TOUCHSTONE TAX-FREE TRUST
STATEMENT OF ADDITIONAL INFORMATION
June 9, 2000
Amended October 9, 2000
Tax-Free Intermediate Term Fund
Ohio Insured Tax-Free Fund
Tax-Free Money 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 Touchstone Tax-Free Trust dated June 9,
2000. A copy of the Funds' Prospectus can be obtained by writing the Trust at
221 East Fourth Street, Suite 300, Cincinnati, Ohio 45202, or by calling
Touchstone nationwide toll-free 800.543.0407, or in Cincinnati 362-4921. .
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STATEMENT OF ADDITIONAL INFORMATION
Touchstone Tax-Free Trust
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
TABLE OF CONTENTS PAGE
The Trust.........................................................3
Municipal Obligations.............................................5
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 Advisor and Sub-Advisor...........................28
The Distributor..................................................30
Distribution Plans...............................................32
Securities Transactions..........................................34
Code of Ethics...................................................36
Portfolio Turnover...............................................36
Calculation of Share Price and Public Offering Price.............37
Choosing a Share Class...........................................40
Other Purchase Information.......................................44
Taxes............................................................46
Redemption in Kind...............................................49
Historical Performance Information...............................49
Principal Security Holders.......................................54
Custodian........................................................55
Independent Auditors.............................................56
Transfer Agent...................................................56
Tax Equivalent Yield Tables......................................57
Financial Statements.............................................60
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THE TRUST
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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 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, 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 Institutional 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 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 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, 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 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. 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.
QUALITY RATINGS OF MUNICIPAL OBLIGATIONS
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.
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.
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.
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.
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.
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 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).
INVESTMENT LIMITATIONS
----------------------
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 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.
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.
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.
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.
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
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.
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 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
seventeen years, holding a 26% share of the market in 1999. MBIA's volume of new
issue municipal bonds was approximately $37 billion in 1999, which is a 37%
decline compared to the previous year. Although MBIA's insured municipal market
share was down versus the prior year, adjusted gross premiums written declined
by just 9.3%. This was attributable to the company's better pricing discipline,
its dedication to improved returns, tighter underwriting and balance sheet
quality. The company implemented strategic shifts in underwriting and business
guidelines about a year ago which have yielded solid improvements in key
financial strength measurements. For all of its sectors, premium rates have
increased and capital charges have decreased. MBIA's average premium rate
increased to about 54 basis points for the 1999 book of business, compared toooo
about 38 basis points for the 1998 book of business. Also evidencing the
company's improved credit quality initiative, 83% of the 1999 book of business
was rated A or better, compared with 80% of the 1998 book of business. iAlthough
municipal bond insurance remains the dominant component of MBIA's insured book
business, with $263.5 billion of net par insured, $47.5 billion in gross
structured finance was insured in 1999, compared with $36.9 billion of municipal
business sector in 1999. In the international market, although par insured
declined in 1999, this area remains the company's most profitable insurance
sector. 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, 1999 represents 5% of its total
insured portfolio. 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 has historically
taken a very conservative approach to the bond insurance business, beyond simply
underwriting, to a zero-loss philosophy. This strategy has served the company
well as it has avoided recent adverse industry events. Management remains
committed to investment-grade underwriting and risk management, not only for its
insurance business but for all of its affiliate operations. 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. Notwithstanding
the overall decline in new issue municipal volume in 1999, AMBAC reported a 19%
increase in gross par written. The transportation and higher education sectors
helped suppress the overall decline in volume with net par exposure for these
sectors rising 31% and 19%, respectively. 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 structured and asset-based insurance sector now accounts for 25% of its net
par written. In 1999, the company wrote more structured and asset-backed par,
including international, than domestic municipal par. 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 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
Touchstone complex of mutual funds for the fiscal year ended June 30, 1999.
Messrs. Coleman, Cox, Schwab, Stautberg and Ms. McGruder did not receive any
compensation from the Trust during the fiscal year because they did not begin
serving as Trustees until 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
from Touchstone
Name Position Held Trust Complex (1)
---- ------------- ----- -----------
William O. Coleman Trustee $0 $ 2,192
Philip R. Cox Trustee $0 $10,000
+H. Jerome Lerner Trustee $4,000 $12,000
*Robert H. Leshner Trustee $0 $0
*Jill T. McGruder Trustee/President $0 $0
Oscar P. Robertson Trustee $4,000 $12,000
+Nelson Schwab, Jr. Trustee $0 $ 2,192
+Robert E. Stautberg Trustee $0 $10,000
+Joseph S. Stern, Jr. Trustee $0 $ 8,000
Maryellen Peretzky Vice President $0 $0
Tina D. Hosking Secretary $0 $0
David E. Dennison Treasurer $0 $0
Terrie A. Wiedenheft Controller $0 $0
(1) The Touchstone complex of funds consists of six series of the
Trust, eight series of Touchstone Strategic Trust, six series of
Touchstone Investment Trust and eleven series of 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 a Managing Director 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 (a laser vision correction
institute).
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.
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, 311 Pike Street, Cincinnati, Ohio is a Managing
Director of Fort Washington Investment Advisors, Inc. (a registered investment
advisor of the Trust). He is also President and a trustee of Touchstone
Strategic Trust and Touchstone Investment Trust (registered investment
companies).
JILL T. McGRUDER, Age 44, 221 East Fourth 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
advisor of the Trust) and Touchstone Securities, Inc. (a registered
broker-dealer). She is a Senior Vice President of The Western-Southern Life
Assurance Company and a director of Capital Analysts Incorporated (a
registered investment advisor and broker-dealer), IFS Holdings, Inc., Fort
Washington Brokerage Services, Inc., IFS Fund Distributors, Inc. and
Integrated Fund Services, 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.
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.
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.
JOSEPH S. STERN, JR., Age 81, 3 Grandin Place, Cincinnati, Ohio is a retired
Professor Emeritus of the University of Cincinnati College of Business.
TINA D. HOSKING, Age 31, 221 East Fourth Street, Cincinnati, Ohio is
Associate General Counsel and Vice President of Integrated Fund Services, Inc.
and IFS Fund Distributors, Inc. She is also Secretary of Touchstone Investment
Trust, Touchstone Strategic Trust and Touchstone Variable Series Trust.
DAVID E. DENNISON, Age 38, 221 East Fourth Street, Cincinnati, Ohio is
Senior Vice President and Chief Operating Officer of Integrated Fund
Services, Inc. and IFS Fund Distributors, Inc. He is also Treasurer of
Touchstone Investment Trust and Touchstone Strategic Trust and Assistant
Treasurer of Touchstone Variable Series Trust.
MARYELLEN PERETZKY, Age 47, 221 East Fourth Street, Cincinnati, Ohio is Senior
Vice President, Chief Operating Officer and Secretary of Ft. Washington
Brokerage Services, Inc. and Senior Vice President and Secretary of IFS
Holdings, Inc., Integrated Fund Services, Inc. and IFS Fund Distributors, Inc.
She is also Vice President of Touchstone Investment Trust, Touchstone Strategic
Trust and Touchstone Variable Series Trust.
TERRIE A. WIEDENHEFT, Age 38, 221 East Fourth Street, Cincinnati, Ohio is
Senior Vice President, Chief Financial Officer and Treasurer of Integrated
Fund Services, Inc., IFS Fund Distributors, Inc. and Fort Washington Brokerage
Services, Inc. She is Chief Financial Officer of IFS Financial Services, Inc.,
Touchstone Advisors, Inc. and Touchstone Securities, Inc. and Assistant
Treasurer of Fort Washington Investment Advisors, Inc. She is also Controller
of Touchstone Investment Trust, Touchstone Strategic Trust and
Touchstone Variable Series 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 ADVISOR AND SUB-ADVISOR
--------------------------------------
THE INVESTMENT ADVISOR. 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., the 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:
Each Fund of the Trust Fee to Advisor
(as % of average daily net assets)
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
(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
Institutional shares 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
Institutional shares 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 as follows:
Fee to Sub-Advisor
Fund (as % of average daily net assets)
---- ----------------------------------
Tax-Free Intermediate Term Fund 0.20%
Ohio Insured Tax-Free Fund 0.20%
Tax-Free Money Fund 0.15%
Ohio Tax-Free Money Fund 0.15%
California Tax-Free Money Fund 0.15%
Florida Tax-Free Money Fund 0.15%
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, 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
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. ("Touchstone") is the principal underwriter of the
Funds and, as such, the exclusive agent for distribution of shares of the Funds.
Touchstone is an affiliate of the Advisor by reason of common ownership.
Touchstone 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.
Touchstone currently allows concessions to dealers who sell shares of the
Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund. Touchstone
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 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.
Touchstone 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 Touchstone 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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MF ITF OIF OMF CMF FMF
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 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), 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 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 Touchstone 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 Touchstone 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 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 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.
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 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.
Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put attached to an obligation, it is expected that such puts will
be determined to have a value of zero, regardless of whether any direct or
indirect consideration was paid.
The Board of Trustees has adopted the policy for the 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. Touchstone works with many
experienced and very qualified financial advisors throughout the country that
may provide valuable assistance to you through ongoing education, asset
allocation programs, personalized financial planning reviews or other services
vital to your long-term success. Touchstone 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 0.25%
reduced for 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 Touchstone 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.
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 0.90
$500,000 but less than $1,000,000 0.75 0.76 0.65
$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 February 1, 1995:
Percentage Which Dealer
of Offering Price Equals this Reallowance
Deducted Percentage asPercentage
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, Touchstone may increase or decrease the reallowance
to selected dealers. In addition to the compensation otherwise paid to
securities dealers, Touchstone 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 Touchstone 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 Touchstone. 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 Touchstone Family of Funds.
Dealers should contact Touchstone for more information on the calculation of the
dealer's commission in the case of combined purchases.
An exchange from other Touchstone Funds will not qualify for payment of the
dealer's commission unless the exchange is from a Touchstone 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
Touchstone 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 Touchstone 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.
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 Touchstone and the shares are redeemed
within one year from the date of purchase. The contingent deferred sales load
will be paid to Touchstone 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. Touchstone 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. Touchstone may require documentation prior to
waiver of the load, including death certificates, physicians' certificates, etc.
All sales loads imposed on redemptions are paid to Touchstone. 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 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 Touchstone 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 Touchstone a specified amount which, if made at one time, would qualify for a
reduced sales load. A Letter of Intent may be submitted with a purchase at the
beginning of the thirteen month period or within ninety days of the first
purchase under the Letter of 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 Touchstone.
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 an investment advisor or financial planner who has made
appropriate arrangements with the Trust or Touchstone.
4. In accounts as to which a broker-dealer charges an asset management
fee, provided the broker-dealer has an agreement with
Touchstone.
5. As part of certain promotional programs established by the Fund and/or
Touchstone.
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 Touchstone 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 Prospectus.
9. Using the proceeds of a redemption from an unaffiliated mutual fund
(see below).
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.
Exemptions must be qualified in advance by Touchstone. Your financial advisor
should call Touchstone for more information.
REINVESTMENT OF PROCEEDS FROM OTHER MUTUAL FUNDS. You may purchase shares of the
Funds at net asset value when the payment for your investment represents the
proceeds from the redemption of shares of any other mutual fund which has a
front-end sales load and is not distributed by Touchstone. Your investment will
qualify for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within 1 year of the purchase
of such shares and no more than 60 days prior to your purchase of shares of a
Fund. To make a purchase at net asset value under this arrangement, you must
submit a copy of the confirmations (or similar evidence) showing the purchase
and redemption of shares of the other fund. Your payment may be made with the
redemption check from the other mutual fund, endorsed to the order of the
Touchstone Family of Funds. The redemption of shares of the other fund is, for
federal income tax purposes, a sale on which you may realize a gain or loss.
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 Touchstone. 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 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 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 Touchstone 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 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 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 Institutional 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 Institutional 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:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions. The calculation also assumes the deduction of the
current maximum sales load from the initial $1,000 payment. 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:
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%
(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:
Yield = 2[((a-b)/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
Generally, interest earned (for the purpose of "a" above) on debt obligations is
computed by reference to the yield to maturity of each obligation held based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last business day prior to the start of the 30-day (or
one month) period for which yield is being calculated, or, with respect to
obligations purchased during the month, the purchase price (plus actual accrued
interest). The 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 Institutional shares of the Ohio Tax-Free Money Fund.
The yield of Institutional 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 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 September 29, 2000, the principal owners of each class of shares of each
Fund are listed in the following table:
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------ -----------------
Fund Shareholder % of Class
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Money Fund National Investor Services Corp. 5.00%
FBO The Exclusive Benefit of our
Customers
55 Water Street
New York, NY 10041
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Money Fund Edward A. Striker 5.63%
Carol A. Striker
9711 Bennington Dr.
Cincinnati, OH 45241
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Money Fund Bear Stearns & Co. FBO 9.72%
A Customer
1 Metrotech Center North
Brooklyn, NY 11201 3859
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Money Fund David Tondow, Jr. 5.47%
Margaret L. Tondow
2937 Alpine Terrace
Cincinnati, OH 45208-3407
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Intermediate Term Fund - Merrill Lynch, Pierce Fenner and Smith 6.13%
Class A For the sole benefit of its customers
Attn Fund Administration 97181
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Intermediate Term Fund - Donaldson Lufkin & Jenrette 10.27%
Class C P.O. Box 2052
Jersey City, NJ 07303-2052
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Intermediate Term Fund - Joyce Yates 6.27%
Class C 400 S. Lower Schooner Rd.
Nashville, IN 47448
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Tax-Free Intermediate Term Fund - Janice R. Kirlin 5.78%
Class C 12049 Cooperwood
Cincinnati, OH 45242
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Ohio Insured Tax-Free Fund - Class C Painewebber for the Benefit of 7.49%
Leland F. Brubaker Trustee;
Declaration of Trust U/A DTD
10/10/97
4229 Westleton Ct.
Columbus, OH 43221-4930
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Ohio Insured Tax-Free Fund - Class C Fiserv Securities Inc. 7.15%
FAO 44242791, Attn Mutual
One Commerce Square
2005 Market Street Ste. 1200
Philadelphia, PA 19103
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Ohio Insured Tax-Free Fund - Class C Donaldson Lufkin & Jenrette 10.65%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Ohio Insured Tax-Free Fund - Class C Jeffrey R. Sloat 5.28%
Nancy E. Sloat
7091 Old Mill Road
Chesterland, OH 44026
------------------------------------ ------------------------------------ ----------------
------------------------------------ ------------------------------------ ----------------
Ohio Tax-Free Money Fund - Retail Fiserve Securities Inc.* 43.82%
Shares Attn: Renee Pressley
2005 Market Street 11th Floor
Philadelphia, PA 19103
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Ohio Tax-Free Money Fund - Retail Jerry Bach 5.32%
Shares 9055 Shawnee Run Rd.
Cincinnati, OH 45243
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Ohio Tax-Free Money Fund - Fifth Third Bank Trust* 85.65%*
Institutional Shares Attn Jennifer Moser
38 Fountain Square Plaza
Cincinnati, OH 45202-3191
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
California Tax-Free Money Fund Bear Stearns & Co. FBO 6.92%
A Customer
1 Metrotech Center North
Brooklyn, NY 11201-3859
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
California Tax-Free Money Fund Bear Stearns & Co. FBO 8.57%
A Customer
1 Metrotech Center North
Brooklyn, NY 11201-3859
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
California Tax-Free Money Fund Bear Stearns & Co. FBO 5.91%
#5205274615-Y11
1 Metrotech Center North
Brooklyn, NY 11201-3859
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Florida Tax-Free Money Fund Fifth Third Bank Trust* 47.04%
Attn Kim Haney
38 Fountain Square Plaza 1090F1
Cincinnati, OH 45263
------------------------------------- ------------------------------------ -----------------
------------------------------------- ------------------------------------ -----------------
Florida Tax-Free Money Fund Joseph H. Kanter 10.56%
9792 Windisch Road
West Chester, OH 45069
------------------------------------- ------------------------------------ -----------------
*May be deemed to control the Fund (or class) due to record ownership of 25% or more of the
outstanding shares.
</TABLE>
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 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, other independent auditors 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, Integrated Fund Services, Inc. ("Integrated"),
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. Integrated is an affiliate of the Advisor
by reason of common ownership. Integrated 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.
Integrated 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 Integrated to perform its duties, the
Tax-Free Money Fund, the California Tax-Free Money Fund and the Florida Tax-Free
Money Fund each pay Integrated 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 Integrated a fee in accordance with the following
schedule:
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.
Integrated is retained by the Advisor to assist the Advisor in providing
administrative services to the Funds. In this capacity, Integrated supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. Integrated
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, Integrated receives a fee from
the Advisor.
The Advisor is solely responsible for the payment of these administrative fees
to Integrated, and Integrated 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 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.
<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
<TABLE>
<S> <C> <C> <C> <C>
*Tax Brackets Combined Combined
------------- Ohio and California and
Federal Federal 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%
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
The financial statements as of June 30, 1999 for the Trust appear in the Trust's
annual report which is attached to this Statement of Additional Information.
<PAGE>
<PAGE>
Tax-Exempt
Annual
Report
June 30, 1999
Countrywide Investments
Countrywide Investment Logo
Tax-Free Money Fund
California Tax-Free Money Fund
Ohio Tax-Free Money Fund
Florida Tax-Free Money Fund
Tax-Free Intermediate Term Fund
Ohio Insured Tax-Free Fund
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Letter from the Chairman.......................................................3
Letter from the President......................................................4
Management Discussion and Analysis...........................................5-6
Statements of Assets and Liabilities.........................................7-9
Statements of Operations...................................................10-12
Statements of Changes in Net Assets........................................13-15
Financial Highlights.......................................................16-22
Notes to Financial Statements..............................................23-29
Portfolios of Investments:
Tax-Free Money Fund...................................................30-31
California Tax-Free Money Fund........................................32-33
Ohio Tax-Free Money Fund..............................................34-40
Florida Tax-Free Money Fund...........................................41-43
Tax-Free Intermediate Term Fund.......................................44-47
Ohio Insured Tax-Free Fund............................................48-50
Notes to Portfolios of Investments............................................51
Report of Independent Public Accountants......................................52
2. Countrywide Investments
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
OVERVIEW
The pace of economic activity in the U.S. over the past year remained quite
brisk. Strong employment growth, rising incomes and a relentless stock market
combined to fuel consumer consumption. Inflation remained subdued with the
Consumer Price Index up only 2% for the past fiscal year. The yield curve
steepened during the year with short-term maturities declining in yield, while
yields on bonds with intermediate and long-term maturities increased. During the
quarter ended September 30, 1998, a near meltdown in the emerging markets of
Russia, Asia and Latin America sparked a liquidity crisis in the bond market,
resulting in a "flight to quality" which sent Treasury yields sharply lower.
This caused a dislocation between the Treasury market and other sectors of the
bond market forcing yield spreads to widen dramatically. The Federal Reserve
Board responded by lowering the federal funds rate on three occasions, providing
the liquidity necessary for stability to return to the bond markets.
Interest rates began to rise by the start of 1999 due to improving conditions
overseas and a concern that robust domestic growth would lead to higher
inflation. By mid-year, Treasury yields had increased about 1% and, after
several warnings, the Fed finally raised the federal funds rate by 0.25% to 5%.
The change in municipal yields over the twelve months ended June 30 was
comparable to the change in Treasuries; however, in the second half of the
fiscal year, municipals outperformed Treasuries by a wide margin. Municipal bond
yields were up only about half as much as comparable maturity Treasuries, and
the total returns in most municipal sectors were twice that of the Treasury
market.
TAX-FREE INTERMEDIATE TERM FUND
The Tax-Free Intermediate Term Fund seeks high current income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-grade municipal obligations maturing within twenty years or
less with a dollar-weighted average portfolio maturity under normal conditions
of between three and ten years. To the extent consistent with the Fund's primary
objective, capital appreciation is a secondary objective. For the fiscal year
ended June 30, 1999, the Fund's total returns (excluding the impact of
applicable sales loads) were 2.07% and 1.40% for Class A shares and Class C
shares, respectively. The Lehman Brothers 5-Year Municipal G.O. Bond Index
returned 3.42% during the same period.
Our focus in managing the Tax-Free Intermediate Term Fund is to maximize the
tax-free yield while minimizing the share price volatility. This focus can
negatively impact our total return during periods of declining interest rates as
was experienced during the first three quarters of the Fund's fiscal year.
However, during the last quarter, as interest rates increased, the performance
of the Fund improved relative to the comparative Lehman Brothers Index, and
outperformed it after taking the Fund's operating expenses into consideration.
In addition, the Fund outperformed its Lipper peer group for the fiscal year.
Recently, we have made changes that we believe will help to improve the overall
total return of the portfolio. These changes include selling some of the shorter
maturity, higher coupon issues from the portfolio and buying new issues in the
10-year maturity range. The additional yield available in this maturity sector
provides an attractive opportunity for the Fund.
OHIO INSURED TAX-FREE FUND
The Ohio Insured Tax-Free Fund seeks the highest level of interest income exempt
from federal income tax and Ohio personal income tax, consistent with protection
of capital. The Fund invests primarily in high and medium-quality, long-term
Ohio municipal obligations which are protected by insurance guaranteeing the
payment of principal and interest in the event of a default. For the fiscal year
ended June 30, 1999, the Fund's total returns (excluding the impact of
applicable sales loads) were 1.81% and 1.05% for Class A shares and Class C
shares, respectively. The Lehman Brothers 15-Year Municipal G.O. Bond Index
returned 2.70% during the same period.
Performance of the Ohio Insured Tax-Free Fund for the fiscal year was comparable
to that of the Lehman Brothers 15-year Municipal G.O. Bond Index after factoring
in the associated expenses of the Fund. Over the course of the year, we
initiated several trades in the portfolio to improve the overall structure of
the portfolio. To accomplish this, we sold issues with higher coupons and short
call features and bought new issues with better call protection. Concerning the
purchases, we focused on issues in the 20-year maturity range offering call
protection of at least ten years. These issues provide the best combination of
yield and total return which, we believe, will ultimately improve the total
return potential of the Fund.
<PAGE>
Comparison of the Change in Value since June 30, 1989
of a $10,000 Investment in the Tax-Free Intermediate Term Fund - Class A*
and the Lehman Brothers 5-Year Municipal G.O. Bond Index
Tax-Free Intermediate Term Fund
Average Annual Total Returns
1 Year 5 Years 10 Years Since Inception*
Class A 0.03% 4.52% 5.73% 6.05%
Class C 1.40% 4.30% - 3.30%
Lehman Brothers 5-Year Tax-Free Intermediate
Municipal G.O. Bond Index Term Fund - Class A
6/89 10000 9800
10111 9951
10413 10182
10463 10241
6/90 10698 10422
10811 10472
11170 10797
11410 11005
6/91 11610 11191
12022 11515
12425 11779
12415 11835
6/92 12818 12174
13137 12441
13346 12687
13685 13118
6/93 14008 13483
14311 13910
14487 14075
14031 13600
6/94 14219 13711
14334 13789
14286 13663
14866 14257
6/95 15246 14583
15662 14884
15948 15246
16000 15180
6/96 16069 15241
16331 15486
16687 15835
16660 15811
6/97 17076 16184
17450 16486
17771 16764
17979 16905
6/98 18160 17096
18660 17519
18807 17614
19001 17677
6/99 18780 17450
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. Fund inception was
September 10, 1981, and the initial public offering of Class C shares
commenced on February 1, 1994.
<PAGE>
Comparison of the Change in Value since June 30, 1989
of a $10,000 Investment in the Ohio Insured Tax-Free Fund - Class A*
and the Lehman Brothers 15-Year Municipal G.O. Bond Index
Ohio Insured Tax-Free Fund
Average Annual Total Returns
1 Year 5 Years 10 Years Since Inception*
Class A -2.27% 4.92% 6.09% 7.26%
Class C 1.05% 5.11% - 3.75%
Lehman Brothers 15-Year Ohio Insured
Municipal G.O. Bond Index Tax-Free Fund - Class A
6/89 10000 9600
9957 9596
10397 9952
10396 9942
6/90 10634 10131
10591 10139
11059 10541
11263 10729
6/91 11484 10939
11954 11340
12328 11701
12394 11694
6/92 12867 12203
13235 12441
13561 12726
14137 13207
6/93 14655 13696
15266 14224
15505 14328
14453 13571
6/94 14659 13639
14719 13663
14461 13558
15677 14452
6/95 16027 14696
16612 15039
17285 15709
17120 15371
6/96 17180 15438
17593 15805
18126 16191
18113 16059
6/97 18870 16574
19517 16975
20070 17356
20335 17511
6/98 20693 17740
21469 18285
21606 18318
21764 18408
6/99 21252 18060
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and fees
paid by shareholders in the different classes. Fund inception was April 1,
1985, and the initial public offering of Class C shares commenced on November
1, 1993.
6. Countrywide Investments
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
--------------------------------------------------------------------------------
California
Tax-Free Tax-Free
(000's) Money Fund Money Fund
--------------------------------------------------------------------------------
ASSETS
Investment securities:
At acquisition cost $ 24,986 $ 47,809
============================
At amortized cost $ 24,935 $ 47,711
============================
At market value (Note 2) $ 24,935 $ 47,711
Cash 106 119
Interest receivable 208 378
Other assets 9 1
----------------------------
Total assets 25,258 48,209
----------------------------
LIABILITIES
Dividends payable 1 4
Payable for securities purchased -- 201
Payable to affiliates (Note 4) 15 26
Other accrued expenses and liabilities 8 11
----------------------------
Total liabilities 24 242
----------------------------
NET ASSETS $ 25,234 $ 47,967
----------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 25,231 $ 47,980
Undistributed net investment income 6 --
Accumulated net realized losses from
security transactions (3) (13)
----------------------------
Net assets $ 25,234 $ 47,967
============================
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) (Note 5) 25,242 47,980
============================
Net asset value, offering price and redemption price
per share (Note 2) $ 1.00 $ 1.00
============================
See accompanying notes to financial statements.
Countrywide Investments 7.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
--------------------------------------------------------------------------------
Ohio Florida
Tax-Free Tax-Free
(000's) Money Fund Money Fund
--------------------------------------------------------------------------------
ASSETS
Investment securities:
At acquisition cost $ 393,693 $ 36,451
============================
At amortized cost $ 393,522 $ 36,379
============================
At market value (Note 2) $ 393,522 $ 36,379
Cash 312 15
Interest receivable 2,753 306
Other assets 12 2
----------------------------
Total assets 396,599 36,702
----------------------------
LIABILITIES
Dividends payable 430 23
Payable for securities purchased 5,113 --
Payable to affiliates (Note 4) 224 12
Other accrued expenses and liabilities 35 12
----------------------------
Total liabilities 5,802 47
----------------------------
NET ASSETS $ 390,797 $ 36,655
============================
NET ASSETS CONSIST OF:
Paid-in capital $ 390,787 $ 36,666
Accumulated net realized gains (losses) from
security transactions 10 (11)
----------------------------
NET ASSETS $ 390,797 $ 36,655
============================
PRICING OF RETAIL SHARES
Net assets applicable to Retail shares $ 214,691 $ 21,371
============================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) 214,679 21,375
============================
Net asset value, offering price and redemption price
per share (Note 2) $ 1.00 $ 1.00
============================
PRICING OF INSTITUTIONAL SHARES
Net assets applicable to Institutional shares $ 176,106 $ 15,284
============================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 5) 176,108 15,291
============================
Net asset value, offering price and
redemption price per share (Note 2) $ 1.00 $ 1.00
============================
See accompanying notes to financial statements.
8. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
--------------------------------------------------------------------------------
Tax-Free Ohio Insured
Intermediate Tax-Free
(000's) Term Fund Fund
--------------------------------------------------------------------------------
ASSETS
Investment securities:
<S> <C> <C>
At acquisition cost $ 52,764 $ 62,029
============================
At amortized cost $ 52,525 $ 61,971
============================
At market value (Note 2) $ 53,176 $ 64,501
Cash 59 86
Interest receivable 891 623
Receivable for capital shares sold 143 25
Receivable for securities sold 491 3,579
Other assets 14 7
----------------------------
Total assets 54,774 68,821
----------------------------
LIABILITIES
Dividends payable 33 72
Payable for capital shares redeemed 130 229
Payable for securities purchased 2,027 990
Payable to affiliates (Note 4) 37 36
Other accrued expenses and liabilities 14 17
----------------------------
Total liabilities 2,241 1,344
----------------------------
NET ASSETS $ 52,533 $ 67,477
============================
NET ASSETS CONSIST OF:
Paid-in capital $ 52,244 $ 65,021
Accumulated net realized losses from
security transactions (362) (74)
Net unrealized appreciation on investments 651 2,530
----------------------------
Net Assets $ 52,533 $ 67,477
============================
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares $ 47,899 $ 62,737
============================
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) (Note 5) 4,405 5,343
============================
Net asset value and redemption price
per share (Note 2) $ 10.87 $ 11.74
============================
Maximum offering price per share (Note 2) $ 11.09 $ 12.23
============================
PRICING OF CLASS C SHARES
Net assets applicable to Class C shares $ 4,634 $ 4,740
============================
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) (Note 5) 426 404
============================
Net asset value, offering price and redemption price
per share (Note 2) $ 10.88 $ 11.74
============================
</TABLE>
See accompanying notes to financial statements.
Countrywide Investments 9.
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
California
Tax-Free Tax-Free
(000's) Money Fund Money Fund
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 1,037 $ 1,819
----------------------------
EXPENSES
Investment advisory fees (Note 4) 143 278
Accounting services fees (Note 4) 30 36
Transfer agent fees (Note 4) 30 27
Distribution expenses (Note 4) 2 28
Postage and supplies 18 6
Registration fees 16 5
Professional fees 8 9
Custodian fees 7 8
Trustees' fees and expenses 6 6
Pricing expenses 4 4
Insurance expense 3 4
Reports to shareholders 3 2
Other expenses 1 5
----------------------------
TOTAL EXPENSES 271 418
Fees waived by the Adviser (Note 4) ( 17) --
----------------------------
NET EXPENSES 254 418
NET INVESTMENT INCOME 783 1,401
----------------------------
NET REALIZED LOSSES FROM SECURITY TRANSACTIONS (2) ( 12)
----------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 781 $ 1,389
============================
See accompanying notes to financial statements.
10. Countrywide Investments
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
Ohio Florida
Tax-Free Tax-Free
(000's) Money Fund Money Fund
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 12,556 $ 1,931
----------------------------
EXPENSES
Investment advisory fees (Note 4) 1,597 286
Distribution expenses, Retail class (Note 4) 501 43
Accounting services fees (Note 4) 73 46
Transfer agent fees, Retail class (Note 4) 74 12
Transfer agent fees, Institutional class (Note 4) 12 12
Custodian fees (Note 4) 32 20
Postage and supplies 38 3
Registration fees 31 8
Professional fees 25 10
Pricing expenses 10 5
Insurance expense 9 5
Trustees' fees and expenses 6 6
Reports to shareholders 7 1
Other expenses 19 2
----------------------------
TOTAL EXPENSES 2,434 459
Fees waived by the Adviser (Note 4) (52) (124)
----------------------------
NET EXPENSES 2,382 335
----------------------------
NET INVESTMENT INCOME 10,174 1,596
----------------------------
NET REALIZED LOSSES FROM SECURITY TRANSACTIONS (3) (11)
----------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 10,171 $ 1,585
============================
See accompanying notes to financial statements.
Countrywide Investments 11.
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
Tax-Free Ohio Insured
Intermediate Tax-Free
(000's) Term Fund Fund
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 2,894 $ 3,861
----------------------------
EXPENSES
Investment advisory fees (Note 4) 272 353
Transfer agent fees, Class A (Note 4) 53 33
Transfer agent fees, Class C (Note 4) 12 12
Distribution expenses, Class A (Note 4) 42 9
Distribution expenses, Class C (Note 4) 25 27
Accounting services fees (Note 4) 48 48
Postage and supplies 40 20
Registration fees, Common 4 4
Registration fees, Class A 10 4
Registration fees, Class C 9 2
Pricing expenses 13 14
Custodian fees 14 8
Professional fees 10 11
Reports to shareholders 8 5
Trustees' fees and expenses 6 6
Insurance expense 5 6
Other expenses 3 5
----------------------------
TOTAL EXPENSES 574 567
----------------------------
NET INVESTMENT INCOME 2,320 3,294
----------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions 634 353
Net change in unrealized appreciation/depreciation
on investments (1,787) (2,151)
----------------------------
NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS (1,153) (1,798)
----------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,167 $ 1,496
============================
See accompanying notes to financial statements.
12. Countrywide Investments
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
California
Tax-Free Tax-Free
Money Fund Money Fund
------------------------------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(000's) 1999 1998 1999 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 783 $ 899 $ 1,401 $ 1,220
Net realized gains (losses) from
security transactions (2) -- (12) 2
----------------------------------------------------
Net increase in net assets
from operations 781 899 1,389 1,222
----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (777) (899) (1,401) (1,220)
----------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
Proceeds from shares sold 48,307 63,515 196,122 178,295
Reinvested distributions 751 884 1,332 1,139
Payments for shares redeemed (61,211) (57,142) (190,488) (170,609)
----------------------------------------------------
Net increase (decrease) in net assets
from capital share transactions (12,153) 7,257 6,966 8,825
----------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS (12,149) 7,257 6,954 8,827
NET ASSETS
Beginning of year 37,383 30,126 41,013 32,186
----------------------------------------------------
End of year $ 25,234 $ 37,383 $ 47,967 $ 41,013
====================================================
UNDISTRIBUTED NET
INVESTMENT INCOME $ 6 $ -- $ -- $ --
====================================================
See accompanying notes to financial statements.
Countrywide Investments 13.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------
Ohio Florida
Tax-Free Tax-Free
Money Fund Money Fund
-----------------------------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(000's) 1999 1998 1999 1998
-----------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,174 $ 9,960 $ 1,596 $ 1,737
Net realized gains (losses) from
security transactions (3) 1 (11) 23
----------------------------------------------------
Net increase in net assets
from operations 10,171 9,961 1,585 1,760
----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income,
Retail (5,927) (6,053) (501) (587)
From net investment income,
Institutional (4,247) (3,907) (1,095) (1,150)
From net realized gains,
Retail -- -- (6) --
From net realized gains,
Institutional -- -- (16) --
----------------------------------------------------
Decrease in net assets from
distributions to shareholders (10,174) (9,960) (1,618) (1,737)
----------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
RETAIL
Proceeds from shares sold 455,007 443,151 29,958 27,490
Reinvested distributions 5,786 5,971 495 577
Payments for shares redeemed (451,416) (410,527) (23,442) (36,138)
----------------------------------------------------
Net increase (decrease) in net assets
from Retail share transactions 9,377 38,595 7,011 (8,071)
----------------------------------------------------
INSTITUTIONAL
Proceeds from shares sold 459,806 303,525 67,739 129,691
Reinvested distributions 18 2 427 106
Payments for shares redeemed (398,983) (285,849) (102,016) (100,005)
----------------------------------------------------
Net increase (decrease) in net assets
from Institutional
share transactions 60,841 17,678 (33,850) 29,792
----------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 70,215 56,274 ( 26,872) 21,744
NET ASSETS
Beginning of year 320,582 264,308 63,527 41,783
----------------------------------------------------
End of year $ 390,797 $320,582 $ 36,655 $ 63,527
====================================================
See accompanying notes to financial statements.
14. Countrywide Investments
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------
Tax-Free Ohio Insured
Intermediate Tax-Free
Term Fund Fund
------------------------------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(000's) 1999 1998 1999 1998
------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,320 $ 2,689 $ 3,294 $ 3,707
Net realized gains from
security transactions 634 504 353 1,577
Net change in unrealized
appreciation/depreciation
on investments (1,787) 121 (2,151) (19)
----------------------------------------------------
Net increase in net assets
from operations 1,167 3,314 1,496 5,265
----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income,
Class A (2,149) (2,503) (3,095) (3,489)
From net investment income,
Class C (171) (186) (199) (218)
From net realized gains,
Class A -- -- (1,554) (434)
From net realized gains,
Class C -- -- (115) (35)
----------------------------------------------------
Decrease in net assets from
distributions to shareholders (2,320) (2,689) (4,963) (4,176)
----------------------------------------------------
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 5)
CLASS A
Proceeds from shares sold 13,620 12,408 142,439 140,843
Reinvested distributions 1,723 2,009 3,500 2,921
Payments for shares redeemed (19,292) (20,581) (149,279) (146,316)
-----------------------------------------------------
Net decrease in net assets from
Class A share transactions (3,949) (6,164) (3,340) (2,552)
----------------------------------------------------
CLASS C
Proceeds from shares sold 2,454 1,781 550 2,552
Reinvested distributions 158 173 268 210
Payments for shares redeemed (2,620) (2,418) (1,038) (2,250)
----------------------------------------------------
Net increase (decrease) in net assets
from Class C share transactions (8) (464) (220) 512
----------------------------------------------------
TOTAL DECREASE IN NET ASSETS (5,110) (6,003) (7,027) (951)
NET ASSETS
Beginning of year 57,643 63,646 74,504 75,455
----------------------------------------------------
End of year $ 52,533 $ 57,643 $ 67,477 $ 74,504
====================================================
</TABLE>
See accompanying notes to financial statements.
Countrywide Investments 15.
<PAGE>
TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
<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%
(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 (Note 4).
CALIFORNIA TAX-FREE MONEY FUND
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
-----------------------------------------------------------------------------------------------------
Year Ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------
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%
(A) Absent fee waivers and/or expense reimbursements by the Adviser, the ratio
of expenses to average net assets would have been 0.82% and 0.85% for the
years ended June 30, 1996 and 1995, respectively.
See accompanying notes to financial statements.
16. Countrywide Investments
<PAGE>
OHIO TAX-FREE MONEY FUND - RETAIL
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
-----------------------------------------------------------------------------------------------------
Year Ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------
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 (Note 4).
OHIO TAX-FREE MONEY FUND - INSTITUTIONAL
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Data for a Share Outstanding Throughout Each Period
-----------------------------------------------------------------------------------------------------
Period
Year Ended June 30, Ended
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)
(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 (Note 4).
(C) Annualized.
See accompanying notes to financial statements.
Countrywide Investments 17.
<PAGE>
FLORIDA TAX-FREE MONEY FUND - RETAIL
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
-------------------------------------------------------------------------------------------------------
Year Ended June 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------
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%
(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 (Note 4).
FLORIDA TAX-FREE MONEY FUND - INSTITUTIONAL
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Period
--------------------------------------------------------------------------------------------------------
Period
Year Ended June 30, Ended
June 30,
1999 1998 1997 1996(A)
--------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------------------------------------------------------------
Net investment income 0.029 0.032 0.031 0.003
-------------------------------------------------------------
Dividends from net investment income (0.029) (0.032) (0.031) (0.003)
-------------------------------------------------------------
Net asset value at end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------------------------------------------------------------
Total return 2.93% 3.28% 3.16% 3.03%(C)
=============================================================
Net assets at end of period (000's) $ 15,284 $ 49,159 $ 19,349 $ 19,145
=============================================================
Ratio of net expenses to
average net assets(B) 0.50% 0.50% 0.50% 0.50%(C)
Ratio of net investment income to
average net assets 2.91% 3.23% 3.11% 3.03%(C)
(A) Represents the period from the initial public offering of Institutional
shares (May 29, 1996) through June 30, 1996.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the ratio
of expenses to average net assets would have been 0.71%, 0.71%, 0.79% and
0.87% for the periods ended June 30, 1999, 1998, 1997 and 1996, respectively
(Note 4).
(C) Annualized.
See accompanying notes to financial statements.
18. Countrywide Investments
<PAGE>
TAX-FREE INTERMEDIATE TERM FUND - CLASS A
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
--------------------------------------------------------------------------------------------------------
Year Ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
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%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
Countrywide Investments 19.
<PAGE>
TAX-FREE INTERMEDIATE TERM FUND - CLASS C
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
--------------------------------------------------------------------------------------------------------
Year Ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
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%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
20. Countrywide Investments
<PAGE>
Ohio Insured Tax-Free Fund - Class A
Financial Highlights
--------------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
--------------------------------------------------------------------------------------------------------
Year Ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
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%
(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.
See accompanying notes to financial statements.
Countrywide Investments 21.
<PAGE>
OHIO INSURED TAX-FREE FUND - CLASS C
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------
Per Share Data for a Share Outstanding Throughout Each Year
--------------------------------------------------------------------------------------------------------
Year Ended June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
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%
(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.
</TABLE>
See accompanying notes to financial statements.
22. Countrywide Investments
<PAGE>
Notes to Financial Statements
June 30, 1999
--------------------------------------------------------------------------------
1. ORGANIZATION
The Tax-Free Money Fund, the California Tax-Free Money Fund, the Ohio Tax-Free
Money Fund, the Florida Tax-Free Money Fund, the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund (collectively, the Funds) are each a separate
series of shares of Countrywide Tax-Free Trust (the Trust). The Trust is
registered under the Investment Company Act of 1940 (the 1940 Act) as an
open-end management investment company. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated April 13, 1981.
The Declaration of Trust, as amended, permits the Trustees to issue an unlimited
number of shares of each Fund.
The Tax-Free Money Fund seeks the highest level of interest income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-quality, short-term municipal obligations.
The California Tax-Free Money Fund seeks the highest level of interest income
exempt from federal and California income taxes, consistent with liquidity and
stability of principal, by investing primarily in high-quality, short-term
California municipal obligations.
The Ohio Tax-Free Money Fund seeks the highest level of current income exempt
from federal income tax and Ohio personal income tax, consistent with liquidity
and stability of principal. The Fund invests primarily in a portfolio of
high-quality, short-term Ohio municipal obligations.
The Florida Tax-Free Money Fund seeks the highest level of interest income
exempt from federal income tax, consistent with liquidity and stability of
principal, by investing primarily in high-quality, short-term Florida municipal
obligations the value of which is exempt from the Florida intangible personal
property tax.
The Tax-Free Intermediate Term Fund seeks high current income exempt from
federal income tax, consistent with protection of capital, by investing
primarily in high-grade municipal obligations maturing within twenty years or
less with a dollar-weighted average portfolio maturity under normal market
conditions of between three and ten years. To the extent consistent with the
Fund's primary objective, capital appreciation is a secondary objective.
The Ohio Insured Tax-Free Fund seeks the highest level of interest income exempt
from federal income tax and Ohio personal income tax, consistent with protection
of capital. The Fund invests primarily in high and medium-quality, long-term
Ohio municipal obligations which are protected by insurance guaranteeing the
payment of principal and interest in the event of a default.
The Ohio Tax-Free Money Fund and the Florida Tax-Free Money Fund each offer two
classes of shares: Retail shares (sold subject to a distribution fee of up to
0.25% of average daily net assets of each Fund) and Institutional shares (sold
without a distribution fee). Each Retail and Institutional share of the Fund
represents identical interests in the Fund's investment portfolio and has the
same rights, except that (i) Retail shares bear the expenses of distribution
fees, which will cause Retail shares to have a higher expense ratio and to pay
lower dividends than those related to Institutional shares; (ii) certain other
class specific expenses will be borne solely by the class to which such expenses
are attributable; (iii) each class has exclusive voting rights with respect to
matters affecting only that class; and (iv) Retail shares are subject to a lower
minimum initial investment requirement and offer certain shareholder services
not available to Institutional shares such as checkwriting and automatic
investment and redemption plans.
The Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund each
offer two classes of shares: Class A shares (sold subject to a maximum front-end
sales load of 2% for the Tax-Free Intermediate Term Fund and 4% for the Ohio
Insured Tax-Free Fund and a distribution fee of up to 0.25% of average daily net
assets of each Fund) and Class C shares (sold subject to a maximum contingent
deferred sales load of 1% for a one-year period and a distribution fee of up to
1% of average daily net assets of each Fund). Each Class A and Class C share of
the Fund represents identical interests in the Fund's investment portfolio and
has the same rights, except that (i) Class C shares bear the expenses of higher
distribution fees, which will cause Class C shares to have a higher expense
ratio and to pay lower dividends than those related to Class A shares; (ii)
certain other class specific expenses will be borne solely by the class to which
such expenses are attributable; and (iii) each class has exclusive voting rights
with respect to matters relating to its own distribution arrangements (Note 7).
Countrywide Investments 23.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Trust's significant accounting policies:
Security valuation -- Tax-Free Money Fund, California Tax-Free Money Fund, Ohio
Tax-Free Money Fund and Florida Tax-Free Money Fund securities are valued on an
amortized cost basis, which approximates market. This involves initially valuing
a security at its original cost and thereafter assuming a constant amortization
to maturity of any discount or premium. This method of valuation is expected to
enable these Funds to maintain a constant net asset value per share. Tax-Free
Intermediate Term Fund and Ohio Insured Tax-Free Fund securities are valued at
market using an independent pricing service which generally utilizes a
computerized grid matrix of tax-exempt securities and evaluations by its staff
to determine what it believes is the fair value of the securities. On limited
occasions, if the valuation provided by the pricing service ignores certain
market conditions affecting the value of a security or the pricing service
cannot provide a valuation, the fair value of the security will be determined in
good faith consistent with procedures established by the Board of Trustees.
Share valuation -- The net asset value per share of the Tax-Free Money Fund and
the California Tax-Free Money Fund is calculated daily by dividing the total
value of a Fund's assets, less liabilities, by its number of shares outstanding.
The net asset value per share of each class of shares of the Ohio Tax-Free Money
Fund, the Florida Tax-Free Money Fund, the Tax-Free Intermediate Term Fund and
the Ohio Insured Tax-Free Fund is also calculated daily by dividing the total
value of a Fund's assets attributable to that class, less liabilities
attributable to that class, by the number of shares of that class outstanding.
The offering price per share of the Tax-Free Money Fund, the California Tax-Free
Money Fund, the Ohio Tax-Free Money Fund and the Florida Tax-Free Money Fund is
equal to the net asset value per share. The maximum offering price of Class A
shares of the Tax-Free Intermediate Term Fund is equal to the net asset value
per share plus a sales load equal to 2.04% of the net asset value (or 2% of the
offering price). The maximum offering price of Class A shares of the Ohio
Insured Tax-Free Fund is equal to the net asset value per share plus a sales
load equal to 4.17% of the net asset value (or 4% of the offering price). The
offering price of Class C shares of each Fund is equal to the net asset value
per share (Note 7).
The redemption price per share of each Fund, including each class of shares with
respect to the Ohio Tax-Free Money Fund, the Florida Tax-Free Money Fund, the
Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund, is equal to
the net asset value per share. However, Class C shares of the Tax-Free
Intermediate Term Fund and the Ohio Insured Tax-Free Fund are subject to a
contingent deferred sales load of 1% of the original purchase price if redeemed
within a one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Discounts and
premiums on securities purchased are amortized in accordance with income tax
regulations which approximate generally accepted accounting principles.
Distributions to shareholders -- Dividends from net investment income are
declared daily and paid on the last business day of each month. Net realized
short-term capital gains, if any, may be distributed throughout the year and net
realized long-term capital gains, if any, are distributed at least once each
year. Income distributions and capital gain distributions are determined in
accordance with income tax regulations.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Allocations between classes -- Investment income earned by the Ohio Tax-Free
Money Fund, the Florida Tax-Free Money Fund, the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund is allocated daily to each class of shares
based on the percentage of the net asset value of settled shares of such class
to the total of the net asset value of settled shares of both classes. Realized
capital gains and losses and unrealized appreciation and depreciation are
allocated daily to each class of shares based upon its proportionate share of
total net assets of the Fund. Class specific expenses are charged directly to
the class incurring the expense. Common expenses which are not attributable to a
specific class are allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund.
24. Countrywide Investments
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so qualifies
and distributes at least 90% of its taxable net income, the Fund will be
relieved of federal income tax on the income distributed. Accordingly, no
provision for income taxes has been made. In addition, each Fund intends to
satisfy conditions which enable it to designate the interest income generated by
its investment in municipal securities, which is exempt from federal income tax
when received by the Fund, as exempt-interest dividends upon distribution to
shareholders.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon the federal income tax cost of portfolio
investments as of June 30, 1999:
-----------------------------------------------------------------------
Tax-Free Ohio Insured
Intermediate Tax-Free
(000's) Term Fund Fund
-----------------------------------------------------------------------
Gross unrealized appreciation $ 1,264 $ 2,910
Gross unrealized depreciation (613) (380)
-----------------------------------------------------------------------
Net unrealized appreciation $ 651 $ 2,530
=======================================================================
The tax basis of portfolio investments for each Fund is equal to the amortized
cost as shown on the Statements of Assets and Liabilities.
As of June 30, 1999, the Tax-Free Intermediate Term Fund had a capital loss
carryforward for federal income tax purposes of $361,822, which expires on June
30, 2004. These capital loss carryforwards may be utilized in future years to
offset net realized capital gains prior to distribution to shareholders.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the year ended June 30, 1999:
------------------------------------------------------------------------
Tax-Free Ohio Insured
Intermediate Tax-Free
(000's) Term Fund Fund
------------------------------------------------------------------------
Purchases of investment securities $ 26,540 $ 17,908
========================================================================
Proceeds from sales and maturities of
investment securities $ 32,461 $ 26,665
========================================================================
4. TRANSACTIONS WITH AFFILIATES
The Chairman, President and certain other officers of the Trust are also
officers of Countrywide Financial Services, Inc., or its subsidiaries which
include Countrywide Investments, Inc. (the Adviser), the Trust's investment
adviser and principal underwriter, and Countrywide Fund Services, Inc. (CFS),
the Trust's transfer agent, shareholder service agent and accounting services
agent. Countrywide Financial Services, Inc. is a wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending.
Countrywide Investments 25.
<PAGE>
Notes to Financial Statements (Continued)
MANAGEMENT AGREEMENT
Each Fund's investments are managed by the Adviser under the terms of a
Management Agreement. Under the Management Agreement, each Fund pays the Adviser
a fee, computed and accrued daily and paid monthly, at an annual rate of 0.5% of
its respective average daily net assets up to $100 million, 0.45% of such net
assets from $100 million to $200 million, 0.4% of such net assets from $200
million to $300 million and 0.375% of such net assets in excess of $300 million.
In order to voluntarily reduce operating expenses during the year ended June 30,
1999, the Adviser waived investment advisory fees of $17,332 for the Tax-Free
Money Fund, $51,659 for the Ohio Tax-Free Money Fund and $124,338 for the
Florida Tax-Free Money Fund.
TRANSFER AGENT AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and CFS, CFS maintains the records for
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, CFS receives a monthly fee at an annual
rate of $25 per shareholder account from each of the Tax-Free Money Fund, the
California Tax-Free Money Fund, the Ohio Tax-Free Money Fund and the Florida
Tax-Free Money Fund and $21 per shareholder account from each of the Tax-Free
Intermediate Term Fund and the Ohio Insured Tax-Free Fund, subject to a $1,000
minimum monthly fee for each Fund, or for each class of shares of a Fund, as
applicable. In addition, each Fund pays CFS out-of-pocket expenses including,
but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and CFS,
CFS calculates the daily net asset value per share and maintains the financial
books and records of each Fund. For these services, CFS receives a monthly fee,
based on current net assets, of $2,500 per month from the Tax-Free Money Fund,
$3,000 per month from the California Tax-Free Money Fund, $6,000 per month from
the Ohio Tax-Free Money Fund, $3,500 per month from the Florida Tax-Free Money
Fund, and $4,000 per month from each of the Tax-Free Intermediate Term Fund and
the Ohio Insured Tax-Free Fund. In addition, each Fund is subject to an
additional charge of 0.001% of its respective average daily net assets in excess
of $300 million, and each Fund pays certain out-of-pocket expenses incurred by
CFS in obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as exclusive
agent for distribution of the Funds' shares. Under the terms of the Underwriting
Agreement between the Trust and the Adviser, the Adviser earned $3,824 and
$9,705 from underwriting and broker commissions on the sale of shares of the
Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund,
respectively, during the year ended June 30, 1999. In addition, the Adviser
collected $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.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is 0.25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of the Tax-Free Intermediate Term Fund and the Ohio Insured Tax-Free Fund
may directly incur or reimburse the Adviser for expenses related to the
distribution and promotion of shares. The annual limitation for payment of such
expenses under the Class C Plan is 1% of average daily net assets attributable
to Class C shares.
26. Countrywide Investments
<PAGE>
Notes to Financial Statements (Continued)
CUSTODIAN AGREEMENTS
The Fifth Third Bank, which serves as the custodian for each Fund except for the
Florida Tax-Free Money Fund, was a significant shareholder of record of the Ohio
Tax-Free Money Fund as of June 30, 1999. Under the terms of its Custodian
Agreement, The Fifth Third Bank receives from each such Fund an asset-based fee
plus transaction charges for each security transaction entered into by the
Funds. Huntington Trust Company, N.A. (Huntington), which serves as the
custodian for the Florida Tax-Free Money Fund, was a significant shareholder of
record of such Fund as of June 30, 1999. Under the terms of its Custodian
Agreement, Huntington receives from the Fund an asset-based fee.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions for the Tax-Free Money Fund, the California Tax-Free
Money Fund, the Ohio Tax-Free Money Fund and the Florida Tax-Free Money Fund are
identical to the dollar value of those transactions as shown in the Statements
of Changes in Net Assets. Proceeds and payments on capital shares as shown in
the Statements of Changes in Net Assets for the Tax-Free Intermediate Term Fund
and the Ohio Insured Tax-Free Fund are the result of the following capital share
transactions:
------------------------------------------------------------------------
Tax-Free Intermediate Ohio Insured
Term Fund Tax-Free Fund
------------------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(000's) 1999 1998 1999 1998
--------------------------------------------------------------------------------
CLASS A
Shares sold 1,222 1,116 11,637 11,401
Shares reinvested 154 181 287 236
Shares redeemed (1,729) (1,853) (12,181) (11,832)
--------------------------------------------------------------------------------
Net decrease in shares
outstanding (353) (556) (257) (195)
Shares outstanding,
beginning of year 4,758 5,314 5,600 5,795
--------------------------------------------------------------------------------
Shares outstanding,
end of year 4,405 4,758 5,343 5,600
================================================================================
CLASS C
Shares sold 219 160 45 206
Shares reinvested 14 16 22 17
Shares redeemed (234) (218) (85) (181)
--------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding (1) (42) (18) 42
Shares outstanding,
beginning of year 427 469 422 380
--------------------------------------------------------------------------------
Shares outstanding,
end of year 426 427 404 422
================================================================================
Countrywide Investments 27.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
6. PORTFOLIO COMPOSITION
As of June 30, 1999, the Ohio Tax-Free Money Fund and the Ohio Insured Tax-Free
Fund were invested exclusively in debt obligations issued by the State of Ohio
and its political subdivisions, agencies, authorities and instrumentalities and
by other issuers the interest from which is exempt from Ohio personal income
tax. The California Tax-Free Money Fund was invested exclusively in debt
obligations issued by the State of California and its political subdivisions,
agencies, authorities and instrumentalities and by other issuers the interest
from which is exempt from California income tax. The Florida Tax-Free Money Fund
was 74.7% invested in debt obligations issued by the State of Florida and its
political subdivisions, agencies, authorities and instrumentalities and by other
issuers the value of which is exempt from the Florida intangible personal
property tax. As of June 30, 1999, 15.5% of the portfolio securities of the
Tax-Free Money Fund were concentrated in the State of Ohio, 12.2% in the State
of Texas and 10.7% in the state of Minnesota. For information regarding
portfolio composition by state for the Tax-Free Intermediate Term Fund, see the
Fund's Portfolio of Investments.
The California Tax-Free Money Fund, the Ohio Tax-Free Money Fund, the Florida
Tax-Free Money Fund and the Ohio Insured Tax-Free Fund are each non-diversified
Funds under the 1940 Act. Thus, investments may be concentrated in fewer issuers
than those of a diversified fund. As of June 30, 1999, no non-diversified Fund
had concentrations of investments (10% or greater) in any one issuer.
The Tax-Free Money Fund, the California Tax-Free Money Fund, the Ohio Tax-Free
Money Fund and the Florida Tax-Free Money Fund each invest in municipal
securities maturing in 13 months or less and having a short-term rating in one
of the top two ratings categories by at least two nationally recognized
statistical rating agencies (or by one such agency if a security is rated by
only that agency) or, if unrated, are determined by the Adviser, under the
supervision of the Board of Trustees, to be of comparable quality.
As of June 30, 1999, 49.9% of the Tax-Free Intermediate Term Fund's portfolio
securities were rated AAA/Aaa [using the higher of Standard & Poor's Corporation
(S&P) or Moody's Investors Service, Inc. (Moody's) ratings], 22.2% were rated
AA/Aa, 24.4% were rated A/A and 3.5% were not rated.
As of June 30, 1999, 94.7% of the Ohio Insured Tax-Free Fund's long-term
portfolio securities were either (1) insured by an insurance policy obtained
from a recognized insurer which carries a rating of AAA by S&P or Aaa by
Moody's, (2) guaranteed as to the payment of interest and principal by an agency
or instrumentality of the U.S. Government or (3) secured as to the payment of
interest and principal by an escrow account consisting of obligations of the
U.S. Government. Three private insurers individually insure more than 10% of the
Ohio Insured Tax-Free Fund's portfolio securities and collectively insure 61.1%
of its portfolio securities.
28. Countrywide Investments
<PAGE>
Notes to Financial Statements (Continued)
The concentration of investments for each Fund as of June 30, 1999, classified
by revenue source, was as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
California Ohio Florida Tax-Free Ohio
Tax-Free Tax-Free Tax-Free Tax-Free Intermediate Insured
Money Money Money Money Term Tax-Free
Fund Fund Fund Fund Fund Fund
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General Obligations 12.2% 8.7% 19.4% 13.1% 13.3% 43.3%
Revenue Bonds:
-----------------------------------------------------------------------------------------
Industrial Development/
Pollution Control 40.3% 32.5% 18.7% 12.3% 4.8% 4.9%
Hospital/Health Care 7.8% 10.0% 29.6% 14.3% 24.3% 19.1%
Utilities 11.1% 13.8% 12.7% 14.6% 8.7% 16.7%
Education 5.4% 12.5% 4.9% 15.8% 17.6% 2.7%
Housing/Mortgage 8.8% 7.5% 3.9% 16.4% 11.4% 4.4%
Economic Development 4.4% 8.3% 4.1% 5.8% 2.4% --
Public Facilities 5.0% -- 2.5% 1.4% 5.5% 4.9%
Transportation -- 1.1% 2.4% 2.0% 4.8% 3.0%
Special Tax 1.0% 1.3% 1.3% 1.2% 2.5% --
Leases -- 3.4% -- -- -- --
Miscellaneous 4.0% 0.9% 0.5% 3.1% 4.7% 1.0%
-----------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
=========================================================================================
</TABLE>
7. MAXIMUM OFFERING PRICE PER SHARE
Effective August 1, 1999, for accounts opened after July 31, 1999, the maximum
offering price per share of Class A shares of the Tax-Free Intermediate Term
Fund and the Ohio Insured Tax-Free Fund is equal to the net asset value per
share plus a sales load equal to 4.99% of the net asset value (or 4.75% of the
offering price). Effective August 1, 1999, for all accounts, the maximum
offering price per share of Class C shares of each Fund is equal to the net
asset value per share plus a sales load equal to 1.27% of the net asset value
(or 1.25% of the offering price).
8. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
In accordance with federal tax requirements, each Fund designates its respective
dividends paid from net investment income during the year ended June 30, 1999,
as "exempt-interest dividends." In addition, on October 30, 1998, the Florida
Tax-Free Money Fund declared and paid a long-term capital gain distribution of
$0.000324 per share, and the Ohio Insured Tax-Free Fund declared and paid a
short-term capital gain distribution of $0.0440 per share and a long-term
capital gain distribution of $0.2410 per share. In January of 1999, shareholders
were provided with Form 1099-DIV which reported the amounts and tax status of
such capital gain distributions paid during calendar year 1998.
Countrywide Investments 29.
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Money Fund
Portfolio of Investments
June 30, 1999
-----------------------------------------------------------------------------------------
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds-- 30.2% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 340 West Virginia St. Bldg. Comm. Lease Rev., Ser. C
(WV Regional Jail) 3.600% 07/01/99 $ 340
315 Washoe Co., NV, GO, Prerefunded @ 102 7.375 07/01/99 321
250 Jefferson, LA, Sales Tax Dist. Prerefunded @ 100 8.250 07/01/99 250
400 American Municipal Power Sys. Impt. BANS
(Montpelier Village Proj.) 3.550 07/15/99 400
225 Denton Co., TX, GO 7.500 07/15/99 225
150 Philadelphia, PA, Gas Works Rev., Ser. 15 4.100 08/01/99 150
485 Arlington, TX, Perm. Impt. GO 4.500 08/15/99 485
235 Georgetown, TX, GO 5.500 08/15/99 236
100 Armstrong Co., PA, Hosp. Auth. Health Center Rev.
(St. Francis Health Care Proj.) 6.300 08/15/99 100
250 Charlotte, NC, COP, Ser. D (Govt. Equip. Proj.) 5.050 09/01/99 251
500 Rhode Island St. GO, Ser. B, Prerefunded @ 102 6.800 10/15/99 508
170 Commerce Charter Twnp., MI, Spec.
Assessment GO, Ser. B 3.700 11/01/99 170
100 West Virginia St. Water Dev. Auth. Rev., Ser. A
(Loan Program) 4.800 11/01/99 100
185 Lewistown Boro, PA, GO, Prerefunded @ 100 6.100 12/15/99 187
560 American Municipal Power Sys. Impt. BANS
(Wellington Village Proj.) 3.500 12/16/99 560
600 Massillon City, OH, Parks and Recreation GO BANS 3.730 01/14/00 602
571 American Municipal Power Sys. Impt. BANS
(Milan Village Proj.) 3.500 01/21/00 571
500 American Municipal Power Sys. Equipment BANS
(Distributive Generation Proj.) 4.250 01/21/00 500
500 Northern Ozaukee School Dist., WI, GO BANS . 3.400 02/01/00 500
395 Umatilla Indian Reserv. Conferated
Tribes GO, Ser. A 4.200 02/01/00 397
180 Lewisville, TX, GO 5.000 02/15/00 182
120 The Colony, TX, GO, Prerefunded @ 100 6.800 02/15/00 122
475 American Municipal Power Sys. Impt. BANS
(Bradner Village Proj.) 3.600 03/23/00 475
------ ------------
$7,606 Total Fixed Rate Revenue & General Obligation Bonds
(Amortized Cost $7,632) $ 7,632
-----------------------------------------------------------------------------------------
</TABLE>
30. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Money Fund (Continued)
-----------------------------------------------------------------------------------------
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 52.3% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 800 Trinity River, TX, IDR, Ser. 1997 (ADP, Inc. Proj.) 3.700% 07/01/99 $ 800
500 Indiana Health Fac. Fin. Auth. Rev., Ser. 1997
(Capital Access Designated Pool) 3.550 07/07/99 500
600 Arapahoe Co., CO, Parkview Metro. Dist. GO 3.550 07/07/99 600
1,000 Tucson, AZ, IDA MFH Rev. (Lincoln Garden Proj.) 3.600 07/07/99 1,000
600 Illinois Dev. Fin. Auth. Rev., Ser. 1992
(Uhlich Children's Home Proj.) 3.650 07/07/99 600
1,100 Scio Twnp., MI, EDR 3.730 07/07/99 1,100
200 Indiana St. Dev. Fin. Auth. Rev.
(Lutheran High School) 3.750 07/07/99 200
500 San Rafael, CA, IDR, Ser. 1984
(Phoenix American, Inc.) 3.750 07/07/99 500
590 Brooklyn Park, MN, IDR (Schmidt Proj.) 3.850 07/07/99 590
500 Frankfort, MN, IDR, Ser. 1995 (J&B, Inc.) 3.850 07/07/99 500
815 Harvard, IL, Health Care Fac. Rev., Ser. 1998
(Harvard Memorial Hosp. Proj.) 3.850 07/07/99 815
200 Hope, AR, IDR, Ser. A (Champion Parts, Inc. Proj.) 3.950 07/07/99 200
973 Kansas City, MO, IDR (A.M. Castle & Co. Proj.) 3.950 07/07/99 973
1,275 Mankota, MN, IDR, Ser. 1998 (Sacco Family LP Proj.) 3.950 07/07/99 1,275
649 Franklin Park, IL, Rev., Ser. 1994
(A.M. Castle & Co. Proj.) 3.950 07/07/99 649
188 Rosemont, IL, IDR (A.M. Castle & Co. Proj.) 3.950 07/07/99 188
290 Frankfort, MN, IDR, Ser. 1995 (J&B, Inc.) 4.050 07/07/99 290
900 Eddyville, IA, IDR (Heartland Lysine, Inc.) 4.100 07/07/99 900
1,000 Coppell, TX, IDR (Minyards Prop., Inc.) 3.500 07/30/99 1,000
500 Arapahoe Co., CO, Rev., Ser. 1997
(Denver Jet Center Proj.) 3.550 07/30/99 500
------ ------------
$3,180 Total Floating & Variable Rate Demand Notes
------ (Amortized Cost $13,180) $ 13,180
------------
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Coupon Maturity Value
(000's) Adjustable Rate Put Bonds-- 16.3% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,200 Owensboro, KY, IDR, Ser. 1985 (Dart Container) 3.300% 09/01/99 $ 1,200
145 Cuyahoga Co., OH, IDR (Halle Office Bldg.) 3.575 10/01/99 145
1,000 Westmoreland Co., PA, IDR (White
Consolidated Industries) 3.520 12/01/99 1,000
650 Lexington-Fayette Co., KY, Urban Govt. Rev.
(Providence Montessori) 3.625 01/01/00 650
525 Colorado Health Fac. Auth. Rev., Ser. 1998A
(AMC Cancer Center) 3.400 01/15/00 525
605 Buckeye Tax-Exempt Mtg. Bond Trust 3.400 02/01/00 603
------ ------------
$4,125 Total Adjustable Rate Put Bonds
(Amortized Cost $4,123) $ 4,123
-----------------------------------------------------------------------------------------
$24,911 Total Investment Securities-- 98.8%
(Amortized Cost $24,935) $ 24,935
======= ------------
Other Assets in Excess of Liabilities-- 1.2% 299
------------
Net Assets-- 100% $ 25,234
============
</TABLE>
See accompanying notes to financial statements and notes to portfolios of
investments.
Countrywide Investments 31.
<PAGE>
--------------------------------------------------------------------------------
California Tax-Free Money Fund
Portfolio of Investments
June 30, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds-- 28.8% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 986 University of California, Regents COP, Ser. A 3.200% 07/01/99 $ 984
425 Sacramento Co., CA, Airport Sys. Rev., Ser. B 3.500 07/01/99 425
340 Fremont, CA, USD, Ser. A 3.400 08/01/99 340
200 Roseville, CA, Local Govt. Fin. Auth. Rev.,
Prerefunded @ 101 6.250 08/01/99 203
400 California St. GO 6.700 08/01/99 401
255 Napa Valley, CA, USD GO 7.000 08/01/99 256
900 Castro Valley, CA, USD GO 7.000 08/01/99 903
110 Reef-Sunset, CA, USD GO 7.500 08/01/99 110
330 Compton, CA, Cmnty. Redev. Agcy.
(Walnut Indust. Park), Prerefunded @ 102 7.500 08/01/99 338
150 Coachella Valley Co., CA, Water Dist.
No. 54 Impt. Rev. 10.200 08/01/99 151
270 California St. Cmntys. Dev. Auth. Rev.
(Monterey Peninsula) 4.000 08/15/99 270
110 California St. Cmntys. Dev. Auth. Rev.
(Sutter Health Obligated Group) 4.500 08/15/99 110
210 Los Angeles, CA, Conv. & Exhib. Ctr. Auth. COP,
Ser. A, Prerefunded @ 101.5 7.375 08/15/99 214
200 Glendora, CA, Pub. Fin. Auth. Rev. 3.150 09/01/99 20
105 Los Angeles Co., CA, Schs. Regionalized
Business Svcs. Rev., Ser. B 3.300 09/01/99 105
250 Modesto, CA, CSD COP 3.500 09/01/99 250
405 Saratoga, CA, USD GO 4.000 09/01/99 405
100 Southern California Rapid Tran. Dist. Rev 5.000 09/01/99 100
310 Escondido, CA, Joint Pwr. Fin. Auth. Lease
Rev., Ser. B (Escondido Civic Ctr.) 5.300 09/01/99 311
100 California St. GO 5.750 09/01/99 100
500 Los Angeles, CA, GO, Ser. A 6.250 09/01/99 503
1,000 San Francisco, CA, City & Co., USD GO 4.500 09/22/99 1,002
794 University of California, Regents COP, Ser. A 3.250 10/01/99 792
250 Sunnyvale, CA, Fin. Auth. Utility Rev., Ser. B
(Solid Waste Materials Recovery) 5.300 10/01/99 251
300 California St. GO 6.600 11/01/99 304
802 University of California, Regents COP, Ser. A 3.350 01/01/00 800
125 California MFH HFA Rev., Ser. A 3.450 02/01/00 125
115 Palmdale, CA, Cmnty. Dev. Agcy.
Residential Mtg. Rev., Ser. A 6.500 02/01/00 117
250 Santa Clara Valley, CA, Water Dist. COP,
Prerefunded @ 102 6.600 02/01/00 260
250 California St. GO 4.800 03/01/00 253
100 Mesa, CA, Consolidated Water Dist. COP 4.400 03/15/00 101
100 California St. GO 6.650 04/01/00 103
150 Northern California Trans. Rev., Ser. A,
Prerefunded @ 101.5 7.000 05/01/00 157
2,500 California St. Veterans GO 3.200 06/01/00 2,500
200 California Health. Fac. Fin. Auth.
Rev., Ser. B (Catholic Health Facs.) 4.250 07/01/00 201
165 Sacramento, CA, Utility Dist. Rev., Ser. 7 5.000 07/01/00 168
---------- ---------
$ 13,757 Total Fixed Rate Revenue & General Obligation Bonds
(Amortized Cost $13,813) $ 13,813
---------- ---------
</TABLE>
32. Countrywide Investments
<PAGE>
California Tax-Free Money Fund (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds-- 28.8% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 600 California Health Fac. Fin. Auth. Rev.,
Ser. 1998C (Adventist Hosp.) 3.100% 07/01/99 $ 600
398 Orange Co., CA, Impt. Rev. Asses. Dist. No. 88 3.100 07/01/99 398
1,000 California Statewide Cmntys. Dev. Corp. Rev.
(House Ear Institution) 3.100 07/01/99 1,000
300 Santa Ana, CA, Health Fac. Rev.
(Town & Country Manor Proj.) 3.100 07/01/99 300
600 California PCR Fin. Auth.
(Pacific Gas & Electric) 3.100 07/01/99 600
2,000 California Health Fac. Fin. Auth. Rev.,
Ser. 1998B (Adventist Hosp.) 3.100 07/01/99 2,000
700 Newport Beach, CA, Rev., Ser. B
(Hoag Memorial Hosp.) 3.150 07/01/99 700
600 Newport Beach, CA, Rev., Ser. C
(Hoag Memorial Hosp.) 3.150 07/01/99 600
2,000 Rancho, CA, Water Dist. Fin. Rev., Ser. 1998A 3.000 07/07/99 2,000
500 Riverside, CA, IDR Issue A
(Sunclipse, Inc. Proj.) 3.050 07/07/99 500
600 Montebello, CA, IDR (Sunclipse, Inc. Proj.) 3.050 07/07/99 600
400 California PCR Fin. Auth., Ser. 1983
(Southdown, Inc.) 3.150 07/07/99 400
3,100 California PCR Fin. Auth., Ser. 1983
(Southdown, Inc.) 3.150 07/07/99 3,100
1,000 Los Angeles, CA, Comm. Dev. COP
(Willowbrook Proj.) 3.200 07/07/99 1,000
400 Orange, CA, IDR (Control Air Conditioning) 3.450 07/07/99 400
2,000 ABN AMRO Munitops Trust Cert. (San Diego, CA) 3.450 07/07/99 2,000
1,100 Los Angeles, CA, MFH Rev. (Studio Colony) 3.500 07/07/99 1,100
1,600 Vacaville, CA, IDA IDR (Leggett &
Platt, Inc.) 3.550 07/07/99 1,600
1,960 California Public Capital Impt.
Fin. Auth. Rev. 3.600 07/07/99 1,960
1,300 San Bernardino Co., CA, COP 3.620 07/07/99 1,300
900 Alameda Co., CA, IDR, Ser. A
(Plyproperties Proj.) 3.700 07/07/99 900
1,000 Alameda Co., CA, IDR, Ser. A
(Tool Family Partnership) 3.700 07/07/99 1,000
1,100 Alameda Co., CA, IDR (Dicon
Fiberoptics, Inc. Proj. A) 3.700 07/07/99 1,100
2,600 San Rafael, CA, IDR, Ser. 1984
(Phoenix American, Inc.) 3.750 07/07/99 2,600
900 San Bernardino, CA, IDR (LaQuinta Motor Inns) 3.850 07/07/99 900
1,000 San Bernardino Co., CA, Capital Impt.
Refinancing Proj. Rev. 3.850 07/07/99 1,000
1,500 Hanford, CA, Sewer Rev., Ser A 3.850 07/07/99 1,500
2,000 ABAG Fin. Auth. Nonprofit Corps.
MFH Rev., Ser. A 4.000 07/07/99 2,000
520 California Statewide Cmntys. Dev. Corp. Rev.
(Michigan Hanger) 4.400 07/07/99 520
220 California Statewide Cmntys. Dev. Corp. Rev.
(Jaygee Realty Proj.) 4.450 07/07/99 220
---------- ------------
$ 33,898 Total Floating & Variable Rate Demand Notes
(Amortized Cost $33,898) $33,898
---------- ------------
$ 47,655 Total Investment Securities-- 99.5%
(Amortized Cost $47,111) $47,711
==========
Other Assets in Excess of Liabilities-- 0.5% 256
------------
Net Assets-- 100% $47,967
============
</TABLE>
See accompanying notes to financial statements and notes to portfolios of
investments.
Countrywide Investments 33.
<PAGE>
Ohio Tax-Free Money Fund
Portfolio of Investments
June 30, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds-- 29.7% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,100 American Municipal Power Sys. Impt. BANS
(Montpelier Village Proj.) 3.950% 07/15/99 $ 2,100
820 Columbus, OH, GO (Police/Fireman Disability) 4.000 07/15/99 820
800 Miami Co., OH, Bldg. Impt. GO BANS 3.800 07/15/99 800
1,200 Sandusky Co., OH, Various Purpose GO BANS 4.125 07/29/99 1,200
928 Mason-Deerfield, OH, Joint Fire Dist.
GO BANS, Ser. 1998 4.000 08/05/99 928
2,500 Ottawa Co., OH, Regional Water Sys.
Impt. GO BANS 4.000 08/06/99 2,501
625 Lake Co., OH, Hosp. Fac. Rev., Ser. 1998
(Lake Hosp. Sys.) 4.000 08/15/99 625
3,000 American Municipal Power Sys. Impt. BANS
(City of Bryan Proj.) 3.850 08/27/99 3,000
1,454 Leetonia, OH, School Dist. Impt.
GO BANS, Ser. 1999 3.740 09/01/99 1,455
520 Washington Co., OH, Hosp. Impt. Rev.
(Marietta Area Health) 4.000 09/01/99 520
375 Springboro City, OH, Clear Creek
Park Impt. GO BANS 4.150 09/02/99 375
1,000 Loveland, OH, Real Estate Acq. GO BANS 3.860 09/09/99 1,000
900 Springboro, OH, Street Impt. GO BANS
(South Tech. Bus. Park) 4.050 09/09/99 901
1,000 American Municipal Power Sys. Impt. BANS
(Bowling Green Project) 3.800 09/10/99 1,000
200 American Municipal Power Sys. Impt. BANS
(Bowling Green Project) 3.800 09/10/99 200
1,000 Cleveland, OH, Parking Fac Rev. 4.450 09/15/99 1,003
1,325 Marysville, OH, Various Purpose GO BANS 3.460 09/15/99 1,326
500 Ravena Township, OH, Twnp. Hall &
Garage GO BANS 4.050 09/15/99 500
1,100 Adena, OH, LSD School Impt. GO BANS,
Ser. 1999S 3.590 09/16/99 1,101
2,440 Muskingum Co., OH, Various Purpose GO BANS 3.800 09/22/99 2,442
1,475 Mayfield Village, OH, Various Purpose GO BANS 3.650 09/28/99 1,476
50 Fairlawn, OH, Health Care Fac. Rev.
(St. Edward Proj.), Prerefunded @ 102 8.250 10/01/99 52
210 Fairlawn, OH, Health Care Fac. Rev.
(St. Edward Proj.), Prerefunded @ 102 8.300 10/01/99 217
95 Fairlawn, OH, Health Care Fac. Rev.
(St. Edward Proj.), Prerefunded @ 102 8.350 10/01/99 98
500 Fairlawn, OH, Health Care Fac. Rev.
(St. Edward Proj.), Prerefunded @ 102 8.500 10/01/99 516
500 Gallia Co., OH, Hosp. Fac. Rev.
(Holzer Med. Ctr.) 3.300 10/01/99 500
1,000 Ohio St. Bldg. Auth. Rev., Ser. C,
Prerefunded @ 103 7.200 10/01/99 1,039
200 Ohio St. Bldg. Auth. Rev., Ser. A 4.200 10/01/99 200
600 Beachwood, OH, Street & Sewer Impt. GO BANS 3.750 10/07/99 600
550 Van Wert Co., OH, Various Purpose GO BANS 3.800 10/13/99 551
1,945 Jackson Co., OH, Various Purpose GO BANS,
Ser. 1998 3.620 10/14/99 1,947
2,000 Lucas Co., OH, Metro Sewer & Water Dist.
Rev., Ser. 1998 3.625 10/20/99 2,002
135 Hamilton, OH, GO (Police/Fireman Pension) 4.650 11/01/99 136
1,000 Ohio St. Pub. Fac. Higher Educ.
Rev., Ser. II-B 4.500 11/01/99 1,005
2,300 American Municipal Power Sys. Impt. BANS
(Pioneer Village Proj.) 3.400 11/05/99 2,300
4,000 Evergreen, OH, LSD GO BANS 4.500 11/08/99 1,103
34. Countrywide Investments
<PAGE>
Ohio Tax-Free Money Fund (Continued)
-----------------------------------------------------------------------------------------
<CAPTION>
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds -- 29.7% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,100 North Hampton Village, OH, Sewer Sys.
First Mtg. RANS, Ser. 1999 4.400% 11/12/99 $ 1,104
1,065 Marysville, OH, Various Purpose GO BANS 3.510 11/18/99 1,066
2,000 Summit Co., OH, Various Purpose GO BANS,
Ser. 1998 3.625 11/18/99 2,005
2,440 Chesapeake-Union, OH, LSD School Impt. GO BANS 4.200 11/20/99 2,444
1,000 Belmont Co., OH, Sanitary Sewer Impt. GO BANS 3.510 11/23/99 1,001
1,545 Marion Co., OH, Various Purpose GO BANS 3.470 11/23/99 1,546
580 Muskingum Co., OH, GO BANS
(Brandywine Blvd. Extension) 3.650 11/30/99 581
280 Southwest Licking, OH, LSD School
Impt. GO BANS 3.100 12/01/99 280
830 Sycamore, OH, CSD School Impt. GO, Ser. A 3.400 12/01/99 830
250 Tuscarawas Valley, OH, LSD GO 3.400 12/01/99 250
2,000 Eastern Ohio Regional Wastewater
Auth. Impt. Rev. BANS 4.200 12/02/99 2,003
3,000 American Municipal Power Sys. Impt. BANS
(Bowling Green Proj.) 3.400 12/03/99 3,000
1,000 Logan Co., OH, Sanitary Sewer Sys.
Impt. GO BANS 3.640 12/15/99 1,001
810 Mahoning Valley, OH, Sanitation Dist. Rev. 4.000 12/15/99 813
5,000 Hamilton, OH, LSD School Impt.
GO BANS, Ser. 1999 4.200 12/22/99 5,016
748 Lima, OH, Land Aquisition GO BANS
(River Corridor Proj.) 3.600 01/12/00 749
660 Worthington, OH, CSD School Impt.
GO BANS, Ser. 1999 3.440 01/13/00 661
5,000 American Municipal Power Sys. Equipment BANS
(Distributive Generation Proj.) 4.250 01/21/00 5,000
1,335 Marysville, OH, Various Purpose GO BANS 3.410 01/27/00 1,337
500 North Ridgeville, OH, Water Sys. Impt. GO BANS 3.600 02/01/00 501
1,120 Marion Co., OH, Various Purpose GO BANS 3.500 02/08/00 1,122
486 Maple Heights, OH, CSD Energy Conservation Impt.
GO BANS, Ser. 1999 4.000 02/11/00 488
975 Ottawa Co., OH, Regional Water Sys.
Impt. GO BANS 3.500 02/16/00 977
1,000 Mason, OH, CSD School Impt. GO BANS, Ser. 1999 3.380 02/17/00 1,003
765 Ottawa Co., OH, Port Auth. Fac. Impt. GO BANS 3.550 02/21/00 766
600 North Ridgeville, OH, Road Impt.
GO BANS, Ser. 1999 (Bainbridge Proj.) 3.600 03/02/00 601
800 Salem, OH, CSD School Impt. GO BANS, Ser. 1999 3.460 03/03/00 801
1,000 Marysville, OH, Various Purpose GO BANS 3.360 03/16/00 1,002
2,000 American Municipal Power Sys. Impt. BANS
(St. Mary's Proj.) 3.550 03/23/00 2,000
300 New Knoxville, OH, School Construction GO BANS 4.510 03/23/00 303
2,200 American Municipal Power Sys. Impt. BANS
(Lodi Village Proj.) 3.400 03/24/00 2,200
1,400 American Municipal Power Sys. Impt. BANS
(Genoa Village Proj.) 3.600 03/28/00 1,400
850 Genoa, OH, Water Sys. Impt. GO BANS 3.400 03/30/00 850
700 Franklin Co., OH, Dev. Ref. Rev., Ser. 1983
(American Chemical Soc. Proj.) 5.500 04/01/00 710
700 Brook Park, OH, GO BANS 3.500 04/07/00 701
1,060 Marysville, OH, Various Purpose GO BANS 3.460 04/13/00 1,062
1,150 Marysville, OH, Various Purpose GO BANS 3.590 04/13/00 1,153
4,300 Hebron, OH, Sanitary Sewer Sys. Rev. 4.000 04/17/00 4,318
1,000 Ohio St. Highway Impt. GO, Ser. C 4.000 05/01/00 1,004
Countrywide Investments 35.
<PAGE>
<CAPTION>
Ohio Tax-Free Money Fund (Continued)
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds -- 29.7% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,500 Mentor, OH, Exempted Village School Dist.
GO BANS, Ser. 1999 3.380% 05/04/00 $ 1,501
3,000 Cincinnati, OH, CSD GO BANS 3.900 05/12/00 3,013
1,500 Ross Co., OH, Bldg. Auth. Acquisition GO BANS 3.300 05/17/00 1,500
1,100 Williard City, OH, Street Impt. GO BANS 3.650 05/25/00 1,102
1,040 Ohio St. Water Dev. Auth. Impt. Rev. 5.000 06/01/00 1,053
450 Springboro, OH, GO BANS (South Main Street) 3.660 06/01/00 451
1,640 Ohio St. Water Dev. Auth. Impt. Rev. 5.400 06/01/00 1,671
1,100 Marysville, OH, GO BANS (Phase II Notes) 3.880 06/15/00 4,010
2,450 Marysville, OH, Various Purpose GO BANS 3.660 06/15/00 2,456
2,755 Obetz, OH, Various Purpose GO BANS 3.700 06/15/00 2,760
1,000 American Municipal Power Sys. Impt. BANS
(Village of New Bremen Proj.) 3.700 06/16/00 1,000
1,250 American Municipal Power Sys. Impt. BANS
(Deshler, OH, Proj.) 4.000 06/16/00 1,250
3,000 East Muskingum, OH, Water Auth. Rev. BANS 4.320 06/22/00 3,009
---------- ---------
$ 115,681 Total Fixed Rate Revenue & General Obligation Bonds
(Amortized Cost $115,964) $115,964
---------- ---------
<CAPTION>
-----------------------------------------------------------------------------------------
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 64.3% Rate Date (000's)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,400 Cuyahoga Co., OH, Hosp. Rev.
(University Hosp. of Cleveland) 3.800% 07/01/99 $ 4,400
2,800 Ohio St. Air Quality Dev. Auth. Rev. (CG&E) 3.350 07/01/99 2,800
300 Ohio St. Water Dev. Auth. Impt. Rev.,
Ser. 1996B (Mead Corp.) 3.800 07/01/99 300
1,600 Ohio St. Water Dev. Auth. Impt. Rev.,
Ser. B (Mead Corp.) 3.800 07/01/99 1,600
7,000 ABN AMRO Munitops Trust Cert. 1998-I8
(Cleveland Water Works) 3.560 07/07/99 7,000
400 Akron, Bath & Copley, OH, Joint Twnsp.
Hosp. Rev. (Visiting Nurse Svcs. Proj.) 3.650 07/07/99 400
1,515 Allen Co., OH, Health Care Fac. Rev.
(Mennonite Memorial Home Proj.) 3.650 07/07/99 1,515
1,335 Village of Andover, OH, Health Care Rev.,
Ser. 1996 (D&M Realty Proj.) 3.620 07/07/99 1,335
3,400 Ashtabula Co., OH, Hosp. Fac. Rev., Ser. 1995
(Ashtabula Co. Med. Ctr. Proj.) 3.620 07/07/99 3,400
3,055 Butler Co., OH, Hosp. Fac. Rev., Ser. 1998A
(Berkeley Square Retirement Ctr. Proj.) 3.650 07/07/99 3,055
1,000 Butler Co., OH, IDR (Phillip Morris Co.) 3.650 07/07/99 1,000
950 Centerville, OH, Health Care Rev.
(Bethany Memorial) 3.500 07/07/99 950
9,400 Clermont Co., OH, Hosp. Fac. Rev., Ser. A
(Mercy Health Sys.) 3.500 07/07/99 9,400
2,600 Clermont Co., OH, Hosp. Fac. Rev., Ser. B
(Mercy Health Sys.) 3.600 07/07/99 2,600
468 Cleveland, OH, Parking Fac. Rev. 3.770 07/07/99 468
3,910 Cleveland, OH, Waterworks Rev., Ser. 58 3.700 07/07/99 3,910
1,600 Clinton Co., OH, Hosp. Rev.
(Clinton Memorial Hosp.) 3.650 07/07/99 1,600
36. Countrywide Investments
<PAGE>
<CAPTION>
Ohio Tax-Free Money Fund (Continued)
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 64.3% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,000 Clinton Co., OH, Hosp. Rev. (Ohio
Hospital Cap., Inc.) 3.500% 07/07/99 $ 7,000
200 Columbus, OH, GO, Ser. 1 3.650 07/07/99 200
1,700 Columbus, OH, Sewer Sys. Rev. 3.700 07/07/99 1,700
2,200 Cuyahoga Co., OH, Educ. Fac. Rev., Ser. 1998
(United Cerebral Palsy Assoc.) 3.600 07/07/99 2,200
555 Cuyahoga Co., OH, Health Care Fac. Rev.,
Ser. 1993A (Hospice of Western Reserve) 3.600 07/07/99 555
1,750 Cuyahoga Co., OH, Health Care Fac. Rev.,
Ser. 1993B (Hospice of Western Reserve) 3.600 07/07/99 1,750
2,000 Cuyahoga Co., OH, IDR, Ser. 1989
(Motch Corp. Proj.) 3.800 07/07/99 2,000
865 Cuyahoga Co., OH, IDR (Pleasant Lake Assoc.) 3.600 07/07/99 865
1,890 Defiance Co., OH, IDR (Isaac Property Proj.) 3.600 07/07/99 1,890
3,500 Delaware Co., OH, Health Care Fac. Rev.,
Ser. 1998 (Sarah Moore Home Proj.) 3.770 07/07/99 3,500
900 Delaware Co., OH, IDR, Ser. 1985
(MRG Ltd. Proj.) 3.700 07/07/99 900
2,160 Erie Co., OH, IDR (Toft Dairy, Inc.) 3.600 07/07/99 2,160
2,380 Franklin Co., OH, EDR (Dominican Sisters) 3.650 07/07/99 2,380
3,685 Franklin Co., OH, EDR, Ser. 1998
(Unity Resource Center Proj.) 3.650 07/07/99 3,685
1,215 Franklin Co., OH, Health Care Fac. Rev.
(Lifeline Organ Procurement) 3.650 07/07/99 1,215
4,735 Franklin Co., OH, Hosp. Rev.
(U.S. Health Corp.) 3.550 07/07/99 4,735
4,280 Franklin Co., OH, Hosp. Rev.
(U.S. Health Corp.) 3.550 07/07/99 4,280
8,000 Franklin Co., OH, IDR (Berwick Steel) 4.700 07/07/99 8,000
1,150 Franklin Co., OH, IDR (Ohio Girl Scouts) 3.620 07/07/99 1,150
564 Franklin Co., OH, IDR, Ser. D (Kindercare) 3.650 07/07/99 564
400 Franklin Co., OH, IDR (Columbus College) 3.620 07/07/99 400
2,000 Franklin Co., OH, IDR (Alco Standard Corp.) 3.850 07/07/99 2,000
2,000 Geauga Co., OH, Health Care Fac. Rev.,
Ser. 1998A (Heather Hill Proj.) 3.720 07/07/99 2,000
1,245 Green Co., OH, Health Care Fac. Rev.
(Green Oaks Proj.) 3.600 07/07/99 1,245
1,078 Hamilton Co., OH, EDR, Ser. 1995
(Cincinnati Assoc. for the Performing Arts) 3.650 07/07/99 1,078
5,000 Hamilton Co., OH, Fac. Rev., Ser. 1997A
(Episcopal Retirement Homes) 3.600 07/07/99 5,000
1,080 Hamilton Co., OH, Health Care Fac. Rev.
(Aloysius Orphanage Proj.) 3.600 07/07/99 1,080
6,000 Hamilton Co., OH, Hosp. Fac. Rev., Ser. 1997A
(Children's Hosp. Med. Ctr.) 3.600 07/07/99 6,000
8,600 Hamilton Co., OH, Hosp. Fac. Rev., Ser. E
(Health Alliance of Greater Cincinnati) 3.350 07/07/99 8,600
600 Hamilton Co., OH, Hosp. Fac. Rev., Ser. F
(Health Alliance of Greater Cincinnati) 3.350 07/07/99 600
3,000 Hamilton OH, MFH Rev., Ser. A
(Knollwood Village Apts.) 3.620 07/07/99 3,000
2,000 Hamilton OH, MFH Rev. (Knollwood
Village Apts.) 3.620 07/07/99 2,000
2,690 Hancock Co., OH, MFM Rev., Ser. A
(Crystal Glen Apts. Proj. Phase II) 3.620 07/07/99 2,690
375 Hudson Village, OH, IDR, Ser. A (Kindercare) 3.650 07/07/99 375
885 Huron Co., OH, Rev. (Norwalk Furniture Corp.) 3.600 07/07/99 885
Countrywide Investments 37.
<PAGE>
<CAPTION>
Ohio Tax-Free Money Fund (Continued)
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 64.3% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,105 Lima, OH, Hosp. Fac. & Impt. Rev., Ser. 1996
(Lima Memorial Hosp.) 3.650% 07/07/99 $ 7,105
7,600 Lorain Co., OH, Hosp. Fac. Rev., Ser. 1998A
(Catholic Healthcare Partners) 3.500 07/07/99 7,600
494 Lorain Co., OH, IDR, Ser. C (Kindercare) 3.650 07/07/99 494
1,880 Lorain Co., OH, IDR (EMH Med. Ctr. Proj.) 3.600 07/07/99 1,880
300 Lucas Co., OH, Rev. (Sunshine Children's Home) 3.650 07/07/99 300
935 Lucas Co., OH, IDR, Ser. D (Kindercare) 3.650 07/07/99 935
360 Lucas Co., OH, IDR (Associates Proj.) 3.720 07/07/99 360
1,900 Mahoning Co., OH, Health Care Fac. Rev.
(Copeland Oaks) 3.620 07/07/99 1,900
1,415 Mahoning Co., OH, Health Care Fac. Rev.
(Ohio Heart Institute) 3.620 07/07/99 1,415
330 Marion Co., OH, Hosp. Impt. Rev.
(Pooled Lease Proj.) 3.620 07/07/99 330
445 Marion Co., OH, Hosp. Impt. Rev.
(Pooled Lease Proj.) 3.620 07/07/99 445
680 Marion Co., OH, Hosp. Impt. Rev.
(Pooled Lease Proj.) 3.620 07/07/99 680
300 Medina, OH, IDR (Kindercare) 3.650 07/07/99 300
900 Meigs Co., OH, IDR, Ser. 1985 (MRG Ltd. Proj.) 3.700 07/07/99 900
287 Middletown, OH, IDR, Ser. A (Kindercare) 3.650 07/07/99 287
865 Monroe, OH, IDR, Ser. 1985 (Magnode Corp.) 3.550 07/07/99 865
2,000 Montgomery Co., OH, EDR (Dayton Art Institute) 3.700 07/07/99 2,000
520 Montgomery Co., OH, Health Care Rev., Ser. A
(Dayton Area MRI Consortium) 3.600 07/07/99 520
3,555 Montgomery Co., OH, Health Care Rev.
(Comm. Blood Ctr. Proj.) 3.620 07/07/99 3,555
340 Montgomery Co., OH, IDR (Kindercare) 3.650 07/07/99 340
3,700 Montgomery Co., OH, Ltd. Oblig. Rev., Ser. 1996
(St. Vincent de Paul Proj.) 3.600 07/07/99 3,700
1,000 Morrow Co., OH, IDR (Field Container Corp.) 3.550 07/07/99 1,000
4,800 Ohio St. EDR, Ser. 1983 (Court St. Ctr.
Assoc. Ltd. Proj.) 3.450 07/07/99 4,800
2,845 Ohio St. Higher Educ. Fac. Rev.
(Mount Union College Proj.) 3.550 07/07/99 2,845
4,400 Ohio St. Higher Educ. Fac. Rev. (Pooled Fin.) 3.620 07/07/99 4,400
4,900 Ohio St. Higher Educ. Fac. Rev. (Pooled Fin.) 3.620 07/07/99 4,900
5,000 Ohio St. Higher Educ. Fac. Rev. (Pooled Fin.) 3.620 07/07/99 5,000
3,500 Ohio St. Higher Educ. Fac. Rev.
(Kenyon College Proj.) 3.700 07/07/99 3,500
500 Ohio St. Higher Educ. Fac. Rev.
(John Carroll University) 3.875 07/07/99 500
590 Ohio St. IDR, Ser. 1994 (A.M. Castle
& Co. Proj.) 3.950 07/07/99 590
9,540 Ohio St. Turnpike Rev., Ser. 71 3.690 07/07/99 9,540
2,495 Ohio St. Water Dev. Auth. Impt. Rev. 3.690 07/07/99 2,495
715 Orrville, OH, Hosp. Fac. Rev., Ser. 1990
(Orrville Hosp.) 3.550 07/07/99 715
1,800 Ottawa Co., OH, Hosp. Fac. Rev.
(Luther Home of Mercy Proj.) 3.650 07/07/99 1,800
465 Pike Co., OH, EDR (Pleasant Hill) 3.620 07/07/99 465
900 Rickenbacker, OH, Port. Auth. Rev.
(Rickenbacker Holdings, Inc.) 3.620 07/07/99 900
5,725 Sharonville, OH, IDR (Duke Realty Proj.) 3.620 07/07/99 5,725
437 Stark Co., OH, IDR, Ser. D (Kindercare) 3.650 07/07/99 437
1,870 Summit Co., OH, Health Care Fac. Rev.,
Ser. 1997 (Evant, Inc. Proj.) 3.650 07/07/99 1,870
38. Countrywide Investments
<PAGE>
<CAPTION>
Ohio Tax-Free Money Fund (Continued)
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 64.3% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,400 Summit, OH, Civic Fac. Rev., Ser. 1997
(YMCA Proj.) 3.600 07/07/99 $ 3,400
1,910 Summit Co., OH, IDR (Bowery Assoc.) 3.570 07/07/99 1,910
505 Summit Co., OH, IDR (Go-Jo Indust.,
Inc. Proj.) 3.620 07/07/99 505
4,375 Trumbull Co., OH, Health Care Fac. Rev.
(Shepherd of the Valley) 3.620 07/07/99 4,375
375 Wadsworth, OH, IDR (Kindercare) 3.650 07/07/99 375
1,600 Warren Co., OH, IDR (Liquid Container Proj.) 3.650 07/07/99 1,600
1,300 Westlake, OH, IDR (Nordson Co.) 3.700 07/07/99 1,300
900 Wyandot Co., OH, IDR, Ser. 1985
(MRG Ltd. Proj.) 3.700 07/07/99 900
800 Columbus, OH, Elec. Sys. Rev. 3.000 07/30/99 800
3,885 Cuyahoga Co., OH, IDR (S&R Playhouse Realty) 4.000 07/30/99 3,885
3,500 Delaware Co., OH, IDR (Radiation
Sterilizers, Inc.) 3.350 07/30/99 3,500
200 Franklin Co., OH, IDR (BOA Ltd. Proj.) 3.400 07/30/99 200
1,300 Franklin Co., OH, IDR (Jacobsen Stores) 3.400 07/30/99 1,300
1,765 Franklin Co., OH, IDR (Capitol South) 3.400 07/30/99 1,765
1,400 Hamilton Co., OH, IDR (ADP System) 3.250 07/30/99 1,400
2,800 Muskingum Co., OH, IDR (Elder-Beerman) 3.300 07/30/99 2,800
500 Ohio St. Environmental Impt. Rev.
(U.S. Steel Corp. Proj.) 3.300 07/30/99 500
---------- ---------
$ 251,323 Total Floating & Variable Rate Demand Notes
(Amortized Cost $251,323) $251,323
---------- ---------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Principal Market
Amount Coupon Maturity Value
(000's) Adjustable Rate Put Bonds-- 5.9 % Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,495 Perry Co., OH, Nursing Fac. Rev., Ser. 1996
(New Lexington Health Corp. Proj.) 4.000% 09/01/99 $ 2,495
615 Riverside, OH, EDR (Riverside Assoc.
Ltd. Proj.) 3.200 09/01/99 615
4,740 Cuyahoga Co., OH, IDR (Halle Office Building) 3.575 10/01/99 4,740
1,175 Miami Valley Tax-Exempt Mtg. Bond Trust 4.880 10/15/99 1,175
1,365 Clermont Co., OH, EDR (John Q. Hammons Proj.) 3.100 11/01/99 1,365
580 Franklin Co., OH, IDR (GSW Proj.) 3.300 11/01/99 580
3,030 Ohio St. HFA MFH (Lincoln Park) 3.600 11/01/99 3,030
3,425 Richland Co., OH, IDR (Mansfield Sq. Proj.) 3.100 11/15/99 3,425
455 Cuyahoga Co., OH, Health Care Rev., Ser. A
(Cleveland Neighborhood) 3.400 12/01/99 455
3,540 Franklin Co., OH, IDR (Leveque & Assoc. Proj.) 3.250 12/01/99 3,540
875 Scioto Co., OH, Health Care Rev.
(Hillview Retirement) 3.250 12/01/99 875
940 Gallia Co., OH, IDR (Jackson Pike Assoc.) 3.200 12/15/99 940
---------- ---------
$ 23,235 Total Adjustable Rate Put Bonds
(Amortized Cost $23,235) $ 23,235
---------- ---------
</TABLE>
Countrywide Investments 39.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Ohio Tax-Free Money Fund (Continued)
Principal Market
Amount Coupon Maturity Value
(000's) Commercial Paper-- 0.8 % Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,000 Lorain Co., OH, (Catholic Healthcare Partners) 3.200% 08/03/99 $ 3,000
(Amortized Cost $3,000)
---------- ---------
$ 393,239 Total Investments at Value-- 100.7%
(Amortized Cost $393,522) $393,522
==========
Liabilities in Excess of Other Assets-- (0.7)% (2,725)
---------
Net Assets-- 100.0% $390,797
=========
</TABLE>
See accompanying notes to financial statements and notes to portfolios of
investments.
40. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
Florida Tax-Free Money Fund
Portfolio of Investments
June 30, 1999
-----------------------------------------------------------------------------------------
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds-- 31.2% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,700 Port St. Joe, FL, Cap. Impt. Rev. BANS,
Ser. 1998 4.350% 07/01/99 $ 1,700
100 Brevard Co., FL, School Board COP, Ser. A 5.300 07/01/99 100
100 Florida St. GO PCR, Ser. X 5.600 07/01/99 100
100 Mesa, AZ, GO 5.800 07/01/99 100
100 Broward Co., FL, School Board COP Rev. 6.000 07/01/99 100
200 Broward Co., FL, School Board COP Rev. 6.750 07/01/99 200
325 Cape Coral, FL, GO, Prerefunded @ 102 6.800 07/01/99 332
200 Miami-Dade Co., FL, School Board COP, Ser. A 4.000 08/01/99 200
100 Manatee Co., FL, School Dist. Sales Tax Rev. 4.000 08/01/99 100
500 Palm Beach Co., FL, School Board COP 4.500 08/01/99 500
100 Dade Co., FL, School Board COP
(G. Holmes Braddock Sr. H.S.) 4.625 08/01/99 100
100 Florida St. Correctional Privatization COP
(Bay Co. Proj.) 4.625 08/01/99 100
1,000 Wadsworth, OH, CSD School Impt. GO BANS 3.470 08/10/99 1,001
250 Texas Muni. Pwr. Agency Rev. 4.500 09/01/99 250
100 Florida St. Dept. of Gen. Services,
Div. of Fac. Mgmt. Rev., Ser. B 4.600 09/01/99 100
250 Las Vegas Valley, NV, Water District Rev. 4.700 09/01/99 251
150 Homestead, FL, Special Ins. Assessment Rev. 4.750 09/01/99 150
300 Abilene, TX, Hlth. Fac. Dev. Hosp. Rev.
(Hendrick Med. Ctr.) 5.100 09/01/99 301
100 Ft. Lauderdale, FL, Excise Tax Rev.,
Prerefunded @ 101 6.375 09/01/99 102
150 Town of Avon, CO, Sales Tax Rev., Ser. 1999 3.250 09/15/99 150
100 North Harris, TX, Montgomery Comm. College
District Rev. 5.000 09/15/99 100
205 Glenwood Springs, CO, Sales & Use Tax Rev. 3.250 10/01/99 205
575 St. Lucie Co., FL, Limited Tax GO 4.000 10/01/99 577
250 Orlando, FL, Capital Impt. Special Rev.,
Ser. B 4.250 10/01/99 251
500 Dade Co., FL, Water & Sewer Sys. Rev. 4.750 10/01/99 502
350 Lee Co., FL, Capital Impt. Rev., Ser. B,
Prerefunded @ 100 6.000 10/01/99 352
200 Hillsborough Co., FL, Aviation Auth.
Rev., Ser. A 6.150 10/01/99 201
500 Hillsborough Co., FL, Aviation Auth.
Rev., Ser. B, Prerefunded @ 102 7.000 10/01/99 514
375 Crawford Co., OH, Various Purpose GO 3.150 12/01/99 375
555 Fostoria, OH, CSD GO 3.200 12/01/99 555
800 Iowa Student Loan Liquidity Corp. Rev., Ser. C 6.500 12/01/99 811
573 Clarendon, NY, GO BANS 3.625 12/22/99 574
500 Northern Ozaukee, WI, School Dist. GO BANS 3.400 02/01/00 500
---------- ---------
$ 11,408 Total Fixed Rate Revenue & General Obligation Bonds
(Amortized Cost $11,454) $ 11,454
---------- ---------
</TABLE>
Countrywide Investments 41.
<PAGE>
<TABLE>
<CAPTION>
Florida Tax-Free Money Fund (Continued)
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 65.4% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500 Martin Co., FL, Dev. Auth. PCR, Ser. 1994
(Florida Power & Light) 3.350% 07/01/99 $ 500
400 Putnam Co., FL, Dev. Auth. PCR
(Florida Power & Light) 3.350 07/01/99 400
1,800 Hillsborough Co., FL, IDA PCR (Tampa Elec.) 3.350 07/01/99 1,800
400 Tampa Sports Auth. Rev. (Stadium Proj.) 3.450 07/01/99 400
1,200 Broward Co., FL, HFA MFH Rev.
(Margate Invest. Proj.) 3.450 07/07/99 1,200
1,800 Orange Co., FL, IDA Rev. (Trinity Prep School) 3.500 07/07/99 1,800
400 St. John's Co., FL, HFA Rev., Ser. 1996
(Anastasia Shores Apts. Proj.) 3.500 07/07/99 400
1,080 Florida HFA MFH Rev., Ser. EEE
(Carlton Arms II Proj.) 3.500 07/07/99 1,080
225 Putnam Co., FL, Dev. Auth. PCR, Ser. H-1
(Seminole Elec. Coop.) 3.550 07/07/99 225
250 Putnam Co., FL, Dev. Auth. PCR, Ser. H-2
(Seminole Elec. Coop.) 3.550 07/07/99 250
900 St. Petersburg, FL, HFA Rev., Ser. 1997
(Menorah Manor Proj.) 3.550 07/07/99 900
475 Volusia Co., FL, HFA MFH Rev., Ser. H
(Sun Pointe Apts.) 3.550 07/07/99 475
900 Manatee Co., FL, HFA MFH Rev.
(Harbour Proj. B) 3.600 07/07/99 900
700 ABN AMRO Munitops Trust Cert. 1998-9
(Florida Board of Educ.) 3.640 07/07/99 700
2,000 ABN AMRO Munitops Cert. Trust 1998-8
(Dade Co., FL, Water & Sewer Sys. Rev.) 3.640 07/07/99 2,000
1,100 Plant City, FL, Hosp. Rev.
(South Florida Baptist Hosp.) 3.650 07/07/99 1,100
1,400 Illinois Dev. Fin. Auth. Rev.
(Council for Jewish Elderly) 3.650 07/07/99 1,400
500 Orange Co., FL, Health Fac. Auth. Rev.
(Adventist Sunbelt) 3.650 07/07/99 500
600 Florida Housing Fin. Corp. MFH Rev.,
(South Pointe Proj.) 3.660 07/07/99 600
100 Dade Co., FL, IDA Rev. 3.730 07/07/99 100
960 McCreary Co., KY, IDR (Le Sportsac Proj.) 3.750 07/07/99 960
700 McCreary Co., KY, IDR, Ser. B
(Le Sportsac Proj.) 3.750 07/07/99 700
500 Highlands Co., FL, Health Fac. Rev.
(Adventist Sunbelt) 3.750 07/07/99 500
800 Marion Co., FL, HFA Rev. (Paddock Place Proj.) 3.750 07/07/99 800
500 Marion Co., FL, HFA Rev. (Summer Trace Apts.) 3.750 07/07/99 500
1,000 Lee Co., FL, IDR Educ. Fac. Rev.
(The Canterbury School Proj.) 3.750 07/07/99 1,000
1,150 Jacksonville, FL, Health Fac. Rev.
(River Garden) 3.800 07/07/99 1,150
1,000 Jacksonville, FL, Health Fac. Rev.
(Faculty Practice Assoc.) 3.850 07/07/99 1,000
635 Harvard, IL, Health Care Fac. Rev., Ser. 1998
(Harvard Memorial Hosp.) 3.850 07/07/99 635
---------- ---------
$ 23,975 Total Floating & Variable Rate Demand Notes
(Amortized Cost $23,975) $ 23,975
---------- ---------
</TABLE>
42. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
Florida Tax-Free Money Fund (Continued)
Principal Market
Amount Coupon Maturity Value
(000's) Adjustable Rate Put Bonds-- 2.6% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 350 Corpus Christi, TX, IDR (Tex-Air
Invest. Co. Proj.) 3.350% 08/01/99 $ 350
600 Putnam Co., FL, Dev. Auth. PCR, Ser. 1984D
(Seminole Elec. Coop.) 3.125 12/15/99 600
---------- ---------
$ 950 Total Adjustable Rate Put Bonds
(Amortized Cost $950) $ 950
---------- ---------
$ 36,333 Total Investments at Value-- 99.2%
(Amortized Cost $36,379) $ 36,379
==========
Other Assets in Excess of Liabilities-- 0.8% 276
---------
Net Assets-- 100.0% $ 36,655
=========
</TABLE>
See accompanying notes to financial statements and notes to portfolios of
investments.
Countrywide Investments 43.
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Intermediate Term Fund
Portfolio of Investments
June 30, 1999
-----------------------------------------------------------------------------------------
Principal Market
Amount Coupon Maturity Value
(000's) Municipal Bonds-- 101.2% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arizona -- 2.9%
$ 400 Arizona Educ. Loan Mkt. Corp. Rev., Ser. A 6.700% 03/01/00 $ 408
600 Maricopa Co., AZ, School Dist. Rev.,
Ser. 1991C (Tempe Elem.) 8.000 07/01/04 692
300 Tucson, AZ, Water Dist. Rev. 9.750 07/01/10 416
---------
1,516
---------
California -- 1.4%
450 Sacramento Co., CA, MFH ARPB
(Fairway One Apts.) 5.875 02/01/03 450
250 California HFA Multi-Unit Rental Rev., Ser. B 6.500 08/01/05 264
---------
714
---------
Colorado -- 1.3%
400 Arapahoe Co., CO, Parkview Metro. Dist. GO 3.550 07/01/99 400
300 Highland Ranch, CO, Metro. Dist. GO, Ser. A 5.000 12/01/10 295
---------
695
---------
Florida -- 12.2%
200 Hillsborough Co., FL, PCR Rev.
(Tampa Elec. Proj.) 3.350 07/01/99 200
500 Florida HFA MFH ARPB, Ser. 1978B
(Hampton Lakes II Proj.) 5.700 04/01/01 502
750 Hillsborough Co., FL, Solid Waste Rev. 5.500 10/01/06 783
455 Pensacola, FL, Airport Rev., Ser. 1997B 5.400 10/01/07 469
1,000 Pasco Co., FL, HFA MFH Rev., Ser. 1997B
(Cypress Trail Apts.) 5.500 06/01/08 1,041
1,255 Florida HFA MFH Sr. Lien, Ser. I-1 6.100 01/01/09 1,323
1,000 Halifax Hosp. Medical Ctr., FL, Health Care
Fac. Rev., Ser. 1998A 4.800 04/01/10 953
365 Halifax Hosp. Medical Ctr.. FL, Health Care
Fac. Rev., Ser. 1998A 5.000 04/01/11 354
455 Tampa, FL, Health Sys. Rev., Ser. A-1
(Catholic Health East) 5.250 11/15/11 457
365 Halifax Hosp. Medical Ctr., FL, Health Care
Fac. Rev., Ser. 1998A 5.000 04/01/12 352
---------
6,434
---------
Georgia -- 0.3%
150 Savannah, GA, Hosp. Auth. Rev.
(St. Joseph's/Candler Health Sys.) 5.250 07/01/13 149
---------
Illinois -- 2.1%
1,100 Illinois Health Fac. Auth. Rev., Ser. B
(Elmhurst Hosp.) 3.500 07/01/99 1,100
---------
Indiana -- 9.4%
3,185 Purdue University, IN, COP, Prerefunded @ 102 6.250 07/01/01 3,374
1,000 Indiana Bond Bank Special Prog. Rev., Ser. A-1 6.650 01/01/04 1,053
500 Indiana HFA Multi-Unit Mtg. Prog. Rev.,
Ser. 1992A 6.600 01/01/12 526
---------
4,953
---------
</TABLE>
44. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Intermediate Term Fund (Continued)
Principal Market
Amount Coupon Maturity Value
(000's) Municipal Bonds-- 101.2% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Iowa -- 2.1%
$ 120 Cedar Rapids, IA, Hosp. Fac. Rev.
(St. Luke's Methodist Hosp.),
Prerefunded @ 102 6.000% 08/15/03 $ 129
250 Iowa Student Loan Liquidity Corp. Rev. 6.400 07/01/04 265
325 Iowa HFA Rev., Ser. A 6.500 07/01/06 341
240 Iowa Student Loan Liquidity Corp. Rev. 6.600 07/01/08 255
130 Cedar Rapids, IA, Hosp. Fac. Rev.
(St. Luke's Methodist Hosp.) 6.000 08/15/09 138
---------
1,128
---------
Kentucky -- 2.4%
500 Kentucky St. EDR (Health Alliance) 3.350 07/07/99 500
750 Kentucky St. Turnpike Auth. EDR
(Revitalization Proj.) 5.250 07/01/05 777
---------
1,277
---------
Louisiana -- 1.9%
440 Louisiana Public Fac. Auth. Rev.
(Medical Ctr. of Louisiana) 6.000 10/15/03 458
500 West Ouachita Parish, LA, School Dist. GO,
Ser. A 6.700 03/01/06 530
---------
988
---------
Massachusetts -- 2.9%
500 New England Educ. Loan Mkt. Corp. Rev.,
Ser. 1992A 6.500 09/01/02 526
500 New England Educ. Loan Mkt. Corp. Rev.,
Ser. 1992B 6.600 09/01/02 528
445 Massachusetts St. Indust. Fin. Agy. Rev.,
Ser. 1997 (Hudner Assoc.) 5.000 01/01/08 449
---------
1,503
---------
Michigan -- 4.8%
1,000 Michigan St. Bldg. Auth. Rev., Ser. II 6.400 10/01/04 1,064
1,000 Michigan St. Hosp. Fin. Auth. Rev., Ser. A
(McLaren Health Care Corp.) 5.250 06/01/07 1,013
450 Battle Creek, MI, EDR (Kellogg Co. Proj.) 5.125 02/01/09 454
---------
2,531
---------
Mississippi -- 1.6%
500 Mississippi Higher Educ. Rev., Ser. B 6.100 07/01/01 515
335 Jackson, MS, GO 5.250 10/01/10 340
---------
855
---------
Nebraska -- 3.0%
590 Nebraska Invest. Fin. Auth. Rev., Ser. 1989
(Foundation for Educ. Fund),
Escrowed to Maturity 7.000 11/01/09 603
1,000 Nebraska Gas Supply Rev., Ser. A
(American Public Energy Agy.) 4.600 06/01/10 955
---------
1,558
---------
Nevada -- 2.4%
1,000 Las Vegas, NV, GO, Sewer Impt. Rev.,
Prerefunded @ 102 6.500 04/01/02 1,074
185 Washoe Co., NV, GO 7.375 07/01/09 189
---------
1,263
---------
New York -- 1.0%
500 New York Local Govt. Asst. Corp. Rev.,
Ser. 1991B, Prerefunded @ 102 7.000 04/01/01 534
---------
North Carolina -- 2.0%
1,030 Cabarrus Co., NC, Dev. Corp. Install.
Pymt. Rev. 4.950 06/01/09 1,027
---------
</TABLE>
Countrywide Investments 45.
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Intermediate Term Fund (Continued)
Principal Market
Amount Coupon Maturity Value
(000's) Municipal Bonds-- 101.2% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio -- 30.4%
$ 1,300 Ohio St. Air Quality Dev. Auth. Rev.,
Ser. A (CG&E) 3.350% 07/01/99 $ 1,300
500 Franklin Co., OH, Rev. (Online Computer
Library Ctr.) 5.500 04/15/00 506
625 Fairfield, OH, IDR ARPB (Skyline Chili, Inc.) 5.000 09/01/00 626
270 Warren Co., OH, Hosp. Fac. Rev.
(Otterbein Home), Prerefunded @ 102 7.000 07/01/01 289
930 Ohio St. EDR Ohio Enterprise Bond Fd.
(Smith Steelite Proj.) 5.600 12/01/03 961
500 Hamilton Co., OH, Hosp. Fac. Rev.
(Episcopal Retirement Home) 6.600 01/01/04 526
315 Ohio St. EDR Ohio Enterprise Bond Fd.
(Cheryl & Co.) 5.500 12/01/04 324
1,005 Franklin Co., OH, Health Care Rev.
(First Comm. Village) 6.000 06/01/06 1,043
530 Toledo, OH, GO 6.000 12/01/06 572
840 Kent State University General Receipts Rev. 6.000 05/01/07 903
710 Hamilton Co., OH, Health Care Fac.
(Twin Towers) 5.750 10/01/07 744
500 Ohio St. IDR, Ser. 1997 (Bomaine
Corporation Proj.) 5.500 11/01/07 507
674 Columbus, OH, Special Assessment GO 5.050 04/15/08 661
800 West Clermont, OH, LSD GO 6.150 12/01/08 860
500 Hamilton Co., OH, Hosp. Fac. Rev.
(Bethesda Hosp.) 7.000 01/01/09 508
930 Hamilton Co., OH, Health Care Fac.
(Twin Towers) 5.250 10/01/10 928
1,000 Franklin Co., OH, Rev.
(Online Computer Library Ctr.) 4.650 10/01/11 939
1,000 Cuyahoga Co., OH, Hosp. Rev.
(University Hosp.) 5.125 01/15/12 984
1,000 Franklin Co., OH, Rev.
(Online Computer Library Ctr.) 4.700 10/01/12 936
520 Sycamore, OH, CSD COP 4.700 12/01/12 487
1,365 Toledo, OH, GO 5.000 12/01/13 1,344
---------
15,948
---------
Pennsylvania -- 2.0%
500 Pennsylvania St. IDR, Ser. A,
Prerefunded @ 102 7.000 07/01/01 538
500 Pennsylvania Fin. Auth. Muni.
Capital Impt. Proj. Rev. 6.600 11/01/09 539
---------
1,077
---------
South Carolina -- 1.4%
725 Richland-Lexington, SC, Airport Dist. Rev.,
Ser. 1995 (Columbia Metro.) 6.000 01/01/08 759
---------
Tennessee -- 6.0%
525 Southeast, TN, Tax-Exempt Mtg. Trust ARPB,
Ser. 1990 7.250 04/01/03 570
500 Nashville, TN, Metro. Airport Rev., Ser. C 6.625 07/01/07 532
1,000 Nashville & Davidson Co., TN, Health & Educ.
Fac. Rev., Ser. A (Vanderbilt Univ.) 5.000 10/01/11 985
1,035 Johnson City, TN, Health & Educ. Rev.
(Medical Center Hosp.) 5.500 07/01/13 1,060
---------
3,147
---------
</TABLE>
46. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Intermediate Term Fund (Continued)
Principal Market
Amount Coupon Maturity Value
(000's) Municipal Bonds-- 101.2% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas -- 6.9%
$ 500 Houston, TX, Sr. Lien Rev., Ser. A
(Hotel Tax & Parking Fac.),
Prerefunded @ 100 7.000% 07/01/01 $ 528
500 N. Texas Higher Educ. Student Loan Rev.,
Ser. 1991A 6.875 04/01/02 517
50 N. Central, TX, Health Fac. Rev.
(Baylor Health Care), Indexed INFLOS,
Prerefunded @ 102 8.050 05/15/02 54
450 N. Central, TX, Health Fac. Rev.
(Baylor Health Care), Indexed INFLOS 8.050 05/15/08 480
490 Dallas, TX, ISD 5.600 08/15/11 509
236 Midland, TX, HFC Rev., Ser. A-2 8.450 12/01/11 254
10 San Antonio, TX, Elec. & Gas Rev.,
Escrowed to Maturity 5.000 02/01/12 10
990 San Antonio, TX, Elec. & Gas Rev. 5.000 02/01/12 975
300 Waco, TX, COP 4.800 02/01/15 280
---------
3,607
---------
Wisconsin -- 0.8%
430 Wisconsin St. Health & Educ. Fac. Auth. Rev.
(Agnesian Healthcare, Inc.) 4.900 07/01/11 413
---------- ---------
$ 51,825 Total Municipal Bonds-- 101.2%
(Amortized Cost $52,525) $ 53,176
========== ---------
Liabilities in Excess of Other Assets-- (1.2)% (643)
---------
Net Assets-- 100.0% $ 52,533
=========
</TABLE>
See accompanying notes to financial statements and notes to portfolios of
investments.
Countrywide Investments 47.
<PAGE>
<TABLE>
<CAPTION>
Ohio Insured Tax-Free Fund
Portfolio of Investments
June 30, 1999
-----------------------------------------------------------------------------------------
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds-- 89.7% Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 200 Montgomery Co., OH, Hosp. Rev.
(Sisters of Charity), Prerefunded @ 102 6.625% 05/15/01 $ 212
250 Franklin Co., OH, IDR (1st Comm. Village
Healthcare), Crossover
Prerefunded @ 101.5 10.125 08/01/01 282
415 Ohio HFA SFM Rev., Ser. D 7.000 09/01/01 434
30 Clermont Co., OH, Hosp. Fac. Rev., Ser. A
(Mercy Health Sys.), Prerefunded @ 100 7.500 09/01/01 32
460 Westerville, Minerva Park & Blendon, OH,
Joint Hosp. Dist. Rev. (St. Ann's),
Prerefunded @ 102 7.100 09/15/01 497
1,000 Clermont Co., OH, Hosp. Fac. Rev.
(Mercy Health Sys.), Prerefunded @ 102 6.733 09/25/01 1,070
850 Alliance, OH, Waterworks Sys. Rev.,
Prerefunded @ 102 6.650 10/15/01 914
500 Celina, OH, Wastewater Sys. Mtg. Rev.,
Prerefunded @ 101 6.550 11/01/01 532
500 Summit Co., OH, Various Purpose GO,
Prerefunded @ 102 6.625 12/01/01 539
500 Greene Co., OH, Water Sys. Rev.,
Prerefunded @ 102 6.850 12/01/01 541
290 Northwest, OH, LSD GO, Prerefunded @ 102 7.050 12/01/01 316
500 Clermont Co., OH, Sewer Sys. Rev.,
Prerefunded @ 102 7.100 12/01/01 544
461 Cleveland, OH, Waterworks Impt. Rev.,
Ser. 1992B, Prerefunded @ 102 6.500 01/01/02 494
1,000 Kent St. University General Receipts Rev.,
Prerefunded @ 102 6.500 05/01/02 1,078
500 Franklin Co., OH, Hosp. Rev., Ser. 1991
(Mt. Carmel Health), Prerefunded @ 102 6.750 06/01/02 543
500 Cleveland, OH, GO, Ser. A, Prerefunded @ 102 6.375 07/01/02 539
500 Mahoning Co., OH, Hosp. Impt. Rev.
(YHA Proj.), Prerefunded @ 100 7.000 10/15/02 532
500 Seneca Co., OH, GO (Jail Fac.),
Prerefunded @ 102 6.500 12/01/02 545
675 Reynoldsburg, OH, CSD GO, Prerefunded @ 102 6.550 12/01/02 736
33 Ohio St. Bldg. Auth. Rev. (Frank
Lausch Proj.), Prerefunded @ 100 10.125 04/01/03 38
142 Ohio St. Bldg. Auth. Rev. (Columbus St.
Proj.), Prerefunded @ 100 10.125 04/01/03 164
230 Summit Co., OH, GO, Ser. A, Prerefunded @ 100 6.900 08/01/03 252
500 Newark, OH, Water Sys. Impt. Rev.,
Prerefunded @ 102 6.000 12/01/03 541
500 Ohio St. Bldg. Auth. Rev., Ser. 1994A
(Juvenille Correctional Bldg.),
Prerefunded @ 102 6.600 10/01/04 558
1,000 Cleveland, OH, Public Power Sys. Rev., Ser. I,
Prerefunded @ 102 7.000 11/15/04 1,136
500 Crawford Co., OH, GO, Prerefunded @ 102 6.750 12/01/04 563
1,000 Greater Cleveland, OH, Regional Transit
Auth. GO, Prerefunded @ 101 5.650 12/01/06 1,069
290 Alliance, OH, CSD GO 6.900 12/01/06 313
500 Mansfield, OH, Hosp. Impt. Rev.
(Mansfield General) 6.700 12/01/09 535
500 Hamilton, OH, Water Sys. Mtg. Rev., Ser. 1991A 6.400 10/15/10 532
500 Butler Co., OH, Hosp. Fac. Rev.
(Middleton Regional Hosp.) 6.750 11/15/10 536
1,000 Canton, OH, Waterworks Sys. GO, Ser. 1995 5.750 12/01/10 1,052
39 Cleveland, OH, Waterworks Impt. Rev., Ser. F 6.500 01/01/11 41
</TABLE>
48. Countrywide Investments
<PAGE>
<TABLE>
<CAPTION>
Ohio Insured Tax-Free Fund (Continued)
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds -- 89.7% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 475 Ohio Capital Corp. MFH Rev., Ser. 1990A 7.500% 01/01/10 $ 493
240 Cuyahoga Co., OH, Hosp. Rev. (University
Hosp.), Escrowed to Maturity 9.000 06/01/11 298
600 Westerville, OH, Water Sys. Impt. GO 6.450 12/01/11 647
530 Urbana, OH, Wastewater Impt. GO 7.050 12/01/11 581
365 Bexley, OH, CSD GO 7.125 12/01/11 441
255 Summit Co., OH, GO, Ser. A 6.900 08/01/12 274
500 Strongsville, OH, CSD GO 5.375 12/01/12 515
500 Worthington, OH, CSD GO 6.375 12/01/12 533
500 Brunswick, OH, CSD GO 6.900 12/01/12 538
1,095 West Clermont, OH, LSD GO 6.900 12/01/12 1,232
95 Ohio St. Higher Educ. Fac. Comm. Rev. 7.250 12/01/12 101
1,000 Lorain Co., OH, Hosp. Rev. (Catholic
Health Care Partners) 5.625 09/01/14 1,024
530 Ottawa Co., OH, GO 5.750 12/01/14 554
1,000 Portage Co., OH, GO 6.200 12/01/14 1,079
290 Garfield Heights, OH, Various Purpose GO 6.300 12/01/14 314
460 Bedford Heights, OH, GO 6.500 12/01/14 503
1,000 Clermont Co., OH, Hosp. Fac. Rev.
(Mercy Health Sys.) 5.875 09/01/15 1,032
600 Toledo-Lucas Co., OH, Convention Ctr. Rev. 5.700 10/01/15 625
400 Warren, OH, Waterworks Rev. 5.500 11/01/15 414
500 Delaware, OH, CSD GO 5.750 12/01/15 519
500 Ohio St. Higher Educ. Fac. Rev. (Univ.
of Dayton) 6.750 12/01/15 542
1,000 Buckeye Valley, OH, LSD GO 6.850 12/01/15 1,161
500 Cleveland, OH, Waterworks Impt. Rev., Ser. F 6.250 01/01/16 529
750 Columbus-Polaris Hsg. Corp. Rev. 7.400 01/01/16 842
500 Ohio St. Air Quality Dev. Rev., Ser. A
(Ohio Edison) 7.450 03/01/16 521
781 Ohio HFA SFM Rev., Ser. 1991D 7.050 09/01/16 816
226 Ohio HFA SFM Rev., Ser. 1990F 7.600 09/01/16 235
750 Montgomery Co., OH, Hosp. Rev.
(Miami Valley Hosp.) 6.250 11/15/16 800
1,000 Greater Cleveland, OH, Regional Trans.
Auth. GO 4.750 12/01/16 930
815 Butler Co., OH, GO 5.750 12/01/16 849
590 Garfield Heights, OH, Various Purpose GO 7.050 12/01/16 628
1,260 Cleveland, OH, Airport Sys. Rev., Ser. C 5.125 01/01/17 1,227
750 Butler Co., OH, Trans. Impt. Dist., Ser. A 5.125 04/01/17 733
800 Ohio St. Bldg. Auth. Rev. (Adult
Correctional Bldg.) 5.600 04/01/17 820
1,000 Lorain Co., OH, Hosp. Rev. 5.625 09/01/17 1,015
2,000 Toledo, OH, Waterworks Sys. Mtg. Rev. 4.750 11/15/17 1,852
500 Toledo, OH, Sewer Sys. Rev. 6.350 11/15/17 543
1,000 Hamilton Co., OH, Sewer Sys. Impt. Rev.,
Ser. A 5.000 12/01/17 966
1,000 Mason, OH, CSD GO 5.300 12/01/17 1,002
1,000 Rocky River, OH, CSD GO, Ser. 1998 5.375 12/01/17 1,006
1,400 Cuyahoga Co., OH, Util. Sys. Impt. Rev.
(Medical Center Proj.) 5.125 02/15/18 1,358
500 Ohio St. Air Quality Dev. Rev., Ser. 1990B
(Ohio Edison) 7.100 06/01/18 523
1,670 Canton, OH, GO 4.750 12/01/18 1,538
1,000 Hamilton Co., OH, Sales Tax. Rev.
(Football Stadium Proj.) 5.000 12/01/18 955
1,000 Little Miami, OH, LSD GO 5.000 12/01/18 959
1,265 Defiance, OH, Waterworks Sys. GO 5.650 12/01/18 1,305
1,000 S. Euclid-Lyndhurst, OH, CSD GO, Ser. 1996 6.400 12/01/18 1,091
1,000 Cuyahoga Co., OH, Hosp. Rev.
(University Hosp.) 5.400 01/15/19 1,000
</TABLE>
Countrywide Investments 49.
<PAGE>
<TABLE>
<CAPTION>
Ohio Insured Tax-Free Fund (Continued)
Principal Market
Amount Fixed Rate Revenue & Coupon Maturity Value
(000's) General Obligation Bonds -- 89.7% (Continued) Rate Date (000's)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 360 Cuyahoga Co., OH, Hosp. Rev.
(University Hosp.) 6.250% 01/15/20 $ 379
720 University of Toledo, OH, General
Receipts Rev. 4.750 06/01/20 657
1,210 Greene Co., OH, Sewer Sys. Rev. 5.125 12/01/20 1,171
1,000 Ohio St. Air Quality Dev. Rev., Ser. 1985A
(Columbus & Southern Power) 6.375 12/01/20 1,066
1,000 Hamilton, OH, CSD GO 5.625 12/01/24 990
1,000 Ohio St. Air Quality Dev. Rev. (Penn. Power) 6.450 05/01/27 1,065
---------- ---------
$ 58,147 Total Fixed Rated Revenue & General Obligation Bonds
----------
(Amortized Cost $57,971) $ 60,501
---------
-----------------------------------------------------------------------------------------
Principal Market
Amount Floating & Variable Rate Coupon Maturity Value
(000's) Demand Notes -- 5.9% Rate Date (000's)
-----------------------------------------------------------------------------------------
$ 1,200 Montgomery Co., OH, Ser. 1998A
(Miami Valley Hosp.) 3.450% 07/01/99 $ 1,200
2,800 Columbus, OH, GO Ser. 1 3.650 07/07/99 2,800
---------- ---------
$ 4,000 Total Floating & Variable Rate Demand Notes
(Amortized Cost $4,000) $ 4,000
---------- ---------
$ 62,147 Total Investments at Value-- 95.6%
(Amortized Cost $61,971) $ 64,501
==========
Other Assets in Excess of Liabilities-- 4.4% 2,976
---------
Net Assets-- 100% $ 67,477
=========
</TABLE>
See accompanying notes to financial statements and notes to portfolios of
investments.
50. Countrywide Investments
<PAGE>
Notes to Portfolios of Investments
June 30, 1999
--------------------------------------------------------------------------------
Variable and adjustable rate put bonds earn interest at a coupon rate which
fluctuates at specified intervals, usually daily, monthly or semi-annually. The
rates shown in the Portfolios of Investments are the coupon rates in effect at
June 30, 1999.
Put bonds may be redeemed at the discretion of the holder on specified dates
prior to maturity. Mandatory put bonds are automatically redeemed at a specified
put date unless action is taken by the holder to prevent redemption.
Bonds denoted as prerefunded are anticipated to be redeemed prior to their
scheduled maturity. The dates indicated in the Portfolios of Investments are the
stipulated prerefunded dates.
Portfolio Abbreviations:
ARPB - Adjustable Rate Put Bond
BANS - Bond Anticipation Notes
COP - Certificates of Participation
CSD - City School District
EDR - Economic Development Revenue
GO - General Obligation
HFA - Housing Finance Authority/Agency
HFC - Housing Finance Corporation
IDA - Industrial Development Authority/Agency
IDR - Industrial Development Revenue
ISD - Independent School District
LSD - Local School District
MFH - Multi-Family Housing
MFM - Multi-Family Mortgage
PCR - Pollution Control Revenue
RANS - Revenue Anticipation Notes
SFM - Single Family Mortgage
USD - Unified School District
Countrywide Investments 51.
<PAGE>
Report of Independent Public Accountants
--------------------------------------------------------------------------------
ARTHUR ANDERSEN LLP
LOGO
To the Shareholders and Board of Trustees of Countrywide Tax-Free Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments of Countrywide Tax-Free Trust (comprising,
respectively, the Tax-Free Money Fund, California Tax-Free Money Fund, Ohio
Tax-Free Money Fund, Florida Tax-Free Money Fund, Tax-Free Intermediate Term
Fund and Ohio Insured Tax-Free Fund (a Massachusetts business trust) as of June
30, 1999, the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years then ended and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with custodians and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Countrywide Tax-Free Trust as of
June 30, 1999, the results of their operations for the year then ended, the
changes in their net assets for each of the two years then ended, and the
financial highlights for the periods referred above, in conformity with
generally accepted accounting principles.
/s/ Arthur Anderson LLP
Cincinnati, Ohio,
August 6, 1999
