As filed with the Securities and Exchange Commission on April 10, 2000
Registration No. 2-72101
Registration No. 811-03174
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 45 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 44 [X]
(Check appropriate box or boxes)
------------------------
TOUCHSTONE TAX-FREE TRUST
(formerly known as Countrywide Tax-Free Trust)
(Exact name of Registrant as Specified in Charter)
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
(Address of Registrant's Principal Executive Offices)
Registrant's Telephone Number (513) 629-2000
------------------------
Copy to:
ROBERT H. LESHNER. KAREN M. MCLAUGHLIN, ESQ.
312 Walnut Street, 21st Floor Frost & Jacobs LLP
Cincinnati, Ohio 45202 2500 PNC Center
(Name and Address of Agent for Service) 201 East Fifth Street
Cincinnati, Ohio 45202
------------------------
Approximate Date of Proposed Public Offering: Continuous Offering
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on __________ pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on __________ pursuant to paragraph (a))1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on __________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment desginates a new effective date for a
previously filed post-effective amendment.
TOTAL NUMBER OF PAGES:
EXHIBIT INDEX ON PAGE:
<PAGE>
TOUCHSTONE TAX-FREE TRUST
FORM N-1A CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM NO. HEADING IN PROSPECTUS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
1. Front and Back Cover Pages Cover Page; For More Information
2. Risk/Return Summary: Investments, Tax-Free Money Fund; Tax-Free Intermediate Term
Risks, and Performance Fund; Ohio Insured Tax-Free Fund; Ohio Tax-Free
Money Fund; California Tax-Free Money Fund;
Florida Tax-Free Money Fund; Investment Strategies
and Risks
3. Risk/Return Summary: Fee Table Tax-Free Money Fund; Tax-Free Intermediate Term
Fund; Ohio Insured Tax-Free Fund; Ohio Tax-Free
Money Fund; California Tax-Free Money Fund;
Florida Tax-Free Money Fund
4. Investment Objectives, Principal Investment Strategies and Risks
Investment Strategies, and Related
Risks
5. Management's Discussion of Fund None
Performance
6. Management, Organization, and The Funds' Management
Capital Structure
7. Shareholder Information Investing with Touchstone; Distributions and Taxes
8. Distribution Arrangements Investing with Touchstone
9. Financial Highlights Information Financial Highlights
FORM N-1A ITEM NO. HEADING IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. Fund History The Trust
12. Description of the Fund and Its Definitions; Policies and Risk Considerations;
Investment and Risks Investment Restrictions; Portfolio Turnover;
Appendix
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Principal Security Holders
Holders of Securities
<PAGE>
15. Investment Advisory and Other The Investment Adviser and Sub-Advisors; The
Services Distributor; Distribution Plans; Custodian;
Auditors; Transfer, Accounting and Administrative
Services; Choosing a Share Class
16. Brokerage Allocation and Other Securities Transactions
Practices
17. Capital Stock and Other Securities The Trust; Choosing a Share Class
18. Purchase, Redemption, and Pricing Calculation of Share Price and Public Offering
of Shares Price; Other Purchase Information; Redemption in
Kind
19. Taxation of the Fund Taxes
20. Underwriters The Distributor
21. Calculation of Performance Data Historical Performance Information
22. Financial Statements None
</TABLE>
<PAGE>
TOUCHSTONE FAMILY OF FUNDS
- --------------------------
PROSPECTUS
JUNE ___, 2000
TOUCHSTONE TAX-FREE TRUST
o TAX-FREE MONEY FUND
o TAX-FREE INTERMEDIATE TERM FUND
o OHIO INSURED TAX-FREE FUND
o OHIO TAX-FREE MONEY FUND
o CALIFORNIA TAX-FREE MONEY FUND
o FLORIDA TAX-FREE MONEY FUND
Neither the Securities and Exchange Commission nor any state securities
commission has approved the Funds' shares as an investment or determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
TOUCHSTONE FAMILY OF FUNDS
Each Fund is a series of Touchstone Tax-Free Trust (the "Trust"), a group of two
tax-free bond funds and four tax-free money market funds. The Trust is part of
the Touchstone Family of Funds which also includes Touchstone Investment Trust,
a group of six taxable bond and money market mutual funds, and Touchstone
Strategic Trust, a group of eight equity mutual funds. Each Fund has a different
investment goal and risk level. For further information about the Touchstone
Family of Funds, contact Touchstone Securities, Inc. at 800.669.2796.
2
<PAGE>
TABLE OF CONTENTS
PAGE
TAX-FREE MONEY FUND............................................................4
TAX-FREE INTERMEDIATE TERM FUND................................................8
OHIO INSURED TAX-FREE FUND....................................................13
OHIO TAX-FREE MONEY FUND......................................................18
CALIFORNIA TAX-FREE MONEY FUND................................................23
FLORIDA TAX-FREE MONEY FUND...................................................28
INVESTMENT STRATEGIES AND RISKS...............................................32
THE FUNDS' MANAGEMENT.........................................................37
INVESTING WITH TOUCHSTONE.....................................................39
DISTRIBUTIONS AND TAXES.......................................................50
FINANCIAL HIGHLIGHTS..........................................................53
FOR MORE INFORMATION..........................................................62
3
<PAGE>
TAX-FREE MONEY FUND
- -------------------
THE FUND'S INVESTMENT GOAL
The Tax-Free Money Fund seeks the highest level of interest income exempt from
federal income tax, consistent with the protection of capital. The Fund is a
money market fund which seeks to maintain a constant share price of $1.00 per
share.
As with any money market fund, there is no guarantee that the Fund will achieve
its goal or will maintain a constant share price of $1.00 per share.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in high-quality, short-term municipal obligations
that the portfolio manager determines present minimal credit risks.
The Fund has a fundamental investment policy that under normal circumstances the
Fund will invest its assets so that at least 80% of its annual income will be
exempt from federal income tax, including the alternative minimum tax. This
fundamental policy may not be changed without the approval of the Fund's
shareholders.
The Fund may invest more than 25% of its assets in municipal obligations within
a particular segment of the bond market, such as hospital revenue bonds or
airport bonds. The Fund may also invest more than 25% of its assets in
industrial development bonds, which may be backed only by nongovernmental
entities. The Fund will not invest more than 25% of its assets in securities
backed by nongovernmental entities that are in the same industry.
The Fund may invest in the following types of municipal obligations:
o Tax-exempt bonds, including general obligation bonds, revenue bonds
and industrial development bonds
o Tax-exempt notes
o Tax-exempt commercial paper
o Floating and variable rate municipal obligations
o When-issued obligations
o Obligations with puts attached
To comply with SEC rules pertaining to money market funds, the Fund will limit
its investments as follows:
o The Fund will invest in securities rated in one of the two highest
rating categories by a rating agency.
o The Fund may purchase unrated securities only if the portfolio manager
determines the securities meet the Fund's quality standards.
o The Fund will only invest in securities that mature in 13 months or
less.
4
<PAGE>
o The dollar-weighted average maturity of its portfolio be 90 days or
less.
THE KEY RISKS
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC, the U.S. Treasury or any other government entity. Although the Fund
is a money market fund and seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund. The
Fund's yield may decrease:
o If interest rates go down
o Because issuers may be unable to make timely payments of interest or
principal
o If the Internal Revenue Code is amended so that fewer municipal
obligations qualify for federal income tax exemption
o If the Fund's investments are concentrated in a particular segment of
the bond market and adverse economic developments affecting one bond
affect other bonds in the same segment
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you take a relatively low risk approach
to investing and are looking for an investment that offers tax-exempt income.
Safety of your investment and the receipt of tax-exempt income are of key
importance to you. Additionally, you are willing to accept potentially lower
returns in order to maintain a lower, more tolerable level of risk and receive
the benefits of tax-exempt income. This Fund's approach may be most appropriate
for you if you are nearing retirement, or if you have a longer time horizon, but
nevertheless, have a lower risk tolerance. This Fund is also appropriate for you
if you are looking for an investment that maintains a stable share price and
offers the added convenience of writing checks directly from your account.
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Tax-Free Money
Fund. It shows changes in the performance of the Fund's shares from year to year
during the past 10 years.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
5
<PAGE>
TAX-FREE MONEY FUND -- PERFORMANCE
YEARS TOTAL RETURN
1990 5.56%
1991 4.38%
1992 2.82%
1993 2.09%
1994 2.49%
1995 3.40%
1996 2.92%
1997 2.97%
1998 2.98%
1999 __.__%
During the period shown in the bar chart, the highest quarterly return was
__.__% (for the quarter ended ___________, 19__) and the lowest quarterly
return was __.__% (for the quarter ended ____________, 19__).
The year-to-date total return of the Fund's shares as of March 31, 2000 is
__.__%.
For information on the Fund's current and effective 7-day yield, call
800.543.0407 (nationwide) or 629.2050 (in Cincinnati).
The following table shows the Fund's average annual returns for the periods
shown
FOR THE PERIODS ENDED DECEMBER 31, 1999
Past 12 Past 5 Past 10
Months Years Years
Tax-Free Money Fund _____% _____% _____%
- --------------------------------------------------------------------------------
6
<PAGE>
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None
- --------------------------------------------------------------------------------
Redemption Fee *
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Check Redemption Processing Fee
- --------------------------------------------------------------------------------
First six checks per month None
- --------------------------------------------------------------------------------
Additional checks per month $0.25
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.01%
- --------------------------------------------------------------------------------
Other Expenses 0.44%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses1 0.95%
- --------------------------------------------------------------------------------
* You will be charged $8 for each wire redemption. This fee is subject
to change.
1 After reimbursement by the investment advisor, total Fund operating
expenses were 0.89% for the fiscal year ended June 30, 1999. The
investment advisor may discontinue this reimbursement at any time.
The following example should help you compare the cost of investing in the
Tax-Free Money Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year $97
-----------------------------
3 Years $303
-----------------------------
5 Years $525
-----------------------------
10 Years $1,166
-----------------------------
7
<PAGE>
TAX-FREE INTERMEDIATE TERM FUND
- -------------------------------
THE FUND'S INVESTMENT GOAL
The Tax-Free Intermediate Term Fund seeks high current income exempt from
federal income tax, consistent with protection of capital. To the extent
consistent with the Fund's primary goal, capital appreciation is a secondary
goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goals.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund has a fundamental investment policy that under normal circumstances the
Fund will invest its assets so that at least 80% of its annual income will be
exempt from federal income tax, including the alternative minimum tax. This
fundamental policy may not be changed without the approval of the Fund's
shareholders.
The Fund invests primarily in municipal obligations rated within the 3 highest
rating categories. If a security's rating is reduced below the 3 highest rating
categories by a rating agency, the security will be sold. The Fund may purchase
unrated securities only if the portfolio manager determines the securities meet
the Fund's quality standards.
The Fund will primarily invest in municipal obligations with remaining
maturities of 20 years or less and will seek to maintain an average weighted
maturity of between 3 and 10 years. However, the Fund may invest in securities
of any maturity.
The Fund may invest more than 25% of its assets in municipal obligations within
a particular segment of the bond market, such as hospital revenue bonds or
airport bonds. The Fund may also invest more than 25% of its assets in
industrial development bonds, which may be backed only by nongovernmental
entities. The Fund will not invest more than 25% of its assets in securities
backed by nongovernmental entities that are in the same industry.
The Fund may invest in the following types of municipal obligations:
o Tax-exempt bonds, including general obligation bonds, revenue bonds
and industrial development bonds
o Tax-exempt notes
o Tax-exempt commercial paper
o Floating and variable rate municipal obligations
o When-issued obligations
o Obligations with puts attached
o Lease obligations
8
<PAGE>
THE KEY RISKS
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities held
by the Fund to decline
o Because issuers may be unable to make timely payments of interest or
principal
o If the Internal Revenue Code is amended so that fewer municipal
obligations qualify for federal income tax exemption
o If the Fund's investments are concentrated in a particular segment of
the bond market and adverse economic developments affecting one bond
affect other bonds in the same segment
o If a municipality does not budget money to make lease and installment
payments for its lease obligations
o Because the Fund's securities may have longer maturities and/or lower
ratings than other bond funds, which could cause greater fluctuation
in the Fund's share price
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you prefer to take a relatively low
risk approach to investing and are looking for an investment which offers
tax-exempt income. Safety of your investment and the receipt of tax-exempt
income are of key importance to you. Additionally, you are willing to accept
potentially lower returns in order to maintain a lower, more tolerable level of
risk and receive the benefits of tax-exempt income. This Fund's approach may be
most appropriate for you if you are nearing retirement, or if you have a longer
time horizon but, nevertheless, have a lower risk tolerance. This Fund is also
appropriate for you if you want the added convenience of writing checks directly
from your account.
9
<PAGE>
THE FUND'S PERFORMANCE
The bar chart shown below indicates the risks of investing in the Tax-Free
Intermediate Term Fund. It shows changes in the performance of the Fund's Class
A shares from year to year during the past 10 years. The chart does not reflect
any sales charges. Sales charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
TAX-FREE INTERMEDIATE TERM FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1990 6.04%
1991 9.09%
1992 7.71%
1993 10.94%
1994 -2.93%
1995 11.58%
1996 3.87%
1997 5.87%
1998 5.07%
1999 __.__%
During the period shown in the bar chart, the highest quarterly return was
__.__% (for the quarter ended ___________, 19__) and the lowest quarterly
return was __.__% (for the quarter ended ____________, 19__).
The year-to-date total return of the Fund's Class A shares as of March 31,
2000 is __.__%.
The following table shows how the Fund's average annual returns for the periods
shown compare to that of the Lehman Brothers 5-Year Municipal General Obligation
Bond Index. The Lehman Brothers 5-Year Municipal General Obligation Bond Index
is a _________________________. The table shows the effect of the applicable
sales charge.
10
<PAGE>
FOR THE PERIODS ENDED DECEMBER 31, 1999
Since
Past 12 Past 5 Past 10 Fund
Months Years Years Started*
Tax-Free Intermediate Term Fund -
Class A _____% _____% _____% _____%
- --------------------------------------------------------------------------------
Lehman Brothers 5-Year Municipal
General Obligation Bond Index _____% _____% _____% _____%
- --------------------------------------------------------------------------------
Tax-Free Intermediate Term Fund -
Class C _____% _____% _____% _____%
- --------------------------------------------------------------------------------
Lehman Brothers 5-Year Municipal
General Obligation Bond Index _____% _____% _____% _____%
- --------------------------------------------------------------------------------
* The Fund started selling Class A shares on September 10, 1981 and
Class C shares on February 1, 1994.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 4.75% 2.25%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
- --------------------------------------------------------------------------------
Purchases (as a percentage of offering price) 4.75%(1) 1.25%
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price * 1.00%(2)
or the amount redeemed, whichever is less)
- --------------------------------------------------------------------------------
Redemption Fee ** **
- --------------------------------------------------------------------------------
Exchange Fee None None
- --------------------------------------------------------------------------------
Check Redemption Processing Fee
- --------------------------------------------------------------------------------
First six checks per month None None
- --------------------------------------------------------------------------------
Additional checks per month $0.25 $0.25
- --------------------------------------------------------------------------------
11
<PAGE>
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.50% 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.09% 0.53%
- --------------------------------------------------------------------------------
Other Expenses 0.40% 0.71%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.99% 1.74%
- --------------------------------------------------------------------------------
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
** You will be charged $8 for each wire redemption. This fee is subject
to change.
1 You may pay a reduced sales charge on very large purchases.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
The following example should help you compare the cost of investing in the
Tax-Free Intermediate Term Fund with the cost of investing in other mutual
funds. The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $571 $300
-----------------------------------------------
3 Years $775 $666
-----------------------------------------------
5 Years $996 $1,057
-----------------------------------------------
10 Years $1,630 $2,151
-----------------------------------------------
12
<PAGE>
OHIO INSURED TAX-FREE FUND
- --------------------------
THE FUND'S INVESTMENT GOAL
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 the
protection of capital.
As with any mutual fund, there is no guarantee that it will achieve its goal.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 65% of total assets) in long-term Ohio
municipal obligations that are rated within the highest rating category and are
protected by insurance guaranteeing the payment of principal and interest in the
event of default.
The Fund has a fundamental investment policy that under normal circumstances the
Fund will 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 Ohio
personal income tax. This fundamental policy may not be changed without the
approval of the Fund's shareholders.
The Fund may purchase Ohio municipal obligations and other securities that are
rated within the 4 highest rating categories by a rating agency. If a security's
rating is reduced below the 4 highest rating categories, the security will be
sold. The Fund may purchase unrated obligations that it determines to be of
comparable quality. The Fund may also purchase uninsured Ohio municipal
obligations if they are either short-term Ohio municipal obligations or
obligations guaranteed by the U.S. Government.
The Fund will seek to maintain an average weighted maturity of more than 15
years. The Fund may reduce its average weighted maturity if warranted by market
conditions, but will not reduce its average weighted maturity to below 10 years.
The Fund may invest more than 25% of its assets in municipal obligations within
a particular segment of the bond market, such as hospital revenue bonds or
airport bonds. The Fund may also invest more than 25% of its assets in
industrial development bonds, which may be backed only by nongovernmental
entities. The Fund will not invest more than 25% of its assets in securities
backed by nongovernmental entities that are in the same industry.
The Fund may invest in the following types of municipal obligations:
o Tax-exempt bonds, including general obligation bonds, revenue bonds
and industrial development bonds
o Tax-exempt notes
o Tax-exempt commercial paper
o Floating and variable rate municipal obligations
o When-issued obligations
o Obligations with puts attached
13
<PAGE>
o Lease obligations
THE KEY RISKS
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If interest rates go up, causing the value of any debt securities held
by the Fund to decline
o Because issuers may be unable to make timely payments of interest or
principal
o If the Internal Revenue Code is amended so that fewer municipal
obligations qualify for federal income tax exemption
o Because the Fund's securities may have longer maturities than other
bond funds, which could cause greater fluctuation in the Fund's share
price.
o If the Fund's investments are concentrated in a particular segment of
the bond market and adverse economic developments affecting one bond
affect other bonds in the same segment and if an obligation is not
insured
o If a municipality does not budget money to make lease and installment
payments for its lease obligations
o If economic conditions within the State of Ohio decline
The portfolio manager believes that the Fund's credit risks will be
substantially reduced by insurance. Although insurance reduces the credit risks
to the Fund by protecting against losses from defaults by an issuer, it does not
protect against market fluctuation. Also, there are no guarantees that any
insurer will be able to meet its obligations under an insurance policy.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you are an Ohio resident looking for an
investment which offers income exempt from both federal and Ohio income tax and
you take a relatively low risk approach to investing. Safety of your investments
and receipt of tax-exempt income are of key importance to you. Additionally, you
are willing to accept potentially lower returns in order to maintain a lower,
more tolerable level of risk and receive the benefits of tax-exempt income. This
Fund's approach may be most appropriate for you if you are nearing retirement,
or if you have a longer time horizon, but nevertheless, have a lower risk
tolerance.
14
<PAGE>
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Ohio Insured
Tax-Free Fund. It shows changes in the performance of the Fund's Class A shares
from year to year during the past 10 years. The chart does not reflect any sales
charges. Sales charges will reduce return.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Class C shares offered by the Fund will differ from the Class A
returns shown in the bar chart, depending on the expenses of that class.
OHIO INSURED TAX-FREE FUND -- CLASS A PERFORMANCE
YEARS TOTAL RETURN
1990 5.92%
1991 11.01%
1992 8.76%
1993 12.59%
1994 -5.37%
1995 15.86%
1996 3.07%
1997 7.20%
1998 5.54%
1999 __.__%
During the period shown in the bar chart, the highest quarterly return was
__.__% (for the quarter ended ___________, 19__) and the lowest quarterly
return was __.__% (for the quarter ended ____________, 19__).
The year-to-date return of the Fund's Class A shares as of March 31, 2000
is __.__%.
The following table shows how the Fund's average annual returns for the periods
shown compare to that of the Lehman Brothers 15-Year Municipal General
Obligation Bond Index. The Lehman Brothers 15-Year Municipal General Obligation
Bond Index is a __________________. The table shows the effect of the applicable
sales charge.
15
<PAGE>
FOR THE PERIODS ENDED DECEMBER 31, 1999
Since
Past 12 Past 5 Past 10 Fund
Months Years Years Started*
Ohio Insured Tax-Free Fund -
Class A _____% _____% _____% _____%
- --------------------------------------------------------------------------------
Lehman Brothers 15-Year Municipal
General Obligation Bond Index _____% _____% _____% N/A
- --------------------------------------------------------------------------------
Ohio Insured Tax-Free Fund -
Class C _____% _____% N/A _____%
- --------------------------------------------------------------------------------
Lehman Brothers 15-Year Municipal
General Obligation Bond Index _____% _____% N/A _____%
- --------------------------------------------------------------------------------
* The Fund started selling Class A shares on April 1, 1985 and Class C
shares on November 1, 1993.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) 4.75% 2.25%
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
- --------------------------------------------------------------------------------
Purchases (as a percentage of offering price) 4.75%1 1.25%
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 1.00%2
- --------------------------------------------------------------------------------
Redemption Fee ** **
- --------------------------------------------------------------------------------
Exchange Fee None None
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.50% 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.01% 0.54%
- --------------------------------------------------------------------------------
Other Expenses 0.24% 0.50%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.75% 1.50%
- --------------------------------------------------------------------------------
* There is no sales charge at the time of purchase for purchases of $1
million or more but a sales charge of 1.00% will be assessed on shares
redeemed within one year of purchase.
16
<PAGE>
** You will be charged $8 for each wire redemption. This fee is subject
to change.
1 You may pay a reduced sales charge on very large purchases.
2 The 1.00% is waived for benefits paid to you through a qualified
pension plan.
The following example should help you compare the cost of investing in the Ohio
Insured Tax-Free Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Class A Shares Class C Shares
1 Year $548 $276
------------------------------------------------
3 Years $703 $593
------------------------------------------------
5 Years $872 $933
------------------------------------------------
10 Years $1,361 $1,843
------------------------------------------------
17
<PAGE>
OHIO TAX-FREE MONEY FUND
- ------------------------
THE FUND'S INVESTMENT GOAL
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 is a money market fund which seeks to
maintain a constant share price of $1.00 per share.
As with any money market fund, there is no guarantee that the Fund will achieve
its goal or will maintain a constant share price of $1.00 per share.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in high-quality, short-term municipal obligations
issued by the State of Ohio and its agencies that pay interest exempt from both
federal income tax and Ohio personal income tax.
The Fund has a fundamental investment policy that under normal circumstances the
Fund will invest its assets so that at least 80% of its total assets in
short-term municipal obligations that pay interest exempt from federal income
tax, including the alternative minimum tax. This fundamental policy may not be
changed without the approval of the Fund's shareholders.
The Fund may invest more than 25% of its assets in municipal obligations within
a particular segment of the bond market, such as hospital revenue bonds or
airport bonds. The Fund may also invest more than 25% of its assets in
industrial development bonds, which may be backed only by nongovernmental
entities. The Fund will not invest more than 25% of its assets in securities
backed by nongovernmental entities that are in the same industry.
The Fund may invest in the following types of Ohio municipal obligations and
other municipal obligations:
o Tax-exempt bonds, including general obligation bonds, revenue bonds
and industrial development bonds
o Tax-exempt notes
o Tax-exempt commercial paper
o Floating and variable rate municipal obligations
o When-issued obligations
o Obligations with puts attached
To comply with SEC rules pertaining to money market funds, the Fund will limit
its investments as follows:
o The Fund will invest in securities rated in one of the two highest
rating categories by a rating agency.
o The Fund may purchase unrated securities only if the portfolio manager
determines the securities meet the Fund's quality standards.
18
<PAGE>
o The Fund will only invest in securities that mature in 13 months or
less.
o The dollar-weighted average maturity of its portfolio will be 90 days
or less.
THE KEY RISKS
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC, the U.S. Treasury or any other government entity. Although the Fund
is a money market fund and seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund. The
Fund's yield may decrease:
o If interest rates go down
o Because issuers may be unable to make timely payments of interest or
principal
o If the Internal Revenue Code is amended so that fewer municipal
obligations qualify for federal income tax exemption
o If theo Fund's investments are concentrated in a particular segment of
the bond market and adverse economic developments affecting one bond
affect other bonds in the same segment
o If economic conditions within the State of Ohio decline
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you take a relatively low risk approach
to investing and you are an Ohio resident looking for income exempt from both
federal and Ohio income tax. Safety of your investment and the receipt of
tax-exempt income are of key importance to you. Additionally, you are willing to
accept potentially lower returns in order to maintain a lower, more tolerable
level of risk and receive the benefits of tax-exempt income. This Fund's
approach may be most appropriate for you if you are nearing retirement, or if
you have a longer time horizon, but nevertheless, have a lower risk tolerance.
This Fund is also appropriate for you if you are looking for an investment that
maintains a stable share price and offers the added convenience (Retail Shares
only) of writing checks directly from your account.
19
<PAGE>
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Ohio Tax-Free
Money Fund. It shows changes in the performance of the Fund's Retail (Class A)
shares from year to year during the past 10 years.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
The return for Institutional shares offered by the Fund will differ from the
returns of Retail Shares shown in the bar chart, depending on the expenses of
that class.
OHIO TAX-FREE MONEY FUND - RETAIL SHARES' PERFORMANCE
YEARS TOTAL RETURN
1990 5.48%
1991 4.25%
1992 2.68%
1993 1.99%
1994 2.40%
1995 3.40%
1996 2.94%
1997 3.08%
1998 2.96%
1999 __.__%
During the period shown in the bar chart, the highest quarterly return was
__.__% (for the quarter ended ___________, 19__) and the lowest quarterly
return was __.__% (for the quarter ended ____________, 19__).
The year-to-date total return of the Fund's Retail Shares as of March 31,
2000 is __.__%.
For information on the Fund's current and effective 7-day yield, call
800.543.0407 (nationwide) or 629.2050 (in Cincinnati).
The following table shows the Fund's average annual returns for the periods
shown.
20
<PAGE>
FOR THE PERIODS ENDED DECEMBER 31, 1999
Since
Past 12 Past 5 Past 10 Fund
Months Years Years Started
Ohio Tax-Free Money Fund -
Retail Shares* _____% _____% _____% N/A
- --------------------------------------------------------------------------------
Ohio Tax-Free Money Fund -
Institutional Shares** _____% N/A N/A _____%
- --------------------------------------------------------------------------------
* Performance information from the date of inception of the Fund is not
available.
** The Fund began selling Institutional Shares on January 7, 1997.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Institutional
Retail Shares Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None None
- --------------------------------------------------------------------------------
Redemption Fee * None
- --------------------------------------------------------------------------------
Exchange Fee None None
- --------------------------------------------------------------------------------
Check Redemption Processing Fee Not Available
- --------------------------------------------------------------------------------
First six checks per month None
- --------------------------------------------------------------------------------
Additional checks per month $0.25
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.44% 0.44%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.23% None
- --------------------------------------------------------------------------------
Other Expenses 0.10% 0.07%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses1 0.77% 0.51%
- --------------------------------------------------------------------------------
* You will be charged $8 for each wire redemption. This fee is subject
to change.
1 After reimbursement by the investment advisor, total Fund operating
expenses were 0.75% for the fiscal year ended June 30, 1999. The
investment advisor may discontinue the reimbursement at any time.
21
<PAGE>
The following example should help you compare the cost of investing in the Ohio
Tax-Free Money Fund with the cost of investing in other mutual funds. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
Institutional
Retail Shares Shares
1 Year $79 $52
-------------------------------------------------
3 Years $246 $164
-------------------------------------------------
5 Years $428 $285
-------------------------------------------------
10 Years $954 $640
-------------------------------------------------
22
<PAGE>
CALIFORNIA TAX-FREE MONEY FUND
- ------------------------------
THE FUND'S INVESTMENT GOAL
The California Tax-Free Money Fund seeks the highest level of current income
exempt from federal income tax and California income tax, consistent with
liquidity and stability of principal. The Fund is a money market fund which
seeks to maintain a constant share price of $1.00 per share.
As with any money market fund, there is no guarantee that the Fund will achieve
its goal or will maintain a constant share price of $1.00 per share.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 65% of total assets) in high-quality,
short-term municipal obligations issued by the State of California and its
agencies that pay interest exempt from both federal income tax and California
income tax.
The Fund has a fundamental investment policy that under normal circumstances the
Fund will invest its assets so that at least 80% of its annual income will be
exempt from federal income tax, including the alternative minimum tax. This
fundamental policy may not be changed without the approval of the Fund's
shareholders.
The Fund may invest more than 25% of its assets in municipal obligations within
a particular segment of the bond market, such as hospital revenue bonds or
airport bonds. The Fund may also invest more than 25% of its assets in
industrial development bonds, which may be backed only by nongovernmental
entities. The Fund will not invest more than 25% of its assets in securities
backed by nongovernmental entities that are in the same industry.
The Fund may invest in the following types of California municipal obligations
and other municipal obligations:
o Tax-exempt bonds, including general obligation bonds, revenue bonds
and industrial development bonds
o Tax-exempt notes
o Tax-exempt commercial paper
o Floating and variable rate municipal obligations
o When-issued obligations
o Obligations with puts attached
To comply with SEC rules pertaining to money market funds, the Fund will limit
its investments as follows:
o The Fund will invest in securities rated in one of the two highest
rating categories by a rating agency.
23
<PAGE>
o The Fund may purchase unrated securities only if the portfolio manager
determines the securities meet the Fund's quality standards.
o The Fund will only invest in securities that mature in 13 months or
less.
o The dollar-weighted average maturity of its portfolio will be 90 days
or less.
THE KEY RISKS
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC, the U.S. Treasury or any other government entity. Although the Fund
is a money market fund and seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund. The
Fund's yield may decrease:
o If interest rates go down
o Because issuers may be unable to make timely payments of interest or
principal
o If the Internal Revenue Code is amended so that fewer municipal
obligations qualify for federal income tax exemption
o If the Fund's investments are concentrated in a particular segment of
the bond market and adverse economic developments affecting one bond
affect other bonds in the same segment
o If the economic conditions within the State of California decline
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you take a relatively low risk approach
to investing and you are a California resident looking for an investment which
offers income exempt from both federal and California income tax. Safety of your
investment and the receipt of tax-exempt income are of key importance to you.
Additionally, you are willing to accept potentially lower returns in order to
maintain a lower, more tolerable level of risk and receive the benefits of
tax-exempt income. This Fund's approach may be most appropriate for you if you
are nearing retirement, or if you have a longer time horizon, but nevertheless,
have a lower risk tolerance. This Fund is also appropriate for you if you are
looking for an investment that maintains a constant share price and offers the
added convenience of writing checks directly from your account.
24
<PAGE>
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the California
Tax-Free Money Fund. It shows changes in the performance of the Fund's shares
from year to year during the past 10 years.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
CALIFORNIA TAX-FREE MONEY FUND - PERFORMANCE
YEARS TOTAL RETURN
1990 5.48%
1991 4.25%
1992 2.77%
1993 1.95%
1994 2.29%
1995 3.18%
1996 2.78%
1997 2.89%
1998 2.82%
1999 __.__%
During the period shown in the bar chart, the highest quarterly return was
__.__% (for the quarter ended ___________, 19__) and the lowest quarterly
return was __.__% (for the quarter ended ____________, 19__).
The year-to-date total return of the Fund's shares as of March 31, 2000 is
__.__%.
For information on the Funds' current and effective 7-day yield, call
800.543.0407 (nationwide) or 629.2050 (in Cincinnati).
The following table shows the Fund's average annual returns for the periods
shown.
25
<PAGE>
FOR THE PERIODS ENDED DECEMBER 31, 1999
Since
Past 12 Past 5 Past 10 Fund
Months Years Years Started*
California Tax-Free Money Fund _____% _____% _____% _____%
- --------------------------------------------------------------------------------
* The Fund began selling shares on July 25, 1989.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None
- --------------------------------------------------------------------------------
Redemption Fee *
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Check Redemption Processing Fee
- --------------------------------------------------------------------------------
First six checks per month None
- --------------------------------------------------------------------------------
Additional checks per month $0.25
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.05%
- --------------------------------------------------------------------------------
Other Expenses 0.20%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 0.75%
- --------------------------------------------------------------------------------
* You will be charged $8 for each wire redemption. This fee is subject
to change.
26
<PAGE>
The following example should help you compare the cost of investing in the
California Tax-Free Money Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year $77
------------------------------
3 Years $240
------------------------------
5 Years $417
------------------------------
10 Years $930
------------------------------
27
<PAGE>
FLORIDA TAX-FREE MONEY FUND
- ---------------------------
THE FUND'S INVESTMENT GOAL
The Florida Tax-Free Money Fund seeks the highest level of interest income
exempt from federal income tax, consistent with liquidity and stability of
principal. The Fund is a money market fund which seeks to maintain a constant
share price of $1.00 per share.
As with any money market fund, there is no guarantee that the Fund will achieve
its goal or will maintain a constant share price of $1.00 per share.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 65% of total assets) in high-quality,
short-term Florida municipal obligations that pay interest exempt from both
federal income tax and the Florida intangible personal property tax.
The Fund has a fundamental investment policy that under normal circumstances the
Fund will invest its assets so that at least 80% of its annual income will be
exempt from federal income tax, including the alternative minimum tax. This
fundamental policy may not be changed without the approval of the Fund's
shareholders.
The Fund may invest more than 25% of its assets in municipal obligations within
a particular segment of the bond market, such as hospital revenue bonds or
airport bonds. The Fund may also invest more than 25% of its assets in
industrial development bonds, which may be backed only by nongovernmental
entities. The Fund will not invest more than 25% of its assets in securities
backed by nongovernmental entities that are in the same industry.
The Fund may invest in the following types of Florida municipal obligations and
other municipal obligations:
o Tax-exempt bonds, including general obligation bonds, revenue bonds
and industrial development bonds
o Tax-exempt notes
o Tax-exempt commercial paper
o Floating and variable rate municipal obligations
o When-issued obligations
o Obligations with puts attached
To comply with SEC rules pertaining to money market funds, the Fund will limit
its investments as follows:
o The Fund will invest in securities rated in one of the two highest
rating categories by a rating agency.
o The Fund may purchase unrated securities only if the portfolio manager
determines the securities meet the Fund's quality standards.
28
<PAGE>
o The Fund will only invest in securities that mature in 13 months or
less.
o The dollar-weighted average maturity of its portfolio will be 90 days
or less.
THE KEY RISKS
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC, the U.S. Treasury or any other government entity. Although the Fund
is a money market fund and seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund. The
Fund's yield may decrease:
o If interest rates go down
o Because issuers may be unable to make timely payments of interest or
principal
o If the Internal Revenue Code is amended so that fewer municipal
obligations qualify for federal income tax exemption
o If the Fund's investments are concentrated in a particular segment of
the bond market and adverse economic developments affecting one bond
affect other bonds in the same segment
o If economic conditions within the State of Florida decline.
You can find more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading "Investment
Strategies And Risks" later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you take a relively low risk approach
to investing and you are a Florida resident looking for an investment which
offers income exempt from both federal tax and the Florida intangible personal
tax. Safety of your investment and the receipt of tax-exempt income are of key
importance to you. Additionally, you are willing to accept potentially lower
returns in order to maintain a lower, more tolerable level of risk and receive
the benefits of tax-exempt income. This Fund's approach may be most appropriate
for you if you are nearing retirement, or if you have a longer time horizon, but
nevertheless, have a lower risk tolerance. This Fund is also appropriate for you
if you are looking for an investment which maintains a constant share price and
offers the added convenience of writing checks directly from your account.
29
<PAGE>
THE FUND'S PERFORMANCE
The following bar chart indicates the risks of investing in the Florida Tax-Free
Money Fund. It shows changes in the performance of the Fund's shares from year
to year since the Fund started.
The Fund's past performance does not necessarily indicate how it will perform in
the future.
FLORIDA TAX-FREE MONEY FUND PERFORMANCE
YEARS TOTAL RETURN
1993 2.24%
1994 2.40%
1995 3.56%
1996 2.98%
1997 3.00%
1998 2.94%
1999 __.__%
During the period shown in the bar chart, the highest quarterly return was
__.__% (for the quarter ended ___________, 19__) and the lowest quarterly
return was __.__% (for the quarter ended ____________, 19__).
The year-to-date total return of the Fund's shares as of March 31, 2000 is
__.__%.
For information on the Funds' current and effective 7-day yield, call
800.543.0407 (nationwide) or 629.2050 (in Cincinnati).
The following table shows the Fund's average annual returns for the periods
shown.
FOR THE PERIODS ENDED DECEMBER 31, 1999
Since
Past 12 Past 5 Fund
Months Years Started*
Florida Tax-Free Money Fund - _____% _____% _____%
- --------------------------------------------------------------------------------
* The Fund began selling shares on November 13, 1992.
30
<PAGE>
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None
- --------------------------------------------------------------------------------
Redemption Fee *
- --------------------------------------------------------------------------------
Exchange Fee None
- --------------------------------------------------------------------------------
Check Redemption Processing Fee
- --------------------------------------------------------------------------------
First six checks per month None
- --------------------------------------------------------------------------------
Additional checks per month $0.25
- --------------------------------------------------------------------------------
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.22%
- --------------------------------------------------------------------------------
Other Expenses 0.26%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses1 0.98%
- --------------------------------------------------------------------------------
* You will be charged $8 for each wire redemption. This fee is subject
to change.
1 After reimbursement by the investment advisor, total Fund operating
expenses were 0.75% for the fiscal year ended June 30, 1999. The
investment advisor may discontinue the reimbursement at any time.
The following example should help you compare the cost of investing in the
Florida Tax-Free Money Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year $100
------------------------------
3 Years $312
------------------------------
5 Years $542
------------------------------
10 Years $1,201
------------------------------
31
<PAGE>
INVESTMENT STRATEGIES AND RISKS
- -------------------------------
CAN A FUND DEPART FROM ITS NORMAL STRATEGIES?
Each Fund may depart from its investment strategies by taking temporary
defensive positions in response to adverse market, economic or political
conditions. During these times, a Fund may not achieve its investment goals.
CAN A FUND CHANGE ITS INVESTMENT GOAL?
Each of the Tax-Free Intermediate Term Fund, the Ohio Insured Tax-Free Fund and
the Ohio Tax-Free Money Fund may change its investment goal(s) by a vote of the
Board of Trustees, without shareholder approval. You would be notified at least
30 days before any such change took effect.
THE FUNDS AT A GLANCE.
The following two tables can give you a quick basic understanding of the types
of securities a Fund tends to invest in and some of the risks associated with a
Fund's investments. You should read all of the information about a Fund and its
risks before deciding to invest.
HOW CAN I TELL, AT A GLANCE, WHICH TYPES OF SECURITIES A FUND MIGHT INVEST IN?
The following table shows the main types of securities in which each Fund
generally will invest. Some of the Funds' investments are described in detail
below.
32
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
OHIO OHIO CALIFORNIA FLORIDA
TAX-FREE TAX-FREE INSURED TAX-FREE TAX-FREE TAX-FREE
MONEY INTERMEDIATE TAX-FREE MONEY MONEY MONEY
FUND TERM FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
- ---------------------
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Invests primarily in * * * * * *
Municipal Obligations
- ---------------------------------------------------------------------------------------------
Invests in money market * * * *
instruments
- ---------------------------------------------------------------------------------------------
Invests primarily in
investment grade debt * * * * * *
securities
- ---------------------------------------------------------------------------------------------
Invests in floating and
variable rate municipal * * * * * *
obligations
- ---------------------------------------------------------------------------------------------
Invests in when-issued * * * * * *
obligations
- ---------------------------------------------------------------------------------------------
Invests in obligations * * * * * *
with puts attached
- ---------------------------------------------------------------------------------------------
Invests in lease * *
obligations
- ---------------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES
- ---------------------
- ---------------------------------------------------------------------------------------------
Emphasizes federal * * * * * *
tax-exempt income
- ---------------------------------------------------------------------------------------------
Emphasizes state * * * *
tax-exempt income
- ---------------------------------------------------------------------------------------------
Emphasizes insured *
municipal obligations
- ---------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
MUNICIPAL OBLIGATIONS are debt securities issued by states and their political
subdivisions, agencies, authorities and instrumentalities to finance public
works facilities, to pay general operating expenses or to refinance outstanding
debt. Municipal obligations may also be issued to finance various private
activities for the construction of housing, educational or medical facilities or
the financing of privately owned or operated facilities. The two principal types
ofn municipal obligations are general obligation bonds and revenue bonds,
including industrial revenue bonds. General obligation bonds are backed by the
issuer's full faith and credit and taxing power. Revenue bonds are backed by the
revenues of a specific project, facility or tax. Industrial revenue bonds are
backed by the credit of a private user of the facility. Municipal obligations
pay interest that is, in the opinion of bond counsel to the issuer, exempt from
federal income tax, including the alternative minimum tax.
o Ohio Municipal Obligations are issued by the State of Ohio and its
political subdivisions, agencies, authorities and instrumentalities.
They pay interest that is, in the opinion of bond counsel to the
issuer, exempt from both federal income tax and Ohio personal income
tax.
o California Municipal Obligations are issued by the State of California
and its political subdivisions, agencies, authorities and
instrumentalities. They pay interest that is,
33
<PAGE>
in the opinion of bond counsel to the issuer, exempt from both federal
income tax and California income tax.
o Florida Municipal Obligations are issued by the State of Florida and
its political subdivisions, agencies, authorities and
instrumentalities. They pay interest that is, in the opinion of bond
counsel to the issuer, exempt from both federal income tax and the
Florida intangible personal property tax.
FLOATING AND VARIABLE RATE MUNICIPAL OBLIGATIONS are municipal obligations with
interest rates that are adjusted when a specific interest rate index changes
(floating rate obligations) or on a schedule (variable rate obligations).
Although there may not be an active secondary market for a particular floating
or variable rate obligation, these obligations usually have demand features
which permit a Fund to demand payment in full of the principal and interest.
Obligations with demand features are often secured by letters of credit issued
by a bank or other financial institution. A letter of credit may reduce the risk
that an entity will not be able to meet the Fund's demand for repayment of
principal and interest.
WHEN-ISSUED OBLIGATIONS are municipal obligations which are paid for and
delivered within 15 to 45 days after the date of purchase. A Fund investing in
when-issueds obligations will maintain a segregated account of cash or liquid
securities to pay for its when-issued obligations and this account will be
valued daily in order to account for market fluctuations in the value of its
when-issued obligations.
OBLIGATIONS WITH PUTS ATTACHED are municipal obligations which may be resold
back to the seller at a specific price or yield within a specific period of
time. A Fund will purchase obligations with puts attached for liquidity purposes
and may pay a higher price for obligations with puts attached 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.
LEASE OBLIGATIONS are municipal obligations which constitute participations in
lease obligations of municipalities to acquire land and a wide variety of
equipment and facilities. While a lease obligation is not a general obligation
of the municipality that has pledged its taxing power, a lease obligation is
ordinarily backed by the municipality's promise to budget for, appropriate for
and make payments due under the obligation. Some lease obligations may contain
specific clauses providing that the municipality has no obligations to make
lease or installment purchase payments in future years unless money is
appropriated for such purpose on an annual basis.
INSURED MUNICIPAL OBLIGATIONS are municipal obligations which require an insurer
to make payments of principal and interest, when due, if the issuer defaults on
its payments. The obligations purchased by the Ohio Insured Tax-Free Fund will
be insured either through an insurance policy purchased by the issuer of the
obligation or through an insurance policy purchased by the Fund.
34
<PAGE>
HOW CAN I TELL, AT A GLANCE, A FUND'S KEY RISKS?
The following table shows some of the main risks to which each Fund is subject.
Each risk is described in detail below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
OHIO OHIO CALIFORNIA FLORIDA
TAX-FREE TAX-FREE INSURED TAX-FREE TAX-FREE TAX-FREE
MONEY INTERMEDIATE TAX-FREE MONEY MONEY MONEY
FUND TERM FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CREDIT RISK * * * * * *
- -----------
- ---------------------------------------------------------------------------------------------
INTEREST RATE RISK * * * * * *
- ------------------
- ---------------------------------------------------------------------------------------------
NON-DIVERSIFICATION RISK * * * *
- ------------------------
- ---------------------------------------------------------------------------------------------
CONCENTRATION RISK * * * * * *
- ------------------
- ---------------------------------------------------------------------------------------------
TAX RISK * * * * * *
- --------
- ---------------------------------------------------------------------------------------------
</TABLE>
RISKS OF INVESTING IN THE FUNDS
CREDIT RISK. The securities in a Fund's portfolio are subject to the possibility
that a deterioration in the financial condition of an issuer, or a deterioration
in general economic conditions could cause an issuer to fail to make timely
payments of principal or interest, when due. Also, some municipal obligations
may be backed by a letter of credit issued by a bank or other financial
institution. Adverse developments affecting banks could have a negative effect
on the value of a Fund's portfolio securities.
INTEREST RATE RISK. Each of the Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund is subject to the risk that the market value of its
portfolio securities will decline because of rising interest rates. The prices
of debt securities are generally linked to the prevailing market interest rates.
In general, when interest rates rise, the prices of debt securities fall, and
when interest rates fall, the prices of debt securities rise. The price
volatility of a debt security also depends on its maturity. Generally, the
longer the maturity of a debt security, the greater its sensitivity to changes
in interest rates. To compensate investors for this higher risk, debt securities
with longer maturities generally offer higher yields than debt securities with
shorter maturities.
The yield of the Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the
California Tax-Free Money Fund and the Florida Tax-Free Money Fund will vary
from day to day due to changes in interest rates. Generally, each Fund's yield
will increase when interest rates increase and will decrease when interest rates
decrease.
NON-DIVERSIFICATION RISK. A non-diversified Fund may invests more than 5% of its
assets in the securities of a single issuer. This may cause the value of the
Fund's shares to be more sensitive to any single economic, business, political
or regulatory occurrence than the value of shares in a diversified fund.
CONCENTRATION RISK. A Fund that invests a significant portion of its total
assets (more than 25%) in the securities of a particular bond market segment
(e.g., housing agency bonds or airport bonds) or in the securities of a
particular state is subject to the risk that adverse circumstances
35
<PAGE>
will have a greater impact on the Fund than a fund that does not concentrate its
investments. It is possible that economic, business or political developments or
other changes affecting one security in the area of concentration will affect
other securities in that area of concentration in the same manner, thereby
increasing the risk of such investments.
o Ohio Municipal Obligations. Economic and political conditions in the
state of Ohio may impact the value of Ohio Municipal Obligations. The
economy of Ohio, once concentrated in manufacturing, has diversified
since the 1980s. The state has brought its employment mix more in line
with the national average, although manufacturing is still above the
national average, at 19.8% in 1998, versus 15.3% for the nation.
Statewide employment levels continue to increase, with total
employment in 1998 up 1% over the prior year. At the end of the 1998
fiscal year the state had a general revenue fund balance of $2.6
billion. The state's 2000-2001 budget will address funding for primary
and secondary education in response to a 1998 decision by the Ohio
Supreme Court declaring the current system of school funding
unconstitutional. The Ohio Supreme Court's decision poses challenges
to the state to balance education funding with competing state
spending requirements, while maintaining its strong financial
position. Although no issuers of Ohio Municipal Obligations are
currently in default on their payments of principal and interest, a
default could adversely impact the market values and marketability of
all Ohio Municipal Obligations.
o California Municipal Obligations. Economic and political conditions in
the state of California may impact the value of California Municipal
Obligations. California has a broad-based economy, with manufacturing
representing just 15% of state employment, services representing 31%
and trade 23%. Although the nationwide recession of the early 1990s
severely affected several key industries, such as defense, aerospace
and high technology, gains in the export, entertainment, tourism and
computer sectors have helped drive the recent recovery. This has led
to improved state finances and has eliminated the need to borrow
externally across fiscal years for cash flow purposes. However, the
state's future budgets will be challenged by school enrollment growth
and Proposition 98 mandated school funding levels, prison funding
required by new mandatory sentencing laws, social service needs and a
two-thirds legislative requirement for budget passage. Although no
issuers of California municipal obligations are currently in default
on their payments of interest and principal, a default could adversely
impact the market values and marketability of all California Municipal
Obligations.
o Florida Municipal Obligations. Economic and political conditions in
the state of Florida may impact the value of Florida Municipal
Obligations. Florida has a services-based economy that continues to
diversify and grow at a steady pace. Florida does not have a tax on
personal income but has an ad valorem tax on intangible personal
property as well as sales and use taxes. These taxes are the principal
source of funds to meet state expenses, including the repayment of its
debt obligations. As a result, the state has a relatively narrow tax
base with 71% of its revenues derived from the 6% sales and use tax.
The state's incomes structure depends more on property income
(dividends, income and rent) and transfer payments (social security
and pension benefits) due to the significant retirement age
population. Despite this reliance on a cyclical revenue source,
Florida has managed its overall financial program well. The
36
<PAGE>
state has generated operating surpluses in recent years while
maintaining tax levels and funding growth-related service
requirements. Florida's future budgets will be challenged by the
passage of a constitutional amendment obligating the state to make
ample provision for high-quality education for all children, limits on
state sales tax growth due to the rapid expansion of Internet
commerce, and the effect of international economic uncertainty on the
state's exports and tourism business. Although no issuers of Florida
Municipal Obligations are currently in default on their payments of
principal and interest, a default could adversely impact the market
values and marketability of all Florida Municipal Obligations
TAX RISK. Certain provisions of the Internal Revenue Code relating to the
issuance of municipal obligations may reduce the volume of municipal securities
that qualify for federal tax exemptions. 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 became law, it may reduce the
number of municipal obligations available for purchase by a Fund and could
adversely affect the Fund's shareholders. If this occurs, the Fund would
reevaluate its investment goals and strategies and may submit possible changes
in its structure to shareholders.
THE FUNDS' MANAGEMENT
- ---------------------
INVESTMENT ADVISOR
Touchstone Advisors, Inc. (the "Advisor" or "Touchstone Advisors") located at
311 Pike Street, Cincinnati, Ohio 45202, is the investment advisor for the
Funds.
Touchstone Advisors has been registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the Advisers Act) since 1994. As of
December 31, 1999, Touchstone Advisors had approximately $_____ billion in
assets under management.
Touchstone Advisors is responsible for selecting Fund Sub-Advisors, subject to
review by the Board of Trustees. Touchstone Advisors selects a Fund Sub-Advisor
that has shown good investment performance in its areas of expertise. Touchstone
Advisors considers various factors in evaluating Fund Sub-Advisors, including:
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over five years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone Advisors will also continually monitor each Fund Sub-Advisor's
performance through various analyses and through in-person, telephone and
written consultations with the Fund Sub-Advisors.
Touchstone Advisors discusses its expectations for performance with each Fund
Sub-Advisor. Touchstone Advisors provides written evaluations and
recommendations to the Board of
37
<PAGE>
Trustees, including whether or not each Fund's Sub-Advisor contract should be
renewed, modified or terminated.
Touchstone Advisors is also responsible for running all of the operations of the
Funds, except for those that are subcontracted to the Fund Sub-Advisors,
custodian, transfer agent and administrator.
Two or more Fund Sub-Advisors may manage a Fund, with each managing a portion of
the Fund's assets. If a Fund has more than one Fund Sub-Advisor, Touchstone
Advisors allocates how much of a Fund's assets are managed by each Sub-Advisor.
Touchstone Advisors may change these allocations from time to time, often based
upon the results of the evaluations of the Fund Sub-Advisors.
Each Fund pays Touchstone Advisors a fee for its services. Out of this fee
Touchstone Advisors pays the Fund's Sub-Advisor a fee for its services.
The fee paid to Touchstone Advisors by each Fund is described in the following
table:
Fee to Advisor
(as % of average daily net assets)
Each Fund of the Trust 0.50% of assets up to $100 million
0.45% of assets from $100 million to $200 million
0.40% of assets from $200 million to $300 million
0.375% of assets over $300 million
- --------------------------------------------------------------------------------
FUND SUB-ADVISOR
Fort Washington Investment Advisors, Inc. is the Fund Sub-Advisor. The Fund
Sub-Advisor makes the day-to-day decisions regarding buying and selling specific
securities for each Fund. The Fund Sub-Advisor manages the investments held by
the Funds according to the applicable investment goals and strategies.
SUB-ADVISOR TO THE FUNDS
FORT WASHINGTON INVESTMENT ADVISORS, INC. (FORT WASHINGTON)
420 East Fourth Street, Cincinnati, OH 45202
Fort Washington has been registered as an investment advisor under the Advisers
Act since 1990. Fort Washington provides investment advisory services to
individual and institutional clients. As of December 31, 1999, Fort Washington
had assets under management of $_____ billion. Fort Washington, has been
managing each Fund since May 1, 2000.
John J. Goetz is primarily responsible for managing the portfolio of each Fund
and has been managing each Fund's portfolio since October 1986. Mr. Goetz joined
Fort Washington in May 2000 and is _____________. He was employed by Trust's
previous investment advisor from 1981 until April 2000.
38
<PAGE>
Fort Washington is an affiliate of Touchstone Advisors. Therefore, Touchstone
Advisors may have a conflict of interest when making decisions to keep Fort
Washington as the Fund Sub-Advisor. The Board of Trustees reviews all of
Touchstone Advisor's decisions to reduce the possibility of a conflict of
interest situation.
INVESTING WITH TOUCHSTONE
- -------------------------
CHOOSING THE APPROPRIATE INVESTMENTS TO MATCH YOUR GOALS. Investing well
requires a plan. We recommend that you meet with your financial advisor to plan
a strategy that will best meet your financial goals.
OPENING AN ACCOUNT
You can contact your financial advisor to purchase shares of the Funds. You may
also purchase shares of any Fund directly from Touchstone Securities, Inc. (the
"Distributor"). In any event, you must complete the Investment Application
included in this Prospectus. You may also obtain an Investment Application from
the Distributor or your financial advisor.
o Investor Alert: The Distributor may choose to refuse any purchase
order.
You should read this Prospectus carefully and then determine how much you want
to invest. Check below to find the minimum investment amount required to
purchase shares as well as to learn about the various ways you can purchase your
shares
CLASS A SHARES INSTITUTIONAL SHARES
CLASS C SHARES (CLASS B)
Initial Additional Initial Additional
Investment Investment Investment Investment
Regular Account $1,000 None $1,000,000 None
- ---------------
Retirement Plan Account or $250 None N/A N/A
- ---------------------------
Custodial account under a
- -------------------------
Uniform Gifts/Transfers to
- --------------------------
Minors Act ("UGTMA)"
- --------------------
Investments through the $50 $50 N/A N/A
- ------------------------
Automatic Investment Plan
- -------------------------
o Investor Alert: The Distributor could change these initial and
additional investment minimums at any time.
PRICING OF FUND SHARES
The share price, also called net asset value (NAV) of each of the Money Market
Funds is determined as of 12:00 noon and 4:00 p.m., Eastern time. The offering
price (NAV plus a sales charge, if applicable) of the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free Fund, is determined as of the close of
trading (normally 4:00 p.m. Eastern time) every day the New York Stock Exchange
(NYSE) is open. Each Fund calculates its NAV per share, generally
39
<PAGE>
using market prices, by dividing the total value of its net assets by the number
of shares outstanding. Shares are purchased at NAV (or the next offering price)
determined after your purchase or sale order is received in proper form by
Intrust Fund Solutions, Inc. (the "Transfer Agent").
Each of the Money Market Funds seek to maintain a constant share price of $1.00
per share by valuing investments on an amortized cost basis. Under the amortized
cost method of valuation, each Money Market Fund maintains a dollar-weighted
average portfolio maturity of 90 days or less, purchases only United States
dollar-denominated securities with maturities of thirteen months or less and
invests only in securities which meet its quality standards and present minimal
credit risks. Each Money Market Fund's obligations are valued at original cost
adjusted for amortization of premium or accumulation of discount, rather than at
market value. This method should enable each Money Market Fund to maintain a
stable net asset value per share. However, there is no assurance that any Money
Market Fund will be able to do so.
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund's
tax-exempt assets are valued by an outside independent pricing service. The
service uses a computerized grid matrix of tax-exempt securities and evaluations
by its staff to determine the fair value of the securities. If the Sub-Advisor
believes that 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 makers' opinion of the price a willing
buyer would pay for the security. All other securities (and other assets) of the
Funds for which market quotations are not available will be determined in good
faith using procedures established by the Board of Trustees.
CHOOSING A CLASS OF SHARES (TAX-FREE INTERMEDIATE TERM FUND, OHIO INSURED
TAX-FREE FUND AND OHIO TAX-FREE MONEY FUND)
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund each
offer Class A and Class C shares. The Ohio Tax-Free Money Fund offers Retail
(Class A) and Institutional (Class B) shares. Each class of shares has different
sales charges and distribution fees. The amount of sales charges and
distribution fees you pay will depend on which class of shares you decide to
purchase.
CLASS A (RETAIL) SHARES
The offering price of Class A shares of each Fund is equal to its NAV plus a
front-end sales charge that you pay when you buy your shares. The front-end
sales charge is generally deducted from the amount of your investment.
The following table shows the amount of front-end sales charge you will pay on
purchases of Class A shares for accounts opened after July 31, 1999. Accounts
opened before July 31, 1999 are subject to different sales charges. These sales
charges are shown in the Statement of Additional Information ("SAI"). The amount
of front-end sales charge in the following table is shown as a percentage of (1)
offering price and (2) the net amount invested after the charge has been
subtracted. Note that the front-end sales charge gets lower as your investment
amount gets larger.
40
<PAGE>
Sales Charge Sales Charge
as % of as % of
Amount of Your Investment Offering Price Net Amount Invested
------------------------- -------------- -------------------
Under $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.50% 4.72%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.31%
$1 million or more 0.00% 0.00%
There is no front-end sales charge if you invest $1 million or more in a Fund.
This includes large total purchases made through programs such as Aggregation,
Concurrent Purchases, Letters of Intent and Rights of Accumulation. These
programs are described more fully in the SAI.
In addition, there is no front-end sales charge on purchases by certain persons
previously related to the Funds or its service providers and certain other
persons listed in the SAI. At the option of the Trust, the front-end sales
charge may be included on purchases by such persons in the future.
If you redeem shares that you purchased as part of the $1 million purchase
within one year, you will pay a contingent deferred sales charge (a sales charge
you pay when you redeem your shares) of 1% on the shares redeemed.
Each of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
has adopted a distribution plan under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act") for its Class A shares. This plan allows
each Fund to pay distribution fees for the sale and distribution of its Class A
shares. Under the plan, each Fund pays an annual fee of up to 0.25% of its
average daily net assets that are attributable to Class A shares. Because these
fees are paid out of a Fund's assets on an ongoing basis, these fees will
increase the cost of your investment.
EACH OF THE MONEY MARKET FUNDS HAS ADOPTED A DISTRIBUTION PLAN UNDER RULE 12B-1
OF THE 1940 ACT FOR ITS SHARES. The Ohio Tax-Free Money Fund's plan is for its
Retail shares only. This plan allows each Money Market Fund to pay an annual fee
of up to 0.25% of its average daily net assets for the sale and distribution of
shares. Because these fees are paid out of a Fund's assets on an ongoing basis,
these fees will increase the cost of your investment.
CLASS B (INSTITUTIONAL) SHARES
The minimum initial investment in Institutional shares of the Ohio Tax-Free
Money Fund ordinarily is $1 million. Institutional shares are not subject to
distribution fees under a distribution plan under Rule 12b-1 of the 1940 Act.
CLASS C SHARES
The offering price of Class C shares of each of the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free Fund is equal to its NAV plus a 1.25%
front-end sales charge that you
41
<PAGE>
pay when you buy your shares. The front-end sales charge is generally deducted
from the amount of your investment. A contingent deferred sales charge of 1% of
the offering price will be charged on Class C shares redeemed within one year
after you purchased them.
No contingent deferred sales charge is applied if:
o The shares which you redeem were acquired through the reinvestment of
dividends or capital gains distributions
o The amount redeemed resulted from increases in the value of the
account above the amount of the total purchase payments
When we determine whether a contingent deferred sales charge is payable on a
redemption, we assume that:
o The redemption is made first from amounts free of any contingent
deferred sales charge; then
o From the earliest purchase payment(s) that remain invested in the Fund
When we determine if amounts are available for redemption free of any contingent
deferred sales charge, we:
o Add together all of your original purchase payments
o Subtract any amounts previously withdrawn
o Check if there is any remaining amount free of any contingent deferred
sales charge that can be applied to the total of the current value of
the shares you have asked to redeem
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund have
adopted a distribution plan under Rule 12b-1 of the 1940 Act for its Class C
shares. This plan allows each Fund to pay distribution and other fees for the
sale and distribution of its Class C shares and for services provided to holders
of Class C shares. Under the plan, each Fund pays an annual fee of up to 1.00%
of its average daily net assets that are attributable to Class C shares. Because
these fees are paid out of the Funds' assets on an ongoing basis, these fees
will increase the cost of your investment and over time may cost you more than
paying other types of sales charges.
PURCHASING YOUR SHARES
For information about how to purchase shares, telephone the Transfer Agent
(Nationwide call toll-free 800-543-0407; in Cincinnati call 629-2050).
42
<PAGE>
You can invest in the Funds in the following ways:
OPENING AN ACCOUNT
o Please make your check (in U.S. dollars) payable to the
applicable Fund.
o Send your check with the completed account application to Intrust
Fund Solutions, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354
Your application will be processed subject to your check
clearing.
o You may also open an account through your financial advisor.
o We price direct purchases in the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund based upon the next determined
public offering price (NAV plus any applicable sales load) after
your order is received. Direct purchase orders received by the
Transfer Agent by 4:00 p.m., Eastern time, are processed at that
day's public offering price. Direct investments received by the
Transfer Agent after 4:00 p.m., Eastern time, are processed at
the public offering price next determined on the following
business day. Purchase orders received from financial advisors
before 4:00 p.m., Eastern time, and transmitted to the
Distributor by 5:00 p.m., Eastern time, are processed at that
day's public offering price. Purchase orders received from
financial advisors after 5:00 p.m., Eastern time, are processed
at the public offering price next determined on the following
business day.
o You may receive a dividend in each of the Money Market Funds on
the day you wire an investment if you notify the Transfer Agent
of your wire by 12:00 noon, Eastern time, on that day. Your
purchase will be priced based upon the NAV after a proper order
is received.
BY MAIL OR
THROUGH YOUR
FINANCIAL ADVISOR
- --------------------------------------------------------------------------------
o You may exchange shares of the Funds for shares of the same class
of another Touchstone Fund at NAV. You may also exchange shares
of the Funds for shares of any money market fund.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in the Prospectus
relating to the exchanged-for shares carefully before making an
exchange of your Fund shares.
BY EXCHANGE
- --------------------------------------------------------------------------------
43
<PAGE>
ADDING TO YOUR ACCOUNT
o Complete the investment form provided at the bottom of a recent
account statement.
o Make your check payable to the applicable Fund.
o Write your account number and asset allocation model number, if
applicable, on the check.
o Either: (1) Mail the check with the investment form in the
envelope provided with your account statement; or (2) Mail your
check directly to your financial advisor at the address printed
on your account statement. Your financial advisor is responsible
for forwarding payment promptly to the Distributor.
BY CHECK
- --------------------------------------------------------------------------------
o Specify your name and account number. If the Transfer Agent
receives a properly executed wire by 4:00 p.m. Eastern time on a
day when the NYSE is open for regular trading, your order will be
processed at that day's NAV or public offering price.
BY WIRE
- --------------------------------------------------------------------------------
o You may exchange your shares by calling the Transfer Agent.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in the Prospectus
relating to the exchanged-for shares carefully before making an
exchange of your Fund shares.
BY EXCHANGE
- --------------------------------------------------------------------------------
INFORMATION ABOUT WIRE TRANSFERS.
You may make additional purchases in the Funds directly by wire transfers.
Contact your bank and ask it to wire federal funds to the Transfer Agent. Banks
may charge a fee for handling wire transfers. You should contact the Transfer
Agent or your financial advisor for further instructions.
ooo Special Tax Consideration
- --------------------------------------------------------------------------------
For federal income tax purposes, an exchange of shares is treated as a sale of
the shares and a purchase of the shares you receive in exchange. Therefore, you
may incur a taxable gain or loss in connection with the exchange.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OPTIONS
The various ways that you can invest in the Funds are outlined below. The
Transfer Agent does not charge any fees for these services.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments of $50 or
more in each Fund to be processed electronically from a checking or savings
account. You will need to
44
<PAGE>
complete the appropriate section in the Investment Application to do this. For
further details about this service call the Transfer Agent at 1-800-543-0407; in
Cincinnati, 629-2050.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be
automatically reinvested in the Fund that pays them or in another Fund within
the same class of shares without a fee or sales charge. Dividends and capital
gains will be reinvested in the Fund that pays them, unless you indicate
otherwise on your account application. You may also choose to have your
dividends or capital gains paid to you in cash.
DIRECT DEPOSIT PURCHASE Plan. You may automatically invest Social Security
checks, private payroll checks, pension pay outs or any other pre-authorized
government or private recurring payments in our Funds. This occurs on a monthly
basis and the minimum investment is $50.
DOLLAR COST AVERAGING. Our Dollar Cost Averaging program allows you to diversify
your investments by investing the same amount on a regular basis. You can set up
periodic automatic transfers of at least $50 from one Touchstone Fund to any
other. The applicable sales charge, if any, will be assessed.
CASH SWEEP PROGRAM (MONEY MARKET FUNDS ONLY). Cash accumulations in accounts
with financial institutions may be automatically invested in the Money Market
Funds at the next determined NAV on a day selected by the institution or
customer, or when the account balance reaches a predetermined dollar amount.
Institutions participating in this program are responsible for placing their
orders in a timely manner. You may be charged a fee by your financial
institution for participating in this program.
PROCESSING ORGANIZATIONS. You may also purchase shares of the Funds through a
"processing organization," (e.g. a mutual fund supermarket) which is a
broker-dealer, bank or other financial institution that purchases shares for its
customers. Some of the Funds have authorized certain processing organizations to
receive purchase and sales orders on their behalf. Before investing in the Funds
through a processing organization, you should read any materials provided by the
processing organization in conjunction with this Prospectus.
When shares are purchased this way, there may be various differences. The
processing organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the
Funds' behalf
The Transfer Agent considers a purchase or sales order as received when an
authorized processing organization, or its authorized designee, receives the
order in proper form. These orders will be priced based on the Fund's NAV next
computed after such order is received in proper form.
45
<PAGE>
Shares held through a processing organization may be transferred into your name
following procedures established by your processing organization and the
Transfer Agent. Certain processing organizations may receive compensation from
the Funds, the Distributor, the Advisor or their affiliates.
SELLING YOUR SHARES
You may sell some or all of your Fund shares on any day that the Fund calculates
its NAV. If your request is received in proper form before the close of regular
trading on the NYSE, you will receive a price based on that day's NAV for the
shares you sell. Otherwise, the price you receive will be based on the NAV that
is next calculated.
o You can sell or exchange your shares over the telephone, unless
you have specifically declined this option. If you do not wish to
have this ability, you must mark the appropriate section of the
Investment Application. You may only sell shares over the
telephone if the amount is less than $25,000.
o To sell your Fund shares by telephone, call the Transfer Agent,
Nationwide at 800-543-0407; in Cincinnati, 629-2050.
BY TELEPHONE
- --------------------------------------------------------------------------------
o Write to the Transfer Agent.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your Investment
Application
BY MAIL
- --------------------------------------------------------------------------------
o Complete the appropriate information on the Investment
Application.
o If your proceeds are $1,000 or more, you may request that the
Transfer Agent wire them to your bank account.
o You will be charged a fee of $8.00. (Institutional Shares are not
charged a fee.)
o Redemption proceeds will only be wired to a commercial bank or
brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge
directly into your bank account through an ACH transaction.
Contact the Transfer Agent for more information.
BY WIRE
- --------------------------------------------------------------------------------
46
<PAGE>
o You may open a checking account in any Fund (except the Ohio
Insured Tax-Free Fund) and redeem shares by check.
o Checks will be processed at the NAV the day the check is
presented to the Custodian for payment.
o If the amount of your check is more than the value of the shares
held in your account, you will be charged for each check returned
for insufficient funds.
o If you do not write more than 6 checks per month, there is no fee
for your checking account. If you write more than 6 checks a
month, you will be charged 25(cent) for each additional check
written that month.
o There is no charge for checks written by certain persons related
to the Funds or its service providers and certain other persons
listed in the SAI.
o Shareholders in the Tax-Free Intermediate Term Fund should be
aware that the Fund's NAV fluctuates daily and that writing a
check is a taxable event.
o Checks may not be certified.
o If you invest in a Fund through a cash sweep program with a
financial institution, you may not open a checking account.
BY CHECK
- --------------------------------------------------------------------------------
o You may also sell shares by contacting your financial advisor,
who may charge you a fee for this service. Shares held in street
name must be sold through your financial advisor or, if
applicable, the processing organization.
o Your financial advisor is responsible for making sure that sale
requests are transmitted to the Transfer Agent in proper form in
a timely manner.
THROUGH
YOUR FINANCIAL
ADVISOR
- --------------------------------------------------------------------------------
ooo Special Tax Consideration
- --------------------------------------------------------------------------------
Selling your shares in the Tax-Free Intermediate Term Fund or the Ohio Insured
Tax-Free Fund may cause you to incur a taxable gain or loss.
o Investor Alert: Unless otherwise specified, proceeds will be sent to
the record owner at the address shown on the Transfer Agent's records.
SIGNATURE GUARANTEES. Some circumstances require that the request for the sale
of shares have a signature guarantee. A signature guarantee helps protect you
against fraud. You can obtain one from most banks or securities dealers, but not
from a notary public. Some circumstances requiring a signature guarantee
include:
o Proceeds from the sale of shares that exceed $25,000
47
<PAGE>
o Proceeds to be paid when the name or the address on the account has
been changed within 30 days of your sale request.
TELEPHONE SALES. If we receive your share sale request before 4:00 p.m., Eastern
time on a day when the NYSE is open for regular trading, the sale of your shares
will be processed at the next determined NAV on that day. Otherwise it will
occur on the next business day.
Interruptions in telephone service could prevent you from selling your shares in
this manner when you want to. When you have difficulty making telephone sales,
you should mail (or send by overnight delivery) a written request for sale of
your shares to the Transfer Agent.
In order to protect your investment assets, the Transfer Agent will only follow
instructions received by telephone that it reasonably believes to be genuine.
However, there is no guarantee that the instructions relied upon will always be
genuine and the Trust will not be liable, in those cases. The Trust has certain
procedures to confirm that telephone instructions are genuine. If it does not
follow such procedures in a particular case it may be liable for any losses due
to unauthorized or fraudulent instructions. Some of these procedures include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on the
Trust's records
o Mailing checks only to the account address shown on the Trust's
records
o Directing wires only to the bank account shown on the Trust's records
o Providing written confirmation for transactions requested by telephone
o Tape recording instructions received by telephone
SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive or send to a third party
monthly or quarterly withdrawals of $50 or more if your account value is at
least $5,000. There is no special fee for this service.
ooo Special Tax Consideration
- --------------------------------------------------------------------------------
If you exercise the Reinstatement Privilege, you should contact your tax
advisor.
ooo Special Tax Consideration
- --------------------------------------------------------------------------------
Involuntary sales in the Tax-Free Intermediate Term Fund or Ohio Insured
Tax-Free Fund may result in the sale of your shares at a loss or may result in
taxable investment gains.
REINSTATEMENT PRIVILEGE. You may reinvest proceeds from a sale of shares of the
Tax-Free Intermediate Term Fund or the Ohio Insured Tax-Free Fund or a dividend
or capital gain distribution on these shares without a sales charge in any of
the Touchstone Funds. You may do so by sending a written request and a check to
the Transfer Agent within 90 days after the date of the sale, dividend or
distribution. Reinvestment will be at the next NAV calculated after the Transfer
Agent receives your request.
48
<PAGE>
LOW ACCOUNT BALANCES
The Transfer Agent may sell your Fund shares if your balance falls below the
minimum amount required for your account as a result of redemptions that you
have made (as opposed to a reduction from market changes). This involuntary sale
does not apply to custodian accounts under the Uniform Gift to Minors Act
(UGTMA). The Transfer Agent will let you know that your shares are about to be
sold and you will have 30 days to increase your account balance to the minimum
amount.
RECEIVING SALE PROCEEDS
Tax-Free Intermediate Term Fund and Ohio Insured Tax-Free Fund
The Transfer Agent will forward the proceeds of your sale of shares of the Funds
to you (or to your financial advisor) within 7 business days (normally within 3
business days) from the date of a proper request.
Money Market Funds
The Transfer Agent will forward the proceeds of your sale of shares of the Money
Market Funds to you (or to your financial adviser) within 3 business days
(normally within 3 business days after receipt of a proper written request and
within 1 business day after receipt of a proper telephone request). Redemptions
may be wired to you on the same day of your telephone request, if your request
is properly made before 12:00 noon, Eastern time.
PROCEEDS SENT TO FINANCIAL ADVISORS
Proceeds which are sent to your financial advisor will not usually be
re-invested for you unless you provide specific instructions to do so.
Therefore, the financial advisor may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK
If you purchase Fund shares by personal check, the proceeds of a sale of those
shares will not be sent to you until the check has cleared, which may take up to
15 days. If you may need your money more quickly, you should purchase shares by
federal funds, bank wire, or with a certified or cashier's check.
It is possible that the payments of your sale proceeds could be postponed or
your right to sell your shares could be suspended during certain circumstances.
These circumstances can occur:
o When the NYSE is closed for other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes the Sub-Advisor to not be
reasonably able to dispose of certain securities or to fairly
determine the value of its net assets
o During any other time when the SEC, by order, permits.
49
<PAGE>
DISTRIBUTIONS AND TAXES
- -----------------------
ooo Special Tax Consideration
- --------------------------------------------------------------------------------
You should consult with your tax advisor to address your own tax situation.
Each Fund intends to distribute to its shareholders substantially all of its
income and capital gains. The table below outlines when dividends are declared
and paid for each Fund:
Dividends Declared Dividends Paid
------------------ --------------
Tax-Free Money Fund Daily Monthly
Tax-Free Intermediate Term Fund Monthly Monthly
Ohio Insured Tax-Free Fund Monthly Monthly
Ohio Tax-Free Money Fund Daily Monthly
California Tax-Free Money Fund Daily Monthly
Florida Tax-Free Money Fund Daily Monthly
Distributions of any capital gains earned by a Fund will be made at least
annually.
50
<PAGE>
TAX INFORMATION
Each Fund intends to distribute substantially all of its net investment income
and any net realized capital gains to its shareholders. Each Fund 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.
DISTRIBUTIONS. Each Fund may invest a portion of its assets in obligations which
pay interest that is not exempt from federal income tax. Taxable distributions
from taxable interest may be subject to federal income tax whether you reinvest
your dividends in additional shares of a Fund or choose to receive cash. Since
each Fund's investment income is derived from interest rather than dividends, no
portion of these distributions is eligible for the dividends received deduction
available to corporations.
ORDINARY INCOME. Net investment income and short-term capital gains that are
distributed to you are taxable as ordinary income for federal income tax
purposes regardless of how long you have held your Fund shares.
CAPITAL GAINS. (Tax-Free Intermediate Term Fund and Ohio Insured Tax-Free Fund)
Net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) distributed to you are taxable as capital gains for
federal income tax purposes regardless of how long you have held your Fund
shares.
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax
status of your distributions. Your statement will give the percentage and source
of income earned on tax-exempt obligations held by the Funds during the
preceding year.
The Funds may not be appropriate investments for persons who are "substantial
users" of facilities financed by industrial development bonds or are "related
persons" to such users; such users should consult their tax advisors before
investing in the Funds.
SPECIAL TAX CONSIDERATIONS
o Ohio Insured Tax-Free Fund and Ohio Tax-Free Money Fund. Dividends
from each of the Ohio Insured Tax-Free Fund and the Ohio Tax-Free
Money Fund that are exempt from federal income tax are exempt from
Ohio personal income tax to the extent derived from interest on Ohio
Municipal Obligations. Distributions received from the Funds are
generally not subject to Ohio municipal income taxation. Dividends
from each of these Funds that are exempt from federal income tax are
excluded from the net income base of the Ohio corporation franchise
tax. However, shares of the Funds will be included in the computation
of the Ohio corporation franchise tax on the net worth basis.
o California Tax-Free Money Fund. The California Tax-Free Money Fund
expects that substantially all dividends paid by the Fund will not be
subject to California state income tax. However, the Fund may invest a
portion of its assets in obligation which pay interest that is not
exempt from federal income tax and/or California income tax.
51
<PAGE>
o Florida Tax-Free Money Fund. Florida does not impose an income tax on
individuals but does have a corporate income tax. For purposes of the
Florida income tax, corporate shareholders are generally subject to
tax on all distributions from the Fund. Florida imposes an intangible
personal property tax on shares of the Fund owned by a Florida
resident on January 1 of each year unless the shares qualify for an
exemption from that tax. Shares of the Fund owned by a Florida
resident will be exempt from the intangible personal property tax as
long as the portion of the Fund's portfolio not invested in direct
U.S. Government obligations is at least 90% invested in Florida
Municipal Obligations exempt from that tax. The Fund will attempt to
ensure that, on January 1 of each year, at least 90% of its portfolio
consists of Florida Municipal Obligations exempt from the Florida
intangible personal property tax.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of each Fund for the past five years or during the term of its
operation, whichever is shorter. Certain information reflects financial results
for a single Fund share. The total returns in the table represent the rate an
investor would have earned or lost on an investment in the Funds (assuming
reinvestment of all dividends and distributions). Prior to the fiscal year
ending June 30, 2000, this information had been audited by Arthur Andersen LLP
whose report, along with the Funds' financial statements and SAI, is available
upon request.
TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<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 0.027 0.030 0.029 0.031 0.030
--------------------------------------------------------------------------
Dividends from net investment income (0.027) (0.030) (0.029) (0.031) (0.030)
--------------------------------------------------------------------------
Net asset value at end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==========================================================================
Total return 2.75% 3.03% 2.89% 3.15% 3.07%
==========================================================================
Net assets at end of year (000's) $ 25,234 $ 37,383 $ 30,126 $ 25,342 $ 26,692
==========================================================================
Ratio of net expenses to average
net assets (A) 0.89% 0.92% 0.99% 0.99% 0.99%
Ratio of net investment income
to average net assets 2.74% 2.98% 2.85% 3.09% 3.00%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Absent fee waivers by the Adviser, the ratio of expenses to average
net assets would have been 0.95% for the year ended June 30, 1999.
53
<PAGE>
TAX-FREE INTERMEDIATE TERM FUND - CLASS A
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 11.12 $ 11.01 $ 10.85 $ 10.86 $ 10.69
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.48 0.50 0.50 0.50 0.49
Net realized and unrealized
gains (losses) on investments (0.25) 0.11 0.16 (0.01) 0.17
--------------------------------------------------------------------------
Total from investment operations 0.23 0.61 0.66 0.49 0.66
--------------------------------------------------------------------------
Dividends from net investment income (0.48) (0.50) (0.50) (0.50) (0.49)
--------------------------------------------------------------------------
Net asset value at end of year $ 10.87 $ 11.12 $ 11.01 $ 10.85 $ 10.86
==========================================================================
Total return (A) 2.07% 5.63% 6.19% 4.51% 6.36%
==========================================================================
Net assets at end of year (000's) $ 47,899 $ 52,896 $ 58,485 $ 67,675 $ 81,140
==========================================================================
Ratio of net expenses to average
net assets 0.99% 0.99% 0.99% 0.99% 0.99%
Ratio of net investment income
to average net assets 4.33% 4.50% 4.55% 4.52% 4.59%
Portfolio turnover rate 51% 36% 30% 37% 32%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
54
<PAGE>
TAX-FREE INTERMEDIATE TERM FUND - CLASS C
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 11.12 $ 11.01 $ 10.85 $ 10.86 $ 10.69
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40 0.42 0.43 0.44 0.44
Net realized and unrealized
gains (losses) on investments (0.24) 0.11 0.16 (0.01) 0.17
--------------------------------------------------------------------------
Total from investment operations 0.16 0.53 0.59 0.43 0.61
--------------------------------------------------------------------------
Dividends from net investment
income (0.40) (0.42) (0.43) (0.44) (0.44)
--------------------------------------------------------------------------
Net asset value at end of year $ 10.88 $ 11.12 $ 11.01 $ 10.85 $ 10.86
==========================================================================
Total return (A) 1.40% 4.85% 5.49% 4.00% 5.82%
==========================================================================
Net assets at end of year (000's) $ 4,634 $ 4,747 $ 5,161 $ 5,239 $ 4,814
==========================================================================
Ratio of net expenses to average
net assets 1.74% 1.74% 1.65% 1.49% 1.49%
Ratio of net investment income
to average net assets 3.58% 3.75% 3.89% 4.02% 4.08%
Portfolio turnover rate 51% 36% 30% 37% 32%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Total returns shown exclude the effect of applicable sales loads.
55
<PAGE>
OHIO INSURED TAX-FREE FUND - CLASS A
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 12.37 $ 12.22 $ 11.97 $ 11.99 $ 11.74
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.58 0.61 0.61 0.62 0.63
Net realized and unrealized
gains (losses) on
investments (0.34) 0.23 0.25 (0.02) 0.25
--------------------------------------------------------------------------
Total from investment operations 0.24 0.84 0.86 0.60 0.88
--------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.58) (0.61) (0.61) (0.62) (0.63)
Distributions from net
realized gains (0.29) (0.08) --.-- --.-- --.--
--------------------------------------------------------------------------
Total distributions (0.87) (0.69) (0.61) (0.62) (0.63)
--------------------------------------------------------------------------
Net asset value at end of year $ 11.74 $ 12.37 $ 12.22 $ 11.97 $ 11.99
==========================================================================
Total return (A) 1.81% 7.03% 7.36% 5.05% 7.75%
==========================================================================
Net assets at end of year (000's) $ 62,737 $ 69,289 $ 70,816 $ 75,938 $ 71,393
==========================================================================
Ratio of net expenses to average
net assets (B) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income
to average net assets 4.72% 4.95% 5.05% 5.12% 5.35%
Portfolio turnover rate 26% 41% 33% 46% 29%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Total returns shown exclude 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% for the
year ended June 30, 1995.
56
<PAGE>
OHIO INSURED TAX-FREE FUND - CLASS C
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 12.37 $ 12.22 $ 11.97 $ 12.00 $ 11.74
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.49 0.52 0.53 0.56 0.57
Net realized and unrealized
gains (losses) on investments (0.34) 0.23 0.25 (0.03) 0.26
--------------------------------------------------------------------------
Total from investment operations 0.15 0.75 0.78 0.53 0.83
--------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.49) (0.52) (0.53) (0.56) (0.57)
Distributions from net
realized gains (0.29) (0.08) --.-- --.-- --.--
--------------------------------------------------------------------------
Total distributions (0.78) (0.60) (0.53) (0.56) (0.57)
--------------------------------------------------------------------------
Net asset value at end of year $ 11.74 $ 12.37 $ 12.22 $ 11.97 $ 12.00
==========================================================================
Total return (A) 1.05% 6.24% 6.65% 4.44% 7.31%
==========================================================================
Net assets at end of year (000's) $ 4,740 $ 5,215 $ 4,639 $ 3,972 $ 4,165
==========================================================================
Ratio of net expenses to average
net assets (B) 1.50% 1.50% 1.42% 1.25% 1.25%
Ratio of net investment income
to average net assets 3.97% 4.20% 4.37% 4.62% 4.84%
Portfolio turnover rate 26% 41% 33% 46% 29%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Total returns shown exclude 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% for the
year ended June 30, 1995.
57
<PAGE>
OHIO TAX-FREE MONEY FUND - RETAIL (CLASS A) SHARES
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<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 0.027 0.030 0.030 0.031 0.031
--------------------------------------------------------------------------
Dividends from net investment
income (0.027) (0.030) (0.030) (0.031) (0.031)
--------------------------------------------------------------------------
Net asset value at end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==========================================================================
Total return 2.73% 3.07% 2.99% 3.14% 3.12%
==========================================================================
Net assets at end of year (000's) $ 214,691 $ 205,316 $ 166,719 $ 240,323 $ 226,606
==========================================================================
Ratio of net expenses to average
net assets (A) 0.75% 0.75% 0.75% 0.75% 0.74%
Ratio of net investment income
to average net assets 2.68% 3.02% 2.93% 3.09% 3.08%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratio of expenses to average net assets would have been 0.77%, 0.76% and
0.77% for the years ended June 30, 1999, 1998 and 1997, respectively.
58
<PAGE>
OHIO TAX-FREE MONEY FUND - INSTITUTIONAL (CLASS B) SHARES
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ---------------------------------------------------------------------------------------
PERIOD ENDED
YEAR ENDED JUNE 30, JUNE 30,
1999 1998 1997 (A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 1.000 $ 1.000 $ 1.000
------------------------------------------
Net investment income 0.029 0.033 0.016
------------------------------------------
Dividends from net investment income (0.029) (0.033) (0.016)
------------------------------------------
Net asset value at end of period $ 1.000 $ 1.000 $ 1.000
==========================================
Total return 2.98% 3.33% 3.31%(C)
==========================================
Net assets at end of period
(000's) $ 176,106 $ 115,266 $ 97,589
==========================================
Ratio of net expenses to average
net assets (B) 0.50% 0.50% 0.50%(C)
Ratio of net investment income
to average net assets 2.93% 3.27% 3.28%(C)
- --------------------------------------------------------------------------------
</TABLE>
(A) Represents the period from the initial public offering of
Institutional shares (January 7, 1997) through June 30, 1997.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratio of expenses to average net assets would have been 0.51%, 0.52%
and 0.56% (C) for the periods ended June 30, 1999, 1998 and 1997,
respectively.
(C) Annualized.
59
<PAGE>
CALIFORNIA TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<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 0.025 0.029 0.028 0.029 0.029
--------------------------------------------------------------------------
Dividends from net investment income (0.025) (0.029) (0.028) (0.029) (0.029)
--------------------------------------------------------------------------
Net asset value at end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==========================================================================
Total return 2.56% 2.94% 2.81% 2.95% 2.95%
==========================================================================
Net assets at end of year (000's) $ 47,967 $ 41,013 $ 32,186 $ 36,122 $ 19,525
==========================================================================
Ratio of net expenses to average
net assets (A) 0.75% 0.77% 0.80% 0.80% 0.70%
Ratio of net investment income
to average net assets 2.52% 2.89% 2.76% 2.88% 2.83%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 0.82% and
0.85% for the years ended June 30, 1996 and 1995, respectively.
60
<PAGE>
FLORIDA TAX-FREE MONEY FUND
<TABLE>
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<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 0.026 0.030 0.029 0.032 0.031
--------------------------------------------------------------------------
Dividends from net investment income (0.026) (0.030) (0.029) (0.032) (0.031)
--------------------------------------------------------------------------
Net asset value at end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==========================================================================
Total return 2.68% 3.03% 2.90% 3.29% 3.17%
==========================================================================
Net assets at end of year (000's) $ 21,371 $ 14,368 $ 22,434 $ 28,906 $ 24,119
==========================================================================
Ratio of net expenses to average
net assets (A) 0.75% 0.75% 0.75% 0.61% 0.66%
Ratio of net investment income
to average net assets 2.58% 2.98% 2.85% 3.24% 3.12%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratio of expenses to average net assets would have been 0.98%, 0.95%,
0.94%, 0.80% and 0.80% for the years ended June 30, 1999, 1998, 1997,
1996 and 1995, respectively.
61
<PAGE>
FOR MORE INFORMATION
- --------------------
For investors who want more information about the Funds, the following documents
are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is legally a part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS: The Funds' annual and semi-annual reports provide
additional information about the Funds' investments. In the Funds' annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
You can get free copies of the SAI, the reports, other information and answers
to your questions about the Funds by contacting your financial advisor, or the
Funds at:
Touchstone Family of Funds
311 Pike Street
Cincinnati, Ohio 45202
800.669.2796 (Press 3)
http://www.touchstonefunds.com
You can view the Funds' SAI and the reports at the Public Reference Room of the
Securities and Exchange Commission.
For a fee, you can get text-only copies by writing to the Public Reference Room
of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549-0102 or by calling the
SEC at 1-202-942-8090. You can get information about the operation of the Public
Reference Room by calling the SEC at 1-202-942-8090.
You can also view the SAI and the reports free from the SEC's Internet website
at http://www.sec.gov. You can get information about the SEC's Internet website
by writing to the SEC at the above address or by e-mailing a request to: public
[email protected].
Investment Company Act file no. 811-3174
62
<PAGE>
TOUCHSTONE TAX-FREE TRUST
o TAX-FREE MONEY FUND
o TAX-FREE INTERMEDIATE TERM FUND
o OHIO INSURED TAX-FREE FUND
o OHIO TAX-FREE MONEY FUND
o CALIFORNIA TAX-FREE MONEY FUND
o FLORIDA TAX-FREE MONEY FUND
CLASS A, CLASS B AND CLASS C
SHARES ARE OFFERED BY
THIS PROSPECTUS
63
<PAGE>
TOUCHSTONE TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
June __, 2000
Tax-Free Money Fund
Tax-Free Intermediate Term Fund
Ohio Insured Tax-Free Fund
Ohio Tax-Free Money Fund
California Tax-Free Money Fund
Florida Tax-Free Money Fund
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of the applicable Fund of Touchstone Tax-Free
Trust dated June __, 2000. A copy of a 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
Touchstone 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......................................10
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS.................................13
INVESTMENT LIMITATIONS........................................................17
INSURANCE ON THE OHIO INSURED TAX-FREE FUND'S SECURITIES......................22
TRUSTEES AND OFFICERS.........................................................25
THE INVESTMENT ADVISER AND SUB-ADVISOR........................................28
THE DISTRIBUTOR...............................................................30
DISTRIBUTION PLANS............................................................31
SECURITIES TRANSACTIONS.......................................................33
PORTFOLIO TURNOVER............................................................35
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE..........................36
CHOOSING A SHARE CLASS........................................................39
OTHER PURCHASE INFORMATION....................................................44
TAXES.........................................................................46
REDEMPTION IN KIND............................................................48
HISTORICAL PERFORMANCE INFORMATION............................................48
PRINCIPAL SECURITY HOLDERS....................................................53
CUSTODIAN.....................................................................53
INDEPENDENT AUDITORS..........................................................54
TRANSFER AGENT................................................................54
TAX EQUIVALENT YIELD TABLES...................................................55
FINANCIAL STATEMENTS..........................................................58
2
<PAGE>
THE TRUST
- ---------
Touchstone Tax-Free Trust (the "Trust"), formerly Midwest Group Tax Free Trust
and Countrywide Tax-Free Trust, an open-end, diversified management investment
company, was organized as a Massachusetts business trust on April 13, 1981. The
Trust currently offers six 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 and the Florida
Tax-Free Money Fund (referred to individually as a "Fund" and collectively as
the "Funds"). Each Fund has its own investment objective(s) and policies.
Shares of each Fund have equal voting rights and liquidation rights. Each 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. Each class of shares of a
Fund shall vote separately on matters relating to its plan of distribution
pursuant to Rule 12b-1. 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.
Each share of a Fund represents an equal proportionate interest in the assets
and liabilities belonging to that Fund with each other share of that 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 any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
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 (Retail) shares and Class B (Institutional) shares of the Ohio
Tax-Free Money Fund represent an interest in the same assets of such Fund, have
the same rights and are identical in all material respects except that (i) Class
A 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 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,
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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) Class A shares are subject to a lower minimum initial
investment requirement and offer certain shareholder services not available to
Class B shares such as checkwriting privileges and automatic investment and
redemption plans.
Both Class A shares and Class C shares of the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund represent an interest in the same assets of
such Fund, have the same rights and are identical in all material respects
except that (i) Class C shares bear the expenses of higher distribution fees;
(ii) certain other 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 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; and (iii) each class has exclusive voting rights with respect
to matters relating to its own distribution arrangements.
The Board of Trustees may classify and reclassify the shares of a 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
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Each 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
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counsel to the issuer, exempt from federal income tax. The Ohio Insured Tax-Free
Fund and the Ohio Tax-Free Money Fund invest primarily in Ohio Obligations,
which are Municipal Obligations issued by the State of Ohio 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 Ohio personal income tax. The
California Tax-Free Money Fund invests primarily in 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. The
Florida Tax-Free Money Fund invests primarily in Florida Obligations, which are
Municipal Obligations issued by the State of Florida and its political
subdivisions, agencies, authorities and instrumentalities and other qualifying
issuers, the value of which is exempt from the Florida intangible personal
property tax, which pay interest that is, in the opinion of bond counsel to the
issuer, exempt from federal income tax.
Municipal obligations consist of tax-exempt bonds, tax-exempt notes and
tax-exempt commercial paper.
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.
Each Fund may invest in any combination of general obligation bonds, revenue
bonds and industrial development bonds. Each 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, each 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, a 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
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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.
Each 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.
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. Each 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. In
connection with these investments, each Fund will direct its Custodian to place
cash or liquid securities in a segregated account in an amount sufficient to
make payment for the securities to be purchased. When a segregated account is
maintained because a 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,
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a 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 a 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 a Fund will only make commitments to purchase securities on a
when-issued basis with the intention of actually acquiring the securities, the
Funds may sell these obligations before the settlement date if it is deemed
advisable by the Advisor 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. Each Fund may invest in participation interests in
Municipal Obligations owned by banks or other financial institutions.
Participation interests frequently are backed by irrevocable letters of credit
or a guarantee of a bank. A 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. Each 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. Each Fund will not invest more than 10% of its net
assets in participation interests that do not have a demand feature and all
other illiquid securities.
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.
FLOATING AND VARIABLE RATE OBLIGATIONS. Each 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
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specified intervals to a specified interest rate. Periodic interest rate
adjustments help stabilize the obligations' market values. Each 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 a 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.
Each Fund will not invest more than 10% of its net assets in floating or
variable rate obligations as to which it cannot exercise the demand feature on
not more than seven days' notice if the Advisor, 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 a 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 a Fund's quality standards, the Advisor 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 Advisor 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.
INVERSE FLOATING OBLIGATIONS. Each of the Tax-Free Intermediate Term Fund and
the Ohio Insured Tax-Free Fund may invest in securities representing interests
in Municipal Obligations, known as inverse floating obligations, which pay
interest rates that vary inversely to changes in the interest rates of specified
short-term Municipal Obligations or an index of short-term Municipal
Obligations. The interest rates on inverse floating obligations will typically
decline as short-term market interest rates increase and increase as short-term
market rates decline. Such securities have the effect of providing a degree of
investment leverage, since they will generally increase or decrease in value in
response to changes in market interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate, long-term Municipal Obligations
increase or decrease in response to such changes. As a result, the market value
of inverse floating obligations will generally be more volatile than the market
values of fixed-rate Municipal Obligations.
OBLIGATIONS WITH PUTS ATTACHED. Each 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." Each Fund may purchase Municipal Obligations
with puts attached from banks and broker-dealers. Each 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 a 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.
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Each Fund intends to purchase such obligations only from sellers deemed by the
Advisor, 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 a
Fund will not exceed 10% of its net assets.
LEASE OBLIGATIONS. The Tax-Free Intermediate Term Fund and the Ohio Insured
Tax-Free 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.
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 municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. 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 Funds. Certain of these 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 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.
Each of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
will not invest more than 10% of its net assets in lease obligations if the
Advisor determines that there is no secondary market available for these
obligations and all other illiquid securities. The Funds do not intend to invest
more than an additional 5% of their net assets in municipal lease obligations
determined by the Advisor, under the direction of the Board of Trustees, to be
liquid. In determining the liquidity of such obligations, the Advisor 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. The Funds will only
purchase unrated lease obligations which meet the Fund's quality standards, as
determined by the Advisor, under the direction of the Board of Trustees,
including an assessment of the likelihood that the lease will not be cancelled.
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QUALITY RATINGS OF MUNICIPAL OBLIGATIONS
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The Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the California Tax-Free
Money Fund and the Florida Tax-Free Money 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 Tax-Free Money Fund, the Ohio
Tax-Free Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free
Money Fund include Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("S&P") or Fitch Investors Services, Inc. ("Fitch").
The Tax-Free Intermediate Term Fund may invest in Municipal Obligations rated at
the time of purchase within the three highest grades assigned by Moody's, S&P or
Fitch. The Ohio Insured Tax-Free Fund may invest in Municipal Obligations rated
at the time of purchase within the four highest grades assigned by Moody's, S&P
or Fitch. The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
may also invest in tax-exempt notes and commercial paper determined by the
Advisor to meet the Funds' quality standards. Each 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 S&P (SP-1 or SP-2) and in tax-exempt
commercial paper to those which are rated within the two highest grades by
Moody's (Prime-1 or Prime-2), S&P (A-1 or A-2) or Fitch (Fitch-1 or Fitch-2).
MOODY'S RATINGS
1. TAX-EXEMPT BONDS. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are judged by Moody's to be
of the best quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issuers. Bonds rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise what are
generally known as high-grade bonds. Moody's says that Aa bonds are rated
lower than the best bonds because margins of protection or other elements
make long term risks appear somewhat larger than Aaa bonds. Moody's
describes bonds rated A as possessing many favorable investment attributes
and as upper medium grade obligations. Factors giving security to principal
and interest of A rated bonds are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future. Bonds which are rated by Moody's in the fourth highest rating (Baa)
are considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well. Those obligations in the A and
Baa group which Moody's believes possess the strongest investment
attributes are designated by the symbol A 1 and Baa 1.
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2. TAX-EXEMPT NOTES. Moody's highest rating for tax-exempt notes is MIG-1.
Moody's says that notes rated MIG-1 are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing
or from established and broad-based access to the market for refinancing,
or both. Notes bearing the MIG-2 designation are of high quality, with
margins of protection ample although not so large as in the MIG-1 group.
Notes bearing the designation MIG-3 are of favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is likely
to be less well established.
3. TAX-EXEMPT COMMERCIAL PAPER. The rating Prime-1 is the highest
tax-exempt commercial paper rating assigned by Moody's. Issuers rated
Prime-1 are judged to be of the best quality. Their short-term debt
obligations carry the smallest degree of investment risk. Margins of
support for current indebtedness are large or stable with cash flow and
asset protection well assured. Current liquidity provides ample coverage of
near-term liabilities and unused alternative financing arrangements are
generally available. While protective elements may change over the
intermediate or long term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations. Issuers rated
Prime-2 have a strong capacity for repayment of short-term obligations.
S&P RATINGS
1. TAX-EXEMPT BONDS. The four highest ratings of S&P for tax-exempt bonds
are AAA, AA, A and BBB. Bonds rated AAA have the highest rating assigned by
S&P to a debt obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only
in a small degree. Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories. Bonds which are rated by S&P in the fourth highest
rating (BBB) are regarded as having an adequate capacity to pay interest
and repay principal and are considered "investment grade." Whereas they
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal than for bonds in higher rated
categories. The ratings for tax-exempt bonds may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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.
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3. TAX-EXEMPT COMMERCIAL PAPER. The ratings A-1+ and A-1 are the highest
tax-exempt commercial paper ratings assigned by S&P. These designations
indicate the degree of safety regarding timely payment is either
overwhelming (A-1+) or very strong (A- 1). Capacity for timely payment on
issues rated A-2 is strong. However, the relative degree of safety is not
as overwhelming as for issues designated A-1.
FITCH RATINGS
1. TAX-EXEMPT BONDS. The four highest ratings of Fitch for tax-exempt bonds
are AAA, AA, A and BBB. Bonds rated AAA are regarded by Fitch as being of
the highest quality, with the obligor having an extraordinary ability to
pay interest and repay principal which is unlikely to be affected by
reasonably foreseeable events. Bonds rated AA are regarded by Fitch as high
quality obligations. The obligor's ability to pay interest and repay
principal, while very strong, is somewhat less than for AAA rated bonds,
and more subject to possible change over the term of the issue. Bonds rated
A are regarded by Fitch as being of good quality. The obligor's ability to
pay interest and repay principal is strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings. Bonds rated BBB are regarded by Fitch as being of
satisfactory quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to weaken this
ability than bonds with higher ratings. Fitch ratings may be modified by
the addition of a plus (+) or minus (-) sign.
2. TAX-EXEMPT NOTES. The ratings F-1+, F-1 and F-2 are the highest ratings
assigned by Fitch for tax-exempt notes. Notes assigned the F-1+ rating are
regarded by Fitch as having the strongest degree of assurance for timely
payment. Notes assigned the F-1 rating reflect an assurance for timely
payment only slightly less than the strongest issues. Notes assigned the
F-2 rating have a degree of assurance for timely payment with a lesser
margin of safety than higher-rated notes.
3. TAX-EXEMPT COMMERCIAL PAPER. Commercial paper rated Fitch-1 is regarded
as having the strongest degree of assurance for timely payment. Issues
assigned the Fitch-2 rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
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 Advisor to appraise
independently the fundamental quality of the obligations held by the Funds.
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.
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Any Municipal Obligation which depends on credit of the U.S. Government (e.g.
project notes) will be considered by the Advisor 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. Each
Fund may also invest in Municipal Obligations which are not rated if, in the
opinion of the Advisor, such obligations are of comparable quality to those
rated obligations in which the applicable Fund may invest.
Subsequent to its purchase by a 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 a 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 investment policies of the Funds
described in the Prospectus appears below:
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds 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 Funds will
only invest in bankers' acceptances of banks having a short-term rating of A-1
by S&P or Prime-1 by Moody's. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a stated
interest rate. Each 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. Each 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). Each Fund may also invest in unrated commercial paper of
issuers who have outstanding unsecured debt rated Aa or better by Moody's or AA
or better by S&P. 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 each Fund's restrictions on illiquid investments (see "Investment
Limitations") unless, in the judgment of the Advisor, subject to the direction
of the Board of Trustees, such note is liquid. The Funds do not presently intend
to invest in taxable commercial paper.
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The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. 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 S&P 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 a 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, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each 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 Funds' Custodian at the Federal
Reserve Bank. A 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
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 a 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.
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For purposes of the Investment Company Act of 1940, a repurchase agreement is
deemed to be a loan from a Fund to the seller subject to the repurchase
agreement and is therefore subject to that Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
securities purchased by a Fund subject to a repurchase agreement as being owned
by that 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, a Fund may encounter delays 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 a
Fund has not perfected a security interest in the security, that 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, a 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 a Fund, the
Advisor 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 a Fund may
incur a loss if the proceeds to that 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 involved 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 a Fund will be unsuccessful in seeking to
enforce the seller's contractual obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. Each Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes a 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 a Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or liquid securities, with the Funds' Custodian in an amount at
least equal to the market value of the loaned securities. Each 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 a Fund without the affirmative
vote of a majority of its outstanding shares.
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 a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive 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 Funds
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
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the placing broker with the borrower, and that the fees are not used to
compensate the Advisor or any affiliated person of the Trust or an affiliated
person of the Advisor or other affiliated person. The terms of the Funds' loans
must meet applicable tests under the Internal Revenue Code and permit the Funds
to reacquire loaned securities on five days' notice or in time to vote on any
important matter.
BORROWING AND PLEDGING. As a temporary measure for extraordinary or emergency
purposes, the Tax-Free Money Fund, the Tax-Free Intermediate Term Fund, the Ohio
Insured Tax-Free Fund, the California Tax-Free Money Fund and the Florida
Tax-Free Money Fund may each borrow money from banks or other persons in an
amount not exceeding 10% of its total assets. Each Fund may pledge assets in
connection with borrowings but will not pledge more than 10% of its total
assets. The Funds will not make any additional purchases of portfolio securities
while borrowings are outstanding.
The Ohio Tax-Free Money 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 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 portfolio securities
of the Funds and, therefore, if employed, increases the possibility of
fluctuation in a Fund's net asset value. This is the speculative factor known as
leverage. To reduce the risks of borrowing, the Funds will limit their
borrowings as described above. Each 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.
SECURITIES WITH LIMITED MARKETABILITY. Each 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 demand features;
floating and variable rate obligations as to which the Funds cannot exercise the
related demand feature and as to which there is no secondary market; repurchase
agreements not terminable within seven days, and (for the Tax-Free Intermediate
Term Fund and the Ohio Insured Tax-Free Fund) lease obligations for which there
is no secondary market.
MAJORITY. As used in this Statement of Additional Information, the term
"majority" of the outstanding shares of the Trust (or of any Fund) means the
lesser of (1) 67% or more of the outstanding shares of the Trust (or the
applicable Fund) present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust (or the applicable Fund) are present or
represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the applicable Fund).
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INVESTMENT LIMITATIONS
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The Trust has adopted certain fundamental investment limitations designed to
reduce the risk of an investment in the Funds. These limitations may not be
changed with respect to any Fund without the affirmative vote of a majority of
the outstanding shares of that 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 Advisor 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 LIMITATIONS APPLICABLE TO THE TAX-FREE MONEY FUND, THE TAX-FREE INTERMEDIATE
TERM FUND AND THE OHIO INSURED TAX-FREE FUND ARE:
1. BORROWING MONEY. Each Fund will not borrow money or pledge, mortgage or
hypothecate its assets, except as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 10% of the
value of its total assets. A Fund will not make any additional purchases of
portfolio securities while borrowings are outstanding.
2. UNDERWRITING. Each Fund will not act as underwriter of securities issued
by other persons, either directly or through a majority owned subsidiary.
This limitation is not applicable to the extent that, in connection with
the disposition of its portfolio securities (including restricted
securities), a Fund may be deemed an underwriter under certain federal
securities laws.
3. ILLIQUID INVESTMENTS. Each 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 10% of the value of the total assets of the Fund would
be invested in such securities.
4. REAL ESTATE. Each 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. Each 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.
6. LOANS. Each Fund will not make loans to other persons, except (a) by the
purchase of a portion of an issue of debt securities in accordance with its
investment objective, policies and limitations, (b) by loaning portfolio
securities, or (c) by engaging in repurchase transactions.
7. CERTAIN COMPANIES. Each Fund will not purchase securities of a company,
if such purchase at the time thereof, would cause more than 5% of the
Fund's total assets to be
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invested in securities of companies, which, including predecessors, have a
record of less than three years' continuous operation.
8. OBLIGATIONS OF ONE ISSUER. Each Fund will not purchase more than 10% of
the outstanding publicly issued debt obligations of any issuer. With
respect to the Ohio Insured Tax-Free Fund, this limitation does not apply
to securities issued or guaranteed by the State of Ohio and its political
subdivisions and duly constituted authorities and corporations. This
limitation is not applicable to privately issued Municipal Obligations.
9. INVESTING FOR CONTROL. Each Fund will not invest in companies for the
purpose of exercising control.
10. OTHER INVESTMENT COMPANIES. Each Fund will not invest more than 10% of
its total assets in the securities of other investment companies and then
only for temporary purposes in companies whose dividends are tax-exempt or
invest more than 5% of its total assets in the securities of any investment
company. Each Fund will not purchase more than 3% of the outstanding voting
stock of any investment company.
11. MARGIN PURCHASES. Each Fund will not purchase securities or evidences
of interest thereon on "margin." This limitation is not applicable to
short-term credit obtained by a Fund for the clearance of purchases and
sales or redemption of securities.
12. COMMON STOCKS. Each Fund will not invest in common stocks.
13. SECURITIES OWNED BY AFFILIATES. Each Fund will not purchase or retain
the securities of any issuer if, to the Trust's knowledge, those Trustees
and officers of the Trust or of the Advisor, who individually own
beneficially more than 0.5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities.
14. SHORT SALES AND OPTIONS. Each Fund will not sell any securities short
or write call options. This limitation is not applicable to the extent that
sales by a Fund of Municipal Obligations with puts attached or sales by a
Fund of other securities in which the Fund may otherwise invest would be
considered to be sales of options.
15. CONCENTRATION. Each 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. Each Fund may invest more than 25% of its
total assets in tax-exempt obligations in a particular segment of the bond
market.
16. SENIOR SECURITIES. Each 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.
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As diversified series of the Trust, the Tax-Free Money Fund and the Tax-Free
Intermediate Term Fund have adopted the following additional investment
limitation, which may not be changed with respect to either Fund without the
affirmative vote of a majority of the outstanding shares of the applicable Fund.
Neither Fund will purchase the securities of any issuer if such purchase at the
time thereof would cause less than 75% of the value of the total assets of the
Fund to be invested in cash and cash items (including receivables), securities
issued by the U.S. Government, its agencies or instrumentalities, securities of
other investment companies, and other securities for the purposes of this
calculation limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the total assets of a Fund and to not more than
10% of the outstanding voting securities of such issuer.
THE LIMITATIONS APPLICABLE TO THE OHIO TAX-FREE MONEY 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. 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 it except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate
more than one-third of its assets in connection with borrowings.
3. UNDERWRITING. The Fund will not act as underwriter of securities issued
by other persons. 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.
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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 the U.S. Government, its
territories and possessions, the District of Columbia and their respective
agencies and instrumentalities or any state and its political subdivisions,
agencies, authorities and instrumentalities. The Fund may invest more than
25% of its total assets in tax-exempt obligations in a particular segment
of the bond market.
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.
THE LIMITATIONS APPLICABLE TO THE CALIFORNIA TAX-FREE MONEY FUND AND THE FLORIDA
TAX-FREE MONEY FUND ARE:
1. BORROWING MONEY. Each 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. Each
Fund will not make any additional purchases of portfolio securities if
outstanding borrowings exceed 5% of the value of its total assets.
2. PLEDGING. Each 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. Each Fund will not mortgage, pledge or
hypothecate more than 10% of the value of its total assets in connection
with borrowings.
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3. UNDERWRITING. Each 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), a Fund may be deemed an underwriter under certain
federal securities laws.
4. ILLIQUID INVESTMENTS. Each 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. Each 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. Each 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 Funds may otherwise invest would be
considered to be such commodities, contracts or investments.
7. LOANS. Each 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. Each Fund will not purchase securities or evidences of
interest thereon on "margin." This limitation is not applicable to
short-term credit obtained by the Funds for the clearance of purchases and
sales or redemption of securities.
9. SHORT SALES AND OPTIONS. Each Fund will not sell any securities short or
sell put and call options. This limitation is not applicable to the extent
that sales by a Fund of tax-exempt obligations with puts attached or sales
by a Fund of other securities in which a Fund may otherwise invest would be
considered to be sales of options.
10. OTHER INVESTMENT COMPANIES. Each 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. Each 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. Each 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.
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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 any 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 Funds 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 10% of the value of a Fund's 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.
Except for temporary defensive purposes, the assets of each of the Tax-Free
Money Fund, the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free
Fund will be invested so that no more than 20% of the annual income of each Fund
will be subject to federal income tax. Except for temporary defensive purposes,
at no time will more than 20% of the value of the net assets of each of the Ohio
Tax-Free Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free
Money Fund be invested in taxable obligations. Under normal market conditions,
each Fund anticipates that not more than 5% of its net assets will be invested
in any one type of taxable obligation.
INSURANCE ON THE OHIO INSURED TAX-FREE FUND'S SECURITIES
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Under normal market conditions, at least 65% of the value of the Ohio Insured
Tax-Free Fund's total assets will be invested in Ohio municipal obligations
which are insured as to payment of interest and principal either by an insurance
policy obtained by the issuer of the obligations at original issuance or by an
insurance policy obtained by the Fund from a recognized insurer. The Fund also
may own uninsured Ohio municipal obligations, including obligations where the
payment of interest and principal is guaranteed by an agency or instrumentality
of the U.S. Government, or where the payment of interest and principal is
secured by an escrow account consisting of obligations of the U.S. Government.
The Fund may also invest up to 20% of its net assets in short-term Ohio
municipal obligations which are not insured, since insurance on these
obligations is generally unavailable. For temporary defensive purposes, the Fund
may invest more than 20% of its net assets in uninsured short-term Ohio
municipal obligations. The Board of Trustees may terminate the practice of
investing in insured obligations if it determines that such practice is not in
the best interests of the Fund's shareholders.
Ohio municipal obligations purchased by the Ohio Insured Tax-Free Fund may be
insured by one of the following types of insurance: new issue insurance, mutual
fund insurance, or secondary insurance.
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NEW ISSUE INSURANCE. A new issue insurance policy is purchased by the issuer or
underwriter of an obligation in order to increase the credit rating of the
obligation. All premiums are paid in advance by the issuer or underwriter. A new
issue insurance policy is non-cancelable and continues in effect as long as the
obligation is outstanding and the insurer remains in business.
MUTUAL FUND INSURANCE. A mutual fund insurance policy is purchased by the Fund
from an insurance company. All premiums are paid from the Fund's assets, thereby
reducing the yield from an investment in the Fund. A mutual fund insurance
policy is non-cancelable except for non-payment of premiums and remains in
effect only as long as the Fund holds the insured obligation. In the event the
Fund sells an obligation covered by a mutual fund policy, the insurance company
is liable only for those payments of principal and interest then due and in
default. If the Fund holds a defaulted obligation, the Fund continues to pay the
insurance premium thereon but is entitled to collect interest payments from the
insurer and may collect the full amount of principal from the insurer when the
obligation becomes due. Accordingly, it is expected that the Fund will retain in
its portfolio any obligations so insured which are in default or are in
significant risk of default to avoid forfeiture of the value of the insurance
feature of such obligations, which would not be reflected in the price for which
the Fund could sell such obligations. In valuing such defaulted obligations, the
Fund will value the insurance in an amount equal to the difference between the
market value of the defaulted obligation and the market value of similar
obligations which are not in default. Because the Fund must hold defaulted
obligations in its portfolio, its ability in certain circumstances to purchase
other obligations with higher yields will be limited.
SECONDARY INSURANCE. A secondary insurance policy insures an obligation for as
long as it remains outstanding, regardless of the owner of such obligation.
Premiums are paid by the Fund and coverage is non-cancelable, except for
non-payment of premiums. Because secondary insurance provides continuous
coverage during the term of the obligation, it provides greater marketability of
the Fund's obligations than is allowed under a mutual fund insurance policy.
Thus, the Fund with secondary insurance may sell an obligation to a third party
as a high-rated insured security at a higher market price than would otherwise
be obtained if the obligation were insured under a mutual fund policy. Secondary
insurance also gives the Fund the option of selling a defaulted obligation
rather than compelling it to hold a defaulted security in its portfolio so that
it may continue to be afforded insurance protection.
The Ohio Insured Tax-Free Fund currently intends to purchase only Ohio municipal
obligations which are insured by the issuer of the obligation under a new issue
insurance policy. In the event the Advisor makes a recommendation to purchase an
obligation which is not otherwise insured, the Fund may purchase such obligation
and thereafter obtain mutual fund or secondary insurance.
The Ohio Insured Tax-Free Fund may purchase insurance from, or obligations
insured by, one of the following recognized insurers of municipal obligations:
MBIA Insurance Corp.("MBIA"), AMBAC Assurance Corp. ("AMBAC"), Financial
Guaranty Insurance Co. ("FGIC") or Financial Security Assurance Inc. ("FSA").
Each insurer is rated Aaa by Moody's and AAA by S&P and each insurer maintains a
statutory capital claims ratio well below the exposure limits
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<PAGE>
set by the Insurance Commissioner of New York (300:1 insurance risk exposure to
every dollar of statutory capital). The Fund may also purchase insurance from,
or obligations insured by, other insurance companies provided that such
companies have a claims-paying ability rated Aaa by Moody's or AAA by S&P. While
such insurance reduces the risk that principal or interest will not be paid when
due, it is not a protection against market risks arising from other factors,
such as changes in prevailing interest rates. If the issuer defaults on payments
of interest or principal, the trustee and/or payment agent of the issuer will
notify the insurer who will make payment to the bondholders. There is no
assurance that any insurance company will meet its obligations.
MBIA has been the leader in the municipal bond insurance market for the past
sixteen years, holding a 42% share of the market in 1997. MBIA's volume of new
issue municipal bonds increased to approximately $44 billion in 1997, as
compared to $37 billion during the previous year. While premium levels in the
municipal market continue to be very competitive, insurers throughout the
industry are diversifying their products by targeting both the asset-based and
the international markets. Although municipal bond insurance remains the
dominant component of MBIA's written and earned premiums, the company further
expanded its asset-backed business in 1998 with the acquisition of CapMAC
Holdings Inc. MBIA's efforts to capitalize on international insurance
opportunities began in 1995 when it entered into a European joint venture with
AMBAC and expanded further in 1998 with the opening of an office in Japan.
MBIA's international business volume as of December 31, 1997 represents 2.3% of
its total insured portfolio. MBIA continues to successfully position itself for
continued growth and diversification without a material negative impact on its
overall consolidated risk profile. MBIA is 98.4% publicly owned, with its
remaining shares owned by Aetna Casualty & Surety Company.
AMBAC is the oldest and second largest bond insurer. AMBAC held a 24% share of
the municipal bond market in 1997, down from 29% the previous year, as
management was not willing to follow downward pricing trends to maintain its
share of the market. AMBAC has historically taken a very conservative approach
to the bond insurance business, beyond simply underwriting, to a zero-loss
philosophy. Management remains committed to investment- grade underwriting and
risk management, not only for its bond insurance business, but for all of its
products. AMBAC's disciplined underwriting continues to produce a high-quality
book of business with a very low insured portfolio risk profile and a high
margin of safety. As with other insurers, product diversification has been a
cornerstone of the AMBAC strategic plan. The AMBAC and MBIA joint venture in
Europe has made a material contribution to the overall business success of
AMBAC's specialized finance division and AMBAC's entry into the asset-based
insurance sector now accounts for 35% of its net par written. AMBAC is entirely
owned by public shareholders.
FGIC is 99% owned by General Electric Capital Services and 1% owned by Sumitomo
Marine & Fire Insurance Co. Ltd. FGIC remains committed to investment-grade,
zero-loss underwriting and risk management standards. This has resulted in a
high-quality book of insured business. FGIC employs a conservative underwriting
strategy in terms of its target markets, focusing on the low-risk sectors of the
municipal market such as general obligations, tax-backed, water, sewer and
transportation sectors. Although the company posted a 49.7% increase in net par
written in 1997, net premiums written only rose 12.7%. The lower growth rate of
net premiums
24
<PAGE>
written compared to net par written is the result of pricing declines in FGIC's
targeted sectors, which represent the most competitively priced sectors. Without
pressure from its parent to provide ever increasing returns, FGIC has little
incentive to expand into the riskier sectors of the municipal market and
therefore continues to focus on the lower- risk sectors that provide stable
earnings.
FSA continues to expand its presence in the municipal bond market with a 15%
market share in 1997, up from a 5% market share in 1995. While FSA's roots are
in the asset-based insurance sector, it no longer is the perennial market share
leader in this market, although it remains a major player. From a total
portfolio perspective, municipal insurance in force has surpassed the insured
asset-backed portfolio. Municipal net par now represents 63% of the total par
book of business with asset- backed net exposure declining to about 37%. The
company's quality and risk management measurements are generally equal to or
slightly better than most industry averages and it continues to predominately
seek investment-grade underwriting. FSA's capital adequacy margin of safety,
currently in the 1.5x - 1.6x range is above the industry average of 1.3x - 1.4x
and management has indicated that it intends for the near-term to maintain its
current margin of safety. Notwithstanding its underwriting conservatism, FSA's
earnings measurements have exhibited recent improvement due to increased
municipal bond market share, lower capital charges and economy of scale
improvements. During the year ended December 31, 1997, net premiums written by
FSA increased 43%.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the Trust,
their compensation from the Trust and their aggregate compensation from the
Western-Southern complex of mutual funds for the fiscal year ended June 30,
1999. Messrs. Coleman, Cox, Schwab, Stautberg and Ms. McGruder began serving as
Trustees on October 29, 1999. 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 Touchstone Investment Trust
and Touchstone Strategic Trust. Each of the Trustees, except Mr. Lerner, Mr.
Leshner, Ms. McGruder and Mr. Robertson is also a Trustee of Touchstone Variable
Series Trust.
AGGREGATE
COMPENSATION
COMPENSATION FROM TOUCHSTONE
NAME POSITION HELD FROM TRUST COMPLEX (1)
---- ------------- ---------- -----------
William O. Coleman Trustee $0 $________
Philip R. Cox Trustee $0 $________
+H. Jerome Lerner Trustee $4,000 $12,000
*Robert H. Leshner President/ $0 $0
Trustee
*Jill T. McGruder Trustee $0 $0
+Oscar P. Robertson Trustee $4,000 $12,000
Nelson Schwab, Jr. Trustee $0 $________
+Robert E. Stautberg Trustee $0 $________
25
<PAGE>
AGGREGATE
COMPENSATION
COMPENSATION FROM TOUCHSTONE
NAME POSITION HELD FROM TRUST COMPLEX (1)
---- ------------- ---------- -----------
Joseph S. Stern, Jr. Trustee $0 $________
Maryellen Peretzky Vice President $0 $ 0
Tina D. Hosking Secretary $0 $ 0
Theresa M. Samocki Treasurer $0 $ 0
(1) The Western-Southern complex of funds consists of six series of the
Trust, eight series of Touchstone Strategic Trust , six series of
Touchstone Investment Trust and ten series of the Touchstone Variable
Series Trust.
* Ms. McGruder, as President and a director of Touchstone Advisors, Inc.,
the Trust's investment advisor and Touchstone Securities, Inc., the Trust's
distributor, and Mr. Leshner, as an employee of Fort Washington Investment
Advisors, Inc., the Funds Sub-Advisor, are each an "interested person" of
the Trust within the meaning of Section 2(a)(19) of the Investment Company
Act of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the Trust
during the past five years are set forth below:
WILLIAM O. COLEMAN, Age 70, 2 Noel Lane, Cincinnati, Ohio is a retired General
Sales Manager and Vice President of The Procter & Gamble Company and a trustee
of The Procter & Gamble Profit Sharing Plan and The Procter & Gamble Employee
Stock Ownership Plan. He is a director of LCA-Vision and a trustee of Touchstone
Strategic Trust, Touchstone Investment Trust, Touchstone Series Trust and
Touchstone Variable Series Trust (registered investment companies).
PHILLIP R. COX, Age 52, 105 East Fourth Street, Cincinnati, Ohio is President
and Chief Executive Officer of Cox Financial Corp. (a financial services
company). He is a director of the Federal Reserve Bank of Cleveland, Cincinnati
Bell Inc. and Cinergy Corporation. He is also a trustee of Touchstone Strategic
Trust, Touchstone Investment Trust, Touchstone Series Trust and Touchstone
Variable Series Trust (registered investment companies).
H. JEROME LERNER, Age 61, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc. (a manufacturer of
electronic connectors). He is also a director of Slush Puppy Inc. (a
manufacturer of frozen beverages) and Peerless Manufacturing (a manufacturer of
bakery equipment).
ROBERT H. LESHNER, Age 60, 312 Walnut Street, Cincinnati, Ohio is President and
a director of Ft. Washington Brokerage Services, Inc. (a broker-dealer), CS
Holdings, Inc. (a financial services company and parent of Intrust Fund
Solutions, Inc. and IFS Fund Distributors, Inc.), Intrust Fund Solutions, Inc.
(a
26
<PAGE>
registered transfer agent) and IFS Fund Distributors, Inc. (a registered
broker-dealer). He is also President and a trustee of Touchstone Strategic Trust
and Touchstone Investment Trust (registered investment companies).
JILL T. McGRUDER, Age 44, 311 Pike Street, Cincinnati, Ohio is President, Chief
Executive Officer and a director of IFS Financial Services, Inc. (a holding
company), Touchstone Advisors, Inc. (a registered investment adviser of the
Trust) and Touchstone Securities, Inc. (a registered broker-dealer). She is a
Senior Vice President of The Western-Southern Life Insurance Company and a
director of Capital Analysts Incorporated (a registered investment adviser and
broker-dealer), CS Holdings, Inc., Ft. Washington Brokerage Services, Inc., IFS
Fund Distributors, Inc. and Intrust Fund Solutions, Inc. She is also President
and a director of IFS Agency Services, Inc. and IFS Insurance Agency, Inc.
(insurance agencies). Until December 1996, she was National Marketing Director
of Metropolitan Life Insurance Co. From 1991 until 1996, she was Vice President
of Touchstone Advisors, Inc. and IFS Financial Services, Inc.
OSCAR P. ROBERTSON, Age 60, 4293 Muhlhauser Road, Fairfield, Ohio is President
of Orchem Corp., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer. Mr. Robertson is also a trustee of
Touchstone Strategic Trust and Touchstone Investment Trust (registered
investment companies).
NELSON SCHWAB, JR., Age 81, 511 Walnut Street, Cincinnati, Ohio is Senior
Counsel of Graydon, Head & Ritchey (a law firm). He is a director of Rotex,
Inc., The Ralph J. Stolle Company and Security Rug Cleaning Company. He is also
a trustee of Touchstone Strategic Trust, Touchstone Investment Trust, Touchstone
Series Trust and Touchstone Variable Series Trust (registered investment
companies).
ROBERT E. STAUTBERG, Age 65, 4815 Drake Road, Cincinnati, Ohio is a retired
partner and director of KPMG Peat Marwick LLP. He is Chairman of the Board of
Trustees of Good Samaritan Hospital and a trustee of Touchstone Strategic Trust,
Touchstone Investment Trust, Touchstone Series Trust and Touchstone Variable
Series Trust (registered investment companies).
JOSEPH S. STERN, JR., Age 81, 3 Grandin Place, Cincinnati, Ohio is a retired
Professor Emeritus of the University of Cincinnati College of Business. He is
also a a trustee of Touchstone Strategic Trust, Touchstone Investment Trust,
Touchstone Series Trust and Touchstone Variable Series Trust (registered
investment companies).
TINA D. HOSKING, Age 31, 312 Walnut Street, Cincinnati, Ohio is Associate
General Counsel and Vice President of Intrust Fund Solutions, Inc. and IFS Fund
Distributors, Inc. She is also Secretary of Touchstone Investment Trust and
Touchstone Strategic Trust.
THERESA M. SAMOCKI, Age 30, 312 Walnut Street, Cincinnati, Ohio is Vice
President-Fund Accounting Manager of Intrust Fund Solutions, Inc. and IFS Fund
Distributors, Inc. She is also Treasurer of Touchstone Investment Trust and
Touchstone Strategic Trust.
MARYELLEN PERETSKY, Age 47, 312 Walnut Street, Cincinnati, Ohio is Senior Vice
President, Chief Operating Officer and Secretary of Ft. Washington Brokerage
Services, Inc. and
27
<PAGE>
Senior Vice President and Secretary of CS Holdings, Inc., Intrust Fund Services,
Inc. and IFS Fund Distributors, Inc. She is also Vice President of Touchstone
Investment Trust and Touchstone Strategic Trust.
Each Trustee, except for Mr. Leshner and Ms. McGruder, 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, Touchstone Strategic Trust and
Touchstone Investment Trust.
THE INVESTMENT ADVISER AND SUB-ADVISOR
- --------------------------------------
THE INVESTMENT ADVISER. Touchstone Advisors, Inc. (the "Advisor"), is the Funds'
investment manager. The Advisor is a wholly-owned subsidiary of IFS Financial
Services, Inc., which is a wholly-owned subsidiary of Western-Southern Life
Assurance Company. Western-Southern Life Assurance Company is a wholly-owned
subsidiary of The Western and Southern Life Insurance Company. Ms. McGruder may
be deemed to be an affiliate of the Advisor because of her position as President
and Director of the Advisor. Mr. Leshner may be deemed to be an affiliate of the
Advisor because of his employment with Fort Washington Investment Advisors,
Inc., a Fund Sub-Advisor. Ms. McGruder and Mr. Leshner, by reason of such
affiliations may directly or indirectly receive benefits from the advisory fees
paid to the Advisor.
Under the terms of the investment advisory agreement between the Trust and the
Advisor, the Advisor appoints and supervises each Fund's Sub-Advisor, reviews
and evaluates the performance of a Fund Sub-Advisor and determines whether or
not the Fund's Sub-Advisor should be replaced. The Advisor furnishes at its own
expense all facilities and personnel necessary in connection with providing
these services. Each Fund pays the Advisor a fee computed and accrued daily and
paid monthly at an annual rate as shown below:
Fee to Advisor
(as % of average daily net assets)
Each Fund of the Trust 0.50% of assets up to $100 million
0.45% of assets from $100 million to $200 million
0.40% of assets from $200 million to $300 million
0.375% of assets over $300 million
Set forth below are the advisory fees paid by the Funds to the previous adviser
to the Funds (the "Predecessor Advisor") during the fiscal years ended June 30,
1999, 1998 and 1997.
1999 1998 1997
---- ---- ----
Tax-Free Money Fund(1) $143,015 150,790 149,097
Tax-Free Intermediate Term Fund 271,849 302,947 343,509
Ohio Insured Tax-Free Fund(2) 353,019 378,345 393,579
Ohio Tax-Free Money Fund(3) 1,597,319 1,421,029 1,181,638
California Tax-Free Money Fund 278,310 210,813 200,103
Florida Tax-Free Money Fund(4) 285,704 276,608 234,628
28
<PAGE>
(1) The Predecessor Advisor voluntarily waived $17,332 of its fees for the
fiscal year ended June 30, 1999 in order to reduce the operating expenses
of the Fund.
(2) The Predecessor Advisor voluntarily reimbursed the Fund for $948 of Class A
expenses for the fiscal year ended June 30, 1998 in order to reduce the
operating expenses of the Fund.
(3) The Predecessor Advisor voluntarily waived $51,659, $46,680 and $54,672 of
its fees for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively and reimbursed the Fund for $7,979 and $9,148 of Class B
expenses for the fiscal years ended June 30, 1998 and 1997, respectively,
in order to reduce the operating expenses of the Fund.
(4) The Predecessor Advisor voluntarily waived $124,338, $107,645 and $87,852
of its fees for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively, and reimbursed the Fund for $7,114 and $18,259 of Class B
expenses for the fiscal years ended June 30, 1998 and 1997, respectively,
in order to reduce the operating expenses of the Fund.
The Funds are responsible for the payment of all expenses incurred in connection
with the organization, registration of shares and operations of the Funds,
including such extraordinary or non-recurring expenses as may arise, such as
litigation to which the Trust may be a party. The Funds 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 Advisor bears promotional expenses in connection with the
distribution of the Funds' shares to the extent that such expenses are not
assumed by the Funds under their plans of distribution (see below). The
compensation and expenses of any officer, Trustee or employee of the Trust who
is an officer, director or employee of the Advisor are paid by the Advisor.
By their terms, the Funds' investment advisory agreements remain in force until
May 1, 2002, and from year to year thereafter, subject to annual approval by (a)
the Board of Trustees or (b) a vote of the majority of a 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 Funds' investment advisory agreements 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 a Fund's outstanding voting securities,
or by the Advisor. The investment advisory agreements automatically terminate in
the event of their assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
THE SUB-ADVISOR. The Advisor has retained Fort Washington Investment Advisors,
Inc. ("the Sub-Advisor") to serve as the discretionary portfolio manager of each
Fund. The Sub-Advisor selects the portfolio securities for investment by a Fund,
purchases and sells securities of a Fund and places orders for the execution of
such portfolio transactions, subject to the general supervision of the Board of
Trustees and the Advisor. The Sub-Advisor receives a fee from the Advisor which
is paid monthly at an annual rate of 0.20% of the average daily net assets of
the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund and 0.15%
of the average daily net assets of the Tax-Free Money Fund, the Ohio Tax-Free
Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free Money
Fund.
29
<PAGE>
The services provided by the Sub-Advisor are paid for wholly by the Advisor. The
compensation of any officer, director or employee of the Sub-Advisor who is
rendering services to a Fund is paid by the Sub-Advisor.
The employment of the Sub-Advisor will remain in force until May 1, 2001 and
from year to year thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of a 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
employment of the Sub-Advisor 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 a Fund's outstanding voting securities, by the Advisor,
or by the Sub-Advisor. Each Sub-Advisory Agreement will automatically terminate
in the event of its assignment, as defined by the 1940 Act and the rules
thereunder.
THE DISTRIBUTOR
- ---------------
Touchstone Securities, Inc. (the "Distributor") is the principal underwriter of
the Funds and, as such, the exclusive agent for distribution of shares of the
Funds. The Distributor is an affiliate of the Advisor by reason of common
ownership. The Distributor is obligated to sell the shares on a best efforts
basis only against purchase orders for the shares. Shares of each Fund are
offered to the public on a continuous basis.
The Distributor currently allows concessions to dealers who sell shares of the
Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund. The
Distributor retains the entire sales load on all direct initial investments in
the Funds and on all investments in accounts with no designated dealer of
record. Prior to May 1, 2000, the Predecessor Advisor served as the principal
underwriter of the Funds. For the fiscal year ended June 30, 1999, the aggregate
underwriting and broker commissions on sales of the Tax-Free Intermediate Term
Fund's shares were $58,611 of which the Predecessor Advisor paid $54,787 to
unaffiliated dealers in the selling network, earned $ 965 as a broker-dealer in
the selling network and retained $2,859 in underwriting commissions. For the
fiscal year ended June 30, 1999, the aggregate underwriting and broker
commissions on sales of the Ohio Insured Tax-Free Fund's shares were $68,267 of
which the Predecessor Advisor paid $58,562 to unaffiliated dealers in the
selling network, earned $4,048 as a broker-dealer in the selling network and
retained $5,657 in underwriting commissions. For the fiscal year ended June 30,
1998, the aggregate underwriting commissions on sales of the Tax-Free
Intermediate Term Fund's shares were $49,885 of which the Predecessor Advisor
paid $ 46,235 to unaffiliated broker-dealers in the selling network, earned
$1,298 as a broker-dealer in the selling network and retained $2,352 in
underwriting commissions. For the fiscal year ended June 30, 1998, the aggregate
underwriting and broker commissions on sales of the Ohio Insured Tax-Free Fund's
shares were $77,704 of which the Predecessor Advisor paid $69,527 to
unaffiliated dealers in the selling network, earned $1,683 as a broker-dealer in
the selling network and retained $6,493 in underwriting commissions. For the
fiscal year ended June 30, 1997, the aggregate underwriting commissions on sales
of the Tax-Free Intermediate Term Fund's shares were $75,551 of which the
Predecessor Advisor paid $70,274 to unaffiliated broker-dealers in the selling
network, earned $1,550 as a broker-dealer in
30
<PAGE>
the selling network and retained $3,727 in underwriting commissions. For the
fiscal year ended June 30, 1997, the aggregate underwriting and broker
commissions on sales of the Ohio Insured Tax-Free Fund's shares were $128,695 of
which the Predecessor Advisor paid $114,282 to unaffiliated dealers in the
selling network, earned $3,906 as a broker-dealer in the selling network and
retained $10,507 in underwriting commissions.
The Distributor retains the contingent deferred sales load on redemptions of
shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
which are subject to a contingent deferred sales load. For the fiscal year ended
June 30, 1999, the Predecessor Advisor retained $13,216 and $1,347 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. For the
fiscal year ended June 30, 1998, the Predecessor Advisor retained $6,430 and
$5,587 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. For the fiscal year ended June 30, 1997, the Predecessor Advisor
retained $5,958 and $1,441 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.
The Funds may compensate dealers, including the Distributor and its affiliates,
based on the average balance of all accounts in the Funds for which the dealer
is designated as the party responsible for the account. See "Distribution Plans"
below.
DISTRIBUTION PLANS
- ------------------
CLASS A PLAN -- As stated in the Prospectus, the Funds have adopted a plan of
distribution (the "Class A Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 which permits each Fund to pay for expenses incurred in the
distribution and promotion of the Funds' 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 Advisor. 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 the Tax-Free Money Fund and .25% of the average
daily net assets of the Class A shares of 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. Unreimbursed expenses
will not be carried over from year to year.
For the fiscal year ended June 30, 1999, the aggregate distribution-related
expenditures of the Tax-Free Money Fund ("MF"), the Tax-Free Intermediate Term
Fund ("ITF"), the Ohio Insured Tax-Free Fund ("OIF"), the Ohio Tax-Free Money
Fund ("OMF"), the California Tax-Free Money Fund ("CMF") and the Florida
Tax-Free Money Fund ("FMF") under the Class A Plan were $1,718, $42,341, $8,559,
$501,001, $27,528 and $42,826, respectively. Amounts were spent as follows:
31
<PAGE>
<TABLE>
<CAPTION>
MF ITF OIF OMF CMF FMF
<S> <C> <C> <C> <C> <C> <C>
Printing and mailing
of prospectuses and
reports to prospective
shareholders $ 1,718 $ 3,067 $ 4,273 $ 6,377 $ 3,528 $ 2,643
Payments to broker-
dealers and others
for the sale or
retention of assets -- 39,274 4,286 483,607 24,000 40,183
Other promotional
expenses -- -- -- 11,017 -- --
-------- -------- -------- -------- -------- --------
TOTALS $ 1,718 $ 42,341 $ 8,559 $501,001 $ 27,528 $ 42,826
======== ======== ======== ======== ======== ========
</TABLE>
CLASS C PLAN (Tax-Free Intermediate Term Fund and Ohio Insured Tax-Free Fund) --
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund have also
adopted a plan of distribution (the "Class C Plan") with respect to the Class C
shares of such Funds. The Class C Plan provides for two categories of payments.
First, the Class C Plan provides for the payment to the Advisor of an account
maintenance fee, in an amount equal to an annual rate of .25% of the average
daily net assets of the Class C shares, which may be paid to other dealers based
on the average value of Class C shares owned by clients of such dealers. In
addition, a Fund may pay up to an additional .75% per annum of the daily net
assets of the Class C shares for expenses incurred in the distribution and
promotion of the shares, including prospectus costs for prospective
shareholders, costs of responding to prospective shareholder inquiries, payments
to brokers and dealers for selling and assisting in the distribution of Class C
shares, costs of advertising and promotion and any other expenses related to the
distribution of the Class C shares. Unreimbursed expenditures will not be
carried over from year to year. The Funds may make payments to dealers and other
persons in an amount up to .75% per annum of the average value of Class C shares
owned by their clients, in addition to the .25% account maintenance fee
described above.
For the fiscal year ended June 30, 1999, the aggregate distribution-related
expenditures of the Tax-Free Intermediate Term Fund ("ITF") and the Ohio Insured
Tax-Free Fund ("OIF") under the Class C Plan were $25,030 and $27,034,
respectively. Amounts were spent as follows:
ITF OIF
Printing and mailing of
prospectuses and reports
to prospective shareholders $ 304 $ 320
Payments to broker-dealers and
others for the sale or
retention of assets 24,726 26,714
------- -------
$25,030 $27,034
======= =======
GENERAL INFORMATION -- Agreements implementing the Plans (the "Implementation
Agreements"), including agreements with dealers wherein such dealers agree for a
fee to act as agents for the sale of the Funds' shares, are in writing and have
been approved by the Board of
32
<PAGE>
Trustees. All payments made pursuant to the Plans are made in accordance with
written agreements.
The continuance of the Plans 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 Plans or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. 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 shares of a Fund or the applicable class of a
Fund. In the event a Plan is terminated in accordance with its terms, the
affected Fund (or class) will not be required to make any payments for expenses
incurred by the Advisor 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 a Fund (or the
applicable class) on not more than 60 days' written notice to any other party to
the Implementation Agreement. The Plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval.
All material amendments to the Plans must be approved by a vote of the Trust's
Board of Trustees and by a vote of the Independent Trustees.
In approving the Plans, 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 Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all the shares
of such Fund. In addition, 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.
Robert H. Leshner and Jill T. McGruder, as interested persons of the Trust, may
be deemed to have a financial interest in the operation of the Plans and the
Implementation Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of the Funds'
securities transactions and negotiation of commission rates where applicable are
made by the Sub-Advisor and are subject to review by the Advisor and the Board
of Trustees of the Trust. In the purchase and sale of portfolio securities, the
Sub-Advisor seeks best execution for the Funds, taking into account such factors
as price (including the applicable brokerage commission or dealer spread),
33
<PAGE>
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 Sub-Advisor generally seeks favorable prices and commission rates
that are reasonable in relation to the benefits received.
Generally, the Funds attempt 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 Funds may be purchased directly from the
issuer. Because the portfolio securities of the Funds 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 Funds will
consist primarily of dealer or underwriter spreads. No brokerage commissions
have been paid by the Funds during the last three fiscal years.
The Sub-Advisor is specifically authorized to select brokers who also provide
brokerage and research services to the Funds and/or other accounts over which
the Sub-Advisor exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Sub-Advisor 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
Sub-Advisor's overall responsibilities with respect to the Funds 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 Funds 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 Funds and the
Sub-Advisor, it is not possible to place a dollar value on it. Research services
furnished by brokers through whom the Funds effect securities transactions may
be used by the Sub-Advisor in servicing all of its accounts and not all such
services may be used by the Sub-Advisor in connection with the Funds.
The Funds have no obligation to deal with any broker or dealer in the execution
of securities transactions. However, the Advisor, the Sub-Advisor and other
affiliates of the Trust or the Advisor or Sub-Advisor 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. No
Fund will effect any brokerage transactions in its portfolio securities with an
affiliated broker 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 Funds do not
anticipate any ongoing arrangements with other brokerage firms, brokerage
business may be transacted from time to time with other firms. Affiliated
broker-dealers of the Trust will not receive reciprocal brokerage business as a
result of the brokerage business transacted by the Funds with other brokers.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and such other policies as the Board of Trustees may
determine, the Sub-Advisor may consider
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<PAGE>
sales of shares of the Trust as a factor in the selection of broker-dealers to
execute portfolio transactions. The Sub-Advisor will make such allocations if
commissions are comparable to those charged by nonaffiliated, qualified
broker-dealers for similar services.
In certain instances there may be securities which are suitable for a Fund as
well as for the Sub-Advisor's other clients. Investment decisions for a Fund and
for the Sub-Advisor's other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment advisor, particularly when the same security is
suitable for the investment objectives of more than one client. When two or more
clients are simultaneously engaged in the purchase or sale of the same security,
the securities are allocated among clients in a manner believed to be equitable
to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as a Fund is
concerned. However, it is believed that the ability of a Fund to participate in
volume transactions will produce better executions for the Fund.
CODE OF ETHICS. The Trust, the Advisor, the Sub-Advisor and the Distributor 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 Advisor and, as described below, imposes additional, more
onerous, restrictions on investment personnel of the Advisor and Sub-Advisor.
The Code requires that all employees of the Advisor and Sub-Advisor 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 any Fund.
The substantive restrictions applicable to investment personnel of the Advisor
and Sub-Advisor include a ban on acquiring any securities in an initial public
offering. Furthermore, the Code provides for trading "blackout periods" which
prohibit trading by investment personnel of the Advisor and Sub-Advisor within
periods of trading by the Funds in the same (or equivalent) security. The Code
of Ethics adopted by the Trust, the Advisor, the Sub-Advisor and the Distributor
are on public file with, and are available from, the Securities and Exchange
Commission.
PORTFOLIO TURNOVER
- ------------------
The Sub-Advisor intends to hold the portfolio securities of the Tax-Free Money
Fund, the Ohio Tax-Free Money Fund, the California Tax-Free Money Fund and the
Florida Tax-Free Money Fund to maturity and to limit portfolio turnover to the
extent possible. Nevertheless, changes in a 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 Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund do not
intend to purchase securities for short term trading; however, a security may be
sold in anticipation of a
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<PAGE>
market decline, or purchased in anticipation of a market rise and later sold.
Securities will be purchased and sold in response to the Sub-Advisor's
evaluation of an issuer's ability to meet its debt obligations in the future. A
security may be sold and another purchased when, in the opinion of the
Sub-Advisor, a favorable yield spread exists between specific issues or
different market sectors.
A 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
Funds. The Advisor and Sub-Advisor anticipate that the portfolio turnover rate
for each Fund normally will not exceed 100%. A 100% turnover rate would occur if
all of a 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) of the shares of the Tax- Free Money Fund, the
Ohio Tax-Free Money Fund, the California Tax-Free Money Fund and the Florida
Tax-Free Money Fund is determined as of 12:00 noon and 4:00 p.m., Eastern time,
on each day the Trust is open for business. The share price (net asset value)
and the public offering price (net asset value plus applicable sales load) of
the shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free
Fund are determined as of the close of the regular session of trading on the New
York Stock Exchange (currently 4:00 p.m., Eastern time), on each day the Trust
is open for business. The Trust is open for business on every day except
Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas. The Trust may also be open for business
on other days in which there is sufficient trading in a 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 "Pricing of Fund Shares" in the Prospectus.
Pursuant to Rule 2a-7 promulgated under the Investment Company Act of 1940, the
Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the California Tax-Free Money
Fund and the Florida Tax-Free Money Fund each value their 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 Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the
California Tax-Free Money Fund or the Florida Tax-Free Money 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
Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the California Tax-Free Money
Fund and the Florida Tax-Free Money Fund.
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<PAGE>
Pursuant to Rule 2a-7, the Tax-Free Money Fund, the Ohio Tax-Free Money Fund,
the California Tax-Free Money Fund and the Florida Tax-Free Money Fund each
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only securities having remaining maturities of thirteen months or less
and invest 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 Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the
California Tax-Free Money Fund or the Florida Tax-Free Money Fund will be
determined as follows, provided that the conditions set forth below are met. The
maturity of a long-term 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 short-term floating rate instrument with a
demand feature (or a participation interest in such a floating rate instrument)
will be one day. The maturity of a long-term 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 maturity of a short-term
variable rate instrument with a demand feature (or a participation interest in
such a variable rate instrument) will be deemed to be the earlier 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 a 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 (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) or, if not
rated, is determined to be of comparable quality by the Advisor, under the
direction of the Board of Trustees. 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) or, if not
rated, to have been determined to be of comparable quality by the Advisor, under
the direction of the Board of Trustees. 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 Tax-Free Money Fund, the
Ohio Tax-Free Money Fund, the California Tax-Free Money Fund and the Florida
Tax-Free Money Fund as computed for the purpose of sales and redemptions at $1
per share. The procedures include review of each Fund's portfolio holdings by
the Board of Trustees to determine whether a Fund's net asset value
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<PAGE>
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 each 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 Tax-Free Money Fund, the Ohio
Tax-Free Money Fund, the California Tax-Free Money Fund or the Florida Tax-Free
Money Fund would receive if it sold the instrument. During periods of declining
interest rates, the daily yield on shares of each 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 a 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.
Tax-exempt portfolio securities are valued for the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free 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 Funds 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 Advisor's opinion, the valuation provided by the pricing service
ignores certain market conditions affecting the value of a security, the Advisor
will use (consistent with procedures established by the Board of Trustees) such
other valuation as it considers to represent fair value. Valuations, market
quotations and market equivalents provided to the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free 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 Advisor 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.
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<PAGE>
The Board of Trustees has adopted the policy for the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free 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 Tax-Free Intermediate Term Fund and the
Ohio Insured Tax-Free 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.
CHOOSING A SHARE CLASS
- ----------------------
Each of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
offers Class A and Class C shares. Each class represents an interest in the same
portfolio of investments and has the same rights, but differs primarily in sales
loads and distribution expense amounts. Shares of the Tax-Free Intermediate Term
Fund purchased before February 1, 1994 are Class A shares. Shares of the Ohio
Insured Tax-Free Fund purchased before November 1, 1993 are Class A shares.
Before choosing a class, you should consider the following factors, as well as
any other relevant facts and circumstances:
The decision as to which class of shares is more beneficial to you depends on
the amount of your investment, the intended length of your investment and the
quality and scope of the value-added services provided by financial advisors who
may work with a particular sales load structure as compensation for their
services. If you qualify for reduced sales loads or, in the case of purchases of
$1 million or more, no initial sales load, you may find Class A shares
attractive because similar sales load reductions are not available for Class C
shares. Moreover, Class A shares are subject to lower ongoing expenses than
Class C shares over the term of the investment. As an alternative, Class C
shares are sold with a lower initial sales load so more of the purchase price is
immediately invested in a Fund. If you do not plan to hold your shares in a Fund
for a long time (less than 4 1/4 years), it may be better to purchase Class C
shares so that more of your purchase is invested directly in the Fund, although
you will pay higher distribution fees. If you plan to hold your shares in a Fund
for more than 4 1/4 years, it may be better to purchase Class A shares, since
after 4 1/4 years your accumulated distribution fees may be more than the sales
load paid on your purchase.
When determining which class of shares to purchase, you may want to consider the
services provided by your financial advisor and the compensation provided to
these financial advisors under each share class. The Distributor works with many
experienced and very qualified financial advisors throughout the country that
may provide valuable assistance to you through
39
<PAGE>
ongoing education, asset allocation programs, personalized financial planning
reviews or other services vital to your long-term success. The Distributor
believes that these value-added services can greatly benefit you through market
cycles and will work diligently with your chosen financial advisor.
Set forth below is a chart comparing the sales loads and 12b-1 fees applicable
to each class of shares:
CLASS SALES LOAD 12b-1 FEE
- --------------------------------------------------------------------------------
A Maximum of 4.75% initial sales load reduced for 0.25%
purchases of $50,000 and over; shares sold
without an initial sales load may be subject
to a 1.00% contingent deferred sales load during
first year if a commission was paid to a dealer
C 1.25% initial sales load; 1.00% contingent 1.00%
deferred sales load during first year
- --------------------------------------------------------------------------------
If you are investing $1 million or more, it is generally more beneficial for you
to buy Class A shares because there is no front-end sales load and the annual
expenses are lower.
Class A Shares
--------------
Class A shares are sold at net asset value ("NAV") plus an initial sales load.
In some cases, reduced initial sales loads for the purchase of Class A shares
may be available, as described below. Investments of $1 million or more are not
subject to a sales load at the time of purchase but may be subject to a
contingent deferred sales load of 1.00% on redemptions made within 1 year after
purchase if a commission was paid by the Distributor to a participating
unaffiliated dealer. Class A shares are also subject to an annual 12b-1
distribution fee of up to .25% of a Fund's average daily net assets allocable to
Class A shares.
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The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares of the Tax-Free Intermediate Term Fund and the Ohio
Insured Tax-Free Fund for accounts opened after July 31, 1999:
Percentage Which Dealer
of Offering Equals this Reallowance
Price Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- ---- ---------- -----
Less than $50,000 4.75% 4.99% 4.00%
$50,000 but less than $100,000 4.50 4.72 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.25 2.31 1.75
$1,000,000 or more None None
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares of the Ohio Insured Tax-Free Fund for accounts opened
before August 1, 1999:
Percentage Which Dealer
of Offering Equals this Reallowance
Price Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment 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
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares of the Tax-Free Intermediate Term Fund for accounts
opened before August 1, 1999 and after January 31, 1995:
Percentage Which Dealer
of Offering Equals this Reallowance
Price Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- ---- ---------- -----
Less than $100,000 2.00% 2.04% 1.80%
$100,000 but less than $250,000 1.50 1.52 1.35
$250,000 but less than $500,000 1.00 1.01 .90
$500,000 but less than $1,000,000 0.75 0.76 0.65
$1,000,000 or more None None
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<PAGE>
The following table illustrates the initial sales load breakpoints for the
purchase of Class A shares of the Tax-Free Intermediate Term Fund for accounts
opened before February 1, 1995:
Percentage Which Dealer
of Offering Equals this Reallowance
Price Deducted Percentage as Percentage
for Sales of Your Net of Offering
Amount of Investment Load Investment Price
- -------------------- ---- ---------- -----
Less than $500,000 1.00% 1.01% 1.00%
$500,000 but less than $1,000,000 0.75 0.76 0.75
$1,000,000 or more None None
Under certain circumstances, the Distributor may increase or decrease the
reallowance to selected dealers. In addition to the compensation otherwise paid
to securities dealers, the Distributor may from time to time pay from its own
resources additional cash bonuses or other incentives to selected dealers in
connection with the sale of shares of the Funds. On some occasions, such bonuses
or incentives may be conditioned upon the sale of a specified minimum dollar
amount of the shares of a Fund and/or other funds in the Western-Southern Family
of Funds during a specific period of time. Such bonuses or incentives may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and other dealer-sponsored programs or events.
For initial purchases of Class A shares of $1 million or more and subsequent
purchases further increasing the size of the account, participating unaffiliated
dealers will receive first year compensation of up to 1.00% of such purchases
from the Distributor. In determining a dealer's eligibility for such commission,
purchases of Class A shares of the Funds may be aggregated with concurrent
purchases of Class A shares of other funds in the Western-Southern Family of
Funds. Dealers should contact the Distributor for more information on the
calculation of the dealer's commission in the case of combined purchases.
An exchange from other Western-Southern Funds will not qualify for payment of
the dealer's commission unless the exchange is from a Western-Southern Fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. No commission will be paid if the purchase represents the
reinvestment of a redemption from a Fund made during the previous twelve months.
Redemptions of Class A 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 Class A Shares" below.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the cost or
current NAV (whichever is higher) of your existing Class A shares of any
Western-Southern Fund sold with a sales load with the amount of any current
purchases in order to take advantage of the reduced sales loads set forth in the
table above. Purchases made in any Western-Southern load fund under 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. You should contact the Transfer
Agent for information about the Right of Accumulation and Letter of Intent.
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<PAGE>
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Funds (or shares into which such Class A shares were exchanged)
purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Distributor and the shares are
redeemed within one year from the date of purchase. The contingent deferred
sales load will be paid to the Distributor and will be equal to the commission
percentage paid at the time of purchase as applied to the lesser of (1) the NAV
at the time of purchase of the Class A shares being redeemed, or (2) the NAV of
such Class A shares at the time of redemption. If a purchase of Class A shares
is subject to the contingent deferred sales load, you will be notified on the
confirmation you receive for your purchase. Redemptions of such Class A shares
of the Funds held for at least one year will not be subject to the contingent
deferred sales load.
Class C Shares
--------------
Class C shares are sold with an initial sales load of 1.25% and are subject to a
contingent deferred sales load of 1.00% on redemptions of Class C shares made
within one year of their purchase. The contingent deferred sales load will be a
percentage of the dollar amount of shares redeemed and will be assessed on an
amount equal to the lesser of (1) the NAV at the time of purchase of the Class C
shares being redeemed, or (2) the NAV of such Class C shares being redeemed. A
contingent deferred sales load will not be imposed upon redemptions of Class C
shares held for at least one year. Class C shares are subject to an annual 12b-1
fee of up to 1.00% of a Fund's average daily net assets allocable to Class C
shares. The Distributor intends to pay a commission of 2.00% of the purchase
amount to your broker at the time you purchase Class C shares.
Additional Information on the Contingent Deferred Sales Load
------------------------------------------------------------
The contingent deferred sales load is waived for any partial or complete
redemption following death or disability (as defined in the Internal Revenue
Code) of a shareholder (including one who owns the shares with his or her spouse
as a joint tenant with rights of survivorship) from an account in which the
deceased or disabled is named. The Distributor may require documentation prior
to waiver of the load, including death certificates, physicians' certificates,
etc.
All sales loads imposed on redemptions are paid to the Distributor. 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.
The following example will illustrate the operation of the contingent deferred
sales load. Assume that you open an account and purchase 1,000 shares at $10 per
share and that six months later the NAV per share is $12 and, during such time,
you have acquired 50 additional shares through reinvestment of distributions. If
at such time you should redeem 450 shares (proceeds of $5,400), 50 shares will
not be subject to the load because of dividend reinvestment. With respect to
43
<PAGE>
the remaining 400 shares, the load is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$4,000 of the $5,400 redemption proceeds will be charged the load. At the rate
of 1.00%, the contingent deferred sales load would be $40. In determining
whether an amount is available for redemption without incurring a deferred sales
load, the purchase payments made for all Class C shares in your account are
aggregated.
OTHER PURCHASE INFORMATION
Additional information with respect to certain types of purchases of Class A
shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
is set forth below.
AGGREGATION. Sales charge discounts are available for certain aggregated
investments. Investments which may be aggregated include those made by you, your
spouse and your children under the age of 21, if all parties are purchasing
shares for their own accounts. Individual purchases by trustees or other
fiduciaries may also be aggregated if the investments are: (1) for a single
trust estate or fiduciary account; or (2) for a common trust fund or other
pooled account not specifically formed for the purpose of accumulating Fund
shares. Purchases made for nominee or street name accounts (securities held in
the name of a Dealer or another nominee such as a bank trust department instead
of the customer) may not be aggregated with those made for other accounts and
may not be aggregated with other nominee or street name accounts unless
otherwise qualified as described above.
CONCURRENT PURCHASES. To qualify for a reduced sales charge, you may combine
concurrent purchases of shares of two or more Funds (other than a money market
fund). For example, if you concurrently invest $25,000 in one Fund and $25,000
in another Fund, the sales charge would be reduced to reflect a $50,000
purchase.
RIGHT OF ACCUMULATION. A purchaser of shares of a 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 Distributor 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. A purchaser includes an individual and his immediate family members,
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 (the
"Purchaser").
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any Purchaser of shares of a 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 Distributor a specified amount which, if made at one time, would qualify
44
<PAGE>
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 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.
WAIVER OF SALES CHARGE. Sales charges do not apply to shares of the Funds
purchased:
1. By registered representatives or other employees (and their immediate
family members) of broker/dealers, banks or other financial institutions
having agreements with the Distributor.
2. By any director, officer or other employee (and their immediate family
members) of The Western and Southern Life Insurance Company or any of its
affiliates or any portfolio advisor or service provider to the Trust.
3. By clients of any portfolio advisor who are referred to the Distributor by
a portfolio advisor.
4. In accounts as to which a broker-dealer charges an asset management fee,
provided the broker-dealer has an agreement with the Distributor.
5. As part of certain promotional programs established by the Fund and/or
Distributor.
6. By one or more members of a group of persons engaged in a common business,
profession, civic or charitable endeavor or other activity and retirees and
immediate family members of such persons pursuant to a marketing program
between the Distributor and such group.
7. By banks, bank trust departments, savings and loan associations and federal
and state credit unions.
8. Through Processing Organizations described in the Prospectuses.
Immediate family members are defined as the spouse, parents, siblings, natural
or adopted children, mother-in-law, father-in-law, brother-in-law and
sister-in-law of a director, officer or employee. The term "employee" is deemed
to include current and retired employees.
45
<PAGE>
Exemptions must be qualified in advance by the Distributor. Your financial
advisor should call the Distributor for more information.
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 a Fund made under
the reinvestment privilege, purchases through exchanges and other purchases
which qualify for a reduced sales load as described herein because such
purchases require minimal sales effort by the Distributor. Purchases made at net
asset value 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
Funds. This section of the Statement of Additional Information includes
additional information concerning federal and state taxes.
Each 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 a 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; and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Fund's total assets is represented by cash,
U.S. Government securities, securities of other regulated investment companies
and other securities (for this purpose such other securities will qualify only
if the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
Each 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. A 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.
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 Funds may invest in such "specified private activity bonds"
subject to the requirement that each Fund invest its assets so that at least 80%
of its annual income will be exempt from federal income tax, including the
alternative minimum
46
<PAGE>
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 Funds may be a tax preference for corporate investors.
Each Fund intends to invest primarily in obligations with interest income exempt
from federal income taxes. To the extent possible, the Ohio Insured Tax-Free
Fund and the Ohio Tax-Free Money Fund intend to invest primarily in obligations
the income from which is exempt from Ohio personal income tax, the California
Tax-Free Money Fund intends to invest primarily in obligations the income from
which is exempt from California income tax and the Florida Tax-Free Money Fund
intends to invest primarily in obligations the value of which is exempt from the
Florida intangible personal 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 Funds, 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 Funds). 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 Class A shares of each
of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free 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
the Touchstone complex of mutual fundS 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 the Western-Southern complex of mutual funds.
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
47
<PAGE>
excluded from the tax basis of the shares sold will be added to the tax basis of
the shares acquired in the reinvestment.
A 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, 1999, the Tax-Free Intermediate Term Fund
had capital loss carryforwards for federal income tax purposes of $361,822 which
expires on June 30, 2004.
A federal excise tax at the rate of 4% will be imposed on the excess, if any, of
a Fund's "required distribution" over actual distributions in any calendar year.
Generally, the "required distribution" is 98% of a 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 Funds intend 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 a 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, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each 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 Tax-Free Money Fund, the Ohio Tax-Free
Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free Money
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 period return + 1)365/7 - 1. For
purposes of these calculations, no effect is given to realized or unrealized
gains or losses (the Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the
California Tax-Free Money Fund
48
<PAGE>
and the Florida Tax-Free Money Fund do not normally recognize unrealized gains
and losses under the amortized cost valuation method). The Tax-Free Money Fund's
current and effective yields for the seven days ended June 30, 1999 were 2.86%
and 2.90%, respectively. The Ohio Tax-Free Money Fund's current and effective
yields for the seven days ended June 30, 1999 were 2.87% and 2.91%,
respectively, for Class A shares and 3.12% and 3.17%, respectively, for Class B
shares. The California Tax-Free Money Fund's current and effective yields for
the seven days ended June 30, 1999 were 2.82% and 2.86%, respectively. The
Florida Tax-Free Money Fund's current and effective yields for the seven days
ended June 30, 1999 were 3.01% and 3.05%. The Tax-Free Money Fund, the Ohio
Tax-Free Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free
Money Fund may also quote a tax- equivalent current or effective yield, computed
by dividing that portion of a 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
marginal federal income tax rate for individuals (39.6%), the Tax-Free Money
Fund's tax-equivalent current and effective yields for the seven days ended June
30, 1999 were 4.74% and 4.80%, respectively. Based on the highest combined
marginal federal and Ohio income tax rate for individuals (44.13%), the Ohio
Tax-Free Money Fund's tax- equivalent current and effective yields for the seven
days ended June 30, 1999 were 5.14% and 5.21%, respectively, for Class A shares
and 5.58% and 5.67%, respectively, for Class B shares. Based on the highest
combined marginal federal and California income tax rate for individuals
(45.22%), the California Tax-Free Money Fund's tax-equivalent current and
effective yields for the seven days ended June 30, 1999 were 5.15% and 5.22%,
respectively. Based on the highest marginal federal income tax rate for
individuals (39.6%), the Florida Tax-Free Money Fund's tax-equivalent current
and effective yields for the seven days ended June 30, 1999 were 4.98% and
5.05%.
From time to time, the Tax-Free Intermediate Term Fund and the Ohio Insured
Tax-Free 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:
n
P (1 + T) = 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. If a Fund (or class)
has been in existence less than one, five or ten years, the time period since
the date of the initial public offering of shares will be substituted for the
periods stated. The average annual total returns of the Tax-Free Intermediate
Term Fund and the Ohio Insured Tax-Free Fund for the periods ended June 30, 1999
are as follows:
49
<PAGE>
Tax-Free Intermediate Term Fund (Class A)
1 year 0.03%
5 years 4.52%
10 years 5.73%
Tax-Free Intermediate Term Fund (Class C)
1 year 1.40%
5 years 4.30%
Since inception (February 1, 1994) 3.30%
Ohio Insured Tax-Free Fund (Class A)
1 year -2.27%
5 years 4.92%
10 years 6.09%
Ohio Insured Tax-Free Fund (Class C)
1 year 1.05%
5 years 5.11%
Since inception (November 1, 1993) 3.75%
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free 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. The total returns of the Tax-Free Intermediate Term Fund and the
Ohio Insured Tax-Free Fund as calculated in this manner for each of the last ten
fiscal years (or since inception) are as follows:
Ohio Ohio
Tax-Free Tax-Free Insured Insured
Intermediate Intermediate Tax-Free Tax-Free
Term Fund Term Fund Fund Fund
Period Ended Class A Class C Class A Class C
------- ------- ------- -------
June 30, 1990 6.35% 5.53%
June 30, 1991 7.38% 7.98%
June 30, 1992 8.78% 11.55%
June 30, 1993 10.75% 12.24%
June 30, 1994 1.70% -3.40%(1) -0.41% -4.01%(2)
June 30, 1995 6.36% 5.82% 7.75% 7.31%
June 30, 1996 4.51% 4.00% 5.05% 4.44%
June 30, 1997 6.19% 5.49% 7.36% 6.65%
June 30, 1998 5.63% 4.85% 7.03% 6.24%
June 30, 1999 2.07% 1.40% 1.81% 1.05%
50
<PAGE>
(1) From date of initial public offering on February 1, 1994.
(2) From date of initial public offering on November 1, 1993.
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. The average annual compounded rates of return for Class A
shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
(excluding sales loads) for the periods ended June 30, 1999 are as follows:
TAX-FREE INTERMEDIATE TERM FUND (CLASS A)
1 Year 2.07%
3 Years 4.61%
5 Years 4.94%
10 Years 5.94%
Since inception (September 10, 1981) 6.17%
OHIO INSURED TAX-FREE FUND (CLASS A)
1 Year 1.81%
3 Years 5.37%
5 Years 5.78%
10 Years 6.52%
Since inception (April 1, 1985) 7.56%
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 Tax-Free Intermediate Term Fund and the Ohio Insured
Tax-Free Fund may advertise their 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:
6
Yield = 2[(a-b/cd + 1) - 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
51
<PAGE>
Generally, interest earned (for the purpose of "a" above) on debt obligations is
computed by reference to the yield to maturity of each obligation held based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day prior to the start of the 30-day (or
one month) period for which yield is being calculated, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). The yields of Class A and Class C shares of the Tax-Free Intermediate
Term Fund for June 1999 were 4.06% and 3.39%, respectively. The yields of Class
A and Class C shares of the Ohio Insured Tax-Free Fund for June 1999 were 4.67%
and 4.11%, respectively. Tax-equivalent yield is computed by dividing that
portion of a Fund's yield which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the Fund's yield that is
not tax-exempt. Based on the highest marginal federal income tax rate for
individuals (39.6%), the tax-equivalent yields of Class A and Class C shares of
the Tax-Free Intermediate Term Fund for June 1999 were 6.72% and 5.61%,
respectively. Based on the highest combined marginal federal and Ohio income tax
rate for individuals (44.13%), the tax-equivalent yields of Class A and Class C
shares of the Ohio Insured Tax-Free Fund for June 1999 were 8.36% and 7.36%,
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 Class A and Class B shares of the Ohio Tax-Free Money Fund. The
yield of Class B shares is expected to be higher than the yield of Class A
shares due to the distribution fees imposed on Class A shares. Average annual
total return and yield are computed separately for Class A and Class C shares of
the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund. The
yield of Class A shares is expected to be higher than the yield of Class C
shares due to the higher distribution fees imposed on Class C shares.
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements regarding each 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
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Funds may use the following
publications or indices to discuss or compare Fund performance:
IBC's Money Fund Report provides a comparative analysis of performance for
various categories of money market funds. The Tax-Free Money Fund may compare
performance rankings with money market funds appearing in the Tax-Free
Stockbroker & General Purpose Funds category. In addition, the Ohio Tax-Free
Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free Money
Fund may compare performance rankings with money market funds appearing in the
Tax-Free State Specific Stockbroker & General Purpose Funds categories.
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 Tax-Free Money Fund may provide
comparative performance information appearing in the Tax-Exempt Money
52
<PAGE>
Market Funds category, the Ohio Tax-Free Money Fund may provide comparative
performance information appearing in the Ohio Tax- Exempt Money Market Funds
category, the California Tax-Free Money Fund may provide comparative performance
information appearing in the California Tax-Exempt Money Market Funds category
and the Florida Tax-Free Money Fund may provide comparative performance
information appearing in the Other States Tax-Exempt Money Market Funds
category. The Tax-Free Intermediate Term Fund may provide comparative
performance information appearing in the Intermediate (5-10 year) Municipal Debt
Funds category and the Ohio Insured Tax-Free Fund may provide comparative
performance information appearing in the Ohio 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 Funds' portfolios, 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 Funds to calculate their
performance. In addition, there can be no assurance that the Funds will continue
this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of _______________, 2000, the principal owners of each class of shares of
each Fund are listed in the following table:
- --------------------------------------------------------------------------------
CLASS
OF
FUND SHARES SHAREHOLDER # OF SHARES % OF CLASS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has been
retained to act as Custodian for investments of the Tax-Free Money Fund, the
Tax-Free Intermediate Term Fund, the Ohio Insured Tax-Free Fund, the Ohio
Tax-Free Money Fund and the California Tax-Free Money Fund. The Fifth Third Bank
acts as each 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 each Fund a base fee at the annual rate of .005% of
average net assets (subject to a minimum annual fee of $1,500 per Fund and a
maximum fee of $5,000 per Fund) plus transaction charges for each security
transaction of the Funds.
The Huntington Trust Company, N.A., 41 South High Street, Columbus, Ohio, has
been retained to act as Custodian for investments of the Florida Tax-Free Money
Fund. The Huntington Trust Company, N.A. acts as the Fund's depository,
safekeeps its portfolio securities, collects all
53
<PAGE>
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties. As compensation, The
Huntington Trust Company receives a fee at the annual rate of .026% of the
Fund's average net assets.
INDEPENDENT AUDITORS
- --------------------
[The firm of Ernst & Young LLP, 250 East Fifth Street, Cincinnati, Ohio, has
been selected as independent auditors for the Trust for the fiscal year ending
June 30, 2000 and to advise the Funds on certain accounting matters.] Prior to
the fiscal year ending June 30, 2000, Arthur Andersen LLP, 425 Walnut Street,
Cincinnati, Ohio performed the annual audit of the Trust's financial statements
and advised the Funds as to certain accounting matters.
TRANSFER AGENT
- --------------
The Trust's transfer agent, Intrust Fund Solutions, Inc. ("INTRUST"), maintains
the records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Funds'
shares, acts as dividend and distribution disbursing agent and performs other
shareholder service functions. INTRUST is an affiliate of the Advisor by reason
of common ownership. INTRUST receives for its services as transfer agent a fee
payable monthly at an annual rate of $25 per account from each of the Tax-Free
Money Fund, the Ohio Tax-Free Money Fund, the California Tax-Free Money Fund and
the Florida Tax-Free Money Fund and $21 per account from each of the Tax-Free
Intermediate Term Fund and the Ohio Insured Tax-Free Fund, provided, however,
that the minimum fee is $1,000 per month for each class of shares of a Fund. In
addition, the Funds pay out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, record storage and
communication lines.
INTRUST 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 INTRUST to perform its duties, the Tax-Free
Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free Money
Fund each pay INTRUST a fee in accordance with the following schedule:
ASSET SIZE OF FUND MONTHLY FEE
------------------ -----------
$0 - $50,000,000 $2,500
$50,000,000 - $100,000,000 $3,000
$100,000,000 - $200,000,000 $3,500
$200,000,000 - $300,000,000 $4,000
Over $300,000,000 $5,000*
The Tax-Free Intermediate Term Fund, the Ohio Insured Tax-Free Fund and the Ohio
Tax-Free Money Fund each pay INTRUST a fee in accordance with the following
schedule:
54
<PAGE>
ASSET SIZE OF FUND MONTHLY FEE
------------------ -----------
$0 - $50,000,000 $3,500
$50,000,000 - $100,000,000 $4,000
$100,000,000 - $200,000,000 $4,500
$200,000,000 - $300,000,000 $5,000
Over $300,000,000 $6,000
* Subject to an additional fee of .001% of average daily net assets in excess of
$300 million.
In addition, each Fund pays all costs of external pricing services.
INTRUST is retained by the Advisor to assist the Advisor in providing
administrative services to the Funds. In this capacity, INTRUST supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. INTRUST
supervises the preparation of tax returns, reports to shareholders of the Funds,
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, INTRUST receives a fee from
the Advisor.
The Advisor is solely responsible for the payment of these administrative fees
to INTRUST, and INTRUST has agreed to seek payment of such fees solely from the
Advisor.
TAX EQUIVALENT YIELD TABLES
- ---------------------------
The tax equivalent yield tables illustrate approximately the yield an individual
investor must earn on taxable investments to equal a tax-exempt yield in various
income tax brackets.
TAX-FREE MONEY FUND, TAX-FREE INTERMEDIATE TERM FUND AND FLORIDA TAX-FREE MONEY
FUND TABLE. The table on the following page shows the approximate taxable yields
for individuals that are equivalent to tax-exempt yields under marginal federal
1999 income tax rates. No adjustments have been made for state or local taxes.
OHIO INSURED TAX-FREE FUND AND OHIO TAX-FREE MONEY FUND TABLE. The table on the
following page shows the approximate taxable yields for individuals that are
equivalent to tax-exempt yields under combined marginal federal and Ohio 1999
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.
CALIFORNIA TAX-FREE MONEY FUND TABLE. The table on the following page shows the
approximate taxable yields for individuals that are equivalent to tax-exempt
yields under combined marginal federal and California 1999 income tax rates.
Where more than one state bracket falls within a federal bracket, the highest
state tax bracket has been combined with the
55
<PAGE>
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 $124,500 (single return) or $186,800 (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 $124,500. The tax equivalent yield tables have not
been adjusted to reflect the impact of these adjustments to taxable income.
56
<PAGE>
TAX-FREE MONEY FUND, TAX-FREE INTERMEDIATE TERM FUND
AND FLORIDA TAX-FREE MONEY FUND
Tax-Exempt Yield
----------------
3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
Federal
Tax Bracket* Tax Equivalent Yield
--------------------
15% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47%
28% 4.17 4.86 5.56 6.25 6.94 7.64
31% 4.35 5.07 5.80 6.52 7.25 7.97
36% 4.69 5.47 6.25 7.03 7.81 8.59
39.6% 4.97 5.79 6.62 7.45 8.28 9.11
OHIO INSURED TAX-FREE FUND
OHIO TAX-FREE MONEY FUND
Tax-Exempt Yield
Combined ----------------
Ohio and 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
Federal
Tax Bracket* Tax Equivalent Yield
--------------------
18.788% 3.69% 4.31% 4.93% 5.54% 6.16% 6.77%
31.745% 4.40 5.13 5.86 6.59 7.33 8.06
35.761% 4.67 5.45 6.23 7.01 7.78 8.56
40.800% 5.07 5.91 6.76 7.60 8.45 9.29
44.130% 5.37 6.26 7.16 8.05 8.95 9.84
CALIFORNIA TAX-FREE MONEY FUND
Tax-Exempt Yield
Combined ----------------
California and 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
Federal
Tax Bracket* Tax Equivalent Yield
--------------------
20.100% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88%
34.696% 4.59 5.36 6.13 6.89 7.66 8.42
37.417% 4.79 5.59 6.39 7.19 7.99 8.79
41.952% 5.17 6.03 6.89 7.75 8.61 9.47
45.217% 5.48 6.39 7.30 8.21 9.13 10.04
*Tax Brackets Combined Combined
- ------------- Ohio and California
Federal Federal and Federal
Single Joint Tax Tax Tax
Return Return Bracket Bracket Bracket
------ ------- ------- -------
Not over $25,750 Not Over $43,050 15% 18.788% 20.100%
$25,750-$62,450 $43,050-$104,050 28% 31.745% 34.696%
$62,450-$130,250 $104,050-$158,550 31% 35.761% 37.417%
$130,250-$283,150 $158,550-$283,150 36% 40.800% 41.952%
Over $283,150 Over $283,150 39.6% 44.130% 45.217%
57
<PAGE>
FINANCIAL STATEMENTS
- --------------------
The following financial statements for the Trust at and for the fiscal periods
indicated are incorporated herein by reference from their current reports to
shareholders filed with the SEC pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder. A copy of each such report will be provided, without
charge, to each person receiving this Statement of Additional Information.
58
<PAGE>
DISTRIBUTOR
Touchstone Securities, Inc.
311 Pike Street
Cincinnati, Ohio 45202
TOUCHSTONE TAX-FREE TRUST
INVESTMENT ADVISOR o Tax-Free Money Fund
Touchstone Advisors, Inc. o Tax-Free Intermediate Term Fund
311 Pike Street o Ohio Insured Tax-Free Fund
Cincinnati, Ohio 45202 o Ohio Tax-Free Money Fund
o California Tax-Free Money Fund
o Florida Tax-Free Money Fund
TRANSFER AGENT, ADMINISTRATOR AND
FUND ACCOUNTING AGENT
Intrust Fund Solutions, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
CUSTODIAN FOR ALL FUNDS
(EXCEPT FLORIDA TAX-FREE MONEY FUND)
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
CUSTODIAN FOR FLORIDA TAX-FREE MONEY FUND
The Huntington Trust Company
41 South High Street STATEMENT OF ADDITIONAL INFORMATION
Columbus, Ohio 43215 JUNE ___, 2000
INDEPENDENT AUDITORS
[Ernst & Young LLP]
250 E. Fifth Street
Cincinnati, Ohio
LEGAL COUNSEL
Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
59
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(a) ARTICLES OF INCOPORATION.
(i) Restated Agreement and Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 36, is hereby
incorporated by reference.
(ii) Amendment No. 1 to the Restated Agreement and Declaration of Trust,
dated May 25, 1994, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 36, is hereby incorporated by reference.
(iii) Amendment No. 2 to the Restated Agreement and Declaration of Trust,
dated July 31, 1996, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 38, is hereby incorporated by reference.
(iv) Amendment No. 3 to the Restated Agreement and Declaration of Trust,
dated February 28, 1997, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 40, is hereby incorporated
by reference.
(b) BYLAWS
Bylaws, as amended, which were filed as Exhibits to Registrant's
Post-Effective Amendment No. 38, are hereby incorporated by reference.
(c) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Article IV of Registrant's Restated Agreement and Declaration of Trust
provides the following rights for security holders:
LIQUIDATION. In event of the liquidation or dissolution of the Trust,
the Shareholders of each Series that has been established and
designated shall be entitled to receive, as a Series, when and as
declared by the Trustees, the excess of the assets belonging to that
Series over the liabilities belonging to that Series. The assets so
distributable to the Shareholders of any particular Series shall be
distributed among such Shareholders in proportion to the number of
Shares of that Series held by them and recorded on the books of the
Trust.
VOTING. All shares of all Series shall have "equal voting rights" as
such term is defined in the Investment Company Act of 1940 and except
as otherwise provided by that Act or rules, regulations or orders
promulgated thereunder. On each matter submitted to a vote of the
Shareholders, all shares of each Series shall vote as a single class
except as to any matter with respect to which a vote of all Series
voting as a single series is required by the 1940 Act or rules and
regulations promulgated thereunder, or would be required under the
Massachusetts Business Corporation Law if the Trust were a
Massachusetts business corporation. As to any matter which does not
affect the interest of a particular Series, only the holders of Shares
of the one or more affected Series shall be entitled to vote.
<PAGE>
REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular
Series shall have the right at such times as may be permitted by the
Trust, but no less frequently than once each week, to require the
Trust to redeem all or any part of his Shares of that Series at a
redemption price equal to the net asset value per Share of that Series
next determined in accordance with subsection (h) of this Section 4.2
after the Shares are properly tendered for redemption. Notwithstanding
the foregoing, the Trust may postpone payment of the redemption price
and may suspend the right of the holders of Shares of any Series to
require the Trust to redeem Shares of that Series during any period or
at any time when and to the extent permissible under the 1940 Act, and
such redemption is conditioned upon the Trust having funds or property
legally available therefor.
TRANSFER. All Shares of each particular Series shall be transferable,
but transfers of Shares of a particular Series will be recorded on the
Share transfer records of the Trust applicable to that Series only at
such times as Shareholders shall have the right to require the Trust
to redeem Shares of that Series and at such other times as may be
permitted by the Trustees.
Article V of Registrant's Restated Agreement and Declaration of Trust
provides the following rights for security holders:
VOTING POWERS. The Shareholders shall have power to vote only (i) for
the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940
Act, (iii) with respect to any termination or reorganization of the
Trust or any Series to the extent and as provided in Sections 7.1 and
7.2, (iv) with respect to any amendment of this Declaration of Trust
to the extent and as provided in Section 7.3, (v) to the same extent
as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should
not be brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders, and (vi) with respect to such
additional matters relating to the Trust as may be required by the
1940 Act, this Declaration of Trust, the Bylaws or any registration of
the Trust with the Commission (or any successor agency) in any state,
or as the Trustees may consider necessary or desirable. There shall be
no cumulative voting in the election of any Trustee or Trustees.
Shares may be voted in person or by proxy.
(d) INVESTMENT ADVISORY CONTRACTS
(i) Form of Advisory Agreement with Touchstone Advisors, Inc., which was
filed as an Exhibit to Registrant's Proxy Statement filed March 15,
2000, is hereby incorporated by reference.
(ii) Form of Subadvisory Agreement with Fort Washington Investment
Advisors, Inc., which was filed as an Exhibit to Registrant's Proxy
Statement filed March 15, 2000, is hereby incorporated by reference.
<PAGE>
(e) UNDERWRITING CONTRACTS
(i) Form of Underwriter's Agreement with Touchstone Securities, Inc.,
which was filed as an exhibit to Post-Effective Amendment No. 71 to
the Registration Statement of Touchstone Investment Trust, is hereby
incorporated by reference.
(ii) Form of Dealer Agreement will be filed by amendment.
(f) BONUS OR PROFIT SHARING CONTRACTS
None.
(g) CUSTODIAN AGREEMENTS
(i) Custody Agreement with The Fifth Third Bank, the Custodian for the
Tax-Free Money Fund, the Tax-Free Intermediate Term Fund, the Ohio
Insured Tax-Free Fund, the Ohio Tax-Free Money Fund and the
California Tax-Free Money Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 38, is hereby incorporated
by reference.
(ii) Custody Agreement with the Huntington Trust Company, the Custodian
for the Florida Tax-Free Money Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 36, is hereby incorporated
by reference.
(h) OTHER MATERIAL CONTRACTS
(i) Registrant's Accounting and Pricing Services Agreement, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 44,
is hereby incorporated by reference.
(ii) Registrant's Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with Intrust Fund Solutions, Inc., which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 44,
is hereby incorporated by reference.
(iii) Form of Administration Agreement with Intrust Fund Solutions, Inc.,
which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 44, is hereby incorporated by reference.
(i) LEGAL OPINION
Opinion and Consent of Counsel, which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No. 1.
(j) OTHER OPINIONS
(i) Consent of Arthur Andersen LLP is filed herewith.
(ii) Consent of Ernst & Young LLP is filed herewith.
<PAGE>
(k) OMITTED FINANCIAL STATEMENTS
None.
(l) INITIAL CAPITAL AGREEMENTS
Letter of Initial Stockholder, which was filed as an Exhibit to
Registrant's Pre-Effective Amendment No. 1, is filed in electronic format
herewith.
(m) RULE 12B-1 PLAN
(i) Registrant's Plans of Distribution Pursuant to Rule 12b-1, which were
filed as Exhibits to Registrant's Post-Effective Amendment No. 40,
are hereby incorporated by reference.
(ii) Form of Sales Agreement for Money Market Funds, which was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 41, is hereby
incorporated by reference.
(n) RULE 18F-3 PLAN
Amended Rule 18f-3 Plan Adopted with Respect to the Multiple Class
Distribution System, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 41, is hereby incorporated by reference.
(o) RESERVED
(p) CODE OF ETHICS
(i) Registrant's Code of Ethics is filed herewith.
(ii) Code of Ethics of Touchstone Advisors, Inc. is filed herewith.
(iii) Code of Ethics of Fort Washington Investment Advisors, Inc. is filed
herewith.
(iv) Code of Ethics of Touchstone Securities, Inc. is filed herewith.
Item 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
None
Item 25. Indemnification
---------------
(a) Article VI of the Registrant's Restated Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc.
The Trust shall indemnify each of its Trustees and officers, including
persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise (hereinafter
<PAGE>
referred to as a "Covered Person") against all liabilities, including
but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered
Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court
or administrative or legislative body, in which such Covered Person
may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a Trustee or
officer, director or trustee, and except that no Covered Person shall
be indemnified against any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office
("disabling conduct"). Anything herein contained to the contrary
notwithstanding, no Covered Person shall be indemnified for any
liability to the Trust or its Shareholders to which such Covered
Person would otherwise be subject unless (1) a final decision on the
merits is made by a court or other body before whom the proceeding was
brought that the Covered Person to be indemnified was not liable by
reason of disabling conduct or, (2) in the absence of such a decision,
a reasonable determination is made, based upon a review of the facts,
that the Covered Person was not liable by reason of disabling conduct,
by (a) the vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Company as defined in the Investment
Company Act of 1940 nor parties to the proceeding ("disinterested,
non-party Trustees"), or (b) an independent legal counsel in a written
opinion.
Section 6.5 Advances of Expenses.
The Trust shall advance attorneys' fees or other expenses incurred by
a Covered Person in defending a proceeding, upon the undertaking by or
on behalf of the Covered Person to repay the advance unless it is
ultimately determined that such Covered Person is entitled to
indemnification, so long as one of the following conditions is met:
(i) the Covered Person shall provide security for his undertaking,
(ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an independent legal
counsel in a written opinion, shall determine, based on a review of
readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately
will be found entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
The right of indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered Person"
shall include such person's heirs, executors and administrators, an
"interested Covered Person" is one against whom the action, suit or
other proceeding in question or another action, suit or other
proceeding on the same
<PAGE>
or similar grounds is then or has been pending or threatened, and a
"disinterested" person is a person against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending or
threatened. Nothing contained in this article shall affect any rights
to indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by contract
or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
(b) The Registrant maintains a mutual fund and investment advisory professional
and directors and officers liability policy. The policy provides coverage
to the Registrant, its trustees and officers and Touchstone Advisors, Inc.
(the "Adviser") in its capacity as investment adviser and Touchstone
Securities, Inc. (the "Underwriter") in its capacity as principal
underwriter, among others. Coverage under the policy includes losses by
reason of any act, error, omission, misstatement, misleading statement,
neglect or breach of duty. The Registrant may not pay for insurance which
protects the Trustees and officers against liabilities rising from action
involving willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their offices.
The Advisory Agreements and the Subadvisory Agreements provide that the
Adviser (or Subadvisor) shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Registrant in connection
with the matters to which the Agreements relate, except a loss resulting
from willful misfeasance, bad faith or gross negligence of the Adviser (or
Subadvisor) in the performance of its duties or from the reckless disregard
by the Adviser (or Subadvisor) of its obligations under the Agreement.
Registrant will advance attorneys' fees or other expenses incurred by the
Adviser (or Subadvisor) in defending a proceeding, upon the undertaking by
or on behalf of the Adviser (or Subadvisor) to repay the advance unless it
is ultimately determined that the Adviser is entitled to indemnification.
The Underwriting Agreement with the Underwriter provides that the
Underwriter, its directors, officers, employees, shareholders and control
persons shall not be liable for any error of judgment or mistake of law or
for any loss suffered by Registrant in connection with the matters to which
the Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of any of such persons in the
performance of the Underwriter's duties or from the reckless disregard by
any of such persons of the Underwriter's obligations and duties under the
Agreement. Registrant will advance attorneys' fees or other expenses
incurred by any such person in defending a proceeding, upon the undertaking
by or on behalf of such person to repay the advance if it is ultimately
determined that such person is not entitled to indemnification.
Item 26. Business and Other Connections of the Investment Advisers
---------------------------------------------------------
A. Touchstone Advisors, Inc. ("Touchstone") is a registered investment adviser
which provides investment advisory services to the Registrant. Touchstone
also serves as the investment adviser to Touchstone Variable Series Trust,
Touchstone Strategic Trust and Touchstone Investment Trust.
<PAGE>
The following list sets forth the business and other connections of the
directors and executive officers of Touchstone. The addresses of the
corporations listed below are shown in the table under Item 26C.
(1) Jill T. McGruder, President and a Director of Touchstone.
(a) President of Touchstone Series Trust and Touchstone Variable
Series Trust
(b) A Trustee of Touchstone Strategic Trust, Touchstone Investment
Trust and Touchstone Tax-Free Trust.
(c) President, Chief Executive Officer and a Director of IFS
Financial Services, Inc. and Touchstone Securities, Inc.
(d) A Director of CS Holdings, Inc., Intrust Fund Solutions, Inc.,
IFS Fund Distributors, Inc., Ft. Washington Brokerage Services,
Inc. and Capital Analysts Incorporated
(e) President and a Director of IFS Agency Services, Inc., IFS
Insurance Agency, Inc. and IFS Systems, Inc.
(f) Senior Vice President of The Western-Southern Life Insurance
Company
(2) Teresa A. Siegel, Vice President and Chief Financial Officer of
Touchstone.
(a) Chief Financial Officer of IFS Financial Services, Inc.
(3) Patricia J. Wilson, Chief Compliance Officer of Touchstone
(a) Chief Compliance Officer of Touchstone Securities, Inc.
(b) Director of Compliance of IFS Financial Services, Inc.
(4) Donald J. Wuebbling, a Director of Touchstone
(a) Director of Touchstone Securities, Inc.
(b) Vice President and General Counsel of The Western and Southern
Life Insurance Company
(5) James N. Clark, a Director of Touchstone
(a) Director of Touchstone Securities, Inc.
<PAGE>
(b) Executive Vice President and Director of The Western and Southern
Life Insurance Company
(6) William F. Ledwin, a Director of Touchstone
(a) A Director of CS Holdings, Inc., Intrust Fund Solutions, Inc.,
IFS Fund Distributors, Inc., Ft. Washington Brokerage Services,
Inc., IFS Agency Services, Inc., Capital Analysts Incorporated,
IFS Insurance Agency, Inc., Touchstone Securities, Inc., IFS
Financial Services, Inc., IFS Systems, Inc. and Eagle Realty
Group, Inc.
(b) President and a Director of Fort Washington Investment Advisors,
Inc.
(c) Vice President and Chief Investment Officer of Columbus Life
Insurance Company
(d) Senior Vice President and Chief Investment Officer of The
Western-Southern Life Insurance Company
B. Fort Washington Investment Advisors, Inc. ("Ft. Washington") is a
registered investment adviser which provides sub-advisory services to the
Funds in Touchstone Tax-Free Trust and to certain Funds in Touchstone
Variable Series Trust, Touchstone Investment Trust and Touchstone Strategic
Trust. Ft. Washington also provides investment advice to institutional and
individual clients.
The following list sets forth the business and other connections of the
directors and executive officers of Ft. Washington. The addresses of the
corporations listed below are shown in the table under Item 26C.
(1) William J. Williams, Chairman and a director of Ft. Washington
(a) Chairman of the Board of The Western and Southern Life Insurance
Company
(2) William F. Ledwin, President and a director of Ft. Washington
See biography above
(3) James J. Vance, Vice President and Treasurer of Ft. Washington
(a) Vice President and Treasurer of The Western and Southern Life
Insurance Company
(4) Rance G. Duke, Vice President and Senior Portfolio Manager of Ft.
Washington
<PAGE>
(a) Second Vice President and Senior Portfolio Manager of The Western
and Southern Life Insurance Company
(5) John C. Holden, Vice President and Senior Portfolio Manager of Ft.
Washington
(a) Vice President and Senior Portfolio Manager of Ft. Washington
Brokerage Services, Inc.
(6) Charles E. Stutenroth IV, Vice President and Senior Portfolio Manager
of Ft. Washington
(a) Vice President and Senior Portfolio Manager of Ft. Washington
Brokerage Services, Inc.
(b) Senior Vice President and Portfolio Manager of Bank of America
Investment Management, Charlotte North Carolina until 1999.
(7) Brendan M. White, Vice President and Senior Portfolio Manager of Ft.
Washington
C. The address and principal business of each corporation listed in Item 26A
and Item 26B are shown below.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
ADDRESS CORPORATION PRINCIPAL BUSINESS
-----------------------------------------------------------------------------------------
<S> <C> <C>
311 Pike Street Cincinnati OH IFS Financial Services, Inc. Holding company
IFS Agency Services, Inc. Insurance agency
IFS Insurance Agency, Inc. Insurance agency
IFS Systems, Inc. Information systems provider
Touchstone Advisors, Inc. Investment advisor
Touchstone Series Trust Investment company
Touchstone Variable Series Investment company
Trust
-----------------------------------------------------------------------------------------
312 Walnut Street CS Holdings, Inc. Holding company
Cincinnati OH Intrust Fund Solutions, Inc. Mutual fund services provider
Ft. Washington Brokerage Broker-dealer
Services, Inc.
Touchstone Investment Trust Investment company
Touchstone Strategic Trust Investment company
Touchstone Tax-Free Trust Investment company
IFS Fund Distributors, Inc. Broker-dealer
-----------------------------------------------------------------------------------------
400 Broadway Cincinnati OH The Western-Southern Life Insurance company
Insurance Company
-----------------------------------------------------------------------------------------
400 East Fourth Street Columbus Life Insurance Life insurance company
Cincinnati OH Company
-----------------------------------------------------------------------------------------
420 East Fourth Street Fort Washington Investment Investment advisor
Cincinnati OH Advisors, Inc.
-----------------------------------------------------------------------------------------
<PAGE>
421 East Fourth Street Eagle Realty Group, Inc. Real estate brokerage and
Cincinnati OH management service provider
-----------------------------------------------------------------------------------------
3 Radnor Corporate Center Capital Analysts Investment advisor and
Radnor PA Incorporated broker-dealer
-----------------------------------------------------------------------------------------
</TABLE>
Item 27 Principal Underwriters
----------------------
(a) Touchstone Securities also acts as underwriter for Touchstone Strategic
Trust and Touchstone Investment Trust.
(b) The following list sets forth the business and other connections of the
directors and executive officers of Touchstone Securities. Unless otherwise
noted with an asterisk, the address of the persons named below is 311 Pike
Street, Cincinnati, Ohio 45202.
POSITION WITH
NAME POSITION WITH UNDERWRITER REGISTRANT
---------------------------------------------------------------------------
Jill T. McGruder President/Director Trustee
William F. Ledwin Director None
Patricia J. Wilson Chief Compliance Officer None
Teresa A. Siegel Vice President/Chief Financial None
Officer
James J. Vance Vice President None
Edward S. Heenan Controller/Director None
Donald J. Wuebbling Director None
James N. Clark Director None
Robert F. Morand Secretary None
Richard K. Taulbee Vice President None
(c) None
Item 28. Location of Accounts and Records
--------------------------------
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder will be maintained by the Registrant.
Item 29. Management Services Not Discussed in Part A or Part B
-----------------------------------------------------
None.
Item 30. Undertakings
------------
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the provisions of Massachusetts law and the
Agreement and Declaration of Trust of the
<PAGE>
Registrant or the Bylaws of the Registrant, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) Within five business days after receipt of a written application by
shareholders holding in the aggregate at least 1% of the shares then
outstanding or shares then having a net asset value of $25,000, whichever
is less, each of whom shall have been a shareholder for at least six months
prior to the date of application (hereinafter the "Petitioning
Shareholders"), requesting to communicate with other shareholders with a
view to obtaining signatures to a request for a meeting for the purpose of
voting upon removal of any Trustee of the Registrant, which application
shall be accompanied by a form of communication and request which such
Petitioning Shareholders wish to transmit, Registrant will:
(i) provide such Petitioning Shareholders with access to a list of the
names and addresses of all shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the approximate number of
shareholders and the estimated costs of mailing such communication,
and to undertake such mailing promptly after tender by such
Petitioning Shareholders to the Registrant of the material to be
mailed and the reasonable expenses of such mailing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Cincinnati, State of Ohio, on the 28th day of March, 2000.
TOUCHSTONE TAX-FREE TRUST
By: /s/ Robert H. Leshner
---------------------
Robert H. Leshner, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated.
SIGNATURE TITLE
/s/ Robert H. Leshner February 28, 2000
- ---------------------
Robert H. Leshner President and Trustee
/s/ Theresa M. Samocki February 28, 2000
- ----------------------
Theresa M. Samocki Treasurer
William O. Coleman* Trustee
Phillip R. Cox Trustee
H. Jerome Lerner* Trustee
/s/ Jill T. McGruder February 28, 2000
- --------------------
Jill T. McGruder Trustee
Oscar P. Robertson* Trustee
Nelson Schwab, Jr.* Trustee
Robert E. Stautberg* Trustee
Joseph S. Stern, Jr.* Trustee
*By: /s/ Jill T. McGruder February 28, 2000
--------------------
Jill T. McGruder
As attorney in fact for each Trustee
<PAGE>
EXHIBIT INDEX
99.23(j)(i) Consent of Arthur Andersen LLP
99.23(j)(ii) Consent of Ernst & Young LLP
99.23(l) Initial Capital Agreements
99.23(p)(i) Code of Ethics--Touchstone Tax-Free Trust
99.23(p)(ii) Code of Ethics--Touchstone Advisors, Inc.
99.23(p)(iii) Code of Ethics--Fort Washington Investment Advisors, Inc.
99.23(p)(iv) Code of Ethics--Touchstone Securities, Inc.
99 Powers of Attorney
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this Form N-1A filing of our report dated August 6, 1999 and to all
references to our Firm included in or made a part of this Post-Effective
Amendment No. 45 Form N-1A filing.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
April 6, 2000
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information, in Amendment No. 44 to the
Registration Statement (File No. 811-03174) of Countrywide Tax-Free Trust.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Cincinnati, Ohio
April 5, 2000
August 19, 1981
Fourth Street Tax Free
Income Trust
522 Dixie Terminal Building
Cincinnati, Ohio 45202
Gentlemen:
The undersigned, having purchased 5000 shares of the Money Market Portfolio
and 5000 shares of the Limited Term Portfolio of Fourth Street Tax Free Income
Trust on August 19, 1981, does hereby represent that (1) such purchase was for
investment purposes and (2) the undersigned has no present intention of
redeeming or selling said shares.
Midwest Advisory Services, Inc.
By /s/ Robert H. Leshen, President
------------------------------------
Robert H. Leshen, President
AMENDED CODE OF ETHICS
COUNTRYWIDE TAX-FREE TRUST
Adopted May 25, 1999
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics has been adopted by Countrywide Tax-Free Trust (the
"Trust") for the purpose of instructing all employees, officers, directors
and trustees of the Trust and/or its investment adviser, Countrywide
Investments, Inc. ("Countrywide") in their ethical obligations and to
provide rules for their personal securities transactions. All such
employees, officers, directors and trustees owe a fiduciary duty to the
Trust and its shareholders. A fiduciary duty means a duty of loyalty,
fairness and good faith towards the Trust and its shareholders, and the
obligation to adhere not only to the specific provisions of this Code but
to the general principles that guide the Code. These general principles
are:
o The duty at all times to place the interests of the Trust and its
shareholders first;
o The requirement that all personal securities transactions be
conducted in a manner consistent with the Code of Ethics and in
such a manner as to avoid any actual or potential conflict of
interest or any abuse of any individual's position of trust and
responsibility; and
o The fundamental standard that such employees, officers, directors
and trustees should not take inappropriate advantage of their
positions, or of their relationship with the Trust or its
shareholders.
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<PAGE>
It is imperative that the personal trading activities of the employees,
officers, directors and trustees of the Trust and Countrywide,
respectively, be conducted with the highest regard for these general
principles in order to avoid any possible conflict of interest, any
appearance of a conflict, or activities that could lead to disciplinary
action. This includes executing transactions through or for the benefit of
a third party when the transaction is not in keeping with the general
principles of this Code. All personal securities transactions must also
comply with Countrywide's Insider Trading Policy and Procedures and the
Securities and Exchange Commission's Rule 17j-1. Under this rule, no
Employee may:
o employ any device, scheme or artifice to defraud the Trust or any
of its shareholders;
o make to the Trust or any of its shareholders any untrue statement
of a material fact or omit to state to such client a material
fact necessary in order to make the statements made, in light of
the circumstances under which they are made, not misleading;
o engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Trust or any of
its shareholders; or
o engage in any manipulative practice with respect to the Trust or
any of its shareholders.
II. DEFINITIONS
A. ADVISORY EMPLOYEES: Employees who participate in or make recommendations
with respect to the purchase or sale of securities including fund portfolio
managers and assistant fund portfolio managers. The Compliance Officer will
maintain a current list of all Advisory Employees.
B. BENEFICIAL INTEREST: ownership or any benefits of ownership, including
the opportunity to directly or indirectly profit or otherwise obtain
financial benefits from any interest in a security.
C. COMPLIANCE OFFICER: Michele Hawkins or, in her absence, an alternate
Compliance Officer (Maryellen Peretzky, Robert Leshner or Susan Flischel),
or their respective successors in such positions.
D. EMPLOYEE ACCOUNT: each account in which an Employee or a member of his
or her family has any direct or indirect Beneficial Interest or over which
such person exercises control or influence, including, but not limited to,
any joint account, partnership, corporation, trust or estate. An Employee's
family members include the Employee's spouse, minor children, any person
living in the home of the Employee, and any relative of the Employee
(including in-laws) to whose support an Employee directly or indirectly
contributes.
E. EMPLOYEES: the employees, officers, and trustees of the Trust and the
employees, officers and directors of Countrywide, including Advisory
Employees. The Compliance Officer will maintain a current list of all
Employees.
F. EXEMPT TRANSACTIONS: transactions which are 1) effected in an amount or
in a manner over which the Employee has no direct or indirect influence or
control, 2) pursuant to a systematic dividend reinvestment plan, systematic
cash purchase plan or systematic withdrawal plan, 3) in connection with the
exercise or sale of rights to purchase additional securities from an issuer
and granted by such issuer pro-rata to all holders of a class of its
securities, 4) in connection with the call by the issuer of a preferred
stock or bond, 5) pursuant to the exercise by a second party of a put or
call option, 6) closing transactions no more than five business days prior
to the expiration
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<PAGE>
of a related put or call option, or 7) with respect to any affiliated or
unaffiliated registered open-end investment company.
G. COUNTRYWIDE FUNDS: any series of Countrywide Tax-Free Trust.
H. RECOMMENDED LIST: the list of those Securities which the Advisory
Employees currently are recommending for purchase or sale on behalf of the
Countrywide Funds.
I. RELATED SECURITIES: securities issued by the same issuer or issuer under
common control, or when either security gives the holder any contractual
rights with respect to the other security, including options, warrants or
other convertible securities.
J. SECURITIES: any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, pre-organization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas or other mineral rights, or, in general, any
interest or instrument commonly known as a "security," or any certificate
or interest or participation in temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or purchase
(including options) any of the foregoing; except for the following: 1)
securities issued by the government of the United States, 2) bankers'
acceptances, 3) bank certificates of deposit, 4) commercial paper, 5) debt
securities, provided that (a) the security has a credit rating of Aa or Aaa
from Moody's Investor Services, AA or AAA from Standard & Poor's Ratings
Group, or an equivalent rating from another rating service, or is unrated
but comparably creditworthy, (b) the security matures within twelve months
of purchase, (c) the market is very broad so that a large volume of
transactions on a given day will have relatively little effect on yields,
and (d) the market for the instrument features highly efficient
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<PAGE>
machinery permitting quick and convenient trading in virtually any volume,
and 6) shares of registered open-end investment companies.
K. SECURITIES Transaction: the purchase or sale, or any action to
accomplish the purchase or sale, of a Security for an Employee Account.
III. PERSONAL INVESTMENT GUIDELINES
A. Personal Accounts and Pre-Clearance
1. Employees must conduct all securities transactions for Employee
Accounts through a Countrywide account, unless the Employee gives
prior written notice to the Compliance Officer of an account with
another brokerage firm for transactions in registered open-end
investment company shares only. If such notice is given, the
Employee may, subject to this Code, conduct registered open-end
investment company transactions through that brokerage firm.
2. Employees must obtain prior written permission from the
Compliance Officer to open or maintain a margin account, or a
joint or partnership account with persons other than the
Employee's spouse, parent, or child (including custodial
accounts).
3. No Employee may execute a Securities Transaction without first
obtaining Pre-Clearance from the Compliance Officer. Prior to
execution the Employee must submit the Pre-Clearance form to the
Compliance Officer, or in the case of a Pre-Clearance request by
the Compliance Officer, to the alternate Compliance Officer. An
Employee may not submit a Pre-Clearance request if, to the
Employee's knowledge at the time of the request, the same
Security or a Related Security is being actively considered for
purchase or sale, or is being purchased or sold, by a Countrywide
Fund.
4. Advisory Employees may not execute a Securities Transactions
while at the same time recommending contrary action to a
Countrywide Fund.
5. Settlement of Securities Transactions must be made on or before
settlement date. Extensions and pre-payments are not permitted.
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<PAGE>
6. The Personal Investment Guidelines in this Section III do not
apply to Exempt Transactions. Employees must remember that
regardless of the transaction's status as exempt or not exempt,
the Employee's fiduciary obligations remain unchanged.
7. While trustees of the Trust are subject at all times to the
fiduciary obligations described in this Code, the Personal
Investment Guidelines and Compliance Procedures in Sections III
and IV of this Code apply to trustees whose affiliation with the
Trust is solely by reason of being a trustee of the Trust only if
the trustee knew, or in the ordinary course of fulfilling the
duties of that position, should have known, that during the seven
days immediately preceding or after the date of the trustee's
transaction that the same Security or a Related Security was or
was to be purchased or sold for a Countrywide Fund or that such
purchase or sale for a Countrywide Fund was being considered, in
which case such Sections apply only to such transaction.
Likewise, directors of Countrywide who (i) are not directly
employed by Countrywide and (ii) do not in the ordinary course of
fulfilling the duties of that position participate in or make
recommendations with respect to the purchase or sale of
Securities by the Countrywide Funds, are subject at all times to
the fiduciary obligations described in this Code; provided,
however, that the Personal Investment Guidelines and Compliance
Procedures in Section III and IV of this Code apply to such
directors only if the director knew, or in the ordinary course of
fulfilling the duties of that position, should have known, that
during the
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<PAGE>
seven days immediately preceding or after the date of the
director's transaction that the same Security or a Related
Security was or was to be purchased or sold for a Countrywide
Fund or that such purchase or sale for a Countrywide Fund was
being considered, in which case such Sections apply only to such
transaction.
B. Limitations on Pre-Clearance
1. After receiving a Pre-Clearance request, the Compliance Officer
will promptly review the request and will deny the request if the
Securities Transaction will violate this Code.
2. Employees may not execute a Securities Transactions on a day
during which a purchase or sell order in that same Security or a
Related Security is pending for, or is being actively considered
on behalf of, a Countrywide Fund. In order to determine whether a
Security is being actively considered on behalf of a Countrywide
Fund, the Compliance Officer will consult the current Recommended
List and, in the case of non-equity Securities, consult each
Advisory Employee responsible for investing in non-equity
Securities for any Countrywide Fund. Securities Transactions
executed in violation of this prohibition shall be unwound or, if
not possible or practical, the Employee must disgorge to the
appropriate Countrywide Fund or Funds the value received by the
Employee due to any favorable price differential received by the
Employee. For example, if the Employee buys 100 shares at $10 per
share, and a Countrywide Fund buys 1000 shares at $11 per share,
the Employee will pay $100 (100 shares x $1 differential) to the
Countrywide Fund.
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<PAGE>
3. An Advisory Employee may not execute a Securities Transaction
within seven (7) calendar days after a transaction in the same
Security or a Related Security has been executed on behalf of a
Countrywide Fund unless the Countrywide Fund's entire position in
the Security has been sold prior to the Advisory Employee's
Securities Transaction and the Advisory Employee is also selling
the Security. If the Compliance Officer determines that a
transaction has violated this prohibition, the transaction shall
be unwound or, if not possible or practical, the Advisory
Employee must disgorge to the appropriate Countrywide Fund or
Funds the value received by the Advisory Employee due to any
favorable price differential received by the Advisory Employee.
4. Pre-Clearance requests involving a Securities Transaction by an
Employee within fifteen calendar days after any Countrywide Fund
has traded in the same Security or a Related Security will be
evaluated by the Compliance Officer to ensure that the proposed
transaction by the Employee is consistent with this Code and that
all contemplated Countrywide Fund activity in the Security has
been completed. It is wholly within the Compliance Officer's
discretion to determine when Pre-Clearance will or will not be
given to an Employee if the proposed transaction falls within the
fifteen day period.
5. Pre-Clearance procedures apply to any Securities Transactions in
a private placement. In connection with a private placement
acquisition, the Compliance Officer will take into account, among
other factors, whether the investment
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<PAGE>
opportunity should be reserved for a Countrywide Fund, and
whether the opportunity is being offered to the Employee by
virtue of the Employee's position with the Trust or Countrywide.
Employees who have been authorized to acquire securities in a
private placement will, in connection therewith, be required to
disclose that investment if and when the Employee takes part in
any subsequent investment in the same issuer. In such
circumstances, the determination to purchase Securities of that
issuer on behalf of a Countrywide Fund will be subject to an
independent review by personnel of Countrywide with no personal
interest in the issuer.
6. Employees are prohibited from acquiring any Securities in an
initial public offering. This restriction is imposed in order to
preclude any possibility of an Employee profiting improperly from
the Employee's position with the Trust or Countrywide, and
applies only to the Securities offered for sale by the issuer,
either directly or through an underwriter, and not to Securities
purchased on a securities exchange or in connection with a
secondary distribution.
7. Employees are prohibited from acquiring low priced equity
securities (or "penny stock"),defined as those equity securities
trading at $5 per share or less.
C. Other Restrictions
1. If a Securities Transaction is executed on behalf of a
Countrywide Fund within seven (7) calendar days after an Advisory
Employee executed a transaction in the same Security or a Related
Security, the Compliance Officer will review the Advisory
Employee's and the Countrywide Fund's transactions to determine
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<PAGE>
whether the Advisory Employee did not meet his or her fiduciary
duties to the Trust and its shareholders in violation of this
Code. If the Compliance Officer determines that the Advisory
Employee's transaction violated this Code, the transaction shall
be unwound or, if not possible or practical, the Advisory
Employee must disgorge to the appropriate Countrywide Fund or
Funds the value received by the Advisory Employee due to any
favorable price differential received by the Advisory Employee.
2. Employees are prohibited from serving on the boards of directors
of publicly traded companies, absent prior authorization in
accord with the general procedures of this Code. The
consideration of prior authorization will be based upon a
determination that the board service will be consistent with the
interests of the Trust and its shareholders. In the event that
board service is authorized, Employees serving as directors will
be isolated from other Employees making investment decisions with
respect to the securities of the company in question.
3. No Employee may accept from a customer or vendor an amount in
excess of $100 per year in the form of gifts or gratuities, or as
compensation for services. If there is a question regarding
receipt of a gift, gratuity or compensation, it is to be reviewed
by the Compliance Officer.
IV. COMPLIANCE PROCEDURES
A. Employee Disclosure and Certification
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<PAGE>
1. At the commencement of employment with the Trust or Countrywide,
each Employee must certify that he or she has read and
understands this Code and recognizes that he or she is subject to
it, and must disclose all personal Securities holdings.
2. The above disclosure and certification is also required annually,
along with an additional certification that the Employee has
complied with the requirements of this Code and has disclosed or
reported all personal Securities Transactions required to be
disclosed or reported pursuant to the requirements of this Code.
B. Pre-Clearance
1. Advisory Employees will maintain an accurate and current
Recommended List at all times, updating the list as necessary.
The Advisory Employees will submit all Recommended Lists to the
Compliance Officer as they are generated, and the Compliance
Officer will retain the Recommended Lists for use when reviewing
Employee compliance with this Code. Upon receiving a
Pre-Clearance request, the Compliance Officer will contact the
trading desk and all Advisory Employees to determine whether the
Security the Employee intends to purchase or sell is or was owned
within the past fifteen (15) days by a Countrywide Fund, and
whether there are any pending purchase or sell orders for the
Security. The Compliance Officer will determine whether the
Employee's request violates any prohibitions or restrictions set
out in this Code.
2. If authorized, the Pre-Clearance is valid for orders placed by
the close of business on the second trading day after the
authorization is granted. If during the two day
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<PAGE>
period the Employee becomes aware that the trade does not comply
with this Code or that the statements made on the request form
are no longer true, the Employee must immediately notify the
Compliance Officer of that information and the Pre-Clearance may
be terminated. If during the two day period the trading desk is
notified that a purchase or sell order for the same Security or
Related Security is pending or is being considered on behalf of a
Countrywide Fund, the trading desk will not execute the Employee
Transaction and will notify the Employee and the Compliance
Officer that the Pre-Clearance is terminated.
C. Compliance
1. All Employees must direct their broker, dealer or bank to send
duplicate copies of all confirmations and periodic account
statements directly to the Compliance Officer. Each Employee must
report, no later than ten (10) days after the close of each
calendar quarter, on the Securities Transaction Report form
provided by the Trust or Countrywide, all transactions in which
the Employee acquired any direct or indirect Beneficial Interest
in a Security, including Exempt Transactions, and certify that he
or she has reported all transactions required to be disclosed
pursuant to the requirements of this Code.
2. The Compliance Officer will spot check the trading confirmations
provided by brokers to verify that the Employee obtained any
necessary Pre-Clearance for the transaction. On a quarterly basis
the Compliance Officer will compare all confirmations with the
Pre-Clearance records, to determine, among other things, whether
any Countrywide Fund owned the Securities at the time of the
transaction
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<PAGE>
or purchased or sold the security within fifteen (15) days of the
transaction. The Employee's annual disclosure of Securities
holdings will be reviewed by the Compliance Officer for
compliance with this Code, including transactions that reveal a
pattern of trading inconsistent with this Code.
3. If an Employee violates this Code, the Compliance Officer will
report the violation to management personnel of the Trust and
Countrywide for appropriate remedial action which, in addition to
the actions specifically delineated in other sections of this
Code, may include a reprimand of the Employee, or suspension or
termination of the Employee's relationship with the Trust and/or
Countrywide.
4. The management personnel of the Trust will prepare an annual
report to the Trust's board of trustees that summarizes existing
procedures and any changes in the procedures made during the past
year. The report will identify any violations of this Code, any
significant remedial action during the past year and any
instances when a Securities Transaction was executed on behalf of
a Countrywide Fund within seven (7) calendar days after an
Advisory Employee executed a transaction but no remedial action
was taken. The report will also identify any recommended
procedural or substantive changes to this Code based on
management's experience under this Code, evolving industry
practices, or legal developments.
CODE OF ETHICS
Touchstone Advisors, Inc.
Touchstone Advisors, Inc. ("Adviser") has determined to adopt this Code of
Ethics (the "Code") as of October 3, 1994 to specify and prohibit certain types
of personal securities transactions deemed to create a conflict of interest and
to establish reporting requirements and preventive procedures pursuant to the
provisions of Rule 17j-l(b)(1) under the Investment Company Act of 1940 (the
"1940 Act").
I. RULES APPLICABLE TO ACCESS PERSONS OF THE ADVISER
A. Definitions
-----------
1 An "Access Person" means any director, officer or advisory person
(as defined below) of the Adviser.
2 An "Advisory Person" means any employee of the Adviser (or of any
company in a control relationship to the Adviser) who, in connection with his or
her regular functions or duties, makes, participates in or obtains information
regarding the purchase or sale of securities by an Investment Company or whose
functions relate to any recommendations with respect to such purchases or sales
and any natural person in a control relationship with the Adviser who obtains
information regarding the purchase or sale of securities.
3 "Beneficiary Ownership" shall be interpreted subject to the
provisions of Rule 16a-l(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
4 "Control" shall have the same meaning as set forth in Section
2(a)(19) of the 1940 Act.
5 "Investment Company" means a company registered as such under the
1940 Act and for which the Adviser is the investment adviser.
6 "Purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security or the purchase or sale
of a future or index on a security or option thereon.
7 "Security" shall have the meaning as set forth in Section
2(a)(36) of the 1940 Act (in effect, all securities), except that it shall not
include securities issued by the U.S. Government (or any other "government
security" as that term is defined in the 1940 Act), bankers' acceptances, bank
certificates of deposit, commercial paper, such other money market instruments
as may be designated by the Adviser, and shares of registered open-end
investment companies.
8 A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
<PAGE>
B. Avoiding Conflicts of Interest
------------------------------
NO ACCESS PERSON SHALL ENTER INTO OR ENGAGE IN A SECURITY TRANSACTION
OR BUSINESS ACTIVITY OR RELATIONSHIP WHICH, MAY RESULT IN ANY FINANCIAL OR OTHER
CONFLICT OF INTEREST BETWEEN SUCH PERSON AND AN INVESTMENT COMPANY AND EACH SUCH
PERSON SHALL AT ALL TIMES AND IN ALL MATTERS ENDEAVOR TO PLACE THE INTERESTS OF
THE INVESTMENT COMPANY BEFORE HIS OR HER PERSONAL INTERESTS.
C. Prohibited Purchases and Sales
------------------------------
NO ACCESS PERSON SHALL PURCHASE OR SELL, DIRECTLY OR INDIRECTLY, ANY
SECURITY IN WHICH HE OR SHE HAS, OR BY REASON OF SUCH TRANSACTION ACQUIRES, ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP AND WHICH HE OR SHE KNOWS OR SHOULD HAVE
KNOWN AT THE TIME OF SUCH PURCHASE OR SALE:
1 IS BEING CONSIDERED FOR PURCHASE OR SALE BY AN INVESTMENT
COMPANY; OR
2 IS BEING PURCHASED OR SOLD BY AN INVESTMENT COMPANY.
D. Exempted Transactions
---------------------
The prohibition of Section I-C above shall not apply to:
1 purchases or sales effected in any account over which such person
has no direct or indirect influence or control;
2 purchases or sales which are nonvolitional on the part of the
person or the Investment Company;
3 purchases which are part of an automatic dividend reinvestment
plan;
4 purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales or such rights so acquired; and
5 purchases and sales which receive prior approval in writing by
any designated review officer or the Treasurer, Secretary, Assistant Treasurer
or Assistant Secretary of the Adviser (the "Review Officer") (a) as only
remotely potentially harmful to the Investment Company because they would be
very unlikely to affect a highly institutional market or because they clearly
are not economically related to the securities to be purchased or sold or held
by the Investment Company or (b) as not representing any danger of the abuses
prescribed by Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware which
are potentially relevant to a conflict of interest
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<PAGE>
analysis, including the existence of any substantial economic relationship
between his or her transaction and securities held or to be held by the
Investment Company.
II. REPORTING
A. Coverage: Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information required in Section
II-A (2) of this Code with respect to all transactions during the preceding
quarter in any securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership, provided that
(i) no Access Person shall be required to report transactions effected for any
account over which such Access Person has no direct or indirect influence or
control (except that such an Access Person must file a written certification
stating that he or she has no direct or indirect influence or control over the
account in question and (H) an Access Person need not make a report where the
report would duplicate information recorded pursuant to Rules 2042(a)(12) or
204-2(a)(13) of the Investment Advisers Act of 1940.
B. Filings: Every report shall be made no later than 10 days after the end
of the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
1 the date of the transaction, the title and the number of shares
and the principal amount of each security involved;
2 the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
3 the price at which the transaction was effected; and
4 the name of the broker, dealer or bank with or through whom the
transaction was effected.
C. Any report may contain a statement that it shall not be construed as an
admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
III. REVIEW
In reviewing transactions, the Review Officer shall take into account the
exemptions allowed under Section I-D. Before making a determination that a
violation has been committed by a director, the Review Officer shall give such
person an opportunity to supply additional information regarding the transaction
in question.
IV. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, the Adviser may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or termination of the
employment of the violator. All material violations of the Code
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<PAGE>
and any sanctions imposed as a result thereto shall be reported periodically to
the board of directors of the Investment Company with respect to whose
securities the violation occurred.
V. MISCELLANEOUS
A. Access Persons
--------------
The Secretary or Assistant Secretary of the Adviser will identify all
Access Persons who are under a duty to make reports to the Adviser and will
inform such persons of such duty. Any failure by the Secretary or Assistant
Secretary to notify any person of his or her duties under this Code shall not
relieve such person of his or her obligations hereunder.
B. Records
-------
The Adviser shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 3la-2(f) under the 1940 Act, and shall be available for
examination by representatives of the Securities and Exchange Commission
("SEC"):
1 a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an easily
accessible place;
2 a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily accessible place for
a period of not less than five years following the end of the fiscal year in
which the violation occurs;
3 a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible place; and
4 a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
---------------
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential.
D. Interpretation of Provision
---------------------------
The Board of Directors of the Adviser may from time to time adopt such
interpretations of this Code as it deems appropriate.
-4-
CODE OF ETHICS
FORT WASHINGTON INVESTMENT ADVISORS, INC.
Fort Washington Investment Advisors, Inc. ("Fort Washington" or the
"Advisor") has adopted this Code of Ethics (the "Code") effective as of
________________, 1995 to specify and prohibit certain types of personal
securities transactions deemed to create a conflict of interest and to establish
reporting requirements and preventive procedures pursuant to the provisions of
Rule 17j-l(b)(1) under the Investment Company Act of 1940 (the "1940 Act").
I. GENERAL STANDARDS OF ETHICAL CONDUCT
Directors, officers and other access persons (as hereinafter defined) shall
have the duty at all times to place the interests of the investment companies
and other clients for which Fort Washington acts as investment manager or
advisor ahead of their own interests. All personal securities transactions of
such individuals and certain other types of actions shall be conducted
consistently with this Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of such individual's position of
trust and responsibility, to the Advisor and its clients. All activities of
personnel associated with the Advisor shall be conducted in accordance with the
fundamental standard that they shall not take any inappropriate advantage of
their positions with the Advisor.
II. RULES APPLICABLE TO DIRECTORS, OFFICERS AND OTHER ACCESS PERSONS OF THE
ADVISOR
A. Definitions
-----------
1 "Access Person" means any owner,, director, officer, principal or
Advisory Person (as defined below) of the Advisor.
2 "Advisory Person" means any employee of the Advisor (or of any
entity in a control relationship to the Advisor) who, in connection with his or
her regular functions or duties, makes, participates in or obtains information
regarding the purchase or sale of securities by a Client or whose functions
relate to any recommendations with respect to such purchases or sales, and any
natural person in a control relationship with the Advisor who obtains
information regarding the purchase or sale of securities.
3 "Beneficial Ownership " shall be interpreted in accordance with
the provisions of Rule 16a-l(a) (exclusive of Section (a) (1) of such Rule) of
the Securities Exchange Act of 1934, a copy of which is attached hereto.
4 "Client" means any person or entity, including an investment
company, for which Fort Washington serves as investment manager or advisor.
<PAGE>
5 "Control" shall have the same meaning as set forth in Section
2(a)(9) of the 1940 Act.
6 "Portfolio Manager" means an Advisory Person who has or shares
principal responsibility for managing the portfolio of any Client.
7 "Purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security or the purchase or sale
of a future or index on a security or option thereon.
8 "Review Officer" means any designated review officer of the
Advisor or, in the absence of any such designation, the Secretary of the
Advisor.
9 "Security" shall have the meaning as set forth in Section
2(a)(36) of the 1940 Act (in effect, all securities). The term shall not include
securities issued by the U.S. Government (or any other "government security" as
that term is defined in the 1940 Act), bankers' acceptances, bank certificates
of deposit, commercial paper, such other money market instruments as may be
designated by the Review Officer of the Advisor, and shares of registered
open-end investment companies ("Exempt Securities ").
10 A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
B. Prohibited Purchases and Sales
------------------------------
1 No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership on a day during which the Advisor,
on behalf of any Client, has a pending "buy" or "sell" order in that same
security (until the order is executed or withdrawn), if such person knows or
should have known of such pending order at the time of such person's purchase or
sale.
2 No Access Person shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership and which he or she knows or should
have known, at the time of such purchase or sale, is being considered for
purchase or sale for any Client.
3 No Advisory Person shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership within seven
calendar days before or after the execution of a trade in the same securities by
the Advisor on behalf of any Client for r which such person acts as Portfolio
Manager.
4 No Advisory Person may profit from the purchase and sale, or sale
and purchase, of the same or equivalent securities within sixty calendar days
("short-term trade"). This restriction does not apply to short-term trades:
-2-
<PAGE>
a) involving Exempt Securities,
b) for which express prior approval has been received from the
Review Officer,
c) involving de minimis shares (which in any event shall mean
shares having a value of $5,000 or less at the time of both their purchase and
their sale),
d) involving any account over which the Advisory Person has no
direct or indirect influence or control,
e) that are nonvolitional on the part of the Advisory Person,
or
f) that result from an automatic dividend reinvestment plan or
an automatic withdrawal plan.
If any Advisory Person engages in any trading in violation of this subsection 4,
any profits realized on such trades is required to be disgorged to a charitable
organization selected by the Board of Directors of the Company.
5 No Advisory Person may acquire any securities in an initial
public offering without express prior approval from the Review Officer.
6 No Advisory Person may acquire any security of any issuer in a
private placement without express prior approval from the Review Officer. Such
individual must disclose his or her investment in such security if he or she
takes part in any subsequent decision to invest in any security of that issuer.
C. Exempted Transactions
---------------------
The prohibitions of Section II.B. L, 2. and 3 above and of Section II
F shall not apply to:
1 purchases or sales effected in any account over which the person
has no direct or indirect influence or control;
2 purchases or sales which are nonvolitional on the part of the
person;
3 purchases which are part of an automatic dividend reinvestment
plan or an automatic withdrawal plan;
4 purchases effected upon the exercise of rights issued by an
issuer pro rata. to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so acquired; and
5 purchases and sales which receive prior approval in writing by
the Review Officer (a) as only remotely potentially harmful to any Client
because they would be very
-3-
<PAGE>
unlikely to affect a highly institutional market or because they clearly are not
economically related to the securities to be purchased or sold or held by the
Advisor for any Client or (b) as not representing any danger of the abuses
proscribed by Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware which
are potentially relevant to a conflict of interest analysis, including the
existence of any substantial economic relationship between his or her
transaction and securities held or to be held by any Client.
D. Restrictions on Serving on Boards of Directors
----------------------------------------------
No Advisory Person may serve on the board of directors of a
publicly-traded company without prior approval from the Review Officer.
E. Restrictions Involving Gifts
----------------------------
No Advisory Person shall accept in any calendar year gifts with a
value of more than $100 from any person that does business with the Advisor,
directly or on behalf of any Client; provided, however, that this prohibition
shall not apply to the following:
(i) an occasional breakfast, luncheon, dinner or reception,
ticket to a sporting event or the theater, or comparable entertainment that is
not so frequent, so costly nor so extensive as to raise any question of
impropriety;
(ii) a breakfast, luncheon, dinner, reception or cocktail party
in conjunction with a bona fide business meeting; and
(iii) a gift approved in writing by the Review Officer [as not
being of such character or value as would raise any question of impropriety].
F. Preclearance of Securities Transactions
---------------------------------------
Each Access Person who is required to file reports with the Review
Officer pursuant to Section III hereof must obtain approval from the Review
Officer prior to purchasing or selling any securities in a Pre-Clearance
Transaction. "Pre-Clearance Transaction" means any of the following: (i) a
transaction in a given security which, when combined with all previous
transactions by the Access Person in such security during the preceding three
months, would represent a total transaction value exceeding $15,000, (ii) a
transaction in a security that is neither listed on a national securities
exchange nor acquired by such Access Person in an offering made pursuant to a
then-effective registration statement under the Securities Act of 1933, or (iii)
any transaction in the security of a company whose total market capitalization
is less than $200 million. Any approval given by the Review Officer shall be
valid for a period of five trading days.
-4-
<PAGE>
III. REPORTING
A. Requirements for all Directors, Officers and Other Access Persons
-----------------------------------------------------------------
1 Coverage: Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information required in Section
III.A.2. of this Code with respect to all transactions during the preceding
quarter in any securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership, provided that
no Access Persons shall be required to report transactions effected for any
account over which such Access Person has no direct or indirect influence or
control (except that such an Access Person must file a written certification
stating that he or she has no direct or indirect influence or control over the
account in question). All Access Persons shall file reports; if no transactions
have been effected by an Access Person during the relevant period, that person
shall represent in the report that no transactions subject to reporting
requirements were effected.
2 Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which the report
relates was effected, and shall contain the following information:
a) the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
b) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c) the price at which the transaction was effected; and
d) the name of the broker, dealer or bank with or through whom
the transaction was effected;
and a certification by such Access Person that he or she has complied, during
such calendar quarter, with the requirements of Sections II B, II D, II E, and
II F of this Code.
3 Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
4 Each Advisory Person shall file with the Review Officer a
confidential annual report containing information as of the end of the fiscal
year identifying the title, the number of shares and the principal amount of
each security held. Such report shall be filed no later than 30 days after the
end of the fiscal year to which the report relates. A report containing similar
information must be furnished by each Advisory Person upon the commencement of
employment.
5 Each Access Person must arrange for duplicate copies of trade
confirmations and periodic statements of his or her brokerage accounts to be
sent to the Review Officer.
-5-
<PAGE>
B. Certification
-------------
All Access Persons shall certify annually that they have read and
understand the Code and recognize that they are subject to its requirements. All
Access Persons further are required to certify that they have complied with the
requirements of the Code and that they have disclosed or reported all personal
securities transactions that are required to be disclosed or reported pursuant
to the requirements of the Code. Such certification shall be furnished to the
Review/Officer no later than 30 days after the end of the fiscal year.
IV. REVIEW
In reviewing transactions, the Review Officer shall take into account
the exemptions allowed under Section II.C. Before making a determination that a
violation has been committed, the Review Officer shall give such person an
opportunity to supply additional information regarding the transaction in
question.
V. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Directors, which may impose
such sanctions as it deems appropriate, including, inter alia, disgorgement of
any profits realized by the violator as a result of the violation, or a letter
of censure or suspension, or a termination of the employment of the violator.
VI. MISCELLANEOUS
A. Access Persons
--------------
The Review Officer will identify all Access Persons who are under a
duty to make reports to the Advisor and will inform such persons of such duty.
Any failure by the Review Officer to notify any person of his or her duties
under this Code shall not relieve such person of his or her obligations
hereunder.
B. Records
-------
The Advisor shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 3 1 a-2(f) under the 1940 Act, and shall be available for
examination by representatives of the Securities and Exchange Commission
("SEC"):
1 copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an easily
accessible place;
2 a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily accessible place for
a period of not less than five years following the end of the fiscal year in
which the violation occurs;
-6-
<PAGE>
3 a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible place; and
4 a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
---------------
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential.
D. Interpretation of Provisions
----------------------------
The Board of Directors of the Advisor may from time to time adopt such
interpretations of this Code as it deems appropriate.
-7-
<PAGE>
TRANSACTIONS REPORT
-------------------
Fort Washington Investment Advisors, Inc.
To: [Review Officer]
From: ______________________________________________
(Your Name)
This Transaction Report (the "Report") is submitted pursuant to Section III
of the Code of Ethics of Fort Washington Investment Advisors, Inc. and supplies
(on the attached table) information with respect to transactions in any security
in which I may be deemed to have, or by reason of such transaction acquire, any
direct or indirect beneficial ownership interest (whether or not such security
is a security held or to be acquired by the Advisor for any Client) for the
calendar quarter ended . Unless the context otherwise requires, all terms used
in the Report shall have the same meaning as set forth in the Code of Ethics.
For purposes of the Report beneficial ownership shall be interpreted
subject to the provisions of the Code of Ethics and Rule 16a-l(a) (exclusive of
Section (a)(1) of such Rule) of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Nature of
Transaction
(Whether Name of the
Purchase, Principal Broker, Dealer
Sale, or Other Amount of Price at Which or Bank with
Type of Securities the Whom the Name of
Title of Date of Disposition or Acquired or Transaction Transaction Ownership of
Securities Transaction Acquisition Disposed of Was Effected Was Effected Securities*
---------- ----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
I CERTIFY THAT (a) I AM FULLY FAMILIAR WITH THE CODE OF ETHICS OF FORT
WASHINGTON INVESTMENT ADVISORS, INC., (b) TO THE BEST OF MY KNOWLEDGE THE
INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT, AND (c) DURING THE
QUARTER THAT IS THE SUBJECT OF THIS- REPORT I HAVE COMPLIED WITH THE PROVISIONS
OF SECTIONS II B, II D, II E AND II F OF THE CODE OF ETHICS.
Name (Print) _________________________________________________
Title/Position _________________________________________________
Signature _________________________________________________
Date _________________________________________________
- -----------------------
* If appropriate, you may disclaim beneficial ownership of any security
listed in this report.
CODE OF ETHICS
Touchstone Securities, Inc.
Touchstone Securities, Inc. ("Underwriter") has determined to adopt this
Code of Ethics (the "Code") as of October 3, 1994 to specify and prohibit
certain types of personal securities transactions deemed to create a conflict of
interest and to establish reporting requirements and preventive procedures
pursuant to the provisions of Rule 17j-1(b)(1) under the Investment Company Act
of 1940 (the "1940 Act").
I. RULES APPLICABLE TO ACCESS PERSONS OF THE UNDERWRITER
A. Definitions
-----------
1 An "Access Person" means any director or officer of the
Underwriter who in the ordinary course of his or her business makes,
participates in or obtains information regarding the purchase or sale of
securities by an Investment Company or whose functions or duties as part of the
ordinary course of his or her business relate to the making of any
recommendations with respect to such purchases or sales.
2 "Beneficiary Ownership" shall be interpreted subject to the
provisions of Rule 16a-l(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
3 "Control" shall have the same meanina as set forth in Section
2(a)(19) of the 1940 Act.
4 "Investment Company" means a company registered as such under the
1940 Act and for which the Underwriter is the principal underwriter.
5 "Purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security or the purchase or sale
of a future or index on a security or option thereon.
6 "Security" shall have the meaning as set forth in Section
2(a)(36) of the 1940 Act (in effect, all securities), except that it shall not
include securities issued by the U.S. Government (or any other "government
security" as that term is defined in the 1940 Act), bankers' acceptances, bank
certificates of deposit, commercial paper, such other money market instruments
as may be designated by the Underwriter, and shares of registered open-end
investment companies.
7 A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and communicated
and, with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
<PAGE>
B. Avoiding Conflicts of Interest
------------------------------
NO ACCESS PERSON SHALL ENTER INTO OR ENGAGE IN A SECURITY TRANSACTION
OR BUSINESS ACTIVITY OR RELATIONSHIP WHICH MAY RESULT IN ANY FINANCIAL OR OTHER
CONFLICT OF INTEREST BETWEEN SUCH PERSON AND AN INVESTMENT COMPANY AND EACH SUCH
PERSON SHALL AT ALL TIMES AND IN ALL MATTERS ENDEAVOR TO PLACE THE INTERESTS OF
THE INVESTMENT COMPANY BEFORE HIS OR HER PERSONAL INTERESTS.
C. Prohibited Purchases and Sales
------------------------------
NO ACCESS PERSON SHALL PURCHASE OR SELL, DIRECTLY OR INDIRECTLY, ANY
SECURITY IN WHICH HE OR SHE HAS, OR BY REASON OF SUCH TRANSACTION ACQUIRES, ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP AND WHICH HE OR SHE KNOWS OR SHOULD HAVE
KNOWN AT THE TIME OF SUCH PURCHASE OR SALE:
1 IS BEING CONSIDERED FOR PURCHASE OR SALE BY AN INVESTMENT
COMPANY; OR
2 IS BEING PURCHASED OR SOLD BY AN INVESTMENT COMPANY.
D. Exempted Transactions-
----------------------
The prohibition of Section I-C above shall not apply to:
1 purchases or sales effected in any account over which such person
has no direct or indirect influence or control;
2 purchases or sales which are nonvolitional on the part of the
person or the Investment Company;
3 purchases which are part of an automatic dividend reinvestment
plan;
4 purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales or such rights so acquired; and
5 purchases and sales which receive prior approval in writing by
any designated review officer or the Treasurer, Secretary, Assistant Treasurer
or Assistant Secretary of the Underwriter (the "Review Officer") (a) as only
remotely potentially harmful to the Investment Company because they would be
very unlikely to affect a highly institutional market or because they clearly
are not economically related to the securities to be purchased or sold or held
by the Investment Company or (b) as not representing any danger of the abuses
prescribed by Rule 17j-1, but only if in each case the prospective purchaser has
identified to the Review Officer all factors of which he or she is aware which
are potentially relevant to a conflict of
-2-
<PAGE>
interest analysis, including the existence of any substantial economic
relationship between his or her transaction and securities held or to be held by
the Investment Company.
II. REPORTING
A. Coverage: Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information required in Section
II-B of this Code with respect to all transactions during the preceding quarter
in any securities in which such person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership, provided that no Access
Person shall be required to report transactions effected for any account over
which such Access Person has no direct or indirect influence or control (except
that such an Access Person must file a written certification stating that he or
she has no direct or indirect influence or control over the account in
question).
B. Filings: Every report shall be made no later than 10 days after the
end of the calendar quarter in which the transaction to which the report relates
was effected, and shall contain the following information:
1 the date of the transaction, the title and the number of shares
and the principal amount of each security involved;
2 the nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
3 the price at which the transaction was effected; and
4 the name of the broker, dealer or bank with or through whom the
transaction was effected.
C. Any report may contain a statement that it shall not be construed as
an admission by the person making the report that he or she has any direct or
indirect beneficial ownership in the security to which the report relates.
III. REVIEW
In reviewing transactions, the Review Officer shall take into account the
exemptions allowed under Section I-D. Before making a determination that a
violation has been committed by a director, the Review Officer shall give such
person an opportunity to supply additional information regarding the transaction
in question.
IV. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, the Underwriter may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or termination of the
employment of the violator. All material violations of the Code and any
sanctions imposed as a result thereto shall be reported periodically to the
board of directors of the Investment Company with respect to whose securities
the violation occurred.
-3-
<PAGE>
V. MISCELLANEOUS
A. Access Persons
--------------
The Secretary or Assistant Secretary of the Underwriter will identify
all Access Persons who are under a duty to make reports to the Underwriter and
will inform such persons of such duty. Any failure by the Secretary or Assistant
Secretary to notify any person of his or her duties under this Code shall not
relieve such person of his or her obligations hereunder.
B. Records
-------
The Underwriter shall maintain records in the manner and to the extent
set forth below, which records may be maintained on microfilm under the
conditions described in Rule 3la-2(f) under the 1940 Act, and shall be available
for examination by representatives of the Securities and Exchange Commission
("SEC"):
1 a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an easily
accessible place;
2 a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily accessible place for
a period of not less than five years following the end of the fiscal year in
which the violation occurs;
3 a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end of the fiscal
year in which it is made, the first two years in an easily accessible place; and
4 a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code shall be
maintained in an easily accessible place.
C. Confidentiality
---------------
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential.
D. Interpretation of Provisions
----------------------------
The Board of Directors of the Underwriter may from time to time adopt
such interpretations of this Code as it deems appropriate.
-4-
POWER OF ATTORNEY
WHEREAS, the undersigned is a trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust (each, a "Trust");
and
WHEREAS, each Trust proposes to file with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Act of 1933, as
amended, a Post-Effective Amendment to its Registration Statement on Form N-1A
to consolidate the prospectuses and statements of additional information of the
Trust (each, a "Post-Effective Amendment");
NOW THEREFORE, the undersigned hereby constitutes and appoints Jill T.
McGruder and Edward S. Heenan, each of them individually and with full powers of
substitution, as his true and lawful attorney in fact and agent to execute and
file, in his name and on his behalf in any and all capacities, each
Post-Effective Amendment (and the prospectuses, statements of additional
information and exhibits included therein and any supplement to any of the
foregoing) and thereafter to execute and file any additional post-effective
amendment or amendments, amended prospectus or prospectuses, amended statement
or statements of additional information, amended exhibits or any supplements to
any of the foregoing (collectively, the "Post-Effective Amendments"). The
undersigned hereby gives and grants to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof. The
undersigned hereby ratifies and confirms as his own act and deed all that said
attorneys may or shall lawfully do or cause to be done by virtue hereof. Each
attorney in fact and agent has, and may exercise, all of the powers conferred
hereby.
The authority hereby granted is limited to the execution and filing of the
Post-Effective Amendments and, unless earlier revoked by the undersigned or
expressly extended by the undersigned in writing, shall remain in force and
effective only until the Post-Effective Amendments shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th day
of February, 2000.
/s/ William O. Coleman
---------------------------------
William O. Coleman, Trustee
<PAGE>
POWER OF ATTORNEY
WHEREAS, the undersigned is a trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust (each, a "Trust");
and
WHEREAS, each Trust proposes to file with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Act of 1933, as
amended, a Post-Effective Amendment to its Registration Statement on Form N-1A
to consolidate the prospectuses and statements of additional information of the
Trust (each, a "Post-Effective Amendment");
NOW THEREFORE, the undersigned hereby constitutes and appoints Jill T.
McGruder and Edward S. Heenan, each of them individually and with full powers of
substitution, as his true and lawful attorney in fact and agent to execute and
file, in his name and on his behalf in any and all capacities, each
Post-Effective Amendment (and the prospectuses, statements of additional
information and exhibits included therein and any supplement to any of the
foregoing) and thereafter to execute and file any additional post-effective
amendment or amendments, amended prospectus or prospectuses, amended statement
or statements of additional information, amended exhibits or any supplements to
any of the foregoing (collectively, the "Post-Effective Amendments"). The
undersigned hereby gives and grants to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof. The
undersigned hereby ratifies and confirms as his own act and deed all that said
attorneys may or shall lawfully do or cause to be done by virtue hereof. Each
attorney in fact and agent has, and may exercise, all of the powers conferred
hereby.
The authority hereby granted is limited to the execution and filing of the
Post-Effective Amendments and, unless earlier revoked by the undersigned or
expressly extended by the undersigned in writing, shall remain in force and
effective only until the Post-Effective Amendments shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this _____
day of _______________, 2000.
---------------------------------
H. Jerome Lerner, Trustee
<PAGE>
POWER OF ATTORNEY
WHEREAS, the undersigned is a trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust (each, a "Trust");
and
WHEREAS, each Trust proposes to file with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Act of 1933, as
amended, a Post-Effective Amendment to its Registration Statement on Form N-1A
to consolidate the prospectuses and statements of additional information of the
Trust (each, a "Post-Effective Amendment");
NOW THEREFORE, the undersigned hereby constitutes and appoints Jill T.
McGruder and Edward S. Heenan, each of them individually and with full powers of
substitution, as his true and lawful attorney in fact and agent to execute and
file, in his name and on his behalf in any and all capacities, each
Post-Effective Amendment (and the prospectuses, statements of additional
information and exhibits included therein and any supplement to any of the
foregoing) and thereafter to execute and file any additional post-effective
amendment or amendments, amended prospectus or prospectuses, amended statement
or statements of additional information, amended exhibits or any supplements to
any of the foregoing (collectively, the "Post-Effective Amendments"). The
undersigned hereby gives and grants to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof. The
undersigned hereby ratifies and confirms as his own act and deed all that said
attorneys may or shall lawfully do or cause to be done by virtue hereof. Each
attorney in fact and agent has, and may exercise, all of the powers conferred
hereby.
The authority hereby granted is limited to the execution and filing of the
Post-Effective Amendments and, unless earlier revoked by the undersigned or
expressly extended by the undersigned in writing, shall remain in force and
effective only until the Post-Effective Amendments shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this _____
day of _______________, 2000.
---------------------------------
Oscar P. Robertson, Trustee
<PAGE>
POWER OF ATTORNEY
WHEREAS, the undersigned is a trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust (each, a "Trust");
and
WHEREAS, each Trust proposes to file with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Act of 1933, as
amended, a Post-Effective Amendment to its Registration Statement on Form N-1A
to consolidate the prospectuses and statements of additional information of the
Trust (each, a "Post-Effective Amendment");
NOW THEREFORE, the undersigned hereby constitutes and appoints Jill T.
McGruder and Edward S. Heenan, each of them individually and with full powers of
substitution, as his true and lawful attorney in fact and agent to execute and
file, in his name and on his behalf in any and all capacities, each
Post-Effective Amendment (and the prospectuses, statements of additional
information and exhibits included therein and any supplement to any of the
foregoing) and thereafter to execute and file any additional post-effective
amendment or amendments, amended prospectus or prospectuses, amended statement
or statements of additional information, amended exhibits or any supplements to
any of the foregoing (collectively, the "Post-Effective Amendments"). The
undersigned hereby gives and grants to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof. The
undersigned hereby ratifies and confirms as his own act and deed all that said
attorneys may or shall lawfully do or cause to be done by virtue hereof. Each
attorney in fact and agent has, and may exercise, all of the powers conferred
hereby.
The authority hereby granted is limited to the execution and filing of the
Post-Effective Amendments and, unless earlier revoked by the undersigned or
expressly extended by the undersigned in writing, shall remain in force and
effective only until the Post-Effective Amendments shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 24th day
of February, 2000.
/s/ Nelson Schwab, Jr.
---------------------------------
Nelson Schwab, Jr., Trustee
<PAGE>
POWER OF ATTORNEY
WHEREAS, the undersigned is a trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust (each, a "Trust");
and
WHEREAS, each Trust proposes to file with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Act of 1933, as
amended, a Post-Effective Amendment to its Registration Statement on Form N-1A
to consolidate the prospectuses and statements of additional information of the
Trust (each, a "Post-Effective Amendment");
NOW THEREFORE, the undersigned hereby constitutes and appoints Jill T.
McGruder and Edward S. Heenan, each of them individually and with full powers of
substitution, as his true and lawful attorney in fact and agent to execute and
file, in his name and on his behalf in any and all capacities, each
Post-Effective Amendment (and the prospectuses, statements of additional
information and exhibits included therein and any supplement to any of the
foregoing) and thereafter to execute and file any additional post-effective
amendment or amendments, amended prospectus or prospectuses, amended statement
or statements of additional information, amended exhibits or any supplements to
any of the foregoing (collectively, the "Post-Effective Amendments"). The
undersigned hereby gives and grants to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof. The
undersigned hereby ratifies and confirms as his own act and deed all that said
attorneys may or shall lawfully do or cause to be done by virtue hereof. Each
attorney in fact and agent has, and may exercise, all of the powers conferred
hereby.
The authority hereby granted is limited to the execution and filing of the
Post-Effective Amendments and, unless earlier revoked by the undersigned or
expressly extended by the undersigned in writing, shall remain in force and
effective only until the Post-Effective Amendments shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 24th of
February, 2000.
/s/ Robert E. Stautberg
---------------------------------
Robert E. Stautberg, Trustee
<PAGE>
POWER OF ATTORNEY
WHEREAS, the undersigned is a trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide Tax-Free Trust (each, a "Trust");
and
WHEREAS, each Trust proposes to file with the Securities and Exchange
Commission, pursuant to the provisions of the Securities Act of 1933, as
amended, a Post-Effective Amendment to its Registration Statement on Form N-1A
to consolidate the prospectuses and statements of additional information of the
Trust (each, a "Post-Effective Amendment");
NOW THEREFORE, the undersigned hereby constitutes and appoints Jill T.
McGruder and Edward S. Heenan, each of them individually and with full powers of
substitution, as his true and lawful attorney in fact and agent to execute and
file, in his name and on his behalf in any and all capacities, each
Post-Effective Amendment (and the prospectuses, statements of additional
information and exhibits included therein and any supplement to any of the
foregoing) and thereafter to execute and file any additional post-effective
amendment or amendments, amended prospectus or prospectuses, amended statement
or statements of additional information, amended exhibits or any supplements to
any of the foregoing (collectively, the "Post-Effective Amendments"). The
undersigned hereby gives and grants to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do if personally present at the doing thereof. The
undersigned hereby ratifies and confirms as his own act and deed all that said
attorneys may or shall lawfully do or cause to be done by virtue hereof. Each
attorney in fact and agent has, and may exercise, all of the powers conferred
hereby.
The authority hereby granted is limited to the execution and filing of the
Post-Effective Amendments and, unless earlier revoked by the undersigned or
expressly extended by the undersigned in writing, shall remain in force and
effective only until the Post-Effective Amendments shall have become effective.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 24th day
of February, 2000.
/s/ Joseph S. Stern, Jr.
---------------------------------
Joseph S. Stern, Jr., Trustee
