St. John's Co., FL, HFA, Ser. 1996 (Anastasia
Shores Apt. Proj.).......................................... 4.200 01/01/1997 1,000,000
720,000 Volusia Co., FL, Health Facs. Auth. Rev.
(Pooled Hosp. Loan Prog.)................................... 4.200 01/01/1997 720,000
1,000,000 Boca Raton, FL, IDR (Parking Garage)........................ 4.375 01/02/1997 1,000,000
1,200,000 Dade Co., FL, IDA PCR (Florida Power & Light)............... 5.250 01/02/1997 1,200,000
980,000 Dade Co., FL, HFA (Kendall Court Apts.)..................... 4.100 01/02/1997 980,000
1,600,000 Hillsborough Co., FL, IDA PCR (Tampa Elec.)................. 5.250 01/02/1997 1,600,000
1,400,000 Jacksonville, FL, Health Fac. Auth. Rev.,
Ser. 1988 (River Garden).................................... 5.500 01/02/1997 1,400,000
2,400,000 Jacksonville, FL, Health Fac. Auth. Rev.,
Ser. 1996 (Genesis Rehab. Hosp.)............................ 5.000 01/02/1997 2,400,000
1,500,000 Jacksonville, FL, Health Fac. Auth. Rev.
(Faculty Practice Assoc.)................................... 4.35 01/02/1997 1,500,000
1,755,000 Jacksonville, FL, PCR (Florida Power & Light)............... 5.250 01/02/1997 1,755,000
1,500,000 Marion Co., FL, HFA (Paddock Pl. Proj.)..................... 4.200 01/02/1997 1,500,000
1,000,000 Marion Co., FL, HFA (Summer Trace Apts.).................... 4.200 01/02/1997 1,000,000
4,800,000 Pinellas Co., FL, Health Fac. Rev. (Pooled Hosp. Loan)...... 4.800 01/02/1997 4,800,000
1,800,000 Plant City, FL, Hosp. Rev. (South Florida Baptist Hosp.).... 4.400 01/02/1997 1,800,000
2,300,000 St. Lucie Co., FL, PCR (Florida Power & Light).............. 4.000 01/02/1997 2,300,000
<PAGE>
<CAPTION>
ROYAL PALM FLORIDA TAX-FREE MONEY FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 62.9% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 300,000 St. Lucie Co., FL, PCR (Florida Power & Light).............. 5.250% 01/02/1997 $ 300,000
2,400,000 Volusia Co., FL, Health Facs. Auth.
Rev. (West Volusia Health).................................. 4.000 01/02/1997 2,400,000
- - -------------- ------------
$ 30,730,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------- (Amortized Cost $30,730,000)................................ $30,730,000
------------
<CAPTION>
==============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT ADJUSTABLE RATE PUT BONDS-- 3.6% RATE DATE VALUE
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,770,000 Florida HFA Rev............................................. 3.500% 06/15/1997 $ 1,770,000
- - -------------- ------------
$ 1,770,000 TOTAL ADJUSTABLE RATE PUT BONDS
- - -------------- (Amortized Cost $1,770,000)................................. $ 1,770,000
------------
<CAPTION>
==============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT COMMERCIAL PAPER-- 13.9% RATE DATE VALUE
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,500,000 Orange Co., FL, Health Facs. Pooled Hosp.
Loan Prog., Ser. 1985....................................... 3.650% 01/08/1997 $ 1,500,000
1,500,000 Pinellas Co., FL, Pooled Independent Higher Educ. Fac. Rev.. 3.550 01/14/1997 1,500,000
1,500,000 St. Lucie Co., FL, PCR (Florida Power & Light Proj. B)...... 3.500 01/15/1997 1,500,000
1,100,000 Jacksonville, FL, Rev., Ser. A.............................. 3.550 01/16/1997 1,100,000
1,200,000 Pinellas Co., FL, Pooled Independent Higher Educ. Fac. Rev.. 3.625 01/17/1997 1,200,000
- - -------------- ------------
$ 6,800,000 TOTAL COMMERCIAL PAPER
- - -------------- (Amortized Cost $6,800,000)................................. $ 6,800,000
------------
$49,335,000 TOTAL INVESTMENTS AT VALUE -- 101.2%
============== (Amortized Cost $49,444,692)................................ $49,444,692
LIABILITIES IN EXCESS OF OTHER ASSETS-- (1.2%) ............. ( 599,467 )
------------
NET ASSETS-- 100.0% ........................................ $48,845,225
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
================================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALASKA -- 0.5%
$ 385,000 Alaska St. HFC Rev.......................................... 7.650% 12/01/2010 $ 393,416
------------
ARIZONA -- 3.7%
500,000 Pima Co., AZ, USD No. 1 (Tuscon), Prerefunded @ 102......... 6.750 07/01/1998 530,005
400,000 Arizona Educ. Loan Mkt. Corp. Rev., Ser. A.................. 6.700 03/01/2000 421,208
600,000 Maricopa Co., AZ, School Dist. Rev., Ser.
1991C (Tempe Elem.)......................................... 8.000 07/01/2004 720,996
900,000 Pinal Co, AZ, PCR Magma COP................................. 4.999 12/01/2009 900,000
------------
2,572,209
------------
CALIFORNIA -- 2.5%
500,000 Santa Clara Co., CA, Hsg. Auth. ARPB (Orchard Glen Apts.)... 5.250 11/01/1998 504,510
475,000 Sacramento Co., CA, MFH ARPB (Fairway One Apts.)............ 5.875 02/01/2003 482,538
500,000 Santa Monica, CA, Redev. Agy. Lease Rev..................... 6.000 07/01/2003 536,885
250,000 California HFA Multi-Unit Rental Rev., Ser. B............... 6.500 08/01/2005 263,103
------------
1,787,036
------------
COLORADO -- 1.5%
1,000,000 Westminster, CO, MFH ARPB (Oasis Wexford Apts.),
Mandatory Put.............................................. 5.350 12/01/2005 1,011,260
------------
FLORIDA -- 7.1%
500,000 Florida HFA MFH ARPB, Ser. 1978B (Hampton Lakes II Proj.)... 5.700 04/01/2001 506,365
200,000 Florida St. GO.............................................. 6.500 05/01/2004 202,786
1,000,000 Florida Board of Educ. Capital Outlay GO, Ser. A............ 5.500 06/01/2006 1,045,140
1,000,000 Jacksonville, FL, Excise Tax Rev., Ser. B................... 5.400 10/01/2006 1,017,690
750,000 Hillsborough Co., FL, Solid Waste Rev....................... 5.500 10/01/2006 781,650
1,345,000 Florida HFA MFH Sr. Lien., Ser. I-1......................... 6.100 01/01/2009 1,368,349
------------
4,921,980
------------
GEORGIA -- 1.2%
255,000 Atlanta, GA, Airport Extension & Impt. Rev.,
Escrowed to Maturity........................................ 7.250 01/01/1998 263,933
500,000 Columbus, GA, Med. Ctr. Hosp. Auth. Rev..................... 6.400 08/01/2002 543,600
807,533
------------
ILLINOIS -- 2.6%
500,000 Chicago, IL, Public Bldg. Comm. Rev., Prerefunded @ 102..... 7.700 01/01/1998 529,145
500,000 Aurora, IL, MFH Rev., Ser. 1988 (Fox Valley)................ 7.750 09/01/1998 519,725
680,000 Illinois St. Educ. Fac. Auth. Rev., Ser. A
(Loyola Univ.), Prerefunded @ 102........................... 7.125 07/01/2001 761,641
------------
1,810,511
------------
INDIANA -- 10.1%
3,185,000 Purdue University, IN, COP, Prerefunded @ 102............... 6.250 07/01/2001 3,466,013
1,000,000 Indiana Bond Bank Special Prog. Rev., Ser. A1............... 6.650 01/01/2004 1,078,590
1,865,000 Purdue University, IN, COP.................................. 5.750 07/01/2007 1,948,645
500,000 Indiana HFA Multi-Unit Mtg. Prog. Rev., Ser. 1992A.......... 6.600 01/01/2012 523,365
------------
7,016,613
------------
IOWA -- 1.7%
250,000 Iowa Student Loan Liquidity Corp. Rev....................... 6.400 07/01/2004 268,957
410,000 Iowa HFA Rev................................................ 6.500 07/01/2006 430,811
240,000 Iowa Student Loan Liquidity Corp. Rev....................... 6.600 07/01/2008 251,098
250,000 Cedar Rapids, IA, Hosp. Fac. Rev.
(St. Luke's Methodist Hosp.)................................ 6.000 08/15/2009 262,498
------------
1,213,364
------------
<PAGE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KENTUCKY -- 2.3%
$ 675,000 Owensboro, KY, Elec. Light & Power Rev., Prerefunded @ 102.. 10.250% 01/01/2000 $ 797,958
750,000 Kentucky St. Turnpike Auth. EDR (Revitalization Proj.)...... 5.250 07/01/2005 775,973
------------
1,573,931
------------
LOUISIANA -- 1.5%
440,000 Louisiana Public Fac. Auth. Rev.
(Medical Ctr. of Louisiana)................................. 6.000 10/15/2003 468,983
500,000 West Ouachita Parish, LA, School Dist. GO, Ser. A........... 6.700 03/01/2006 544,645
------------
1,013,628
------------
MARYLAND -- 0.8%
500,000 Maryland St. Health & Higher Educ. Fac. Auth. Rev.
(Univ. of Maryland Medical Sys.)............................ 6.500 07/01/2001 541,385
------------
MASSACHUSETTS -- 4.6%
750,000 Massachusetts St. Indust. Fin. Agy.
ARPB (Asahi/America, Inc.).................................. 5.100 03/01/1999 756,525
500,000 New England Educ. Loan Mkt. Corp. Rev., Ser. 1992E.......... 6.500 09/01/2002 539,280
500,000 New England Educ. Loan Mkt. Corp. Rev., Ser. 1992B.......... 6.600 09/01/2002 539,830
1,280,000 Worcester, MA, GO........................................... 6.000 07/01/2006 1,384,922
------------
3,220,557
------------
MICHIGAN -- 3.0%
1,000,000 Michigan St. Bldg. Auth. Rev., Ser. II...................... 6.400 10/01/2004 1,087,120
930,000 West Bloomfield, MI, School Dist............................ 6.200 05/01/2007 1,013,644
------------
2,100,764
------------
MINNESOTA -- 1.1%
700,000 Centennial, MN, ISD GO, Ser. A.............................. 5.600 02/01/2002 735,847
------------
MISSISSIPPI -- 1.1%
500,000 Mississippi Higher Educ. Rev., Ser. B....................... 6.100 07/01/2001 521,305
250,000 Hattiesburg, MS, Water & Sewer Rev.......................... 4.800 08/01/2002 251,670
------------
772,975
------------
NEBRASKA -- 1.1%
40,000 Nebraska Invest. Fin. Auth. SFM Rev., Ser. A................ 8.600 05/15/1997 40,710
655,000 Nebraska Invest. Fin. Auth. Rev., Ser. 1989
(Foundation for Educ. Fund), Escrowed to Maturity........... 7.000 11/01/2009 689,754
------------
730,464
------------
NEVADA -- 2.4%
315,000 Washoe Co., NV, GO, Prerefunded @ 102....................... 7.375 07/01/1999 343,158
1,000,000 Las Vegas, NV, GO, Sewer Impt. Rev., Prerefunded @ 102...... 6.500 04/01/2002 1,103,140
185,000 Washoe Co., NV, GO.......................................... 7.375 07/01/2009 200,479
------------
1,646,777
------------
NEW YORK -- 2.9%
500,000 New York Local Gov't. Asst. Corp. Rev., Ser. 1991B.......... 7.000 04/01/2002 555,890
85,000 New York, NY, GO............................................ 8.000 08/01/2005 88,613
1,300,000 New York St. Twy Auth. Local Hwy Impt. Rev.................. 5.500 04/01/2006 1,358,331
------------
2,002,834
------------
NORTH CAROLINA -- 6.3%
1,065,000 Durham, NC, COP............................................. 6.375 12/01/2003 1,172,746
1,200,000 Asheville, NC, GO........................................... 6.100 03/01/2002 1,279,080
980,000 Univ. of North Carolina Chapel Hill Rev. (Univ. NC Hosp.)... 5.050 02/15/2009 968,583
1,000,000 Univ. of North Carolina Chapel Hill Rev. (Univ. NC Hosp.)... 5.150 02/15/2010 987,280
------------
4,407,689
------------
<PAGE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO -- 16.5%
$ 500,000 Ohio St. Bldg. Auth. Rev., Ser. A, Escrowed to Maturity..... 7.150% 03/01/1999 $ 530,905
700,000 Franklin Co., OH, Dev. & Ref. Rev., Ser. 1993
(American Chemical Soc.).................................... 5.500 04/01/2000 718,340
500,000 Franklin Co., OH, Rev. (Online Computer Library Ctr.)....... 5.500 04/15/2000 513,245
710,000 Fairfield, OH, IDR ARPB (Skyline Chili, Inc.)............... 5.000 09/01/2000 709,716
950,000 Akron, Bath & Copley, OH, Joint Twp. Hosp. Rev.
(Summa Health Systems)...................................... 5.900 11/15/2002 1,003,457
270,000 Warren Co., OH, Hosp. Fac. Rev. (Otterbein Home)............ 7.000 07/01/2003 294,702
1,000,000 Ohio St. EDR Ohio Enterprise Bond Fd.
(Smith Steelite Proj.)...................................... 5.600 12/01/2003 1,013,730
500,000 Hamilton Co., OH, Hosp. Fac. Rev.
(Episcopal Retirement Home)................................. 6.600 01/01/2004 543,765
825,000 Jackson, OH, Electric Sys. Mtg. Rev......................... 5.200 07/15/2004 823,961
445,000 Ohio St. EDR Ohio Enterprise Bond Fd. (Cheryl & Co.)........ 5.500 12/01/2004 462,920
1,005,000 Franklin Co., OH, Health Care Fac. Rev.
(First Comm. Village)....................................... 6.000 06/01/2006 1,026,225
400,000 Painesville, OH, Elec. Rev.................................. 6.000 11/01/2006 423,772
530,000 Toledo, OH, GO.............................................. 6.000 12/01/2006 574,902
840,000 Kent State University General Receipts Rev.................. 6.000 05/01/2007 907,788
590,000 Ohio St. GO................................................. 4.950 08/01/2008 586,790
800,000 West Clermont, OH, LSD GO................................... 6.150 12/01/2008 863,112
500,000 Hamilton Co., OH, Hosp. Fac. Rev. (Bethesda Hosp.).......... 7.000 01/01/2009 514,360
------------
11,511,690
------------
PENNSYLVANIA -- 2.4%
590,000 Chartiers Valley, PA, Comm. Dev. ARPB (Colonial Bldg.
Partners Proj.)............................................. 5.625 12/01/1997 596,136
500,000 Pennsylvania St., IDR, Ser. A, Prerefunded @ 102............ 7.000 07/01/2001 557,730
500,000 Pennsylvania Fin. Auth. Muni. Cap. Impt. Proj. Rev.......... 6.600 11/01/2009 534,420
------------
1,688,286
------------
SOUTH CAROLINA -- 3.4%
145,000 Piedmont, SC, Muni. Power Agy. Rev., Ser. A., ETM........... 6.000 01/01/2002 155,043
855,000 Piedmont, SC, Muni. Power Agy. Rev., Ser. A., (Non- ETM).... 6.000 01/01/2002 905,539
525,000 South Carolina St. GO, Ser. A............................... 6.000 03/01/2004 561,850
725,000 Richland-Lexington, SC, Airport Dist. Rev., Ser. 1995
(Columbia Metro.)........................................... 6.000 01/01/2008 762,569
------------
2,385,001
------------
TENNESSEE -- 1.6%
525,000 Southeast, TN, Tax-Exempt Mtg. Trust ARPB, Ser. 1990,
Mandatory Put............................................... 7.250 04/01/2003 562,380
500,000 Nashville, TN, Metro. Airport Rev., Ser. C.................. 6.625 07/01/2007 546,105
------------
1,108,485
------------
TEXAS -- 9.0%
500,000 N. Central, TX, Health Fac. Rev. (Baylor Health Care),
Indexed INFLOS.............................................. 7.300 11/01/1997 547,625
500,000 Texas Turnpike Auth. Rev. (Dallas N. Tollway),
Prerefunded @ 102........................................... 7.250 01/01/1999 540,165
500,000 Houston, TX, Sr. Lien Rev., Ser. A
(Hotel Tax & Parking Fac.), Prerefunded @ 100............... 7.000 07/01/2001 552,125
350,000 Univ. of Texas, TX, Rev., Ser. B, Prerefunded @102.......... 6.750 08/15/2001 389,452
1,000,000 Texas National Research Lab. Fin. Corp. Lease Rev.,
Prerefunded @ 102........................................... 6.850 12/01/2001 1,122,420
500,000 N. Texas Higher Educ. Student Loan Rev., Ser. 1991A......... 6.875 04/01/2002 529,530
650,000 Lufkin, TX, ISD GO.......................................... 7.250 02/15/2006 759,408
650,000 Galveston, TX, Health Fac. Rev. (Devereux Foundation)....... 4.900 11/01/2006 649,955
432,860 Midland, TX, HFC Rev., Ser. A2.............................. 8.450 12/01/2011 465,337
650,000 Univ. of Texas, TX, Rev., Ser. B............................ 6.750 08/15/2013 703,079
------------
6,259,096
------------
UTAH -- 1.3%
870,000 Utah St. School Dist. Fin. Corp. Rev.,
Mandatory Redemption....................................... 8.375 08/15/1998 934,927
------------
<PAGE>
<CAPTION>
TAX-FREE INTERMEDIATE TERM FUND (Continued)
================================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT MUNICIPAL BONDS RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIRGINIA -- 1.5%
$ 500,000 Chesterfield Co., VA, GO, Ser. B............................ 6.200% 01/01/1999 $ 521,530
500,000 Chesapeake, VA, GO.......................................... 5.900 08/01/2005 534,420
------------
1,055,950
------------
WASHINGTON -- 3.2%
750,000 Seattle, WA, Drain & Wastewater Util. Rev.,
Prerefunded @ 102........................................... 7.000 12/01/1999 819,683
335,000 Washington St. GO, Ser. A, Prerefunded @ 100................ 6.400 03/01/2001 359,568
1,000,000 Washington St. Motor Vehicle Fuel Tax GO.................... 6.000 09/01/2004 1,070,600
------------
2,249,851
------------
WISCONSIN -- 1.5%
505,000 Village of Dresser, WI, PCR (F & A Dairy, Inc.)............. 6.000 05/01/2000 512,383
500,000 Wisconsin Public Power System Rev., Ser. A,
Prerefunded @ 102........................................... 7.500 07/01/2000 559,920
- - -------------- ------------
1,072,303
------------
$ 64,662,860 TOTAL MUNICIPAL BONDS-- 98.4%
============== (Amortized Cost $66,135,352)................................ $68,546,362
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.6% ............... 1,129,521
------------
NET ASSETS-- 100.0% ........................................ $69,675,883
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OHIO INSURED TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 98.2% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 470,000 Clermont Co., OH, Hosp. Fac. Rev. (Mercy Health Sys.),
Prerefunded @ 102........................................... 7.500% 09/01/1999 $ 517,569
500,000 Montgomery Co., OH, Garbage & Refuse Rev., Ser. A,
Prerefunded @ 102........................................... 7.100 11/01/1999 548,050
500,000 Ohio St. Bldg. Auth. Local Jail Rev., Prerefunded @ 102..... 7.350 04/01/2000 555,185
500,000 Ohio St. Higher Educ. Fac. Rev. (Ohio Northern Univ.),
Prerefunded @ 100........................................... 7.250 05/15/2000 546,300
500,000 Akron, Bath & Copley, OH, Joint Twp. Hosp. Rev.
(Children's Hosp.), Prerefunded @ 102....................... 7.450 11/15/2000 563,885
500,000 Franklin Co., OH, Convention Fac. Auth. Tax &
Lease Rev., Prerefunded @ 102............................... 7.000 12/01/2000 557,205
500,000 Fairfield Co., OH, Hosp. Fac. Rev.
(Lancaster-Fairfield Hosp.), Prerefunded @ 102.............. 7.100 06/15/2001 561,440
250,000 Franklin Co., OH, IDR (1st Community Village Healthcare),
Prerefunded @ 101.50........................................ 10.125 08/01/2001 306,955
30,000 Clermont Co., OH, Hosp. Fac. Rev., Ser. A
(Mercy Health Sys.), Prerefunded @ 100...................... 7.500 09/01/2001 33,828
1,000,000 Clermont Co., OH, Hosp. Fac. Rev. (Mercy Health Sys.),
Prerefunded @ 102........................................... 6.733 09/01/2001 1,109,230
460,000 Westerville, Minerva Park & Blendon, OH, Joint
Hosp. Dist. Rev. (St. Ann's), Prerefunded @ 102............. 7.100 09/15/2001 518,889
1,310,000 Cuyahoga Co., OH, Hosp. Rev. (Mt. Sinai), Prerefunded @ 102. 6.625 11/01/2001 1,455,541
500,000 Springfield, OH, LSD GO, Prerefunded @ 102.................. 6.600 12/01/2001 558,475
500,000 Clermont Co., OH, Sewer Sys. Rev., Ser. 1991,
Prerefunded @ 102........................................... 7.100 12/01/2001 567,155
5,000 Cleveland, OH, Waterworks Impt. Rev., Prerefunded @ 102..... 6.500 01/01/2002 5,535
15,000 Summit Co., OH, GO, Ser. A, Prerefunded @ 100............... 6.900 08/01/2002 16,750
40,000 Ohio St. Bldg. Auth. Rev. (Frank Lausch Proj.),
Prerefunded @ 100........................................... 10.125 04/01/2003 48,739
160,000 Ohio St. Bldg. Auth. Rev. (Columbus St. Proj.),
Prerefunded @ 100........................................... 10.125 04/01/2003 193,699
230,000 Summit Co., OH, GO, Ser. A, Prerefunded @ 100............... 6.900 08/01/2003 260,273
290,000 Alliance, OH, CSD GO........................................ 6.900 12/01/2006 322,727
500,000 Cleveland, OH, Waterworks Impt. Rev., Ser. G (First Mtg.)... 5.500 01/01/2009 516,880
1,000,000 Franklin Co., OH, Hosp. Impt. Rev. (Holy Cross Health Sys.). 7.625 06/01/2009 1,109,010
500,000 Mansfield, OH, Hosp. Impt. Rev. (Mansfield General)......... 6.700 12/01/2009 547,680
250,000 Ohio St. Water Dev. Auth. & Impt. Rev. (Pure Water),
Escrowed to Maturity........................................ 7.000 12/01/2009 283,415
500,000 Ohio Capital Corp. MFH Rev.................................. 7.500 01/01/2010 534,875
500,000 Hamilton, OH, Water Sys. Mtg. Rev., Ser. 1991A.............. 6.400 10/15/2010 539,555
500,000 Montgomery Co., OH, Solid Waste Rev......................... 5.350 11/01/2010 500,370
500,000 Butler Co., OH, Hosp. Fac. Rev. (Middletown Regional Hosp.). 6.750 11/15/2010 552,110
1,000,000 Canton, OH, Waterworks Sys. GO, Ser. 1995................... 5.750 12/01/2010 1,040,250
500,000 St. Mary's, OH, Elec. Sys. Rev.............................. 7.150 12/01/2010 555,470
495,000 Cleveland, OH, Waterworks Impt. Rev., Ser. F (First Mtg.)... 6.500 01/01/2011 538,209
275,000 Cuyahoga Co., OH, Hosp. Rev. (University Hosp.),
Escrowed to Maturity........................................ 9.000 06/01/2011 305,621
1,500,000 Ohio St. Water Dev. Auth. PCR............................... 5.300 06/01/2011 1,486,515
570,000 Ohio HFA SFM Rev., Ser. 1991D............................... 7.000 09/01/2011 604,120
365,000 Bexley, OH, CSD GO.......................................... 7.125 12/01/2011 433,689
500,000 Greene Co., OH, Water Sys. Rev.............................. 6.850 12/01/2011 553,940
500,000 Maple Heights, OH, GO....................................... 7.000 12/01/2011 557,195
760,000 Springboro, OH, CSD GO...................................... 6.000 12/01/2011 820,048
500,000 Stark Co., OH, GO........................................... 7.050 12/01/2011 550,845
500,000 Strongsville, OH, CSD GO.................................... 5.350 12/01/2011 504,485
530,000 Urbana, OH, Wastewater Impt. GO............................. 7.050 12/01/2011 595,556
600,000 Westerville, OH, Water Sys. Impt. GO........................ 6.450 12/01/2011 655,926
500,000 Cleveland, OH, GO, Ser. A................................... 6.375 07/01/2012 543,095
255,000 Summit Co., OH, GO, Ser. A.................................. 6.900 08/01/2012 281,665
500,000 Brunswick, OH, CSD GO....................................... 6.900 12/01/2012 555,025
500,000 Ohio St. Higher Educ. Fac. Rev. (Univ. of Dayton)........... 7.250 12/01/2012 556,290
500,000 Strongsville, OH, CSD GO.................................... 5.375 12/01/2012 503,440
500,000 Summit Co., OH, GO.......................................... 6.625 12/01/2012 548,590
500,000 Warrensville Heights, OH, GO................................ 6.400 12/01/2012 542,645
1,095,000 West Clermont, OH, LSD GO................................... 6.900 12/01/2012 1,253,830
<PAGE>
<CAPTION>
OHIO INSURED TAX-FREE FUND (Continued)
=================================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 98.2% RATE DATE VALUE
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500,000 Worthington, OH, CSD GO..................................... 6.375% 12/01/2012 $ 542,630
1,000,000 Hamilton Co., OH, Hosp. Fac. Rev., Ser. D
(Children's Hosp. Medical Ctr.)............................. 5.000 05/15/2013 950,560
350,000 Ohio HFA SFM Rev., Ser. 1990D............................... 7.500 09/01/2013 369,212
1,000,000 Butler Co., OH, Sewer Sys. Rev.............................. 5.125 12/01/2013 967,440
500,000 Ohio St. Bldg. Auth. Rev., Ser. 1994A
(Juvenile Correctional Bldg.)............................... 6.600 10/01/2014 552,880
500,000 Mahoning Co., OH, Hosp. Impt. Rev. (YHA, Inc.).............. 7.000 10/15/2014 547,280
460,000 Bedford Heights, OH, GO..................................... 6.500 12/01/2014 510,536
290,000 Garfield Heights, OH, GO.................................... 6.300 12/01/2014 312,130
290,000 Northwest, OH, LSD GO....................................... 7.050 12/01/2014 323,802
530,000 Ottawa Co., OH, GO.......................................... 5.750 12/01/2014 543,801
1,000,000 Portage Co., OH, GO......................................... 6.200 12/01/2014 1,064,700
1,000,000 Clermont Co., OH, Hosp. Fac. Rev. (Mercy Health Sys.)....... 5.875 09/01/2015 1,018,590
600,000 Toledo-Lucas Co., OH, Convention Ctr. Ref. Rev.............. 5.700 10/01/2015 608,154
500,000 Cuyahoga Co., OH, GO........................................ 5.250 11/15/2015 487,120
1,000,000 Buckeye Valley, OH, Delaware Co. LSD GO..................... 6.850 12/01/2015 1,175,720
1,750,000 Dayton, OH, Airport Rev. (James M. Cox
Dayton Int'l. Airport)...................................... 5.250 12/01/2015 1,690,885
500,000 Delaware, OH, CSD GO........................................ 5.750 12/01/2015 507,900
1,700,000 Massillon, OH, GO........................................... 6.625 12/01/2015 1,913,333
500,000 Ohio St. Higher Educ. Fac. Rev. (Univ. of Dayton)........... 6.750 12/01/2015 554,225
1,420,000 Stow, OH, Safety Center Const. GO........................... 6.150 12/01/2015 1,510,525
1,000,000 Tuscarawas, OH, LSD GO, Ser. 1995........................... 6.600 12/01/2015 1,109,210
500,000 Cleveland, OH, Waterworks Impt. Rev......................... 6.250 01/01/2016 529,275
750,000 Columbus-Polaris Hsg. Corp. Ohio Mtg. Rev.,
Prerefunded @100............................................ 7.400 01/01/2016 845,677
500,000 Ohio St. Air Quality Dev. Auth. Rev. (Ohio Edison).......... 7.450 03/01/2016 550,320
380,000 Ohio HFA SFM Rev., Ser. 1990F............................... 7.600 09/01/2016 402,982
1,055,000 Ohio HFA SFM Rev., Ser. 1991D............................... 7.050 09/01/2016 1,115,019
500,000 Celina, OH, Wastewater Sys. Mtg. Rev........................ 6.550 11/01/2016 541,280
1,000,000 Cleveland, OH, Public Power Sys. Rev........................ 7.000 11/15/2016 1,152,940
750,000 Montgomery Co., OH, Hosp. Rev. (Miami Valley Hosp.)......... 6.250 11/15/2016 790,875
705,000 Big Walnut, OH, LSD GO (Community Library Proj.)............ 6.650 12/01/2016 777,876
815,000 Butler Co., OH, GO.......................................... 5.750 12/01/2016 834,201
590,000 Garfield Heights, OH, GO.................................... 7.050 12/01/2016 649,997
1,000,000 Greater Cleveland, OH, Regional Transit Auth. GO............ 5.650 12/01/2016 1,000,800
1,000,000 North Olmsted, OH, GO....................................... 5.000 12/01/2016 942,200
1,780,000 Troy, OH, GO................................................ 5.000 12/01/2016 1,654,706
1,335,000 Kent St. Univ. General Receipts Rev......................... 5.500 05/01/2017 1,330,034
850,000 Alliance, OH, Waterworks Sys. Rev........................... 6.650 10/15/2017 930,036
500,000 Toledo, OH, Sewer Sys. Rev.................................. 6.350 11/15/2017 537,130
675,000 Reynoldsburg, OH, CSD GO.................................... 6.550 12/01/2017 739,516
500,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1990B
(Ohio Edison)............................................... 7.100 06/01/2018 546,640
500,000 Newark, OH, Water Sys. Impt. Rev............................ 6.000 12/01/2018 519,550
1,000,000 S. Euclid-Lyndhurst, OH, CSD GO, Ser. 1996.................. 6.400 12/01/2018 1,090,670
500,000 Seneca Co., OH, GO (Jail Fac.).............................. 6.500 12/01/2018 547,875
500,000 Franklin Co., OH, Hosp. Rev., Ser. 1991 (Mt. Carmel)........ 6.750 06/01/2019 550,705
500,000 Crawford Co., OH, GO........................................ 6.750 12/01/2019 561,965
360,000 Cuyahoga Co., OH, Hosp. Rev. (University Hosp.)............. 6.250 01/15/2020 379,649
500,000 Lucas Co., OH, Hosp. Impt. Rev. (St. Vincent's Hosp.)....... 6.750 08/15/2020 541,845
1,750,000 Celina, OH, CSD GO.......................................... 5.250 12/01/2020 1,676,395
1,000,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985A
(Columbus Southern Power)................................... 6.375 12/01/2020 1,071,250
200,000 Montgomery Co., OH, Hosp. Rev. (Sisters of Charity)......... 6.625 05/15/2021 214,850
15,000 Puerto Rico HFC SFM Rev., Ser. A............................ 7.800 10/15/2021 15,392
1,700,000 Lorain Co., OH, Hosp. Rev. (EMH Regional Med. Ctr.)......... 5.375 11/01/2021 1,648,881
1,220,000 Butler Co., OH, Sewer Sys. Rev.............................. 5.250 12/01/2021 1,174,030
1,000,000 Kent St. Univ. General Receipts Rev......................... 6.500 05/01/2022 1,089,170
1,000,000 Cleveland, OH, Parking Facs. Rev............................ 5.500 09/15/2022 991,750
<PAGE>
<CAPTION>
OHIO INSURED TAX-FREE FUND (Continued)
===============================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FIXED RATE REVENUE & GENERAL OBLIGATION BONDS-- 98.2% RATE DATE VALUE
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 160,000 Puerto Rico HFC Rev......................................... 6.850% 10/15/2023 $ 167,733
1,000,000 Springboro, OH, CSD GO...................................... 5.100 12/01/2023 941,440
1,000,000 Ohio St. Turnpike Rev., Ser. 1996A.......................... 5.500 02/15/2026 982,830
1,000,000 Ohio St. Air Quality PCR (Penn Power)....................... 6.450 05/01/2027 1,070,760
- - -------------- ------------
$ 71,935,000 TOTAL FIXED RATE REVENUE & GENERAL OBLIGATION BONDS
- - -------------- (Amortized Cost $71,319,434)................................ $76,186,651
------------
<CAPTION>
================================================================================================================
PRINCIPAL COUPON MATURITY
AMOUNT FLOATING AND VARIABLE RATE DEMAND NOTES-- 0.8% RATE DATE VALUE
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100,000 Ohio St. Air Quality Dev. Auth. Rev., Ser. 1985B............ 4.700% 01/02/1997 $ 100,000
500,000 Cuyahoga Co., OH, Hosp. Impt. Rev. (Univ. Hosp. Cleveland).. 5.000 01/02/1997 500,000
- - -------------- ------------
$ 600,000 TOTAL FLOATING AND VARIABLE RATE DEMAND NOTES
- - -------------- (Amortized Cost $600,000)................................... $ 600,000
------------
$ 72,535,000 TOTAL INVESTMENTS AT VALUE-- 99.0%
============== (Amortized Cost $71,919,434)................................ $76,786,651
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.0% .............. 756,128
------------
NET ASSETS-- 100.0% ........................................ $77,542,779
============
</TABLE>
<PAGE>
NOTES TO PORTFOLIOS OF INVESTMENTS
December 31, 1996 (Unaudited)
==============================================================================
Variable and adjustable rate put bonds earn interest at a coupon rate which
fluctuates at specified intervals, usually daily, monthly or semi-annually.
The rates shown in the Portfolios of Investments are the coupon rates in
effect at December 31, 1996.
Put bonds may be redeemed at the discretion of the holder on specified dates
prior to maturity. Mandatory put bonds are automatically redeemed at a
specified put date unless action is taken by the holder to prevent redemption.
Bonds denoted as prerefunded are anticipated to be redeemed prior to their
scheduled maturity. The dates indicated in the Portfolios of Investments are
the stipulated prerefunded dates.
PORTFOLIO ABBREVIATIONS:
ARPB - Adjustable Rate Put Bonds
ISD - Independent School District
BANS - Bond Anticipation Notes
LSD - Local School District
COP - Certificates of Participation
MFH - Multi-Family Housing
CSD - City School District
MFM - Multi-Family Mortgage
EDA - Economic Development Authority
PCR - Pollution Control Revenue
EDR - Economic Development
RANS - Revenue Anticipation Notes
GO - General Obligation
SFM - Single Family Mortgage
HFA - Housing Finance Authority/Agency
TANS - Tax Anticipation Notes
HFC - Housing Finance Corporation
TRANS - Tax Revenue Anticipation Notes
IDA - Industrial Development Authority/Agency
USD - Unified School District
IDR - Industrial Development Revenue
VRDN - Variable Rate Demand Notes
<PAGE>
