SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
--
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
--
Pre-Effective Amendment No. -----
Post-Effective Amendment No. 71
-----
and/or
--
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
--
Amendment No. 65
-----
(Check appropriate box or boxes.)
COUNTRYWIDE INVESTMENT TRUST FILE NO. 2-52242 and 811-2538
- --------------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
- ---------------------------------------------------------------
(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
--------------
Robert H. Leshner, 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
- ------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph(b)
/ / on ____________ pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/x/ on May 1, 2000 pursuant to paragraph (a) of Rule 485
<PAGE>
CROSS REFERENCE SHEET
----------------------
ITEM SECTION IN PROSPECTUS
- ---- ---------------------
1........................... Cover Page; For More Information
2........................... Risk/Return Summary;Investment Strategies and
Risks
3........................... Risk/Return Summary
4........................... Investment Strategies and Risks
5.......................... None
6........................... The Fund's Management
7........................... Investing with Countrywide, Distributions and
Taxes
8............................ Investing with Countrywide
9........................... None
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
- ---- -----------------------
10.......................... Cover Page, Table of Contents
11.......................... The Trust
12.......................... Definitions, Policies and Risk
Considerations, Investment Restrictions,
Portfolio Turnover, Appendix
13.......................... Trustees and Officers
14.......................... None
15.......................... The Investment Adviser and Sub-Advisor, The
Distributor, Distribution Plans,
Custodian, Auditors, Transfer, Accounting and
Administrative Agent, Choosing a Share Class
16.......................... Securities Transactions
17.......................... The Trust, Choosing a Share Class
18.......................... Calculation of Share Price and Public
Offering Price, Other Purchase
Information, Redemption in Kind
19.......................... Taxes
20.......................... The Distributor
21.......................... Historical Performance Information
22.......................... None
<PAGE>
COUNTRYWIDE FAMILY OF FUNDS
- ----------------------------
PROSPECTUS
MAY 1, 2000
COUNTRYWIDE INVESTMENT TRUST
o HIGH YIELD FUND
Neither the Securities and Exchange Commission nor any state securities
commission has approved the Fund's shares as an investment or determined whether
this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
COUTNRYWIDE FAMILY OF FUNDS
The Fund is a series of Countrywide Investment Trust (the "Trust") which is a
group of six taxable bond and money market funds. The Trust is part of the
Countrywide Family of Funds which also consists of Countrywide Strategic Trust,
a group of eight equity mutual funds and Countrywide Tax-Free Trust, a group of
six tax-free bond and money market mutual funds. Each Fund has a different
investment goal and risk level. For further information about the Countrywide
Family of Funds, contact Touchstone Securities, Inc. at 800.669.2796.
-2-
<PAGE>
TABLE OF CONTENTS
Page
Risk/Return Summary........................................................
Investment Strategies And Risks............................................
The Fund's Management......................................................
Investing With Countrywide.................................................
Distributions And Taxes....................................................
For More Information.......................................................
-3-
<PAGE>
RISK/RETURN SUMMARY
- -------------------
THE FUND'S INVESTMENT GOAL
The High Yield Fund seeks to achieve a high level of current income as its main
goal. Capital appreciation is a secondary consideration in achieving its goal.
As with any mutual fund, there is no guarantee that the Fund will achieve its
goal.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in debt securities. These debt securities will
generally be more risky non-investment grade corporate and government securities
(up to 100% of total assets) issued primarily by U.S. issuers. Non-investment
grade debt securities are often referred to as "junk bonds" and are considered
speculative.
The Fund's investments may include:
o Securities of foreign companies (up to 15%), but only up to 5% of its
assets in securities of foreign companies that are denominated in a
currency other than the U.S. dollar
o Debt securities that are emerging market securities (up to 10%)
o Mortgage-related securities and other types of loans and loan
participations
o Currency futures and option contracts
THE KEY RISKS
The Fund's share price will fluctuate and you could lose money on your
investment in the Fund. The Fund could also return less than other investments:
o If the U.S. enters into a lengthy economic downturn or recession
o If interest rates go up, causing the value of any debt securities held
by the Fund to decline
o Because the issuers of non-investment grade debt securities held by
the Fund are more likely to be unable to make timely payments of
interest or principal
o Because investments in foreign securities may have more frequent and
larger price changes than U.S. securities and may lose value due to
changes in currency exchange rates and other factors
o Because emerging market securities involve unique risks, such as
exposure to economies less diverse and mature than that of the U.S.
and economic or political changes may cause larger price changes in
emerging market securities than other foreign securities
o Because mortgage-related securities may lose more value due to changes
in interest rates than other debt securities and are subject to
prepayment
-4-
<PAGE>
o Because currency futures and options may reduce the potential gain
from an investment or intensify a loss
o Because loans and loan participations may be more difficult to sell
than other investments and are subject to the risk of borrower default
o If the stock market as a whole goes down
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government entity.
You can find out more information about certain securities in which the Fund may
invest and a more detailed description of risks under the heading Investment
Strategies and Risks later in this Prospectus.
WHO MAY WANT TO INVEST
This Fund is most appropriate for you if you are an aggressive investor and are
willing to assume a relatively high amount of risk. You should be comfortable
with extreme levels of volatility, and safety of principal in the short term
should not be a high priority for you. The Fund's approach may be most
appropriate for you if you are many years from retirement and are comfortable
with wide market fluctuations.
PERFORMANCE NOTE
Performance information is only shown when a Fund has had a full calendar year
of operations. Since the Fund started on May 1, 2000, there is no performance
information included in this Prospectus.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees (fees paid
directly from your investment)
Class A Shares Class C Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.75%(1) 1.25%
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) None 1.00%(2)
- --------------------------------------------------------------------------------
-5-
<PAGE>
Annual Fund Operating
Expenses (expenses that are
deducted from Fund assets)
Management Fees 0.60% 0.60%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.35% 1.00%
- --------------------------------------------------------------------------------
Other Expenses % %
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses % %
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement(3) % %
- --------------------------------------------------------------------------------
Net Expenses(4) % %
- --------------------------------------------------------------------------------
(1) You may pay a reduced sales charge on very large purchases. There is no
sales charge at the time of purchase for purchases of $1 million or more
but a sales charge of 1.00% will be assessed on shares redeemed within one
year of purchase.
(2) The 1.00% is waived for benefits paid to you through a qualified pension
plan
(3) Touchstone Advisors has contractually agreed to waive or reimburse certain
of the Total Annual Fund Operating Expenses of each Class of the Fund (the
"Sponsor Agreement"). The Sponsor Agreement will remain in place until at
least December 31, 2000.
(4) Net expenses are based on estimated amounts for the current fiscal year.
The following example should help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then sell all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year $
3 Years $
o The example for the 3 year period is calculated using the Total Fund
Operating Expenses before the limits agreed to under the Sponsor
Agreement.
-6-
<PAGE>
INVESTMENT STRATEGIES AND RISKS
- -------------------------------
CAN THE FUND DEPART FROM ITS NORMAL STRATEGIES?
The Fund may depart from its investment strategies by taking temporary defensive
positions in response to adverse market, economic or political conditions.
During these times, the Fund may not achieve its investment goals.
CAN THE FUND CHANGE ITS INVESTMENT GOAL?
The Fund's investment goal may be changed by a vote of the Board of Trustees
without shareholder approval. You would be notified at least 30 days before any
such change took effect.
THE FUND AT A GLANCE.
The following two tables can give you a quick basic understanding of the types
of securities the Fund tends to invest in and some of the risks associated with
the Fund's investments. You should read all of the information about the Fund
and its risks before deciding to invest.
HOW CAN I TELL, AT A GLANCE, WHICH TYPES OF SECURITIES THE FUND MIGHT INVEST IN?
The following table shows the main types of securities in which the Fund
generally will invest. Some of the Fund's investments are described in detail
below:
High
Yield Fund
FINANCIAL INSTRUMENTS
Invests in investment grade debt securities o
- --------------------------------------------------------------------------------
Invests in non-investment grade debt securities o
- --------------------------------------------------------------------------------
Invests in foreign debt securities o
- --------------------------------------------------------------------------------
Invests in futures contracts o
- --------------------------------------------------------------------------------
Invests in forward currency contracts o
- --------------------------------------------------------------------------------
Invests in mortgage-related securities o
- --------------------------------------------------------------------------------
INVESTMENT TECHNIQUES
Invests in securities of emerging market countries o
- --------------------------------------------------------------------------------
Invests in short-term debt securities o
- --------------------------------------------------------------------------------
-7-
<PAGE>
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
FOREIGN COMPANIES. A foreign company is organized under the laws of a foreign
country and:
o Has the principal trading market for its stock in a foreign country
o Derives at least 50% of its revenues or profits from operations in
foreign countries or has at least 50% of its assets located in foreign
countries
Foreign companies do not include companies based in Canada with respect to the
Fund.
AMERICAN DEPOSITORY RECEIPTS (ADRS). ADRs are securities that represent an
ownership interest in a foreign security. They are generally issued by a U.S.
bank to U.S. buyers as a substitute for direct ownership of the foreign security
and are traded on U.S. exchanges.
INVESTMENT GRADE SECURITIES. Investment grade securities are generally rated BBB
or better by Standard & Poor's Rating Service (S&P) or Baa or better by Moody's
Investor Service, Inc. (Moody's).
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are higher
risk, lower quality securities, often referred to as "junk bonds" and are
considered speculative. They are rated by S&P as less than BBB or by Moody's as
less than Baa.
ASSET-BACKED SECURITIES. Asset-backed securities represent grouips of other
assets, for example, credit card receivables, that are combined or pooled for
sale to investors.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent groups of
mortgage loans that are combined for sale to investors. The loans may be grouped
together by:
o The Government National Mortgage Association (GNMA)
o The Federal National Mortgage Association (FNMA)
o The Federal Home Loan Mortgage Corporation (FHLMC)
o Commercial banks
o Savings and loan institutions
o Mortgage bankers
o Private mortgage insurance companies
EMERGING MARKET SECURITIES. Emerging Market securities are issued by a company
that:
o Is organized under the laws of an emerging market country (any country
other than Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Holland, Italy, Japan, Luxembourg, New Zealand,
Norway, Spain, Sweden, Switzerland, the United Kingdom and the United
States)
o Has its principal trading market for its stock in an emerging market
country
-8-
<PAGE>
o Derives at least 50% of its revenues or profits from operations within
emerging market countries or has at least 50% of its assets located in
emerging market countries
REPURCHASE AGREEMENTS. Repurchase Agreements are collateralized by obligations
issued or guaranteed as to both principal and interest by the U.S. Government,
its agencies, and instrumentalities. A repurchase agreement is a transaction in
which a security is purchased with a simultaneous commitment to sell it back to
the seller (a commercial bank or recognized securities dealer) at an agreed upon
price on an agreed upon date. This date is usually not more than seven days from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest, which is unrelated to the coupon rate or
maturity of the purchased security.
HOW CAN I TELL, AT A GLANCE, THE FUND'S KEY RISKS?
The following table shows some of the main risks to which the Fund is subject.
Each risk is described in detail below:
High
Yield Fund
INTEREST RATE RISK o
- --------------------------------------------------------------------------------
Mortgage-Related Securities o
- --------------------------------------------------------------------------------
CREDIT RISK o
- --------------------------------------------------------------------------------
Non-Investment Grade Securities o
- --------------------------------------------------------------------------------
FOREIGN INVESTING RISK o
- --------------------------------------------------------------------------------
Emerging Market Risk o
- --------------------------------------------------------------------------------
Political Risk o
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN THE FUND
INTEREST RATE RISK. The Fund is subject to the risk that the market value of the
debt securities in which it invests will decline because of rising interest
rates. The prices of debt securities are generally linked to the prevailing
market interest rates. In general, when interest rates rise, the prices of debt
securities fall, and when interest rates fall, the prices of debt securities
rise. The price volatility of a debt security also depends on its maturity.
Generally, the longer the maturity of a debt security the greater its
sensitivity to changes in interest rates. To compensate investors for this
higher risk, debt securities with longer maturities generally offer higher
yields than debt securities with shorter maturities.
o Mortgage-related securities. Payments from the pool of loans
underlying a mortgage-related security may not be enough to meet the
monthly payments of the mortgage-related security. If this occurs, the
mortgage-related security will lose value.
-9-
<PAGE>
Also, prepayments of mortgages or mortgage foreclosures will shorten the life of
the pool of mortgages underlying a mortgage-related security and will affect the
average life of the mortgage-related securities held by the Fund. Mortgage
prepayments vary based on several factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
demographic conditions. In periods of falling interest rates, there are usually
more prepayments. The reinvestment of cash received from prepayments will,
therefore, usually be at lower interest rate than the original investment,
lowering the Fund's yield. Mortgage-related securities may be less likely to
increase in value during periods of falling interest rates than other debt
securities.
CREDIT RISK. The debt securities in the Fund's portfolio are subject to credit
risk. Credit risk is the possibility that an issuer will fail to make timely
payments of interest or principal. Securities rated in the lowest category of
investment grade securities have some risky characteristics and changes in
economic conditions are more likely to cause issuers of these securities to be
unable to make payments.
o Non-Investment Grade Securities. Non-investment grade securities are
sometimes referred to as "junk bonds" and are very risky with respect to their
issuers' ability to make payments of interest and principal. There is a high
risk that the Fund could suffer a loss from investments in non-investment grade
securities caused by the default of an issuer of such securities. Part of the
reason for this high risk is that, in the event of a default or bankruptcy,
holders of non-investment grade securities generally will not receive payments
until the holders of all other debt have been paid. In addition, the market for
non-investment grade securities has, in the past, had more frequent and larger
price changes than the markets for other securities. Non-investment grade
securities can also be more difficult to sell for good value.
FOREIGN INVESTING. Investing in foreign securities poses unique risks such as
fluctuation in currency exchange rates, market illiquidity, price volatility,
high trading costs, difficulties in settlement, regulations on stock exchanges,
limits on foreign ownership, less stringent accounting, reporting and disclosure
requirements, and other considerations. In the past, equity and debt instruments
of foreign markets have had more frequent and larger price changes than those of
U.S. markets.
o Emerging Markets Risk. Investments in a country that is still relatively
underdeveloped involves exposure to economic structures that are generally less
diverse and mature than in the U.S. and to political and legal systems which may
be less stable. In the past, markets of developing countries have had more
frequent and larger price changes than those of developed countries.
o Political Risk. Political risk includes a greater potential for revolts,
and the taking of assets by governments. For example, the Fund may invest in
Eastern Europe and former states of the Soviet Union. These countries were under
communist systems that took control of private industry. This could occur again
in this region or others in which the Fund may invest, in which case the Fund
may lose all or part of its investment in that country's issuers.
-10-
<PAGE>
THE FUND'S MANAGEMENT
REORGANIZATION OF TOUCHSTONE SERIES TRUST
Under the terms of an Agreement and Plan of Reorganization, on May 1, 2000, the
Fund will succeed to the assets and liabilities of another mutual fund of the
same name (the "Predecessor Fund"), which is a series of Touchstone Series
Trust. The investment goals and strategies of the Fund and its Predecessor Fund
are substantially similar.
INVESTMENT ADVISOR
Touchstone Advisors, Inc. (the Advisor or Touchstone Advisors) located at 311
Pike Street, Cincinnati, Ohio 45202, is the investment advisor for the Fund.
Touchstone Advisors has been registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the Advisers Act) since 1994. As of
December 31, 1999, Touchstone Advisors had approximately $_____ million in
assets under management.
Touchstone Advisors is responsible for selecting the Fund's Sub-Advisor, subject
to review by the Board of Trustees. Touchstone Advisors selects a Sub-Advisor
that has shown good investment performance in its areas of expertise. Touchstone
Advisors considers various factors in evaluating the Fund's Sub-Advisor,
including:
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over five years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone Advisors will also continually monitor the performance of the Fund's
Sub-Advisor through various analyses and through in-person, telephone and
written consultations with the Fund's Sub-Advisor.
Touchstone Advisors discusses its expectations for performance with the
Sub-Advisor. Touchstone provides written evaluations and recommendations to the
Board of Trustees, including whether or not the Sub-Advisor's contract should be
renewed, modified or terminated.
Touchstone Advisors is also responsible for running all of the operations of the
Fund, except for those that are subcontracted to the Sub-Advisor, custodian,
transfer agent and administrator.
The Fund pays Touchstone Advisors a fee for its services. Out of this fee
Touchstone Advisors pays the Sub-Advisor a fee for its services. The fee paid to
Touchstone Advisors by the Fund is 0.60% of the Fund's average daily net assets.
-11-
<PAGE>
FUND SUB-ADVISOR
The Sub-Advisor makes the day-to-day decisions regarding buying and selling
specific securities for the Fund. The Sub-Advisor manages the investments held
by the Fund according to the Fund's investment goals and strategies.
SUB-ADVISOR TO THE FUND
FORT WASHINGTON INVESTMENT ADVISORS, INC. (FORT WASHINGTON)
420 EAST FOURTH STREET, CINCINNATI, OH 45202
Fort Washington has been registered as an investment advisor under the Advisers
Act since 1990. Fort Washington provides investment advisory services to
individuals, institutions, mutual funds and variable annuity products. As of
December 31, 1999, Fort Washington had assets under management of $_____
billion.
Brendan M. White, CFA has primary responsibility for the day-to-day management
of the Fund. Mr. White is Vice President and Senior Portfolio Manager of Fort
Washington. He joined Fort Washington in 1993 and currently manages $750 million
in high yield assets. His expertise in the fixed income area includes high
yield, investment grade and mortgage-backed securities. Mr. White has 11 years
of fixed income management experience and was with Ohio Casualty prior to
joining Fort Washington.
Fort Washington is an affiliate of Touchstone Advisors. Therefore, Touchstone
Advisors may have a conflict of interest when making decisions to keep Fort
Washington as the Fund's Sub-Advisor. The Board of Trustees reviews all of
Touchstone Advisor's decisions to reduce the possibility of a conflict of
interest situation.
-12-
<PAGE>
INVESTING WITH COUNTRYWIDE
- --------------------------
CHOOSING THE APPROPRIATE INVESTMENTS TO MATCH YOUR GOALS. Investing well
requires a plan. We recommend that you meet with your financial advisor to plan
a strategy that will best meet your financial goals.
OPENING AN ACCOUNT
You can contact your financial advisor to purchase shares of the Fund. You may
also purchase shares of the Fund directly from Touchstone Securities, Inc. (the
"Distributor"). In any event, you must complete the Investment Application
included in this Prospectus. You may also obtain an Investment Application from
the Distributor or your financial advisor.
You should read this Prospectus carefully and then determine how much you want
to invest. Check below to find the minimum investment amount required to
purchase shares as well as to learn about the various ways you can purchase your
shares
o Investor Alert: The Distributor may choose to refuse any purchase
order.
Initial Additional
Investment Investment
---------- ----------
Regular Account $1,000 None
---------------
Accounts for Countrywide Affiliates $ 50 None
-----------------------------------
Retirement Plan Account or Custodial account under $ 250 None
a Uniform Gifts/Transfers to Minors Act ("UGTMA")
--------------------------------------------------
Investments through the Automatic Investment Plan $ 50 $ 50
-------------------------------------------------
o Investor Alert: The Distributor could change these initial and
additional investment minimums at any time.
PRICING OF FUND SHARES
The Fund's share price, also called net asset value (NAV), is determined as of
the close of trading (normally 4:00 p.m. Eastern time) every day the New York
Stock Exchange (NYSE) is open. The Fund calculates its NAV per share, generally
using market prices, by dividing the total value of its net assets by the number
of shares outstanding. Shares are purchased at the next offering price
determined after your purchase or sale order is received in proper form by the
Transfer Agent. The offering price is the NAV plus a sales charge, if
applicable.
-13-
<PAGE>
The Fund's investments are valued based on market value or, if no market value
is available, based on fair value as determined by the Board of Trustees (or
under their direction). All assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values. Some specific
pricing strategies follow:
o All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost which the Board of
Trustees has determined represents fair value.
o Securities mainly traded on a U.S. exchange are valued at the last
sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price.
o Securities mainly traded on a non-U.S. exchange are generally valued
according to the preceding closing values on that exchange. However,
if an event which may change the value of a security occurs after the
time that the closing value on the non-U.S. exchange was determined,
the Board of Trustees might decide to value the security based on fair
value. This may cause the value of the security on the books of the
Fund to be significantly different from the closing value on the
non-U.S. exchange and may affect the calculation of the NAV.
o Because portfolio securities that are primarily listed on a non-U.S.
exchange may trade on weekends or other days when the Fund does not
price its shares, the Fund's NAV may change on days when shareholders
will not be able to buy or sell shares.
CHOOSING A CLASS OF SHARES
The Fund offers Class A shares and Class C shares. Each class of shares charges
different sales charges and distribution fees. The amount of sales charges and
distribution fees you pay will depend on which class of shares you decide to
purchase.
CLASS A SHARES
The offering price of Class A shares of the Fund is equal to its NAV plus a
front-end sales charge that you pay when you buy your shares. The front-end
sales charge is generally deducted from the amount of your investment.
The following table shows the amount of front-end sales charge you will pay on
purchases of Class A shares of the Fund as a percentage of (1) offering price
and (2) the net amount invested after the charge has been subtracted. Note that
the front-end sales charge gets lower as your investment amount gets larger.
-14-
<PAGE>
<TABLE>
<CAPTION>
Sales Charge as % of Sales Charge as % of
Amount of Your Investment Offering Price Net Amount Invested
- ------------------------- -------------- -------------------
<S> <C> <C>
Under $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.50% 4.72%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.31%
$1 million or more 0.00% 0.00%
</TABLE>
There is no front-end sales charge if you invest $1 million or more in the Fund.
This includes large total purchases made through programs such as Aggregation,
Concurrent Purchases, Letters of Intent and Rights of Accumulation. These
programs are described more fully in the Statement of Additional Information
("SAI"). In addition, there is no front-end sales charge on purchases by certain
persons related to the Fund or its service providers and certain other persons
listed in the SAI..
If you redeem shares that you purchased as part of the $1 million purchase
within one year, you will pay a contingent deferred sales charge (a sales charge
you pay when you redeem your shares) of 1% on the shares redeemed.
The Fund has adopted a distribution plan under Rule 12b-1 of the Investment
Company Act of 1940, as amended (the "1940 Act") for its Class A shares. This
plan allows the Fund to pay distribution fees for the sale and distribution of
its Class A shares. Under the plan, the Fund pays an annual fee of up to 0.35%
of its average daily net assets that are attributable to Class A shares. Because
these fees are paid out of the Fund's assets on an ongoing basis, these fees
will increase the cost of your investment.
CLASS C SHARES
The offering price of Class C shares of the Fund is equal to its NAV plus a
1.25% front-end sales charge that you pay when you buy your shares. The
front-end sales charge is generally deducted from the amount of your investment.
A contingent deferred sales charge of 1% of the offering price will be charged
on Class C shares redeemed within one year after you purchased them.
No contingent deferred sales charge is applied if:
o The shares which you redeem were acquired through the reinvestment of
dividends or capital gains distributions
o The amount redeemed resulted from increases in the value of the
account above the amount of the total purchase payments
When we determine whether a contingent deferred sales charge is payable on a
redemption, we assume that:
-15-
<PAGE>
o the redemption is made first from amounts free of any contingent
deferred sales charge; then
o From the earliest purchase payment(s) that remain invested in the Fund
When we determine if amounts are available for redemption free of any contingent
deferred sales charge, we:
o Add together all of your original purchase payments
o Subtract any amounts previously withdrawn
o Check if there is any remaining amount free of any contingent deferred
sales charge that can be applied to the total of the current value of
the shares you have asked to redeem
There is no contingent deferred sales charge on purchases by certain persons
related to the Fund or its service providers and certain other parties.
The Fund has adopted a distribution plan under Rule 12b-1 of the 1940 Act for
its Class C shares. This plan allows the Fund to pay distribution and other fees
for the sale and distribution of its Class C shares and for services provided to
holders of Class C shares.
Under the plan, the Fund pays an annual fee of up to 1.00% of its average daily
net assets that are attributable to Class C shares. Because these fees are paid
out of the Fund's assets on an ongoing basis, these fees will increase the cost
of your investment and over time may cost you more than paying other types of
sales charges.
PURCHASING YOUR SHARES
For information about how to purchase shares, telephone Countrywide Fund
Services, Inc. (the "Transfer Agent")(Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050).
You can invest in the Fund in the following ways:
OPENING AN ACCOUNT
o Please make your check (in U.S. dollars) payable to the Fund.
o Send your check with the completed account application to Countrywide
Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201-5354
Your application will be processed subject to your check clearing.
o You may also open an account through your financial advisor.
o We price direct purchases based upon the next determined public
offering price (NAV plus any applicable sales load) after your order
is received. Direct purchase orders received by the Transfer Agent by
4:00 p.m., Eastern time, are processed at that day's public offering
price. Direct investments received by the Transfer Agent after 4:00
p.m., Eastern time, are processed at the public offering price next
determined on the following business day. Purchase orders received by
financial advisors before 4:00 p.m., Eastern time, and transmitted to
the Distributor by 5:00 p.m., Eastern time, are processed at that
day's public offering price. Purchase orders received from financial
advisors after 5:00 p.m., Eastern time,
-16-
<PAGE>
are processed at the public offering price next determined on the
following business day.
BY MAIL OR
THROUGH YOUR
FINANCIAL ADVISOR
- --------------------------------------------------------------------------------
o You may exchange shares of the Fund for shares of the same class of
another Countrywide Fund at NAV. You may also exchange shares of the
Fund for any money market fund.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in the Prospectus relating
to the exchanged-for shares carefully before making an exchange of
your Fund shares.
BY EXCHANGE
- --------------------------------------------------------------------------------
o You may invest in the Fund through various retirement plans. The
Fund's shares are designed for use with certain types of tax qualified
retirement plans including defined benefit and defined contribution
plans.
o For further information about any of the plans, agreements,
applications and annual fees, contact the Transfer Agent or your
financial advisor
THROUGH
RETIREMENT
PLANS
- --------------------------------------------------------------------------------
ADDING TO YOUR ACCOUNT
o Complete the investment form provided at the bottom of a recent
account statement.
o Make your check payable to the Fund.
o Write your account number and asset allocation model number, if
applicable, on the check.
o Either: (1) Mail the check with the investment form in the envelope
provided with your account statement; or (2) Mail your check directly
to your financial advisor at the address printed on your account
statement. Your financial advisor is responsible for forwarding
payment promptly to the Distributor.
BY CHECK
- --------------------------------------------------------------------------------
o Specify your name and account number. If the Transfer Agent receives a
properly executed wire by 4:00 p.m. Eastern time on a day when the
NYSE is open for regular trading, your order will be processed at that
day's public offering price.
BY WIRE
- --------------------------------------------------------------------------------
o You may exchange your shares by calling the Transfer Agent.
o You do not have to pay any exchange fee for these exchanges.
o You should review the disclosure provided in the Prospectus relating
to the exchanged-for shares carefully before making an exchange of
your Fund shares.
BY EXCHANGE
- --------------------------------------------------------------------------------
o You may add to your account in the Fund through various retirement
plans. For further information, contact the Transfer Agent or your
financial advisor.
THROUGH
RETIREMENT
PLANS
- --------------------------------------------------------------------------------
-17-
<PAGE>
INFORMATION ABOUT WIRE TRANSFERS.
You may make additional purchases in the Fund directly by wire transfers.
Contact your bank and ask it to wire federal funds to the Transfer Agent. Banks
may charge a fee for handling wire transfers. You should contact the Transfer
Agent or your financial advisor for further instructions.
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
For federal income tax purposes, an exchange of shares is treated as a sale of
the shares and a purchase of the shares you receive in exchange. Therefore, you
may incur a taxable gain or loss in connection with the exchange.
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
To determine which type of retirement plan is appropriate for you, please
contact your tax advisor.
MORE INFORMATION ABOUT RETIREMENT PLANS.
Retirement Plans may include the following:
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts (IRAs)
o Savings Incentive Match Plan for Employees (SIMPLE) IRAs
o Spousal IRAs
o Roth Individual Retirement Accounts (Roth IRAs)
o Education Individual Retirement Accounts (Education IRAs)
o Simplified Employee Pension Plans (SEP IRAs)
o 403(b) Tax Sheltered Accounts that employ as custodian a bank
acceptable to the Distributor
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401K plans, profit sharing plans
and money purchase plans)
o 457 plans
-18-
<PAGE>
AUTOMATIC INVESTMENT OPTIONS
The various ways that you can invest in the Fund are outlined below. The
Transfer Agent does not charge any fees for these services.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments of $50 or
more in the Fund to be processed electronically from a checking or savings
account. You will need to complete the appropriate section in the Investment
Application to do this. For further details about this service call the Transfer
Agent at 1-800-543-0407; in Cincinnati, 629-2050.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be
automatically reinvested in the Fund that pays them or another Fund within the
same class of shares without a fee or sales charge. Dividends and capital gains
will be reinvested in the Fund that pays them, unless you indicate otherwise on
your account application. You may also choose to have your dividends or capital
gains paid to you in cash.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security
checks, private payroll checks, pension pay outs or any other pre-authorized
government or private recurring payments in the Fund. This occurs on a monthly
basis and the minimum investment is $50.
DOLLAR COST AVERAGING. Our Dollar Cost Averaging program allows you to diversify
your investments by investing the same amount on a regular basis. You can set up
periodic automatic transfers of at least $50 from one Countrywide Fund to any
other. The applicable sales charge, if any, will be assessed.
PROCESSING ORGANIZATIONS. You may also purchase shares of the Fund through a
"processing organization", (e.g. a mutual fund supermarket) which is a
broker-dealer, bank or other financial institution that purchases shares for its
customers. Some of the Funds have authorized certain processing organizations to
receive purchase and sales orders on their behalf. Before investing in the Funds
through a processing organization, you should read any materials provided by the
processing organization in conjunction with this Prospectus.
When shares are purchased this way, there may be various differences. The
processing organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the
Fund's behalf
The Transfer Agent considers a purchase or sales order as received when an
authorized processing organization, or its authorized designee, receives the
order in
-19-
<PAGE>
proper form. These orders will be priced based on the Fund's NAV next computed
after such order is received in proper form.
Shares held through a processing organization may be transferred into your name
following procedures established by your processing organization and the
Transfer Agent. Certain processing organizations may receive compensation from
the Fund, the Underwriter, the Advisor or their affiliates.
SELLING YOUR SHARES
You may sell some or all of your Fund shares on any day that the Fund calculates
its NAV. If your request is received in proper form before the close of regular
trading on the NYSE, you will receive a price based on that day's NAV for the
shares you sell. Otherwise, the price you receive will be based on the NAV that
is next calculated.
o You can sell or exchange your shares over the telephone, unless you
have specifically declined this option. If you do not wish to have
this ability, you must mark the appropriate section of the Investment
Application. You may only sell shares over the telephone if the amount
is less than $25,000.
o To sell your Fund shares by telephone, call the Transfer Agent,
Nationwide at 800-543-0407; in Cincinnati, 629-2050.
o IRA accounts cannot be sold by telephone
BY TELEPHONE
- --------------------------------------------------------------------------------
o Write to the Transfer Agent.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your Account
Application.
BY MAIL
- --------------------------------------------------------------------------------
o Complete the appropriate information on the Account Application.
o If your proceeds are $1,000 or more, you may request that the Transfer
Agent wire them to your bank account.
o You will be charged a fee of $8.00.
o Redemption proceeds will only be wired to a commercial bank or
brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge directly
into your bank account through an ACH transaction. Contact the
Transfer Agent for more information.
BY WIRE
- --------------------------------------------------------------------------------
o You may also sell shares by contacting your financial advisor, who may
charge you a fee for this service. Shares held in street name must be
sold through your financial advisor or, if applicable, the processing
organization.
o Your financial advisor is responsible for making sure that sale
requests are transmitted to the Transfer Agent in proper form in a
timely manner.
THROUGH
YOUR FINANCIAL
ADVISOR
- --------------------------------------------------------------------------------
-20-
<PAGE>
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
Selling your shares may cause you to incur a taxable gain or loss.
o Investor Alert: Unless otherwise specified, proceeds will be sent to
the record owner at the address shown on the Transfer Agent's records.
SIGNATURE GUARANTEES. Some circumstances require that the request for the sale
of shares have a signature guarantee. A signature guarantee helps protect you
against fraud. You can obtain one from most banks or securities dealers, but not
from a notary public. Some circumstances requiring a signature guarantee
include:
o Proceeds from the sale of shares that exceed $25,000
o Proceeds to be paid when the name or the address on the account has
been changed within 30 days of your sale request.
TELEPHONE SALES. If we receive your share sale request before 4:00 p.m. Eastern
time on a day when the NYSE is open for regular trading, the sale of your shares
will be processed at the next determined NAV on that day. Otherwise it will
occur on the next business day.
Interruptions in telephone service could prevent you from selling your shares in
this manner when you want to. When you have difficulty making telephone sales,
you should mail (or send by overnight delivery) a written request for sale of
your shares to the Transfer Agent.
In order to protect your investment assets, the Transfer Agent will only follow
instructions received by telephone that it reasonably believes to be genuine.
However, there is no guarantee that the instructions relied upon will always be
genuine and the Trust will not be liable, in those cases. The Trust has certain
procedures to confirm that telephone instructions are genuine. If it does not
follow such procedures in a particular case it may be liable for any losses due
to unauthorized or fraudulent instructions. Some of these procedures include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on the
Trust's records
o Mailing checks only to the account address shown on the Trust's
records
o Directing wires only to the bank account shown on the Trust's records
-21-
<PAGE>
o Providing written confirmation for transactions requested by telephone
o Tape recording instructions received by telephone
SYSTEMATIC WITHDRAWAL PLAN. You may elect to receive or send to a third party
monthly or quarterly withdrawals of $50 or more if your account value is at
least $5,000. There is no special fee for this service and no minimum amount is
required for retirement plans.
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
If you exercise the Reinstatement Privilege, you should contact your tax
advisor.
ooo Special Tax
Consideration
- --------------------------------------------------------------------------------
Involuntary sales may result in the sale of your Fund shares at a loss or may
result in taxable investment gains.
REINSTATEMENT PRIVILEGE. You may reinvest proceeds from a sale of Fund shares or
a dividend or capital gain distribution on Fund shares without a sales charge in
any of the Countrywide Funds. You may do so by sending a written request and a
check to the Transfer Agent within 90 days after the date of the sale, dividend
or distribution. Reinvestment will be at the next NAV calculated after the
Transfer Agent receives your request.
LOW ACCOUNT BALANCES
The Transfer Agent may sell your Fund shares if your account balance falls below
$1,000 as a result of redemptions that you have made (as opposed to a reduction
from market changes). This involuntary sale does not apply to retirement
accounts or custodian accounts under the Uniform Gift to Minors Act (UGTMA). The
Transfer Agent will let you know that your shares are about to be sold and you
will have 30 days to increase your account balance to more than $1000.
RECEIVING SALE PROCEEDS
The Transfer Agent will forward the proceeds of your sale to you (or to your
financial advisor) within 7 business days (normally within 3 business days) from
the date of a proper request.
PROCEEDS SENT TO FINANCIAL ADVISORS
Proceeds which are sent to your financial advisor will not usually be
-22-
<PAGE>
re-invested for you unless you provide specific instructions to do so.
Therefore, the financial advisor may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK
If you purchase Fund shares by personal check, the proceeds of a sale of those
shares will not be sent to you until the check has cleared, which may take up to
15 days. If you may need your money more quickly, you should purchase shares by
federal funds, bank wire, or with a certified or cashier's check.
It is possible that the payments of your sale proceeds could be postponed or
your right to sell your shares could be suspended during certain circumstances.
These circumstances can occur:
o When the NYSE is closed for other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes the Sub-Advisor to not be
reasonably able to dispose of certain securities or to fairly
determine the value of its net assets
o During any other time when the SEC, by order, permits.
<PAGE>
DISTRIBUTIONS AND TAXES
ooo Special Tax
Consideration
-------------
You should consult with your tax advisor to address your own tax situation.
The Fund intends to distribute to its shareholders substantially all of its
income and capital gains. The Fund will declare its dividends _________and pay
dividends _________. Distributions of any capital gains earned by the Fund will
be made at least annually.
TAX INFORMATION
DISTRIBUTIONS. The Fund will make distributions that may be taxed as ordinary
income or capital gains (which may be taxed at different rates depending on the
length of time the Fund holds its assets). The Fund's distributions may be
subject to federal income tax whether you reinvest such dividends in additional
shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income and short-term capital gains that are distributed to you
are taxable as ordinary income for federal income tax purposes regardless of how
long you have held your Fund shares.
LONG-TERM CAPITAL GAINS. Long-term capital gains distributed to you are taxable
as long-term capital gains for federal income tax purposes regardless of how
long you have held your Fund shares.
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax
status of your distributions. You will also receive written notices of certain
foreign taxes paid by the Fund and certain distributions paid by the Fund during
the prior taxable year.
-23-
<PAGE>
FOR MORE INFORMATION
For investors who want more information about the Fund, the following documents
are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund and is legally a part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS: The Fund's annual and semi-annual reports provide
additional information about the Fund's investments. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
You can get free copies of the SAI, the reports, other information and answers
to your questions about the Fund by contacting your financial advisor, or the
Fund at:
Countrywide Family of Funds
311 Pike Street
Cincinnati, Ohio 45202
800.669.2796 (Press 3)
http://www.touchstonefunds.com
You can view the Fund's SAI and the reports at the Public Reference Room of the
Securities and Exchange Commission.
For a fee, you can get text-only copies by writing to the Public Reference Room
of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549-0102 or by calling
the SEC at 1-202-942-8090. You can also get information about the operation of
the Public Reference Room by calling the SEC at 1-202-942-8090.
You can also view the SAI and the reports free from the SEC's Internet website
at http://www.sec.gov. You can get information about the SEC's Internet website
by writing to the SEC at the above address or by e-mailing a request to: public
[email protected].
Investment Company Act file no. 811-2538
COUNTRYWIDE INVESTMENT TRUST
o HIGH YIELD FUND
CLASS A AND CLASS C
SHARES ARE OFFERED BY
THIS PROSPECTUS
<PAGE>
COUNTRYWIDE INVESTMENT TRUST
----------------------------
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
May 1, 2000
High Yield Fund
This Statement of Additional Information is not a prospectus. It should be
read together with the Fund's Prospectus dated May 1, 2000. A copy of the Fund's
Prospectus can be obtained by writing the Trust at 312 Walnut Street, 21st
Floor, Cincinnati, Ohio 45202-4094, or by calling the Trust nationwide toll-free
800-543-0407, or in Cincinnati 629-2050.
-1-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
Countrywide Investment Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
-----------------
PAGE
THE TRUST...................................................................
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS...............................
INVESTMENT RESTRICTIONS....................................................
TRUSTEES AND OFFICERS.......................................................
THE INVESTMENT ADVISOR AND SUB-ADVISOR......................................
THE DISTRIBUTOR.............................................................
DISTRIBUTION PLANS..........................................................
SECURITIES TRANSACTIONS.....................................................
PORTFOLIO TURNOVER..........................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................
CHOOSING A SHARE CLASS......................................................
OTHER PURCHASE INFORMATION..................................................
TAXES.......................................................................
REDEMPTION IN KIND..........................................................
HISTORICAL PERFORMANCE INFORMATION..........................................
CUSTODIAN...................................................................
AUDITORS....................................................................
TRANSFER, ACCOUNTING AND ADMINISTRATIVE AGENT...............................
APPENDIX....................................................................
-2-
<PAGE>
THE TRUST
- ---------
Countrywide Investment Trust (the "Trust"), an open-end, diversified management
investment company, was organized as a Massachusetts business trust on December
7, 1980. The Trust currently offers six series of shares to investors: the Short
Term Government Income Fund, the Intermediate Term Government Income Fund, the
Intermediate Bond Fund, the Institutional Government Income Fund, the Money
Market Fund and the High Yield Fund. This Statement of Additional Information
pertains only to the High Yield Fund (referred to as the "Fund"). Information
about the other series in the Trust is contained in a separate Statement of
Additional Information. The Fund has its own investment goals(s) and policies.
Pursuant to an Agreement and Plan of Reorganization, on May 1, 2000, the Fund
will succeed to the assets and liabilities of another mutual fund of the same
name (the "Predecessor Fund"), which was an investment series of Touchstone
Series Trust. The investment goals, strategies, policies and restrictions of the
Fund and its Predecessor Fund are substantially identical.
Shares of the Fund have equal voting rights and liquidation rights. The Fund
shall vote separately on matters submitted to a vote of the shareholders except
in matters where a vote of all series of the Trust in the aggregate is required
by the Investment Company Act of 1940 or otherwise. When matters are submitted
to shareholders for a vote, each shareholder is entitled to one vote for each
full share owned and fractional votes for fractional shares owned. The Trust
does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
Each share of the Fund represents an equal proportionate interest in the assets
and liabilities belonging to the Fund with each other share of the Fund and is
entitled to such dividends and distributions out of the income belonging to the
Fund as are declared by the Trustees. The shares do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of the Fund into a
greater or lesser number of shares so long as the proportionate beneficial
interest in the assets belonging to the Fund and the rights of shares of any
other fund are in no way affected. In case of any liquidation of the Fund, the
holders of shares of the Fund will be entitled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to the
Fund. Expenses attributable to the Fund are borne by the Fund. Any general
expenses of the Trust not readily identifiable as belonging to a particular Fund
are allocated by or under the direction of the Trustees in such manner as the
Trustees determine to be fair and equitable. Generally, the Trustees allocate
such expenses on the basis of relative net assets or number of shareholders. No
shareholder is liable to further calls or to assessment by the Trust without his
express consent.
-3-
<PAGE>
Both Class A shares and Class C shares of the Fund represent an interest in the
same assets of the Fund, have the same rights and are identical in all material
respects except that (i) 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 the Fund into additional
classes of shares at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
-4-
<PAGE>
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
The Fund has its own investment goals, strategies and related risks. There can
be no assurance that the Fund's investment goals will be met. The Fund's
investment goals and practices are nonfundamental policies which may be changed
by the Board of Trustees without shareholder approval, except in those instances
where shareholder approval is expressly required. If there is a change in the
Fund's investment goals, shareholders should consider whether the Fund remains
an appropriate investment in light of their then current financial position and
needs. The investment restrictions of the Fund are fundamental and can only be
changed by vote of a majority of the outstanding shares of the Fund.
A more detailed discussion of some of the terms used and investment policies
described in the Prospectus (see "Investment Strategies and Risks") appears
below:
FIXED-INCOME AND OTHER DEBT INSTRUMENT SECURITIES. Fixed-income and other debt
instrument securities include all bonds, high yield or "junk" bonds, municipal
bonds, debentures, U.S. Government securities, mortgage-related securities
including government stripped mortgage-related securities, zero coupon
securities and custodial receipts. The market value of fixed-income obligations
of the Fund will be affected by general changes in interest rates which will
result in increases or decreases in the value of the obligations held by the
Fund. The market value of the obligations held by the Fund can be expected to
vary inversely to changes in prevailing interest rates. As a result,
shareholders should anticipate that the market value of the obligations held by
the Fund generally will increase when prevailing interest rates are declining
and generally will decrease when prevailing interest rates are rising.
Shareholders also should recognize that, in periods of declining interest rates,
the Fund's yield will tend to be somewhat higher than prevailing market rates
and, in periods of rising interest rates, the Fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Fund from the continuous sale of its shares will tend to be
invested in instruments producing lower yields than the balance of its
portfolio, thereby reducing the Fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur.
Ratings made available by Standard & Poor's Rating Service ("S&P"), Moody's
Investor Service, Inc. ("Moody's"), Duff and Phelps Bond Ratings, Fitch
Investors Service, Inc. and Thomson BankWatch are relative and subjective and
are not absolute standards of quality. Although these ratings are initial
criteria for selection of portfolio investments, the Fund's Sub-Advisor also
will make its own evaluation of these securities. Among the factors that will
be considered are the long-term ability of the issuers to pay principal and
interest and general economic trends.
Fixed-income securities may be purchased on a when-issued or delayed-delivery
basis. See "When-Issued and Delayed-Delivery Securities" below.
-5-
<PAGE>
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts. For a description of commercial paper
ratings, see the Appendix.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES. Securities rated in the fourth
highest category by the rating organizations, although considered investment
grade, may possess speculative characteristics, and changes in economic or
other conditions are more likely to impair the ability of issuers of these
securities to make interest and principal payments than is the case with
respect to issuers of higher grade bonds.
Generally, medium or lower-rated securities and unrated securities of comparable
quality, sometimes referred to as "junk bonds," offer a higher current yield
than is offered by higher rated securities, but also (i) will likely have some
quality and protective characteristics that, in the judgment of the rating
organizations, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (ii) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. The yield of junk bonds will fluctuate over time.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher quality bonds. In addition, medium and lower rated securities and
comparable unrated securities generally present a higher degree of credit risk.
The risk of loss due to default by these issuers is significantly greater
because medium and lower-rated securities and unrated securities of comparable
quality generally are unsecured and frequently are subordinated to the prior
payment of senior indebtedness. Since the risk of default is higher for lower
rated debt securities, the Sub-Advisor's research and credit analysis are an
especially important part of managing securities of this type held by the Fund.
In light of these risks, the Board of Trustees of the Trust has instructed the
Sub-Advisor, in evaluating the creditworthiness of an issue, whether rated or
unrated, to take various factors into consideration, which may include, as
applicable, the issuer's financial resources, its sensitivity to economic
conditions and trends, the operating history of and the community support for
the facility financed by the issue, the ability of the issuer's management and
regulatory matters.
In addition, the market value of securities in lower-rated categories is more
volatile than that of higher quality securities, and the markets in which medium
and lower-rated or unrated securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets may
make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover,
the lack of a liquid trading market
-6-
<PAGE>
may restrict the availability of securities for the Fund to purchase and may
also have the effect of limiting the ability of the Fund to sell securities at
their fair value either to meet redemption requests or to respond to changes in
the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment expectations.
If an issuer calls the obligation for redemption, the Fund may have to replace
the security with a lower yielding security, resulting in a decreased return for
shareholders. Also, as the principal value of bonds moves inversely with
movements in interest rates, in the event of rising interest rates the value of
the securities held by the Fund may decline relatively proportionately more than
a portfolio consisting of higher rated securities. If the Fund experiences
unexpected net redemptions, it may be forced to sell its higher rated bonds,
resulting in a decline in the overall credit quality of the securities held by
the Fund and increasing the exposure of the Fund to the risks of lower rated
securities. Investments in zero coupon bonds may be more speculative and subject
to greater fluctuations in value due to changes in interest rates than bonds
that pay interest currently.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require sale of these securities by the Fund, but
the Sub-Advisor will consider this event in its determination of whether the
Fund should continue to hold the securities.
LOWER-RATED DEBT SECURITIES. While the market for high yield corporate debt
securities has been in existence for many years and has weathered previous
economic downturns, the 1980's brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructuring.
Past experience may not provide an accurate indication of future performance of
the high yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less active than
that for higher rated debt securities, which can adversely affect the prices at
which the former are sold. If market quotations are not available, lower-rated
debt securities will be valued in accordance with procedures established by the
Board of Trustees, including the use of outside pricing services. Judgment plays
a greater role in valuing high yield corporate debt securities than is the case
for securities for which more external sources for quotations and last sale
information is available. Adverse publicity and changing investor perception may
affect the ability of outside pricing services to value lower-rated debt
securities and the ability to dispose of these securities.
In considering investments for the Fund, the Sub-Advisor will attempt to
identify those issuers of high yielding debt securities whose financial
condition is adequate to meet future obligations, has improved or is expected to
improve in the future. The Sub-Advisor's analysis focuses on relative values
based on such factors as interest or dividend coverage, asset coverage, earnings
prospects and the experience and managerial strength of the issuer.
-7-
<PAGE>
The Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interest of security holders if it determines this to be in the best
interest of the Fund.
ILLIQUID SECURITIES. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as "private placements" or
"restricted securities" and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted securities or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and an investment company might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemptions within seven days. An investment
company might also have to register such restricted securities in order to
dispose of them, which would result in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act on resales of
certain securities to qualified institutional buyers. The Advisor anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.
-8-
<PAGE>
The Sub-Advisor will monitor the liquidity of Rule 144A securities in the Fund's
portfolio under the supervision of the Board of Trustees. In reaching liquidity
decisions, the Sub-Advisor will consider, among other things, the following
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers and other potential purchasers wishing to purchase or sell the
security; (3) dealer undertakings to make a market in the security and (4) the
nature of the security and of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
The Fund may not invest more than 15% of its net assets in securities which are
illiquid or otherwise not readily marketable. If a security becomes illiquid
after purchase by the Fund, the Fund will normally sell the security unless it
would not be in the best interests of shareholders to do so.
The Fund may purchase securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A or under an exemption from such laws. Provided that a dealer
or institutional trading market in such securities exists, these restricted
securities or Rule 144A securities are treated as exempt from the Fund's 15%
limit on illiquid securities. The Board of Trustees of the Trust, with advice
and information from the Sub-Advisor, will determine the liquidity of
restricted securities or Rule 144A securities by looking at factors such as
trading activity and the availability of reliable price information and, through
reports from the Sub-Advisor, the Board of Trustees of the Trust will monitor
trading activity in restricted securities. If institutional trading in
restricted securities or Rule 144A securities were to decline, the Fund's
illiquidity could be increased and the Fund could be adversely affected.
The Fund will not invest more than 10% of its total assets in restricted
securities (excluding Rule 144A securities).
FOREIGN SECURITIES. Investing in securities issued by foreign companies and
governments involves considerations and potential risks not typically associated
with investing in obligations issued by the U.S. Government and domestic
corporations. Less information may be available about foreign companies than
about domestic companies and foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to domestic
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, restrictions or prohibitions on the
repatriation of foreign currencies, application of foreign tax laws, including
withholding taxes, changes in governmental administration or economic or
monetary policy (in the United States or abroad) or changed circumstances in
dealings between nations. Costs are also incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions and
custody fees are generally higher than those charged in the United States, and
foreign securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in
-9-
<PAGE>
the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in
enforcing contractual obligations and could be subject to extended clearance and
settlement periods.
EMERGING MARKET SECURITIES. Emerging Market Securities are securities that are
issued by a company that (i) is organized under the laws of an emerging market
country (any country other than Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Holland, Italy, Japan, Luxembourg, New Zealand,
Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States),
(ii) has its principal trading market for its stock in an emerging market
country, or (iii) derives at least 50% of its revenues or profits from
corporations within emerging market countries or has at least 50% of its assets
located in emerging market countries.
Investments in securities of issuers based in underdeveloped countries entail
all of the risks of investing in foreign issuers outlined in this section to a
heightened degree. These heightened risks include: (i) expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the smaller size of the market for such securities and a low or
nonexistent volume of trading, resulting in a lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Fund's
investment opportunities including restrictions on investing in issuers in
industries deemed sensitive to relevant national interests; and (iv) in the case
of Eastern Europe, the absence of developed capital markets and legal structures
governing private or foreign investment and private property and the possibility
that recent favorable economic and political developments could be slowed or
reversed by unanticipated events.
SPECIAL CONSIDERATIONS CONCERNING EASTERN EUROPE. Investments in companies
domiciled in Eastern European countries may be subject to potentially greater
risks than those of other foreign issuers. These risks include: (i) potentially
less social, political and economic stability; (ii) the small current size of
the markets for such securities and the low volume of trading, which result in
less liquidity and in greater price volatility; (iii) certain national policies
which may restrict the Fund's investment opportunities, including restrictions
on investment in issuers or industries deemed sensitive to national interests;
(iv) foreign taxation; (v) the absence of developed legal structures governing
private or foreign investment or allowing for judicial redress for injury to
private property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries, or in the Commonwealth of Independent States (formerly the Union of
Soviet Socialist Republics).
So long as the Communist Party continues to exercise a significant or, in some
cases, dominant role in Eastern European countries, investments in such
countries will involve risks of nationalization, expropriation and confiscatory
taxation. The Communist governments of a number of Eastern European countries
expropriated large amounts of private property in the past, in many cases
without adequate compensation, and there may be no assurance that such
expropriation will not occur in the future. In the event of such
-10-
<PAGE>
expropriation, the Fund could lose a substantial portion of any investments it
has made in the affected countries. Further, no accounting standards exist in
Eastern European countries. Finally, even though certain Eastern European
currencies may be convertible into U.S. dollars, the conversion rates may be
artificial in relation to the actual market values and may be adverse to the
interests of the Fund's shareholders.
CURRENCY EXCHANGE RATES. The Fund's share value may change significantly when
the currencies, other than the U.S. dollar, in which the Fund's investments are
denominated strengthen or weaken against the U.S. dollar. Currency exchange
rates generally are determined by the forces of supply and demand in the foreign
exchange markets and the relative merits of investments in different countries
as seen from an international perspective. Currency exchange rates can also be
affected unpredictably by intervention by U.S. or foreign governments or central
banks or by currency controls or political developments in the United States or
abroad.
FORWARD CURRENCY CONTRACTS. Because, when investing in foreign securities, the
Fund buys and sells securities denominated in currencies other than the U.S.
dollar and receives interest, dividends and sale proceeds in currencies other
than the U.S. dollar, the Fund from time to time may enter into forward currency
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar. The Fund either enters into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market or uses forward currency contracts to
purchase or sell foreign currencies.
A forward currency contract is an obligation by the Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract. Forward currency contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward currency contract generally has no deposit
requirement and is traded at a net price without commission. The Fund maintains
with its custodian a segregated account of liquid securities in an amount at
least equal to its obligations under each forward currency contract. Neither
spot transactions nor forward currency contracts eliminate fluctuations in the
prices of the Fund's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
The Fund may enter into foreign currency hedging transactions in an attempt to
protect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Sub-Advisor's long-term
investment decisions, the Fund will not routinely enter into foreign currency
hedging transactions with respect to security transactions; however, the
Sub-Advisor believes that it is important to have the flexibility to enter into
foreign currency hedging transactions when it determines that the transactions
would be in the Fund's best interest. Although these transactions tend to
minimize the risk of loss due to a decline in
-11-
<PAGE>
the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward currency contract amounts and the
value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward currency contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate forward currency contracts. In such
event the Fund's ability to utilize forward currency contracts may be
restricted. Forward currency contracts may reduce the potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such
contracts. The use of forward currency contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject the Fund to certain risks.
The matching of the increase in value of a forward currency contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Fund may not always be able to enter into forward currency
contracts at attractive prices and this will limit the Fund's ability to use
such contract to hedge or cross-hedge its assets. Also, with regard to the
Fund's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the Fund's
cross-hedges and the movements in the exchange rates of the foreign currencies
in which the Fund's assets that are the subject of such cross-hedges are
denominated.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
-12-
<PAGE>
LENDING OF FUND SECURITIES. By lending its securities, the Fund can increase its
income by continuing to receive interest on the loaned securities as well as by
either investing the cash collateral in short-term securities or obtaining yield
in the form of interest paid by the borrower when U.S. Government obligations
are used as collateral. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
The Fund will adhere to the following conditions whenever its securities are
loaned: (i) the Fund must receive at least 100 percent cash collateral or
equivalent securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the securities including accrued
interest rises above the level of the collateral; (iii) the Fund must be able to
terminate the loan at any time; (iv) the Fund must receive reasonable interest
on the loan, as well as any dividends, interest or other distributions on the
loaned securities, and any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Board of Trustees
must terminate the loan and regain the right to vote the securities.
DERIVATIVES
The Fund may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as certain mortgage-related and other
asset-backed securities are in many respects like any other investment, although
they may be more volatile or less liquid than more traditional debt securities.
There are, in fact, many different types of derivatives and many different ways
to use them. There is a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a Fund from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Sub-Advisor will
use derivatives only in circumstances where it believes they offer the most
economic means of improving the risk/reward profile of the Fund.
Derivatives will not be used to increase portfolio risk above the level that
could be achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indexes that by themselves would
not be purchased for the Fund. The use of derivatives for non-hedging purposes
may be considered speculative. A description of the derivatives that the Fund
may use and some of their associated risks is found below.
ADRs, EDRs AND CDRs. ADRs are U.S. dollar-denominated receipts typically issued
by domestic banks or trust companies that represent the deposit with those
entities of securities of a foreign issuer. ADRs are publicly traded on
exchanges or over-the-counter
-13-
<PAGE>
in the United States. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), may also be purchased
by the Funds. EDRs and CDRs are generally issued by foreign banks and evidence
ownership of either foreign or domestic securities. Certain institutions issuing
ADRs or EDRs may not be sponsored by the issuer of the underlying foreign
securities. A non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide under its
contractual arrangements with the issuer of the underlying foreign securities.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued or
guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities. Some U.S. Government securities, such as U.S. Treasury bills,
Treasury notes and Treasury bonds, which differ only in their interest rates,
maturities and times of issuance, are supported by the full faith and credit of
the United States. Others are supported by: (i) the right of the issuer to
borrow from the U.S. Treasury, such as securities of the Federal Home Loan
Banks; (ii) the discretionary authority of the U.S. Government to purchase the
agency's obligations, such as securities of the FNMA; or (iii) only the credit
of the issuer, such as securities of the Student Loan Marketing Association. No
assurance can be given that the U.S. Government will provide financial support
in the future to U.S. Government agencies, authorities or instrumentalities that
are not supported by the full faith and credit of the United States.
Securities guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities include: (i) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government or any of its agencies, authorities or
instrumentalities; and (ii) participation interests in loans made to foreign
governments or other entities that are so guaranteed. The secondary market for
certain of these participation interests is limited and, therefore, may be
regarded as illiquid.
MORTGAGE-RELATED SECURITIES. There are several risks associated with
mortgage-related securities generally. One is that the monthly cash inflow from
the underlying loans may not be sufficient to meet the monthly payment
requirements of the mortgage-related security.
Prepayment of principal by mortgagors or mortgage foreclosures will shorten the
term of the underlying mortgage pool for a mortgage-related security. Early
returns of principal will affect the average life of the mortgage-related
securities remaining in the Fund. The occurrence of mortgage prepayments is
affected by factors including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social and
demographic conditions. In periods of rising interest rates, the rate of
prepayment tends to decrease, thereby lengthening the average life of a pool of
mortgage-related securities. Conversely, in periods of falling interest rates
the rate of prepayment tends to increase, thereby shortening the average life of
a pool. Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of the Fund. Because
prepayments of principal generally occur when interest rates
-14-
<PAGE>
are declining, it is likely that the Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, the Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Fund purchases mortgage-related securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities. Payments of principal and interest on the mortgages
are passed through to the holders of the CMOs on the same schedule as they are
received, although certain classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which the Fund invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities.
Mortgage-related securities may not be readily marketable. To the extent any of
these securities are not readily marketable in the judgment of the Sub-Advisor,
the investment restriction limiting the Fund's investment in illiquid
instruments to not more than 15% of the value of its net assets will apply.
ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt
obligations that are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the security will
accrue and compound over the period until maturity or the particular interest
payment date at a rate of interest reflecting the market rate of the security at
the time of issuance. Zero coupon securities do not require the periodic payment
of interest. These investments benefit the issuer by mitigating its need for
cash to meet debt service, but also require a higher rate of return to attract
investors who are willing to defer receipt of cash. These investments may
experience greater volatility in market value than U.S. Government securities
that make regular payments of interest. The Fund accrues income on these
investments for tax and accounting purposes, which is distributable to
shareholders and which, because no cash is received at the time of accrual, may
require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations, in which case the Fund will forego the purchase of
additional income producing assets with these funds. Zero coupon securities
include STRIPS, that is, securities underwritten by securities dealers or banks
that evidence ownership of future interest payments, principal payments or both
on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. They also include Coupons Under Book Entry
System ("CUBES"), which are component parts of U.S. Treasury bonds and represent
scheduled interest and principal payments on the bonds.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. These are instruments in amounts owed
by a corporate, governmental or other borrower to another party. They may
represent amounts
-15-
<PAGE>
owed to lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables) or to other
parties. Direct debt instruments purchased by the Fund may have a maturity of
any number of days or years, may be secured or unsecured, and may be of any
credit quality. Direct debt instruments involve the risk of loss in the case of
default or insolvency of the borrower. Direct debt instruments may offer less
legal protection to the Fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments also may include
standby financing commitments that obligate the Fund to supply additional cash
to the borrower on demand at the time when the Fund would not have otherwise
done so, even if the borrower's condition makes it unlikely that the amount will
ever be repaid.
These instruments will be considered illiquid securities and so will be limited,
along with the Fund's other illiquid securities, to not more than 15% of the
Fund's net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed
advantageous at a particular time, the Fund may purchase securities on a
when-issued or delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or delivery of the
securities would be made prior to the reciprocal delivery or payment by the
other party to the transaction. The Fund will enter into when-issued or
delayed-delivery transactions for the purpose of acquiring securities and not
for the purpose of leverage. When-issued securities purchased by the Fund may
include securities purchased on a "when, as and if issued" basis under which the
issuance of the securities depends on the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when-issued or delayed-delivery basis may expose the
Fund to risk because the securities may experience fluctuations in value prior
to their actual delivery. The Fund does not accrue income with respect to a
when-issued or delayed-delivery security prior to its stated delivery date.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when the
Sub-Advisor believes, in consultation with the Advisor, that pursuing the Fund's
basic investment strategy may be inconsistent with the best interests of its
shareholders, the Fund may invest its assets without limit in the following
money market instruments: securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities (including those purchased in the form of
custodial receipts), repurchase agreements, certificates of deposit, master
notes, time deposits and bankers' acceptances issued by banks or savings and
loan associations having assets of at least $500 million as of the end of their
most recent fiscal year and high quality commercial paper.
The Fund also may hold a portion of its assets in money market instruments or
cash in
-16-
<PAGE>
amounts designed to pay expenses, to meet anticipated redemptions or pending
investments in accordance with its objectives and policies. Any temporary
investments may be purchased on a when-issued basis.
CONVERTIBLE SECURITIES. Convertible securities may offer higher income than the
common stocks into which they are convertible and include fixed-income or zero
coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
both non-convertible debt securities and equity securities.
While convertible securities generally offer lower yields than non-convertible
debt securities of similar quality, their prices may reflect changes in the
value of the underlying common stock. Convertible securities entail less credit
risk than the issuer's common stock.
ASSET COVERAGE. To assure that the Fund's use of when-issued and
delayed-delivery transactions and forward currency contracts are not used to
achieve investment leverage, the Fund will cover such transactions, as required
under applicable SEC interpretations, either by owning the underlying securities
or by establishing a segregated account with the Trust's custodian containing
liquid securities in an amount at all times equal to or exceeding the Fund's
commitment with respect to these instruments or contracts.
RATING SERVICES
The ratings of nationally recognized statistical rating organizations represent
their opinions as to the quality of the securities that they undertake to rate.
It should be emphasized, however, that ratings are relative and subjective and
are not absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, the Sub-Advisor also makes its
own evaluation of these securities, subject to review by the Board of Trustees
of the Trust. After purchase by the Fund, an obligation may cease to be rated or
its rating may be reduced below the minimum required for purchase by the Fund.
Neither event would require the Fund to eliminate the obligation from its
portfolio, but the Sub-Advisor will consider such an event in its determination
of whether the Fund should continue to hold the obligation. A description of the
ratings used herein and in the Fund's Prospectus is set forth in the Appendix to
this Statement of Additional Information.
INVESTMENT RESTRICTIONS
- -----------------------
The following investment restrictions are "fundamental policies" of the Fund and
may not be changed without the approval of a "majority of the outstanding voting
securities" of the Fund. "Majority of the outstanding voting securities" under
the Investment Company Act of 1940, as amended (the "1940 Act"), and as used in
this Statement of Additional Information and the Prospectus, means, the lesser
of (i) 67% or more of the outstanding voting securities of the Fund present at a
meeting if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy or (ii) more than 50% of the
-17-
<PAGE>
outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund may not (except that no investment
restriction shall prevent the Fund from investing all of its assets in an
open-end investment company with substantially the same investment objectives):
(1) borrow money or mortgage or hypothecate its assets, except
that in an amount not to exceed 1/3 of the current value of the Fund's
net assets, it may borrow money (including through forward roll
transactions involving mortgage-backed securities or other
investment techniques entered into for the purpose of leverage), and
except that it may pledge, mortgage or hypothecate not more than
1/3 of such assets to secure such borrowings, provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely
for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional related
restrictions, see clause (i) under the caption "Additional
Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Fund's portfolio securities and provided that any such loans not
exceed 30% of the Fund's total assets (taken at market value); (b)
through the use of repurchase agreements or the purchase of short-term
obligations; or (c) by purchasing a portion of an issue of debt
securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course
of business (except that the Fund may hold and sell, for its
portfolio, real estate acquired as a result of the Fund's ownership of
securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the
-18-
<PAGE>
achievement of the Fund's investment objective(s), up to 25% of its
total assets may be invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits
of initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction; and
(7) with respect to 75% of its total assets taken at market value, invest
in assets other than cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies and
other securities for 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 the Fund and to not more than 10% of the
outstanding voting securities of such issuer.
ADDITIONAL RESTRICTIONS. The Fund (or the Trust, on behalf of the Fund) will
not, as a matter of "operating policy" (changeable by the Board of Trustees
without a shareholder vote)(except that no operating policy shall prevent the
Fund from investing all of its assets in an open-end investment company with
substantially the same investment objectives):
(i) borrow money (including through reverse repurchase agreements or
forward roll transactions involving mortgage-backed securities or
similar investment techniques entered into for leveraging
purposes), except that the Fund may borrow for temporary or
emergency purposes up to 10% of its total assets; provided,
however, that the Fund may not purchase any security while
outstanding borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Fund's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of
assets for purposes of this restriction;
(iii)purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained
and except that deposits of
-19-
<PAGE>
initial deposit and variation margin may be made in connection
with the purchase, ownership, holding or sale of futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided
that if such right is conditional the sale is made upon the same
conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any
investment company will not be purchased for the Fund if such
purchase at the time thereof would cause: (a) more than 10% of
the Fund's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more
than 5% of the Fund's total assets (taken at the greater of cost
or market value) to be invested in any one investment company; or
(c) more than 3% of the outstanding voting securities of any such
issuer to be held for the Fund; provided further that, except in
the case of a merger or consolidation, the Fund shall not
purchase any securities of any open-end investment company unless
the Fund (1) waives the investment advisory fee, with respect to
assets invested in other open-end investment companies and (2)
incurs no sales charge in connection with the investment;
(vii)invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are illiquid
or not readily marketable (defined as a security that cannot be
sold in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the
security) not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act
which is not traded flat or in default as to interest or
principal and either (i) is rated in one of the two
-20-
<PAGE>
highest categories by at least two nationally recognized
statistical rating organizations and the Fund's Board of Trustees
has determined the commercial paper to be liquid; or (ii) is
rated in one of the two highest categories by one nationally
recognized statistical rating agency and the Fund's Board of
Trustees has determined that the commercial paper is equivalent
quality and is liquid;
(viii)invest more than 10% of the Fund's total assets in securities
that are restricted from being sold to the public without
registration under the 1933 Act (other than Rule 144A Securities
deemed liquid by the Fund's Board of Trustees);
(ix) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund to hold more than 10% of any class
of securities of such issuer, for which purposes all indebtedness
of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class, except that
futures or option contracts shall not be subject to this
restriction;
(x) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the Fund's
net assets (taken at market value) is represented by such
securities, or securities convertible into or exchangeable for
such securities, at any one time (the Fund had no current
intention to engage in short selling);
(xi) purchase puts, calls, straddles, spreads and any combination
thereof if by reason thereof the value of the Fund's aggregate
investment in such classes of securities will exceed 5% of its
total assets;
(xii)write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call
is within the investment policies of the Fund and the option is
issued by the OCC, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate value of the obligations underlying
the puts
-21-
<PAGE>
determined as of the date the options are sold shall not exceed
50% of the Fund's net assets; (c) the securities subject to the
exercise of the call written by the Fund must be owned by the
Fund at the time the call is sold and must continue to be owned
by the Fund until the call has been exercised, has lapsed, or the
Fund has purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Fund's obligation to deliver
securities pursuant to the call it has sold; and (d) at the time
a put is written, the Fund establishes a segregated account with
its custodian consisting of cash or liquid securities equal in
value to the amount the Fund will be obligated to pay upon
exercise of the put (this account must be maintained until the
put is exercised, has expired, or the Fund has purchased a
closing put, which is a put of the same series as the one
previously written); and
(xiii)buy and sell puts and calls on securities, stock index futures
or options on stock index futures, or financial futures or
options on financial futures unless such options are written by
other persons and: (a) the options or futures are offered through
the facilities of a national securities association or are listed
on a national securities or commodities exchange, except for put
and call options issued by non-U.S. entities or listed on
non-U.S. securities or commodities exchanges; (b) the aggregate
premiums paid on all such options which are held at any time do
not exceed 20% of the Fund's total net assets; and (c) the
aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Fund's total
assets.
-22-
<PAGE>
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the Trust,
their compensation from the Trust and their aggregate compensation from the
Western-Southern complex of mutual funds for the fiscal year ended September 30,
1999. Messrs. Coleman, Cox, Schwab and Stautberg did not receive any
compensation from the Trust during the fiscal year since 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 Countrywide
Tax-Free Trust and Countrywide Investment Trust.
AGGREGATE
COMPENSATION
FROM
COMPENSATION WESTERN-
POSITION FROM SOUTHERN
NAME AGE HELD TRUST COMPLEX(1)
- --------------------- --- ------- --------- ----------
William O. Coleman 70 Trustee 0 $2,192
Phillip R. Cox 52 Trustee 0 ____
+H. Jerome Lerner 61 Trustee 4,000 4,000
*Robert H. Leshner 60 President/Trustee 0 0
*Jill T. McGruder 44 Trustee 0 0
+Oscar P. Robertson 60 Trustee 4,000 4,000
Nelson Schwab, Jr. 81 Trustee 0 _____
+Robert E. Stautberg 65 Trustee 0 _____
Joseph S. Stern, Jr. 81 Trustee 0 _____
Maryellen Peretzky 47 Vice President 0 0
Tina D. Hosking 31 Secretary 0 0
Theresa M. Samocki 30 Treasurer 0 0
(1) The Western-Southern complex of mutual funds consists of six series of the
Trust, six series of Countrywide Tax-Free Trust and eight series of
Countrywide Strategic Trust.
* Ms. McGruder, as President and a director of Touchstone Advisors, Inc., the
Trust's investment advisor and Touchstone Securities, Inc., the Trust's
distributor, and Mr. Leshner, as an employee of Fort Washington Investment
Advisors, Inc., the Fund's 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:
-23-
<PAGE>
WILLIAM O. COLEMAN, 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) and a trustee of Touchstone Variable Series Trust (a registered
investment company).
PHILLIP R. COX, 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.,
PNC Bank N.A. and Cinergy Corporation. He is also a trustee of Touchstone
Variable Series Trust.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of HJL
Enterprises and is Chairman of Crane Electronics, Inc. (a manufacturer of
electronic connectors). 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, 312 Walnut Street, Cincinnati, Ohio is President and a
Trustee of Countrywide Strategic Trust and Countrywide Tax-Free Trust,
registered investment companies. He is also President and a director of
Countrywide Investments, Inc. (an investment adviser and principal underwriter).
Until 1999, he was President and a director of Countrywide Financial Services,
Inc. (a financial services company and parent of Countrywide Investments, Inc.,
Countrywide Fund Services, Inc. and CW Fund Distributors, Inc.), Countrywide
Fund Services, Inc. (a registered transfer agent) and CW Fund Distributors, Inc.
(a registered broker-dealer).
JILL T. McGRUDER, 311 Pike Street, Cincinnati, Ohio is President, Chief
Executive Officer and a director of IFS Financial Services, Inc. (a holding
company), Touchstone Advisors, Inc. (the investment advisor to the Trust) and
Touchstone Securities, Inc. (the principal underwriter of the Trust). She is a
Senior Vice President of The Western-Southern Life Insurance Company and a
director of Capital Analysts Incorporated (a registered investment adviser and
broker-dealer), Countrywide Financial Services, Inc., Countrywide Investments,
Inc., CW Fund Distributors, Inc. and Countrywide 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, 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., 511 Walnut Street, Cincinnati, Ohio is Senior Counsel
of Graydon, Head & Ritchey (a law firm). He is a director of Rotex, Inc. (a
machine manufacturer), The Ralph J. Stolle Company and Security Rug Cleaning
Company. He is also a trustee of Touchstone Variable Series Trust.
-24-
<PAGE>
ROBERT E. STAUTBERG, 4815 Drake Road, Cincinnati, Ohio is a retired partner
and director of KPMG Peat Marwick LLP. He is a trustee of Good Samaritan
Hospital, Bethesda Hospital and Tri Health. He is also a trustee of Touchstone
Variable Series Trust.
JOSEPH S. STERN, JR., 3 Grandin Place, Cincinnati, Ohio is a retired
Professor Emeritus of the University of Cincinnati College of Business. He is
also a Trustee of Touchstone Variable Series Trust.
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio is Vice President and
Associate General Counsel of Countrywide Fund Services, Inc. and CW Fund
Distributors, Inc. She is also Secretary of Countrywide Tax-Free Trust and
Countrywide Strategic Trust.
THERESA M. SAMOCKI, 312 Walnut Street, Cincinnati, Ohio is Vice
President-Fund Accounting of Countrywide Fund Services, Inc. and CW Fund
Distributors, Inc. She is also Treasurer of Countrywide Tax-Free Trust and
Countrywide Stratetgic 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, Countrywide Tax-Free Trust and
Countrywide Strategic Trust.
THE INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------
THE INVESTMENT ADVISOR. Touchstone Advisors, Inc. (the "Advisor"), is the Fund's
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 position with Fort Washington Investment
Advisors, Inc., the Fund's 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 Sub-Advisor, reviews
and evaluates the performance of a fund's 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. The Fund pays the Advisor a fee computed and accrued daily and
paid monthly at an annual rate of 0.60% of it average net assets.
The Fund shall pay the expenses of its operation, including but not limited to
(i) charges and expenses for accounting, pricing and appraisal services and
related overhead, (ii) the charges and expenses of auditors; (iii) the charges
and expenses of any custodian, transfer agent, plan agent, dividend disbursing
agent and registrar appointed by the Trust with respect to the Fund; (iv)
brokers' commissions, and issue and transfer taxes chargeable to the Fund in
connection with securities transactions to which the Fund is a party; (v)
insurance premiums, interest charges,
-25-
<PAGE>
dues and fees for membership in trade associations and all taxes and fees
payable to federal, state or other governmental agencies; (vi) fees and expenses
involved in registering and maintaining registrations of the Fund with the SEC,
state or blue sky securities agencies and foreign countries, including the
preparation of Prospectuses and Statements of Additional Information for filing
with the SEC; (vii) all expenses of meetings of Trustees and of shareholders of
the Trust and of preparing, printing and distributing prospectuses, notices,
proxy statements and all reports to shareholders and to governmental agencies;
(viii) charges and expenses of legal counsel to the Trust; (ix) compensation of
Trustees of the Trust; and (x) interest on borrowed money, if any. The
compensation and expenses of any officer, Trustee or employee of the Trust who
are affiliated persons of the Advisor are paid by the Advisor.
By its terms, the Fund's investment advisory agreement 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 the Fund's
outstanding voting securities; provided that in either event continuance is also
approved by a majority of the Trustees who are not interested persons of the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval. The Fund's investment advisory agreement may be terminated at any
time, on sixty days' written notice, without the payment of any penalty, by the
Board of Trustees, by a vote of the majority of the Fund's outstanding voting
securities, or by the Advisor. The investment advisory agreement automatically
terminates in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.
THE SUB-ADVISOR. The Advisor has retained Fort Washington Investment Advisors,
Inc. ("the Sub-Advisor") to serve as the discretionary portfolio manager of the
Fund. The Sub-Advisor selects the portfolio securities for investment by the
Fund, purchases and sells securities of the Fund and places orders for the
execution of such portfolio transactions, subject to the general supervision of
the Board of Trustees and the Advisor. The Sub-Advisor receives a fee from the
Advisor which is paid monthly at an annual rate of 0.40% of the Fund's average
daily net assets.
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 the Fund is paid by the Sub-Advisor.
The employment of the Sub-Advisor will remain in force until May 1, 2001 and
from year to year thereafter, subject to annual approval by (a) the Board of
Trustees or (b) a vote of the majority of the Fund's outstanding voting
securities; provided that in either event continuance is also approved by a
majority of the Trustees who are not interested persons of the Trust, by a vote
cast in person at a meeting called for the purpose of voting such approval. The
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 the Fund's outstanding voting securities, by the
Advisor, or by the Sub-Advisor. The Sub-Advisory Agreement will automatically
terminate in the event of its assignment, as defined by the Investment Company
Act of 1940 and the rules thereunder.
-26-
<PAGE>
THE DISTRIBUTOR
- ---------------
Touchstone Securities, Inc. (the "Distributor") is the principal underwriter of
the Fund and, as such, the exclusive agent for distribution of shares of the
Fund. The Distributor is an affiliate of the Advisor by reason of common
ownership. The Distributor is obligated to sell the shares on a best efforts
basis only against purchase orders for the shares. Shares of the Fund are
offered to the public on a continuous basis.
The Distributor currently allows concessions to dealers who sell shares of the
Fund. The Distributor receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Fund. The Distributor retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record. The Distributor
retains the contingent deferred sales load on redemptions of shares of the Fund
which are subject to a contingent deferred sales load.
The Fund may compensate dealers, including the Distributor and its affiliates,
based on the average balance of all accounts in the Fund for which the dealer is
designated as the party responsible for the account. See "Distribution Plans"
below.
DISTRIBUTION PLANS
- ------------------
CLASS A SHARES -- The Fund has adopted a plan of distribution (the "Class A
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 which
permits the Fund to pay for expenses incurred in the distribution and promotion
of its 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
Distributor. The Class A Plan expressly limits payment of the distribution
expenses listed above in any fiscal year to a maximum of .35% of the average
daily net assets of Class A shares of the Fund. Unreimbursed expenses will not
be carried over from year to year.
CLASS C SHARES -- The Fund has also adopted a plan of distribution (the "Class C
Plan") with respect to the Class C shares of the Fund. The Class C Plan provides
for two categories of payments. First, the Class C Plan provides for the payment
to the Distributor 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, the 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 Fund
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
-27-
<PAGE>
addition to the .25% account maintenance fee described above.
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 Fund's 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 the Fund or the applicable class of
the Fund. In the event a Plan is terminated in accordance with its terms, the
Fund (or class) will not be required to make any payments for expenses incurred
by the Distributor after the termination date. The Implementation Agreement
terminates automatically in the event of its assignment and may be terminated at
any time by a vote of a majority of the Independent Trustees or by a vote of the
holders of a majority of the outstanding shares of the Fund (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 Fund and its
shareholders. The Board of Trustees believes that expenditure of the Fund's
assets for distribution expenses under the Plans should assist in the growth of
the Fund which will benefit the Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The 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 Fund's assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Fund 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 the 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 the 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.
Jill T. McGruder and Robert H. Leshner, as interested persons of the Trust, may
be deemed to have a financial interest in the operation of the Plans and the
Implementation Agreements.
-28-
<PAGE>
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Fund and the placing of the Fund's
securities transactions and negotiation of commission rates where applicable are
made by the Sub-Advisor and are subject to review by the Advisor and the Board
of Trustees. In the purchase and sale of portfolio securities, the Sub-Advisor's
primary objective will be to obtain the most favorable price and execution for
the Fund, taking into account such factors as the overall direct net economic
result to the Fund (including commissions, which may not be the lowest available
but ordinarily should not be higher than the generally prevailing competitive
range), the financial strength and stability of the broker, the efficiency with
which the transaction will be effected, the ability to effect the transaction at
all where a large block is involved and the availability of the broker or dealer
to stand ready to execute possibly difficult transactions in the future.
Generally, the Fund attempts to deal directly with the dealers who make a market
in the securities involved unless better prices and execution are available
elsewhere. These dealers usually act as principals for their own account. On
occasion, portfolio securities for the Fund may be purchased directly from the
issuer. Because the Fund's portfolio securities are generally traded on a net
basis and transactions in these securities do not normally involve brokerage
commissions, the cost of portfolio securities transactions of the Fund will
consist primarily of dealer or underwriter spreads.
The Sub-Advisor is specifically authorized to pay a broker who provides research
services to the Sub-Advisor an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker would have
charged for effecting such transaction, in recognition of such additional
research services rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer viewed in terms of the particular transaction or the Sub-Advisor's
overall responsibilities with respect to discretionary accounts that it manages,
and that the Fund derives or will derive a reasonably significant benefit from
such research services.
Research services include securities and economic analyses, reports on issuers'
financial conditions and future business prospects, newsletters and opinions
relating to interest trends, general advice on the relative merits of possible
investment securities for the Fund and statistical services and information with
respect to the availability of securities or purchasers or sellers of
securities. Although this information is useful to the Fund and the Sub-Advisor,
it is not possible to place a dollar value on it. Research services furnished by
brokers through whom the Fund effects securities transactions may be used by the
Sub-Advisor in servicing all of its accounts and not all such services may be
used by the Sub-Advisor in connection with the Fund.
The Fund has no obligation to deal with any broker or dealer in the execution of
securities transactions. However, the 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 with
affiliated broker-dealers of the Trust. The Fund will not 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
-29-
<PAGE>
directly with principal market makers or with broker-dealers. Although the Fund
does not anticipate any ongoing arrangements with other brokerage firms,
brokerage business may be transacted from time to time with other firms.
Affiliates of the Trust will not receive reciprocal brokerage business as a
result of the brokerage business transacted by the Fund 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 the Fund as
well as for one or more of the Sub-Advisor's other clients. Investment decisions
for the 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 the Fund is concerned. However, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
CODE OF ETHICS. The Trust, [the Advisor, the Sub-Advisor and the Distributor]
have each adopted a Code of Ethics under Rule 17j-1 of the Investment Company
Act of 1940. The Code significantly restricts the personal investing activities
of all employees of the Advisor and the Sub-Advisor and, as described below,
imposes additional, more onerous, restrictions on investment personnel of the
Advisor and the Sub-Advisor. The Code requires that all employees of the Advisor
and the 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 the Fund. The substantive restrictions applicable to
investment personnel of the Advisor and the 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 the Sub-Advisor within periods of trading by the
Fund in the same (or equivalent) security. The Code of Ethics adopted by the
Trust [the Advisor, the Sub-Advisor and the Distributor] are on public file
with,
-30-
<PAGE>
and are available from, the Securities and Exchange Commission.
PORTFOLIO TURNOVER
- ------------------
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. High turnover may result in the Fund recognizing greater amounts of income
and capital gains, which would increase the amount of income and capital gains
which the Fund must distribute to its shareholders in order to maintain its
status as a regulated investment company and to avoid the imposition of federal
income or excise taxes. A 100% turnover rate would occur if all of the Fund's
portfolio securities were replaced once within a one year period.
Generally the Fund intends to hold its portfolio securities to maturity and to
limit portfolio turnover to the extent possible. Nevertheless, changes in the
Fund's portfolio will be made promptly when determined to be advisable because
of developments not foreseen at the time of the original investment decision and
usually without regard to the length of time a security has been held. 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.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net asset value
plus applicable sales load) of the Fund's shares are determined as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time), on each day the Trust is open for business. The Trust is
open for business on every day except Saturdays, Sundays and the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The Trust may also be open for business on other days in which there is
sufficient trading in the Fund's portfolio securities that its net asset value
might be materially affected. Securities held by the Fund may be primarily
listed on foreign exchanges or traded in foreign markets which are open on days
(such as Saturdays and U.S. holidays) when the New York Stock Exchange is not
open for business. As a result the net asset value of the Fund may be affected
by trading on days when the Trust is not open for business. 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.
Portfolio securities held by the Fund for which market quotations are readily
available are generally 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 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.
-31-
<PAGE>
CHOOSING A SHARE CLASS
- ----------------------
The 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. 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 the Fund. If you do not plan to hold your shares in the
Fund for a long time (less than 4 1/3 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 the Fund for more than 4 1/3 years, it may be better to purchase Class A
shares, since after 4 1/3 years your accumulated distribution fees may be more
than the sales load paid on your purchase.
When determining which class of shares to purchase, you may want to consider the
services provided by your financial advisor and the compensation provided to
these financial advisors under each share class. The Distributor works with many
experienced and very qualified financial advisors throughout the country that
may provide valuable assistance to you through ongoing education, asset
allocation programs, personalized financial planning reviews or other services
vital to your long-term success. The Distributor believes that these value-added
services can greatly benefit you through market cycles and will work diligently
with your chosen financial advisor.
Set forth below is a chart comparing the sales loads and 12b-1 fees applicable
to each class of shares:
-32-
<PAGE>
- --------------------------------------------------------------------------------
CLASS SALES LOAD 12b-1 FEE
- --------------------------------------------------------------------------------
A Maximum of 4.75% initial sales load 0.35%
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 the Distributor to a participating
unaffiliated dealer. Class A shares are also subject to an annual 12b-1
distribution fee of up to .35% of the 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:
SALES SALES DEALER
CHARGE AS CHARGE AS % REALLOWANCE
% OF OFFERING OF NET AMOUNT AS % OF NET
PRICE INVESTED AMOUNT INVESTED
------------- ------------- ---------------
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
Under certain circumstances, the Distributor may increase or decrease the
reallowance to selected dealers. In addition to the compensation otherwise paid
to securities dealers, the Distributor may from time to time pay from its own
resources additional cash bonuses or other incentives to selected dealers in
connection with the sale of shares of the Fund. On some occasions, such
-33-
<PAGE>
bonuses or incentives may be conditioned upon the sale of a specified minimum
dollar amount of the shares of the Fund and/or other funds in the
Western-Southern Family of Funds during a specific period of time. Such bonuses
or incentives may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising, sales campaigns and other dealer-sponsored programs or
events.
For initial purchases of Class A shares of $1 million or more and subsequent
purchases further increasing the size of the account, participating unaffiliated
dealers will receive first year compensation of up to 1.00% of such purchases
from the Distributor. In determining a dealer's eligibility for such commission,
purchases of Class A shares of the Fund may be aggregated with concurrent
purchases of Class A shares of other funds in the Western-Southern Family of
Funds. Dealers should contact the Distributor for more information on the
calculation of the dealer's commission in the case of combined purchases.
An exchange from other Western-Southern Funds will not qualify for payment of
the dealer's commission unless the exchange is from a Western-Southern Fund with
assets as to which a dealer's commission or similar payment has not been
previously paid. No commission will be paid if the purchase represents the
reinvestment of a redemption from a fund made during the previous twelve months.
Redemptions of Class A shares may result in the imposition of a contingent
deferred sales load if the dealer's commission described in this paragraph was
paid in connection with the purchase of such shares. See "Contingent Deferred
Sales Load for Certain Purchases of Class A Shares" below.
REDUCED SALES LOAD. You may use the Right of Accumulation to combine the cost or
current NAV (whichever is higher) of your existing Class A shares of any
Western-Southern Fund sold with a sales load with the amount of any current
purchases in order to take advantage of the reduced sales loads set forth in the
table above. Purchases made in any Western-Southern load fund under a Letter of
Intent may also be eligible for the reduced sales loads. The minimum initial
investment under a Letter of Intent is $10,000. You should contact the Transfer
Agent for information about the Right of Accumulation and Letter of Intent.
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 Fund (or shares into which such Class A shares were exchanged)
purchased at NAV in amounts totaling $1 million or more, if the dealer's
commission described above was paid by the Distributor and the shares are
redeemed within one year from the date of purchase. The contingent deferred
sales load will be paid to the Distributor and will be equal to the commission
percentage paid at the time of purchase as applied to the lesser of (1) the NAV
at the time of purchase of the Class A shares being redeemed, or (2) the NAV of
such Class A shares at the time of redemption. If a purchase of Class A shares
is subject to the contingent deferred sales load, you will be notified on the
confirmation you receive for your purchase. Redemptions of such Class A shares
of the Fund 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
-34-
<PAGE>
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 the Fund's average daily net assets allocable to Class C shares. The
Distributor intends to pay a commission of 2.00% of the purchase amount to your
broker at the time you purchase Class C shares.
ADDITIONAL INFORMATION ON THE CONTINGENT DEFERRED SALES LOAD. The contingent
deferred sales load is waived for any partial or complete redemption following
death or disability (as defined in the Internal Revenue Code) of a shareholder
(including one who owns the shares with his or her spouse as a joint tenant with
rights of survivorship) from an account in which the deceased or disabled is
named. The Distributor may require documentation prior to waiver of the load,
including death certificates, physicians' certificates, etc.
All sales loads imposed on redemptions are paid to the Distributor. In
determining whether the contingent deferred sales load is payable, it is assumed
that shares not subject to the contingent deferred sales load are the first
redeemed followed by other shares held for the longest period of time. The
contingent deferred sales load will not be imposed upon shares representing
reinvested dividends or capital gains distributions, or upon amounts
representing share appreciation.
The following example will illustrate the operation of the contingent deferred
sales load. Assume that you open an account and purchase 1,000 shares at $10 per
share and that six months later the NAV per share is $12 and, during such time,
you have acquired 50 additional shares through reinvestment of distributions. If
at such time you should redeem 450 shares (proceeds of $5,400), 50 shares will
not be subject to the load because of dividend reinvestment. With respect to 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 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, which may include purchases through employee
benefit plans such as an IRA, individual-type 403(b) plan or single-participant
Keogh-type plan or by a business solely controlled by these individuals (for
-35-
<PAGE>
example, the individuals own the entire business) or by a trust (or other
fiduciary arrangement) solely for the benefit of these individuals. Individual
purchases by trustees or other fiduciaries may also be aggregated if the
investments are: (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above; (2) made for two or
more employee benefit plans of a single employer or of affiliated employers as
defined in the 1940 Act, other than employee benefit plans described above; or
(3) 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 the Fund has the right to
combine the cost or current net asset value (whichever is higher) of his
existing shares of the load funds distributed by the Distributor with the amount
of his current purchases in order to take advantage of the reduced sales loads
set forth in the table in the Prospectus. The purchaser or his dealer must
notify the Transfer Agent that an investment qualifies for a reduced sales load.
The reduced load will be granted upon confirmation of the purchaser's holdings
by the Transfer Agent. A purchaser includes an individual and his immediate
family members, purchasing shares for his or their own account; or a trustee or
other fiduciary purchasing shares for a single fiduciary account although more
than one beneficiary is involved; or employees of a common employer, provided
that economies of scale are realized through remittances from a single source
and quarterly confirmation of such purchases; or an organized group, provided
that the purchases are made through a central administration, or a single
dealer, or by other means which result in economy of sales effort or expense
(the "Purchaser").
LETTER OF INTENT. The reduced sales loads set forth in the tables in the
Prospectus may also be available to any Purchaser of shares of the Fund who
submits a Letter of Intent to the Transfer Agent. The Letter must state an
intention to invest within a thirteen month period in any load fund distributed
by the Distributor 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
-36-
<PAGE>
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 Fund
purchased:
1. By registered representatives or other employees (and their immediate
family members) of broker/dealers, banks or other financial institutions
having agreements with the Distributor.
2. By any director, officer or other employee (and their immediate family
members) of The Western and Southern Life Insurance Company or any of its
affiliates or any portfolio advisor or service provider to the Trust.
3. Clients of any portfolio advisor who are referred to the Distributor by a
portfolio advisor.
4. In accounts as to which a broker-dealer charges an asset management fee,
provided the broker-dealer has an agreement with the Distributor.
5. As part of an employee benefit plan having more than 25 eligible employees
or a minimum of $250,000 invested in the Fund
6. As part of an employee benefit plan which is provided administrative
services by a third-party administrator that has entered into a special
service arrangement with the Distributor.
7. As part of certain promotional programs established by the Fund and/or
Distributor.
8. By one or more members of a group of persons engaged in a common business,
profession, civic or charitable endeavor or other activity and retirees and
immediate family members of such persons pursuant to a marketing program
between the Distributor and such group.
9. By banks, bank trust departments, savings and loan associations and federal
and state credit unions.
10. Through Processing Organizations described in the Prospectuses.
There is no initial sales charge on your purchase of shares in a Roth IRA or
Roth Conversion IRA if (1) you purchase the shares with the proceeds of a
redemption made within the previous 180 days from another mutual fund complex
and (2) you paid an initial sales charge or a contingent deferred sales charge
on your investment in the other mutual fund complex.
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 the Distributor. Your financial
advisor should call the Distributor for more information.
-37-
<PAGE>
OTHER INFORMATION. The Trust does not impose a front-end sales load or imposes a
reduced sales load in connection with purchases of shares of the Fund made under
the reinvestment privilege, purchases through exchanges and other purchases
which qualify for a reduced sales load as described herein because such
purchases require minimal sales effort by the Distributor. Purchases made at net
asset value may be made for investment only, and the shares may not be resold
except through redemption by or on behalf of the Trust.
TAXES
- -----
The Trust intends to qualify annually and to elect the Fund to be treated as a
regulated investment company under the Code.
To qualify as a regulated investment company, the Fund must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
-38-
<PAGE>
Each Fund shareholder will receive, if appropriate, various written notices at
the end of the calendar year as to the federal income status of his dividends
and distributions which were received from the Fund during the year.
Shareholders should consult their tax advisors as to any state and local taxes
that may apply to these dividends and distributions. The dollar amount of
dividends excluded from federal income taxation and the dollar amount subject to
such income taxation, if any, will vary for each shareholder depending upon the
size and duration of each shareholder's investment in the Fund. To the extent
that the Fund earns taxable net investment income, the Fund intends to designate
as taxable dividends the same percentage of each dividend as its taxable net
investment income bears to its total net investment income earned. Therefore,
the percentage of each dividend designated as taxable, if any, may vary.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable
income will be taxable to a U.S. shareholder as ordinary income. Distributions
of net capital gains, if any, designated as capital gain dividends are taxable
as long-term capital gains, regardless of how long the shareholder has held the
Fund's shares, and are not eligible for the dividends-received deduction.
Shareholders receiving distributions in the form of additional shares, rather
than cash, generally will have a cost basis in each such share equal to the net
asset value of a share of the Fund on the reinvestment date. Shareholders will
be notified annually as to the U.S. federal tax status of distributions.
SALE OF SHARES. Any gain or loss realized by a shareholder upon the sale or
other disposition of any shares of the Fund, or upon receipt of a
distribution in complete liquidation of a Fund, generally will be a capital gain
or loss which will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares. Any loss realized
-39-
<PAGE>
on a sale or exchange will be disallowed to the extent the shares disposed of
are replaced (including shares acquired pursuant to a dividend reinvestment
plan) within a period of 61 days beginning 30 days before and ending 30 days
after disposition of the shares. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on a disposition of the Fund's shares held by the shareholder for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gains received by the shareholder with respect
to such shares.
FOREIGN WITHHOLDING TAXES. Income received by the Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to shareholders who fail
to provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from such
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the shareholder's U.S. federal income tax
liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign shareholder of an
investment in the Fund may be different from those described herein. Foreign
shareholders are advised to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in the Fund.
OTHER TAXATION. Fund shareholders may be subject to state and local taxes on the
Fund's distributions. Shareholders are advised to consult their own tax advisors
with respect to the particular tax consequences to them of an investment in the
Fund.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the best
interests of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. 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. The Trust has filed an irrevocable election with the SEC under Rule
18f-1 of the Investment Company Act of 1940 wherein the Fund is committed to
pay redemptions in cash, rather than in kind, to any shareholder of record
of the Fund who redeems during any ninety day period, the lesser of
$250,000 or 1% of the Fund's net assets at the beginning of such period.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, the Fund may advertise average annual total return. Average
annual total return quotations will be computed by finding the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate the
initial amount invested to the ending
-40-
<PAGE>
redeemable value, according to the following formula:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial $1,000 payment. If the Fund has been in existence less than
one, five or ten years, the time period since the date of the initial public
offering of shares will be substituted for the periods stated.
The Fund may also advertise total return (a "non-standardized 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 sales load which, if included, would reduce total return.
A nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
From time to time, the Fund may advertise its yield. A yield quotation is based
on a 30-day (or one month) period and is computed by dividing the net investment
income per share earned during the period by the maximum offering price per
share on the last day of the period, according to the following formula:
6
Yield = 2[(a-b/cd +1) -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that the
Fund owns the security. 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
-41-
<PAGE>
purchased during the month, the purchase price (plus actual accrued interest).
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
paydowns of principal and interest, gain or loss attributable to actual monthly
paydowns is accounted for as an increase or decrease to interest income during
the period and discount or premium on the remaining security is not amortized.
Performance quotations are based on historical earnings and are not intended to
indicate future performance. Average annual total return and yield are computed
separately for Class A and Class C shares of the 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 the Fund might satisfy
their investment objective, advertisements regarding the Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare Fund
performance to performance as reported by other investments, indices and
averages. When advertising current ratings or rankings, the Fund may use the
following publications or indices to discuss or compare Fund performance:
Lipper Mutual 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.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars and ratings are effective for two
weeks.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Fund's portfolio, that the averages are generally unmanaged
and that the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its performance. In
addition, there can be no assurance that the Fund will continue this performance
as compared to such other averages.
CUSTODIAN
- ---------
_________________________________is the Custodian for the Fund. The Custodian
acts as the Fund's depository, safekeeps its portfolio securities, collect all
income and other payments with respect thereto, disburse funds as instructed and
maintains records in connection with its duties. As compensation, the Custodian
receives from the Fund _______________________.
AUDITORS
- --------
The firm of Ernst & Young LLP has been selected as independent auditors for the
Trust for the fiscal year ending March 31, 2001, subject to shareholder
approval. Ernst & Young will
-42-
<PAGE>
perform an annual audit of the Trust's financial statements and advise the Trust
as to certain accounting matters.
TRANSFER, ACCOUNTING AND ADMINISTRATIVE AGENT
- ---------------------------------------------
The Trust's transfer agent, Countrywide Fund Services, Inc. ("CFS"), maintains
the records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
shareholder service functions. CFS is an affiliate of the Advisor and the
Sub-Advisor by reason of common ownership. CFS receives a fee for its services
as transfer agent payable monthly at an annual rate of $21 per account from the
Fund; provided, however, that the minimum fee is $1,000 per month for each class
of shares of the Fund. In addition, the Fund pays out-of-pocket expenses,
including but not limited to, postage, envelopes, checks, drafts, forms,
reports, record storage and communication lines.
CFS provides accounting and pricing services to the Fund. These services include
calculating daily net asset value per share and maintaining all necessary books
and records for the Fund. CFS receives an accounting and pricing fee from the
Fund 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, the Fund pays all costs of external pricing services.
CFS is retained by the Advisor to assist the Advisor in providing administrative
services to the Fund. In this capacity, CFS supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services. Administrative services also include
supervising the preparation of tax returns, reports to shareholders of the Fund,
reports to and filings with the SEC and state securities commissions, and
materials for meetings of the Board of Trustees. For the performance of
administrative services to the Fund, CFS receives a fee from the Advisor. The
Advisor is solely responsible for the payment of these administrative fees and
CFS has agreed to seek payment of these fees solely from the Advisor.
-43-
<PAGE>
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's and S&P, which
represent their opinions as to the quality of the securities which they
undertake to rate. It should be emphasized, however, that ratings are relative
and subjective and are not absolute standards of quality.
MOODY'S BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." 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 issues.
Aa. Bonds which are 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. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa. Bonds which are rated 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.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
-44-
<PAGE>
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca. Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
S&P'S BOND RATINGS
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from higher rated issues only in a small degree.
A. 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 the highest
rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. 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
for bonds in this category than in higher rated categories.
BB, B, CCC, CC and C. Bonds rated BB, B, CCC, CC, and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is being
paid.
D. Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
NR. Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
-45-
<PAGE>
DUFF AND PHELP'S BOND RATINGS:
AAA - "Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt."
AA - "High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions."
A - "Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress."
BBB - "Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
BB - "Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category."
B - "Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade."
CCC - "Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments."
DD - "Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments."
FITCH INVESTORS SERVICE'S BOND RATINGS:
AAA - "AAA ratings denote the lowest expectation of credit risk. They are
assigned only in cases of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events."
AA - "AA ratings denote a very low expectation of credit risk. They
indicate strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events."
A - "A ratings denote a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings."
-46-
<PAGE>
BBB - "BBB ratings indicate that there is currently a low expectation of
credit risk. Capacity for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment grade
category."
BB - "BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade."
B - "B ratings indicate that significant credit risk is present, but a
limited margin of safety remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a sustained,
favorable business and economic environment."
CCC, CC, C - "Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favorable business or economic
developments. A 'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default."
DDD, DD and D - "Securities are not meeting current obligations and are
extremely speculative. 'DDD' designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, 'DD' indicates expected recovery of 50%-90% of such outstanding, and
'D' the lowest recovery potential, i.e. below 50%."
THOMSON BANKWATCH'S BOND RATINGS
AAA - "Indicates that the ability to repay principal and interest on a
timely basis is extremely high."
AA - "Indicates a very strong ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category."
A - "Indicates the ability to repay principal and interest is strong.
Issues rated A could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings."
BBB - "The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. BBB issues are more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings."
BB - "While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations."
B - "Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of
-47-
<PAGE>
interest and principal on a timely basis."
CCC - "Issues rated CCC clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances."
CC - "CC is applied to issues that are subordinate to other obligations
rated CCC and are afforded less protection in the event of bankruptcy or
reorganization."
D - "Default."
UNRATED. Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not
rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effect of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1, Ba-1 and B-1.
S&P'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within it's A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be
-48-
<PAGE>
evidenced by the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; well-established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
MOODY'S CORPORATE NOTE RATINGS
MIG-1 "Notes which are rated MIG-1 are judged to be of the best quality.
There is present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing."
MIG-2 "Notes which are rated MIG-2 are judged to be of high quality.
Margins of protection are ample although not so large as in the
preceding group."
S&P'S CORPORATE NOTE RATINGS
SP-1 "Debt rated SP-1 has very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation."
SP-2 "Debt rated SP-2 has satisfactory capacity to pay principal and
interest."
-49-
<PAGE>
PART C. OTHER INFORMATION
- ------ -----------------
Item 23. Exhibits
- ------- --------
(a)(i) ARTICLES OF INCORPORATION
Registrant's Restated Agreement and Declaration of Trust,
which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 68, is hereby incorporated by
reference.
(ii) Amendment No. 1, dated December 8, 1994, to Registrant's
Restated Agreement and Declaration of Trust, which was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 68, is hereby incorporated by reference.
(iii) Amendment No. 2, dated January 31, 1995, to Registrant's
Restated Agreement and Declaration of Trust, which was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 68, is hereby incorporated by reference.
(iv) Amendment No. 3, dated February 28, 1997, to Registrant's
Restated Agreement and Declaration of Trust, which was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 66, is hereby incorporated by reference.
(b)(i) BYLAWS
Registrant's Bylaws, as amended, which were
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 66, are hereby incorporated by
reference.
(ii) Amendment to Bylaws adopted on January 10, 1984, which
were filed as an Exhibit to Registrant's Post-Effective
Amendment No. 68, are hereby incorporated by reference.
(c) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Article IV Of Registrant's Restated Agreement and
Declaration of Trust provides the following rights for
security holders:
LIQUIDATION. In event of the liquidation or
dissolution of the Trust, the Shareholders of each
Series that has been established and designated shall
be entitled to receive, as a Series, when and as
declared by the Trustees, the excess of the assets
belonging to that Series over the liabilities belonging
to that Series. The assets so distributable to the
Shareholders of any particular Series shall be
distributed among such Shareholders in proportion to
the number of Shares of that Series held by them and
recorded on the books of the Trust.
VOTING. All shares of all Series shall have "equal
voting rights" as such term is defined in the Investment
Company Act of 1940 and except as otherwise provided by
that Act or rules, regulations or orders promulgated
thereunder. On each matter submitted to a vote of the
Shareholders, all shares of each Series shall vote as a
single class except as to any matter with respect to
which a vote of all Series voting as a single series is
required by the 1940 Act or rules and regulations
promulgated thereunder, or would be required under the
Massachusetts Business Corporation Law if the Trust were
a Massachusetts business corporation. As to any matter
which does not affect the interest of a particular Series,
only the holders of Shares of the one or more affected
Series shall be entitled to vote.
<PAGE>
REDEMPTION BY SHAREHOLDER. Each holder of Shares of a
particular Series shall have the right at such times as
may be permitted by the Trust, but no less frequently
than once each week, to require the Trust to redeem all
or any part of his Shares of that Series at a
redemption price equal to the net asset value per Share
of that Series next determined in accordance with
subsection (h) of this Section 4.2 after the Shares are
properly tendered for redemption.
Notwithstanding the foregoing, the Trust may postpone
payment of the redemption price and may suspend the right
of the holders of Shares of any Series to require the Trust
to redeem Shares of that Series during any period or at any
time when and to the extent permissible under the 1940 Act,
and such redemption is conditioned upon the Trust having
funds or property legally available therefor.
TRANSFER. All Shares of each particular Series shall
be transferable, but transfers of Shares of a
particular Series will be recorded on the Share
transfer records of the Trust applicable to that Series
only at such times as Shareholders shall have the right
to require the Trust to redeem Shares of that Series
and at such other times as may be permitted by the
Trustees.
Article V of Registrant's Restated Agreement and
Declaration of Trust provides the following rights
for security holders:
VOTING POWERS. The Shareholders shall have power
to vote only (i) for the election or removal of
Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as
provided in Section 3.3 as to which Shareholder approval is
required by the 1940 Act, (iii) with respect to any
termination or reorganization of the Trust or any Series
to the extent and as provided in Sections 7.1 and 7.2,
(iv) with respect to any amendment of this Declaration
of Trust to the extent and as provided in Section 7.3,
(v) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not
be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, and
(vi) with respect to such additional matters relating to
the Trust as may be required by the 1940 Act, this
Declaration of Trust, the Bylaws or any registration of
the Trust with the Commission (or any successor agency)
in any state, or as the Trustees may consider necessary
or desirable. There shall be no cumulative voting in the
election of any Trustee or Trustees. Shares may be voted
in person or by proxy.
<PAGE>
(d) INVESTMENT ADVISORY CONTRACTS
(i) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Short Term Government Income
Fund, which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 70, is hereby incorporated by
reference.
(ii) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Intermediate Term Government
Income Fund, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 70, is hereby incorporated by
reference.
(iii) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Institutional Government Income
Fund, which was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 70, is hereby incorporated by
reference.
(iv) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Adjustable Rate U.S. Government
Securities Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 70, is hereby
incorporated by reference.
(v) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Money Market Fund, which was
filed as an Exhibit to Registrant's Post-Effective
Amendment No. 70, is hereby incorporated by reference.
(vi) Registrant's Management Agreement with Countrywide
Investments, Inc. for the Intermediate Bond Fund, which
was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 70, is hereby incorporated by reference.
(vii) Form of Registrant's Investment Advisory Agreement with
Touchstone Advisors, Inc. for the High Yield Fund is
filed herewith.
(viii) Form of Registrant's Sub-Advisory Agreement with Fort
Washington Investment Advisors, Inc. for the High Yield
Fund is filed herewith.
<PAGE>
(e) UNDERWRITING CONTRACTS
(i) Registrant's Underwriting Agreement with Countrywide
Investments, Inc., for the Short Term Government Income
Fund, the Intermediate Term Government Income Fund, the
Institutional Government Income Fund, the Intermediate Bond
Fund, the Adjustable Rate U.S. Government Securities Fund and
the Money Market Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 70, is hereby
incorporated by reference.
(ii) Form of Underwriter's Dealer Agreement, which was filed as
an Exhibit to Registrant's Post-Effective Amendment No. 66,
is hereby incorporated by reference.
(iii) Form of Distribution Agreement with Touchstone Securities,
Inc. for the High Yield Fund is filed herewith.
(f) BONUS OR PROFIT SHARING CONTRACTS
None.
(g) CUSTODIAN AGREEMENTS
Custody Agreement with The Fifth Third Bank which was
filed as an Exhibit to Registrant's Post-Effective Amendment
No. 68, is hereby incorporated by reference.
(h) OTHER MATERIAL CONTRACTS
(i) Registrant's Accounting and Pricing Services Agreement with
Countrywide Fund Services, Inc., which was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 70, is
hereby incorporated by reference.
(ii) Registrant's Transfer, Dividend Disbursing, Shareholder
Service and Plan Agency Agreement with Countrywide Fund
Services, Inc., which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 70, is hereby incorporated by
reference.
(iii) Administration Agreement between Countrywide Investments,
Inc. and Countrywide Fund Services, Inc., which was filed
as an Exhibit to Registrant's Post-Effective Amendment No.
70, is hereby incorporated by reference.
<PAGE>
(i) LEGAL OPINION
Opinion and Consent of Counsel, which was filed as an Exhibit
to Registrant's Pre-Effective Amendment No. 1, is hereby
incorporated by reference.
(j) OTHER OPINIONS
None.
(k) OMITTED FINANCIAL STATEMENTS
None.
(l) INITIAL CAPITAL AGREEMENTS
None.
(m) RULE 12B-1 PLAN
(i) Registrant's Plans of Distribution Pursuant to Rule 12b-1,
which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 70, is hereby incorporated by reference.
(ii) Form of Sales Agreement for Money Market Funds, which was
filed as an Exhibit to Registrant's Post-Effective Amendment
No. 41, is hereby incorporated by reference.
(iii) Form of Administration Agreement for the administration of
shareholder accounts, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 67, is hereby
incorporated by reference.
(n) FINANCIAL DATA SCHEDULE
Financial Data Schedules were filed as Exhibits to
Registrant's Form N-SAR filing.
(o) RULE 18f-3 PLAN
Amended Rule 18f-3 Plan Adopted with Respect to the Multiple
Class Distribution System, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 65, is hereby
incorporated by reference.
(p) CODE OF ETHICS
(i) Registrant's Code of Ethics, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 70, is hereby
incorporated by reference.
(ii) Code of Ethics for Countrywide Investments, Inc., which was
filed as an Exhibit to Registrant's Post-Effective Amendment
No. 70, is hereby incorporated by reference.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the
- ------- Registrant
-------------------------------------------------------
None
Item 25. INDEMNIFICATION
- ------- ---------------
(a) Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of officers
and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc.
----------- ------------------------------------------
The Trust shall indemnify each of its Trustees and officers,
including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise, and including persons who served as directors or
officers of Midwest Income Investment Company (hereinafter
referred to as a "Covered Person") against all liabilities,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense
or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being
or having been such a Trustee or officer, director or trustee,
and except that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's
office ("disabling conduct"). Anything herein contained to the
contrary notwithstanding, no Covered Person shall be
indemnified for any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject unless
(1) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a
reasonable determination is made, based upon a review of the
facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum
of Trustees who are neither "interested persons" of the
Company as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
<PAGE>
Section 6.5 Advances of Expenses.
----------- --------------------
The Trust shall advance attorneys' fees or other expenses
incurred by a Covered Person in defending a proceeding, upon
the undertaking by or on behalf of the Covered Person to repay
the advance unless it is ultimately determined that such
Covered Person is entitled to indemnification, so long as one
of the following conditions is met: (i) the Covered Person
shall provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
----------- -----------------------------------
The right of indemnification provided by this Article VI shall
not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this Article
VI, "Trust" shall include Midwest Income Investment Company,
"Covered Person" shall include such person's heirs,
executors and administrators, an "interested Covered Person"
is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the
same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against
whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any
rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be
entitled by contract or otherwise under law, nor the power of
the Trust to purchase and maintain liability insurance on
behalf of any such person.
(b) The Registrant maintains a mutual fund advisory professional
and directors and officers liability policy. The policy
provides coverage to the Registrant and its trustees and
officers. Coverage under the policy includes losses by reason
of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty. The Registrant may not
pay for insurance which protects the Trustees and officers
against liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their offices.
The Advisory Agreements provide that the Adviser shall not be
liable for any error of judgment or mistake of law or for any
loss suffered by the Registrant in connection with the matters
to which the Agreements relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Adviser in the performance of its duties or from the reckless
disregard by the Adviser of its obligations under the
Agreement. Registrant will advance attorneys' fees or other
expenses incurred by the Adviser in defending a proceeding,
upon the undertaking by or on behalf of the Adviser to repay
the advance unless it is ultimately determined that the
Adviser is entitled to indemnification.
<PAGE>
The Underwriting Agreement with the Adviser provides that the
Adviser, its directors, officers, employees, shareholders and
control persons shall not be liable for any error of judgment
or mistake of law or for any loss suffered by Registrant in
connection with the matters to which the Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of any of such persons in the
performance of the Adviser's duties or from the reckless
disregard by any of such persons of the Adviser's obligations
and duties under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by any such person
in defending a proceeding, upon the undertaking by or on
behalf of such person to repay the advance if it is ultimately
determined that such person is not entitled to
indemnification.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
- ------- ADVISER
------------------------------------------------
A. COUNTRYWIDE INVESTMENTS, INC. (the "Adviser") is a
registered investment adviser providing investment
advisory services to the Short Term Government Income
Fund, the Intermediate Term Government Income Fund, the
Institutional Government Income Fund, the Money Market
Fund, the Adjustable Rate U.S. Government Securities Fund,
and the Intermediate Bond Fund. The Adviser acts as
the investment adviser to four series of Countrywide
Strategic Trust and six series of Countrywide Tax-Free
Trust, both of which are registered investment companies.
The Adviser acts as the subadviser to the Huntington
Florida Tax-Free Money Fund series of The Huntington
Funds. The Adviser provides investment advisory services
to individual and institutional accounts and is a
registered broker-dealer.
The following list sets forth the business and other
connections of the directors and executive officers of the
Adviser. Unless otherwise noted with an asterisk(*), the
address of the corporations listed below is 312 Walnut
Street, Cincinnati, Ohio 45202.
*The address of each corporation is 411 Pike Street,
Cincinnati, Ohio 45202.
<PAGE>
(1) Robert H. Leshner - President and a Director of the
Adviser.
(a) President and a Trustee of Countrywide
Strategic Trust, Countrywide Investment Trust
and Countrywide Tax-Free Trust.
(b) President and a Director of Countrywide
Financial Services, Inc., Countrywide Fund
Services, Inc. and CW Fund Distributors, Inc.
until December 1999.
(2) Jill T. McGruder - A Director of the Adviser.
(a) A Director of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc., CW Fund
Distributors, Inc., Capital Analysts Incorporated,
3 Radnor Corporate Center, Radnor, PA, an
investment adviser and broker-dealer.
(b) President, Chief Executive Officer and a Director
of IFS Financial Services, Inc.*, a holding
company, Touchstone Advisors, Inc.*, an investment
adviser and Touchstone Securities, Inc.*, a
broker-dealer.
(c) President and a Director of IFS Agency Services,
Inc.*, an insurance agency, IFS Insurance Agency,
Inc.*, an insurance agency and IFS Systems, Inc.*,
an information systems provider.
(d) Senior Vice President of The Western-Southern
Life Insurance Company, 400 Broadway, Cincinnati,
Ohio, an insurance company.
(e) A Trustee of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide
Tax-Free Trust.
(3) William F. Ledwin - A Director of the Adviser.
(a) A Director of Countrywide Financial
Services, Inc., Countrywide Fund Services, Inc.,
CW Fund Distributors, Inc., Touchstone Advisors,
Inc.*, IFS Agency Services, Inc.*, Capital
Analysts Incorporated, 3 Radnor Corporate Center,
Radnor, PA., IFS Insurance Agency, Inc.*,
Touchstone Securities, Inc.*, IFS Financial
Services, Inc.*, IFS Systems, Inc.* and Eagle
Realty Group, Inc., 421 East Fourth Street, a real
estate brokerage and management service provider.
(b) President and a Director of Fort Washington
Investment Advisors, Inc., 420 E. Fourth Street,
Cincinnati, OH., an investment adviser.
(c) Vice President and Chief Investment Officer of
Columbus Life Insurance Company, 400 East Fourth
Street, Cincinnati, OH., a life insurance
company.
(d) Senior Vice President and Chief Investment Officer
of The Western-Southern Life Insurance Company.
<PAGE>
(4) Maryellen Peretzky - Senior Vice President, Chief
Operating Officer and Secretary of the Adviser.
(a) Vice President of Countrywide Strategic Trust,
Countrywide Investment Trust and Countrywide
Tax-Free Trust
(b) Senior Vice President and Secretary of Countrywide
Financial Services, Inc., Countrywide Fund
Services, Inc. and CW Fund Distributors, Inc.
(c) Assistant Secretary of The Gannett Welsh & Kotler
Funds and Firsthand Funds.
(5) John J. Goetz - First Vice President and Chief
Investment Officer- Tax-Free Fixed Income of the Adviser.
(6) Sharon L. Karp - First Vice President-Marketing of
the Adviser.
(7) Terrie A. Wiedenheft - First Vice President, Chief
Financial Officer and Treasurer of the Adviser.
(a) First Vice President, Chief Financial Officer
and Treasurer of Countrywide Financial Services,
Inc., Countrywide Fund Services, Inc. and CW
Fund Distributors, Inc.
(8) Scott Weston - Assistant Vice President-Investments of
the Adviser.
(9) Charles E. Stutenroth IV - Vice President and Senior
Portfolio Manager of the Adviser.
(a) Vice President and Senior Portfolio Manager of
Fort Washington Investment Advisors, Inc.
(b) Senior Vice President and Portfolio Manager
of Bank of America Investment Management, Charlotte
North Carolina until 1999.
(10) John C. Holden - Vice President and Senior Portfolio
Manager of the Adviser.
(a) Vice President and Senior Portfolio Manager of
Fort Washington Investment Advisors, Inc.
(11) William H. Bunn - Assistant Vice President and Portfolio
Manager of the Adviser.
(a) Securities Analyst for Fort Washington Investment
Advisors, Inc.
<PAGE>
B. TOUCHSTONE ADVISORS, INC. ("Touchstone") is a registered
investment adviser which provides investment advisory
services to the High Yield Fund. Touchstone also serves
as the investment adviser to Touchstone Series Trust, a
registered investment company, and Touchstone Variable
Series Trust, a variable annuity.
The following list sets forth the business and other
connections of the directors and executive officers of
Touchstone. Unless otherwise noted with an asterisk(*), the
address of the corporations listed below is 311 Pike
Street, Cincinnati, Ohio 45202.
(1) Jill T. McGruder, President and a Director of Touchstone.
See biography above
(2) Teresa A. Siegel, Vice President and Chief Financial Officer
of Touchstone.
(a) Chief Financial Officer of IFS Financial Services, Inc.
(3) Patricia J. Wilson, Chief Compliance Officer of Touchstone
(a) Chief Compliance Officer of Touchstone Securities, Inc.
(b) Director of Compliance of IFS Financial Services, Inc.
(4) Donald J. Wuebbling, a Director of Touchstone
(a) Director of Touchstone Securities, Inc.
(b) Vice President and General Counsel of The Western and
Southern Life Insurance Company
(5) James N. Clark, a Director of Touchstone
(a) Director of Touchstone Securities, Inc.
(b) Executive Vice President and Director of The Western
and Southern Life Insurance Company
(6) William F. Ledwin, a Director of Touchstone
See biography above
<PAGE>
C. FORT WASHINGTON INVESTMENT ADVISORS, INC.("Ft.Washington")
is a registered investment adviser which provides
sub-advisory services to the High Yield Fund. Ft.
Washington also serves as the Sub-Advisor to series of
Touchstone Series Trust and Touchstone Variable Series
Trust and provides investment advice to institutional and
individual clients.
The following list sets forth the business and other
connections of the directors and executive officers of Ft.
Washington.
(1) William J. Williams, Chairman and a director of Ft.
Washington
(a) Chairman of the Board of The Western and Southern Life
Insurance Company
(2) William F. Ledwin, President and a director of Ft.
Washington
See biography above
(3) James J. Vance, Vice President and Treasurer of Ft.
Washington
(a) Vice President and Treasurer of The Western and Southern
Life Insurance Company
(5) Rance G. Duke, Vice President and Senior Portfolio Manager
of Ft. Washington
(a) Second Vice President and Senior Portfolio Manager of
The Western and Southern Life Insurance Company
(6) John C. Holden, Vice President and Senior Portfolio Manager
of Ft. Washington
See biography above
(7) Charles E. Stutenroth IV, Vice President and Senior
Portfolio Manager of Ft. Washington
See biography above
(8) Brendan M. White, Vice President and Senior Portfolio
Manager of Ft. Washington
<PAGE>
Item 27 Principal Underwriters
- ------- ----------------------
(a) Countrywide Investments, Inc. also acts as
underwriter to all series of the Trust (except the
High Yield Fund), series of Countrywide Strategic
Trust and Countrywide Tax-Free Trust.
Unless otherwise noted with an asterisk, the address
of the persons named below is 312 Walnut Street,
Cincinnati, Ohio 45202.
*The address is 411 Pike Street, Cincinnati, Ohio,
45202.
**The address is 420 E. Fourth Street, Cincinnati,
Ohio 45202.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
----- ----------- ----------
Robert H. Leshner President President/
and Director Trustee
* Jill T. McGruder Director Trustee
* William F. Ledwin Director None
Maryellen Peretzky Senior Vice Vice
President & President
Secretary
** John J. Goetz First Vice None
President and
Chief
Investment
Officer - Tax-Free
Fixed Income
** Charles E. Stutenroth Vice President None
& Senior
Portfolio Manager
** John C. Holden Vice President None
& Senior
Portfolio
Manager
Sharon L. Karp First Vice None
President-
Marketing
Terrie A. Wiedenheft First Vice None
President
& Treasurer
** Scott Weston Assistant Vice None
President-
Investments
** William H. Bunn Assistant Vice None
President and
Portfolio Manager
<PAGE>
Touchstone Securities, Inc., 311 Pike Street, Cincinnati,
Ohio 45202, acts as the principal underwriter for the High
Yield Fund.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
----- ----------- ----------
Jill T. McGruder President/Director Trustee
William F. Ledwin Director None
Patricia J. Wilson Chief Compliance None
Officer
Teresa A. Siegel Vice President & None
Chief Financial
Officer
James J. Vance Vice President None
& Treasurer
Edward S. Heenan Controller/Director None
Donald J. Wuebbling Director None
James N. Clark Director None
Robert F. Morand Secretary None
Richard K. Taulbee Vice President None
<PAGE>
(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
- ------- --------------------------------
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder will
be maintained by the Registrant.
Item 29. MANAGEMENT SERVICES NOT DISCUSSED IN PART A OR PART B
- ------- -----------------------------------------------------
None.
Item 30. UNDERTAKINGS
- ------- ------------
(a) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the provisions of Massachusetts
law and the Agreement and Declaration of Trust of the
Registrant or the Bylaws of the Registrant, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(b) Within five business days after receipt of a written
application by shareholders holding in the aggregate at
least 1% of the shares then outstanding or shares then
having a net asset value of $25,000, whichever is less,
each of whom shall have been a shareholder for at least
six months prior to the date of application
(hereinafter the "Petitioning Shareholders"),
requesting to communicate with other shareholders with
a view to obtaining signatures to a request for a
meeting for the purpose of voting upon removal of any
Trustee of the Registrant, which application shall be
accompanied by a form of communication and request
which such Petitioning Shareholders wish to transmit,
Registrant will:
(i) provide such Petitioning Shareholders with
access to a list of the names and addresses of all
shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the
approximate number of shareholders and the estimated
costs of mailing such communication, and to undertake
such mailing promptly after tender by such
Petitioning Shareholders to the Registrant of the
material to be mailed and the reasonable expenses of
such mailing.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act, the Registrant has duly caused this registration statement to
be signed on its behalf by the undersigned, duly authorized, in the City
of Cincinnati, State of Ohio, on the 15th day of February, 2000.
COUNTRYWIDE INVESTMENT TRUST
/s/ Robert H. Leshner
By:---------------------------
Robert H. Leshner
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the 15th day of February, 2000
/s/ Robert H. Leshner
- --------------------- President
ROBERT H. LESHNER and Trustee
/s/ Theresa M. Samocki
- ---------------------- Treasurer
THERESA M. SAMOCKI
* WILLIAM O. COLEMAN Trustee
- -----------------------
* PHILLIP R. COX Trustee
- ----------------------
* H. JEROME LERNER Trustee
- ----------------------
* JILL T. MCGRUDER Trustee
- ----------------------
* OSCAR P. ROBERTSON Trustee
- -----------------------
* NELSON SCHWAB, JR. Trustee
- -----------------------
* ROBERT E. STAUTBERG Trustee
- ------------------------
* JOSEPH S. STERN, JR. Trustee
- ------------------------
By /s/ Tina D. Hosking
--------------------
Tina D. Hosking
*Attorney-in-Fact
February 15, 2000
<PAGE>
EXHIBIT INDEX
- -------------
1. Form of Investment Advisory Agreement with Touchstone Advisors, Inc.
2. Form of Sub-Advisory Agreement with Fort Washington Investment Advisors,
Inc.
3. Form of Distribution Agreement with Touchstone Securities, Inc.
FORM OF INVESTMENT ADVISORY AGREEMENT
COUNTRYWIDE INVESTMENT TRUST
INVESTMENT ADVISORY AGREEMENT, dated as of ______________, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and
COUNTRYWIDE INVESTMENT TRUST, a Massachusetts business trust created pursuant
to a Declaration of Trust dated _____________, as amended from time to time
(the "Trust").
WHEREAS, the Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act"); and
WHEREAS, shares of beneficial interest in the Trust are divided into
separate series (each, along with any series which may in the future be
established, a "Fund"); and
WHEREAS, the Trust desires to avail itself of the services,
information, advice, assistance and facilities of an investment advisor and to
have an investment advisor perform for it various investment advisory and
research services and other management services; and
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and desires to provide investment
advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to
manage the investment and reinvestment of the assets of each Fund subject to the
control and direction of the Trust's Board of Trustees, for the period on the
terms hereinafter set forth. The Advisor hereby accepts such employment and
agrees during such period to render the services and to assume the obligations
herein set forth for the compensation herein provided. The Advisor shall for all
purposes herein be deemed to be independent contractor and shall, except as
expressly provided or authorized (whether herein or otherwise), have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISOR. In
providing the services and assuming the obligations set forth herein, the
Advisor may, at its expense, employ one or more sub-advisors for any Fund. Any
agreement between the Advisor and a sub-advisor shall be subject to the
renewal, termination and amendment provisions of paragraph 10 hereof. The
Advisor undertakes to provide the following services and to assume the following
obligations:
a) The Advisor will manage the investment and reinvestment of the assets
of each Fund, subject to and in accordance with the respective
investment objectives and policies of each Fund and any directions
which the Trust's Board of Trustees may issue from time to time. In
pursuance of the foregoing, the Advisor may engage separate
investment advisors ("Sub-Advisor(s)") to make all determinations
with respect to the investment of the assets of each Fund, to effect
the purchase and sale of portfolio securities and to take such steps
as may be necessary to implement the same. Such determination and
services by each Sub-Advisor shall also include determining the
manner in which voting rights, rights to consent to corporate action
and any other rights pertaining to the portfolio securities shall be
exercised. The Advisor shall, and shall cause each Sub-Advisor
to, render regular reports to the Trust's Board of Trustees
concerning the Trust's and each Fund's investment activities.
b) The Advisor shall, or shall cause the respective Sub-Advisor(s) to
place orders for the execution of all portfolio transactions, in the
name of the respective Fund and in accordance with the policies with
respect thereto set forth in the Trust's registration statements under
the 1940 Act and the Securities Act of 1933, as such registration
statements may be amended from time to time. In connection with the
placement of orders for the execution of portfolio transactions, the
Advisor shall create and maintain (or cause the Sub-Advisors to
create and maintain) all necessary brokerage records for each Fund,
which records shall comply with all applicable laws, rules and
regulations, including but not limited to records required by Section
31(a) of the 1940 Act. All records shall be the property of the Trust
and shall be available for inspection and use by the Securities and
Exchange Commission (the "SEC"), the Trust or any person retained by
the Trust. Where applicable, such records shall be maintained by the
Advisor (or Sub-Advisor) for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
c) In the event of any reorganization or other change in the
Advisor, its investment principals, supervisors or members
of its investment (or comparable) committee, the Advisor
shall give the Trust's Board of Trustees written notice of
such reorganization or change within a reasonable time
(but not later than 30 days) after such reorganization or
change.
d) The Advisor shall bear its expenses of providing services
to the Trust pursuant to this Agreement except such
expenses as are undertaken by the Trust. In addition, the
Advisor shall pay the salaries and fees, if any, of all
Trustees, officers and employees of the Trust who are
affiliated persons, as defined in Section 2(a)(3) of the
1940 Act, of the Advisor.
<PAGE>
e) The Advisor will manage, or will cause the Sub-Advisors to
manage, the Fund assets and the investment and
reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the
Internal Revenue Code of 1986, as amended.
3. EXPENSES. The Trust shall pay the expenses of its operation,
including but not limited to (i) charges and expenses for Trust accounting,
pricing and appraisal services and related overhead, (ii) the charges and
expenses of the Trust's auditors; (iii) the charges and expenses of any
custodian, transfer agent, plan agent, dividend disbursing agent and registrar
appointed by the Trust with respect to the Funds; (iv) brokers' commissions, and
issue and transfer taxes, chargeable to the Trust in connection with securities
transactions to which the Trust is a party; (v) insurance premiums, interest
charges, dues and fees for Trust membership in trade associations and all taxes
and fees payable by the Trust to federal, state or other governmental agencies;
(vi) fees and expenses involved in registering and maintaining registrations of
the Trust and/or shares of the Trust with the SEC, state or blue sky securities
agencies and foreign countries, including the preparation of Prospectuses and
Statements of Additional Information for filing with the SEC; (vii) all expenses
of meetings of Trustees and of shareholders of the Trust and of preparing,
printing and distributing prospectuses, notices, proxy statements and all
reports to shareholders and to governmental agencies; (viii) charges and
expenses of legal counsel to the Trust; (ix) compensation of Trustees of the
Trust; and (x) interest on borrowed money, if any.
4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed
hereunder by the Advisor, the Trust shall pay to the Advisor
monthly a fee that is equal on an annual basis to that percentage
of the average daily net assets of each Fund set forth on Schedule
1 attached hereto (and with respect to any future Fund, such
percentage as the Trust and the Advisor may agree to from time to
time). Such fee shall be computed and accrued daily. If the
Advisor serves as investment advisor for less than the whole of
any period specified in this Section 4a, the compensation to the
Advisor shall be prorated. For purposes of calculating the
Advisor's fee, the daily value of each Fund's net assets shall be
computed by the same method as the Trust uses to
compute the net asset value of that Fund.
b) The Advisor will pay all fees owing to each Sub-Advisor,
and the Trust shall not be obligated to the Sub-Advisors
in any manner with respect to the compensation of such
Sub-Advisors.
c) The Advisor reserves the right to waive all or a part of
its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust
hereunder are not to be deemed exclusive, and the Advisor shall be free to
render similar services to others. It is understood that the Trustees and
officers of the Trust are or may become interested in the Advisor as
stockholders, officers or otherwise, and that stockholders and officers of the
Advisor are or may become similarly interested in the Trust, and that the
Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any
prospectus, sales literature or other material relating to the Trust in any
manner not approved prior thereto by the Advisor; except that the Trust may use
such name in any document which merely refers in accurate terms to its
appointment hereunder or in any situation which is required by the SEC or a
state securities commission; and provided further, that in no event shall such
approval be unreasonably withheld. The Advisor will not use the name of the
Trust in any material relating to the Advisor in any manner not approved prior
thereto by the Trust; except that the Advisor may use such name in any document
which merely refers in accurate terms to the appointment of the Advisor
hereunder or in any situation which is required by the SEC or a state securities
commission. In all other cases, the parties may use such names to the extent
that the use is approved by the party named, it being agreed that in no event
shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that the Advisor has
reserved for itself the rights to the name "Touchstone Tax-Free Trust" (or any
similar names) and that use by the Trust of such name shall continue only with
the continuing consent of the Advisor, which consent may be withdrawn at any
time, effective immediately, upon written notice thereof to the Trust.
7. LIMITATION OF LIABILITY OF THE ADVISOR.
a) Absent willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder
on the part of the Advisor, the Advisor shall not be
subject to liability to the Trust or to any shareholder in
any Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 7, the term
"Advisor" shall include Touchstone Advisors, Inc. and/or
any of its affiliates and the directors, officers and
employees of Touchstone Advisors, Inc. and/or any of its
affiliates.
b) The Trust will indemnify the Advisor against, and hold it
harmless from, any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees
and expenses) resulting from acts or omissions of
the Trust. Indemnification shall be made only after: (i)
a final decision on the merits by a court or other
body before whom the proceeding was brought that the Trust
was liable for the damages claimed or (ii) in the
absence of such a decision, a reasonable determination
based upon a review of the facts, that the Trust was
liable for the damages claimed, which determination shall
be made by either (a) the vote of a majority of a
quorum of Trustees of the Trust who are neither
"interested persons" of the Trust nor parties to the
proceeding "disinterested non-party Trustees") or (b) an
independent legal counsel satisfactory to the parties
hereto, whose determination shall be set forth in a
written opinion. The Advisor shall be entitled to
advances from the Trust for payment of the reasonable
expenses incurred by it in connection with the matter as
to which it is seeking indemnification in the manner and
to the fullest extent that would be permissible under the
applicable provisions of the General Corporation Law of
Ohio. The Advisor shall provide to the Trust a written
affirmation of its good faith belief that the standard of
conduct necessary for indemnification under such law
has been met and a written undertaking to repay any such
advance if it should ultimately be determined that the
standard of conduct has not been met. In addition, at
least one of the following additional conditions shall
be met: (i) the Advisor shall provide security in form
and amount acceptable to the Trust for its undertaking;
(ii) the Trust is insured against losses arising by reason
of the advance; or (iii) a majority of a quorum of
the Trustees of the Trust, the members of which majority
are disinterested non-party Trustees, or independent
legal counsel in a written opinion, shall have determined,
based on a review of facts readily available to the
Trust at the time the advance is proposed to be made, that
there is reason to believe that the Advisor will
ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Advisor agrees that the Trust's
obligations hereunder in any case shall be limited to the Trust and to its
assets and that the Advisor shall not seek satisfaction of any such obligation
from the holders of the shares of any Fund nor from any Trustee, officer,
employee or agent of the Trust.
9. FORCE MAJEURE. The Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Advisor shall take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto.
10. RENEWAL, TERMINATION AND AMENDMENT.
a) This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, for a period of two
years from the date hereof and it shall continue
indefinitely thereafter as to each Fund, provided that
such continuance is specifically approved by the parties
hereto and, in addition, at least annually by (i) the vote
of holders of a majority of the outstanding voting
securities of the affected Fund or by vote of a majority
of the Trust's Board of Trustees and (ii) by the vote of a
majority of the Trustees who are not parties to this
Agreement or interested persons of the Advisor, cast in
person at a meeting called for the purpose of voting on
such approval.
b) This Agreement may be terminated at any time, with respect
to any Fund(s), without payment of any penalty, by the
Trust's Board of Trustees or by a vote of the majority of
the outstanding voting securities of the affected Fund(s)
upon 60 days' prior written notice to the Advisor and by
the Advisor upon 60 days' prior written notice to the
Trust.
c) This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of
Trustees and, if required by applicable SEC rules and
regulations, a vote of the majority of the outstanding
voting securities of any Fund affected by such change.
This Agreement shall terminate automatically in the event
of its assignment.
d) The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the
meaning set forth for such terms in the 1940 Act.
11. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first above
written. Pursuant to the Trust's Declaration of Trust, dated as of April 13,
1981, the obligations of this Agreement are not binding upon any of the Trustees
or shareholders of the Trust individually, but bind only the Trust estate.
COUNTRYWIDE INVESTMENT TRUST
By: _______________________
TOUCHSTONE ADVISORS, INC.
By: _________________________
<PAGE>
SCHEDULE 1
HIGH YIELD FUND - 0.60% of average daily net assets
FORM OF SUB-ADVISORY AGREEMENT
COUNTRYWIDE INVESTMENT TRUST
This SUB-ADVISORY AGREEMENT is made as of ______________, by and
between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and Ft.
Washington Investment Advisors, Inc., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by
Countrywide Investment Trust (the "Trust"), a Massachusetts business trust
organized pursuant to a Declaration of Trust dated __________ and registered as
an open-end diversified management investment company under the Investment
Company Act of 1940 (the "1940 Act"), to provide investment advisory services
to the High Yield Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it
with portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Fund, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of those assets of the
Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 and shall otherwise comply in
all material respects with all applicable laws and regulations, both state and
federal. The Sub-Advisor shall for all purposes herein be deemed an independent
contractor and shall, except as expressly provided or authorized (whether herein
or otherwise), have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust or the Fund.
<PAGE>
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the
following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment
of the assets of the Fund, subject to and in accordance with the
investment objectives, policies and restrictions of the Fund and any
directions which the Advisor or the Trust's Board of Trustees may give
from time to time with respect to the Fund. In furtherance of the
foregoing, the Sub-Advisor will make all determinations with respect to
the investment of the assets of the Fund and the purchase and sale of
portfolio securities and shall take such steps as may be necessary or
advisable to implement the same. The Sub-Advisor also will determine
the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities will
be exercised. The Sub-Advisor will render regular reports to the
Trust's Board of Trustees and to the Advisor (or such other advisor or
advisors as the Advisor shall engage to assist it in the evaluation of
the performance and activities of the Sub-Advisor). Such reports shall
be made in such form and manner and with respect to such matters
regarding the Fund and the Sub-Advisor as the Trust or the Advisor
shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with
respect to the marketing of the Fund, including but not limited to: (i)
permission to use the Sub-Advisor's name as provided in Section 5, (ii)
permission to use the past performance and investment history of the
Sub-Advisor as the same is applicable to the Fund, (iii) access to the
individual(s) responsible for day-to-day management of the Fund for
marketing conferences, teleconferences and other activities involving
the promotion of the Fund, subject to the reasonable request of the
Advisor, (iv) permission to use biographical and historical data of the
Sub-Advisor and individual manager(s), and (v) permission to use the
names of clients to which the Sub-Advisor provides investment
management services, subject to any restrictions imposed by clients on
the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. The Sub-Advisor is
specifically authorized, to the extent authorized by law (including,
without limitation, Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a reasonably significant benefit from such research
services. The Sub-Advisor will present a written report to the Board of
Trustees of the Trust, at least quarterly, indicating total brokerage
expenses, actual or imputed, as well as the services obtained in
consideration for such expenses, broken down by broker-dealer and
containing such information as the Board of Trustees reasonably shall
request.
d. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than
30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing
services to the Fund pursuant to this Agreement except such expenses as
are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the
investment and reinvestment of such assets so as to comply with the
provisions of the 1940 Act and with Subchapter M of the Internal
Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.40% of the
average daily net assets of the Fund. Such fee shall be computed and
accrued daily. If the Sub-Advisor serves in such capacity for less than
the whole of any period specified in this Section 3a, the compensation
to the Sub-Advisor shall be prorated. For purposes of calculating the
Sub-Advisor's fee, the daily value of the Fund's net assets shall be
computed by the same method as the Trust uses to compute the net asset
value of the Fund for purposes of purchases and redemptions of shares
thereof.
b. The Sub-Advisor reserves the right to waive all or a part
of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Sub-Advisor will report to the Board of Trustees
of the Trust (at regular quarterly meetings and at such other times as such
Board of Trustees reasonably shall request) (i) the financial condition and
prospects of the Sub-Advisor, (ii) the nature and amount of transactions
affecting the Fund that involve the Sub-Advisor and affiliates of the
Sub-Advisor, (iii) information regarding any potential conflicts of interest
arising by reason of its continuing provision of advisory services to the Fund
and to its other accounts, and (iv) such other information as the Board of
Trustees shall reasonably request regarding the Fund, the Fund's performance,
the services provided by the Sub-Advisor to the Fund as compared to its other
accounts and the plans of, and the capability of, the Sub-Advisor with respect
to providing future services to the Fund and its other accounts. At least
annually, the Sub-Advisor shall report to the Trustees the total number and type
of such other accounts and the approximate total asset value thereof (but not
the identities of the beneficial owners of such accounts). The Sub-Advisor
agrees to submit to the Trust a statement defining its policies with respect to
the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the
Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name
of the Sub-Advisor in any prospectus, sales literature or other material
relating to the Advisor or the Trust in any manner not approved in advance by
the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses
of its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder in the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. As used in this Section 6, the term "Sub-Advisor" shall
include the Sub-Advisor and/or any of its affiliates and the directors, officers
and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the assets of the Fund
and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from
the holders of shares of the Fund nor from any Trustee, officer, employee or
agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or
errors occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner
terminated as hereinafter provided, until __________, 2002; and it
shall continue thereafter provided that such continuance is
specifically approved by the parties and, in addition, at least
annually by (i) the vote of the holders of a majority of the
outstanding voting securities (as herein defined) of the Fund or by
vote of a majority of the Trust's Board of Trustees and (ii) by the
vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the
Sub-Advisor, cast in person at a meeting called for the purpose of
voting on such approval.
b. This Agreement may be terminated at any time, without
payment of any penalty, (i) by the Advisor, by the Trust's Board of
Trustees or by a vote of the majority of the outstanding voting
securities of the Fund, in any such case upon not less than 60 days'
prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor
upon not less than 60 days' prior written notice to the Advisor and the
Trust. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties
hereto, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of the
majority of the outstanding voting securities of the Fund affected by
such change.
d. The terms "assignment," "interested persons" and "majority
of the outstanding voting securities" shall have the meaning set forth
for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or
shall be found to be invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed postage-paid, to
the other party at such address as such other party may designate in accordance
with this paragraph for the receipt of such notice. Until further notice to the
other party, it is agreed that the address of the Trust and that of the Advisor
for this purpose shall be 311 Pike Street, Cincinnati, Ohio 45202 and that the
address of the Sub-Advisor shall be 420 E. Fourth Street, Cincinati, Ohio 45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions
and execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By: ______________________
Name: Jill T. McGruder
Title: President
FT. WASHINGTON INVESTMENT ADVISORS, INC.
By:________________________
Name: William F. Ledwin
Title: President
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of __________________________, 2000 by
and between COUNTRYWIDE INVESTMENT TRUST, a Massachusetts business trust (the
"Trust"), with respect to each of its series of shares of beneficial interest
("Shares") (each series of shares is a "Fund"), and TOUCHSTONE SECURITIES, INC.,
a Nebraska corporation ("Touchstone" or the Distributor").
W I T N E S S E T H
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, the Board of Trustees of the Trust has adopted a Plan of
Distribution for Class A and Single Class Shares, dated as of August 1, 1993
and a Plan of Distribution for Class C Shares, dated as of August 1,
1993 the ("Distribution Plans"), each of which is incorporated herein by
reference and pursuant to which the Trust desires to enter into this
Distribution Agreement; and
WHEREAS, the Trust wishes to engage Touchstone to provide certain
services with respect to the distribution of Shares of each Fund, and Touchstone
is willing to provide such services to the Trust, with respect to the Funds, on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. APPOINTMENT OF DISTRIBUTOR; DUTIES.
(a) The Trust grants to the Distributor the right, as agent of
the Trust, to sell Shares upon the terms hereinbelow set forth during the term
of this Agreement. While this Agreement is in force, the Distributor agrees to
use its best efforts to find purchasers for the Shares.
(b) The Distributor shall have the right, as agent of the
Trust, to order Shares as needed, but not more than the Shares needed (except
for clerical errors and errors of transmission), to fill unconditional orders
for Shares placed with the Distributor, all such orders to be made in the manner
set forth in the respective Fund's then-current prospectus (the "Prospectus")
and then-current statement of additional information (the "Statement of
Additional Information"). The price which shall be paid to the Fund for the
Shares so purchased shall be that Fund's net asset value per Share as determined
in accordance with the provisions of the Trust's Declaration of Trust and
By-Laws, as each may from time to time be amended, and that Fund's Prospectus
and Statement of Additional Information (collectively, the "Governing
Instruments"). In addition to the price of the Shares, the Distributor shall
collect any applicable sales charge on Shares sold, from each purchaser thereof,
as provided in the respective Fund's Prospectus and Statement of Additional
Information, after taking into account any applicable reductions or eliminations
of sales charges described therein. The Distributor shall retain the sales
charge less any applicable commissions or transaction or agency fees paid to any
broker-dealer, bank, trust company or other financial institution having a
selling, servicing or agency agreement with the Distributor (an "Agent"),
through which such Shares have been sold. The Distributor or its Agent shall
notify the custodian of the respective Fund at the end of each business day, or
as soon thereafter as the orders placed with the Distributor have been compiled,
of the number of Shares and the prices thereof which have been ordered through
the Distributor since the end of the previous business day.
(c) The right granted to the Distributor to place orders for
Shares shall be exclusive, except that this exclusive right shall not apply to
Shares issued in the event that an investment company (whether a regulated or
private investment company or a personal holding company) is merged with and
into or consolidated with a Fund or the Trust or in the event that the Trust
acquires, on behalf of a Fund, by purchase or otherwise, all or substantially
all of the assets or the outstanding shares of any such company; nor shall it
apply to Shares issued by the Trust as a dividend or stock split. The exclusive
right to place orders for Shares, as hereby granted to the Distributor, may be
waived by the Distributor by notice to the Trust in writing, either
unconditionally or subject to such conditions and limitations as may be set
forth in such notice to the Trust. The Trust hereby acknowledges that the
Distributor may render distribution and other services to other parties,
including other investment companies. In connection with its duties hereunder,
the Distributor shall also arrange for computation of performance statistics
with respect to each Fund and arrange for publication of current price
information in newspapers and other publications.
(d) The Trust retains the ultimate right to control the sale
of the Shares, including the right to suspend sales in any jurisdiction, to
appoint and discharge agents of the Trust in connection with the Shares, and to
refuse to sell Shares to any person for any reason whatsoever.
2. TRUST DUTIES.
(a) The net asset value of Shares shall be determined by the
Trust, or by an agent of the Trust, as of the times and in accordance with the
method established pursuant to the Governing Instruments (and on such other days
as the Trustees deem necessary in order to comply with Rule 22c-1 under the 1940
Act). The Trust shall have right to suspend the sale of Shares if, because of
some extraordinary condition, trading in the securities in which such Fund
invests) is suspended or restricted or if conditions existing render such action
advisable or for any other reason deemed adequate by the Trust.
(b) The Trust will, from time to time, but subject to the
necessary approval, if any, of the Fund's shareholders, take all necessary
action to register such number of Shares under the Securities Act of 1933, as
amended (the "1933 Act"), as the Distributor may reasonably be expected to sell.
3. RELATIONSHIP BETWEEN TRUST AND DISTRIBUTOR. The Distributor shall be
an independent contractor and neither the Distributor nor any of its directors,
officers or employees, as such, is or shall be considered an employee of the
Trust pursuant to this Agreement. It is understood that the Trustees, officers
and shareholders of the Trust are or may become interested in the Distributor as
directors, officers, employees, or otherwise and that directors, officers and
employees of the Distributor are or may become interested in the Trust as
shareholders or otherwise. The Distributor is responsible for its own conduct
and the employment, control and conduct (but only with respect to the duties and
obligations of the Distributor hereunder) of its agents and employees and for
any injury to any person through its agents or employees. The Distributor
assumes full responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder.
4. BEST EFFORTS. The Distributor covenants and agrees that, in selling
Shares, it will use its best efforts in all respects duly to conform with the
requirements of all state and federal laws and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD") relating to the
sale of shares.
The Distributor will use its best efforts to assure that no person uses any
sales aids, promotional material or sales literature regarding the Shares that
have not been specifically approved in advance by the Distributor and the Trust.
The Distributor will use its best efforts to assure that no person, in
connection with the offer or sale of the Shares, makes any representations
regarding the Shares, the Trust or the Distributor which are not either then
authorized by the Trust and the Distributor or contained in a then-effective
registration statement relating to any of the Funds and the offering of the
Shares (the "Registration Statement").
5. INDEMNIFICATION
(a) The Distributor will indemnify and hold harmless the Trust
and each of its Trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the Act (the "Indemnified Parties")
against all losses, liabilities, damages, claims or expenses (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fees incurred in connection
therewith) arising from any claim, demand, action or suit (individually a
"Claim" and, collectively, "Claims") made by any person who shall have acquired
any of the Shares through the Distributor, which Claim is based upon the 1933
Act or any other statute or common law and arises either:
(i) by reason of any wrongful act of the Distributor or any
of its employees (including any failure to conform with any
requirement of any state or federal law or the Rules of Fair
Practice of the NASD relating to the sale of Shares), or
(ii) on the ground that the Registration Statement
under the 1933 Act, including all amendments thereto, or the
respective Prospectus or Statement of Additional Information
or previous prospectus or statement of additional information,
with respect to such Shares, includes or included an untrue
statement of a material fact or omits or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading,
but if and only if any such act, statement or omission was made in reliance upon
information furnished by the Distributor to the Trust.
(b) In no event (i) is the indemnity of the Distributor in
favor of any Indemnified Party pursuant to paragraph (a), above to be deemed to
protect any such Indemnified Party against liability to which such Indemnified
party would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of his, her or its duties or by reason of
his, her or its reckless disregard of his, her or its obligations and duties
under this Agreement, or (ii) is the Distributor to be liable under or pursuant
to paragraph (a), above, with respect to any Claim made against any Indemnified
Party unless such Indemnified Party shall have notified the Distributor in
writing within a reasonable time after the summons or other first legal process
giving information as to the nature of the Claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but the failure of the
Indemnified Party to notify the Distributor of any such Claim shall not relieve
the Distributor from any liability which it may have to any Indemnified Party
otherwise than pursuant to this Agreement.
(c) The Distributor shall be entitled to participate, at its
own expense, in the defense, or, if it so elects, to assume the defense, of any
suit brought to enforce any such Claim, and, if the Distributor elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to each Indemnified Party. If the Distributor elects to
assume the defense of any such suit and retain such counsel, each Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
provided, however, that if the Distributor does not elect to assume the defense
of any such suit, it shall reimburse the Indemnified Parties for the reasonable
fees and expenses of any counsel retained by them.
(d) Except with the prior written consent of the Distributor,
no Indemnified Party shall confess any Claim or make any compromise in any case
in which the Distributor is or will be asked to indemnify such Indemnified
Party.
(e) The Distributor agrees promptly to notify the Trust of the
commencement of any litigation or proceeding against it in connection with the
issuance and sale of any of the Shares.
(f) Neither the Distributor nor any Agent nor any other person
is authorized to give any information or to make any representation on behalf of
the Trust in connection with the sale of Shares, other than those contained in
the Trust's Registration Statement or Prospectus or Statement of Additional
Information relating to the respective Fund.
6. EXPENSES
(a) The Trust will pay, by causing the appropriate Fund(s) to
pay:
(i) all costs and expenses of the Trust and of the
Funds, including fees and disbursements of the Trust's counsel, in
connection with the preparation and filing of the Registration
Statement, Prospectuses and Statements of Additional Information, and
preparing and mailing to existing shareholders Prospectuses, Statements
of Additional Information and, with respect to Shares, statements of
confirmation and periodic reports (including the entire expense of
setting in type the Registration Statements, Prospectuses and
Statements of Additional Information or any periodic report with
respect to Shares);
(ii) the cost of preparing temporary or permanent
certificates for Shares;
(iii) the cost and expenses of delivering to the
Distributor at its office in Cincinnati, Ohio all Shares purchased
through it as agent hereunder;
(iv) subject to the Distribution Plans, a
distribution fee to the Distributor not to exceed the percentage, as
indicated on Schedule A hereto, of the respective Fund's average daily
net assets for its then-current fiscal year;
(v) all fees and disbursements of any transfer agent and
custodian of a Fund;
(vi) all fees of each shareholder servicing agent to a Fund,
if any;
(vii) all fees of any administrator or fund accounting agent
of a Fund;
(viii) all fees of the investment advisor, if any, of a Fund;
and
(ix) such other costs and expenses as shall be
determined, by agreement of the parties, to properly be chargeable to
and borne by the Trust.
(b) The Distributor, with respect to the sale of Shares, but subject to
the Trust's obligations under clause (iv) of subsection (a) above, will (i)
after the Prospectus and Statement of Additional Information and periodic
reports with respect to each Fund have been set in type, bear the expense (other
than the cost of printing and mailing to existing shareholders of such Fund) of
printing and distributing any copies thereof ordered by it which are to be used
in connection with the offering or sale of Shares to any Agent or prospective
investor, (ii) bear the expenses of preparing, printing and distributing any
other literature used by the Distributor or furnished by it for use by any Agent
in connection with the offering of Shares for sale to the public and any expense
of sending confirmations and statements to any Agent and (iii) bear the cost of
any compensation paid to Agents in connection with the sale of Shares.
7. COMPENSATION. As compensation to the Distributor for assuming the
expenses and performing the distribution services to be assumed and performed by
it pursuant to this Agreement, the Distributor will receive from the Trust such
amounts and at such times as are set forth in Schedule A to this Agreement (as
the same may from time to time be amended by agreement between the parties
hereto).
8. AMENDMENTS. If, at any time during the term of this Agreement, the
Trust shall deem it necessary or advisable in the best interests of any Fund
that any amendment of this Agreement be made in order to comply with any
recommendation or requirement of the Securities and Exchange Commission (the
"SEC") or other governmental authority or to obtain any advantage under Ohio,
Massachusetts or other applicable state law or under the federal tax laws, it
shall notify the Distributor of the form of amendment which it deems necessary
or advisable and the reasons therefor. If the Distributor declines to assent to
such amendment (after a reasonable time), the Trust may terminate this Agreement
forthwith by written notice to the Distributor without payment of any penalty.
If, at any time during the term of this Agreement, the Distributor requests the
Trust to make any change in the Governing Instruments or in its methods of doing
business which are necessary in order to comply with any requirement of federal
law or regulations of the SEC or of a national securities association of which
the Distributor is or may become a member, relating to the sale of Shares, the
Distributor may terminate this Agreement forthwith by written notice to the
Trust without payment of any penalty.
9. OWNERSHIP OF SHARES. The Distributor agrees that it will not take
any long or short position in the Shares and that, so far as it can control the
situation, it will prevent any of its Directors or officers from taking any long
or short positions in the Shares, except as permitted by the Governing
Instruments.
<PAGE>
10. TERMINATION. This Agreement shall become effective upon its
execution and shall continue in force indefinitely, provided that such
continuance is "specifically approved at least annually" by the vote of a
majority of the Trustees of the Trust who are not "interested persons" of the
Trust or of the Distributor at a meeting specifically called for the purpose of
voting on such approval, and by the Board of Trustees of the Trust. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
1940 Act.
This Agreement may be terminated as to any Fund at any time by (i) the
Trust, (a) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or the Distributor, (b) by the vote of the
Board of Trustees of the Trust, or (c) by the "vote of a majority of the
outstanding voting securities" of the Fund, or (ii) by the Distributor, in any
case without payment of any penalty on not more than 60 days' nor less than 30
days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
11. DEFINITIONS. The terms "vote of a majority of the outstanding
voting securities", "interested persons", "assignment" and "specifically
approved at least annually" shall have the respective meanings specified in, and
shall be construed in a manner consistent with, the 1940 Act, subject, however,
to such exemptions as may be granted by the SEC thereunder.
<PAGE>
12. MISCELLANEOUS.
(a) If any provision of this Agreement becomes or is found to
be invalid by any court having jurisdiction or by any statute, rule or
regulation, the remainder of this Agreement shall not be affected
thereby.
(b) Any notices under this Agreement shall be in writing
addressed and delivered personally (or by telecopy) or mailed
postage-paid, to the other party at such address as such other party
may designate in accordance with this paragraph for the receipt of such
notice. Until further notice to the other party given in accordance
with this paragraph, it is agreed that the address of the Trust and of
the Distributor for this purpose shall be 311 Pike Street, Cincinnati,
Ohio 45202.
(c) Each party will perform such further actions and execute
such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Ohio. The captions in the
Agreement are included for convenience only and in no way define or
delimit any of the provisions hereof or otherwise affect their
construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered in their names on their behalf by the
undersigned, thereunto duly authorized as of the day and year first above
written. The Distributor acknowledges that, under the Trust's Declaration of
Trust, the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of a Fund individually, but bind only the Trust estate.
COUNTRYWIDE INVESTMENT TRUST
By__________________________________
President
TOUCHSTONE SECURITIES, INC.
By__________________________________
President
<PAGE>
Schedule A
Touchstone Investment Trust
As compensation for assuming the expenses and performing the distribution
services enumerated in the Distribution Agreement, Distributor will receive from
Trust, in respect of each investment in the Trust, amounts determined as set
forth below:
For the High Yield Fund
Compensation as a
Amount of Investment % of Investment
-------------------- -------------------
Under $50,000 4.75%
$50,000 but less than $100,000 4.50%
$100,000 but less than $250,000 3.50%
$250,000 but less than $500,000 2.95%
$500,000 but less than $1 million 2.25%
$1 million or more None
In addition, Class A shares and shares of the Short Term Government
Income Fund and the Money Market Fund will each pay a distribution fee to the
Distributor at an annual rate of up to 0.35% of the average daily net assets
attributable to that class (or Fund) in anticipation or as reimbursement for
expenses (other than interest or carrying charges) (i) of compensating Dealers
or other persons for providing personal shareholder services, maintaining
shareholder accounts and providing distribution assistance and (ii) of promoting
the sale of shares of the Funds. The Institutional Government Income Fund will
pay a distribution fee to the Distributor at an annual rate of up to .10% of the
Fund's average daily net assets.
In addition, Class C shares will pay a distribution fee to the
Distributor at an annual rate of up to 0.25% of the average daily net assets
attributable to that class in anticipation or as reimbursement for expenses
(other than interest or carrying charges) (i) of compensating Dealers or other
persons for providing personal shareholder services, maintaining shareholder
accounts and providing distribution assistance and (ii) of promoting the sale of
shares of the Funds.
